Exxon Posts Record Annual Profit of $55.7 Billion

Exxon Mobil Corporation (NYSE: XOM) is an American multinational oil and gas corporation headquartered in Irving, Texas. It is the largest direct descendant of John D. Rockefeller's Standard Oil Company, and was formed on November 30, 1999, by the merger of Exxon and Mobil. ExxonMobil's primary business is petroleum and petrochemical exploration and production.

Mobil Corp. had its most profitable year ever last year, thanks to soaring oil prices. This allowed the company to erase billions of dollars in losses incurred during the pandemic and regain its status as one of America’s most prosperous companies.

The largest U.S. oil company reported record annual earnings of $55.7 billion for 2022 on Tuesday, outpacing big banks, tech giants and vaccine makers. Among companies that have reported fourth-quarter earnings, only Apple Inc. has reported higher earnings.

Microsoft and Google are two of the most well-known tech companies in the world. Both companies are leaders in their respective fields, and both have a strong presence in the global market. While Microsoft is known for its software and operating systems, Google is known for its search engine and online services.

So far in fiscal 2022, Amazon's profits have surpassed those of Exxon, and only Google parent Alphabet Inc. is ahead of Amazon in terms of profitability.

According to a Wall Street Journal analysis, is projected to post a higher return.

Exxon's recent financial success is a turnaround from its losses in 2020. After a historic proxy fight with investment firm Engine No. 1, Exxon has been working to improve its finances and strategy. The oil market collapse in 2020 led to Exxon's first annual loss in at least four decades, of more than $22 billion. As a result, Exxon was booted from the Dow Jones Industrial Average that year, after nearly a century in the index. However, Exxon's shares have been slowly recovering, falling by only 55% since then.

Last year, oil and gas prices surged as Russian forces stormed into Ukraine and demand increased as global economies rebounded. U.S. gasoline prices reached a record national average of about $5 a gallon as markets also dealt with the loss of several oil refineries due to the pandemic.

Exxon's stock price rose by about 80% last year, making it the fourth-highest stock-price increase in the S&P 500 index. This is behind oil companies Occidental Petroleum Corp., Hess Corp. and Marathon Petroleum Corp., according to Dow Jones data. Exxon also collected $76.8 billion in cash from its operations, which is behind only Apple and Microsoft so far, according to S&P Global Market Intelligence.

Exxon's CEO, Darren Woods, has said that as long as there are no competitive, lower-emission alternatives to oil and natural gas, the world will continue to need them. He added that moves by some of Exxon's competitors to step back from fossil-fuel investments have given Exxon an opening to invest and develop advantages in its businesses of extracting oil and gas and selling fuels.

"We are not investing enough as an industry in this area, and in a depletion business, we are not keeping up with that depletion," Mr. Woods said during the company's quarterly conference call. "You find yourself in tight markets."

Mr. Woods said that Exxon's net profit margin increased to 14% last year, up from 10% in 2012. He attributed this to the company's focus on its most lucrative projects and its efforts to control production costs.

Mr. Woods has cited the company’s investments in Guyana and the Permian Basin as the company’s growth engines for oil production. Exxon said it boosted output in the Permian and Guyana more than 30% last year.

The company reported that its return on capital employed reached 25% for the year, its highest annual rate since 2012. Additionally, its total shareholder return was 87% last year. Finally, its full-year total revenue rose to $413.7 billion, compared with $285.6 billion in the prior year.

Exxon's fourth quarter profit was $12.8 billion, up from $8.9 billion in the same period the year before. However, the company's earnings-per-share for the quarter were below Wall Street's expectations, at $3.09 a share, compared with an anticipated $3.28 a share, according to FactSet.

Exxon shares fell by around 1% after the company announced its earnings on Tuesday.

Exxon said that it had recorded $1.3 billion in unfavorable identified items due to higher taxes on the oil industry in Europe and asset impairments. However, these impacts were offset by one-time adjustments related to Russia's expropriation of Exxon's stake in the Sakhalin-1 oil-and-gas project.

Exxon, based in Irving, Texas, made more profit than any other company in 2022, including JPMorgan Chase & Co., Johnson & Johnson, and Verizon Communications Inc. Its profit was also larger than the projected earnings of companies like Pfizer Inc., Facebook parent Meta Platforms Inc., and Amazon.com Inc. Amazon made a record $33.4 billion in 2021, but is expected to post an annual loss.

High oil prices have been a boon for U.S. shale companies, pipeline operators and oil-field services firms. Several public oil producers have reported record quarterly generation of free cash flow. The S&P 500 energy sector has outperformed every other segment of the broader index over the past year, rising by about 37%. In contrast, the broader S&P 500 index is down by about 9% since this time last year.

Exxon's annual profit of $55.7 billion last year was more than $10 billion higher than the previous record of $45.2 billion, set in 2008. This is a remarkable feat, and it just goes to show how profitable Exxon is as a company.

Last week, Chevron, Exxon's closest rival, reported historic profits of $35.5 billion for last year. This puts it close behind Exxon and JPMorgan on the list of the most profitable US companies last year, according to the Journal's analysis.

The energy industry has made a remarkable turnaround in the last two years. After a historic downturn in demand in 2020, companies have idled hundreds of drilling rigs, slashed billions in spending, and shut in wells producing millions of barrels of oil a day. Shale companies like Chesapeake Energy Corp. and Whiting Petroleum Corp. have filed for bankruptcy, but the industry as a whole is bouncing back.

Institutional investors have avoided the energy sector for years, but last year's tightening of global energy supplies has led some to recognize the U.S. oil industry's role in keeping global commodity prices stable, said Tomas Ackerman, co-founder and partner at investment firm Carnelian Energy Capital. However, investors continue to feel burned by the poor performance of U.S. oil-and-gas companies over the years, and are still reluctant to invest, he said.

"We haven't seen the generalist investor jump into the energy sector in a big way," said Ackerman. "The performance of Exxon and Chevron reflects what's happening to commodity prices, and the fact that oil prices are elevated because we don't have enough global supply."

However, Mr. Ackerman noted that companies have shifted their priorities to focus on shareholder returns and generating free cash flow. This has made publicly traded energy companies more attractive to institutional investors.

Exxon and Chevron's historic profits have come under fire from the Biden administration. In June, President Biden said Exxon "made more money than God this year," and U.S. officials have accused oil companies of prioritizing shareholder returns over increasing production at a time when American consumers were struggling with high gas prices.

In response, oil companies have highlighted their investments. Exxon Chief Financial Officer Kathryn Mikells said that in 2022, Exxon’s oil-and-gas production rose by 25,000 barrels of oil equivalent a day despite billions in divestitures and the Kremlin’s move to wipe out Exxon’s stake in the Sakhalin-1. Without those changes, the company’s output would have risen by 140,000 barrels of oil equivalent a day, she said.

Exxon's Chief Financial Officer Kathryn Mikells stated that even with the billions of dollars in divestitures and the Kremlin's decision to eliminate Exxon's stake in the Sakhalin-1, the company's oil-and-gas production still rose by 25,000 barrels of oil equivalent a day. She went on to say that if it weren't for those changes, the company's output would have increased by 140,000 barrels of oil equivalent a day.

"It's more important than ever to invest in your business," said Ms. Mikells. "The world needs more supply."