Breaking News
Get 40% Off 0
Is NVDA a 🟢 buy or 🔴 sell? Unlock Now

Exxon's CEO sets ambitious agenda on tight timeline

Published Dec 05, 2023 06:02AM ET Updated Dec 06, 2023 05:00AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: Darren Woods, CEO of ExxonMobil, reacts at the Asia-Pacific Economic Cooperation (APEC) CEO Summit in San Francisco, California, U.S., November 15, 2023. REUTERS/Carlos Barria/File Photo
 
XOM
-0.90%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
PXD
-0.59%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
CVX
-0.48%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

By Sabrina Valle

(Reuters) -Exxon Mobil CEO Darren Woods' first five years at the oil company were marred by missed oil production targets, an investor rebellion and the company's biggest-ever financial loss.

Redemption came this year when - aided by a share price pumped up by high oil prices - he clinched a $60 billion deal to buy shale rival Pioneer Natural Resources (NYSE:PXD) to guarantee a steady stream of crude from the United States' most prized shale field.

Exxon's stock has underperformed rival Chevron (NYSE:CVX) over the course of Woods' tenure as CEO. The company recorded a $22 billion loss in 2020 in the depth of the pandemic. Now, his biggest challenge lies ahead as he executes a strategy to compete for investors demanding high returns and lower greenhouse gas emissions.

His plan aims to balance profits from cheaper barrels of oil closer to home, like Guyana's vast offshore oilfields, with a risky multi-billion-dollar promise to create and sell decarbonizing services at margins akin to oil.

"We can address the emissions without throwing out all the investments that have been made (in oil)," the CEO told Reuters at the climate summit COP28 on Saturday. "Whatever the demand is, we're competitive. That's the strategy."

Woods has set for himself a short four years to deliver on his latest strategy, according to Reuters interviews with Exxon executives, former employees, investors and partners.

The executive plans to lay out to investors a new era for Exxon on Wednesday, when he updates the company's capital spending plans and production curve to incorporate his recent goals.

That future includes pumping more than 4.4 million barrels of oil per day (bpd) by 2027, a goal that will require new technology to squeeze an extra 700,000 bpd or more from its existing shale wells.

He is expected to offer Wall Street an updated budget for addressing methane leaks, and the impact of a waning future for motor fuels and the rise of hydrogen fuels and battery-powered electric vehicles, costly issues with no simple solutions.

PAST IS PROLOGUE?

Exxon's track record of buying assets at peak levels has frustrated investors.

“You grow and you grow, and you grow, and then you sell it to Exxon,” said oil analyst Paul Sankey, from Sankey Research.

Woods' latest decision to concentrate future production in two large assets in the Americas contrasts his expansionist vision from five years ago, when Exxon sunk capital into low-margin, high-risk ventures around the world.

Among those projects was a $4 billion bet in 2017 with partners on drilling rights offshore Brazil. It was once a top prospect for growth, but Exxon so far has failed to find a drop on its own.

Analysts say Woods is implicitly asking the market for the benefit of the doubt on the acquisition of Pioneer and Denbury, a $4.9 billion carbon-pipeline firm Exxon bought to underpin its plans to sell carbon sequestration services to other companies.

"That was an easy ask with Guyana. Not so much for shale and (carbon capture and storage). We are not there yet," Sankey said.

So far, Woods' plans have turned investors demanding an energy transition strategy into believers - at least on climate.

"The path that they're going down is the path that we thought they should go down,” said Chris James, chairman of activist investor Engine No. 1 which led a victorious 2021 proxy fight that attacked Exxon for overspending in oil.

Woods deal for Denbury fits into an overall $17 billion bet on decarbonization and hydrogen through 2027. To allay investor worries about declining demand for gasoline and other fuels, he has restructured its downstream units to easily switch to chemical from motor fuels.

At the same time, the company plans to have a leading role in the vehicle electrification business. In November, Exxon pledged to become by 2027 a large scale producer of lithium, the raw material used in electric vehicle batteries.

MORE OIL VS GREEN AMBITION

Exxon's ambitious agenda includes starting up the world's largest hydrogen power plant by 2027. These low-carbon businesses can generate return on investment of between 10% and 20%, Exxon said.

"We expect this business to generate solid double-digit returns and we expect to compete for capital inside of the rest of the ExxonMobil (NYSE:XOM) portfolio," said Low Carbon Solutions unit President Dan Ammann.

Capital spending on low carbon technologies will take about 11% of the company's annualized budget through 2027, or roughly half of what European peers invest. But that is a dramatic difference from as recently as 2.5 years ago, when less than 1% of Exxon's budget was devoted to projects with low emissions.

"We can evaluate whether this is a business or not in 2027," said Goldman Sachs analyst Neil Mehta.

To prove Woods is right, Exxon would need to generate between $1.7 billion and $3.4 billion in net income from the business by 2027, he said. Woods and Ammann declined to specify a targeted year for delivering the promised profits.

RISKY BUSINESS

The $17 billion budget for low carbon technologies as the company's total revenue grows next year "will continue to rise", the CEO said. Upon completion, in the first half of 2024, the Pioneer acquisition will add nearly 20% in oil and gas production to Exxon's sales.

The investment plan contains risks. Both hydrogen and carbon capture are yet to be regulated, infrastructure is sparse or nonexistent and profitability is uncertain. Returns will also depend on hefty government subsidies.

"There is a risk a lot of the hydrogen projects being announced around the country never get to a final investment decision," said GTI consultant Brian Weeks, who also coordinated the HyVelocity hydrogen hub proposal by Exxon and dozens of partners.

Exxon's acquisition of Denbury and its 1,300 mile carbon dioxide pipeline network will be linked to a hydrogen facility in Texas and more than 160 offshore blocks in the Gulf of Mexico where Exxon plans to bury carbon dioxide.

Spending in low carbon currently is constrained by scarcity of customers willing to sign up for contracts and insufficient regulations, Woods said.

Exxon has convinced the largest ammonia maker in the U.S., an industrial gas company and a large steel company to ink long-term contracts for carbon reduction services. The services should be fully paid for only after plants, pipelines and carbon reservoirs are in place.

The terms of the contracts, announced earlier this year were not disclosed, offering little visibility for investors.

“There is a price to pay when you want to be a pioneer,” said Chris Bohn, finance chief at ammonia maker CF Energies, which was the first company to sign up for Exxon’s Low Carbon Solutions service.

Exxon's CEO sets ambitious agenda on tight timeline
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your investing.com profile, will be public on investing.com and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email