By Joe Carroll and Kevin Crowley
Just to cover project spending and dividend payouts without borrowing, Exxon would have needed international crude prices around $100 a barrel, according to Citigroup Inc. analyst Alastair Syme. That’s well above the $62 fourth-quarter average.
To read about the ominous trends in American shale gas, click here.
“Shareholder returns are poor, and debt is rising in a way that suggests that attractive dividends yields are unsustainable,” veteran oil-industry analyst Paul Sankey of Mizuho Securities USA LLC said in a note to clients. “What is so concerning about these mega-oil results is that they come in a quarter that featured an average $62/bbl Brent price.”
Exxon shares fell so much on Friday that the decline wiped out $12 billion in market value in less than three hours. The last time the stock traded this low was in late 2010, when Chief Executive Officer Darren Woods was a freshly minted vice president of supply and transportation, still several promotions away from the top job.
Chevron also slumped, dropping as much as 4.5% for one of the day’s worst showing on the Dow Jones Industrial Average. The weak results were presaged by Shell’s gloomy earnings report on Thursday that prompted the European supermajor to slow share buybacks.
The pain is far from over: Woods warned that conditions in its chemical business will continue to be “challenging” through 2020 and predicted the worldwide gas glut will take some time to burn off. Years of high spending on new projects will position the Exxon to “capture the eventual upswing” in prices, he said.
Big Oil is at a critical juncture as investors increasingly fret about the role of fossil fuels in warming the planet. Weak quarterly results can undermine confidence in the dividends that compelled investors to bet on companies like Exxon, Royal Dutch Shell Plc and Chevron.
Exxon’s $35 billion-a-year rebuild of its upstream portfolio is swallowing up so much cash that the company is unable to consistently pay dividends from cash flow, leaning heavily on asset sales and borrowing to fund the payout.
The supermajor’s fourth-quarter capital spending exceeded analysts’ estimates by 36%, demonstrating Exxon’s commitment to a raft of new investments from offshore oil in Brazil to liquefied natural gas in Mozambique.
Excluding the $3.7 billion sale of its Norwegian assets, per-share earnings were 41 cents, the lowest since 2016. The $355 million loss in chemicals was the first negative return for that business since 2006, according to RBC Capital Markets.
Exxon’s Woods is facing plunging margins in oil refining and chemicals at a time when crude prices have stagnated and natural gas is in free-fall. Gas makes up almost nearly 40% of its overall production. In the U.S., the fuel is trading close to its 1990s lows, while prices for liquefied cargoes heading for Asia have tumbled almost 50% in the past year.
“Lower cash flow combined with heavy capital investment led to negative free cash flow and a rise in debt that exceeded our expectations for the year,” Moody’s Investors Service Inc. analyst Pete Speer said in a note. “These trends continue to pressure the company’s credit metrics as captured in our negative outlook.”