ExxonMobil Built Its Business to Thrive in Volatile Oil Markets

Turbulence has returned to the oil market this year. Oil prices have tumbled more than 15%, weighed down by the uncertain impact of tariffs and other factors. As a result, the price of the global oil benchmark Brent, which spent much of the past couple of years bouncing around in the range of $75 to $85 a barrel, has slumped down closer to $60 a barrel.

Lower crude prices are a problem for many oil producers. However, they're not an issue for ExxonMobil (NYSE: XOM). The oil giant has spent several years building the company to thrive in markets like this. Because of that, it's a great all-weather oil stock to buy and hold amid the current market turbulence.

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Ready for markets like this

ExxonMobil CEO Darren Woods discussed the current conditions in the oil market on the company's recent first-quarter earnings conference call:

It's clear that this uncertainty is weighing on economic forecasts, causing significant volatility and raising the prospects of slower growth. Coupled with the threats of increased OPEC supply, we are seeing significant downward pressure on prices and margins. In this environment, it's more important than ever to focus on what we can control, and this company's track record of delivery. The work we've done over the past eight years should make one thing clear: We're ready for this.

Woods went on to highlight Exxon's strategy. He noted that it has led the company to have an advantaged portfolio with a low cost of supply, a strong balance sheet, and a lean cost structure. The CEO highlighted Exxon's 7% net leverage ratio, which leads not only all other international oil companies (IOCs) but also all large-cap industrial companies. He also pointed out that Exxon has taken $12.7 billion of structural costs from its business since 2019. No other IOC even comes close to that level.

Exxon's CEO stated:

Our organization has planned for this. We pressure test our plans and the financial outcomes with scenarios that are more severe than our COVID experience. For us, success isn't defined in the good times, but in the hard times.

That means the recent slump in oil prices isn't putting any pressure on the company. It's much better prepared than its rivals to respond to the current challenges in the market, so much so that it can take advantage of opportunities that might arise.

The long-term outlook remains bright

While there's a lot of uncertainty in the near term, "the longer-term fundamentals underpinning our businesses are robust," Woods said on the call. He noted that the world will continue to need reliable and affordable energy to support our modern lifestyles. That's why Exxon continues to invest in advantaged projects that deliver low-cost oil and gas to meet the world's energy needs. In addition, Exxon is also investing in the future of energy by building new lower-carbon platforms around hydrogen, carbon capture and storage, biofuels, and lithium.

That outlook helps drive Exxon's confidence in its long-term strategy. "And when we get to 2030," Woods said, "I'm confident we will have delivered on our plan -- $20 billion more in earnings and $30 billion more in cash assuming constant prices and margins -- and significantly greater value for shareholders."

The company plans by 2030 to invest about $140 billion into major projects and its Permian Basin development program. Given its strong cash flow and balance sheet, Exxon won't need to reduce capital spending if crude prices continue to fall. It can keep its foot on the gas when its peers might need to stomp on the brakes. Meanwhile, with its investments focused on advantaged projects (i.e., those with a low cost of supply), it'll help further improve its margins, putting it in an even stronger position to weather lower oil prices in the future. Exxon is also investing in lower-carbon energy and other projects that will help reduce its earnings volatility in the future because they'll generate more predictable revenues from long-term contracts.

Exxon also plans to deliver a total of $18 billion of structural cost savings by 2030 from 2019's baseline. With nearly $13 billion already secured, the company still has over $5 billion of additional income it can deliver over the next few years by improving its existing operations.

Built to thrive

Having spent several years investing heavily in expanding its advantaged assets and taking out structural costs, ExxonMobil is more than ready for the recent increase in market volatility. The company plans to continue executing its successful strategy, which puts it on track to deliver meaningful earnings and cash flow growth in the future. Those investments position Exxon to continue growing shareholder value in the coming years, even if the oil market remains volatile. That makes it a great oil stock to buy and hold for whatever might be ahead.

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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.