Exxon to offer spending outlook as investors seek clues to low-carbon returns

© Reuters. FILE PHOTO: The logo of Exxon Mobil Corporation is shown on a monitor above the floor of the New York Stock Exchange in New York, December 30, 2015. . REUTERS/Lucas Jackson

By Sabrina Valle

HOUSTON (Reuters) - Exxon Mobil (NYSE:XOM) will brief Wall Street on Wednesday on its future spending plans, with investors looking for how it will balance oil and low-carbon initiatives without compromising shareholder returns.

This year, the largest U.S. oil producer slashed costs by slowing several big expenditures while boosting investment in low-carbon ventures. The briefing will be the first time analysts can quiz executives on spending and proposed new investments in carbon capture and biofuels.

Exxon's disclosure of expected returns targets are the "main concern" for shareholders, said Ben Cook, portfolio manager of Hennessy BP (NYSE:BP) Energy Transition Fund, which holds shares in Exxon. Its nearly 6% dividend yield is critical to investors, he said.

A four-fold increase in low-carbon spending through 2027, to $15 billion, raised "the question of which legacy projects will be pushed out and whether the new low carbon investments could generate comparable returns" to oil, Scotiabank analyst Paul Cheng said.

The update will be the first under a board that includes three new members elected last spring by investors demanding the company cut spending, boost returns and better address climate concerns. Exxon has pivoted from questioning climate change to viewing it as a business opportunity.

Investors will want to hear whether Exxon's increased spending on carbon capture and clean fuels will require cutting some oil and gas projects, Cheng said. Low-carbon could "remain a drag to the company's overall portfolio," Cheng said.

SPENDING REBOUND

Last month, the company signaled it would loosen its spending belt after pandemic-induced cuts, and restore between $4 billion and $9 billion to annual spending over the next few years. It also promised to resume share buybacks next year.

New oil and gas investments in offshore Guyana, Brazil, U.S. shale, and in chemicals products have been included in company's future budgets. Offsetting the costs are proposed sales of billions of dollars in less productive assets.

In Guyana, Exxon recently raised to 10 billion barrels of recoverable oil and gas and projected output will grow eight-fold to 1 million bpd in 2027 - more than a fourth of the company's total output.

Another $8 billion deepwater oil project in Brazil in which Exxon holds a 40% stake was approved this year. Two drilling rigs were added in the U.S. Permian basin, raising Exxon's total to nine in the top U.S. shale field.

The company committed to a $30 billion liquefied natural gas project in Mozambique, pledging to add carbon capture technology to the effort on the east coast of Africa.

"Exxon will either add more spending or a tonne more spending," said Sankey Research oil analyst Paul Sankey. The question is "how much and where" it will put money in the shorter term, he said.