Key Points
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Oil prices have surged to more than $100 a barrel this year.
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Exxon could have thrived at $65 oil over the next five years.
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Oil prices have gone hyperbolic this year. Brent oil, the global benchmark price, started the year at around $60 a barrel. It has surged to over $100 a barrel due to the war with Iran.
Higher oil prices are an unexpected windfall for ExxonMobil (NYSE: XOM). Here’s one number that tells you everything about the oil giant right now.
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Last December, ExxonMobil raised its 2030 plan. The oil giant boosted its earnings and cash flow growth estimates by $5 billion for 2030, with no changes to its outlook for commodity prices or capital spending. As a result, it now expects to generate $25 billion in additional annual earnings and $35 billion in cash flow in 2030, compared with 2024 levels, at the same oil prices and margins. That drives Exxon’s forecast that it can produce $145 billion in cumulative surplus cash over the plan period at $65 Brent oil.
The much lower Brent oil price point tells you everything you need to know about ExxonMobil right now. With Brent currently in the triple digits, Exxon is on track to produce an even bigger gusher of surplus cash.
ExxonMobil already has the best balance sheet in the oil patch with an industry-leading leverage ratio of 11%. That supported Exxon’s plan to repurchase $20 billion of shares this year, assuming reasonable market conditions. That was when Brent was closer to $60 a barrel. With it now well above that level, ExxonMobil is printing even more cash. That will further strengthen its fortress balance sheet. The oil giant could also return more cash to shareholders this year by increasing its share repurchase rate. That would further support the oil giant’s ability to grow its dividend, which it has done for an industry-leading 43 straight years.
ExxonMobil’s ability to thrive at $65 oil suggests that triple-digit Brent pricing is a gigantic windfall for the oil giant this year.
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Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
