(Note: This article is an updated version, with current data, of an article that was published in my newsletter on April 26, 2022.)
Exxon Mobil (NYSE: XOM) is a large enough company that not much is truly significant at any given time. The company is diversified enough that, to some extent, prices matter. But even oil and gas price variations are somewhat diluted by the upgrades to finished product in the company divisions. Now the company appears to have a project that will materially affect company production.
The Guyana project recently announced three more discoveries. The importance of the steady reporting of more discoveries is hard to understand. A company the size of Exxon Mobil rarely finds a discovery that is material to the future of the company. In this case, that play off the coast of Guyana is looking more and more like that rare find. If that is the case, then Exxon Mobil will have a period of growth that large seldom companies have, just because they are that large.
The company has already reported five discoveries at the start of the new fiscal year. Last year, the company reported a total of six discoveries. That likely means that the pace of exploration (and probably development) is accelerating. Further evidence of this was that the platform under construction that was scheduled for the start of 2024 is now likely to be delivered months earlier in 2023.
More to the point, for a company that reported production of nearly 4 million BOEDs, this project has the potential to represent nearly 10% of total company production by fiscal year 2027 (and maybe sooner). After that, expanding production to double the platforms would likely accelerate the amount of production as a total of the company’s production. The Guyana upstream project is likely to become a very large income producer for the company in the next decade, and the end of growth is not in sight.
The full potential of the growth of this project may not be realized until the exploration gets underway on the other leases shown above that Exxon Mobil has an interest in. The potential size of the project appears to be every bit as big as the company itself was before any production from this project began. There is always the risk that starting tomorrow, there are no more discoveries and the future dims quite a bit. Right now, that appears to be quite unlikely.
Hess Corporation (HES) has mentioned that the partnership has a goal to have four platforms operating sometime in 2025 with total production exceeding 725,000 BOED. Exxon Mobil has the lion’s share of that production. The latest discoveries have updated the reserves to 11 billion BOE.
Those goals may be accelerated to some extent by the currently robust selling price atmosphere. No one predicted anything close to the current prices. If the strong selling prices persist, it may permanently alter the growth of the project in a very positive way. Extra money early in a large project is very important in the compounded growth rate (and hence the rate of return). In this case, the sky-high selling prices are generating a lot of extra money for the partnership. Such a situation provides extra cash flow for more development and exploration than was originally the case.
Right now, the corporation has Liza Phase 1 producing slightly more than planned, while Liza Phase 2 is ramping up. Current selling prices may well allow for an extra $ 50 BOE (very roughly) on potentially 360,000 BOED. That is roughly an extra $ 1.8 million per day over the partnership planning, or potentially an extra $ 162 million per quarter more than planned. That extra money can provide for doing more development wells while still returning some cash to the partners.
That cash may even accelerate the FPSO’s startup dates because there will be cash to do more than one at a time if the currently strong pricing atmosphere persists. The partners can hedge some production to protect cash flow if they feel it is necessary.
The company, however, is not depending solely upon the Guyana project for growth (even though it is likely to be by far the most visible growth project). Instead, the company has several growth project plans.
Exxon Mobil plans to materially increase Permian production every year for the foreseeable future. Like any other investor, there are clear plans to return some cash flow project to the company. But growth in production will remain material.
The company has several of these fairly profitable growth plans that were beginning mostly within the last five years or so. This makes the future of the company 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.
The Guyana project will likely become a material part of the Exxon Mobil growth story in the next few years. The project has some incredibly low breakeven points combined with some currently strong selling prices. Cash flow from the project began in earnest with the startup of the second FPSO.
The partnership projects 4 platforms by 2025. There will probably be enough cash flow by then to assure a platform each year starting up to increase production. Sometime in the second half of the decade, the cash flow project is likely to increase to the point that the project will support the startup of two platforms.
Guyana could easily represent one-third of the total company production by the end of the decade. Under optimistic scenarios, the project could represent one-half or more of company production. That is a very rare find in this industry.
In the meantime, the company is growing other areas of the company. Investors should look for management to accelerate Guyana production growth, as it happens with much of the company’s production at the current time. This could make for a far larger Exxon Mobil in the future than is currently the case at the current time. Investors looking for dividend growth may want to review the prospects here because the dividend could be in for a lot of growth. Any below average yields will not last long here.