$Exxon Mobil(XOM)$ $Invesco QQQ Trust-ETF(QQQ)$  $DJIA(.DJI)$ $NASDAQ(.IXIC)$  

Exxon Mobil Corporation (XOM) is one of the world’s largest oil & gas companies and operates in the United States as well as most other countries of the world. Its principal business involves exploration and production of crude oil and natural gas, trading, manufacture and marketing of refined petroleum products and petrochemicals. In 2023, total liquids production amounted to around 2.4mmbpd, one of the largest private producers. Including natural gas, total production was around 3.7mmboepd.

Investment Overview

Strong earnings potential and emission-reduction goals in place. XOM retains a very competitive position in the energy industry, with a strong global presence and diversification across multiple segments such as upstream, downstream and low carbon solutions. The company achieved its emission reduction goals of 2025 ahead of schedule in 2021 and further plans were set to be achieved by 2030 to reduce absolute emissions by 20%. XOM is also investing c. US$15 bn over next few years focusing on carbon capture and storage (CCS) and development of other cleaner energy alternatives such as hydrogen and biofuels. XOM accelerated capex in 4Q23, bringing 2023 capex to US$26.3bn, ahead of full-year 2023 guidance of US$23-25bn, implying continued investment in both upstream projects and low carbon solutions.

Low-cost strategy and progress on key projects will drive growth. Structural cost savings has been a key goal for XOM and has enabled XOM to generate much stronger earnings in recent quarters than comparable oil & gas price environments seen back in 2018, for example. We expect this effect to spill over the next few years, bringing more savings to the company, contributing to increased earnings. The company is also invested in the expansion of its recoverable resource in Guyana, increased Permian production and divesting non-core assets to improve efficiency. XOM continues to progress on key projects that will drive future growth, including chemical expansion project and a new lubricants plant to meet increasing demand. The US$4.9bn all-stock acquisition of Denbury will enhance its leadership position in carbon capture. With three major CO2 offtake agreements signed in past year, XOM is making good progress in offering decarbonization solutions to industrial customers.

Pioneer acquisition places ExxonMobil on a firmer footing. The company recently announced its all- stock US$59.5bn acquisition of Pioneer Natural Resources, which will strengthen its position in the Permian Basin once completed. The deal will combine ExxonMobil’s 570,000 net acres in the Delaware and Midland Basins with Pioneer's 856,000 net acres in the Midland Basin, and more than double ExxonMobil’s Permian production to 1.3 million barrels per day, with plans to increase it to 2 million barrels per day by 2027, making it the biggest Permian player. It increases ExxonMobil's exposure to short-cycle, lower cost-of-supply production in the U.S. allowing more flexibility in responding to changes in demand. ExxonMobil has guided for US$2bn in average pre-tax synergies per year over the next decade from the deal, with modest benefits in the first 2 years, but thereafter increasing continuously over the period.

Global presence brings some risks. XOM is exposed to significant macroeconomic risks as earnings depend on the price volatility of crude oil, natural gas and other refinery products. Further, XOM is exposed to significant legal and regulatory risk as energy industry is highly regulated in different jurisdictions across the world.

With oil prices staying elevated and further upside possible from geopolitical tensions globally, we continue to see room for outperformance for XOM, especially after the Pioneer acquisition is completed later this year.

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