Last December, ExxonMobil (XOM +1.78%) announced its plans through 2030. The oil giant believed it could deliver an additional $20 billion in earnings and $30 billion in cash flow by 2030, adding to its industry-leading total. It was an ambitious plan to grow shareholder value.
It turns out that the oil company was actually being a bit conservative. ExxonMobil has recently revised its 2030 plan, positioning it to produce even higher earnings and cash flow. Here's a look at its updated plan and what's fueling its optimism.
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Drilling down into Exxon's updated plan to 2030
ExxonMobil has been working to transform into a company that can fully capitalize on its unique competitive advantages. Its combination of scale, world-class resources, and expertise gave it the building blocks to deliver industry-leading results. The company has focused on leveraging its scale to reduce costs while also investing heavily in its best assets. This strategy is paying big dividends by driving a significant improvement in its profitability. For example, it delivered the highest earnings per share during the third quarter compared to other periods in a similar oil-price environment.
The oil giant expects to grow even more profitable over the coming years. It's raising its 2030 outlook to $25 billion in additional earnings and $35 billion in incremental cash flow compared to last year's level at constant commodity prices and margins. That's a $5 billion increase for both metrics. It puts Exxon on pace to grow its earnings by an average of 13% per year, while delivering double-digit annual cash flow growth. Meanwhile, earnings would grow faster on a per-share basis due to its share repurchase program, which is steadily reducing its outstanding shares.
NYSE: XOM
Key Data Points
ExxonMobil can deliver this meaningful increase without raising its capital spending, which will remain within its original annual target range of $28 billion to $33 billion from 2026 through 2030. As a result, Exxon will produce a massive amount of surplus cash over the coming years. At $65 a barrel, it can produce a cumulative $145 billion in excess cash. That will enable it to continue increasing its dividend, which it has done for 43 consecutive years, a level that fewer than 5% of companies in the S&P 500 have achieved. Additionally, the company plans to repurchase a meaningful amount of its shares each year, including targeting $20 billion in 2026.
What's fueling the improved profitability?
A couple of catalysts are driving Exxon's more optimistic outlook for 2030. The company expects to deliver more than $14 billion of earnings growth from its upstream production business by 2030 at constant prices compared to last year, a $5 billion increase from its prior outlook. The primary driver is stronger growth from its industry-leading position in the Permian Basin. The company is benefiting from proprietary technologies, the continued integration of its Pioneer acquisition, and its scale advantages, which are helping drive additional structural cost savings. Exxon is on track to double its production in the Permian by 2030 from last year's level to 2.5 million barrels of oil equivalent (BOE) per day, a 200,000 BOE per day increase from its prior plan.
Included in its revised upstream earnings forecast is the expectation that the company will capture an additional $2 billion of structural cost savings over the next several years. As a result, Exxon now expects to deliver $20 billion of cumulative cost savings from its 2019 baseline. The oil giant's strategy of simplifying business processes, optimizing supply chains, and modernizing its technology continues to pay off.
Meanwhile, Exxon is maintaining its outlook for its product solutions and lower-carbon energy solutions businesses, where it continues to expect healthy profit growth over the next few years. It's investing in several large-scale projects across these businesses, including those aimed at expanding its production of higher-value fuels, performance chemicals, and lubricants. Additionally, Exxon is investing in new businesses, such as those that support the production of high-value products, including Proxxima (a new high-performance thermoset resin technology) and carbon materials. The company is also building the world's first large-scale, end-to-end carbon capture and storage system along the U.S. Gulf Coast. These and other projects will contribute significantly to its earnings growth over the next few years.
The best just keeps getting better
ExxonMobil has transformed itself into the industry leader in profitability. It expects to be even more profitable by 2030, driven by its large-scale operations, especially in the Permian Basin. That positions the oil company to create even more value for shareholders in the coming years, making it a top oil stock to buy and hold for the long haul.
