Exxon to nearly double Permian output: Correction

Corrects planned percentage change to Permian output in headline and paragraph 1.

ExxonMobil plans to increase production in the Permian basin by about 90pc over the next four years even as it defends its capital investments from critics who call such spending wasteful.

The company expects to produce 700,000 b/d oil equivalent (boe/d) in the Permian by 2025, compared with 367,000 boe/d last year, but lower than the 1mn boe/d target it set in years past.

ExxonMobil will continue its historic strategy of spending heavily to meet future demand, chief executive Darren Woods told analysts today, with 2021 capital spending to range from $16bn-$19bn — 17-30pc lower than the $23bn in 2020 — before rising to $20bn-$25bn in 2022 and staying at that level through 2026.

Woods acknowledged the company needed to do a better job explaining to investors how those projects will generate shareholder value in the short term. It faces pressure from investors, including San Francisco investment firm Engine No 1, investor DE Shaw and a number of public employee pension funds that say the company has wasted shareholder money on projects that have generated poor returns.

Exxon has developed "well-thought-out plans for how we would go forward and accommodate the increased uncertainty and the recovery that we knew we had to make coming out of the pandemic," Woods said.

The major said today that its new projects will produce 40pc of cash flow by 2025 and that 90pc of its investments will generate returns of greater than 10pc at $35/bl oil or less.

But Woods' remarks did little to placate Engine No 1, which wants to add new directors to the board because ExxonMobil has done a poor job in evaluating those investments. Nor has the board accepted the reality that world is fundamentally shifting from fossil fuels, the firm said.

"Today's patchwork of announcements do not materially alter ExxonMobil's long-term trajectory nor do they position it to succeed in a changing world," Engine No 1 said in a statement.

Massive 4Q loss

ExxonMobil reported today a $20.1bn fourth quarter loss as it took a long-anticipated writedown of its North American natural gas shale assets.

The full-year 2020 loss was $22.4bn, down from a $14.3bn profit in 2019. The company warned of the writedown last month.

Full-year 2020 capital spending was $21.4bn, down by nearly 35pc, or $12bn, from initial plans following the steep cut in demand from the Covid-19-related impacts. ExxonMobil expects 2021 capital spending of $16bn-$19bn.

The company cut about $3bn in expenses over the past year, including planned layoffs of thousands of workers, and plans another $3bn in cost cutting by 2023.

Cash flow in 2021 is expected to cover capital expenditures while maintaining the dividend, an issue many analysts have eyed as a concern after last year.

Total fourth quarter production was 3.7mn boe/d, up slightly from 2019. Permian basin production averaged 418,000 boe/d, up by 42pc from the prior year.

Despite an improvement in prices, Woods said the demand outlook for 2021 remains "uncertain." Fixing the balance sheet and preserving financial flexibility, including capex spending, will be the company's top priorities, he said.

By Thomas Lee