Exxon Mobil Plans Capital Cuts. Will the Dividend Remain? - Barron's

Exxon said it would reduce spending.

Photograph by David McNew/Getty Images

Just hours after S&P Global Ratings cut Exxon Mobil’s debt ratings on Monday, the company said it would “significantly reduce spending” in response to oil’s price plunge. Exxon didn’t release specifics about the cuts, which were announced in a news release late on Monday.

“Based on this unprecedented environment, we are evaluating all appropriate steps to significantly reduce capital and operating expenses in the near term,” said Darren Woods, chairman and chief executive officer, in the statement. “We will outline plans when they are finalized.”

Exxon shares are down 51% this year. Its dividend yield is now 10.1%. Shares were up 0.5% shortly after the market opened.

Woods has ramped up spending on capital projects from $23 billion the year he arrived in 2017 to $31 billion last year, and he said at an investor conference earlier this month that spending would total between $30 billion and $35 billion between 2020 and 2025. Woods said at the company’s investor day on March 5 that the best time to invest is when others are cutting back. “We expect these down markets to discourage industry investment, setting a stage for a significant upswing. And we believe the best time to invest in these businesses is during a low, which will lead to greater value capture in the coming upswing,” he said.

Clearly, that calculus changed in a hurry, as the novel coronavirus spread quickly in Europe and the U.S. over the following week. West Texas crude fell below $30 for the first time in four years on Monday. Analysts expect Exxon to cut spending in the Permian Basin, because shale drilling is easier to turn off and on than longer-term projects.

The company’s dividend could also be at risk, though Exxon previously said it plans to grow the dividend, not cut it. The company spent $14.7 billion on dividends in 2019, which it was unable to cover with the $5.4 billion in free cash flow it made. S&P said in its downgrade that Exxon was at risk for another cut if it “continued to return cash to shareholders beyond internally generated cash flow.”

Write to Avi Salzman at avi.salzman@barrons.com

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https://www.barrons.com/articles/exxon-mobil-cutting-spending-oil-prices-51584453490

2020-03-17 14:00:21Z
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