Unveiling the Strategies Behind ExxonMobil's Metamorphosis into a More Lucrative Energy Giant
Unveiling the Strategies Behind ExxonMobil's Metamorphosis into a More Lucrative Energy Giant
Exxon (XOM 0.34%) has come a long way in the last five years, evolving into a significantly profitable enterprise. It demonstrated outstanding profitability during the third quarter, enabling it to offer its shareholders top-notch cash returns in the industry.
During its third-quarter earnings call, CEO Darren Woods disclosed the strategies behind the company's success and its metamorphosis into the most financially successful company in the oil industry.
Bolstering the company's earnings capacity
Woods commenced the third-quarter call by emphasizing that the company reported earnings of $8.6 billion that day, one of its most profitable third quarters in the past decade. This achievement was made during a period when commodity prices weren't particularly high. The average price of Brent oil, the global benchmark, was $80 per barrel during the quarter, a decrease of $5 compared to the second quarter and roughly in the middle of its range over the past decade. Although natural gas prices were higher during the quarter, refining margins were at their lowest point since 2010 to 2019 (a period that the company notes was devoid of significant outliers), while chemical margins were significantly lower than during the same period.
Given the absence of unusually high commodity prices driving the strong quarter, Woods took the opportunity to highlight the company's ongoing transformation. "This quarter's results further demonstrate how our company-wide transformation is enhancing the earnings capacity of the company," he stated.
He then provided a concrete example, focusing on the refining sector:
By year-end 2024, year-to-date earnings in the refining sector are nearly double what they were in the same period of 2019, taking into account constant margins. Across all sectors, we've concentrated on expense reduction, high-profit investments, and strategic divestments to improve profitability, especially in challenging market conditions. This work has fundamentally reshaped our refining sector.
The energy titan has reduced the number of refineries it operates from 45 at the time of Exxon's merger with Mobil to 15 today. However, those 15 are situated in advantageous locations and configurations, enabling the company to greatly enhance its product yield. Additionally, it has eliminated $5 billion in structural costs from this business since 2019.
Further improvements on the horizon
Woods is leading Exxon under a strategic plan aimed at doubling the company's earnings potential from 2019's level by 2027. This plan involves several components, such as:
- Dedicating $22 billion to $27 billion annually through 2027 to high-profit capital projects.
- Investing over $20 billion of this capital into lower-emission projects.
- Capturing $15 billion in structural cost savings.
- Returning substantial cash to shareholders via a rising dividend and a substantial share repurchase program aiming for $20 billion in stock buybacks by 2025.
Exxon also intends to optimize its portfolio by selling less advantageous assets while reinvesting the proceeds into higher-profit opportunities. For example, this year, the company sold non-core properties in the Permian Basin, Argentina, Nigeria, and Malaysia. Conversely, it completed its megamerger with Pioneer Natural Resources, significantly enhancing its core position in the Permian.
This combination of high-profit investment expenses and cost reduction initiatives should enable Exxon to continue boosting its underlying profitability. The company expects to deliver $14 billion in further earnings and cash flow growth from the previous year's level by 2027. Exxon intends to persistently invest heavily in developing its leading upstream assets, driven by the Permian, Brazil, and Guyana, and expanding its footprint in liquefied natural gas. Additionally, it has several projects under construction across its product solutions portfolio that should increase its volumes and margins in the coming years. Finally, Exxon expects to achieve the remaining $3.7 billion of its $15 billion structural cost savings target.
Evolving for the better
Exxon has fundamentally transformed into a far more profitable enterprise by concentrating on allocating capital to its best assets while also streamlining its cost structure. This allowed the energy titan to report one of its most profitable third-quarter performances in the past decade without a substantial boost from commodity prices. With further improvements on the horizon, Exxon should become even more profitable in the future, making it an attractive long-term investment in the oil industry.
Based on the text, here are the two sentences containing the words 'investing', 'money', and 'finance':
- Exxon is dedicating $22 billion to $27 billion annually through 2027 to high-profit capital projects as part of its strategic plan to double its earnings potential by 2027.
- The company also plans to capture $15 billion in structural cost savings and return substantial cash to shareholders via a rising dividend and a substantial share repurchase program aiming for $20 billion in stock buybacks by 2025, which is a significant investment in finance.