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 spring.

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 employees.

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 said.

"The market is indifferent as to whether they are larger or smaller. Investors want them to be more valuable," said Mr. Terreson.

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 announced Monday.

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 1990s.

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 natural-gas prices.

Write to Christopher M. Matthews at christopher.matthews@wsj.com

 

(END) Dow Jones Newswires

November 30, 2020 18:00 ET (23:00 GMT)

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