ExxonMobil on Monday disclosed that it will write down the value of North and South American natural gas fields by a staggering US$17 billion to US$20 billion according to a Bloomberg report.
And as capital spending will be drastically reduced through 2025, Bloomberg noted that the announcement also comes “in the waning days of a grueling year for CEO Darren Woods, who’s taken the heretofore anathema steps of firing em-ployees, curtailing retirement benefits and canceling ambitious growth projects. The former refinery manager has been forced to recast his seven-year, $210 billion blueprint for rejuvenating Exxon’s aging portfolio of crude and gas holdings.”
Guyana has not been negatively impacted by Exxon’s reduction decisions as the company continues to be bullish on its operations here.
While the company had announced that non-commercial quantities of oil was found in the Kaieteur Block’s first well – Tanager-1- it has pledged continued exploration in that block and its 9 billion plus barrels Stabroek Block.
Guyana’s President Irfaan Ali too, is optimistic of the spin offs from Exxon’s operations here and has said that he anticipates natural gas-to-shore from the Stabroek Block to materialize by 2023 so as to deliver affordable energy to Guyanese.
“Our intention, and my hope is work we want to get done, at least by the end of 2023 we can have the gas-to-shore project up and running and we can have natural gas-powered energy so that our energy cost can come down,” Ali had announced last month.
But globally, Bloomberg noted that in addition to dropping vast swathes of gas assets from the development queue, the company is capping capital spending at $25 billion a year through 2025, a $10 billion reduction from its pre-pandemic target.
“This year has been particularly bruising for America’s most-iconic oil explorer. Exxon lost money for three consecutive (quarters), an unprecedented streak, the shares dipped to an 18-year low and the company was ejected from the bosom of blue-chip stocks, the Dow Jones Industrial Average. Woods also plans to cut 15% of the company’s workforce by the end of next year,” Bloomberg said.
“From being the largest company in the S&P 500 Index as recently as 2012, Exxon now ranks just inside the top 50 as energy lost its luster and technology giants grew. Chevron Corp now has a larger market valuation than Exxon,” it added.
Bloomberg noted that Exxon has been warning shareholders since October that its gas assets were at risk of significant impairment. Previously, the energy titan’s largest write-down was for about $3.4 billion in 2016, according to Bloomberg Intelligence.
“Assets removed from Exxon’s development plans include so-called dry gas resources in Appalachia and the Rocky Mountains, Oklahoma, Texas, Louisiana and Arkansas, as well as western Canada and Argentina, the company said. It will attempt to sell “less strategic” assets,” Bloomberg reported.
“The writedown stems from former CEO Rex Tillerson’s decision a decade ago to buy XTO Energy for US$35 billion rather than spend years building an in-house shale business. At the time, the outlook for North American gas prices was bright because demand was rising faster than supply,” it added.
Noted too was how fracking drove down demand, as Bloomberg posited that “fracking was a victim of its own success, unleashing so much gas that it overwhelmed demand and the infrastructure needed to handle it, resulting in a prolonged stretch of depressed prices.”
It said that US rival, Chevron, recorded an impairment of more than $5 billion on Appalachian gas a year ago, and recently agreed to sell those fields to EQT Corp. for about $735 million.
“Unlike its European peers, Exxon has so far chosen to stick with its $15 billion-a-year dividend and has increased borrowing in recent months to fund it and its other capital priorities. On an annualized basis, the dividend has been increased each year for almost four decades,” it said.
It points out that optimism that vaccines will soon restore global economic growth buoyed crude prices in recent weeks, but the impact of the contagion on Big Oil is likely to be long lasting.
“With European giants Royal Dutch Shell Plc and BP accelerating the pivot to renewables and Exxon locking in drastic spending cuts, capital flows into big, traditional developments are expected to shrink in coming years,” Bloomberg said.
Further, it noted, “Cowen & Co. analyst Jason Gabelman detected a subtle shift in Exxon’s word choices that may herald a dramatic change in financial priorities. Whereas company executives touted Exxon’s ‘reliable and growing dividend’ during the third-quarter earnings conference call, Monday’s statement only mentioned reliability, the analyst said in a note to clients.”
