Exxon Mobil, the largest U.S. oil company, surprised analysts and investors by reporting a $36 billion profit for 2023, the highest in its history. The company achieved this feat despite a challenging year for the oil industry, marked by lower prices, geopolitical conflicts, and environmental pressures.
Trading and hedging
One of the main drivers of Exxon’s profit was its trading division, which delivered a $1.1 billion boost to its operating income from its fuels business. The company leveraged its global network and market insights to capitalize on price fluctuations and arbitrage opportunities.
Exxon also hedged its exposure to oil price volatility by locking in favorable contracts and using financial derivatives. This helped the company mitigate the impact of the 7% decline in Brent crude futures in the fourth quarter, compared to the same period in 2022.
Production and exploration
Another factor that boosted Exxon’s bottom line was its increased oil and gas production, especially in its two core areas: the U.S. Permian Basin and Guyana. The company ramped up its drilling activity and added new wells, taking advantage of its low-cost and high-quality resources.
Exxon also expanded its exploration portfolio and made several discoveries, including in Brazil, Cyprus, and Namibia. The company also started producing lithium, a key ingredient for electric vehicle batteries, from its geothermal operations in Indonesia.
Cost and capital discipline
Exxon also improved its profitability by reducing its costs and optimizing its capital spending. The company exceeded its $9 billion cost-cut target by $700 million, thanks to its efficiency and digitization initiatives.
They also maintained a disciplined approach to its capital expenditures, which totaled $26.32 billion in 2023. The company focused on its most profitable and strategic projects, while divesting or impairing some of its less attractive assets, such as its California properties.
Outlook and challenges
Exxon’s CEO Darren Woods said the company closed 2023 on a strong note and entered 2024 in a strong financial position. He also raised the company’s spending target for 2024, as the company prepares for its upcoming projects, such as the acquisition of Pioneer Natural Resources, a major U.S. shale producer.
However, Exxon also faces some challenges and uncertainties in the future, such as the ongoing legal disputes over its climate change disclosures, the regulatory and social pressures to reduce its carbon footprint, and the competition from renewable energy sources.
Despite these headwinds, Exxon remains confident in its ability to deliver value to its shareholders and customers, while also contributing to the global energy transition. The company said it is committed to investing in low-carbon technologies and solutions, such as carbon capture and storage, hydrogen, and biofuels.
Source: Reuters
