Shares of oil and gas titan ExxonMobil took a hit in 2023, ending the year down nearly 10% while the broader S&P 500 rallied over 24%. This underperformance was primarily driven by falling crude oil and natural gas prices weighing on the company’s financial results. However, Exxon capitalized on the stock weakness and commodity price declines to make two strategic acquisitions positioning it for long-term growth.
Crude Oil and Natural Gas Prices Retreated
After multi-year highs in 2022, crude oil and natural gas prices pulled back in 2023 amid global economic weakness. Crude futures fell around 10% on the year – the first annual decline since the pandemic crash of 2020. Natural gas saw an even sharper drop, plummeting over 40% as markets adjusted to ongoing geopolitical instability.
This rollback directly impacted ExxonMobil’s bottom line. While the company posted record profits of $55.7 billion in 2022 on the commodity price surge, earnings through the first three quarters of 2023 were less than $29 billion – about $15 billion below the year-ago period. Still, Exxon generated robust cash flows enabling further balance sheet strengthening. The company also continued expanding oil and gas volumes while delivering its best-ever global refining performance in the third quarter.
Exxon Capitalized With Two Major Acquisitions
Rather than just weathering lower prices, Exxon pounced on the oil and gas downturn to expand through mergers and acquisitions. This shopping spree aims to bolster the company’s position in strategic areas key to future growth.
In December 2022, Exxon announced an all-stock $4.9 billion purchase of Denbury Resources. While Denbury produces oil, its extensive carbon capture and sequestration infrastructure was the primary appeal for Exxon. Integrating these assets will enhance Exxon’s ability to provide emissions-reducing services to hard-to-decarbonize sectors like manufacturing and heavy industry.
The oil giant followed up in January 2023 with a much larger $64.5 billion stock deal to acquire rival Pioneer Natural Resources. Folding in Pioneer’s Permian Basin operations will more than double Exxon’s production capacity in the prolific shale region to 1.3 million barrels per day. The company expects this will enable boosting Permian volumes to 2 million barrels per day by 2027 – fueling substantial returns and cash flow growth.
What This Means For Exxon Investors
ExxonMobil took full advantage of short-term stock and commodity price weakness in 2023 to expand through strategic M&A. Acquiring Denbury bolsters Exxon’s capacity to provide large-scale carbon capture solutions as economies transition toward net zero emissions. And the Pioneer deal cements Exxon’s status as a Permian Basin leader able to capitalize on the U.S. shale boom for years to come.
So while financial results softened in the near term, Exxon exits 2023 in an improved competitive position with enhanced assets in legacy oil and gas production and lower-carbon initiatives. With the deals strengthening Exxon’s foundation, last year’s stock decline looks like a buying opportunity for investors seeking a top-tier oil major gaining ground on the energy transition.
The company remains committed to its dividend and investing in new energy solutions while still meeting growing global oil and gas demand. Exxon expects to maintain strong cash flows even if commodity prices stay lower. And if prices recover, the recent acquisitions will enable Exxon to fully capitalize. So investors can collect a 3.5% dividend yield now and likely see substantial share price appreciation over the long run as Exxon leverages its expanded operations.
