Big Oil's big reckoning
There doesn't seem to be an oil major that's got it all figured out between the pandemic, cloudy demand and price outlooks, and the unknown path through a world getting a bit more serious about climate.
Driving the news: ExxonMobil yesterday afternoon showed the latest signs of its struggle to position itself as it announced large write-offs and a big rethink of long-term spending.
- But European majors aren't well-positioned either, despite their strategy for diversifying more quickly than their U.S. counterparts into renewables and other investments outside their fossil products.
Details: Exxon is slashing planned capital and exploration spending to $20 billion-$25 billion annually through 2025, compared to $30 billion-$35 billion planned before COVID-19.
- Exxon also said it's planning a write-down of $17 billion-$20 billion on natural gas assets in the U.S., Canada and Argentina.
- The Wall Street Journal reported last week that Exxon has substantially lowered its oil price outlook over the next decade.
The big picture: Bloomberg's unsparing lede: "Exxon Mobil Corp. is about to incur the biggest writedown in its modern history as the giant U.S. oil and gas producer reels from this year’s collapse in energy prices."
- While the pandemic has worsened Exxon's struggles, it didn't create them, as the company has been dealing for years with some big bets that haven't paid off — including its $31 billion 2010 deal for the big gas producer XTO Energy.
Yes, but: Exxon said yesterday that it hopes to double its earnings by 2027 and that in the nearer-term, the business environment in Q4 is showing signs of improvement.
- The company said it's focusing on the development of priority assets in Guyana, Brazil, the Permian Basin and its chemicals division.
- The moves will boost Exxon's "earnings power and cash generation" and ability to "manage future commodity price cycles," CEO Darren Woods said.
The intrigue: That brings us to Europe and a good Financial Times look at the strategies of the multinational oil-and-gas giants headquartered there like Shell and BP.
- The story notes the lagging stock performance of those companies compared to large renewables companies like wind giant Orsted.
- Even as Europe's oil giants pivot, their ability to execute in the renewables space is uncertain.
The bottom line: Overall, the Financial Times reports, there's a realization that "even if oil executives manage to transform their businesses, they cannot guarantee significant earnings and returns in the next decade."