30% drop in expenditure, further reductions are possible
US oil and gas giant Exxon Mobil Corporation announced on the 7th that this year's capital expenditure and cash expenditure operating expenses will be reduced by 30% and 15%, respectively, and expenditure from 33 billion US dollars to 23 billion US dollars to deal with the new crown epidemic caused by the imbalance of supply and demand Commodity prices fell. Among them, the largest reduction will be in the Permian basin production area.
Because the coronavirus outbreak has weakened demand for oil, West Texas Intermediate Crude Oil (WTI) has fallen 56% this year. Earlier this year, WTI crude oil prices also exceeded US $ 60 per barrel. Today, its trading price is only $ 26.44, and this price trend has also severely hit the highly leveraged energy industry, because it is often difficult for producers to achieve breakeven through lower prices.
CEO Darren Woods said: "In a very short period of time we have lost 23% of crude oil demand, which is a huge change for the entire industry ... production capacity must be reduced, which will force production Business shutdown. Frankly speaking, the market will ultimately determine the shutdown of crude oil producers and reduce production, because the market has no demand for products, so you will eventually have to stop production.
If necessary, the company is ready to further reduce the scale of expenditure when necessary. I think that in the current situation of uncertainty, we want to keep these options. Over time, we will pay close attention to the market, and if necessary, we will continue to make adjustments. "
Two consecutive credit rating downs and increased liabilities
On April 2, Moody lowered ExxonMobil's credit rating from Aaa to Aa1, with a negative outlook.
Two weeks ago, Standard & Poor's downgraded Exxon's credit rating.
Before the outbreak and the collapse of oil prices, the oil giant was in trouble.
Moody's analysts wrote that increased capital investment, low oil and natural gas prices, and low profitability in the downstream and chemical industries have led to Exxon Mobil ’s negative free cash flow in 2019 and increasing debt. There has been insufficient cash flow. Now that oil prices have fallen sharply and the downstream and chemical industries have performed poorly, the company may have a large amount of negative free cash flow at any time.
In 2019, ExxonMobil paid US $ 15.3 billion to shareholders in the form of repurchases and dividends, but only generated US $ 5.4 billion in free cash flow, while the remaining US $ 9.9 billion could only be compensated by the sale of assets and debt .
The prospects for the sale of oil assets are much worse than before. Finding buyers will be challenging, and the price of assets ExxonMobil is trying to sell may be lower than previously expected. The cash flow from asset sales is lower than expected, which may mean that ExxonMobil needs to assume more debt.
ExxonMobil rejected government assistance or intervention. Woods said: "ExxonMobil has faced market downturns many times in history, and the company has experience in maintaining operations in an ongoing low-price environment. We remain focused on becoming a safe, low-cost operator for shareholders Create long-term value. "
