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Exxon faces $ 20 billion from “epic failure” a decade ago



Exxon (XOM) plans to charge a cash fee of $ 17 billion to $ 20 billion – a huge blow to a company that has long opposed write-offs. This is considered to be the largest such record in the history of Exxon.

The natural gas market is depressed, with gas trading at about $ 3 per million British thermal units – less than half the price at the time Exxon rushed to buy the XTO. Natural gas peaked at the end of 2005 at over $ 15 per million BTU.

But today the world is overflowing with natural gas due to the shale boom that has unleashed huge amounts of fossil fuels in the United States.

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7;s “colossal devaluation of gas assets” is “management’s clearest acknowledgment so far that the XTO deal is an epic failure – not that any reminders are needed,” Raymond James analyst Pavel Molchanov wrote in a note to customers. in Tuesday.

Most of the write-off covers properties in the Appalachians, Rockies, Texas, Oklahoma, Louisiana and Arkansas that were acquired in the XTO deal. The rest of the fee is for foreign gas properties in Western Canada and Argentina.

Exxon is hardly the only oil company forced to reduce the value of its fossil fuel properties. During last year, Chevron (CVX),, BP (BP) and Shell (RDSA) all have taken massive write-offs.

But not only has Exxon reduced the value of its natural gas portfolio, the company has completely removed some of these gas properties from its development plan. Exxon said in a statement that it could sell some of those assets, “depending on the buyer’s estimates.”

Shrinking the budget

Instead of investing more money in natural gas, Exxon promises investors that it will “prioritize short-term capital expenditures for favored assets with the highest potential future value.”

In particular, Exxon said it would focus on developing its vast oil resources in Guyana, accelerating production in the Permian Basin in West Texas and some research in Brazil.

Exxon is also withdrawing from its bold plans to increase investment despite low prices. The company now expects to spend $ 19 billion or less in 2021 and between $ 20 billion and $ 25 billion a year by 2025. This is far from Exxon’s March forecast that it will spend $ 30 to $ 35 billion a year by 2025
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Exxon is trying to reduce costs and jobs. The company reiterated that it plans to shrink its global workforce by 14,000, or 15%, by the end of next year. That includes cutting about 1,900 jobs in the United States, mostly at Houston headquarters.
The pandemic and the collapse in oil prices have exposed Exxon’s weakened financial situation. The company reported quarterly losses for the first time in decades and was dropped from the Dow Jones Industrial Average after 92 years in that index.
As early as 2012, Exxon was the most valuable company in the world. But today it is estimated at only 161 billion dollars – less than T-Mobile USA (TMUS),, AbbVie (ABBV),, Nike (ON) or Adobe (ADBE). Exxon’s market value has plummeted by more than half to a staggering $ 285 billion since it peaked at $ 446 billion in mid-2014.

“Uncertain position”

Wall Street hopes the belts will be tightened and a more conservative budget will be enough to save Exxon’s dividend, which is crucial to its attractiveness to investors. But analysts are skeptical. This year, for the first time since 1982, Exxon failed to increase its dividend.

Molchanov, an analyst at Raymond James, warns that “Exxon cannot finance its dividend in 2021.” without additional loans or sales of assets.

For now, the capital markets are wide open and Exxon must be able to borrow to finance the dividend. But this cannot go on forever.

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“The question is how much debt they want to take on,” said Biraj Borkhataria, an analyst at RBC Capital Markets. The dividend seems disputed.

And even if Exxon avoids cutting dividends, its sharp cost cuts raise questions about the company’s long-term future.

Oil companies must constantly invest in drilling – otherwise production dries out, which damages cash flows.

“The company is in a precarious position due to the deals they have concluded and the fact that they have not spent enough for many years,” Borhataria said. “They need to implement their existing projects to protect the long-term viability of the business.”


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