Tuesday, February 25, 2025
My Favourite Energy Company
D
Darius Dark
Disclaimer: This is in no way financial advice. I am not a financial advisor. Do your own research before making any final decision on investments.
Exxon Mobil Corporation (Ticker: XOM) is one of the largest publicly traded oil and gas companies in the world. Headquartered in Irving, Texas, Exxon Mobil operates across the entire energy value chain, from upstream exploration and production to downstream refining and marketing. The company is also investing heavily in low-carbon technologies, positioning itself for the imminent energy transition.
Despite its dominance in the energy sector, XOM stock has experienced major volatility in recent years, caused by fluctuating oil prices, geopolitical tensions, and the global push toward renewable energy. However, the company has shown resilience, with strong financial performance and strategic initiatives that make it a compelling investment opportunity in my opinion.
Exxon Mobil’s stock price is heavily influenced by external factors, particularly the price of crude oil. After hitting multi-year lows during the COVID-19 pandemic in 2020, oil prices rebounded sharply in 2021 and 2022 due to supply constraints and increased demand as economies reopened. However since then, oil prices have moderated, leading to concerns about the sustainability of Exxon Mobil’s earnings growth
Exxon Mobil’s business model provides stability across the energy value chain. The company’s operations include:
- Upstream: Exploration and production of oil and natural gas, with a focus on high-margin assets such as the Permian Basin and Guyana (both of which are seeing rapid increases in oil production).
- Downstream: Refining and marketing of petroleum products, including gasoline, diesel, and lubricants.
- Chemicals: Production of petrochemicals used in manufacturing, packaging, and consumer goods.
- Low-Carbon Solutions: Investments in carbon capture and storage (CCS), hydrogen, and biofuels to support the energy transition.
This diversification means Exxon Mobil generates fairly consistent cash flows, even during periods of oil price decline.
Exxon Mobil has made significant investments in high-growth areas over the last few years. I fully expect these investments to deliver over the next few years and I see these prospects as essentially guaranteed growth for the company. These prospects are:
- The Stabroek Block offshore Guyana is one of the most promising oil discoveries in recent years, with production expected to exceed 1.2 million barrels/day by 2027.
- The Permian Basin, with low-cost operations and significant reserves, production is expected to hit 1.5M to 2.3M barrels/day by 2027.
- The company also plans to invest $17 billion in low-carbon initiatives through 2027, including CCS projects and hydrogen production.
Exxon Mobil has performed exceptionally well over the last few years considering the oil price volatility we have seen. Revenue is continuously increasing over the long term, despite the cyclicality we have seen there is a clear upwards trend
This holds true for Free Cash Flow and Earnings as well. Combining this with the shareholder returns we have seen and the company looks to be a strong buy for a long term hold.
Exxon Mobil is very committed to returning Free Cash Flow to shareholders through dividends and buybacks. The company has increased its dividend for 40 consecutive years, making it a Dividend Aristocrat. The current dividend yield sits at about 3.7%, which is very good for a company which has so much potential upside over the next few years.
Exxon Mobil also plans to repurchase $20B of its $467B market cap annually, around 4.3% of its current market cap. This is an incredible buyback programme, and I love how it reflects managements commitment to rewarding shareholders. Looking at their shares outstanding over the last 20 years I am certainly impressed. It is an incredible feat to buy shares back so consistently over such a long period of time.
Exxon Mobil’s largest competitive advantage is the size of its operations, which provide cost advantages and operational flexibility newer companies cannot match. They leverage their network to full effect, pushing smaller companies out the market and giving the oil industry an extremely high barrier to entry
They also invest heavily in technology, such as advanced drilling techniques and CCS, giving it an edge over competitors who cannot compete without significant investment upfront in order to stay on the cutting edge of technology.
The largest risk is obviously potential oil price volatility. A sustained decline in oil prices could negatively impact Exxon Mobil’s revenue and profitability. With the number of geopolitical risks at recent highs, oil price is prone to large and sudden fluctuations which are unattractive to many investors.
The shift toward renewable energy could reduce demand for fossil fuels over the long term, eroding the largest revenue stream Exxon currently has. That being said, President Trump’s statement ‘Drill Baby Drill’ suggests the USA is will not begin moving away from oil at least for the next four years,
Exxon Mobil is a well-managed company with a strong balance sheet, robust cash flow trends, and a commitment to shareholder returns. While the energy sector faces challenges, Exxon Mobil’s strategic investments and operational excellence position it for long-term success.
At its current valuation, the stock appears appealing in wake of the next big energy cycle to both value and income investors. Growth has outperformed value over the last decade, but with the US market looking more overvalued day by day, XOM certainly seems attractive. With all this in mind it looks to be a solid buy, but only if a slow growing, shareholder return-heavy business fits in with your investment strategy.
Thank you for reading and have a great day!