Structural costs will decrease by $9 billion by the end of 2023 compared with four years earlier, a 50% increase from the previous target, the company said in a statement Wednesday. The announcement lands just ahead of Exxon’s annual Investor Day in New York and only hours after the oil giant decided to end a decades-old relationship with Russia after President Vladimir Putin’s invasion of Ukraine.
Covid-19 forced a major strategic shift from Chief Executive Officer Darren Woods, who dialed back an aggressive growth plan that would have cost more than $200 billion over seven years. Instead, he cut capital spending by a third, had the company’s first mass layoff since the 1980s and reduced overheads. Exxon recently announced plans to relocate its Irving Texas headquarters to its main campus in Houston, in part to save money, and has also experienced high attrition levels, especially in the U.S.
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The new savings announced Wednesday would reduce costs by $10 a barrel, Exxon said, and would be enough to pay for 60% of the company’s dividend, the third-highest in the S&P 500 Index, according to Bloomberg data. The savings will help to double earnings and cash flow “potential” by 2027 while boosting returns, Exxon said.
It didn’t give an update on its share buyback plan, which is currently set at $10 billion over two years. U.S. rival Chevron Corp. doubled its buyback to as much as $10 billion a year on Tuesday. Jefferies analyst Giacomo Romeo said the lack of buyback news “may be taken negatively today.”
The slimmed-down strategy also helps Exxon’s climate agenda because the company will be producing far less fossil fuel than its pre-pandemic plan. Shareholders sided with activist investor Engine No. 1 over management last year to replace a quarter of Exxon’s board with new directors following a campaign that demanded the company accelerate its energy transition plans.
Since then, Exxon has declared an “ambition” to zero out net emissions from its own operations, which doesn’t include pollution from the fossil fuels it produces when they are burned by end consumers.
The company has also built out a low-carbon division and dedicated $15 billion for lower emissions investments through 2027. Exxon has also announced plans, though no funding yet, for a hydrogen and carbon capture plant at its Baytown refinery in Texas. It also recently committed $400 million to expand carbon capture at its LaBarge gas facility in Wyoming.