ExxonMobil has warned it may write down the value of its US shale assets by up to $30bn (£23.2bn) following a steep drop in global energy prices that has led to the oil giant’s third consecutive quarterly loss.
The US oil and gas producer told investors it plans to reassess its North America gas business over the coming months, which could lead to impairment charges as high as $25bn to $30bn if it changes its long-term strategy.
The rethink will include a string of shale gas assets acquired 10 years ago through an ill-fated acquisition of XTO Energy, which was worth about $30bn at the time, but whose book value is in doubt following a steep collapse in gas market prices due to the Covid-19 pandemic. Exxon said its shale gas operations were among the assets “at risk for significant impairment”.
The slump in energy prices led Exxon to a net loss of $680m for the third quarter on Friday, compared with a $3.2bn profit in the same months of 2019.
The result was better than expected by equity analysts but Exxon still trails behind rival oil firms Chevron, BP and Shell which all managed a modest return to profit in the latest quarter.
The record quarterly loss, and what could prove to be the industry’s biggest writedown in more than a decade, will pile pressure on Exxon’s chief executive, Darren Woods, who had promised to protect the company’s $15bn-a-year dividend policy despite the historic industry-wide impact of the pandemic.
Woods told investors this week that he plans to make job cuts affecting up to 14,000 people employed across its global business, and will cut the company’s 2021 spending budget by almost 30% to between $16bn and $19bn to help shore up its balance sheet.
Woods has already cut spending for 2020 by a third, and promised to reduce its operating costs by 15%, after abandoning his plans for an aggressive, debt-fuelled overhaul of the company’s ageing portfolio set for this year.
Exxon’s decision to reassess the value of the gas assets it bought from XTO Energy in 2010 was “looming large for some time”, according to RBC Capital analyst Biraj Borkhataria, and may “draw a line in the sand on the poor timing” of the first US shale mega-deal.
Meanwhile, the second-largest US oil producer, Chevron, reported a quarterly loss of $207m, down sharply from a profit of $2.6bn in the same period last year, despite cuts to capital spending of 48% while lowering its operating expenses by 12%.
Exxon was once the most-valued company listed on the New York Stock Exchange but its value has plummeted in recent years, accelerated by the coronavirus crisis. The company’s market value has fallen to $136bn, and was usurped by US renewable energy firm NextEra Energy, valued at $144bn.
During the pandemic Exxon has also been topped by Netflix, which is now worth $213bn, and remains only slightly ahead of the video-conferencing firm Zoom, which is worth $133bn.