ExxonMobil Continues to Prove It's the Best-Run Company in the Oil Patch

ExxonMobil (NYSE: XOM) is the 800-pound gorilla in the oil sector. It's not only the industry's biggest company by market capitalization (over $450 billion), but also the leader across several crucial categories.

The oil company showcased its prowess in the first quarter when it delivered industry-leading performance amid challenging market conditions. Here's a look at the quarter and the key factors fueling ExxonMobil's success.

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A well-oiled machine

ExxonMobil's recent first-quarter results were nothing short of exceptional, considering the market conditions during the period. The company delivered industry-leading earnings of $7.7 billion, or $1.76 per share, which beat analysts' expectations by $0.01 per share. It also led the sector by producing $13 billion in cash flow from operations while generating $8.8 billion in free cash flow.

The company delivered stronger-than-expected earnings despite a significant decline in industry refining margins, weaker crude oil prices, lower base production volumes from some noncore assets sales, and higher expenses from growth initiatives.

One factor fueling its strong results was its robust oil and gas production in the quarter. Exxon's output averaged 4.6 million barrels of oil equivalent (BOE) per day. That was up an eye-popping 20% from the prior-year period, driven by its acquisition of Pioneer Natural Resources last year.

Image source: Getty Images.

The other big catalyst was Exxon's industry-leading structural cost-savings program. That strategy is now saving the company $12.7 billion annually compared to 2019's level, which is more than all other international oil companies (IOCs) combined. The company captured an additional $600 million of cost savings via this program during the first quarter.

The combination of investments to grow its volumes and structural cost savings added $4 billion to the company's bottom line during the first quarter, which helped offset some of the impact of inflation and other factors on its earnings.

Leading returns and financial strength

Exxon's industry-leading cash flow enabled it to deliver industry-leading shareholder returns. The oil giant sent $9.1 billion of cash to its investors during the quarter, including buying back a sector-leading $4.8 billion of its stock. That has the company on track to repurchase about $20 billion of shares this year.

Exxon also paid $4.3 billion in dividends. The company delivered its sector-leading 42nd consecutive annual dividend increase earlier this year. Only 4% of companies in the S&P 500 (SNPINDEX: ^GSPC) have delivered dividend growth of 42 years or more.

The company's elite balance sheet played a key role in its ability to return cash to investors. The company ended the quarter with $18.5 billion in cash on hand. While that was down from $23.2 billion at the end of the fourth quarter, it maintained industry-leading leverage ratios of 12% debt-to-capital (down from 13% in the fourth quarter) and 7% on a net basis after factoring in its massive cash balance (up from 6% at the end of last year). That gives it lots of cushion to weather lower oil prices in the future.

More improvements ahead

ExxonMobil firmly expects to improve upon its already industry-leading performance in the future. The company continues to invest heavily in expanding its advantaged resources, which are its lowest-cost and highest-margin assets. The company plans to start 10 advantaged projects this year, which will generate more than $3 billion of earnings next year at constant prices and margins. Meanwhile, even if prices and margins fall, these investments will still contribute to its financial results.

The company is also on track to deliver $18 billion in structural cost savings by the end of 2030 compared to 2019's level. When added to its growth capital investments, Exxon expects to add $20 billion to its earnings and $30 billion to its cash flow by 2030.

The oil giant's strategy of enhancing its earnings capacity also puts it in a stronger position to weather lower oil prices in the future. Meanwhile, it will significantly boost the company's upside potential if pricing improves.

The best of the bunch

ExxonMobil continues to prove it's the best-run company in the oil industry. Its ability to produce industry-leading profits and return more cash to investors than anyone else has helped give it the fuel to produce peer-leading total returns (17% compound annual shareholder return over the past three years). With more earnings growth and cost savings ahead, Exxon is in a strong position to continue growing shareholder value in the future, making it an excellent oil stock to buy and hold for the long haul.

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Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.