Exxon Mobil (NYSE: XOM) shares are down nearly 20% from a 52-week high, and its dividend yield is now back above 4%.With a constant focus on shareholder returns and an ever-improving portfolio assets, company’s Recent potential earnings blowoutdemonstrating its continued ability to drive shareholder returns.
ExxonMobil Q2 2022 Earnings
ExxonMobil announced incredible earnings potential for the second quarter of 2022, supported by strong margins.
The company highlighted guidance for a $5.3 billion rise in refining profit at the midpoint, which includes unsettled derivatives, and upstream profits driving about $2.9 billion at the midpoint. This represents an earnings growth of $8.2 billion sequentially, or $17 billion in Q2 2022, pushing the company’s annualized earnings to nearly $70 billion, or a price-to-earnings ratio of about 5.
There’s no denying it was a blowout quarter for the company. If you’ve been wondering the last time gasoline prices were above $100/bbl, gasoline prices continued to fall, then this difference will (mostly) affect those refining margins. The performance of integrated oil-producing companies that control every step of the value chain is incredible.
At the end of the day, putting it all together, not only is the company expected to have a blowout quarter, but at least moderate to strong performance over the next few quarters.
ExxonMobil Carbon Capture and Storage
ExxonMobil is looking to rapidly expand its carbon capture and storage program as it looks to become a world leader in the industry.
In the past two weeks, ExxonMobil has announced just four new carbon capture and storage projects. The company is striving to become the world leader in carbon capture and storage, which it sees as a total market opportunity of $4 trillion by 2050. The company currently has some of its largest operations here and is looking to grow significantly.
The Gulf Coast region, where the company has a substantial presence, represents a potential source of enormous opportunity here. This is important because CO2 capture costs rise sharply with increasing density. At 95+% CO2, the company can complete the entire CCS process at $75/t. At <=1%, this becomes over $600. In the long run, the company hopes to get a price of $50-100/ton.
Carbon capture is part of the solution to climate change, but it’s an important part, and it’s the part where we actually have the scale to have a big impact. What happens remains to be seen, but the company’s capital spending is rapidly expanding from nearly $2 billion a year today to nearly $4 billion by 2027. The company expects this to bring in billions of dollars in additional revenue.
ExxonMobil has an incredibly strong portfolio of assets for continued growth and returns.
Exxon is investing heavily in its business, and the Permian Basin is one of the company’s strongest and cheapest sources of business growth. The company expects production to exceed 800,000 b/d in 2027, nearly double current levels, and we could see it grow even faster.
In Guyana, the company is adding one FPSO/yr, each producing more than 200,000 b/d, for which it has a 45% stake. The company’s stake adds roughly 100,000 barrels per day of production per FPSO. By 2027, production is expected to reach almost 1.5 million b/d and we could see it reach 20-30 thousand b/d.
The company has been sticking with billions of dollars’ worth of capital spending over the past few years to fuel growth across all of its business areas as other companies cut spending.
The chart above shows how a company’s earnings can increase without changing actions. Lower costs and faster growth mean that its revenue can increase significantly by 2025 without other changes. This means that not only will the bull market continue, but improvements in other parts of the company will also increase overall profits.
ExxonMobil’s unrivaled assets here make it a worthwhile investment.
ExxonMobil shareholder return potential
ExxonMobil recently significantly increased its share repurchase program to $30 billion by the end of 2023, but it looks like the company’s earnings in the second quarter of 2022 will be enough to cover more than half of that. That means the company can easily buy back 10% of its shares by the end of the year, giving it room to expand its buyback program.
The company has significantly reduced debt, so its overall financial portfolio is quite strong.
ExxonMobil has the potential to become an FCF giant. At $60 a barrel for Brent, the company should earn nearly $200 billion in free cash flow, and at $50 a barrel, it’s still expected to be around $165 billion. At current Brent prices, that’s expected to be close to $400 billion or more than the company’s entire current market capitalization.
If prices don’t change, the company could pay dividends and complete the entire share repurchase program in 2022. Debt repayments will allow the company to significantly reduce its interest expense. No matter how the company spends its money, the potential for major shareholder returns is clear.
The biggest risk to the company’s paper is oil prices. As the chart above shows, the company is profitable at around $50/barrel for Brent. We expect prices to stay comfortably above this level through 2026, however, below this level, things start to change. If the price stays below that price for an extended period, the company will be a worse investment.
It’s a risk we’re willing to take, but it’s worth watching closely as oil prices fluctuate.
ExxonMobil has a unique portfolio of assets. The company is growing rapidly, and at current prices, it’s a profitable machine. The company saw strong financial results across all of its business segments, given strong profits in the refining market. The company’s second-quarter 2022 earnings forecast shows a price-to-earnings ratio of around 5.
The company has the ability to repurchase nearly 10% of its outstanding shares, and we expect it to take advantage of recent market weakness. The company’s dividend has now risen back above 4%, and the company is protecting its longevity with CCS investments. We believe this combination makes the company a worthwhile investment.