Exxon Mobil XOM put the large losses of 2020 in the rearview mirror by recording its highest quarterly earnings since the first quarter of 2014. Fourth-quarter earnings improved to $8.9 billion from a loss of $20.1 billion last year, which was largely due to impairments. Adjusted earnings for the fourth quarter increased to $8.8 billion from $110 million last year largely on higher commodity prices. Operating cash flow of $17.1 billion sufficiently covered capital spending and the dividend while, combined with $2.6 billion in asset proceeds, allowing for $9 billion in debt reduction during the quarter. For the full year, Exxon generated $48 billion in cash flow, the highest level since 2012, and repaid $20 billion in debt. Exxon ended the year with debt at prepandemic levels and leverage at 21%, in line with management's long-term range of 20%-25%, but further reduction is likely. In the first quarter, it will proceed with its previously announced $10 billion repurchase program, to be completed over 12-24 months, but that rate could be accelerated depending on market conditions. In 2021, Exxon spent $16.6 billion, in line with its previous guidance. For 2022, it plans capital spending of $21 billion-$24 billion, including $1 billion in its lower-emission investments, within its long-term capital spending plans of $20 billion-$25 billion. Our fair value estimate and narrow moat rating are unchanged. We maintain a favorable outlook for Exxon and expect further improvement in the coming years. The initiation of repurchases is likely the beginning of an increase in shareholder returns, given the outlook for strong free cash flow generation. Dividend growth has been tepid and repurchases lacking the last few years due to low prices, followed by a focus on debt reduction. However, with break-even levels falling to $35/barrel oil on average by management estimates, we expect Exxon to have room to increase shareholder returns in the coming years.
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