announced Thursday that it will be raising its investments in pretty much all areas of its business, perhaps most notably by increasing its stock buyback plan from $30 billion to $50 billion through 2024.
- At the same time, the company said it would increase capital spending on oil and gas operations for 2023 to between $23bn and $25bn, up from about $22bn during 2022.
- That capital spending will focus on projects in the Permian Basin, Guyana, Brazil and the company’s liquefied natural gas ventures.
- That increase will be met by a similar jump in spending on ExxonMobil’s Low Carbon Solutions business segment through 2027, from $15bn to $17bn.
- The oil giant said it expects earnings and cash flow to double by 2027 as a result of its strategic plan.
The management teams U.S. oil and gas producers must perform a balancing act in responding to a wide variety of external pressures: Government, investors, climate change, customers, royalty owners, contractors and many more. All of these stakeholders are going to become dissatisfied due to decisions that are made at various points in time.
The key for management is to develop a strategic plan that responds to the diverse stakeholder priorities while simultaneously maximizing profits. Thursday’s release of its updated strategic plan by ExxonMobil shows a great deal of thought being given to satisfying these pressures.
In the company’s release, CEO Darren Woods said “Our five-year plan is expected to drive leading business outcomes and is a continuation of the path that has delivered industry-leading results in 2022. We view our success as an ‘and’ equation, one in which we can produce the energy and products society needs – and – be a leader in reducing greenhouse gas emissions from our own operations and also those from other companies. The corporate plan we’re laying out today reflects that view, and the results we’ve seen to date demonstrate that we’re on the right course.”
The results have certainly been strong during 2022, as prices for oil and natural gas have remained at high levels throughout the year. ExxonMobil has been one of the top performers amid a general market pullback, as its share price has grown by more than 60% since January.
Like other U.S. shale producers, ExxonMobil has been under pressure by investors to increase returns, and its share buyback program has been one response to that pressure. At the same time, though, U.S. producers have come under rising political pressure from the Biden administration to increase production despite the administration’s program designed to hamper and marginalize the industry as it pursues its climate change agenda.
In October, President Joe Biden slammed oil companies specifically for pursuing their stock buyback programs, saying “My message to the American energy companies is this: You should not be using your profits to buy back stock or for dividends. Not now, not while a war is raging.”
It is fair to note that, as recently as 2019, ExxonMobil projected annual capital spending on its oil and gas operations of between $30bn to $35bn, well above the current plan. But of course, in 2019, the Donald Trump administration was pursuing its “drill, baby, drill” agenda, the COVID-19 pandemic had yet to come about, and the pressure to increase returns by investors was a fraction of what it is today.
It is equally fair to point out that ExxonMobil’s current plan would result in a 14% rise in overall production through 2027 even while engaging in its enhanced stock buyback program. That is quite a robust number in the face of a presidential administration that repeatedly says it wants to put companies like ExxonMobil out of business over the next decade.
No company can ever hope to satisfy all of the people in their stakeholder groups all of the time. The best you can hope for is to produce profits and investor returns so robust that criticism becomes muted, while at the same time holding the politicians at bay. This plan from ExxonMobil certainly meets the first goal, but it will be interesting to see how the politicians respond to the bigger buyback plan.