Exxon is reducing shale ambitions to focus on lowering costs and keeping the dividend

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© Reuters. FILE PHOTO: FILE PHOTO: An Exxon sign is seen on a gas station in the Chicago suburb of Norridge

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By Jennifer Hiller and Shariq Khan

HOUSTON (Reuters) – Exxon Mobil Corp (NYSE 🙂 announced plans to increase dividends and curb spending on Wednesday. Forecasts were dampened from previous years after the leading US oil and gas producer posted a historic annual loss for 2020.

Investor pressure on Exxon to cut costs, improve financial returns, and better prepare for the energy transition to low-carbon fuels has increased.

At its Investor Day presentation, the company reiterated plans to keep project spending between $ 16 billion and $ 19 billion annually through 2021 and between $ 20 and 25 billion annually through 2025.

Production is expected to remain unchanged at around 3.7 million barrels of oil and gas per day through the middle of the decade, as the focus is instead on increasing cash flow.

Before the pandemic, and to the horror of many investors, Chief Executive Darren Woods pledged to spend up to $ 35 billion a year on projects. The company has caused costly dropouts in recent years by spending too much on shale and oil sands projects, which it later wrote down.

After the pandemic cut energy needs, Exxon cut spending by nearly a third and reduced the value of its shale gas properties by more than $ 20 billion. It has also cut workers and added debt.

Shares rose 1% to $ 56.62 and are up more than a third so far this year.

The company is trying to convince a skeptical Wall Street that it has implemented cost-cutting measures.

Woods introduced the company’s new low-carbon solutions business, where he sees short-term opportunities in terms of capturing and storing carbon and offsetting carbon emissions.

“I think we are on the way some of our major shareholders want us to be,” said Woods.

Oil and gas exploration spending will be focused on Guyana, Brazil and the Permian Basin, where lower shale aspirations appear to be the reason for the company’s shallow production prospects, said Biraj Borkhataria, an analyst at RBC Capital Markets.

The company expects to produce around 400,000 barrels of Permian per day this year and will grow to 700,000 “based on market conditions” by 2025, said Neil Chapman, senior vice president. Two years ago, she predicted 1 million barrels per day in the Permian by 2024.

Overall production is likely to “steadily shift from gas to liquids, which is at odds with most of our colleagues,” said Borkhataria.

Exxon has drawn the ire of activists focused on the climate, but since December the company has announced it will cut oilfield emissions and improve climate disclosure. No company-wide emissions target has been set.

Exxon plans to spend $ 3 billion on its low-carbon business by 2025, which is about 3% of its investments, up from 1% previously. “But it’s still far from the double-digit levels of companies like Shell (LON 🙂 and Total,” said Pavel Molchanov, analyst at Raymond James.

On Monday, Exxon appointed activist investor Jeffrey Ubben and former Comcast (NASDAQ 🙂 executive Michael Angelakis to its board of directors. Engine No. 1, a newly formed activist firm, is trying to add four new directors to Exxon’s board of directors.

A coalition of investors overseeing $ 2.5 trillion in assets on Wednesday said the energy giant had taken “first steps in the right direction” but there was more work to be done.

“Perhaps the best news about the board additions is that the position Exxon has held for many years may change,” said Mark Stoeckle, senior portfolio manager, Adams Funds.

Plans to cut annual operating costs by $ 6 billion “will also be an important indicator for investors,” said Stoeckle.

The company has historically “gotten out of hand” in terms of capital allocation, said Andrew Swiger, chief financial officer.

Exxon expects savings of $ 2 billion from downsizing and efficiency alone, Swiger said. Around 14,000 employees and contractors, or 15% of the global workforce, could be cut by the end of the year.

On Tuesday, the company announced it would reduce its Singapore workforce by about 7%.

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