Oil major, Exxon Mobil Corp on Monday said it would write down the value of natural gas properties by $17 billion to $20 billion, its biggest ever impairment, and slash project spending next year to its lowest level in 15 years.
The oil major is reeling from the sharp decline in oil demand and prices from the COVID-19 pandemic and a series of bad bets on projects when prices were much higher. New cost cuts aim to protect a $15 billion a year shareholder payout that many analysts believe is unsustainable without higher prices.
The writedown lays bare the size of the miscalculation that the company made in 2010 when it paid $30 billion for U.S. shale producer XTO Energy as natural gas prices went into a decade-long decline. The writedown also includes properties in Argentina and western Canada.
While smaller than the up to $30 billion charge the company forecast a month ago, the quarterly charge to earnings reflects the company’s recent reduction in its outlook for oil and gas prices.
Exxon will continue initiatives in offshore Brazil, Guyana, the Permian Basin shale field in the United States, and in performance chemicals despite plans to implement deeper spending cuts it said but did not mention its Mozambique Liquefied Natural Gas project.
“Recent exploration success and reductions in development costs of strategic investments have further enhanced the value of our industry-leading investment portfolio,” said Chief Executive Darren Woods.
Business conditions are continuing to show signs of improvement despite the pandemic, he said.
Next year’s spending will fall, to between $16 billion to $19 billion, but Exxon will increase spending by 2025 to more than this year’s about $23 billion level, Woods said.
The plan to return to higher levels of capital expense struck investor Mark Stoeckle, senior portfolio manager at Adams Funds, as unusual.
“In this environment it makes no sense to me at all. What’s the hurry? They could have ended at 2021 and just forgot the rest. I don’t think it’s going to help them with investors,” he said.