With benchmark prices continuing with their month-long rally in January, the shares of American oil companies have been on a rise.
The average crude oil production price realization by Exxon Mobil has ranged from $45/bbl in 2015, $38/bbl in 2016, $48/bbl in 2017, $62/bbl in 2018 to $56/bbl in 2019. Thus, cash flows from operations ranged from $22 billion in 2016 to $36 billion in 2018.
In Q1 2022, the company reported $54.3 billion in revenues, a 70% (y-o-y) increase - pushed by benchmark prices and transportation demand.
In May 2020, the OPEC and allied nations slashed 10% of global supply (around 9.7 mb/d) due to low demand. Currently, the cartel is increasing production by 0.4 mb/d on a monthly basis until the 5.8 mb/d curtailment gets phased out. Given high benchmark prices, Upstream companies are increasing capital spending.
Exxon Mobil is also committed to maintaining a strong balance sheet and returning capital to shareholders in the coming years. Despite an uncertain demand-supply environment, the company’s 2021 results got a boost from high benchmark prices, assisting deleveraging plans.
Despite the coronavirus pandemic causing a paradigm shift for policymakers by reviving their focus on non-conventional sources, Exxon Mobil’s future cash flows remain highly dependent on crude oil prices as well as high return upstream investments.
Below are key drivers of Exxon's value that present opportunities for upside or downside to the current Trefis price estimate for Exxon Mobil:
For additional details, select a driver above or select a division from the interactive Trefis split for Exxon Mobil at the top of the page.
Exxon Mobil Corporation (XOM) is the largest of the vertically integrated oil majors, as well as the largest publicly-traded corporation in the world by revenue. It was created on November 30, 1999, by the merger of Exxon and Mobil. The company has several divisions and hundreds of affiliates, including Exxon Mobil, Exxon, Esso, and Mobil.
The firm generates the majority of its income from liquid and natural gas sales, with earnings of $23 billion in 2021. The geographical diversity of Exxon Mobil's exploration and production (E&P) activities make it less vulnerable to the regional production uncertainties that plague the industry. The company is also an international leader in the downstream refining industry with over 5,000 owned/leased retail stations and 4.5 million barrels per day of refining capacity at the end of 2021.
Crude Oil and Natural Gas Liquids (NGL) production is the most valuable division for the firm for the following reasons:
Proved reserves is an extremely critical metric for an oil and gas exploration and production company. It represents the total quantity of technically and economically recoverable oil and gas reserves owned by the company at a given point in time. It directly impacts the company's production growth outlook. At the end of 2021, Exxon Mobil's total proved reserves stood at over 18.5 billion oil-equivalent barrels. This equates to 5 years of reserve life at last year's average production rate. These reserves are evenly distributed between liquids and natural gas, and represent a diverse and global portfolio.
Exxon Mobil is the world's largest public integrated oil and gas company by market capitalization. According to our estimates, on average, the company generates around 40% of its total free cash flows from downstream refining and chemicals operations. These relatively stable streams of cash flows partially insulate the company from the volatility in global crude oil prices. Because of its integrated business model, the company is able to fund its long-term, capital-intensive upstream projects even during commodity down cycles.
While Exxon’s total hydrocarbon production has remained relatively flat over the last decade, its capital expenditures have soared from around $17.62 billion in 2005 to over $30.86 billion in 2015. However, the capex declined to $12 billion in 2021 with the improvement in drilling technologies and horizontal drilling technique. Various oil companies have embarked on different projects to extract oil such as deepwater, gas to liquids (GTL), oil sands, etc. This has led to longer development timelines which have, in turn, resulted in higher costs. Going forward, the company aims to retain its capital investment of around $25 billion if the high price environment persists.
It is estimated that a large part of the world's oil reserves have already been discovered. Recent statistics have indicated that global consumption has been outpacing reserve additions. Peak oil is a commonly used term to describe the point at which world oil output will reach a maximum and decline afterward.
However, many institutions such as the International Energy Agency (IEA) believe that peak oil will not occur for another 25 years at the very least. Many governments across the world are promoting alternative energy measures to ensure that the supply and demand of energy will be met at all times to come.
Due to limited underlying growth in product demand, there has been an increase in recent years towards increasing the complexity of refineries rather than expanding capacity. In the U.S., no new refineries have been built since 1980, however, improvements in process design and technology have seen capacity increase by around 1% per year.
The early refineries that were established were mainly used to process light sweet crude resulting in an increase in demand for light sweet crude. As a result of higher oil prices in recent times, heavy crude oil is becoming more economically attractive. In addition, the interest in the development of new cost-effective methods for extracting and transporting heavy crude oil for refining into valuable light and middle distillate fuels is also increasing.