ExxonMobil's Ambitious Growth Plan and Shareholder Return Potential

ExxonMobil: A Long-Term Investment Perspective in the Oil Sector

Shares of ExxonMobil (XOM) have fallen approximately 10% from their 52-week high, primarily due to lower oil prices. This decrease coincides with the S&P 500 reaching new all-time highs.

However, despite this current downturn, ExxonMobil's robust growth strategy and the potential for shareholder returns position its stock as an appealing long-term investment.

The Growth Plan to 2030:

ExxonMobil is implementing a bold plan for the future. The company's investment strategy is projected to generate an additional $20 billion in earnings and $30 billion in cash flow by 2030. This translates to a 10% compound annual growth in earnings and an 8% compound annual growth in cash flow over the coming years.

At the core of Exxon's strategy is its plan to invest around $140 billion in major capital projects and its Permian Basin development program over the next few years. Exxon anticipates these projects will yield returns exceeding 30% over their investment lifespan. The company is strategically focusing its capital investments on high-value assets with the lowest costs and highest margins, exemplified by its developments in Guyana, LNG, and the Permian Basin.

The energy company is also investing in various projects to support the expansion of high-margin energy products, including renewable diesel, thermoset resin, and graphite. Furthermore, Exxon is developing lower-carbon energy platforms centered around carbon capture and storage, hydrogen, and lithium. By 2030, Exxon forecasts that these new ventures could contribute $3 billion to its annual earnings, potentially rising to $13 billion by 2040.

Cost Reduction and Efficiency Enhancements:

Another key aspect of Exxon's strategy is its commitment to further reducing structural costs. Since 2019, the company has achieved $13.5 billion in structural cost savings, surpassing the combined total of all other international oil companies. Exxon aims to achieve a total of $18 billion in structural cost savings by 2030 from its 2019 baseline, further bolstering its earnings capacity.

Increasing Cash Returns:

Exxon's large-scale, integrated energy business enables it to generate significant cash flow. The company estimates that it will generate a cumulative $165 billion in surplus cash by 2030, based on an average oil price of $65 per barrel (roughly the current level). This will provide Exxon with more capital to return to shareholders.

The company is already a leader in shareholder returns, distributing $18.4 billion in cash to shareholders in the first half of this year, including $8.6 billion in dividends and $9.8 billion in share repurchases. Exxon is on track to repurchase $20 billion in stock this year and anticipates a similar buyback amount next year, assuming reasonable oil market conditions. The company may repurchase even more shares in future years, especially if market conditions are more favorable than expected.

Exxon should also easily continue to increase its dividend, which has grown for 42 consecutive years – the longest streak in the oil industry. Only 4% of companies in the S&P 500 have achieved this level of annual dividend increases.

Exxon's strong balance sheet provides the flexibility to return its growing free cash flow to shareholders. The company ended the second quarter with $15.7 billion in cash, supporting its ultra-low net leverage ratio of 8%, which is the lowest in the oil industry. This financial strength allows Exxon to continue investing in growing its operations while returning significant cash to shareholders, even if oil prices decline.

A Long-Term Investment Opportunity:

ExxonMobil's share price has declined from its recent peak due to lower oil prices. However, the company's future looks promising. Its 2030 plan positions it to add substantial earnings capacity in the coming years, enabling it to return more cash to investors. This combination of earnings growth and increasing cash returns makes Exxon an attractive long-term investment opportunity.