Tags: exxon | writedown | xto bungle

Exxon Logs Record $20B Writedown, Slashes Spending Plan

Exxon Logs Record $20B Writedown, Slashes Spending Plan
(Mohamed Ahmed Soliman | Dreamstime.com)

Monday, 30 November 2020 05:54 PM

Exxon Mobil Corp. said it will write down the value of U.S. and South American natural gas assets by as much as $20 billion, the largest impairment in its modern history, and slashed long-term capital spending plans.

Some of the company’s North American and Argentine gas fields have been removed from its development plan, resulting in non-cash impairment charges of $17 billion to $20 billion for the fourth quarter, Irving, Texas-based Exxon (XOM) said in a statement Monday. Capital spending won’t exceed $25 billion a year through 2025, a $10 billion reduction from the company’s pre-pandemic target.

Exxon has been warning shareholders since October that its gas assets were at risk of significant impairment. Previously, the energy titan’s largest writedown was for about $3.4 billion in 2016, according to Bloomberg Intelligence.

Exxon’s drastic spending cuts are aimed at defending its dividend, the third-highest in the S&P 500 Index and a mark of pride for the company, which has increased it each year for almost four decades. Cash shortfalls due to the Covid-19 pandemic have put the payout under unprecedented strain in recent months, forcing the company to boost borrowing.

“Continued emphasis on high-grading the asset base -- through exploration, divestment and prioritization of advantaged development opportunities -- will improve earnings power and cash generation, and rebuild balance sheet capacity,” Chief Executive Officer Darren Woods said in the statement.

The writedown stems from former CEO Rex Tillerson’s decision a decade ago to buy XTO Energy for $35 billion rather than spend years building an in-house shale business. At the time, the outlook for North American gas prices was bright because demand was rising faster than supply.

Instead, fracking was a victim of its own success, unleashing so much gas that it overwhelmed demand and the infrastructure needed to handle it, resulting in a prolonged stretch of depressed prices.

U.S. rival Chevron Corp. recorded an impairment of more than $5 billion on Appalachian gas a year ago, and recently agreed to sell those fields to EQT Corp. for about $735 million.

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Exxon Mobil Corp. posted the largest impairment in its modern history after writing down the value of U.S. natural gas assets by as much as $20 billion.
exxon, writedown, xto bungle
Monday, 30 November 2020 05:54 PM
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