The world’s biggest private fossil company, ExxonMobil, is preparing for its worst stock performance since 1981 and facing pressure from shareholders to send dividends their way sooner rather than later, Bloomberg reports.
Exxon’s stock price fell 20% in 2018, prompting some analysts to conclude that investors are already second-guessing the company’s plans for continuing growth in oil and gas production. “Based on Exxon’s stock price compared to the other oil majors, investors mistrust the company’s vision of the future or its ability to execute that vision,” wrote Tom Sanzillo, director of finance at the Institute for Energy Economics and Financial Analysis, and guest columnist Kathy Hipple in a post last May. “It’s no wonder, given Exxon’s massive write-offs of failed investments, including the nearly four-billion-barrel tar sands write-off in 2016 and ongoing losses related to the company’s ill-timed investment in natural gas.”
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The continuing decline this year “comes as Exxon pursues one of the largest restructurings in its modern history, a seven-year, US$200-billion push for oil in South America and natural gas in Mozambique and Papua New Guinea,” Bloomberg notes. “With one of corporate America’s strongest balance sheets, the concern isn’t whether Exxon can fund the rebuild. The question from investors: What can you do for me in the meantime? The awkward answer may be ‘not much,’ at a time when oil prices are plummeting.”
On one hand, a 40% drop in oil prices since October 3 validates Exxon CEO Darren Woods’ plan to refocus on less expensive, overseas oil and gas operations that can withstand uncertainties related to the shale boom and the transition to renewable energy, the news agency states. “On the other, it puts him at odds with investors who, seeing the uncertainty, want companies to return as much profit to shareholders now as possible.”
The analysis attributes Exxon’s financial woes to “flag-planting deals made at the peak of commodity prices over the past decade. Exxon spent $35 billion on U.S. shale gas producer XTO Energy Inc. in 2010 when the real money was to be found in shale oil. It invested $16 billion in Canadian oil sands since 2009, only to de-book much of the reserves. Meanwhile, former CEO Rex Tillerson’s 2013 exploration pact signed with Russia was caught behind a wall of sanctions and later abandoned.”
As recently as 2014, Woods’ five major investments in deepwater oil in Guyana and Brazil, liquefied natural gas in Mozambique and Papua New Guinea, and shale oil in the U.S. weren’t even on Exxon’s list of assets. By 2025, they’re expected to produce half of the company’s profits from upstream oil development.
“The resource base wasn’t up to scratch for the post-2014 oil price environment so they needed to move down the cost curve,” said Bloomberg Intelligence analyst Fernando Valle. “It will take a lot of time and investment for them to catch up, but it’s something they have to do.”
Shale oil from the Permian Basin in Texas is seen as Exxon’s most promising prospect for short-term financial results, with the company claiming it can produce double-digit profits with oil at just $35 per barrel. But falling global prices “have pushed oil sold in New York below $45, leaving less and less room for profit,” Bloomberg notes. And over the longer term, “investors are worried the projects abroad will take years to fully develop.”
“I’m not sure how much of the market is moving on a 20- to 30-year time horizon,” Woods said in May. “There’s a little bit of a disconnect between how the market thinks about the business and values it in the time frame that it’s using, versus what we have to do internally.”
While the famously secretive Exxon has been trying to reach out more effectively to Wall Street, investors aren’t the colossal fossil’s only problem. In addition to multiple lawsuits in the United States, the European Parliament announced last month it would “seek to question” the company “for allegedly hiding the dangers of climate change from the public through a misinformation campaign that lasted decades,” Climate Liability News reports.
“Hiding information and misleading the population about the extent and risks of climate change for decades is unacceptable, and fortunately people speak up against these abuses now more than ever before,” said Ana Miranda, a Green Party MEP from Spain. “The European Parliament will not tolerate these violations, and hopefully this will serve as an example to others.”
Exxon has also pulled out of two Canadian projects in the last month—a C$25-billion liquefied natural gas (LNG) development in British Columbia, and the Sable Offshore Energy Project that it had operated since late 1999 off the Nova Scotia coast. A news report said the Sable natural gas field had reached the end of its operating life.
