Exxon Boosts Spending to $32 Billion, Raises 2025 Profit Target

(Bloomberg) -- Exxon Mobil Corp. tumbled more than any other blue-chip stock after boosting spending to heights not seen since the historic oil-market collapse began in 2014, bucking the cost-cutting trend among rival energy explorers.

Exxon’s annual capital outlays will average $32 billion through the end of next year, a 24 percent increase from 2018, the Irving, Texas based driller said on Wednesday. Chief Executive Officer Darren Woods defended the budget increase in a presentation to analysts in New York, saying the entire oil industry is threatened by anemic investment levels.

“It is not what investors want to hear right now,” Brian Youngberg, an analyst at Edward Jones & Co. said by email. “The plan bearing fruit is years away.”

Exxon, attempting to arrest years of production declines, is going against the grain as competitors such as Chevron Corp. hold the line or reduce spending. Analysts have soured on Exxon as an investment, with almost two-thirds recommending clients avoid buying any more of the stock. The shares fell 2.2 percent to $78.39 at 10:26 a.m. in New York trading for the day’s worst performance in the Dow Jones Industrial Average.

Exxon assured investors and analysts that the spending will pay off -- eventually. The supermajor raised its 2025 profit-growth target by five percentage points to 140 percent compared with 2017 levels. Cumulative “earnings potential” has increased by $9 billion through 2025 compared with targets laid out at last year’s investor meeting.

Society’s Needs

“Society needs us to make these investments,” Woods told the gathering, an annual rite held at the New York Stock Exchange. “Perhaps the biggest risk to the industry today is underinvestment.”

But analysts weren’t convinced.

“There have been more muted upgrades in cash generation targets based on the higher spending levels in the coming years,” RBC Capital Markets analyst Biraj Borkhataria said in a note. Exxon’s “updated cash flow guidance also now including proceeds from asset sales.”

Other Highlights

• Exxon plans to raise as much as $15 billion through asset sales by the end of 2021
• Cash flow from oil and gas production is expected to rise by more than 6 percent this year and next, the company said in a slide presentation.
• In Guyana, the company expanded its estimate for the size of a sprawling offshore discovery by a half-billion barrels to 5.5 billion but didn’t change its production guidance of 750,000 barrels a day by 2025.
• Exxon will produce the equivalent of 4 million barrels of crude daily this year, rising to 4.2 million in 2020. Output touched a decade low of 3.7 million in the second quarter of 2018.
• Permian operations account for 40 percent of the production growth and will break even by 2021, and generate $5 billion two years later.

With so many projects being built at one time in so many locations around the world, analysts are concerned that Exxon might be taking on too much, risking delays and spending blowouts for which the industry has long been infamous. In addition to the five upstream megaprojects, Exxon is also expanding a refinery in southeast Texas and a chemical plant in Louisiana.

Woods attempted to put his own definition on the term “financial discipline,” which has been a rallying call for investors of late.

“We don’t think disciplined investment means putting an artificial cap on capital expenditure,” he said. “We think a cap that reflects either a lack of resource or opportunities in those resources or the ability to execute those resources.”

Exxon was chided on Tuesday by Chevron CEO Mike Wirth, who touted his company’s plans to deliver production and profit growth in the near term rather than “several years” from now.

To contact the reporter on this story: Kevin Crowley in Houston at kcrowley1@bloomberg.net

To contact the editors responsible for this story: Simon Casey at scasey4@bloomberg.net, Joe Carroll

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