US oil and gas giant Exxon Mobil Corp joins its global rivals and announced that it will be dialing back its investments in shale, deep water, and natural gas production this year. The company revealed on Tuesday that it will be cutting back on its capital spending by up to 30 percent to shore up its finances given the oil price crash and the ongoing coronavirus pandemic.
Since the start of the global pandemic and the following collapse of the pact between Russia and Saudi Arabia that sent oil prices plummeting, major oil companies have begun pulling back on capital spending for the entire year. On average, oil companies have announced an average reduction of 22 percent as part of their respective strategies to weather the crisis.
The pandemic, which has forced governments to impose travel restrictions and stay-at-home orders, has drastically reduced global oil demands. In response, major oil producers, particularly OPEC and Russia, began negotiations to limit production to stabilize global prices. Unfortunately, both parties have yet to come to an agreement and have instead increased production in a bid to take larger market shares.
The oil price war that ensued gave other oil companies no other choice but to find ways to cut costs amid the crisis. Exxon chief executive officer, Darren Woods, mentioned on Tuesday that the unprecedented circumstances haven't provided them with any other options.
Among all of the major oil producers, Exxon is one of the last holdouts to announce spending cuts. Its cost-cutting strategy is unsurprisingly also one of the most significant given how it was late in implementing immediate measures.
In a conference call to its stakeholders, Exxon stated that it will be dropping its 2020 capital spending from $33 billion to $23 billion. This will be the lowest budget even proposed by the company in four years. Exxon warned that the budget could be cut down even further even the situation gets worse.
The spending cuts are expected to mostly affect the company's US shale operations, which are expected to be reduced by up to 15,000 barrels per day this year. Exxon did not detail its planned spending cuts for its Permian basin operations, but experts predict that operations in its 58 drilling rigs could be reduced by up to 50 percent this year.
Exxon did not disclose any new information on its dividend plans for this year. Analysts have been closely monitoring the company's plans, anticipating possible reductions. Last year, the company spent a total of $14.8 billion on shareholder payouts.
