Exxon Mobil Corporation (NYSE:XOM), a single of the biggest integrated oil providers in the planet, delivered a stellar monetary and marketplace functionality in 2022, aided by increasing oil rates. The company’s prospects, nevertheless, are closely tied to its decarbonization enterprise, which has come to the spotlight in current months amid the escalating have to have to diversify its income sources due to regulatory threats. I am bullish on the prospects for Exxon Mobil as the business enters a transformation phase at a time when oil rates are tipped to stay sturdy.
A Differentiated Method from Its Peers
Numerous of Exxon’s peers have currently diversified into renewable power production, such as wind and solar energy, but Exxon has resorted to its core merchandise centered about crude oil. Though this technique has helped the business make the most of increasing oil rates, ESG-focused investors have raised issues more than Exxon’s future as the company’s earnings energy is most likely to deteriorate with no exposure to clean power.
In response to this threat, Exxon has decided to double down on its carbon capture enterprise as opposed to embracing renewable power. In 2021, the business formally launched a Low Carbon Options enterprise unit focused on carbon capture and storage, hydrogen, and reduced-emission fuels.
According to CEO Darren Woods, this decarbonization enterprise unit could outgrow the oil enterprise in much less than ten years, aided by aggressive investments in this sector. Earlier this year, Exxon boosted its planned investment in this sector to $17 billion by means of 2027 from $15 billion.
Final October, Exxon signed its initial industrial deal from this segment by partnering with CF Industries Holdings (NYSE:CF) and EnLink Midstream (NYSE:ENLC) to capture and shop two million tons of carbon emissions annually created by a fertilizer plant beginning in 2025. Earlier this month, Linde (NYSE:LIN) signed a extended-term contract with Exxon to capture carbon emissions from its planned clean hydrogen project in Texas.
With a lot of providers forced to decrease carbon emissions to comply with net-zero emission ambitions announced by the U.S. government, Exxon appears properly-positioned to leverage its carbon capture knowledge to win new consumers in the future.
The Addressable Industry Chance is Enormous
According to the International Power Agency, there are 35 carbon capture and storage facilities right now, with the capacity to capture 45 metric tons of carbon emissions annually. Nonetheless, to attain the net-zero emission situation by 2030, carbon capture facilities have to have to capture about 1,300 metric tons of carbon emissions annually. These numbers recommend the planet is a extended way behind exactly where it desires to be to accomplish these ambitions, and this creates a fantastic chance for Exxon to earn appealing returns from its decarbonization investments.
The regulatory atmosphere is turning favorable for the carbon capture enterprise as properly. The Inflation Reduction Act, signed into law final year, gives a tax credit primarily based on the carbon emissions captured and sequestered. The Act paves the way for Exxon to earn tax credits ranging from $50-$85 per ton of carbon emissions captured by the business.
Exxon is aggressively constructing facilities to capture carbon emissions, and its Houston facility is anticipated to capture one hundred million metric tons of carbon emissions annually. As soon as this facility is completely functional, Exxon will earn billions of dollars from tax credits alone, assuming the present policies will prevail in the future.
Driven by favorable policy choices and the lack of current facilities, Fortune Enterprise Insights predicts the carbon capture and sequestration marketplace to develop at a CAGR of 19.five% by means of 2028. Exxon Mobil, as a single of the initial-movers in this sector, is properly-positioned to advantage from this stellar development.
Is Exxon Mobil a Get, According to Analysts?
Morgan Stanley (NYSE:MS) analysts lately integrated Exxon Mobil as a single of their prime 30 stock picks for 2025, citing the sturdy momentum for the decarbonization enterprise and the favorable outlook for oil rates in the subsequent handful of years. Numerous Wall Street analysts share this optimism for the oil giant. Primarily based on 11 Buys, six Holds, and a single Sell assigned in the previous 3 months, the typical XOM stock cost target is $128.09, which implies upside prospective of ten.six% from the present marketplace cost.
Conclusion: Exxon is a Fantastic Bet on Oil Markets and Decarbonization
As a single of the handful of oil providers very concentrated on crude oil-associated organizations, Exxon Mobil will advantage from the continued strength in international oil rates in the subsequent handful of years. Its developing decarbonization enterprise, on the other hand, adds considerably-necessary stability to the enterprise in the extended run.
The carbon capture enterprise is not as cyclical as the oil enterprise as properly, which bodes properly for investors who are searching for steady income development trends. Exxon’s enterprise transformation is properly and genuinely gathering pace, and the business appears poised to provide appealing extended-term returns to its shareholders.
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