Exxon has become the latest U.S. oil company to announce plans for spending cuts amid the coronavirus outbreak that caused a price slide significantly aggravated by Saudi Arabia’s decision to start raising oil production.
With its stock down to the lowest in 17 years, according to Reuters, Exxon is pressed to act fast in response to the latest events.
“We are evaluating all appropriate steps to significantly reduce capital and operating expenses in the near term,” chief executive Darren Woods said in a statement. “We remain focused on being a safe, low-cost operator and creating long-term value for shareholders.”
Woods did not give any details about the spending cuts but Exxon’s budget for this year and every year until 2025 was set at between $30 and $35 billion. The supermajor has been one of the few international oil companies that have ramped up spending levels over the past two years, aiming to grow production and shareholder value.
It is also one of the many companies whose U.S. shale oil production costs are higher than the current price of West Texas Intermediate, according to calculations by Rystad Energy.
Exxon has invested $6 billion on developing shale resources in the Permian, with plans to be producing 1 million bpd by 2024. Now, these plans will probably have to be changed to adjust to the new situation of prolonged demand depression and higher supply from Saudi Arabia and Russia.
“Protecting the balance sheet and dividend is the priority for this company,” a Tudor, Pickering, Holt & Co. analyst said. It is unlikely, therefore, that Exxon will resort to dividend suspension or cuts although it could cut 10 to 20 percent of its spending, reducing the annual total for this year to $28-29 billion.
At the time of writing, West Texas Intermediate was trading at $28.86 a barrel after the Fed on Sunday announced a second emergency rate cut, deepening recession fears that will hit the energy industry hard.
