Exxon Mobil Stock: Tomorrow Is Fast Approaching (NYSE:XOM)

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(Note: This article is an updated version, with current data, of an article that was published in my newsletter on April 26, 2022.)

Exxon Mobile (NYSE:XOM) is a large enough company that it does not truly significant at any given time. The company is diversified enough that, to some extent, pricing matters. But even oil and gas price swings are diluted somewhat by finished product updates across the company’s divisions. Now, the company appears to have a project that will materially affect the company’s production.

The Guyana project recently announced three more discoveries. The importance of constantly reporting further discoveries is hard to underestimate. A company the size of Exxon Mobil rarely finds a discovery that is relevant to the company’s future. In this case, that game off the coast of Guyana is looking more and more like that rare find. If that’s the case, Exxon Mobil will have a period of growth that big companies rarely have, just because they’re so big.

The company has already released five discoveries at the start of the new fiscal year. Last year, the company reported a total of six discoveries. This likely means that the pace of exploration (and likely development) is accelerating. Further evidence of this was that the under-construction platform that was scheduled for early 2024 will likely be delivered months earlier in 2023.

More precisely, for a company that reported production of nearly 4 million BOEDs, this project has the potential to represent almost 10% of the company’s total production by FY2027 (and perhaps earlier). After that, expanding production to double the platforms would likely accelerate the amount of production as a total of the company’s output. Guyana’s upstream project is likely to become a major income producer for the company over the next decade, and an end to the growth is not in sight.

Hess Corporation presentation of Guyana acreage and discoveries

Hess Corporation Presentation of Guyana Acreage and Discoveries (Hess Corporation May 2022 Investor Presentation)

The full growth potential of this project may not be realized until exploration begins on the other leases shown above in which Exxon Mobil has an interest. The potential size of the project appears to be as large as the company itself was before any production on this project began. There is always the risk that, as of tomorrow, there will be no more discoveries and the future will darken a little. At this point, that seems to be quite unlikely.

Hess Corporation (HES) mentioned that the partnership aims to have four platforms operating by some time in 2025, with total production in excess of 725,000 BOED. Exxon Mobil has most of this production. The latest discoveries have updated the reserves to 11 billion BOE.

These goals may be accelerated to some extent by the currently robust selling price atmosphere. Nobody predicted anything close to current prices. If strong sales prices persist, they can permanently alter the project’s growth in a very positive way. The extra money at the start of a big project is very important in the compound growth rate (and therefore the rate of return). In this case, sky-high selling prices are generating a lot of extra cash for the partnership. Such a situation provides extra cash flow for further development and exploration than was originally the case.

Hess Corporation Production Start Description and Schedule for Sanctioned Projects

Description of Hess Corporation and production start schedule of sanctioned projects (Hess Corporation May 2022, investor presentation)

At the moment, the corporation has Liza Phase 1 producing a little more than planned, while Liza Phase 2 is ramping up. Current selling prices may allow for an extra $50 BOE (give or take) on potentially 360,000 BOED. That’s approximately $1.8 million extra per day over partnership planning, or potentially $162 million extra per quarter more than planned. This extra money can provide more development wells and even return some money to partners.

This money could even accelerate the FPSO launch dates because there will be money to do more than one at a time if the currently strong pricing atmosphere persists. Partners can secure some production to protect cash flow if they feel it is necessary.

Exxon Mobil's Plans for the Permian Project

ExxonMobil Plans for the Permian Project (ExxonMobbil Investor Day Presentation)

The company, however, is not solely dependent on the Guyana project for growth (although this is by far the most visible growth project). Instead, the company has multiple plans for growth projects.

Exxon Mobil plans to significantly increase Permian production every year for the foreseeable future. Like any other investor, there are clear plans to return some cash flow from the project to the company. But production growth will continue to be material.

The company has a number of these very profitable growth plans that have mostly started in the last five years. This makes the company’s future very different from the past, when growth was really negligible. Plans like this will also be very positive for both the stock price and the dividend in the future.

Summary

The Guyana project will likely become a material part of Exxon Mobil’s growth story for years to come. The project has some incredibly low breakeven points combined with some currently strong selling prices. The project’s cash flow began to take hold with the start-up of the second FPSO.

The partnership projects 4 platforms by 2025. There will likely be enough cash flow to secure one platform each year starting to ramp up production. At some point in the second half of the decade, the project’s cash flow will likely increase to the point where the project supports the start of two platforms.

Guyana could easily account for a third of the company’s total output by the end of the decade. In optimistic scenarios, the project may represent half or more of the company’s output. This is very rare to find in this industry.

Meanwhile, the company is growing in other areas of the company. Investors should look to management to accelerate Guyana’s production growth, as with much of the company’s production at the moment. This could result in a much larger Exxon Mobil in the future than it is today. Investors looking for dividend growth might want to review the outlook here, because the dividend can see big growth. Any below-average yields won’t last long here.

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