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Oil giant ExxonMobil reported its fourth quarter earnings Friday with its fourth quarterly loss in a row. The Covid pandemic caused plunging oil demand within a supply glut but early stages of demand recovery are seen. Q1 was $XOM's first quarterly loss in 32 years, leading to the first annual loss in that time. XOM’s new focus is on carbon capture energy-transition technologies

Exxon Sign

Exxon cut last year’s project spending by $10 billion.

ExxonMobil Inc. (NYSE: $XOM) Reported Earnings Before Open Tuesday

($0.18) Beat ($0.25) EPS and $32.61B Missed $38.157 billion revenue forecast

Earnings

Exxon Mobil Corp. (NYSE: XOM) reported Q4 earnings on Tuesday,  its first annual loss in at least three decades including a $19 billion impairment charge. Free cash flow swung negative to the tune of almost $5 billion, or almost $20 billion after dividends were paid out.

Net debt to capital, 19% at the start of last year, jumped to 29%. 

Exxon Mobil Corporation NYSE: $XOM

Market Reaction: Close $45.62 ▲ $0.70 (+1.56%)

Exxon has taken moves to adjust to the new energy landscape with an extensive discussion of Exxon’s ambitions in carbon capture. The company appointed a new director with more to come. First things first cash flow is the first priority as in all responsible commodity and energy firms in this Covid laced times. Exxon’s giant capex budget, and some would say it's obsession to maintain it's dividend led the company to borrow, even before Covid-19 that have caused the problem. 

Today Exxon worked to reassure investors and Exxon went a long way in doing that at the conference call.  Exxon Mobil's debt though is controlable and true to form Exxon said capex will be lowered before the dividend. This years's the budget the lowest since the merger with Mobil Corp. in 1999. 

Exxon specific breakeven oil price assumptions.

  • Expects to cover this year’s low capex figure and the dividend at somewhere between $45 and $50 a barrel (Brent has averaged almost $55 so far this year, versus about $42 in all of 2020).
  • By 2025, reductions in operating expenses and cash flow from new projects are projected to reduce that breakeven to more like $35 a barrel, with capex of more like $20 to $25 billion supported by Brent at $45-$50. 
  • The dividend yield has been fluctuating between 9.5%, was below 7.3% in the past few months. Like all oil majors Exxon needs oil to move higher;

Exxon 4 2020 Capital Allocation

Exxon 4 2020 Permian Performance

The company’s new focus on carbon capture energy-transition technologies is in  Exxon’s worldview of rising demand for oil. Exxon says that carbon capture “mitigates emissions at an affordable cost.” All depends what is affordabe of course. 

The Intergovernmental Panel on Climate Change has estimated the cost of limiting temperature change below 2 degrees will be much higher without the deployment of carbon capture technology. That certainly gives Exxon grounds to work toward it. - Bloomberg

Exxon's focus on carbon capture still speaks to a mindset geared to higher oil demand, leaving Exxon vulnerable if this doesn't pick up.  There has been an surge of investment in other transition technologies such as electric vehicles, with the Tesla the poster child here. Old economy stalwarhas been right that lower investment in oil supply is fueling a sustained increase in prices, then its focus on resilience at lower prices will pay dividends in the near term. What is next in Exxon shift is the key for the long term.

Highlights

“The past year presented the most challenging market conditions ExxonMobil has ever experienced,” Chairman and CEO Darren Woods said in a statement. He said the company’s aggressive cost-cutting measures are expected to deliver structural expense savings of $6 billion per year by 2023.

XOM Earnings Q4 20

Covid-19 has significantly impacted near-term demand, resulting in oversupplied energy markets and unprecedented pressure on commodity prices and margins

Segments

  • Exceeded cost-reduction objectives, with 2020 capital spending of $21 billion below target by $2 billion; cash operating expense more than 15% below 2019, of which $3 billion is a structural reduction\
  • Met 2020 methane emissions (15%) and flaring (25%) reduction targets versus 20161 , and announced 2025 emission reduction plans; projected to be consistent with the Paris Agreement

Upstream

• Average realizations for crude oil were in line with the third quarter. Natural gas realizations rose by 39 percent in the quarter, reflecting market supply disruptions and seasonal demand. • Liquid volumes increased 2 percent from the third quarter driven by lower maintenance and downtime. Natural gas volumes decreased 2 percent driven by reduced entitlements. • Upstream full-year 2020 reliability matched best-ever performance with focus on best-in-class operations.

Downstream

  • The Downstream delivered full-year cost reductions in line with revised targets, and achieved best-ever personnel safety, process safety, and reliability performance. 
  • Industry fuels margins improved slightly from the third quarter, but remained near historic lows driven by market oversupply and high product inventory levels.
  • Lubricants delivered strong fourth quarter and full-year performance underpinned by improved margins and cost control, despite pandemic-related challenges.

Chemical

  • Fourth quarter earnings of $691 million represent the best quarterly result since 2018, underpinned by strong safety and operational performance, and advantages from integration with refining. Chemical also achieved best-ever full-year 2020 personnel safety, process safety, and reliability performance.
  • Chemical sales volumes were even with the third quarter, while industry margins strengthened on continued strong packaging demand, automotive and durables market recovery and industry supply disruptions.
  • Achieved record full-year polyethylene sales driven by strong performance from recent investments and growing demand for the company's high-value performance products.

Strengthening the Portfolio

  • During the quarter, production volumes in the Permian averaged 418,000 oil-equivalent barrels per day, an increase of 42 percent from the prior year.
  • Full-year 2020 production averaged 367,000 oil-equivalent barrels per day. Focus remains on lowering overall development costs and increasing recovery through efficiency gains and technology applications.

Full-year 2020 drilling and completion costs were more than 25 percent lower than 2019. Over the same period, drilling rates (lateral feet per day) improved more than 20 percent and fracturing rates (stages per day) improved more than 30 percent.

ExxonMobil continued to progress major deepwater development in Guyana. Exploration, appraisal, and development drilling continues across four rigs with plans to add additional rigs in the first half of 2021. The Liza Phase 1 development, utilizing the Liza Destiny floating production, storage, and offloading vessel (FPSO), is producing at capacity of 120,000 gross barrels of oil per day.

The Liza Unity FPSO, which will be deployed for the second phase of Liza development and will have a gross production capacity of 220,000 barrels of oil per day, is under construction and is expected to start production in 2022. Payara, the third major phase of development, which was fully funded in 2020, will also have a gross production capacity of 220,000 barrels of oil per day and is expected to start up in 2024.

Outlook

Management Perspectives on Forward Plans

  • Additional annual structural operating expense reductions of $3 billion expected by 2023, resulting in total annual structural reductions of $6 billion versus 2019
  • Cash flow this year expected to cover capex and maintain dividend and strong balance sheet.
  • Assumptions include Brent prices of $50 per barrel and lowest annual Downstream and Chemical margins during 2010-2019; portfolio flexibility enables further adjustments
  • ExxonMobil Low Carbon Solutions business created and new independent director elected

 

ExxonMobil Huge Liza Field Acerage in Guyana

ExxonMobil earlier in the year said that oil production started from the Liza field offshore Guyana, less than five years after the first discovery of hydrocarbons, well ahead of the industry average. Gross production from the Liza phase 1 development, located in the Stabroek block, is expected to reach a capacity of 120,000 gross barrels of oil per day in the coming months. XOM made a final investment decision during 2Q17 to proceed with the Liza field development located offshore Guyana, where production is expected to start in 2020. The company expects Liza to add up to 120,000 barrels of oil per day to 

Liza HESS EXXON

Source: ExxonMobil, Blooomberg

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