Exxon Mobil Has A Blowout Future

Summary

• Investors are expecting a blowout 4Q 2021 for Exxon Mobil given strength in crude oil prices and natural gas prices with a single-digit P/E ratio.
• The company has been feeling confident enough to increase the dividend and start share buybacks.
• The company is in the middle of a transition where it's ramping up production, meaning strong potential, even if prices are lower than current levels.
• Should market prices remain higher than forecast, the company can generate massive shareholder rewards, however, even if they don't, it'll do well.
• I do much more than just articles at The Energy Forum: Members get access to model portfolios, regular updates, a chat room, and more. Learn More »

jetcityimage/iStock Editorial via Getty Images

Exxon Mobil (NYSE: NYSE:XOM) is a large energy company with a market capitalization of ~$270 billion. The company has an almost 6% dividend yield and its 4Q earnings are expected to reach towards $9 billion (a P/E of 7.4) showing the company's financial strength. As we'll see throughout this article, the company has an impressive asset portfolio and the ability to generate substantial cash flow.

Exxon Mobil Shareholder Value

Exxon Mobil is focused on generating strong shareholder rewards from its asset base.

Exxon Mobil Shareholder Value - Exxon Mobil Investor Presentation

Exxon Mobil is focused on delivering shareholder value through several different facets. The company is leading the drive to a lower-carbon future and finding ways to profit in the meantime, as it positions itself at the forefront of carbon capture, a new and rapidly growing industry. The company is working to build a successful low-carbon solutions business.

The company expects to continue delivering on its transition and leading earnings and cash flow growth, as evidenced by forecasts for $9 billion in 4Q 2021 earnings given how strong crude oil prices are. That combined with new supply coming online will mean even higher earnings in upcoming years, highlighting the company's valuable investment thesis.

Exxon Mobil Strong Financial Positioning

Exxon Mobil has an incredibly strong financial positioning as it continues to move its portfolio through a transition.

Exxon Mobil Financial Positioning - Exxon Mobil Investor Presentation

Exxon Mobil expects substantial cost reductions combined with an improved financial positioning will support increased shareholder rewards. The company is starting up Liza Phase 2 in Guyana with a 2022 start-up date leading to >560 thousand barrels/day of production in 2025. The company's Permian outlook is for 700 thousand barrels/day by 2025.

Not only does the company have the ability to accelerate both of these timetables but it's worth highlighting that by no means will the growth of either of these assets "peak" in 2025. The company sees earnings potential of almost $30 billion annually by 2025 at historic 2010-2019 margins plus $60/barrel Brent.

For reference chemicals and downstream margins are in that range currently, with some volatility, but Brent is at $80/barrel and natural gas prices are currently soaring in the markets. That combination means the potential for substantially higher earnings. For reference at current prices, 4Q 2021 earnings are expected to be ~$9 billion of higher than 2025 targets.

The company's debt-to-capital is at the company's target range and the company sees continued room to decrease debt in 2022 showing the strength of its financial position.

Exxon Mobil Asset Portfolio

Briefly discussed above, but driving Exxon Mobil's future shareholder returns is the company's impressive asset portfolio.

Exxon Mobil Asset Portfolio - Exxon Mobil Investor Presentation

Exxon Mobil has, arguably, the strongest asset portfolio in its history. The company's upstream portfolio is cornered by its Guyana and Permian Basin assets. The Guyana resource estimate has recently increased to ~10 billion barrels with new discoveries, and with numerous unexplored areas, we see final resources increasing to 20+ billion barrels.

That means the multiple for a multi-million barrel/day field eventually. The company's Payara plan is on schedule for 2024 start-up, pushing production past 500 thousand barrels/day from the field, and Yellowtail could start soon after. The company's Permian Basin assets are similarly impressive with ~500 thousand barrels/day in production.

The company has recently added new rigs here and at current prices, with a strong system for incremental capacity addition, can continue doing so. We expect it to ramp up production faster than originally planned at current prices. Lastly, the company is continuing to work on downstream and chemical additions where it sees strong additional rewards and double-digit returns.

This is an unparalleled asset portfolio that's expected to form the backbone of returns doubling from 2019-2025.

