Exxon slashes share buybacks to 14-year low

Washington

EXXON Mobil put investors on notice that it's scaling back measures to prop up the share price as shrinking production and tumbling crude prices squeeze cash flow needed to fund drilling and dividend payouts.

Exxon cut share repurchases for the current quarter to a 14-year low on Monday after oil and natural gas output declined more than expected. Its US refineries lost US$1 million and cash flow tumbled 36 per cent company-wide. Production from Exxon's wells dropped to the lowest fourth-quarter average since the Mobil merger in 1999.

The price of a barrel of crude tumbled more than US$37 during the final three months of 2014. If the decline persists for a year, it would shave US$10.6 billion from Exxon's annual cash flow, based on Barclays' estimate. Even after the slump, a 9.5 per cent increase in dividends declared in April remains intact, Exxon said on Monday. Exxon has raised its annual dividend for 31 straight years.

"The last thing any of these oil majors want to do is cut the dividend," said Ed Cowart, who manages US$640 million at Eagle Asset Management in St Petersburg, Florida. "They'd cut the chairman's pay before they'd touch the dividend - it's that important to them."

Exxon repurchased 100 million shares in the first nine months of 2014. The company's stockpile of repurchased stock, which Exxon historically used as currency to pay other companies, had a value of US$222 billion as at Sept 30.

Exxon's net income fell to US$6.57 billion, or US$1.56 a share, from US$8.35 billion, or US$1.91, a year earlier, the Irving, Texas-based company said. Per-share earnings were 22 US cents above the US$1.34 average of 19 analysts' estimates compiled by Bloomberg. The results were boosted by a US$300 million arbitration award from Venezuela after the International Chamber of Commerce ruled the South American nation owed the company for nationalising oil assets.

Exxon follows Chevron, ConocoPhillips and other oil titans in posting deep profit declines after a shale-driven supply glut helped hammer crude prices. Layoffs, drilling delays and more than US$40 billion in spending cuts have been announced as oil companies scramble to ensure they have enough cash on hand to continue paying out dividends to investors.

Oil producers, drillers and equipment suppliers have slashed tens of thousands of jobs after crude lost almost 60 per cent of its value in seven months, a slump not seen since the worldwide financial crisis of 2008-2009. Chevron chairman and chief executive officer John Watson last week warned that belt-tightening will intensify if the price decline deepens.

Exxon's production of oil and gas fell 3.8 per cent during the quarter to the equivalent of 4.054 million barrels a day, lower than any of the five estimates from analysts in a Bloomberg survey.

Buybacks are being reduced by 70 per cent to US$1 billion during the current quarter, the lowest since the third quarter of 2000, when Exxon devoted US$856 million to such transactions.

The company spent US$11.57 billion on dividends in 2014, a 6.4 per cent increase from a year earlier. For the full year 2014, capital-project expenditures slid 9.3 per cent from 2013 to US$38.54 billion. Exxon will release its 2015 capital budget on March 4 at the company's analyst day at the New York Stock Exchange.

For Exxon, oil's crash during the second half of 2014 added to the sting of international sanctions imposed against Russia that halted the American company's exploration ambitions in one of the world's biggest untapped petroleum caches. Exxon was forced to halt cooperation with Moscow-based OAO Rosneft on a billion-barrel Arctic Ocean discovery in October after the US and European Union forbade collaboration with Russia's offshore oil and shale industries. The impact was particularly harsh for Exxon, as Russia represents its largest exploration prospect outside the US.

Exxon's Arctic offshore and Siberian shale aspirations remain in a holding pattern as the international standoff over Russian-speaking separatists in Ukraine drags on. WP