Despite what many people might think, neither the President nor Congress actually have much (if any) control over the prices you pay at the pump. Most gas stations are independently owned and operated, and competition among the stations sets the prices.
Of course, the biggest influence on gas prices is the price of oil, and there, too, the oil companies have little say. It's a global commodity, and trading on world markets based on supply and demand determines how much a barrel of oil costs. Refining expenses, along with transportation and storage, also play a role. Add in federal and state taxes on top of that and you end up somewhere at the final price for products.
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Yet the oil business can be a lucrative one regardless, and in this environment of rising prices, investors would do well to keep an eye on this sector. Energy stocks were among the best performers in 2021, with exchange-traded funds rising 41%, compared to a 27% gain by the S&P 500. Over the first three months of 2022, they're the top stocks to own once again, up 32% versus a 5% loss by the broad market index.
Below is my top energy stock choice for April, as it has all the tools necessary to remain a big winner for investors.
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Biggest of them all
ExxonMobil (XOM +1.86%) is the largest of the oil giants with a $358 billion valuation and an impressive portfolio of assets that it intends to use for its benefit and the benefit of its shareholders. It just announced its $10 billion Yellowtail project off the coast of Guyana that it's partnered with Hess (HES +0.00%) on, which will add 250,000 barrels per day of oil production through six drill centers and as many as 26 production and 25 injection wells. Exxon owns 45% of the project, Hess 30%.
Exxon's efforts in Guyana have so far discovered a recoverable resource of more than 10 billion oil-equivalent barrels, an especially important point because the discoveries in the South American country possess the highest operating cash margin projects among major prospective locations. It also has some of the lowest scope 1 and 2 carbon emissions per barrel of oil produced. That positions Exxon's Guyana development as one of the greatest growth opportunities anywhere.
That could further pad Exxon's bottom line, which is already poised to produce one of its most profitable quarters in almost a decade. The oil giant says it anticipates the first-quarter profits it declares later this month could reach as much as $11 billion, the most it has reported in well over a decade.
The actual number may be different, as foreign currency exchange rates are not included, and it will be taking a big $4 billion writedown related to severing its ties with Russia following the invasion of Ukraine.
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A broad-based plan
Domestic production is also expected to rise, with Exxon's production in the U.S. Permian basin in Texas forecasted to rise by 25% this year, increasing its output by another 100,000 barrels per day. Last year it boosted output by 100,000 barrels per day as well.
Exxon narrowed its long-range guidance for capital expenditures to $21 billion to $24 billion annually through 2027. By keeping a tight rein over its capital costs, the oil company believes it can continually reduce its break-even costs. It lowered them to $41 per barrel on Brent crude in the fourth quarter, and it expects to drive them lower still going forward, forecasting a $35 per barrel break-even price by 2027.
NYSE: XOM
Key Data Points
CEO Darren Woods told analysts at the time that controlling costs "allows us to bring barrels to market at a very low cost. And that's going to be an important part of the equation, maintaining that low-cost, high-value operation."
Expecting a gusher of profits for years to come
ExxonMobil is very much a global energy stock, with over 75% of its exploration and production profits coming from non-U.S. operations. They also happen to be the largest component of the oil and gas company's total earnings, so domestic policies have a much lower impact on its overall business.
The combination of a robust pipeline of low cost growth prospects and rising energy prices means the moment is still ripe for oil stock investments. With Exxon making its own commitment to buy back $10 billion worth of stock, while maintaining and even raising its dividend, as it has for the past 39 years, ExxonMobil continues to be my top energy stock to buy now.
