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What You Should Know From ExxonMobil's (XOM) Long-Term Plan

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Zacks Equity Research
·4 min read
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Exxon Mobil Corporation XOM recently announced long-term production outlook, with an intention of boosting profits and cash flows. Long-term plans are expected to enable the company to increase dividend payments and reduce debt. It is also planning to commercialize low-emission technologies through carbon capture and storage, which highlight the company’s efforts to abide by the Paris Agreement goals.

Capital Budget

The company estimates 2021 capital budget in the range of $16-$19 billion, which indicates a decline from the 2020 level of $21.4 billion, reflecting a disciplined approach. Notably, capital spending is expected in the range of $20-$25 billion per annum through 2025. Importantly, the energy major anticipates its investments to generate more than 30% returns. Overall investments in carbon capture are expected to rise in the coming days.

Cost Reduction

Moreover, by 2023-end, the company expects to achieve $6 billion per annum in structural savings. Notably, it recently decided to reduce workforce in Singapore by 7% or 300 positions. Moreover, the company is focusing on reducing carbon capture costs to boost emission reduction. Its cost-containment initiatives will likely boost the bottom line. In 2020, the company incurred historic loss amid a dampened energy demand environment due to the coronavirus pandemic.

Production

It has decreased oil and gas production estimate to 3.7 million barrels of oil equivalent per day (MMboe/d) through 2025 from previous expectation of 5 MMBoe/d. This implies that production for the next few years will remain flat with the 2020 level, even though output from the Permian Basin and Guyana will rise.

In the Permian Basin, production is expected to rise to 700,000 boe/d in 2025 from 370,000 boe/d in 2020. The world-class oil discoveries at the Stabroek Block, located off the coast of Guyana, will likely have gross production of 750,000 barrels of oil by 2026. It has Hess Corporation HES and CNOOC Limited as partners in the block. Moreover, the company’s high potential Brazilian deep-water developments will also support production.

Its greater focus on more profitable assets and divesting the less profitable ones will enable it to generate more profits and cash flows, while keeping production essentially flat. Even in the last month, it divested more than $1 billion of U.K. North Sea upstream assets.

Abiding Paris Agreement Goals

The ExxonMobil Low Carbon Solutions business is expected to commercialize different low-emission technologies. Its R&D efforts will likely focus on those sectors of the economy that are responsible for high emissions and difficult to de-carbonize such as power generation and commercial transportation. The company will capture carbon dioxide from industrial activities and inject it into deep geological formations.

Notably, the integrated energy company produces around 1.3 million tons of hydrogen per annum. It is currently developing technologies to reduce the cost of low-carbon hydrogen, and carbon capture and storage processes. The company reduced 2020 methane emissions by 15% and flaring by 25% from 2016 levels. Furthermore, by 2025, it plans to reduce upstream greenhouse gas intensity by 15-20%, which will be backed by a reduction of 40-50% in methane intensity and 35-45% in flaring from 2016 levels. These moves are being undertaken at a time when other major industry peers like Royal Dutch Shell plc RDS.A and BP plc BP are investing heavily in renewable energy sources and for emission reduction.

Price Performance & Zacks Rank

The stock has gained 44.6% in the past six months compared with 31.7% rise of the industry it belongs to. The company currently holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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