By Christopher M. Matthews
Exxon Mobil Corp. is retreating from a plan to increase spending
to boost its oil and gas production by 2025 and preparing to slash
the book value of its assets by up to $20 billion, as the
struggling company reassesses its next decade.
The Texas oil giant, which has lost more than $2.3 billion over
the first three quarters of this year after the coronavirus wreaked
havoc on fossil-fuel demand, released a reduced spending outlook
Monday for the next five years. It now plans to spend $19 billion
or less next year and $20 billion to $25 billion a year between
2022 and 2025. It had previously planned to spend more than $30
billion a year in capital expenditures through 2025.
Exxon also said it would stop investing in certain natural-gas
assets and telegraphed a massive write-down of between $17 billion
and $20 billion to come in the fourth quarter.
The cuts are a course correction for Chief Executive Darren
Woods, who laid out a plan in 2018 to spend $230 billion to double
profits and pump an additional one million barrels of oil and gas a
day by the middle of the next decade. That plan proved ill-timed,
especially after the pandemic caused oil prices to plummet this
Exxon said Monday it would now double its profits by 2027 but
released no specific target for increasing its oil and gas
production. Exxon executives have said in recent months that the
company is reassessing its production targets.
Mr. Woods said in a statement that the company is focused on
improving its earnings and strengthening its balance sheet to
manage future price swings and maintain its dividend, which costs
Exxon about $15 billion a year.
Exxon said in October that it plans to cut as much as 15% of its
global workforce, which includes contract and full-time
Exxon cut its expectations for future oil prices for each of the
next seven years by 11% to 17% as part of a financial-planning
process conducted this fall, The Wall Street Journal reported last
week, citing internal documents. The sizable reduction suggests
Exxon expects the economic fallout from the pandemic to linger for
much of the next decade.
Exxon's growth plan had set it apart from rivals that have pared
back spending in recent years amid stubbornly low commodity prices.
Even before the pandemic, the fossil-fuel industry was contending
with an oversupply of oil and gas unleashed by U.S. frackers as
well as increased competition from renewable-energy sources and
electric vehicles and the prospect of increased climate-change
regulation around the world.
Exxon would have to fundamentally remake itself to prosper in a
prolonged period of lower oil prices, according to Doug Terreson,
an analyst at investment bank Evercore ISI. But investors would
welcome a permanent turnaround from its growth aspirations, he
"The market is indifferent as to whether they are larger or
smaller. Investors want them to be more valuable," said Mr.
Exxon said Monday it would now place priority on investing in
Guyana, where it made one of the largest oil discoveries of this
century, and in the Permian Basin in West Texas and New Mexico, the
largest U.S. oil field. The company also said it would focus on oil
discoveries in Brazil and on its chemical business.
Exxon's three straight quarterly losses this year are its worst
stretch on record. Its share price has fallen about 16% over the
last six months, the most among similarly sized oil-and-gas
companies. Its shares closed at about $38 Monday.
Exxon had also stood out among its peers this year for resisting
large write-downs. Its disclosure Monday that it could take a huge
one comes after months of pressure from analysts and others who
argued it needed to do so.
Royal Dutch Shell PLC said earlier this year it would write down
the value of its assets by up to $22 billion, and BP PLC is writing
down as much as $17.5 billion. Last year, Chevron Corp. said it
would cut the value of its assets by $10 billion. All three
companies cited internal forecasts for lower commodity prices as
the cause of the impairments.
Exxon said its potential impairment isn't related to any changes
to its long-term price views or a reaction to short-term price
fluctuations. Instead, the company said it has been strategically
evaluating which assets are worth investing in under current market
constraints, a process that has resulted in the spending cuts
The primary projects from which Exxon decided to withhold
investment are dry gas assets in the U.S. and Canada as well as
properties in Argentina. According to Exxon, because those assets
now have no future cash flows due to canceled investment in them,
the assets must be impaired. The company also said it would explore
selling the assets.
Most of the properties in question are a part of Exxon's
subsidiary XTO Energy Inc., a natural-gas driller it purchased for
$31 billion a decade ago. Several oil-and-gas accounting experts
have alleged in a series of complaints filed to U.S. authorities
that Exxon's reluctance to adjust the value of XTO and other assets
on its balance sheet amounts to accounting fraud.
The group, which filed a whistleblower complaint with the
Securities and Exchange Commission, estimates Exxon should have
taken a $44 billion impairment loss this year and a corresponding
$56 billion reduction of its reported assets on its balance sheet
in the second quarter.
Exxon has rejected criticism of its write-down practices, saying
it is complying with accounting rules and SEC regulations about
disclosures to investors.
The oil giant has said it is able to avoid write-downs because
it is extremely conservative in initially booking the value of new
fields and wells and doesn't respond to short-term commodity-price
fluctuations. Before 2016, Exxon had never recognized an asset
impairment under U.S. accounting rules implemented in the
When Exxon announced its plans to acquire XTO in December 2009,
the company's second-largest deal ever, U.S. natural-gas prices
averaged $5.35 per million British thermal units. But over the past
five years, gas prices have mostly stayed below $3/MMBtu.
"We probably paid too much," former Exxon Chief Executive Rex
Tillerson said of the XTO deal at a conference last year, citing
Write to Christopher M. Matthews at
(END) Dow Jones Newswires
November 30, 2020 18:00 ET (23:00 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
Exxon Mobil (NYSE:XOM)
Historical Stock Chart
From Dec 2020 to Jan 2021
Exxon Mobil (NYSE:XOM)
Historical Stock Chart
From Jan 2020 to Jan 2021