ExxonMobil (XOM -2.78%) is working on a bold plan to double its earnings by 2027. The oil giant began working on that strategy in 2019. While it faced a notable speed bump the following year when oil prices crashed during the early days of the pandemic, it's well on its way to delivering on its plan. That could give the energy giant the fuel to produce significant total returns over the coming years.
Here's a closer look at ExxonMobil's corporate plan to grow value for its investors.
Updating an already strong strategy
Exxon recently provided investors with an updated look at its current corporate plan through 2027. The oil giant reiterated that its strategy would more than double its earnings potential from its 2019 baseline by 2027, assuming oil averages $60 per barrel. That's a very conservative oil price outlook, considering crude is currently near $80 a barrel.
The oil and gas company has a two-pronged strategy to drive that earnings growth: cost savings and capital investments. Exxon has already captured $9 billion in structural cost reductions since 2019. It now expects to cut costs by an additional $6 billion by the end of 2027. It's pursuing several opportunities to reduce costs, including leveraging its growing scale to capture additional cost savings and modernizing its information technology systems.
The other big profit growth driver is its capital investment plans. Exxon expects to invest $23 billion to $25 billion on capital projects next year and $22 billion to $27 billion annually from 2025 through 2027. It estimates that these investments will generate an average return of around 30%. The oil company is focusing its capital investment on its highest return opportunities, including growing its production in the Permian Basin and Guyana, expanding its products solutions business, and building out a lower carbon energy solutions platform.
Growing shareholder value
Exxon estimates it can deliver $14 billion of earnings and cash flow growth over the next four years. That works out to a 13% compound annual growth rate for its earnings from its current annualized level, an impressive rate for a company of its massive size.
That positions the oil giant to produce significant surplus cash in the coming years:
Image source: ExxonMobil.
As that slide shows, at $60 oil, Exxon would accumulate $80 billion in excess cash by 2027 after paying its 3.9%-yielding dividend and funding its capital program. That number would balloon to $140 billion if oil averages $80 a barrel (a price point it hit earlier this month).
Exxon plans to use its growing excess cash to buy back more stock. It intends to increase its share repurchase rate to $20 billion annually after it closes its acquisition of Pioneer Natural Resources through 2025, assuming reasonable market conditions. That's an increase from the $17.5 billion in repurchases it expects to complete this year. At that rate, Exxon could buy back all the stock it will issue to acquire Pioneer Natural Resources in as little as three years.
Exxon's growing cash flow also puts it in a strong position to continue growing its dividend. The oil giant increased its payout by 4% earlier this year. That pushed its growth streak to 41 straight years, tops in the oil patch.
The fuel to produce robust total returns
Exxon is in a strong position to produce attractive returns for investors if oil prices cooperate. The company's strategic plan has it on pace to deliver double-digit annual earnings and cash-flow growth through 2027. That should give Exxon the fuel to continue increasing its attractive dividend while buying back a meaningful amount of shares each year. Add its nearly 4%-yielding dividend to the projected 13% annual earnings growth, and Exxon could produce an average total return above 15% over the next few years if oil prices remain around their current level, with significant upside if crude prices head higher. That makes the oil giant look like an enticing investment opportunity these days.
