Exxon Vaults to Record Annual Profit of $55.7 Billion

Exxon’s bounty marks a turnaround after it lost a historic proxy fight in 2021 to investment firm Engine No. 1, which excoriated Exxon’s finances and argued it had no long-term strategy. An oil-market collapse in 2020 led to Exxon’s first annual loss in at least four decades, of more than $22 billion. It was booted from the Dow Jones Industrial Average that year, after nearly a century in the index, with its shares falling as much as 55%.

Last year, oil and gas prices worldwide surged as Russian forces stormed into Ukraine and demand surged as global economies rebounded. U.S. gasoline prices climbed to a record national average of about $5 a gallon as markets also contended with the loss of several oil refineries as the pandemic began in 2020. 

Exxon shares rose about 80% for the year, the fourth-highest stock-price increase in the S&P 500 index, only behind oil companies

Occidental Petroleum Corp.

,

Hess Corp.

and

Marathon Petroleum Corp.

, according to Dow Jones data. Exxon also collected $76.8 billion in cash from its operations, behind only Apple and Microsoft so far, according to S&P Global Market Intelligence.

Exxon Chief Executive

Darren Woods

said the world will continue to need oil and natural gas as long as it continues to lack competitive, lower-emission alternatives. He added that moves by some of its competitors to step back from fossil-fuel investments have given Exxon an opening to invest and develop advantages in its businesses of extracting oil and gas and selling fuels.

“We are underinvesting as an industry in this space, and in a depletion business, we’re not keeping up with that depletion,” Mr. Woods said during the company’s quarterly conference call. “You find yourself in tight markets.”

Mr. Woods said Exxon’s net profit margin has increased to 14% last year from 10% in 2012 as it focused on its most lucrative projects and worked to control production costs.

Mr. Woods has cited the company’s investments in Guyana and the Permian Basin, the top U.S. oil field that straddles West Texas and New Mexico, as the company’s growth engines for oil production, as well as a recent 250,000 barrel-a-day capacity expansion at its Beaumont, Texas, refinery. Exxon said it boosted output in the Permian and Guyana more than 30% last year.

The company said its return on capital employed reached 25% for the year, its highest annual rate since 2012, and its total shareholder return was 87% last year. Its full-year total revenue rose to $413.7 billion, compared with $285.6 billion in the prior year.

In the fourth quarter, Exxon made about $12.8 billion in profit, up from $8.9 billion in the same period the year before. The company’s fourth-quarter earnings-per-share came in below Wall Street’s expectations, at $3.09 a share, compared with an anticipated $3.28 a share, according to FactSet.

Exxon shares fell about 1% after earnings were announced Tuesday.

Exxon said it recorded so-called unfavorable identified items of $1.3 billion related to higher European oil industry taxes and asset impairments. Offsetting this impact were one-time adjustments related to Russia’s expropriation of Exxon’s stake in the Sakhalin-1 oil-and-gas project in Russia’s Far East, which it had operated since the 1990s.

In terms of profit, Irving, Texas-based Exxon in 2022 jumped ahead of

JPMorgan Chase

& Co.,

Johnson & Johnson

and

Verizon Communications Inc.

among others. Its profit that year was also larger than the projected earnings of companies including

Pfizer Inc.,

Facebook

parent Meta Platforms Inc. and

Amazon.com Inc.

Amazon made a record $33.4 billion in 2021 but is expected to post an annual loss.

High oil prices boosted earnings for the entire crop of U.S. shale companies, pipeline operators and oil-field services firms active in drilling and fracking, with several public oil producers reporting record quarterly generation of free cash flow. The S&P 500 energy sector is up about 37% over the past year, outperforming every other segment of the broader index over the same period. The broader S&P 500 index is down about 9% since this time last year.

Exxon’s annual profit of $55.7 billion last year was more than $10 billion higher than the previous record of $45.2 billion, set in 2008.

Last week, Exxon’s closest rival

Chevron

reported historic profit of $35.5 billion for last year, its earnings not far behind Exxon and JPMorgan on the list of the most profitable U.S. companies last year, according to the Journal’s analysis.

