ExxonMobil's Record-Setting Profits Continue. Is it a Top Stock to Buy?

ExxonMobil's (NYSE: XOM) profit gusher continues. The oil company delivered a record first-quarter profit of $11.4 billion. Higher production and robust refining margins more than offset lower oil and gas prices.

Here's a closer look at the quarter and whether or not now is a good time to invest in ExxonMobil stock.

Drilling down into ExxonMobil's record-breaking first quarter

Exxon produced a prodigious $11.4 billion of earnings, setting a record for the first quarter. That wasn't the company's all-time quarterly record -- it produced $19.7 billion of earnings in last year's third quarter. However, it was its best-ever result for the year's first quarter and was more than double what it produced in the year-ago period. Further, earnings were about 9% above the analysts' consensus estimate.

During the first quarter, the oil giant produced an average of 3.83 million barrels of oil equivalent per day (BOE/d). That was up 160,000 BOE/d from the fourth quarter, rising to its highest level since 2019. Exxon's output got a boost from the Permian Basin and Guyana, with the latter region starting up its second oil production platform last year.

Exxon's earnings also benefited from its refining business. The company started a new 250,000 barrel-a-day crude (BPD) oil processing unit, adding to its capacity. That enabled Exxon to capitalize on robust refining margins in the period.

These drivers helped Exxon more than offset weaker oil and gas pricing in the period. Oil prices were down 16% year-over-year.

Can the good times continue to roll for Exxon?

Positioned to capitalize on higher crude prices

Exxon's investment strategy of growing its best assets should continue to pay dividends. The company's investment plan has it on track to double its earnings and cash flow by 2027 compared to 2019's baseline and oil price point. It's investing $20 billion-$25 billion per year ($23 billion-$25 billion in 2023), with the majority going into the Permian Basin, Guyana, Brazil, and LNG, where it earns high returns from these low-cost supply sources.

That investment strategy also positions Exxon to cash in on higher prices. A rebound in crude oil seems likely later this year. The recent oil production reductions by Saudi Arabia and other members of OPEC+ will limit supplies at a time when demand is on track to rebound. The International Energy Agency wrote in its April oil market report that the "surprise OPEC+ supply cuts announced on 2 April risk aggravating an expected oil supply deficit in 2H23 and boosting oil prices at a time of heightened economic uncertainty." It sees recovering jet fuel and Chinese demand driving oil consumption well past supplies in the second half. That could drive oil prices back toward the triple digits. Higher pricing would give Exxon's profits a boost.

Positioning for the lower carbon economy

Another key aspect of Exxon's investment strategy is building a diversified lower-carbon energy business. It's investing $17 billion through 2027 into several lower carbon opportunities, including carbon capture and storage (CCS).

The company sees enormous potential in CCS. It foresees a multitrillion-dollar market opportunity within the next decade, which could turn into a multibillion-dollar business for Exxon.

The company's CCS investments are already starting to pay dividends. Exxon recently signed a long-term commercial deal with Linde to potentially capture and permanently store up to 2.2 million metric tons of carbon dioxide per year (equivalent to the emissions of half a million cars per year). That project could come online as soon as 2025. That followed a landmark emission-reduction project with CF Industries. Exxon would capture and permanently store up to 2 million metric tons of carbon dioxide from a project that could start in early 2025.

These CCS agreements would supply Exxon with steady cash flow, helping offset some of the volatility of oil and gas prices. CCS also has the potential to significantly extend the life of oil and gas by reducing the carbon footprint of fossil fuels.

Plenty of fuel to continue producing prodigious profits

ExxonMobil's investment strategy continues to pay off. The company's focus on growing its best assets enabled it to deliver a record first-quarter profit despite lower oil prices.

That strategy has the company well-positioned to continue making lots of money in the future. It can cash in on higher oil prices, which appear poised to rally this year. Meanwhile, its lower carbon investment strategy is also starting to pay dividends. These catalysts suggest that Exxon's profits and stock price could have much further to run. Because of that, it looks like a top stock to buy for those seeking to cash in on a potential rally in oil prices with a longer-term upside from the transition to lower carbon energy.

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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Linde Plc. The Motley Fool has a disclosure policy.