Exxon prepares spending, job cuts in last ditch move to save dividend

[HOUSTON] Exxon Mobil is preparing deep spending and job cuts, according to people familiar with the matter, as it fights to preserve a 8 per cent shareholder dividend with a multi-billion-dollar quarterly loss looming.

It was unclear how extensive the cuts will be. The largest US oil company slashed this year's budget by 30 per cent in April, but chief executive Darren Woods's turnaround through rebounding demand and increased asset sales have not panned out and losses are climbing.

On Friday, Exxon is expected to report a US$2.63 billion second-quarter loss, according to Refinitiv Eikon data, on sharply lower prices and weaker production, the first back-to-back quarterly losses in at least 36 years. Shares are down 35 per cent so far this year as the coronavirus pandemic has crushed fuel demand.

The latest cost cuts are needed to preserve the company's nearly US$15 billion annual payout to shareholders in the face of rising losses, the people said. Exxon will not generate enough cash from production operations to cover this year's dividend, analysts have said. It borrowed US$18 billion earlier this year to bolster cash.

Mr Woods so far this year held to the view that oil, natural gas and petrochemicals demand would rebound following an historic crash that saw global consumption fall by roughly one-third and US prices plunge into negative territory in April.

Rivals BP, Royal Dutch Shell and Total have slashed up to US$45 billion in the combined value of their oil and gas properties. Meanwhile, Exxon's 2019 plan to raise US$15 billion by 2021 through asset sales has gotten off to a slow start, fizzling this year due to lackluster demand from potential buyers.

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With energy prices expected to remain lackluster for years, Mr Woods has turned to spending and staff cuts, and a business restructuring to salvage the payout. Rival Chevron has stood out as producing enough cash from operations to cover its dividend.

Even if it does retain its full dividend this year, a cut is "a real possibility in 2021," given the outlook for oil, said Jennifer Rowland, an analyst with Edward Jones. "There is only so much Exxon can continue to lean on its balance sheet before they start to jeopardise" the payout, Ms Rowland said.

The dividend, which yields about 8 per cent at Wednesday's closing price of US$44.03 a share, is sacrosanct at Exxon, which until this year raised the payout annually for 37 years. Its market value, however, has dropped by half since Mr Woods took over in January 2017.

REUTERS