ExxonMobil to write off up to US$20 billion of assets
Under the plan, ExxonMobil said it would prioritise near-term capital spending on advantaged assets with the highest potential future value
ExxonMobil Corp 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 write-down 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 write-down also includes properties in Argentina and western Canada.
While smaller than the up to $30 billion charges 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.
ExxonMobil 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. Not mentioned was its $30 billion Mozambique liquefied natural gas project, which sources do not expect final investment decision on until early 2022.
“Recent exploration success and reductions in development costs of strategic investments have further enhanced the value of our industry-leading investment portfolio,” said Darren Woods, chief executive officer of ExxonMobil.
Business conditions are continuing to show signs of improvement despite the pandemic, he said.
Exxon shares fell 5% in late trading to US$38.13 and are down by half in the last five years.
The impairment charge “further worsens the company’s already substantial jump in financial leverage,” said Pete Speer, senior analyst at Moody’s Investors Service.
“With this charge added to the big rise in debt this year, we see ExxonMobil’s debt/capitalization rising to nearly 30%, from just over 20% at the start of 2020,” Speer added.
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