U.S. oil giant Chevron inked a deal to buy Anadarko Petroleum in April. Although market watchers liked the proposed acquisition, Occidental Petroleum stepped in to spoil the agreement, offering a better one (backed by none other than Warren Buffett). Chevron eventually gave up on the deal, but there's a takeaway that most investors probably didn't notice among all the news flow: ExxonMobil (NYSE:XOM) wasn't even interested in playing.

Turning things around

If you take a surface look at Exxon's business today, the fact that it isn't looking to follow Chevron down the big acquisition path might seem both surprising and obvious. Exxon's production has been falling since 2015, dropping from roughly 4.1 million barrels of oil per day that year to an average of just 3.83 million barrels per day in 2018. That's a roughly 6% drop at a time when many of the company's peers were increasing production.

A man looking down over an energy processing plant

Image source: Getty Images

So from one perspective, Exxon should be looking for ways to get more oil out of the ground -- and what better way to do that quickly than a big acquisition? From another angle, however, Exxon needs to be working internally to get things going in the right direction again.

Which one is right? The latter, because Exxon is well aware of its production issues and has been doing something about the problem. In fact, production appears to have hit an inflection point in the second half of 2018, and is starting to push higher again.

Production was strong again in the first quarter of 2019. What's exciting is that the production reversal is backed by the company's spending in the onshore U.S. market. That's just one of several growth projects that the oil giant has in the works. And, notably, it continues to have a positive outlook for this area. In fact, Exxon believes it can double its production in the Permian Basin even after it completes its current drilling program in that region.

That helps explain why Senior Vice President Jack Williams said during the company's first-quarter conference call:

I would be surprised if over time we did not pick up some more Permian acreage, but I don't know whether that's going to be small bolt-on acquisitions that we pick up over time, I don't know what the timing when it's going to happen or whether it's something more significant, but we don't need to.

A lot more work ahead

The last five words of that quote are the key ones to focus on. Exxon simply doesn't need to do a big deal or get into the middle of a takeover battle. It has plenty of drilling ahead in the onshore U.S. space with the assets it currently owns (which it bolstered in 2017 when it bought $5.6 billion worth of Permian acreage from the Bass family). But that's not the whole story, because Exxon also has a lot of other things in the pipeline too. 

For example, it's working to exploit opportunities in the offshore space and in natural gas. It has notable projects in Guyana, Brazil, and Mozambique, among other regions. And things have been going very well across the board for Exxon so far. For example, between 2018 and 2019 the company increased its expected output from the Permian Basin by two thirds... and it expects to hit the updated goal in 2024, a year earlier than the old target.

In Guyana, Exxon increased its expected production by roughly 70% after strong exploration success in 2018. The increased target will still take until 2025 to reach, but it's hard to complain about the upsized expectations. In Brazil, the oil giant increased the acreage it has to work by roughly 60%, which sets it up for a very bright future. It's one of the largest players in the region, with peers like Shell and BP also looking to expand in this key offshore market.

Key Exxon Goals by 2025 with the Current Asset Portfolio

Earnings grow 40% with oil at $40 per Barrel

Cash flow grows 55% with oil at $40 per Barrel

Return on Capital Employed doubles with oil at $60 per Barrel

Data source: ExxonMobil

Meanwhile, Exxon is also working to expand its downstream (refining and chemicals) operations too. Although these won't increase oil equivalent production, they should add to the company's top and bottom lines over time.

Exxon has plenty to do internally as it looks to improve results in the future, which is why it doesn't need to start looking at acquisitions today just because some of its energy industry peers are doing so. In fact, the oil giant believes it has the "best portfolio of opportunities" since Exxon and Mobil merged.

Don't count Exxon out

That said, Exxon might end up doing some deals. But it's important to note that Exxon doesn't need to make any deals to have a bright future. That gets to a key takeaway from the company's fourth-quarter 2018 conference call. If Exxon does do any buying and selling, it will likely be to upgrade its asset base so it can further improve the already impressive list of opportunities it has lined up.