ExxonMobil, which gave oomph to the North American natural gas revolution a decade ago, warned Friday its assets are facing a writedown of $25-30 billion and could be for sale.
An internal assessment is underway to determine the fate of the dry gas assets, principal financial officer Andrew Swiger said during the quarterly conference call. Swiger was joined by investor relations chief Stephen Littleton and Senior Vice President Jack Williams, who oversees the downstream and chemicals businesses.
Short-cycle projects in the Permian Basin are a go, but ExxonMobil is working with its partners to defer some downstream, chemical and unspecified liquefied natural gas (LNG) projects, Williams said. “Importantly, we’re not canceling any projects that are in execution in the funding process. These remain attractive investments and while the value of these projects may be deferred, it will not be diminished.”
Staff cuts were announced Thursday, with nearly 2,000 people, mostly based in the Houston area, set to lose their jobs. Another 14,000 could be laid off across the global operations by the end of 2021, or around 15% of the workforce.
Reevaluating Dry Gas
More ominous is the outlook for ExxonMobil’s U.S. dry gas portfolio, the bulk of which was acquired in 2010 for around $35 billion via a tie-up with Lower 48 giant XTO Energy Inc.
ExxonMobil is in the process of divesting around $15 billion of its global assets, but “we may expand it through a reevaluation of our North American dry gas assets, which are currently included in the corporation’s long-term development plan,” Swiger said.
“More specifically, we are evaluating the opportunity to bring the value of some of these assets forward by removing them from the development plan and marketing them through our divestment program.”
The assets under consideration have carrying values totaling $25-30 billion, “which could be at risk for impairment depending on the candidates for divestment and the current estimate of their market value.”
The review is expected to be finalized by the board before the end of November.
Swiger took time to explain all of the moving parts into the decisions concerning its portfolio. “In the upstream, which is a depletion business, capital investment is required to add supply to offset ongoing decline…a sometimes overlooked relationship…Over the past five years, we have seen a steady decline in conventional spending, which has been somewhat offset by North American unconventional growth.
“Pre-pandemic, the industry was already investing at levels below historic rates and below what would be required to meet future demand and overcome natural depletion.”
If the energy industry is to meet “incredible third party estimates for energy demand, we will need to significantly increase investments,” Swiger said. However, commodity prices have to be higher.
ExxonMobil’s plan to reduce its global enterprise is not going to be easy or pretty. Some projects, however, have the green light, including exploration activities in Guyana and Brazil, Williams said.
Corpus Cracker Continues
“We are also taking advantage of the more favorable cost environment” to push through on the ethylene cracker underway in South Texas near Corpus Christi, Williams said. The Gulf Coast Growth Ventures project, a 1.8 million metric ton/year partnership with Saudi Basic Industries Corp., aka Sabic, is 80% complete and scheduled to begin ramping up in late 2021.
ExxonMobil’s oil and gas production in 3Q2020 totaled 3.7 million boe/d, up 1% sequentially. Excluding divestments, mandates and entitlements, liquids production increased 2%, while natural gas volumes were down by 1%.
In the Permian Basin’s Delaware sub-basin, where ExxonMobil is a top operator, quarterly volumes averaged 401,000 boe/d. The total included volumes that had been shut-in during 2Q2020. Full-year production in the play is anticipated to be 360,000 boe/d.
The focus remains on lowering Permian development costs through efficiencies and technology. Compared to 2019, drilling and completion costs decreased more than 20%, while drilling rates (lateral feet/day) and fracturing stages/day each increased by more than 30%.
However, the rosy expectations to keep up to 50 rigs operating across the Permian portfolio have been scrapped. ExxonMobil’s rig count is expected to average 10-15 rigs by year’s end, a level likely into 2021.
The Permian growth plan “is substantially down,” Williams said. However, “the cash flow constraint is not at all a reflection of our development results. Quite to the contrary, we’re very pleased with how things are going…very confident in the quality of the resource, including the unique development plan we have in the Delaware Basin and also logistics integration we had at the Gulf Coast,” where ExxonMobil has processing operations. “So we really like what we’re seeing out there, we’re just going to curtail activity because we have the discretion to do so and defer and move some of that capital to other opportunities.”
While outperforming Wall Street’s expectations, ExxonMobil before 2020 had not posted three straight quarterly losses in more than 30 years. Losses in 3Q2020 totaled $680 million (minus 15 cents/share), versus year-ago net profits of $3.17 billion (75 cents). Revenue fell 30% to $46 billion.
The U.S. upstream arm lost $681 million, compared with year-ago profits of $37 million. Domestic upstream spending totaled $1.26 billion, versus $3 billion in 3Q2019.
Capital and exploration expenditures totaled $4.1 billion in 3Q2020. Spending through the first nine months of the year was $16.6 billion, more than $6 billion under the same period of 2019. Initial spending plans for 2021 are set at $16-19 billion.
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