It is a remarkable turnaround for an industry that was left for dead two years ago. The historic downturn in energy demand at the onset of the pandemic in 2020 prompted companies to idle hundreds of drilling rigs, slash billions in spending and shut in wells producing millions of barrels of oil a day—the last after crude prices briefly went negative in April 2020. Shale companies like

Chesapeake Energy Corp.

and

Whiting Petroleum Corp.

filed for bankruptcy alongside dozens of others.

Institutional investors made money avoiding the energy sector for years, investors have said. But last year’s tightening of global energy supplies has led some to recognize the U.S. oil industry’s role in keeping global commodity prices stable, said

Tomas Ackerman,

co-founder and partner at investment firm Carnelian Energy Capital. Still, investors continue to feel burned by poor performance of U.S. oil-and-gas companies over the years, and are still reluctant to invest, he said.

“We haven’t seen the generalist jump into energy in a big way,” Mr. Ackerman said. “Exxon and Chevron’s performance reflects what’s happening to commodity prices, and the fact that oil prices are elevated because we don’t have enough global supply.”

But Mr. Ackerman said companies have changed their priorities, focusing on shareholder returns and generating free cash flow, which has helped publicly traded energy companies become more attractive to institutional investors.

At the same time, Exxon and Chevron’s historic profits have opened them up to sharp criticism by the Biden administration. In June, President Biden said Exxon “made more money than God this year,” and U.S. officials have blasted oil companies for focusing on returning profits to shareholders rather than pumping more oil and gas while Americans were feeling pain at the pump.

In response, oil companies have highlighted their investments. Exxon Chief Financial Officer Kathryn Mikells said that in 2022, Exxon’s oil-and-gas production rose by 25,000 barrels of oil equivalent a day despite billions in divestitures and the Kremlin’s move to wipe out Exxon’s stake in the Sakhalin-1. Without those changes, the company’s output would have risen by 140,000 barrels of oil equivalent a day, she said.

“Making investments in the business, that’s more important than ever,” Ms. Mikells said. “The world needs more supply.”

Write to Collin Eaton at collin.eaton@wsj.com

Exxon’s bounty marks a turnaround after it lost a historic proxy fight in 2021 to investment firm Engine No. 1, which excoriated Exxon’s finances and argued it had no long-term strategy. An oil-market collapse in 2020 led to Exxon’s first annual loss in at least four decades, of more than $22 billion. It was booted from the Dow Jones Industrial Average that year, after nearly a century in the index, with its shares falling as much as 55%.

Last year, oil and gas prices worldwide surged as Russian forces stormed into Ukraine and demand surged as global economies rebounded. U.S. gasoline prices climbed to a record national average of about $5 a gallon as markets also contended with the loss of several oil refineries as the pandemic began in 2020. 

Exxon shares rose about 80% for the year, the fourth-highest stock-price increase in the S&P 500 index, only behind oil companies

Occidental Petroleum Corp.

,

Hess Corp.

and

Marathon Petroleum Corp.

, according to Dow Jones data. Exxon also collected $76.8 billion in cash from its operations, behind only Apple and Microsoft so far, according to S&P Global Market Intelligence.

Exxon Chief Executive

Darren Woods

said the world will continue to need oil and natural gas as long as it continues to lack competitive, lower-emission alternatives. He added that moves by some of its competitors to step back from fossil-fuel investments have given Exxon an opening to invest and develop advantages in its businesses of extracting oil and gas and selling fuels.

“We are underinvesting as an industry in this space, and in a depletion business, we’re not keeping up with that depletion,” Mr. Woods said during the company’s quarterly conference call. “You find yourself in tight markets.”

Mr. Woods said Exxon’s net profit margin has increased to 14% last year from 10% in 2012 as it focused on its most lucrative projects and worked to control production costs.

Mr. Woods has cited the company’s investments in Guyana and the Permian Basin, the top U.S. oil field that straddles West Texas and New Mexico, as the company’s growth engines for oil production, as well as a recent 250,000 barrel-a-day capacity expansion at its Beaumont, Texas, refinery. Exxon said it boosted output in the Permian and Guyana more than 30% last year.

