Exxon yesterday closed at the lowest in a decade after eight daily declines in a row, once again highlighting the new challenges the oil industry is facing.
Bloomberg notes that Exxon dropped out of the S&P 500's top ten list last year. It is unlikely to return there soon in the midst of new shareholder demands and a shift in priorities.
Shareholders are insisting on more returns after the 2014 price crash. But a growing number of them are also insisting that oil companies diversify away from their core business of extracting and selling fossil fuels. Even if the shareholder petitions initiated by Dutch group Share This continue to fail, they are symptomatic of a change in thinking among investors that Big Oil should have already detected.
Yet instead of diversifying away from its core business, Exxon is investing heavily in new oil and gas assets, Bloomberg's Kevin Crowley notes. The company was probably emboldened by one of the longest strings of oil discoveries off the coast of Guyana and this year plans to spend $30 billion on developing these and other assets, including LNG in Mozambique, with the option of spending even more than that.
Yet this is problematic for shareholder returns because Exxon does not have enough cash on hand for dividends and will have to fund these from asset sales and debt, according to Edward Jones & Co analyst Jennifer Rowland, who spoke to Crowley.
It is not just the difference in company and shareholder priorities, either. Most analyst seem to expect oil demand to weaken this year on the back of the China coronavirus outbreak, and with plenty of supply available, Exxon's grand plans for Guyana may boomerang.
The company is reporting fourth-quarter financial results this Friday and analysts expect a lower result than a year earlier. The good news is that at least they are not expecting a loss at this point.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More