Exxon Mobil Share Repurchases

Exxon Mobil has the ability to drive significant shareholder rewards, and with its strong cash flow, it's recently turned towards share repurchases.

Exxon Mobil Share Repurchases - Exxon Mobil Investor Presentation

Exxon Mobil has announced plans for share repurchases of $10 billion in the 2022-2023 time frame. The company is starting small with share repurchases equivalent to roughly 2% of its market capitalization each year, however, with share repurchases over those two years equivalent to the company's forecast 4Q 2021 earnings, it definitely has room to ramp up.

The company has also announced it's increasing its dividend, which has been frozen since April 2019 (prior to COVID-19) from $0.87/share/quarter to $0.88/share/quarter. With a yield of almost 6%, this highlights the company's continued ability to payout and afford the dividend. The dividend's cost of $15 billion annualized is plenty affordable for the company.

Going forward we would say shareholders should expect what's an almost guaranteed yield of 7.5% for buybacks + share repurchases. At current valuations with the almost 6% return of repurchases, we could see the company choosing to ramp up share repurchases significantly. It's also worth noting the company plans debt reductions in 2022, another form of returns.

Exxon Mobil Return Potential

Exxon Mobil has the potential to generate substantial shareholder rewards with an exciting portfolio as evidenced by recent return forecasts.

The company's share buybacks + dividends should generate almost 8% alone while generating additional future earnings. The $10 billion for example saves the company almost $600 million in annual dividend expenses, which is definitely nothing to scoff at. The company has significant additional return potential outside of this 8%.

The company is at its target long-term debt range but has indicated an interest to continue improving that in 2022, which should also help with shareholder returns. We'd like to see the company focus on buybacks as long as its share price remains lower. Annualized forecast 4Q 2021 earnings yield is expected to be almost 15% and that could grow significantly.

At current prices, the company's 2025 earnings yield could hit 20-30%. That significant return potential helps to highlight how the company is a valuable investment with the potential for a blowout future.

Thesis Risk

The risk to our thesis is simple. It's crude oil prices. The company, as shown above, has massive potential at current or higher prices. However, there's no guarantee that that'll stay the same at lower prices. The company will struggle more if prices drop significantly. That's a risk worth paying close attention to given historic market volatility.

Conclusion

Exxon Mobil has a unique portfolio of assets and the ability to utilize those assets to generate substantial long-term shareholder rewards. The company is bringing massive new low-cost sources of production online, in the Permian Basin and Guyana, which have margins of >$50/barrel at current crude oil prices. The company is also adding new Permian Basin rigs.

As the company is in the midst of a transformation, analysts believe that its 4Q 2021 annualized earnings will be past its 2025 target. Given its original target for a doubling of earnings from 2019 to 2025, this shows the company's earnings potential in a high price environment, and we expect it to direct those earnings to shareholder rewards making the company a valuable investment.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of XOM either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Comments

[Allocator05]

XOM dividends plus Social Security will be paying all my bills starting next month, February 2022.

I hope [and expect] that XOM is going to raise dividends considerably in the future. I am fine with $0.01 per quarter plus a nice variable quarterly dividend to ensure financial flexibility.

There is some concern that the new directors will exert sufficient pressure on XOM to severely limit dividends by forcing heavy capital allocations toward climate friendly fiascos with questionable returns. I hope that is not what is going to happen, but a question about that diversion is a fair one to put to the BOD.

Maybe it is time for me to put in a call to XOM Investor Relations to voice my concerns.

[DeZe100]

@Allocator05 I have listened to all of the XOM conference calls lately and management has made it clear that they are not going to do what is of concern to you. They have some plans for carbon capture, but nothing meaningful beyond that. Look at their capital spending projections and that may allay your fears.

[pyrotechnic67]

Inre to energy: The ole saying "there ain't no free lunch" is never truer.

[Sklyazo]

'We should put them in jail!' Joe Biden wants to prosecute fossil fuel executives for environmental damage

Woke investor got a Board seat to push XOM to be like European oil companies: that is sell oil assets to buy green energy that you know nothing about. Remember the ConocoPhillips deal anyone with Shell. They sold for cheap money almost $10 B in good quality assets to ConocoPhillips.

