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Exxon reaffirms focus on output hike, asset sales to sustain earnings growth

Despite taking an income hit in its downstream and chemical units in the second quarter, oil supermajor Exxon Mobil Corp. still plans to ramp up spending, as it works to hike upstream output and sell off $15 billion in assets by 2021 to sustain earnings growth, executives said during the company's Aug. 2 earnings conference call.

"We are in a unique position versus the rest of the industry. We have a very attractive opportunity set. These are the advantaged projects that are robust at the bottom of the cycle conditions. So, we have a very attractive opportunity set and we have the financial capacity to pursue them in a business that is very cyclical," Exxon Senior Vice President Neil Chapman said during the call.

Unlike many of Exxon's peers who are working to keep a lid on capital expenditures, Exxon executives reaffirmed Aug. 2 a plan to spend $30 billion this year and $33 billion to $35 billion in 2020. The Texas-based major's capex in the second quarter totaled more than $8.0 billion, up 22% year over year due to key investments in the Permian Basin, it said. For the first half of the year, the company spent $15 billion.

Exxon anticipates annual cash flow from operations of $60 billion by 2025. This figure includes the $15 billion anticipated asset sales figure first disclosed in March. In the second quarter, Exxon generated $33 million from asset sales.

Apart from the planned asset divestitures, the company will look to upstream growth, particularly from the prolific U.S. Permian Basin, to help foster financial success post-2020. Exxon remains on schedule with its aggressive plan to increase oil and natural gas output from the Permian to 1 million barrels of oil equivalent per day in the next five years, Chapman said during the call.

In the second quarter, Exxon's Permian production was 274,000 boe/d, advancing 21% from the prior quarter and surging nearly 90% on the year. Driven by ongoing improvement in Permian output, Exxon's total second-quarter crude, natural gas liquids, bitumen and synthetic oil production was 3.91 million boe/d, up 8% from the same quarter in 2018 to the highest quarterly liquids production since 2016 and the highest second-quarter level in ten years, Exxon Vice President of Investor Relations Neil Hansen said.

Although reaffirming its investment and divestiture plans to sustain earnings growth, Exxon officials offered little information regarding potential share buybacks. The company will continue to focus on returning dividends to shareholders but has no immediate plans to repurchase shares, executives said on the call.

"We want to maintain our financial flexibility and then we'll look at how else we'll do in cash in terms of buybacks," Exxon CFO Andrew Swiger said on the Aug. 2 call.

Speaking to the predominant industry theme of M&A, especially the anticipation of consolidation in Lower 48 shale plays, Chapman said that while Exxon is not actively looking to strike any deals, it is not closed to M&A opportunities in the future.

"We're always looking for opportunities. I think one of the reasons you maintain a strong balance sheet [is that] it gives you the flexibility to act if you see something of value," Chapman said.

Exxon's second-quarter GAAP earnings totaled $3.13 billion, or 73 cents per diluted share, down 21% on the year but up 33% on the quarter and coming in slightly higher than the S&P Global Market Intelligence consensus estimate of 72 cents per share.

At 11:15 a.m. ET on Aug. 2, Exxon shares on the New York Stock Exchange were down 1.16% to $71.66 per share.