Exxon touts growing dividends, cutting spending as climate challenges loom for Big Oil

HOUSTON (Reuters) - Exxon Mobil Corp on Wednesday unveiled plans to grow dividends and curb spending with projections that were muted from previous years after the top U.S. oil and gas producer posted a historic annual loss for 2020.

Investor pressure has mounted for Exxon to cut costs, improve financial returns and better prepare for the energy transition to lower-carbon fuels.

At its investor day presentation, the company reaffirmed plans to keep project spending between $16 billion and $19 billion in 2021, and between $20 billion and $25 billion a year through 2025.

It expects output to remain flat at around 3.7 million barrels of oil and gas per day through mid-decade as it focuses on boosting cash flow instead.

Before the pandemic, and to the dismay of many investors, Chief Executive Darren Woods promised to spend as much as $35 billion per year on projects. The company made costly misfires in recent years by overspending on shale and oil sands projects that it later wrote down.

But after the pandemic slashed energy demand, Exxon cut spending by nearly a third - reducing the value of its shale gas properties by more than $20 billion. It also trimmed workers and added debt.

Shares were up 1% to $56.62 and have risen by more than a third so far this year.

The company is trying to convince a skeptical Wall Street that it has embraced cost-cutting.

Woods pitched the company's new Low Carbon Solutions Business, where he sees near-term opportunities in carbon capture and storage and carbon offsets.

"I think we're on the path that a number of our major shareholders want to see us on," Woods said.

Oil and gas production spending will focus on Guyana, Brazil and the Permian Basin, where lower shale aspirations appear to be the reason for the company's flat production outlook, said Biraj Borkhataria, analyst with RBC Capital Markets.

The company expects around 400,000 barrels of daily Permian output daily this year, growing to 700,000 by 2025 "based on market conditions," said Senior Vice President Neil Chapman. Two years ago, it forecast 1 million barrels per day in the Permian as early as 2024.

Overall output is likely "to steadily shift from gas to liquids, which is at odds with most peers," Borkhataria said.

Exxon has drawn the ire of activist investors focused on climate, but since December the company has said it would reduce oilfield emissions and improve climate disclosures. It has not set a company-wide emissions target.

Exxon plans to spend $3 billion through 2025 on its Low Carbon business, about 3% of its capital spending, up from 1% previously. "But it is still far from the double-digit levels of companies such as Shell and Total," said Pavel Molchanov, analyst with Raymond James.

On Monday, Exxon named activist investor Jeffrey Ubben and former Comcast executive Michael Angelakis to its board. Engine No. 1, a newly formed activist firm, is trying to place four new directors on Exxon's board.

A coalition of investors that oversees $2.5 trillion in assets on Wednesday said the energy giant had taken "initial steps in the right direction" but more work lays ahead.

"Maybe the best news about the board additions is that the 'our way or the highway' position that Exxon has taken for many years may be changing," said Mark Stoeckle, senior portfolio manager at Adams Funds.

Plans to reduce annual operating expenses by $6 billion "will also be an important marker" for investors, Stoeckle said.

The company was "way out of kilter" with where it wanted to be in terms of capital allocation in the past, said Andrew Swiger, chief financial officer.

Exxon expects $2 billion in savings alone from workforce reductions and efficiencies, Swiger said. It has said it could cut around 14,000 employees and contractors, or 15% of its global workforce, by the end of the year.

On Tuesday the company said it would cut its Singapore staff by about 7%.

(Reporting by Jennifer Hiller in Houston and Shariq Khan in Bengaluru; Editing by Jonathan Oatis and Lisa Shumaker)

03/03/2021 17:54

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