[Allocator05]

@Sklyazo
'We should put them in jail!' Joe Biden wants to prosecute fossil fuel executives for environmental damage.

What a crude, reckless statement by "our" president. He is truly STUPID. Can you imagine the damage to the markets if this actually happened. I wonder what laws are on the books to support anything so silly.

It would really be hard to find anyone who would want to be a fossil fuel company executive under those circumstances.

So now the compelling power of ENFORCED GROUPTHINK is being unleashed for all to see. It is political correctness at its absolute worst.

How totally Bolshevik that is!!

[Allocator05]

@Sklyazo When Shell finally realizes what it has done, and continues to do, it will probably be too late.

By then, they will be in "Royal Dutch" with no way out.

[Sklyazo]

@Allocator05 A court in Netherlands is forcing Shell Oil to cut CO2 emissions by 45% by 2030.

per BBC on May 2021, "It is the first time a company has been legally obliged to align its policies with the Paris climate accords, says Friends of the Earth"

Speaking about Paris, the French leader Macron berates the unvaccinated. He alluded to the fact that the unvaccinated are not citizens since they won't do their patriotic duty and get vaxxed.

Does this sound familiar to you when Biden said he is running out of patience with the unvaccinated: When they wanted FEMA to be involved, which means one step closer to camps to isolate citizens. How he follows everything that Europe is doing.

[PT Larry]

Thanks for the article.

[Mountain Marmot]

XOM made my Hall of Fame when they bucked the trend of their competitors and HELD the dividend.

https://youtu.be/00w1HGqyxTM

Disc; long/overweight XOM, RDS.B, CVX, PBR, OGZPY, LUKOY, COP, PSX, BGR, XLE, IEZ

[pcprincipal]

I finally sold XOM now that I finally got back to even. I do not like this sector. All that’s needed is for OPEC to increase production and prices will drop. Capex reduction is a step in the right direction but we are at a pandemic high so is the upside potential that much as this headline implies?

[Fangorn]

@pcprincipal The point is - OPEC are struggle to increase production and might be close to capacity. Capex reduction over the last few years me Supply is tight. And will be for several years.

Only today on OPEC production

”OPEC misses production targets for December, but Saudi cuts pricing”

A survey of OPEC-only production figures was released this morning, showing oil production (NYSEARCA:USO) grew 70kb/d in December, well short of the 253kb/d increase permitted for the OPEC-only Nations (OPEC+, including Russia, Kazakhstan and others, was budgeted for a 400kb/d production increase).

The OPEC "group of 10" - excluding Libya, Iran and Venezuela, which are not bound by a quota - delivered 150kb/d of production growth in December, compared to the 253kb/d budget.

Angola and Nigeria (NYSE:XOM) (NYSE:E) (NYSE:TTE) (NYSE:RDS.A) continue to be the largest source of production misses, with Nigerian production actually falling in December (likely on the back of the Forcados outage); interestingly, Iraq narrowly under-produced the Country's production budget in December, after over-producing in November.

In Venezuela, where the Government claimed production increased to 1mb/d by Christmas, it appears that production in fact increased by ~20kb/d to 640kb/d for the month.

With the bullish thesis that OPEC+ will be unable to meet production targets becoming consensus, and many market participants questioning OPEC's forecast for a surplus crude market in Q1, Saudi actually cut its official selling price (OSP) to Asia this morning, indicating the Kingdom feels the need to offer discounts to benchmark pricing if it hopes to maintain market share in Asia.

With a reliable production survey now out for December, the market focus is likely to shift to Kazakhstan, where ongoing violence threatens the Nation's crude exports (NYSE:CVX).

[BobW333]

@pcprincipal
I thought so as well, and sold oil investments after last year's recovery.
But it seems OPEC can not increase production fast enough to keep up with demand and oil keeps going higher. So I re-entered when it went back on sale.
What to do now? I don't mind holding for the dividend, and I think there's a >50% chance of it going higher. Average target price by analysts is $72.

[pcprincipal]

@BobW333 - I was very oil heavy pre pandemic because it appeared very stable and had solid dividends. But then it collapsed and only now is back to 3/20 levels and that is only on certain stocks. BP, Shell, ET still way down. I’m keeping my eye on it but as a long term investment, I’m wary.

