Persistently low oil and gas prices are forcing ExxonMobil (XOM 0.15%) to make significant changes. The oil giant is prioritizing its highest value assets, which will result in a substantial decline in capital spending. This shift is leading the company to remove several assets from its development plan, forcing it to record a massive writedown.
The company expects to invest $16 billion to $19 billion on capital and exploration projects in 2021. Meanwhile, it sees spending averaging between $20 billion to $25 billion through 2025. That's a roughly $10 billion reduction from its expected spending level before COVID-19.
The company set four near-term investment priorities:
- Continue its phased development off the shore of Guyana.
- Continue developing its assets in the Permian Basin.
- Targeted exploration in Brazil.
- Grow its high-value performance products in its chemicals business.
As a result of this priority shift, the company will remove some natural gas assets from its development plan. These include its operations in the Appalachian and Rocky Mountains, Oklahoma, Texas, Louisiana, and Arkansas, as well as western Canada and Argentina. As a result of this decision, the company said on Monday that it expects to record a noncash, after-tax impairment charge of $17 billion to $20 billion during the fourth quarter. That amounts to the biggest writedown in history.
Exxon intends on monetizing its less strategic assets in the future to help finance investments into its highest value assets. That should help the oil giant maintain a solid balance sheet. It will also allow the company to continue paying its 9%-yielding dividend. While that big-time payout might entice some income investors, Exxon seems unlikely to deliver market-beating performance unless oil prices surge, making it an unappealing investment these days.