ExxonMobil (XOM -2.78%) earned an impressive $9.1 billion in the third quarter. That was up from $7.9 billion in the second quarter as the company feasted on higher oil prices. Meanwhile, cash flow was even higher at $16 billion, a whopping $6.6 billion increase from the last quarter.
As strong as the third quarter was, even better days could be ahead for the oil giant. Here's a closer look at the quarter and what's in store for ExxonMobil investors.
A gusher of a quarter
ExxonMobil expected that higher oil prices would boost its upstream earnings by more than $1 billion in the third quarter, which is what happened:
Image source: ExxonMobil.
As that slide shows, higher prices added nearly $1.5 billion to its upstream earnings in the quarter. Exxon realized $80.45 per barrel of oil sold in the U.S. during the quarter, up from $71.36 per barrel in the second quarter. The company also benefited from higher volumes. Exxon added nearly 80,000 barrels of oil equivalent per day (BOE/d) to its global supply base during the quarter, driven by growth in three core high-margin focus areas: Permian, Guyana, and LNG. This increase in higher-margin production helped add another $170 million to its bottom line in the period.
Exxon also delivered strong results in its energy products business, where earnings grew from $2.3 billion to nearly $2.5 billion. The company achieved its best-ever third-quarter global refinery throughput at 4.2 million barrels per day. That helped offset weaker chemical margins and unfavorable hedging impacts.
Meanwhile, Exxon's cash flow was even more robust at $16 billion, an impressive $6.6 billion increase from last quarter. The oil giant also produced $11.7 billion of free cash flow, up $6.7 billion from the previous quarter.
The company returned most of this windfall to shareholders. It paid $3.7 billion in dividends and repurchased $4.4 billion in shares. That brought its 2023 repurchases to $13.2 billion, putting the oil giant on pace to buy back $17.5 billion this year. Meanwhile, Exxon announced a 4% dividend increase. That extends the company's streak to 41 straight years of increasing its dividend, the longest in the oil patch.
Even with all these cash returns, Exxon's cash balance increased by $3.4 billion to $33 billion. That gives it an ultra-low net debt-to-capital ratio of 4%.
Enhancing its ability to cash in on crude
Exxon's investments to grow its high-margin production in places like the Permian Basin have enhanced its ability to generate free cash flow. The company recently made a bold move to supersize its position in that low-cost region by agreeing to a megadeal for Pioneer Natural Resources (PXD -2.28%) valued at more than $60 billion.
The transformational transaction will more than double Exxon's footprint in the Permian Basin. It will also more than double the company's production volumes from that high-margin region to 1.3 million BOE/d. Exxon envisions growing its output to 2 million BOE/d by 2027. Given its greater scale, Exxon's investments to grow its output to that level should earn even higher returns.
Exxon has also recently made a bold move to enhance its lower-carbon oil business by agreeing to acquire Denbury Resources (DEN) for nearly $5 billion. The deal won't add a lot of oil production (Denbury produces about 50,000 BOE/d). However, it will significantly enhance Exxon's carbon capture, sequestration, and utilization platform. Denbury has a leading carbon dioxide pipeline business. It will enable Exxon to provide large-scale emissions reduction services to industrial customers. Exxon believes that its decarbonization services platform could eventually become a meaningful generator of stable revenue and cash flow. It could also help extend the life of its legacy oil business.
Enhancing its ability to cash in on crude
Exxon delivered strong third-quarter results, fueled mainly by higher oil prices. The company continues putting itself in a better position to capitalize on rising oil prices by growing its production in high-margin regions through drilling and acquisition. Its megadeal for Pioneer will put it in an even stronger position to generate free cash in the future. Meanwhile, its Denbury deal enhances its ability to capture the potentially lucrative decarbonization market. They bolster the oil giant's long-term investment thesis, making it a potentially more attractive investment opportunity.
