Since the collapse of the price of oil, smaller energy companies have announced deep spending cuts in an attempt to preserve capital. Producers Devon Energy and Marathon Oil, for example, each cut half a billion dollars from their capital spending budgets. And now even the biggest of the big, ExxonMobil (NYSE:XOM), has reversed its prior position and looks poised to join the budget-slashing party.
In a press release issued late Monday, CEO Darren Woods announced: "Based on this unprecedented environment, we are evaluating all appropriate steps to significantly reduce capital and operating expenses in the near term. We will outline plans when they are finalized."
That's a stark reversal from his position just two weeks ago, when he maintained that the company's strategy would be "leaning into this market when others have pulled back," by spending between $30 billion and $35 billion per year on capital projects.
The market didn't like Exxon's prior position that it wouldn't trim spending, and has sent shares 28.3% lower since the initial March 5 announcement. Maintaining its $30+ billion capital spending plan would have almost certainly resulted in the company's outspending its cash flow. At current oil prices, the company would have to take on additional debt simply to fund its dividend at current levels, let alone maintain its capital spending.
On Monday, S&P Global downgraded Exxon's credit rating from AA+ to AA. That's still investment grade, but the analysts also issued a negative outlook, and warned that further downgrades could occur "if the company does not take adequate steps to improve cash flows and leverage over the next 12 to 24 months."
This looks like ExxonMobil's initial attempt to reassure the market it has gotten the message.