I do think the sector was unfairly punished and you had people like Jim Cramer talking about oil as if they were meth dealers. Now he’s pushing CVX, and a few others, and you have the climate activists pressuring Biden who has the backbone of a jellyfish. Ironically, that has helped curb supply and boost prices.

As for price targets and analysts, they are worthless, but they do cause short term moves until they are wrong and then, always behind the curve, they “revise” their targets.

[Illuminati Investments]

You know "Blowout" has negative connotations in the oil industry, right?

But other than that, I agree.

[Safety Dance]

@Illuminati Investments The industry is blowing up. Everything is really exploding. This industry is on fire. And so forth.

[ziggyzig]

Made my retirement 100%...can't believe my luck to get XOM in the mid 30's

[ziggyzig]

When XOM was at 33......this old timer knew that it was my last swing at a big fat meatball down the middle of the plate.

[xomstock]

@ziggyzig like a dumbass I was banking my dividend because I have too much and wanted the money in the bank but I have over 600 shares shares I bought years ago at that price. But i am happy to see Exxon making a run of sorts. And i have 50k in cash to find some sort of diversity.

[Tadpoles_UK]

@ziggyzig - Buying Exxon in the mid-$30’s was an obvious choice for me, as well. I was happy to take it even while anticipating a dividend cut that never came. Took some profits at $63 recently, and letting the rest ride. Retirement looks a little brighter now.

[nikotyna&kawa]

i put my entire ira in exxon at $32 or so... when so many people on this board were saying how terrible it would be as if 5 billion consumers in the third world were going to be moving towards EVs citing an example of Norway

[GotsToGetMineFirst]

@nikotyna&kawa Long term its still a bad play imo. Short/medium term probably will do well.

[bet727]

@GotsToGetMineFirst Long term, believing in man made global warming is a bad play. Never has man controlled earth's climate.

[BobW333]

EVs won't keep the oil majors from being profitable, especially with oil prices today.

[www65]

Exxon stock just returned to my “buy” price of umpteen years ago - when i bought at $70, as it was supposedly headed to $100 at the time! Thank goodness for the dividend!

[pyrotechnic67]

I wonder if all the $20 an hour and less folks have gotten the memo on EVs. $60,000 ain't no big deal.

[FingBucko]

@pyrotechnic67 EVs are pricey, but so are all NEW vehicles. I dont think we can compare an EV to second hand vehicles directly (and you didnt). But you do suggest most people can not afford them forcing most people look at different transportation options due to the price of an EV. I agree with that. Basically Its those who can afford a NEW vehicle that consider a purchase of an EV. ... and we know NEW vehicles are being sold, in fact there is a shortage of them.

So if NEW vehicles are being purchased by consumers then why not New EVs?

For those looking to purchase a vechicle, Evs are partly a LUXURY item, partly a STATUS item, partly a VALUES purchase, and partly a PRACTICLE purchase because who doesnt like the idea of never buying gasoline again?

The EV market is still has a limited consumer base I agree with you. This base is increasing though as the EV prices come down and we find more and more new homes and apartment buildings offering charging stations and outlets. As well more and more charging stations are offered at many work places.

While true that NEW EVs are out of practicle price range for most early stage familys or younger early career or younger working people, eventually most productive working class or career people will reach a point in their lives where a NEW EV would be obtainable should they wish.

Cheers!

[pyrotechnic67]

@FingBucko OK, so I’ll ask you the same questions I’ve asked before, realistic answers to which I’ve never received. I do get the big, general puffy answers about as use goes up, price comes down, etc. If there are, say, 16MM EVs on the roads, who is going to supply the electricity needed to charge them day and night? And how is that electricity going to be generated? And if I wish to make a 600 mile trip (NOT on a sunny day with the wind at my back and mostly downhill) where are the charging stations, how crowded will they be, and how long am I going to wait for another charge? I can see all the people that have the wherewithal to buy the hugely expensive EV, will also keep a gasoline powered unit as a backup for long trips. LMAO. But the guy with a family pulling down $15 and hour - not so much. Look around you during your daily commutes - how many EVs do you see? I'll patiently wait for some (realistic (I know, that's a tough one.)) answers.

