Following up on Jad Mouawad's excellent article on Exxon Mobil, Green Is for Sissies, I thought it would be useful to comment on how the "Exxon Way" of discipline, patience, and long-term vision could be put into practice over the next few years to deliver higher returns to their shareholders. Although the article did not provide much strategic insight into Exxon's current investment strategy, it certainly went a long way to explain why a company with $37bln in cash and a pristine balance sheet is sitting on the sidelines while one of the biggest economic opportunities to ever hit the energy sector is beginning to unfold.

This opportunity I am referring to is a chance for Exxon Mobil to use its cash and superior credit rating to enter into the alternative energy space at a time when the credit crisis is making these investments extremely attractive on a rate of return basis.

Indeed, the fact that these opportunities are starting to take shape at a time when Exxon's oil production is declining should give Exxon's investors a reason to be hopeful that the current strategy of using Exxon's oil reserves as an ATM machine isn't the only way forward for the company.  

Exxon's CEO Rex Tillerson claims that Exxon's competitive advantage in a high-priced energy environment has been quite evident. While this was certainly the case when Exxon began shoveling its profits back to its share holders in the form of buybacks and dividends starting in 2003, this $150bln game to cash out on Exxon's reserves is clearly on its last legs.

At the peak of the oil boom this summer when the price of a barrel of oil had risen over 50% on the year, Exxon's stock price was basically unchanged due to concerns that the company's oil production had fallen 8% year over year. If $150/barrel oil prices and $32bln in stock buybacks are not enough to move Exxon's stock price, shareholders should start wondering what it is going to take to make this giant company's stock perform going forward.  

From an opportunity standpoint, while the current crisis is being labeled a household recession, the effects of this downturn on corporations is turning this into a corporate balance sheet recession as well. Companies with the most capital intensive businesses are on the front lines of this slowdown, with GM being only the most visible victim. Alternative energy companies are also under funding pressure as banks struggle to secure their own viability over the coming years. This lack of capital to fund further investments in later stage energy companies is exactly the kind of investments Exxon's CEO has been talking about being agreeable to and Exxon should be making today.

Warren Buffet has remained very "greedy" in terms of his efforts to extract a high rate of return in this environment from his investments and Exxon should be in an even better position than Buffet to exact aggressive terms for their capital investments in alternative energy companies. Private equity and venture capital players are already reeling from the credit crisis, making many excellent opportunities available to Exxon if they so choose.

While Exxon has argued that stock buybacks have been a way to return expensive equity capital to their investors, given the credit opportunities being presented to them in energy space at the current time, their shareholders would be better served by taking that capital and investing it into growth businesses that will offset much of their production declines over the years and decades ahead. Green may be for sissies, but making green isn't and Exxon needs to wake up to that fact. These investments are simply good business, for the sake of Exxon's shareholders as well as for the sake of the planet.