By Christopher M. Matthews
Exxon Mobil Corp. is still struggling to bolster its bottom
line, nearly two years into a plan to substantially boost oil and
gas production by spending more than rivals.
The Texas giant reported a 5% drop in fourth-quarter earnings
Friday compared with the same period in 2018, the latest in a
procession of energy companies posting declines amid low oil and
gas prices.
The results would have looked worse if not for a one-time $3.7
billion gain from the sale of assets in Norway.
Exxon Chief Executive Darren Woods embarked on an audacious
strategy in 2018 to increase spending to double profits and pump an
additional one million barrels of oil and gas a day by 2025. So
far, it hasn't yielded better results.
The company's full-year profit was $14.3 billion, down 31% from
$20.8 billion the year before. Capital expenditures, meanwhile,
were up 20% to $31 billion from nearly $26 billion in 2018. Revenue
was down nearly 9%, from $290 billion in 2018 to about $265 billion
last year.
The profit was Exxon's third lowest this century, according to
FactSet, and the lowest since 2016, when it fell to $7.84 billion
as the industry suffered a world-wide price crash.
Chevron Corp. on Friday reported a loss of $6.61 billion for the
fourth quarter as results were weighed down by a more than $10
billion write-down of U.S. shale properties and other assets that
the company had announced last month. Royal Dutch Shell PLC on
Thursday reported a nearly 50% drop in quarterly profit, and its
shares dropped after it disclosed that it would ratchet up
divestments and slow its share-buyback program.
Investors -- who have soured on fossil fuel companies in general
after several years of lackluster returns and growing concerns
about climate-change risks -- have reacted coolly to Exxon's growth
strategy. The company's shares fell to their lowest levels since
2010 earlier this week. On Friday, shares were down 3.4% following
the fourth-quarter results.
Chevron shares were down more than 3%.
Exxon's spending has set it apart from competitors such as
Chevron and Shell, which have been more restrained with capital
expenditures. But none of the big publicly traded oil companies
have fared especially well in recent months, as a world-wide glut
of crude and natural gas and concerns about demand weigh on
commodity prices.
The large integrated companies are also being hit by weaker
margins in their chemicals and refining businesses due to excess
supply as well as higher levels of plant outages.
For Exxon investors, the question is whether 2020 will represent
a turn in the company's fortunes, as one of the reasons for its
spending surge, an oil megaproject in Guyana, turns positive. The
Guyana project began producing oil in December. This week, Exxon
raised its estimate of recoverable oil there to eight billion
barrels, up from six billion barrels.
Unlike Chevron, which has responded to Wall Street's calls for
austerity, Exxon is "marching to its own drum," said Mark Stoeckle,
chief executive of Adams Funds, which owns about $110 million in
Exxon shares and $82 million in Chevron.
"Even though it appears the market has said 'we don't want you
to outspend, we want you to do dividends, we want you to do
buybacks,' Exxon is saying 'we take a longer view than anybody, if
you don't like it, then sell the stock," Mr. Stoeckle said.
Mr. Woods had pledged to increase Exxon's output, long hovering
around 4 million barrels a day, to five million by increasing
annual spending between $4 billion to $6 billion to top $30 billion
and focusing on a handful of key projects.
Some investors have regarded the plan with skepticism: Exxon has
been pledging to produce more oil and gas for years, but its output
has remained roughly the same since its merger with Mobil Corp. in
1999.
Mr. Woods has promised that large investments now will result in
higher production and profits in years to come. The investments
have come during a period of lower U.S. oil prices. The West Texas
Intermediate benchmark has mostly hovered around $50 to $60 a
barrel since Mr. Woods took over in 2017 and was trading around $51
Friday morning.
In addition to Guyana, Exxon has markedly outspent competitors
in the oil-rich Permian Basin of West Texas and New Mexico, adding
hundreds of wells as other companies slash shale-drilling activity
there.
The company is operating 56 rigs in the region currently, up
from around 20 in 2018, according to energy analytics firm
Enverus.
Chevron, which has also made the Permian a priority, is
operating 15 rigs, according to Enverus, while the overall rig
count in the Permian has fallen more than 9% over the past
year.
Exxon's investment in the Permian has boosted production over
the past two years, but at a heavy cost. Production from the
company's U.S. operations, to which the Permian is the largest
contributor of oil, increased to 646,000 barrels of oil a day in
2019, up from 551,000 barrels in 2018. But U.S. spending also
increased to $11.6 billion, up from $7.6 billion in 2018.
Overall North American shale investment, or spending on drilling
and fracking, is forecast to fall about 14% in 2020, adjusted for
inflation, according to energy analytics firm Rystad Energy.
Exxon's financial calculus is different from smaller shale
producers due to its ability to feed the oil and natural gas it
produces into its vast network of refineries and chemical and
liquefied natural gas plants across six continents, enabling it to
squeeze out profits during periods of low commodity prices.
But Exxon's chemical and refining units reported about $2.9
billion in combined profits, their lowest return in years, as the
company contended with increased maintenance costs. Earnings from
those units have topped $7 billion since 2013.
Exxon hasn't generated enough cash this year to cover new
expenses and dividends, and other major oil companies have
struggled to make the payments from their own cash flows, according
to FactSet data and company disclosures. Exxon increased its annual
dividend in the first quarter, a step the company has taken for 37
years in a row.
Dave Sebastian contributed to this article
Write to Christopher M. Matthews at
christopher.matthews@wsj.com
(END) Dow Jones Newswires
January 31, 2020 10:37 ET (15:37 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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