Will 2016 Be ExxonMobil Corporation's Best Year Yet?

Image source: ExxonMonbil investor presentation.

One of the most promising things about some of these changes is that they could carry over for a few years. Things like offshore rig contracts can be several years long, and the ability to lock in a contract with a rig company today when contract prices are severely depressed could save a ton of operational expenses over the next few years.

The other thing that is working in ExxonMobil's favor is that it will be scaling back its capital spending over the next few years. Back in 2013, the company saw its highest capital spending rate ever at $42 billion. Now that many of the projects under that spending spree are complete, the company expects that the 2016-2017 budgets to be less than $34 billion, and that was before the company had started to realize those cost savings so far this year.

Source: ExxonMobil investor presentation.

Even more promising is that these lower levels of spending are still supposed to result in increased production by the end of 2017.

Image Source: ExxonMobil investor presentation.


All of these things suggest that ExxonMobil has the pieces it can control in place to have a great year or even two.

If the market would cooperate

The thing to remember, though, is that ExxonMobil only has control of those two things -- production levels and cost. The last element of the puzzle -- price -- is completely at the whims of the broader market. Despite ExxonMobil's massive size, it's 2.3 million barrels per day or so of production are still less than 2% of global oil production, and its entire production portfolio is not that much more than the 1.5 million barrels per day that analysts estimate is the current rate of oversupply globally.

While the initial seeds for a turnaround seem to have been planted, it may take a while before they bear fruit. Over the past year, more than $220 billion in development projects have been cancelled. Without them, the natural decline rates of producing reservoirs will start to overpower the amount of new production coming online and total production will start to wane. Once this happens and we clear the glut of oversupply and high inventory levels, then it's highly likely that we will see prices rebound much closer to the marginal cost -- the cost it takes to extract last barrel of oil needed to fulfill demand.

Some say that we could see this happen in the second half of 2016, while others think that it is even further out. Once it does, though, the situation for ExxonMobil will look much more promising.

What a Fool believes

It's probably a bit of a stretch to say that 2016 will be a great year for ExxonMobil. It just seems that it will take a little while longer for the oil and gas supply glut to clear and raise energy prices than for ExxonMobil to have a fantastic 2016. However, the cost savings the company has been able to implement this year will likely be able to impact earnings for a few years now, and when oil prices do recover it could lead to some very impressive results.

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The article Will 2016 Be ExxonMobil Corporation's Best Year Yet? originally appeared on Fool.com.

Tyler Crowe owns shares of ExxonMobil. You can follow him at Fool.com or on Twitter @TylerCroweFool .The Motley Fool owns shares of ExxonMobil. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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