Exxon is trying to quickly put the past behind it, particularly after shares fell 41% in 2020.
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The headline number on Exxon Mobil’s fourth-quarter earnings report looks about as bad as it gets, but the details of the report may give investors some hope.
In addition to posting hopeful guidance for 2021, Exxon (ticker: XOM) is adding a new independent director to the board—a move that may not mollify activist investors who want a more dramatic board turnover, but one that indicates momentum towards change.
Shares were up 1.8% in Tuesday trading.
Exxon is trying to quickly put the past behind it, particularly after shares fell 41% in 2020. It even considered a merger with Chevron (CVX), according to The Wall Street Journal.
Exxon posted a $20.1 billion loss in the fourth quarter, largely due to impairments on its natural gas assets that it had told investors about last year. Stripping out impairments and other charges, Exxon said it earned $110 million, or 3 cents per share, on revenue of $46.5 billion. Earnings per share were two cents ahead of analysts’ expectations, while revenue was in line.
The $20.1 billion loss writes off much of the assets Exxon got when it bought XTO Energy in 2010. It’s part of Exxon’s decision to focus its resources on only its best projects. The gas investments had projected returns on capital that were too minuscule at a time when the company thinks it has better options, such as projects off the shore of Guyana and in the U.S. Permian Basin. In fact, Exxon said that 90% of the projects it’s spending money on for the next five years have “a cost-of-supply of $35 Brent per barrel or lower.”
The best news for investors may be Exxon’s statement about its dividend, which had been under serious pressure last year as the company failed for the second year in a row to cover it with free cash flow.
“The company expects 2021 cash flow to cover capital expenditures while maintaining the dividend and a strong balance sheet,” Exxon said in the release.
Exxon said it plans to defend the dividend even if oil prices fall lower. As of Tuesday, Brent futures were trading at $57.73 per barrel.
“These expectations are valid at Brent prices of $50 per barrel and at the lowest annual Downstream and Chemical margins during 2010-2019,” the company said. “Should the price and margin environment fall below these levels, capital expenditures can be further reduced to enable dividend coverage and maintenance of balance sheet strength at Brent prices of approximately $45 per barrel.”
Exxon also announced the election of a new board member: Tan Sri Wan Zulkiflee Wan Ariffin, the former Petronas president and group CEO. The company said it also “continues discussions with other director candidates” and “expects to take further action in the near term.”
Exxon announced on Monday that it will create a new business focused on low-carbon alternatives. Activists have been pressuring Exxon to be more aggressive on combating climate change.
Write to Avi Salzman at [email protected]
