ExxonMobil (XOM 3.65%) launched an ambitious strategy in 2018 to more than double its earnings and cash flow by 2025, assuming similar commodity prices. The multipronged plan would see the oil company invest in its highest-return projects, enhance its portfolio, and reduce costs. That plan is turning it into a moneymaking machine.
The oil company's successful execution of its long-term strategic plan was evident last year. ExxonMobil has already more than doubled its earnings from 2019's baseline. And as CEO Darren Woods made clear on the company's fourth-quarter earnings conference call, it expects its profits to continue rising.
NYSE: XOM
Key Data Points
A year of excellence
Last year was a more challenging period for the oil market. Oil and gas prices came down from their war-fueled highs of 2022. Because of that, energy companies like ExxonMobil didn't make as much money in 2023.
However, that shouldn't diminish the fact that 2023 was an excellent year for ExxonMobil. Woods said on the call:
Results are clear. By any measure, 2023 was an outstanding year. We delivered $36 billion of earnings, strong cash flows, and a 15% return on capital employed.
Woods pointed out that the execution of its 2018 strategy helped it deliver industry-leading results across many metrics. "On a constant-price basis, we more than doubled earnings in 2023 versus 2019, demonstrating the improved earnings power of the company," he said.
It has improved its earnings power by building a high-grade portfolio through organic investment in its best assets, enhancing those positions through acquisitions, and selling lower-quality assets while also focusing on cutting costs. Last year, Exxon:
- Invested $26.3 billion in high-return capital projects. That exceeded the high end of its guidance range because the company opportunistically accelerated activities in two of its best assets (in the Permian Basin and Guyana) while entering a new high-growth business (lithium).
- Sold $4.1 billion of non-core assets.
- Acquired Denbury Resources to speed up its decarbonization initiatives while agreeing to buy Pioneer Natural Resources to enhance its position in the Permian Basin.
- Achieved $9.7 billion in cumulative structural cost savings compared to 2019's level by capturing another $2.3 billion of cost savings last year. That exceeded its target of achieving $9 billion of structural cost savings by the end of 2023.
The company's organic investments, its activities to create a high-grade portfolio, and its cost savings put it in position to make more money in 2024 and beyond at last year's pricing levels. By enhancing its earnings power, Exxon will help further cushion the blow if oil prices decline, while improving its ability to capture the upside of higher prices in the future.
Advancing toward a big year
A key aspect of Exxon's strategy is its investments in major capital projects. Since 2018, the company has completed $30 billion of major strategic projects on budget and ahead of schedule.
Notable projects included several phases of offshore development in Guyana, petrochemical plant expansions, and refinery projects. These investments should deliver more than $5 billion in incremental earnings this year compared to 2019's level.
Exxon is currently building its next wave of projects that will come on line next year:
Image source: ExxonMobil.
The company plans to invest $23 billion to $25 billion on those and other capital projects this year, which will help fuel earnings and cash flow growth over the next few years.
In addition to those projects, it expects to close its $64.5 billion acquisition of Pioneer Natural Resources in the second quarter. That deal will more than double its production in the low-cost Permian Basin to 1.3 million barrels of oil equivalent per day (BOE/d). Meanwhile, the acquisition will enhance Exxon's growth in that low-cost region, where it expects its production to reach 2 million BOE/d by 2027.
Exxon also continues to advance its cost-cutting. It now expects to deliver a cumulative $15 billion in structural cost savings by 2027. That suggests it's on track to increase its earnings by nearly $6 billion over the next few years on cost savings alone.
Add in capital projects and the Pioneer acquisition, and Exxon expects its earnings to improve by more than $14 billion over the next four years on a basis of constant oil prices. That enhanced earnings power will also further insulate it from weaker commodity prices while improving its ability to cash in on higher prices.
Becoming much more profitable
ExxonMobil has been steadily executing a plan to significantly improve its earnings and cash flow. That strategy is starting to pay off, with the company making lots of money even in a weaker oil market.
It expects even more earnings in the future as it continues delivering against its strategic goals. That makes it compelling for those seeking to make money in the oil patch.
