‘Is Exxon a Survivor?’ The Oil Big Is at a Crossroads.
HOUSTON – For the past 135 years, Exxon Mobil has survived hostile governments, ill-fated investments, and the disastrous Exxon Valdez oil spill. From all of this, the oil company made wads of money.
But suddenly Exxon is slipping badly, its long latent weaknesses being exposed by the coronavirus pandemic and technological changes that promise to transform the energy world amid growing concerns about climate change.
The company, one of America’s most profitable and valuable companies for decades, lost $ 2.4 billion in the first nine months of the year, and its stock price has fallen about 35 percent that year. In August, Exxon was removed from the industrial average by Dow Jones and replaced by Salesforce, a software company. The move symbolized the handover of the baton from Big Oil to an increasingly dominant technology industry.
“Is Exxon a Survivor?” asked Jennifer Rowland, an energy analyst with Edward Jones. “Of course they are with great global fortune, great people, and great technical know-how. But the question is really, can they thrive? This is very skeptical at the moment. “
Exxon is increasingly under pressure from investors. DE Shaw, a longtime shareholder who recently increased its stake in Exxon, is calling for the company to cut costs and improve its environmental footprint, according to one informed person. Another activist investor, Engine No. 1, urges similar changes supported by the California State Teachers Retirement System and the Church of England. And on Wednesday, New York State Comptroller Thomas P. DiNapoli said the state’s $ 226 billion pension fund was selling stakes in oil and gas companies that weren’t moving fast enough to reduce emissions.
Of course, every oil company is grappling with the collapse in energy needs this year, and as world leaders, including President-elect Joseph R. Biden Jr., they commit to addressing climate change. In addition, many utility companies, automakers, and other companies have committed to significantly reducing or eliminating the use of fossil fuels, the largest source of greenhouse gas emissions, and have turned to wind, solar, and electric vehicles.
European companies like Royal Dutch Shell and BP have already started moving away from fossil fuels. But Exxon, like most American oil companies, has doubled its exposure to oil and gas and is investing relatively little in technologies that could help slow climate change.
As recently as last month, Exxon reiterated that it plans to increase fossil fuel production, albeit at a slower pace. The company is investing billions of dollars in oil and gas production in the Permian Basin, which stretches across Texas and New Mexico, as well as offshore fields in Guyana, Brazil and Mozambique.
Exxon committed to its strategy despite acknowledging that one of its previous big bets wasn’t going well. Exxon announced it would write off the value of its natural gas assets, most of which were purchased around 2010, by up to $ 20 billion. The company is laying off around 14,000 workers, or 15 percent of its total, over the next year to cut costs and protect a dividend it has increased every year for nearly four decades up to this year.
However, if this crisis poses an existential threat, Exxon’s executive suite, still known within the company as the “God Pod,” has not been recognized.
“Despite the current volatility and short-term uncertainty, the long-term fundamentals that drive our business remain strong and unchanged,” said Darren W. Woods, chairman and CEO of the company since 2017, at a recent annual general meeting.
Exxon is known in the oil world as an island company with a rigid culture that slows adoptive, decisive change. It has been so since John D. Rockefeller founded the company as Standard Oil in the late 19th century, a monopoly that was later dissolved by the government.
As a trained accountant, Rockefeller has introduced a deep commitment to numerical calculations that remains in the company’s DNA. Exxon is mostly run by engineers who typically work their way up to managerial positions. The executives are determined to overcome all conceivable hurdles such as oil embargoes, wars and OPEC sanctions. Such trust may be required to run a business that does business in dangerous or inhospitable locations.
As a trained electrical engineer and 28-year-old company veteran, Mr. Woods speaks with the same confidence as his better-known predecessors. But he has made less of a profile than Lee R. Raymond, who dismissed climate change concerns in the 1990s and early 2000s, and Rex W. Tillerson, whose international prowess helped him become President Trump’s first secretary of state between 2006 and 2016.
While Mr. Raymond and Mr. Tillerson were dominant figures in the industry, they left Mr. Woods with many problems that were at least partially obscured by higher oil and gas prices.
