ExxonMobil (XOM +0.34%) recently reported rather lackluster first-quarter earnings. The oil giant's adjusted earnings declined by 29% to $8.2 billion, or $2.06 per share. That fell a bit short of the analysts' consensus estimate of $2.19 per share. The energy giant battled headwinds from lower natural gas prices and refining margins.
However, while the first quarter was a little underwhelming, ExxonMobil's future remains bright. Here's a closer look at the energy giant's recent quarterly results and why investors shouldn't miss the forest for the trees.
NYSE: XOM
Key Data Points
Drilling down into ExxonMobil's first-quarter earnings results
Exxon's earnings declined from the fourth quarter and the year-ago period, down over $1.7 billion and $3.4 billion, respectively. However, it was going up against challenging comparable periods as natural gas had been well above its historical averages:
Image source: ExxonMobil.
Natural gas has since moved back to a more normal level. The company also went up against a tough comparable period for refining margins, which were well above the historical average in the year-ago period.
Viewed through this lens, "We delivered a strong quarter," commented CEO Darren Woods in the earnings press release. He noted that the company saw "continued growth in advantaged assets, such as Guyana, where production continues at higher-than-expected levels." The company and its partners achieved gross quarterly production of over 600,000 barrels of oil equivalent per day (BOE/d) in Guyana, powered in part by the recently completed Payara development reaching its nameplate capacity ahead of schedule. They also approved their sixth major development project and continued discovering more oil.
Exxon's product solution business also delivered a strong performance. It grew its performance chemicals sales volumes and delivered record first-quarter refining throughput.
A bright future awaits the oil giant
CEO Darren Woods commented in the first quarter earnings press release, "We're making great progress on our plans to grow the earnings power of our existing businesses from investments in advantaged assets and higher-value products and further reduce structural costs." The company spent nearly $6 billion on capital and exploration projects in the quarter. Those investments will drive high-margin production growth in areas like Guyana, Brazil, the Permian Basin, and LNG while increasing earnings from its product solutions. Meanwhile, it has now reached $10.1 billion of structural cost savings after capturing an additional $400 million in the first quarter. It expects to deliver $15 billion of cumulative cost savings through 2027.
ExxonMobil expects its strategy to continue paying off for shareholders. That's driving it to continue investing in its advantaged assets. The company and its partners recently approved the development of Whiptail in Guyana. The project will add about 250,000 BOE/d of capacity when it starts up in 2027. Exxon and its partners also remain on track to complete Yellowtail next year and Uaru in 2026.
The company is also investing heavily in the Permian Basin. It has a potentially massive growth catalyst on the horizon from its pending $64.5 billion acquisition of Pioneer Natural Resources. Adding Pioneer would more than double Exxon's output in the region to 1.3 million BOE/d. Meanwhile, it will give it the fuel to grow its production to 2 million BOE/d by 2027.
Exxon's strategy has it on track to more than double its earnings by 2027 from its 2019 base level. It's roughly halfway there.
The company's growing earnings will enable it to return even more cash to shareholders. Exxon distributed $6.8 billion in the first quarter, paying $3.8 billion in dividends and repurchasing $3 billion of shares. Exxon had to briefly pause share repurchases during the period because of its pending Pioneer acquisition. However, after closing that deal, it expects to accelerate the buyback to a $20 billion annual pace. In addition, it should be able to continue increasing its dividend, which it has done for a peer-leading 41 straight years.
A top-tier oil stock
Exxon's earnings came in a little light during the first quarter due to lower natural gas prices and refining margins. However, the oil giant's future remains bright. Its investment and cost-savings strategy should help fuel an additional 50% of earnings growth over the next few years compared to its 2019 baseline. That should give Exxon more money to return to shareholders through a growing dividend and meaningful repurchase program. Add in its elite, cash-rich balance sheet, and Exxon is one of the lowest-risk ways to invest in the energy sector these days.
