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And the CapEx hits just keep on coming.
Two weeks after Goldman reported something troubling, namely that there is a massive gap of nearly 20% between the sellside CapEx estimate for what US oil companies will spend on CapEx and what implied guidance suggests as shown in the table below...
(Click to enlarge)
... Rex Tillerson, the CEO of world's formerly biggest by market cap company, Exxon, confirmed that the great CapEx drought of 2016 will be a definite reality, one which will subtract billions from U.S. 2016 GDP in the form of fixed investment, also known as Capital Expenditures, when it announced that it now expected full year 2016 CapEx to decline by 25% from 2015 to just $23 billion.
To be sure, Tillerson tried to spin the attempt to preserve some $7 billion in cash in a positive light:
"We remain steadfast in our mission to create superior long-term shareholder value,” Tillerson said at the company’s annual analyst meeting at the New York Stock Exchange. “We have the financial flexibility to pursue attractive opportunities and can adjust our investment program based on market demand fundamentals.”
ExxonMobil anticipates capital spending of $23 billion in 2016, down 25 percent from 2015. The company continues to selectively advance its investment portfolio, building upon attractive longer-term opportunities.
“We are focused on maximizing benefits across the energy value chain,” Tillerson said. The company captures unique value from its diverse, high-quality resource base from exploration, development and production all the way through to the fuels, lubricants and petrochemical products used by consumers.
Among the other noted highlights, is that "ExxonMobil generated $33 billion of cash flow from operations and asset sales and $6.5 billion of free cash flow in 2015." Of course, the company wants to keep generating billions in cash, hence the need for dramatic CapEx cuts.
Which brings us to the one point which Goldman made in mid-February, looking at the odd discrepancy between plunging CapEx and barely declining oil production, bringing up the question just how much more CapEx can the majors cut without suffering material oil production, and thus revenue, hits?
We will find out soon, but not before the U.S. economy is hit with the double whammy of hundreds of thousands of well-paid and now laid off energy workers contributing nothing to consumption, and the ongoing collapse in CapEx by virtually every energy company, a drop which according to some will subtract up to $100 billion in fixed investment from US 2016 GDP.
We wonder how many seasonal adjustments the US BEA will need to cover up that latest recessionary indicator.
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