ExxonMobil’s (or “Company”) nightmare 2020 just got worse. The troubled energy company announced on Monday that it would significantly write down the value of its natural gas assets. ExxonMobil also pledged to sharply reduce its spending ambitions in response to a slowing recovery in oil prices.
ExxonMobil plans to book $17-20 billion in non-cash charges, a huge blow to a company that has long opposed writedowns. It is believed to be the largest such writedown in ExxonMobil’s history.
At the end of 2009, ExxonMobil spent $41 billion to acquire natural gas giant XTO Energy, which further proves that What a serious mistake the company made. Now, about half the value of the deal has been wiped out.
The natural gas market is sluggish, with natural gas trading at about $3 per million British thermal units, less than half the price at which ExxonMobil purchased XTO. Natural gas peaked in late 2005, exceeding $15 per million British thermal units.
But today, the world is experiencing a severe oversupply of natural gas as the U.S. shale gas boom has unleashed vast amounts of fossil fuels.
Raymond James analyst Pavel Molchanov wrote in a note to clients on Tuesday that Exxon’s “massive natural gas asset writedown” was management’s “clearest acknowledgment yet that XTO The transaction was a major failure – there’s no doubt about it.”
Most of the assets written down include Appalachian, Rocky Mountain acquired in the XTO transaction Mountains, gas fields in Texas, Oklahoma, Louisiana and Arkansas. The remainder of the fee is for overseas natural gas assets in Western Canada and Argentina.
Exxon Mobil is not the only oil company forced to cut the value of its fossil fuel assets. Chevron, BP and Shell have all taken massive writedowns over the past year.
But Exxon not only slashed the value of its natural gas portfolio, it also eliminated some natural gas assets from its development plans entirely. ExxonMobil said in a statement that it may sell some of the assets “subject to buyer valuation.”
Budget reduction
Exxon promised investors that it would “focus on short-term capital spending Prioritize assets with the highest potential future value” rather than pouring more money into natural gas.
Specifically, ExxonMobil said it will focus on developing Guyana’s vast oil resources, accelerate production in the Permian Basin in West Texas, and Brazil for some exploration.
Exxon Mobil also abandoned bold plans to invest more amid weak oil prices. The company currently expects to spend no more than $19 billion in 2021 and between $20 billion and $25 billion annually by 2025. That’s a far cry from the $30 billion to $35 billion Exxon projected in March to spend annually by 2025.
Exxon Mobil is busy cutting costs and laying off employees. The company reiterated its plan to cut its global workforce by 14,000 people, or 15%, by the end of next year. This includes the elimination of approximately 1,900 jobs in the United States, mostly at its Houston headquarters.
The raging epidemic and plummeting oil prices have exposed Exxon’s fragile financial condition. The company posted its first quarterly loss in decades and was removed from the Dow Jones Industrial Average after 92 years in the index.
As recently as 2012, ExxonMobil was the world’s most valuable company. But today its market value is only $161 billion, smaller than T-Mobile US, AbbVie, Nike and Adobe. Since its peak of $446 billion in mid-2014, Exxon Mobil’s market value has more than halved, losing a staggering $285 billion.
Expelled for the first time
As stated in the previously published article ranking the world’s 50 largest oil companies Investors no longer favor oil companies. Exxon Mobil was expelled from the Dow Jones Industrial Average for the first time in more than 90 years. Oil and gas companies account for only 3% of the S&P 500 index. This not only reflects Exxon Mobil’s own situation. Difficulties, and reflects that the traditional oil and gas industry is in a critical period of transformation and development.
A precarious financial chain
Wall Street hopes that austerity and more conservative budgets will be enough to save ExxonMobil’s dividends, which are critical to the company’s appeal to investors. But analysts are skeptical. This year marks the first time since 1982 that ExxonMobil has failed to increase its dividend.
Raymond James analyst Molchanov warned that “ExxonMobil will not be able to fund its 2021 dividend” without increasing borrowing or selling assets.
Currently, capital markets are fully open, and ExxonMobil should be able to borrow funds to pay its dividend. But this can’t go on forever.
RBC Capital Markets analyst Biraj Borkhataria said, “The question is how much debt they want to take on. Increasing dividends seems to be challenged.”
And even if Exxon avoids cutting its dividend, its steep payout cuts will cast doubt on the company’s long-term future.
Oil companies need��Keep putting money into drilling wells, otherwise production dries up and cash flow suffers. Borkhataria said: “The company is in a very dangerous position because of the sector they are in and the fact that they have underspent for many years. They have to execute existing projects to protect the long-term viability of the business.”< /p
