ExxonMobil announced its third consecutive quarterly loss on Friday as it slashed planned capital spending for next year and warned of “significant” impairments in the coming months.
The oil supermajor posted a net loss of $680m in the three months to the end of September, down from a $3.2bn profit in the same period last year.
Underlining the persistent effects of this year’s oil price crash, it said it would cut capital expenditures — already drastically reduced this year — by up to a third next year and that assets with values of up to $30bn were at risk of writedowns as it carries out a portfolio review in the coming months.
The writedowns could apply to its North American gas portfolio, it said, including assets it acquired in 2009 when it bought XTO Energy for $41bn — a deal in which Exxon is considered to have vastly overpaid.
“We remain confident in our long-term strategy and the fundamentals of our business, and are taking the necessary actions to preserve value while protecting the balance sheet and dividend,” said Darren Woods, Exxon chief executive.
“We are on pace to achieve our 2020 cost-reduction targets,” he added.
Exxon plans to reduce capital spending to $23bn this year — a third less than it had originally planned — and shrink operating costs by 15 per cent. But it said the cuts would continue into 2021 with capex expected to fall as low as $16bn next year. On Thursday it announced plans to reduce its workforce by 15 per cent — or more than 14,000 jobs — by the end of 2020.
“This is austerity on steroids,” said Pavel Molchanov, an analyst at Raymond James. “What Greece was going through about eight years ago — that, for a private sector company, is what Exxon is doing now.”
Revenues of $46bn were down by about 30 per cent on the same period last year. Upstream production was down 6 per cent to 3.7m barrels a day. Exxon said output would likely remain broadly flat in 2021.
Companies across the sector have struggled since the price crash earlier this year which was triggered by the pandemic. Exxon rival Chevron on Friday posted a $207m loss for the same period, compared with a profit of $2.6bn a year earlier.
Mike Wirth, Chevron chief executive, said the hit to demand triggered by the virus continued to weigh on the sector. “The world’s economy continues to operate below pre-pandemic levels, impacting demand for our products,” he said.
Chevron has also sought to cut costs and previously announced plans to lay-off up to 15 per cent of its workforce. Its capex was down by almost half in the third quarter.
Exxon and Chevron have sought to maintain their dividend despite the industry’s malaise. But in Exxon’s case, the task was becoming harder, analysts said.
All $15bn of the payout had to be covered by debt this year, said Mr Molchanov, and more than half of next year’s will also need to be supported by borrowing.
“So the choice is either Exxon continues to flex its balance sheet to pay the dividend, or the dividend needs to be cut,” he said. “Or it can sell assets, but under current conditions there are a lot more sellers and buyers.”
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Despite the crude price crash this year and growing investor worries about longer-term fossil fuel demand, Exxon is pushing ahead with plans to increase oil and gas output by almost a third in the next five years.
The company said it was planning for a market recovery as falling investment and development across the industry tightens supply and demand in the coming years, supporting further dividend payments.
“In that plan we will be able to maintain the dividend,” said Andrew Swiger, senior vice-president, on a call with analysts. “If we get into some situation where we’re back in a world like we’ve been in in the second and third quarters, obviously all bets are off.”
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