$XOM issued a press release 11/30 with updates across a number of fronts, including a significant impairment of upstream assets. A discussion follows. https://corporate.exxonmobil.com/News/Newsroom/News-releases/2020/1130_ExxonMobil-to-prioritize-capital-investments-on-high-value-assets

Highlights:

1. After tax impairment of $17-20B
2. Cost savings progress
3. '21-'25 capex guide
4. Unidentified project delays
5. Working to maintain reliable dividend
6. Plan to 2x earnings by '27 assuming return to recent macro conditions
7. Increased focus on asset sales

1. The big impairment is the long-awaited dropping of XOM's sword of Damocles.

XOM annc'd the XTO acquisition Dec ‘09 to build an unconventional powerhouse. $41B deal, including $10B debt, was all stock.

Crude strip at the time was $90-100/bbl and gas was $6-8/mmbtu

Yet XOM refused to impair the acquisition for years, citing a host of reasons including an ability to "engineer the value out of it" as well as a mindset of forcing the organization to live with high fixed costs

The announced impairment will wipe out ~12% of XOM's market cap and bring the pro forma book value down to mid $30s per share

2. Doing well on cost savings is boilerplate in 2020 and can be applied to any energy company who's slashed capex and enjoyed the financial benefits of firing people and squeezing vendors. Next .....

3. $XOM reiterated '21 capex guide of $16-19B and gave new guidance of $20-25B/yr through '25. This is a drop from the $30-35B/yr guidance $XOM provided at its 2020 analyst day

Which was when they provided an outlook of 5 mmboed production in 2025

For reference, they did 3.7 mmboed in 3Q20

So $XOM drops forward capex guidance, but offers no revised prod outlook.

The Street is left wondering how $XOM will increase production from 3.7 to 5.0 mmboed (35%) on $21.5B/yr capex when the last 10 yrs saw prod decline from 4.5 to 3.7 mmboed (20%) on avg $26B/yr capex

4. It's reasonable to assume that perhaps $XOM old guide of 5 mmboed in 2025 is no longer valid.

Due in part to the (annual) shortfall in 2020.

Due in part to materially reduced spending.

Due in part to project delays cryptically embedded in the release

5. Also noteworthy, revised dividend commentary. Recall $XOM dividend has been the bedrock of the investment case for some time.

It featured prominently in the 2020 Analyst Day Slide Deck as management reiterated commitment to "reliably grow dividend"

But now, the narrative seems ... less aspirational. No longer committed (?) $XOM is "working to maintain a reliable dividend"

Gone is the objective to grow the dividend, now they're working to maintain it

Because they cannot afford it. For quite a while they've not generated sufficient cash from operations to cover capex & the dividend. They've had to take on debt and sell assets to maintain the dividend

This has been reflected in the market with a high dividend yield

6. $XOM also reiterated their lofty goal of doubling earnings, though it pushed out the "doubling date" to '25 to '27.

For befuddling reasons, $XOM is basing this pending doubling on a return to prior 5 yr macro averages (not the last 10, or 20)

What is it about conditions today that make a return to 2015-2019 environment more likely than a return to 1990-2010 environment? Which is abnormal and which is normal?

7. Finally, $XOM noted an increased focus on monetizing less strategic assets.

It has sold a lot of assets lately, part of the reason why the company keeps shrinking (though not it's balance sheet)

How should the market best value the dividend of a company selling itself in pieces to pay a dividend not covered by base operations?