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Exxon Ripped Up $30-Billion Rebuilding Plan, Could Declare Stranded Assets at Kearl Lake

August 7, 2021: ExxonMobil’s massive Kearl Lake mine north of Fort McMurray was at risk of becoming the latest tar sands/oil sands to be devalued as one of the world’s most determined colossal fossils considered designating up to one-fifth of its global oil and gas reserves as stranded assets, part of a company-wide scramble to respond to crashing oil prices and weak markets for its product.

On Monday, Bloomberg News reported that Exxon was “ripping up its debt-fueled, US$30 billion-a-year plan to rebuild an aging worldwide portfolio after cash flow evaporated and threatened the company’s vaunted dividend.” Then in a regulatory filing Wednesday, the company admitted that “certain quantities of crude oil, bitumen. and natural gas will not qualify as proved reserves at year-end 2020” if oil prices stay low through the end of the year—as many analysts expect.

And just as French colossal fossil Total singled out two investments—its tar sands/oil sands operations at Fort Hills and Surmont—when it declared C$9.3 billion in stranded assets last week, Exxon’s statement Wednesday focused in on one particular project. “The company’s massive Kearl oil sands mine in Alberta was the only specific asset singled as a potential victim of any year-end revision,” Bloomberg writes. “Imperial Oil Ltd., which is about 70% owned by Exxon and run as a subsidiary, said in a separate filing that an undetermined portion of Kearl’s reserves may be imperiled.”

As for the bigger picture, “a 20% hit would impact the equivalent of almost 4.5 billion barrels of crude, or enough to supply every refinery on the U.S. Gulf Coast for 18 months,” the news agency adds. And “Exxon isn’t waiting until the traditional end-of-year period to reassess reserves. After slashing its drilling budget by $10 billion to cope with the virus-driven market collapse, the company on Wednesday said it removed about one billion barrels from its books,” mostly in shale fields.

Those moves are part of a bigger and, some analysts would say, long-overdue change in Exxon’s investment strategy. “The shift by the Western world’s premier oil explorer represents an about-face after more than two years of doing pretty much the opposite of its biggest rivals, who have been shrinking and looking to a future beyond fossil fuels,” Bloomberg wrote Monday. “As recently as March, the Texas giant had pinned its future to huge capital spending on oil and natural gas at a time when peers were exploring ways to decarbonize.”

At the time, “Exxon Chief Executive Officer Darren Woods’ plan was to lean on the company’s impeccable balance sheet to drill for gushers and still cover almost $15 billion in annual dividends,” the news agency added. But now, the company is cutting its capital spending, exploring management job cuts, and announced that “work on Exxon’s five marquee developments—deepwater oil in Guyana and Brazil, Permian Basin shale, gas exports from Mozambique and Papua New Guinea—will all be curtailed or delayed.”

Senior Vice President Neil Chapman told analysts the moves were just an adjustment, not a strategic shift. “I don’t think it’s a fundamental change,” he said. “I think it’s a response to the short-term environment.”

Sustaining the company’s annual dividend to shareholders is “something we take really, really seriously,” Chapman added. “Exxon is keenly sensitive to the fate of its dividend because 70% of the company’s shareholders are retail investors,” Bloomberg explains. But “the commitment comes at a significant cost,” and “without so much money being spent on new projects, questions remain over how Exxon can mitigate its long-term production declines and how resilient its assets will be in an energy transition toward low-carbon fuels.”