The chemical giant is caught in a financial chain crisis!

ExxonMobil's (or "company") nightmare 2020 is getting worse. The troubled energy company announced on Monday that it will significantly write down the value of its natural gas assets. Exxon Mobil also promised to significantly cut spending ambitions to cope with the slowdown in oil price recovery.

Exxon Mobil plans to include $17-20 billion in non-cash expenses, which is a huge blow to this company that has long opposed write-downs. It is believed that this is the largest such write-down in ExxonMobil's history.

At the end of 2009, Exxon Mobil spent $41 billion to acquire the natural gas giant XTO Energy, which further proved how serious the company's mistakes were. Now, about half of the value of this transaction has been erased.

The natural gas market is sluggish, and the transaction price of natural gas is about US$3 per million British thermal units, which is less than half of the price when ExxonMobil acquired XTO. Natural gas peaked at the end of 2005, exceeding US$15 per million British thermal units.

But now, due to the US shale gas boom releasing a large amount of fossil fuels, the global natural gas supply is seriously surplus.

Raymond James analyst Pavel Molchanov wrote in a report to clients on Tuesday that Exxon’s “significant write-down of natural gas assets” was the management’s “most definitive acknowledgement to date that the XTO transaction was a major failure-there is no doubt about it. of."

Most of the write-down assets included the Appalachian, Rocky Mountains, Texas, Oklahoma, Louisiana and Arkansas gas fields acquired in the XTO transaction. The remaining expenses are used for overseas natural gas assets in Western Canada and Argentina.

ExxonMobil is not the only oil company that has been forced to cut the value of fossil fuel assets. In the past year, Chevron, BP and Shell have all carried out large-scale write-downs.

But Exxon not only significantly reduced the value of its natural gas portfolio, it also completely eliminated some natural gas assets from its development plans. Exxon Mobil said in a statement that it may sell some of its assets "depending on the buyer's valuation."

Reduce budget

Exxon promised investors that it would "prioritize short-term capital expenditures on the beneficial assets with the highest potential value in the future" instead of investing more in the natural gas sector.

Specifically, ExxonMobil said it will focus on developing Guyana's rich oil resources, speeding up production in the Permian Basin in West Texas, and conducting some exploration in Brazil.

Exxon Mobil also abandoned its bold plan to increase investment amid weak oil prices. The company currently expects to spend no more than 19 billion U.S. dollars in 2021, and to spend between 20 billion and 25 billion U.S. dollars annually by 2025. This is a far cry from ExxonMobil’s March estimates of US$30-35 billion in annual expenditures by 2025.

Exxon Mobil is busy cutting costs and laying off staff. The company reiterated that it plans to reduce the number of global employees by 14,000, or 15%, by the end of next year. This includes the reduction of approximately 1,900 jobs in the United States, most of which are in Houston headquarters.

The raging epidemic and the plunge in oil prices exposed Exxon's fragile financial situation. The company reported quarterly losses for the first time in decades and was delisted by the Dow Jones Industrial Average Price Index. Prior to this, the company had a history of 92 years in the Dow.

As of 2012, Exxon Mobil was still the world's most valuable company. But now its market value is only $161 billion, which is smaller than T-Mobile US, AbbVie, Nike and Adobe. Since the mid-2014 market value reached a peak of US$446 billion, ExxonMobil’s market value has shrunk by more than half, falling to a staggering US$285 billion.

First expelled

The previously published article on the ranking of the world’s 50 largest oil companies indicated that investors no longer favor oil companies. Exxon Mobil was expelled for the first time in the Dow Jones Industrial Average more than 90 years later. Oil and gas companies only accounted for the S&P 500 index. 3%, which not only reflects ExxonMobil’s own difficulties, but also reflects that the traditional oil and gas industry is in a critical period of transformation and development.

The precarious funding chain

A more conservative budget will be sufficient to save Exxon Mobil’s dividends, which are critical to the company’s appeal to investors. But analysts are skeptical. This year is the first time ExxonMobil has failed to increase its dividend since 1982.

Raymond James analyst Morchanov warned that if it does not increase borrowing or sell assets, "Exxon Mobil will not be able to raise funds for 2021 dividends."

At present, the capital market is completely open, and ExxonMobil should be able to borrow funds to pay dividends. But this cannot last forever.

RBC Capital Markets analyst Biraj Borkhataria said, "The problem is how much debt they want to assume. Increasing dividends seems to be challenged."

Moreover, even if ExxonMobil avoids cutting dividends, its sharp cuts in expenditures will cast doubt on the company's long-term future.

Oil companies need to continuously invest funds in drilling wells, otherwise production will dry up and cash flow will be affected. Borkhataria said: "Because of their field and the fact that they have been under-spending for many years, the company is currently in a very dangerous situation. They must implement existing projects to protect the long-term viability of the company."