The natural gas market is in shambles, with gas trading at around $ 3 million per UK heat exchanger – less than half the price at the time Exxon turned to XTO. Natural gas peaked at the end of 2005 at more than $ 15 per 1 million baht.
But today the world is full of natural gas due to the growth of shale, which causes huge amounts of fuel in the United States.
Exxon’s gas asset shortcomings are “the most obvious execution of executives to date that the XTO agreement is a serious failure – not that any warnings about this are necessary”, analyst Raymond James Pavel Molchanov wrote in a note to clients on Tuesday.
Most of the authors covered properties in Appalachia, Rockies, Texas, Oklahoma, Louisiana and Arkansas acquired in the XTO agreement. The rest of the charge is for offshore gas properties in western Canada and Argentina.
But not only has Exxon reduced its natural gas commercial value, the company has eliminated some of these gas properties from its development plans. Exxon said in a statement that it may sell some of these assets, “subject to a buyer’s valuation.”
Reduce the budget
Instead of putting more money into natural gas, Exxon is promising investors to “prioritize near-term spending with the most profitable and promising assets in the future.”
In particular, Exxon said it will focus on developing its vast oil resources in Guyana, accelerating production in the Permian basin of West Texas and exploring some parts of Brazil.
Wall Street is hoping that tightening the belt and more conservative budgets will be enough to save Exxon dividends, which is key to investor appeal. But analysts are skeptical. This is the first time since 1982 that Exxon has not been able to increase its dividends.
Molchanov, an analyst at Raymond James, warns that “Exxon cannot mobilize its dividends by 2021” without further loans or asset sales.
For now, the capital markets are open and Exxon should be able to borrow to exchange for dividends. But it can not last forever.
RBC’s Riraj Borkhataria’s analyst says: “It’s a question of how much they want to borrow.” “Dividends seem challenging.”
And although Exxon will avoid cutting dividends, its drastic spending cuts raise questions about the company’s long-term future.
Oil companies need to constantly seize money for drilling – otherwise production will dry up, causing cash flow.
“The companies are in a precarious position because of the agreements they have made and the fact that they have not been registered for many years.”