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Exxon at a crossroads

By Clifford Krauss

© The New York Times Co.

HOUSTON » Over the last 135 years, Exxon Mobil has survived hostile governments, ill-fated investments and the catastrophic Exxon Valdez oil spill. Through it all, the oil company made bundles of money.

But suddenly Exxon is slipping badly, its long latent vulnerabilities exposed by the coronavirus pandemic and technological shifts that promise to transform the energy world because of growing concerns about climate change.

The company, for decades one of the most profitable and valuable American businesses, lost $2.4 billion in the first nine months of the year, and its share price was down about 35% this year. In August, Exxon was tossed out of the Dow Jones Industrial Average, replaced by Salesforce, a software company.

“Is Exxon a survivor?” asked Jennifer Rowland, an energy analyst at Edward Jones. “Of course they are, with great global assets, great people, great technical know-how. But the question really is, can they thrive? There is a lot of skepticism about that right now.”

Exxon is under growing pressure from investors. D.E. Shaw, a longtime shareholder that recently increased its stake in Exxon, is demanding that the company cut costs and improve its environmental record, according to a person briefed on the matter. Another activist investor, Engine No. 1, is pushing for similar changes in an effort backed by the California State Teachers Retirement System and the Church of England. Earlier this month, the New York state comptroller, Thomas P. Di- Napoli, said the state’s $226 billion pension fund would sell shares in oil and gas companies that did not move fast enough to reduce emissions.

Of course, every oil company is struggling with the collapse in energy demand this year and as world leaders, including President- elect Joe Biden, pledge to address climate change. In addition, many utilities, automakers and other businesses have pledged to greatly reduce or eliminate the use of fossil fuels, the biggest source of greenhouse gas emissions, and have embraced wind and solar power and electric vehicles.

European companies such as Royal Dutch Shell and BP have already begun to pivot away from fossil fuels. But Exxon, like most American oil companies, has doubled down on its commitment to oil and gas and is making relatively small investments in technologies that could help slow down climate change.

As recently as last month, Exxon reaffirmed it plans to increase fossil fuel production, though at a slower pace. The company is investing billions of dollars to produce oil and gas in the Permian Basin, which straddles Texas and New Mexico, and in offshore fields in Guyana, Brazil and Mozambique.

Exxon committed to its strategy even as it acknowledged that one of its previous big bets did not go well. Exxon said it would write down the value of its natural gas assets, most of which it bought around 2010, by up to $20 billion. The company is also laying off about 14,000 workers, or 15% of its total, over the next year or so as it seeks to cut costs and protect a dividend that it had increased every year for nearly four decades.

But if this crisis is an existential threat, there has been no acknowledgment from Exxon’s executive suite, still known in the company as the “God Pod.”

“Despite the current volatility and near-term uncertainty, the long-term fundamentals that drive our business remain strong and unchanged,” Darren W. Woods, the company’s chairman and chief executive since 2017, said at a recent shareholders meeting.

Woods has kept a lower profile than Lee R. Raymond, who dismissed concerns about climate change in the 1990s and early 2000s, and Rex Tillerson, whose international wheeling and dealing between 2006 and 2016 helped him become President Donald Trump’s first secretary of state.

Raymond and Tillerson left Woods with many problems that were at least partly obscured by higher oil and gas prices.

Raymond’s public skepticism of climate change damaged the company’s reputation. Tillerson was slow to take advantage of shale drilling, which lifted the U.S. oil industry. His foray into the former Soviet Union and Iraq proved to be expensive failures. When he bought XTO a decade ago for more than $30 billion to acquire fracking expertise and prized natural gas fields, gas prices were at their peak. As the commodity price declined in the years since, the company lost money and wrote off much of the investment last month.

“Exxon Mobil is like a big cruise ship,” said Fadel Gheit, a retired Wall Street analyst who was an engineer in research and development at Mobil before its merger with Exxon in 1999. “You can’t change course overnight. They can weather the storm but not go far. They will have to transform to stay relevant.”

Raymond declined to comment. Tillerson did not respond to a request for comment. Exxon responded to questions mainly by referring to previous public statements by Woods and the company.

In the first few years on the job, Woods followed the broad strategy set by Tillerson by borrowing and investing heavily to expand production. The pandemic forced Woods to change direction. The company now plans to spend onethird less on exploration and production through 2025 than it had originally planned.

Yet the changes Exxon is making seem like tinkering compared with what European oil companies are doing. BP has announced that it will increase investments in low-emission businesses tenfold over the next decade, to $5 billion a year, while shrinking oil and gas production by 40%. Royal Dutch Shell, Total of France and other European companies are making similar moves.

Exxon executives have said they recognize an energy transition is underway and necessary. But they have also asserted that it wouldn’t make sense for the company to get into the solar or wind energy business. Instead, the company is investing in breakthrough technologies. One such project involves using algae to produce fuel for trucks and airplanes.



© Earth Protect