Requires upstream production to grow by 25%, massive shale growth and 25 major projects

XOM’s improved well quality in the Bakken: “it’s a big, big, big change”

ExxonMobil (ticker: XOM) unveiled a big plan today: its strategy to double 2017’s earnings by 2025.

Darren W. Woods, Exxon Chairman and CEO, announced the plan at the company’s annual analyst meeting today. Exxon said it will invest heavily in all three segments of its business, upstream, downstream and chemical.

Exxon expects these investments will result in earnings rising by more than 100%, from this year’s adjusted profit of $15 billion to $31 billion by 2025 at 2017 prices.

According to Reuters, this is the first time Exxon has given an earnings forecast so far in advance.

Exxon’s Audacious Goal: Double Our Profit to $31 Billion by 2025

Source: ExxonMobil Analyst Presentation

Upstream production to rise 25%

Exxon plans to pursue several growth areas for oil and gas production, growing production from 4 MMBOEPD to 5 MMBOEPD. A total of 25 major projects will come online, along with massive growth from the Permian.

Permian output up fivefold

The company believes it has a tremendous amount of room to grow in the Permian, and recently expanded its resource estimate in the play to 9.5 billion BOE. Exxon reports the many stacked plays could support more than 4,800 locations with an average lateral length of 12,000 feet. In total, Exxon expects to grow Permian production fivefold through 2025.

The expansion of Permian production coincides with a significant expansion in Exxon’s Gulf Coast refineries and chemical plants. This means the company will be able to pursue a more integrated strategy for its Texas operations, from the wellhead to final products. Woods commented on this possibility, saying, “We are in a solid position to maximize the value of the increased Permian production as it moves from the well head to our Gulf Coast refining and chemical operations, where we are focusing on manufacturing higher-demand, higher-value products.”

Exxon’s Audacious Goal: Double Our Profit to $31 Billion by 2025

Source: ExxonMobil Analyst Presentation

Guyana is just getting started

ExxonMobil also expects its offshore assets will contribute to significant growth. The company’s Guyana properties will be a major growth driver, as the company has seen significant success in exploration efforts. Last week, for example, Exxon announced the seventh oil discovery in the area, as the Pacora-1 well encountered about 65 feet of oil-bearing sandstone. The play will be developed alongside the massive Payara field. Exxon estimates its total Guyana production will rise to more than 500 MBOEPD, and the company has more exploration and assessment wells yet to drill.

Exxon’s Audacious Goal: Double Our Profit to $31 Billion by 2025

Source: ExxonMobil Analyst Presentation

Significant LNG expansions planned

Exxon is also betting on LNG, as the company expects global demand for liquefied natural gas will grow by more than 4% annually through 2035. The company plans several new projects to meet this capacity, developing its major gas fields. For example, Exxon plans to have at least 13 MTPA of LNG from its Mozambique operations online by 2024, with significant growth potential beyond that.

Exxon’s Audacious Goal: Double Our Profit to $31 Billion by 2025

Source: ExxonMobil Analyst Presentation

Extensive downstream upgrades scheduled

Exxon’s downstream business is also expected to expand earnings significantly, by investing in numerous refineries. The company will upgrade its product slate in Baytown and Beaumont in Texas and Baton Rouge, Louisiana, Rotterdam, Antwerp, Singapore, and Fawley in the U.K.

These projects will target production of high-value products like ultra-low sulfur diesel, chemicals feedstocks and basestocks for lubricants. As a result of these improvements, the company’s 2025 downstream margins are projected to increase by 20 percent.

Chemical plants coming online in North America and East Asia

Exxon also plans significant growth in its chemical business, where manufacturing capacity in North America and East Asia are expected to increase by 40%. This growth will be accomplished with 13 new facilities, including two steam crackers in the U.S.

Exxon’s Audacious Goal: Double Our Profit to $31 Billion by 2025

Source: ExxonMobil Analyst Presentation

Major projects will take several years to come online

This growth plan represents a major push from Exxon to reclaim and hold the title of the world’s largest supermajor. While the “largest” designation depends on what metric is examined, Exxon fell behind Shell in cash generation this year. Exxon’s new plan may allow the company to reclaim this crown, but probably not in the next few years. Massive investments like refinery upgrades and offshore production take time to come online, and Exxon will likely not see significant cash from these projects until several years from now.

Q&A from analyst call

Q: The reduction in the required price for the LNG projects to $5 an MMBTU. It seems to be pretty impressive reduction in the cost structure, where the industry was out even three years or four years ago. So can you just talk a little bit about the evolution of the cost side of the LNG business that you’ve seen over the last couple of years?

XOM: I think it starts with the resource base. I mean not all resource bases are the same, and so therefore not all costs are the same. We estimate we’re taking 30% out of the development costs of major projects in the last three years. That’s the number we believe. It’s through efficiency steps, of course is through leveraging the market. Mozambique is a great example, big resource allows us to apply our capability to build big trains in a frontier location. If people can build big trains, but to build them in a frontier location is tough. Papua-New Guinea we did that, we modularized a lot of the equipment, we built it up in carrier in places, and we modernized sort of brought it down, it’s going to be a lot of that going on in Mozambique as well. But it comes down to the resource that you have and the capability of your organization. I think you have to start on LNG by saying typically larger is better. The trains are bigger. It’s a lower cost. If the resource base is larger, it’s a lower cost.

Q: Around U.S. earnings, thanks for providing that 2020 look at $5 billion. It’s a huge focus of investors about how to get net income from the U.S. on the E&P side higher. So, can you talk a little bit about bridging the gap from where you’ve been which has been breakeven to the $5 billion? Is that a function of volumes margins, cost of the above, little more granularity there would be helpful.

XOM: It’s a combination of all of the above. And as I said in that time period to turn the volume around, to turn the earnings around during that period, you have to work all parts of the income statement. And so clearly increasing our liquids production primarily out of tight oil Bakken and Permian is a big component of that.

Being laser focused where we go after dry gas is really important. And then the other dimension as I talked about is cost. I don’t think this is magical in this, get the value out of the Permian in the optimal time, I’m not even always to say the fastest, the optimum time to get the greatest capital efficiency, greatest long-term shareholder value that we can.

But to get to 2022 key to that is to grow liquids in the Permian and in the Bakken and even a little bit in the Eagle Ford as well. That’s the main driver.

The other thing I’d add there is, the quality of the wells that are in this plan looking out versus where we were even just two years ago, it’s a big, big, big change. When I first started getting associated with the Bakken and seeing the Bakken well, as a good well was 600 barrels a day, 700 barrels a day and now we’re routinely over 2,000 barrels a day initial rates, it’s kind of a whole different world. And we were part of those lines the Permian same thing we see in the Permian actually in a more compressed timeframe in terms of the improvement.

So the plans, the well quality that’s underpinning those growth plans is very, very high quality is kind of the heart of the Permian, heart of the Bakken, and it results in some very good financial metrics.

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