Despite weaker market conditions during this period, Exxon still produced robust profits and cash flow. It reported $8.6 billion in earnings and generated $17.6 billion in cash flow from operations in the quarter, which led all international oil companies (IOCs).
Note: Exxon Mobil's FY'23 ended on December 31, 2023. Q3 FY'24 refers to the quarter that ended on September 30, 2024.
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. 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. Notably, the company's business spans across the entire energy sector, including the upstream (oil and natural gas production), midstream (pipelines), and downstream (chemicals and refining) segments.
The geographical diversity of Exxon Mobil's exploration and production (E&P) activities makes it less vulnerable to the regional production uncertainties that plague the industry.
The difference between XOM's reported net revenue and the figures used in our model is primarily because we use core sales revenue (which comes from the sale of hydrocarbons) figures that exclude the revenue it generates from the distribution, processing, and marketing of hydrocarbon and other sources of income.
Crude Oil and Natural Gas Liquids (NGL) production is the most valuable division for the firm for the following reasons:
Proved reserves are 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 flow 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 techniques. 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 $22 billion if the high price environment persists.
It is estimated that a large part of the world's oil reserves has 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 toward 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.
ExxonMobil is currently marketing 14 asset groups in the Permian Basin. It operates eight of those properties and owns non-operated interests in six others. It is important to note that these properties are conventional production assets. These legacy oil and gas assets use a different production technique than the primarily unconventional shale assets Exxon picked up in the Pioneer deal.
Since unconventional assets- those developed with horizontal drilling and hydraulic fracturing -produce more oil and gas than conventional wells, drilling these wells generates higher investment returns. The company will regularly sell noncore assets to maintain a strong balance sheet and recycle capital into higher-returning new investments. the company is also selling its oil and gas assets in Nigeria for $1.3 billion, as well as those it owns in Malaysia.
The biggest headwind Exxon faces is not oil price volatility, it is the global shift toward cleaner energy sources. Although Exxon has been dabbling in clean energy, it has chosen to stick to its oil and natural gas roots. The logic is sound, given that these fuels, despite being volatile commodities, are likely to remain vital energy sources for decades to come. But Exxon's ability to make huge deals gives it a survival edge if it plans to buy a clean energy company in the future.
