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ExxonMobil’s Growth Strategies to Double Earnings by 2025

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ExxonMobil Corporation XOM has outlined its growth strategy, which intends to more than double earnings and cash flow from operations by 2025 based on current oil prices.

Per the growth plans, the company expects earnings of $31 billion by 2025, up more than 100% from last year’s adjusted profit of $15 billion. The figure does not include the impact of U.S. tax reform and impairments.

ExxonMobil has set capital spending at $24 billion for 2018, $28 billion for 2019 and $30 billion from 2023 to 2025, to meet its target to achieve high growth. However, its peers including Chevron Corporation CVX are cutting down on spending and keeping budgets unchanged.

Darren W. Woods, chairman and chief executive officer of ExxonMobil, also emphasized that the plan estimates double-digit rates of return in all three segments of ExxonMobil’s business — upstream, downstream and chemical.

Upstream Growth Drivers: Guyana and the Permian

ExxonMobil expects to enhance earnings in the upstream sector by initiating various growth programs, including low-cost-of-supply investments in U.S. tight oil, deepwater and liquefied natural gas (LNG). Moreover, ramp up of existing projects and commissioning of around 25 new projects are likely to boost yield to about 5 million oil-equivalent barrels per day (MMBOE/D), up from 4 MMBOE/D. The company proposes to boost tight-oil production by five times from the U.S. Permian Basin. It also intends to increase LNG production to meet the growing demand worldwide.

ExxonMobil’s exploration successes and strategic acquisitions will benefit upstream growth. The testimony to this is the addition of 10 billion oil-equivalent barrels to its resource base in locations including the Permian, Guyana, Mozambique, Papua New Guinea and Brazil, in 2017.

Guyana and the Permian are key drivers of growth in ExxonMobil’s portfolio. In Guyana, the company has added 3.2 billion gross oil equivalent barrels of recoverable resource and plans development and exploration. In the Permian, the company expanded resource base to 9.5 billion oil-equivalent barrels from less than 3 billion in 2016. This was possible mainly because of acquisition of several entities in 2017 along with application of its expertise in technical evaluation and successful delineation. ExxonMobil managed to lower the acquisition cost to just above $1 per oil-equivalent barrel.

The New Mexico acquisition is estimated to hold over 4,800 drilling locations with an average lateral length of more than 12,000 feet. This will facilitate efficiency in execution of Permian volumes growth and enhance growth.

Downstream Growth Backed by Investing in Refineries

The earnings of downstream business of ExxonMobil are expected to increase two fold by 2025. The growth will come through strategic investments that will include upgradation at refineries in Baytown and Beaumont in Texas and Baton Rouge, Louisiana, Rotterdam, Antwerp, Singapore, and Fawley in the U.K. The investments will boost yield of higher-value products — ultra-low sulfur diesel, chemicals feedstocks and basestocks for lubricants. These initiatives will lead the downstream margins to increase 20% through 2025.

The projected demand growth in the emerging markets will support the expansion. ExxonMobil is also venturing into new markets such as Mexico and Indonesia. Moreover, integration with chemical manufacturing and upstream production also support growth.

Chemical Segment to Increase Presence in America & Asia Pacific

In its chemical business, ExxonMobil is likely to increase manufacturing capacity in North America and Asia Pacific by about 40%. The probable growth can be attributed to the addition of 13 new facilities, comprising two world-class steam crackers in the United States. These investments will facilitate the company to meet rising demand in Asia and other emerging markets.

Conclusion

Overall, ExxonMobil’s growth strategy aims to fully leverage competitive advantages to boost shareholder value in three of its world-class businesses. The increased investments are expected to enhance and boost returns on capital employed to about 15% by 2025.

However, many analysts view the long-term goals of ExxonMobil as complex, thanks to the uncertainty in the oil and gas industry over the last few years. Shares of the company dropped 2.5% after the company announced that spending will not enhance near-term production.

Price Performance

During the last three months, ExxonMobil’s shares have lost 10.1% compared with the industry’s 0.8% decline.



Zacks Rank & Key Picks

ExxonMobil carries a Zacks Rank #3 (Hold).

A few better-ranked players in the same sector are Pioneer Natural Resources Company PXD and ConocoPhillips COP. The stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Headquartered at Irving, TX, Pioneer Natural Resources Company is an independent oil and gas exploration and production company. The company delivered an average positive earnings surprise of 66.92% in the preceding four quarters.

ConocoPhillips, based in Houston, TX, is a major global exploration and production (E&P) company. The company delivered a positive earnings surprise of 144.45% in the preceding four quarters.

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