Exxon chops spending by 30%

GLOBAL conglomerate Exxon Mobil Corp yesterday throttled back a multi-year investment spree in shale, liquefied natural gas (LNG) and deep water oil production.

The group will cut planned capital spending by 30% this year as the coronavirus pandemic saps energy demand and oil prices.

Oil companies are reversing 2020 spending and production increases by an average of 20% as countries limit air travel, order businesses to close and tell residents to stay home to curb the spread of the virus.

In a one-two punch to suppliers, crude prices have sunk nearly 60% this year and the demand for fuels is falling sharply.

“We haven’t seen anything like what we’re experiencing today,” chief executive officer Darren Woods said on a media call yesterday.

The largest USA oil producer, which last month pledged “significant” cuts to spending, set 2020 capital expenditure at US$23 billion and could go lower if required, it said.

Exxon previously expected to spend up to US$33 billion and had spent US$26 billion last year.

The company took no action on its shareholder dividend, which analysts had been closely watching.

It spent US$14,8 billion last year on shareholder payouts.

The company had expected spending of US$30 billion to US$35 billion for the next several years, but 2021 spending could come down as well, Woods said.

Exxon will quickly lower spending in USA shale, where it plunked down US$6 billion in 2017 for drilling leases and had expected to produce around 360 000 barrels per day (bpd) this year.

It now expects to reduce output by around 15 000 bpd this year, and 100 000 to 150 000 barrels per day in 2021, Woods said.

Exxon did not detail its Permian spending cuts, but RBC Capital Markets analyst Biraj Borkhataria estimated it was spending US$5 billion to US$6 billion a year in the Permian, “and we see no reason why capex and the rig count cannot be reduced by 50% at a minimum in 2020”.

Exxon expects world oil demand to be down 25% to 30% in the short term, Woods said.

“Storage is becoming very tight. Logistics are becoming tight. I think we’ll see around the world as logistics get constrained, there will be shut-ins across the industry,” Woods said, adding it was “very difficult to predict what those will look like”.

Exxon’s 30% cut in spending exceeds those of oil majors BP PLC, Chevron Corp, Royal Dutch Shell PLC and Saudi Aram­co, which have made 20% to 25% reductions. BP and Chevron also cut deeply into their shale oil businesses.

Cuts announced by nine major oil companies come to a combined US$38 billion, or a drop of 22% from their initial spending plans of US$175 billion.

The USA oil major’s shares were up more than 5% in premarket trading.

Exxon’s market value has slumped 42% this year as the oil price war between Saudi Arabia and Russia has taken a toll on the energy sector.

However, its stock has been sluggish for years, dropping 54% over the last five years compared with an 18% gain in the benchmark USA S&P 500 stock index. – Nampa-Reuters