BREAKINGVIEWS-Tech isn't the only threat to Exxon's S&P standing

Reuters Middle East

(The authors are Reuters Breakingviews columnists. The opinions expressed are their own.)

By Christopher Swann and Kevin Allison

NEW YORK/CHICAGO, Feb 10 (Reuters Breakingviews) - The rise of technology isn't the only threat to Exxon Mobil's standing in the S&P 500 Index. For the first time in a decade, the oil giant is no longer one of the two largest U.S. firms. Google has gained in market capitalization and is now second only to Apple. But Exxon faces its own pressures too. Soaring capital spending and flat oil prices mean it may have to get used to even lower rankings.

Just five years ago, Exxon's market value of $380 billion made it four times larger than Apple and more than three times the size of Google. But shares in the two tech firms have since climbed at staggering annual compound rates of 40 percent and 29 percent, respectively. Meanwhile Exxon's market cap has scarcely increased.

The company could even shrink, despite a reputation as one of the best-run oil majors. Much of the world's most accessible oil is now out of bounds, locked up by government-controlled oil companies in the Middle East and Latin America. That has forced Exxon and its peers to scavenge for pricey hydrocarbons in remote areas or ocean depths. The result has been a 56 percent surge in Exxon's capital spending over the past four years for a mere 1 percent rise in oil and gas production over the same period.

This wouldn't matter so much if scarce oil were pushing up prices. Instead, innovations in shale drilling have added to the world's available supply, helping to keep prices stable. The production gains in America have been hogged by nimbler independent companies like Continental Resources, which has quadrupled in size over the past five years. If anything, investors currently seem to prefer the idea of Western majors splitting themselves up - even as giants like PetroChina muscle in on the world stage.

Even Exxon's new No. 3 spot may not be set in stone. If today's biggest S&P 500 companies by market value keep growing for the next five years as they have for the past 10, Amazon will nab it. Size isn't everything, of course. But slipping down the ranking could cost Exxon geopolitical clout.

CONTEXT NEWS

- Exxon Mobil lost its position as America's second largest company by market capitalization to Google on Feb. 7.

- The last time the energy company was not among the two biggest companies in the S&P 500 Index was in 2004, according to S&P Capital IQ.

- Exxon was America's largest company every year between 2006 and 2011, data from the index provider shows.

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