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ExxonMobil is axing capital expenditure for this year by $10 billion, quantifying on Tuesday the capex cuts it announced last month in response to the oil demand and oil price collapse. The most significant reductions will take place in the Permian Basin.
Shortly after the price of oil collapsed in early March, Exxon said that it was looking to “significantly reduce spending as a result of market conditions caused by the COVID-19 pandemic and commodity price decreases.”
On Tuesday, the U.S. supermajor quantified this ‘significant reduction,’ saying that its capital investments for 2020 are now expected to be 30 percent lower, at around $23 billion, down from the previously announced capex of some $33 billion.
Exxon will also cut its cash operating expenses by 15 percent, driven by deliberate actions to increase efficiencies and reduce costs.
“The largest share of the capital spending reduction will be in the Permian Basin, where short-cycle investments can be more readily adjusted to respond to market conditions while preserving value over the long term. Reduced activity will affect the pace of drilling and well completions until market conditions improve,” Exxon said, echoing the strategy of the other U.S. supermajor, Chevron.
Two weeks ago, Chevron said it was slashing capital expenditures, especially in the Permian, and was suspending its share buyback program. Chevron is axing its 2020 capital spending plan by $4 billion, or by 20 percent, to $16 billion, to protect its dividend and balance sheet in one of the worst oil price routs in recent memory. Of the $4-billion capex cut, Chevron will slash $2 billion across upstream unconventionals, primarily in the Permian Basin.
Exxon now followed Chevron is slashing capex in the basin, which was their prime target for boosting production in the coming years. All supermajors have announced spending reductions in recent weeks after oil prices crashed on the coronavirus-hit demand shock and price-war-driven supply shock.
The Permian and oil development offshore Guyana remain part of Exxon’s long-term growth plans, but the supermajor has delayed a final investment decision for the Rovuma liquefied natural gas (LNG) project in Mozambique, which was expected later this year.
“Our capital allocation priorities also remain unchanged. Our objective is to continue investing in industry-advantaged projects to create value, preserve cash for the dividend and make appropriate and prudent use of our balance sheet,” Exxon’s chairman and CEO Darren Woods said.
Unlike its competitors, Exxon has pursued higher spending in recent years to boost production, but it has also amassed higher debt along the way.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.