ExxonMobil's Massive Oil Discovery Keeps Getting Bigger

ExxonMobil (NYSE: XOM) and its partners Hess (NYSE: HES) and China's CNOOC have found a treasure trove of oil off the shore of Guyana over the past four years. The companies recently unveiled the 10th discovery on their jointly held acreage position, which they now believe contains more than 5 billion barrels of recoverable oil. That reinforces Exxon's belief that the partnership can produce more than 750,000 barrels of oil per day (BPD) from the region by 2025.

It just keeps getting bigger

Exxon's latest discovery at the Pluma-1 well, when combined with further evaluation of previous finds, led the company to boost its resource estimate from more than 4 billion barrels of oil equivalent (BOE) up to over 5 billion BOE. That's enough resources to support at least five floating storage, production, and offloading (FSPO) vessels capable of producing more than 750,000 BPD.

The company and its partners started the first phase of development last year, which they anticipate should start producing 120,000 BPD by early 2020. The companies are currently in the planning stages on two more projects, to which they hope to give the green light in 2019. That puts them on track to start up phase 2 -- which should produce 220,000 BPD -- by the middle of 2022, followed by a third one in early 2023. The companies hope to complete two more phases by 2025 to achieve their target.

What's worth noting about this oil is that it should have low production costs. Exxon estimates that the cost of supply is around $35 per barrel, which makes it quite profitable at current oil prices.

Meanwhile, with a total of 6.6 million acres to explore in the region, Exxon and its partners have the potential to find billions of additional barrels of low-cost oil, which could enable them to sanction more phases in the future.

The fuel for their growth plans

The current development plans for Guyana set up ExxonMobil and Hess to grow production and earnings at a fast pace over the next several years. Exxon, which owns a 45% interest in the partnership, expects its share of the output -- when combined with its position in the fast-growing Permian Basin -- to help expand its production rate from its current level of around 4 million BOE/D up to 5 million BOE/D by 2025. That increase in high-margin oil output from Guyana and the Permian Basin position Exxon to more than double its earnings and cash flow over that time frame without any improvement in oil prices from 2017's level. That expansion plan could enable Exxon to significantly increase the company's value even as production only expands 25%.

Hess also anticipates needle-moving growth from its 30% stake in these Guyana discoveries. The company expects that its production will rise at a 10% compound annual growth rate (CAGR) from last year's base through 2023, supported by both Guyana and its position in the Bakken Shale. That fast-paced expansion in high-margin oil production should fuel a 25% CAGR in Hess' cash flow, assuming oil averages around $60 a barrel, which is about where it is these days. That strategy has Hess on pace to generate significant free cash flow by early 2023 without any further improvement in oil prices, which it could return to investors through a higher dividend or additional share repurchases.

A bright future for these two oil stocks

With each discovery, Exxon and Hess provide further affirmation that they can achieve their ambitious growth plans. Those strategies have the potential to create significant value for their investors over the long term even if oil prices remain low, with substantial additional upside if crude pricing improves. That makes them both great oil stocks to consider holding for the long term.

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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.