Mr. Raymond’s public skepticism about climate change damaged the company’s reputation. Mr. Tillerson was slow to take advantage of the shale drilling to stimulate the American oil industry. His foray into the former Soviet Union and Iraq turned out to be an expensive failure. When he bought XTO for over $ 30 billion a decade ago to gain fracking expertise and valuable natural gas fields, gas prices were at their peak. As the price of commodities fell in recent years, the company lost money and wrote off much of the investment over the past month.
“Darren Woods inherited a company that has been placing big bets in recent years that have been unsuccessful,” said Fadel Gheit, a retired Wall Street analyst who worked as a research and development engineer prior to its merger with Exxon in 1999 Was mobile.
“Exxon Mobil is like a big cruise ship,” he added. “You can’t change course overnight. You can weather the storm but you can’t go far. You need to transform to stay relevant. “
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Apr. 10, 2020, 4:09 pm ET
Mr Raymond declined to comment. Mr. Tillerson did not respond to a request for comment. Exxon answered questions mainly by referring to previous public statements by Mr. Woods and the company.
Casey Norton, a company spokesman, said the acquisition of XTO “brought the people and technology in addition to potential resources” that helped the company thrive in shale fields in the Permian Basin.
In the early years of his tenure, Mr. Woods followed the strategy set out by Mr. Tillerson by borrowing and investing heavily to expand production. The pandemic forced Mr. Woods to change direction. The company now plans to spend a third less on exploration and production by 2025 than originally planned.
The changes Exxon is making may seem big in absolute terms, but seem tinkering when compared to the activities of European oil companies. BP has announced that it will increase its investment in low-carbon companies tenfold over the next decade to $ 5 billion a year while cutting oil and gas production by 40 percent. Royal Dutch Shell, Total of France and other European companies are taking similar steps at different speeds.
The only major American oil company getting close to setting European targets is Occidental Petroleum. The company recently pledged to achieve zero net carbon emissions by 2040 and use fuel by 2050. A facility is being built in Texas to capture carbon dioxide from the air and push crude oil out of the ground, keeping the greenhouse gas underground forever.
“We have moved from the slate era to the energy transition era, so there is greater divergence in strategy between companies, the greatest in modern times,” said Daniel Yergin, energy historian and author of The New Map : Energy, Climate and the Clash of Nations. “” Now the big debate is whether the oil summit will peak in the 2020s or 2030s or 2050s. “
Exxon executives have stated that an energy transition is underway and necessary. But they also claimed that it would make no sense for the company to get into the solar or wind energy business. Instead, the company invests in breakthrough technologies. One such project involves using algae to make fuel for trucks and airplanes. Exxon has talked about this project for years but has not yet started commercial production.
Exxon refineries could one day also become major hydrogen producers, which many experts believe could play an important role in reducing emissions. The company relies on carbon capture and sequestration. One project is to channel carbon emitted from industrial operations into a fuel cell that can generate electricity, reduce emissions and at the same time produce more electricity.
“Breakthroughs in these areas are critical to reducing emissions and would make a significant contribution to the achievement of the goals of the Paris Agreement, which we support,” Woods said in a message to staff in October, referring to the 2016 global climate agreement.
Energy experts said it is possible that Exxon could develop new uses for carbon dioxide, such as reinforcing concrete or making carbon fiber, which could replace steel and other materials.
“If Exxon and other big players in the oil industry crack these nuts, the whole discussion about hydrocarbons will change,” said Kenneth B. Medlock III, senior director at Rice University’s Center for Energy Studies. “This type of change is slow until it is no longer that way. Think of the wind and sun that were slow until they weren’t. “
A sharp spike in oil and gas prices could also allay some of the company’s concerns, at least temporarily. In the past few weeks, as oil prices have risen on optimism about a coronavirus vaccine, Exxon’s stock has soared.
Vijay Swarup, Exxon’s vice president of research and development, said in a recent interview that the company understood that it needed to cut emissions and develop better fuels, lubricants and plastics.
“As we develop this way to get there, we can’t stop providing affordable, scalable power,” said Swarup.
However, John Browne, a former BP executive director, said it was not clear that Exxon and the other major American corporations were reshaping their businesses appropriately for a low-carbon future.
“You can choose to just go ahead and harvest and say, ‘Let’s see what happens in the long run,” he said. “It’s a pretty risky strategy these days.”
Lauren Hirsch contributed to the coverage.