[reasonableinvestor]

@pyrotechnic67 You can use the recent “green mandate” NYC just trotted out as an example. NYC has mandated that (with couple of exceptions including crematoria — the “Cuomo Clause”), no new building will be allowed natural gas hookups. All heat will be electric.

Great, no icky CO2, right?

Wrong.

NYC gets its electricity from New York State (NYS). Some 65% of NYS electricity is produced with natural gas. Burning natural gas to heat a building is fairly efficient, with efficiency approaching 100% for modern systems.

Electric heating can also be very efficient, when you only consider BTU’s out per kWh in. But someone’s got to produce that kWh and run it through a distribution system to you. Producing electricity by running a NG-fired turbine has an efficiency of about 42%. If you capture the waste heat to run a secondary steam turbine (what’s called a “combined-cycle” plant), you can get up to about 60%. NYS fossil plants are “duel-fueled” (meaning when NG is unavailable, they can run on oil, diesel, whatever), which are not combined-cycle units so let’s go with the 42%.Transmission and distribution costs you about 6% of the electricity generated (or, in other words, 94% efficient).

So, for NYC, you’ve eliminated the option to capture every X kilojoule (kJ) of energy produced by combusting NG locally. The electric option means to get the same number of kJ, you have to burn Y amounts of NG, where Y = X / (0.42 * 0.94) or 2.53 times as much natural gas.

It’s freaking insane.

One can argue the NYS generation will get less carbon-intensive over time, but I don’t see NYS adding much new nuclear or hydro power. Wind and solar? Sure. But those are intermittent, low energy density, and so if you want to keep the lights and heat on, you have to keep fossil-fired backers.

Barring a miraculous revision to the laws of thermodynamics (or NYS getting back into nuclear power in a big way), the New York City mandate means new buildings will be nominally 253% more carbon-intensive to use heat than if they were allowed to use NG directly.

[legeraf]

I have been an Exxon shareholder for many years, but have no idea how the company will decarbonise and make a profit as well
The long term politics of global warming will otherwise destroy it

[RyanKC]

@legeraf When I think of all the cars on the road going electric I wonder how our electric generating plants and grid are going to keep up. They're not! And the same people who want electric cars won't allow new power plants. I just don't see hydrocarbons going away anytime soon.

[User 51008808]

@legeraf most people don't even have a garage to plug their EV in much less be able to afford these things. And the grid has no chance!!!

[abcde1]

@legeraf the "decarbonize" scam will run its course and wind up on the ash heap of history, just like the USSR. co2 emissions from burning hydrocarbons do not affect or harm mankind or the earth, and real non-democrat scientists know this. re. WSJ article May 9, 2013 "in defense of carbon dioxide". XOM has been and still is a great investment for the 2020's.

[galicianova]

İ play the Guiana spiel via Hess

[pyrotechnic67]

@galicianova Yep, from the depths of 2020, Hess has had a better runup than XOM.

[BA Man]

I have been very happy about having more than doubled my position in XOM during 2020 & 2021, that was until the past few days. Why didn’t I buy more ? What’s been happening with oil prices recently was so very predictable from something as simple as paying attention to the rig count, which absolutely fell off the cliff.
Long XOM for the duration.

[FedBubble]

Drill baby DRILL! I don't want an electric car. It is a solution for a problem I do not have. No one wants to wait out in the cold at a charging station for even an hour to charge an EV. That is stupid! Just keep your Otto or Diesel Cycle engine powered vehicle, pull up to Exxon or Mobil and fill her up! Takes 5 minutes and with the dividends the stock pays, your fuel is paid for! :)

[FingBucko]

@FedBubble Ive seen people waiting inside thier warm cars while they charge.

[FedBubble]

@FingBucko - real exciting waiting in a car with an electric grid heater discharging the battery while you charge it for an hour to go 70 miles....I am sure there is going to be a great deal of free demand for that in the snowbelt...

[EBIX EBUCKS]

There definitely appears to be a blowout in XOM's future... maybe we should invest in P&G for all of the wipes and diapers that will be needed?

[RLFisherman]

@Blunder Boy I own a fair amount of both and look forward to profiting from that cycle🤓.

