Exxon Mobil Stock Rose as It Beat Western Oil Majors’ Earnings With $56 Billion in 2022

Exxon Mobil Stock

Exxon Mobil Stock (NYSE:XOM)

On Tuesday, Exxon Mobil Corp. (NYSE:XOM) announced a net profit of $56 billion for 2022, which works out to roughly $6.3 million per hour and is not only a business record but also an all-time high for the Western oil sector. As result, Exxon Mobil stock surged. 

High prices and surging demand will likely drive oil majors’ total earnings to close to $200 billion this year, a record for a single year. The magnitude of it has reignited criticism of the oil business and prompted proposals for other nations to impose windfall profit taxes on the firms.

When oil reached $142/barrel in 2008, 30% over the previous year’s average, Exxon announced a record net profit of $45.2 billion. This year’s profits have well surpassed that. Last year’s profits would have been far lower if not for the severe budget cutbacks made during the epidemic.

Exxon’s CFO Kathryn Mikells told Reuters, “Overall profits and cash flow were increased dramatically year over year.” That result was a result of “strong markets,” “strong throughput,” “strong production,” and “very outstanding cost management,” as the author puts it.

The company said that the European Union windfall tax that went into effect in the fourth quarter and asset impairments reduced Exxon’s profits by $1.3 billion. The corporation has filed suit against the European Union because the tax is unconstitutional.

The annual profit was $59.1 billion before taxes and other expenses. Oil and gas output rose to 3.8 million bpd, an increase of nearly 100,000 bpd over the previous year. The average estimate for earnings per share was $3.29. Therefore the adjusted profit of $3.40 was higher.

At $114.70, Exxon Mobil stock was up approximately 1%.

Despite lower chemical margins, fewer-than-expected downstream profits, and plans for heavier maintenance activities in refineries this quarter, “it’s a headline beat,” Biraj Borkhataria from RBC Capital wrote in a note.

Windfall Taxes

The outcome might lead to more tensions with the White House. On Friday, the Joe Biden administration criticized the oil industry for putting more money into dividends for shareholders than exploration and production. Over the last year, Exxon paid out $30 billion in cash dividends, more than any of its Western competitors.

Mikells argued that taxes on windfall profits are an “illegal and poor policy.” She argued that imposing more taxes on oil profits would reverse the desired impact by discouraging the exploration and development of new oil and gas reserves.

Exxon reported a dramatic increase in its operating cash flow to $76.7 billion in 2018 from $48.1 billion in 2020. And it has settled on keeping a $30 billion cash reserve. Having been left with nothing and having to resort to borrowing money to pay dividends to shareholders, the corporation claims it has learned its lesson from the epidemic.

Mikells said the firm’s “very strong balance sheet is a competitive advantage for us” since it can wait for future acquisition possibilities and keep its dividend program intact even if energy prices inevitably decline.

As oil prices declined and several facilities were shut down due to cold weather, Exxon reported a net profit excluding charges of $12.8 billion for the fourth quarter, up 44% year over year but down 35% from the previous quarter.

Funding Projects

Last year, Exxon invested $22.7 billion, an increase of 37% from the year before, on new oil and gas projects. The corporation expanded investments in fuel refining and chemicals as well as discoveries in Guyana and the leading U.S. shale resource.

Exxon CEO Darren Woods released a statement in which he credited the company’s “counter-cyclical investments” made before and throughout the epidemic for supplying the energy and goods people needed when economies started rebounding.

According to Woods, this year’s investment potential is as high as $25 billion. Part of the reason is the “really, really high” demand for equipment and services in the Permian, which drives up prices by double digits.

Exxon has predicted that output in the Permian this year would reach 600,000 bpd, an increase of 50,000 bpd over 2017. On the other hand, Woods predicted a continuation of healthy refining profits in 2023.

Featured Image: Unsplash @ Raymond Kotewicz

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About the author: I'm a financial journalist with more than 1.5 years of experience. I have worked for different financial companies and covered stocks listed on ASX, NYSE, NASDAQ, etc. I have a degree in marketing from Bahria University Islamabad Campus (BUIC), Pakistan.