U.S. oil giant Exxon Mobil is taking steps to reduce spending as crude prices are not expected to rise significantly in the near future, a report said.
Despite generating $87.3 billion in revenue last year, Exxon’s cash flow in the last three months of 2014 fell to its lowest level since recession-wracked 2009. On Monday, the company said it would cut spending on share buybacks by two-thirds to $1 billion this quarter as it searches for ways to cut costs, the Wall street Journal said.
“This organization has a very strong culture of driving down our cost structure, ” Jeff Woodbury, Exxon’s head of investor relations, said in a call with analysts. The Irving, Texas, company isn’t assuming that oil and gas prices will increase, he added, according to the Journal.
Exxon said it operated more drilling rigs in the U.S. in the fourth quarter than it had earlier in the year, and its retrenchment is less drastic than some of its rivals. But given the company’s focus on the long-term, its efforts to retain cash are a sign of just how cautious energy executives have become. The company won’t report its capital spending plans until March, the report said.
The big, diversified energy companies “were built for conditions like these, ” said Doug Terreson, head of energy research at Evercore ISI, according to the Journal. But even giants “want to try and preserve cash and prepare for the downturn in case it’s extended.”
These companies, which generate billions of dollars in cash flow a year, are among the best insulated in their industry against the bite of falling oil prices. They have strong balance sheets and own refining and chemicals businesses that can benefit from cheap crude, which they convert to plastics, gasoline and other fuels, the report said.
There are signs that crude prices might be stabilizing. The U.S. benchmark for oil prices rose to $49.57 on Monday, continuing a recent recovery since prices dipped below $45 a barrel last week, the Journal said.
.Exxon shares rose 2.5% to $89.58 in 4 p.m. New York trading on Monday amid broad market gains. The price of Brent crude, the global benchmark, also rose to $54.75, up 3.3%, the report said.
Exxon borrowed $7.3 billion in the quarter, bringing total debt to $29.1 billion, more than double the level in early 2013. Cash on hand fell to $4.7 billion by the end of last year from $5 billion at the beginning of the year, the Journal said.
Exxon’s $6.6 billion profit for the fourth quarter of 2014 was 21% less than a year ago, contributing to its weak cash flow. While still more than any U.S. rival, Exxon’s cash flow for the quarter was about $7 billion short of covering its costs for tapping oil and gas, paying dividends and repurchasing shares, according to the report.
Revenue slipped to $87.3 billion from $110.9 billion. Exxon is expected to release its capital spending plans for 2015 next month; a year ago, it forecast spending less than $37 billion this year, the Journal said.
However, earnings per share of $1.56, down 18 per cent, were well ahead of the average analysts’ forecast of $1.35, the Financial Times said.
The earnings were helped by a $1 billion non-cash credit, reflecting some lower U.S. tax charges and a 2012 award of compensation from Venezuela for the forced takeover of two heavy oil projects by the country’s socialist government in 2007, the Times said.
Exxon’s oil and gas production averaged 4 million barrels of oil equivalent per day last year, down 4.9 per cent from 2013. The drop was principally the result of the loss of the international companies’ oil concession in Abu Dhabi, in which Exxon had a stake, but even excluding that effect production for the year was down 1.7 per cent, the report said.