[xomstock]

@Blunder Boy There is nothing better than Liberals tears,

[Tulip hoard]

Long and Strong XOM, been on board since my days at XTO. Next stop $80🤑!!!

[Allocator05]

@Tulip hoard I maxed out on my 401(K) contributions at XTO right from the start. The XOM takeover was very good news, and I kept doing that until my retirement in 2021.

I think this issue will do very well, but am not sure at what point I will have to cut my exposure, as it is too heavy at this time.

[pyrotechnic67]

Oil is going to be in our future for a looooong time to come, notwithstanding the morons on WS who insist on putting billions into companies that don't have a product, never mind ones that have made a profit.

[2dogsdad]

@pyrotechnic67 Would those morons also include the morons in DC that told us Solyndra is HAVE TO "investment" for children?
VERY LONG XOM!!!!!!!!!!!!!!!!!!

[ArchRegionalism]

@pyrotechnic67
The morons are the fossil fuel lovers who refuse to face reality.

Why would ANYONE pay more money for energy that harms their kids lungs? Get real, the answer is no one.

Combinations of renewable energy, efficiency, demand response, and battery storage — are increasingly economical compared with new methane gas plants. A recent Rocky Mountain Institute report found that clean energy portfolios are a cheaper option than more than 80 percent of gas plants proposed to enter service by 2030. At least 70 GW of proposed gas plants could be economically avoided with cleaner alternatives, saving $22 billion and 873 million metric tons of CO2 over project lifetimes.

rmi.org/...

Fossil fuels would cost $22 billion more AND 873 million metric tons of CO2 over project litimes
AND incalculable medical costs from the dirty air causing asthma, bronchitis, caner, and heart disease. Actually the US Army Corps of Engineers came up with $0.037/Kwh health cost from methane and oil fuel pollution as benefit of the proposed Cape Wind project (VERY CONSERVATIVE accounting only for super explicit measurable and verifiable costs, such number of extra deaths and hospitalizations on ozone alert days due to ozone pollution.)

What part of the above don't you understand? The extra $22 billion cost? or are you math denier? The extra 873 million metric tons of CO2? or you a catastrophic global climate denier? Or the medical cost? The fossil fuel industry has been subsidised with a free ride on pollution costs and human suffering.

The joyride needs to stop now! No more higher cost for lethal fossil fuel energy, that harms human health and causes catastrophic global climate change. It is time to invest in the energy transition.
Happy New Year 20221

[Ptstanford]

@ArchRegionalism Have you not read the EIA report?
Fossil fuels will grow, and grow and grow, and still in 2050 will be the dominant fuel source in the world. Even coal has a solid future.

[Bjewel]

Watched an interview of General Motors CEO touting the new Chevy Silverado EV at LOS Vegas trade show. She says more than half production by 2025 will be EV, and 100% by 2030. Most lower income people can't ever afford an EV, much less one that doesn't need frequent charging. Only upperclass can afford a 400 mile chargeable EV. And where do you get a charge in the boonies? Who can afford the electricity, and the batteries, and the vehicles? All car makers seem to be deserting us, but maybe we just desert them for the few who hopefully remain to serve us who prefer gas.

[Ptstanford]

@Bjewel I think they are mostly posturing and virtue signaling to keep the Greenies off their backs.

[Tressilian]

@Bjewel The consumer is sovereign. I don't think the crypto-communist in charge can subsidize EVs sufficiently to sell them; they are just too inefficient and inconvenient. GM can always go bankrupt a 2nd time.

[pyrotechnic67]

@Bjewel They're kidding themselves (the car companies and all the people just sure we're all going to be driving EVs). If there are, say, 16MM EVs on the roads, who is going to supply the electricity needed to charge them day and night? And how is that electricity going to be generated? (Crickets chirping). And if I wish to make a 600 mile trip (NOT on a sunny day with the wind at my back and mostly downhill) where are the charging stations, how crowded will they be, and how long am I going to wait for another charge. I can see all the people that have the wherewithal to buy the hugely expensive EV, will also keep a gasoline powered unit as a backup for long trips. LMAO. All the numbskulls that blather on about how EVs are in our future. Look around you during your daily commutes - how many EVs do you see? It's a friggin' joke.