The company said its return on capital employed reached 25% for the year, its highest annual rate since 2012, and its total shareholder return was 87% last year. Its full-year total revenue rose to $413.7 billion, compared with $285.6 billion in the prior year.

In the fourth quarter, Exxon made about $12.8 billion in profit, up from $8.9 billion in the same period the year before. The company’s fourth-quarter earnings-per-share came in below Wall Street’s expectations, at $3.09 a share, compared with an anticipated $3.28 a share, according to FactSet.

Exxon shares fell about 1% after earnings were announced Tuesday.

Exxon said it recorded so-called unfavorable identified items of $1.3 billion related to higher European oil industry taxes and asset impairments. Offsetting this impact were one-time adjustments related to Russia’s expropriation of Exxon’s stake in the Sakhalin-1 oil-and-gas project in Russia’s Far East, which it had operated since the 1990s.

In terms of profit, Irving, Texas-based Exxon in 2022 jumped ahead of

JPMorgan Chase

& Co.,

Johnson & Johnson

and

Verizon Communications Inc.

among others. Its profit that year was also larger than the projected earnings of companies including

Pfizer Inc.,

Facebook

parent Meta Platforms Inc. and

Amazon.com Inc.

Amazon made a record $33.4 billion in 2021 but is expected to post an annual loss.

High oil prices boosted earnings for the entire crop of U.S. shale companies, pipeline operators and oil-field services firms active in drilling and fracking, with several public oil producers reporting record quarterly generation of free cash flow. The S&P 500 energy sector is up about 37% over the past year, outperforming every other segment of the broader index over the same period. The broader S&P 500 index is down about 9% since this time last year.

Exxon’s annual profit of $55.7 billion last year was more than $10 billion higher than the previous record of $45.2 billion, set in 2008.

Last week, Exxon’s closest rival

Chevron

reported historic profit of $35.5 billion for last year, its earnings not far behind Exxon and JPMorgan on the list of the most profitable U.S. companies last year, according to the Journal’s analysis.

It is a remarkable turnaround for an industry that was left for dead two years ago. The historic downturn in energy demand at the onset of the pandemic in 2020 prompted companies to idle hundreds of drilling rigs, slash billions in spending and shut in wells producing millions of barrels of oil a day—the last after crude prices briefly went negative in April 2020. Shale companies like

Chesapeake Energy Corp.

and

Whiting Petroleum Corp.

filed for bankruptcy alongside dozens of others.

Institutional investors made money avoiding the energy sector for years, investors have said. But last year’s tightening of global energy supplies has led some to recognize the U.S. oil industry’s role in keeping global commodity prices stable, said

Tomas Ackerman,

co-founder and partner at investment firm Carnelian Energy Capital. Still, investors continue to feel burned by poor performance of U.S. oil-and-gas companies over the years, and are still reluctant to invest, he said.

“We haven’t seen the generalist jump into energy in a big way,” Mr. Ackerman said. “Exxon and Chevron’s performance reflects what’s happening to commodity prices, and the fact that oil prices are elevated because we don’t have enough global supply.”

But Mr. Ackerman said companies have changed their priorities, focusing on shareholder returns and generating free cash flow, which has helped publicly traded energy companies become more attractive to institutional investors.

At the same time, Exxon and Chevron’s historic profits have opened them up to sharp criticism by the Biden administration. In June, President Biden said Exxon “made more money than God this year,” and U.S. officials have blasted oil companies for focusing on returning profits to shareholders rather than pumping more oil and gas while Americans were feeling pain at the pump.

In response, oil companies have highlighted their investments. Exxon Chief Financial Officer Kathryn Mikells said that in 2022, Exxon’s oil-and-gas production rose by 25,000 barrels of oil equivalent a day despite billions in divestitures and the Kremlin’s move to wipe out Exxon’s stake in the Sakhalin-1. Without those changes, the company’s output would have risen by 140,000 barrels of oil equivalent a day, she said.

“Making investments in the business, that’s more important than ever,” Ms. Mikells said. “The world needs more supply.”

Write to Collin Eaton at collin.eaton@wsj.com