Page 7 - NorthAmOil Week 05 2021

NorthAmOil COMMENTARY NorthAmOil

of the year, and even as they significantly scaled predicted to result in more obstacles and scru-
back capital expenditures, both Chevron and tiny for oil companies. Many companies had
ExxonMobil remained committed to protecting already been acting with environmental con-
their dividends. cerns in mind, even prior to Biden taking office,
Chevron cut its capex to $13.5bn in 2020 from and this trend can be expected to become more
$21bn in 2019. For 2021, its spending has been prominent.
reduced to $14bn, with an annual cap of $22bn Indeed, ExxonMobil – which had previously
set until 2025. At the same time, Chevron said shown less concern about climate change than
it had increased its quarterly dividend payout European super-majors, announced this week
for the 33rd consecutive year in 2020 and main- that it had launched a new business aimed at
tained its quarterly dividend at $1.29 per share commercialising low-carbon technology. The
for the fourth quarter of the year. move suggests that it is aiming to be viewed
ExxonMobil, meanwhile, reported capex more favourably by the Biden administration.
of $21.4bn for 2020, down by $9.8bn year on The business will initially focus on carbon cap-
year. ExxonMobil’s CEO, Darren Woods, said ture and storage (CCS), which ExxonMobil
capital spending this year would be the lowest described as “one of the critical technologies
in around 20 years. The company expects that required to achieve net-zero emissions and the
Brent crude prices of $50 per barrel will allow it climate goals outlined in the Paris Agreement”.
to generate sufficient cash flow in 2021 to cover ExxonMobil Low Carbon Solutions is
capex while maintaining the dividend – current advancing plans for more than 20 new CCS
at $0.87 per share – and a strong balance sheet. projects around the world, and the super-ma-
It added, though, that if Brent prices fell to $45 jor is planning to invest $3bn into “lower emis-
per barrel, capex could be scaled back further in sion energy solutions” up to 2025. However, an ExxonMobil Low
an effort to protect the dividend and maintain Enverus analyst, Andrew McConn, commented
balance sheet strength. that while the creation of the low-carbon busi- Carbon Solutions
ness unit had garnered headlines, new guid- is advancing
What next? ance for the core oil and gas units featured more
The two super-majors are proceeding with prominently in ExxonMobil’s earnings material. plans for more
restraint, showing the amount of uncertainty “A five-year plan reveals an increasing capex
that still hangs over the oil and gas industry. This profile after 2021, underscoring the compa- than 20 new CCS
uncertainty means that the potential merger ny’s commitment to growth and high-return
between the two has not yet been ruled out alto- upstream projects,” he wrote. projects around
gether. The Wall Street Journal cited sources as ExxonMobil has faced pressure from inves- the world.
acknowledging the possibility of the talks being tors, including activist investor Engine No. 1,
revived in the future. who have questioned its spending on projects
However, such a deal would have faced anti- they say have generated poor returns. As the
trust challenges even in 2020, and a Reuters super-major ramps up spending and produc-
source suggested that under new US President tion over the medium term, it will remain under
Joe Biden it would be even less likely to go for- pressure to justify the shareholder value of the
ward. This is because Biden’s Democratic Party projects it will focus on, especially in the short
has historically been less sympathetic to such term. This includes a plan to raise production in
transactions. the US’ prolific Permian Basin to 700,000 barrels
In addition, Biden has already moved swiftly of oil equivalent per day by 2025, compared with
to prioritise tackling climate change, and this is 367,000 boepd in 2020.™

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