Exxon assured investors of its financial health in a world of $50-a-barrel oil and promised that if crude were to dip to $45 it would sacrifice spending in the name of dividends. The Western world’s largest oil explorer has so far avoided the sort of payout cuts adopted by rivals Royal Dutch Shell Plc and BP Plc.
The dividend pledge comes on the heels of a $19.3-billion writedown of U.S. natural gas and other assets, and the lowest production since the 1999 Mobil Corp. merger. Cash flow from operations — a key gauge of corporate strength — shrank by almost 9% during the final three months of 2020 to $4 billion. Investors looked past all that and boosted the stock by 1.5% to $45.60 at 8:26 a.m. in New York.
“We remain focused on increasing long-term value for our shareholders,” Chief Executive Officer Darren Woods said in a statement. “The past year presented the most challenging market conditions ExxonMobil has ever experienced.” Exxon’s $15 billion-a-year payout is third-highest in the S&P 500 Index.
Excluding the historic impairment, Exxon returned to profit in the fourth quarter, earning 3 cents per share, and ending a run of three consecutive quarterly losses. That compares with the Bloomberg Consensus estimate for a 2-cent profit.
Exxon is emerging from the wreckage of 2020 facing the worst crisis in its modern history. In addition to growing criticism of its environmental record, financial performance has deteriorated. Exxon hasn’t increased payouts since early 2019.
Such was the pressure exerted by last year’s price collapse that Woods held preliminary talks with his counterpart at Chevron Corp. about a megamerger, the Wall Street Journal reported Sunday.
Before Tuesday’s reassurances, some investors had been worrying the oil titan might resort to a cut to shore up its cash position. As recently as October, the company was still pledging to increase payouts, but that changed a month later when management dropped the word “growing” from its discussion of dividends.
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Exxon isn’t alone in facing serious challenges even as commodities are on a tear. Chevron disappointed investors at the end of last weak with a surprise loss grounded on weaker-than-expected refining margins. Earlier Tuesday, BP Plc squeezed out a small profit that was a fraction of what the explorer earned in pre-pandemic days. ConocoPhillips posted a third consecutive loss.
As he begins his fifth year as CEO, Woods is taking an axe to capital spending and operating costs, all but abandoning his circa 2018 blueprint for expanding output while drilling and construction costs were low. Exxon announced 14,000 job cuts, delayed megaprojects from the Permian Basin to Mozambique, and has pledged to keep a tight rein on spending through the middle of this decade.
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The cutbacks helped turn Wall Street analysts more positive on the stock, especially with oil prices rebounding this year, but investors are still nursing deep losses after a 41% plunge in 2020 and years of underperformance compared with peers.
Last week, activist investor Engine No. 1 formally took up the cause for a change in strategy, nominating four directors to the board ahead of Exxon’s annual meeting in May. The investor, which has the support of the California State Teachers’ Retirement System, is calling on Exxon to invest more in clean energy, commit to reducing emissions and improve returns on capital.