HOUSTON (Reuters) – Exxon Mobil Corp (XOM.N) cut back on a multi-year rush to invest in shale, LNG and deep-water oil production on Tuesday and will cut planned investments this year by 30% as the coronavirus pandemic cuts energy needs and oil prices.
FILE PHOTO: FILE PHOTO: Darren Woods, CEO of Exxon Mobil Corp, is seen at a press conference in New York, the United States, on March 1, 2017. REUTERS / Brendan McDermid / File Photo
Oil companies are reversing spending for 2020 and production will increase by an average of 20% as countries restrict air travel, urge companies to close and urge residents to stay at home to curb the spread of the virus. With a double win for suppliers, crude oil prices have dropped nearly 60% this year and fuel demand is falling sharply.
“We haven’t seen anything like what we’re experiencing today,” Chief Executive Darren Woods said on a media call on Tuesday.
The largest US oil producer, which pledged “significant” spending cuts last month, set capital expenditures at $ 23 billion in 2020 and could be reduced if necessary.
Exxon had previously anticipated spending of up to $ 33 billion and $ 26 billion last year.
The company did not take any action on the dividend that analysts had watched closely. Last year, $ 14.8 billion was spent on shareholder payouts.
The company had expected spending of $ 30 to $ 35 billion over the next few years, but spending for 2021 could also decrease, Woods said.
Exxon will rapidly cut spending on U.S. shale, where it lost $ 6 billion in drilling leases in 2017 and is expected to produce around 360,000 barrels a day (bpd) this year.
According to Woods, production will be reduced by around 15,000 bpd per year this year and by 100,000 to 150,000 barrels per day in 2021.
Exxon hasn’t detailed its spending cuts for Perm, but RBC Capital Markets analyst Biraj Borkhataria estimated that he spends $ 5 to $ 6 billion annually in Perm. “We see no reason why investments and the number of oil rigs cannot be reduced by 50%, a minimum in 2020.”
Exxon expects global oil demand to drop 25% to 30% in the short term, Woods said.
“The storage is very tight. The logistics become tight. I think we will see around the world that logistics will be restricted and there will be standstills across the industry, ”said Woods, adding that it is“ very difficult to predict what these will look like. ”
Exxon’s 30% cut in spending exceeds that of BP PLC, Chevron Corp, Royal Dutch Shell PLC and Saudi Aramco, which cut 20% to 25%. BP and Chevron have also been deeply involved in their shale oil business.
Announcements of cuts announced by nine major oil companies total $ 38 billion, or 22%, of their original $ 175 billion spending plans.
The shares of the US oil major rose by more than 5% in premarket trading.
Exxon’s market value fell 42% this year as the oil price war between Saudi Arabia and Russia weighed heavily on the energy sector. However, the stock has been lagging for years, falling 54% in the past five years, compared to an 18% increase in the US S&P 500 index.
Reporting by Jennifer Hiller in Houston and Arathy S Nair in Bangalore; Editing of Bernadette Baum