Exxon Mobil Corporation ($XOM)

We were just noticing in going over earnings releases that good ol' Exxon Mobil is trading at a shareholder yield of 8%. We like doing comparisons over long time frames, and Exxon went into a drawdown in the summer of 2016 that lasted for 6 years on a price basis, until 2022. Let's compare Exxon's results for 2016 and 2023.

In 2016 (10-K), Exxon's upstream segment earned $196 million, the downstream (refining) earned $4.2 billion, and its chemical business earned $4.6 billion. They produced 2.4 million barrels per day of liquids and 4 million BOE/d total. The refinery throughput was 4.3 million barrels per day.

They had 4.2 billion shares outstanding for a market capitalization of about $350 billion, and $81 billion of net liabilities for an enterprise value of $431 billion. Cash from operations was $22 billion and they spent $12.4 billion (net) on capex for a free cash flow of $9.6 billion. (A 2% yield on the enterprise value.)

They paid $12.5 billion in dividends (3.6% yield) and bought back $1 billion of stock, borrowing to pay the difference between the free cash flow and the shareholder returns (which were 3.8% total and not fully earned).

In December 2019, three years later and just prior to covid, shares were about 25% lower. There was a further drawdown with covid.

For 2023 (release), the upstream segment earned $21 billion, the downstream earned $12 billion, the chemicals segment earned $1.6 billion, and specialty products earned $2.7 billion. They produced 2.4 million barrels per day of liquids and 3.7 million BOE/d total. Their refinery throughput was 4.1 million barrels per day.

They now have 4 billion shares outstanding for a market capitalization of $416 billion, and $43 billion of net liabilities for an enterprise value of $459 billion. (Leverage has decreased from 19% of enterprise value in 2016 to only 9% now.) Cash from operations was $55 billion and they spent $21 billion net on capex for a free cash flow of $34 billion. (A 7.4% yield on the enterprise value.)

They paid $15 billion of dividends and bought back $18 billion of stock, which is a shareholder yield of 8% on the current market cap.

So they have kept production and refining capacity flat for seven years, and their earnings per barrel produced and refined have grown significantly. Free cash flow has increased 3.5x but the enterprise value is only 6% higher because of the valuation compression. The FCF/EV yield (valuation) has compressed by almost three-quarters even as the balance sheet has gotten less risky.

The biggest profit center is their non-US upstream. They do not disclose the upstream profits by project, only by U.S. and non-U.S. They are big in offshore, and so far we are finding that offshore is even more front-loaded / inflation protected than the oil sands. They also have an LNG business selling to Asia and Europe. That’s a significant barrier to entry. And again, front loaded cost.  

Exxon is a blue chip so one of the things you wonder is could we see much higher earnings at say $100 oil, plus a revaluation to a shareholder yield of say 4%? That would make it a multibagger, plus an 8% yield along the way.