Exxon Mobil: OPEC+ Driving Earnings Upside (Rating Upgrade)

Core Viewpoint - Exxon Mobil is positioned for strong earnings growth through strategic investments in high-potential production areas like Guyana and the Permian Basin, supported by OPEC+ supply curbs that may positively impact petroleum prices [4][9][18] Group 1: Strategic Focus and Growth Areas - Exxon Mobil is focusing on high-potential upstream assets, particularly in the Permian Basin, which has been a significant growth driver and is expected to contribute over 50% of the company's upstream production by FY 2027 [7][18] - The acquisition of Pioneer Resources is a key move for Exxon Mobil, aimed at doubling production in the Permian Basin, enhancing its growth strategy [5][7] - The company generated 43% of its upstream production from high-potential areas in FY 2023, with plans to increase this percentage significantly in the coming years [7] Group 2: Market Conditions and Price Dynamics - OPEC+ has announced a production cut of 3.7 million barrels per day until the end of FY 2025, which is expected to support higher petroleum prices and benefit Exxon Mobil's earnings [9][18] - Current WTI prices are approximately 26% above the 10-year average, indicating a favorable pricing environment for Exxon Mobil [9] Group 3: Financial Performance and Valuation - In Q1 FY 2024, Exxon Mobil reported $5.7 billion in upstream earnings, a decrease of about 10% from the previous quarter due to falling petroleum and natural gas prices [11] - Despite lower average prices, the company generated $10.1 billion in free cash flow in Q1 FY 2024, an increase of $2.1 billion from the previous quarter [13] - Exxon Mobil's shares are trading at a price-to-earnings ratio of 11.1X, which is slightly above the 3-year average of 9.0X, suggesting potential for upside as earnings expectations may be revised higher [15][16]