ExxonMobil (NYSE: XOM) is the 800-pound gorilla in the oil patch. The company simply dominates its peers. That was evident in its industry-leading second-quarter results.
Here’s a closer look at ExxonMobil’s strong second-quarter performance and why its leadership should continue.
Drilling down into Exxon’s second-quarter report
ExxonMobil delivered industry-leading second-quarter earnings of $9.2 billion. Exxon didn’t just earn more money than its peers; it crushed their tallies. Its earnings were nearly double Chevron‘s ($4.7 billion) and several times more than BP‘s ($2.8 billion) and ConocoPhillips‘ ($2.3 billion).
Exxon’s earnings in the second quarter were its highest for that period in over a decade. A big factor is its efforts to “improve the fundamental earnings power of the company,” stated CEO Darren Woods in the second-quarter earnings report.
It has invested heavily in developing high-return, low-cost-of-supply assets like the Permian and Guyana, where it achieved record production (with the Permian getting a boost from its acquisition of Pioneer). That helped push its total oil output to its highest quarterly average since the merger of Exxon and Mobil. The oil giant also achieved record sales of high-value products in its refinery and chemicals businesses.
The company produced robust cash flow ($10.6 billion in cash from operations) and strong free cash flow, enabling Exxon to return an industry-leading amount of cash to shareholders ($9.5 billion in dividends and share repurchases in the quarter). For perspective, Chevron sent its investors $6 billion (split evenly between dividends and repurchases). Meanwhile, ConocoPhillips aims to return a total of $9 billion in cash to its shareholders by the end of this year. Exxon’s dividend outlay alone was $4.3 billion in the second quarter, making it the second-largest dividend payer in the S&P 500.
Just hitting its stride
As good as the second quarter was for Exxon, even better days appear to be ahead for the oil giant. The company closed its needle-moving deal for Pioneer Natural Resources about a month into the second quarter, which helped contribute to the company’s record Permian production. Pioneer contributed 522,000 barrels of oil equivalent production per day (BOE/d) to Exxon’s quarterly total from its two months of ownership. The acquisition also added about $500 million to Exxon’s earnings in the second quarter.
Exxon’s production and earnings from Permian and Pioneer should continue rising as it integrates the acquisition and continues investing in expanding its combined output. Initially, the deal will more than double Exxon’s production in the Permian to an average of 1.3 million BOE/d while helping grow its total to 2 million BOE/d by 2027. That growing high-margin production will add to Exxon’s earnings.
The Permian is only part of Exxon’s story. The company also continues to grow its high-margin offshore Guyana production, which has set another quarterly record. Exxon and its partners continue investing heavily in expanding their production in that region. It recently submitted an application for its seventh development project, Hammerhead, which could add another 120,000 to 180,000 barrels per day by 2029.
Exxon is also investing heavily in expanding its product solution business. It sees its earnings from high-value products growing from $1.3 billion last year to $4.7 billion by 2027 as it expands its volumes from 12.8 million tons annually to over 20 million. The company is also investing heavily in building out several lower-carbon businesses, including carbon capture and storage and hydrogen. Lower-carbon energy could become a meaningful earnings growth driver in the coming years.
Finally, Exxon is working simultaneously to drive down structural operating costs. The company has achieved $10.7 billion of its plan compared to 2019’s level, including an additional $600 million in the second quarter. It expects to deliver another $5 billion in cost savings through the end of 2027 compared to last year’s level.
Exxon’s combination of growing high-margin production, expanding product solutions volumes, lower-carbon energy growth, and cost savings should enable it to earn even more money in the future. That would further extend its lead over its peers and allow the company to return even more cash to shareholders. With the Pioneer deal closed, Exxon plans to ramp up its share repurchase rate to $20 billion annually through 2025 (assuming reasonable market conditions). Meanwhile, it should also continue increasing its dividend, something it has done for more than 40 straight years.
The king of the oil patch
Exxon is the undisputed leader in the oil patch. In the second quarter, it produced the highest earnings in its peer group by a wide margin and delivered industry-leading cash returns. That leadership should continue. Exxon expects its earnings to keep rising, which should give it more cash to return to investors. So, if you want to invest in the oil sector’s leader, Exxon clearly has the crown.
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Matt DiLallo has positions in Chevron and ConocoPhillips. The Motley Fool has positions in and recommends BP and Chevron. The Motley Fool has a disclosure policy.
The Numbers Speak for Themselves: ExxonMobil Is the Top Dog in the Oil Patch. was originally published by The Motley Fool
