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HOUSTON • Ill-timed bets on rising demand see ExxonMobil face a deficit of roughly $ 48 billion (Singapore $ 65.7 billion) through the end of next year, according to a Reuters tally and Wall Street estimates, a A situation that will require the major United States oil company to make deep cuts in its personnel and projects.
Wall Street investors are even beginning to worry about the once sacrosanct dividend at Exxon, which in the 20th century became the world’s most valuable company using global scale, relentless expansion, and tight financial controls.
Exxon weathered a series of setbacks over the past decade, and under CEO Darren Woods sought to return to its past prominence with big bets in America’s shale oil fields, pipelines, and global refining and plastics. He also bet heavily off the coast of Guyana, where he discovered up to eight billion barrels of oil, six years of production, at the current rate.
But Exxon’s ability to finance that global expansion is no longer assured. This year, the company borrowed $ 23 billion to pay its bills, nearly doubling its outstanding debt. In July, it posted its first consecutive quarterly losses. It faces a loss of $ 1.86 billion for the full year, according to Refinitiv, excluding asset sales or write-offs.
The looming shortfall of about $ 48 billion was calculated using cash from operations, shareholder payment commitments and costs of the massive expansion program that Exxon had planned.
Now the company is embarking on a global review of where it can cut expenses, and analysts believe the once-unthinkable dividend cut has become more likely.
This year’s sharp drop in oil demand and prices has shattered Woods’ plan to spend at least $ 30 billion a year through the end of 2025 to jumpstart production and profits by expanding oil processing, chemicals and production, and assuming a leadership role. in US shale and liquefied natural gas, markets that looked promising at the time.
Instead, it must prepare Exxon to operate in a world of lower demand for oil, gas and plastics.
The company has been removed from the Dow Jones index of major American industrial companies after 92 years.
It is exposing up to 10 percent of US personnel to harsh criticism that could drive thousands of people out of the company, and it is eliminating the lavish retirement benefits that had career employees who stayed on average for 30 years.
Exxon declined to make an executive available for an interview, and a spokesperson said details of the cost cuts would be released early next year.
“We remain committed to our capital allocation priorities: investing in projects with industry advantages, paying a reliable and growing dividend and maintaining a strong balance sheet,” said spokesperson Casey Norton.
A review of projects that are underway aims to “maximize efficiency and capture additional cost savings to put us in the strongest position” as energy markets improve, he said.
Oil prices have fallen 35 percent since the beginning of this year due to the collapse in demand during the Covid-19 pandemic. BP, Royal Dutch Shell, Total, Repsol and others have reduced the value of their oil and gas properties by billions of dollars, something that Exxon has yet to do.
Large European companies are also adding renewable energy and electricity to their portfolios, a hedge against the permanent reduction in demand for oil and gas. BP plans by 2030 to reduce its fossil fuel production by 40 percent.
Exxon’s cash from operations, estimated at around $ 17.4 billion this year, is $ 20 billion short of funds needed for this year’s investment plan and shareholder dividend, a Reuters analysis showed. .
The company’s stock price closed last Friday at $ 39.08, up 56 percent since Woods became chief executive.
Exxon must cut its dividend if the share price remains depressed, said Mark Stoeckle, senior portfolio manager at Adams Funds. “Something has to give. Wherever it happens, it damages the credibility of management,” he said.
REUTERS
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