March 7, 2018 / 1:07 PM / 13 days ago

Exxon tries to sell Wall Street on growth plan, but shares drop

NEW YORK (Reuters) - Exxon Mobil Corp (XOM.N) on Wednesday laid out a goal to double annual earnings by 2025 through heavier investments in a bid to allay investor fears that the world’s largest publicly traded oil producer has seen its best days.

FILE PHOTO: A logo of Exxon Mobil is displayed on a monitor above the floor of the New York Stock Exchange shortly after the opening bell in New York, U.S., December 5, 2017. REUTERS/Lucas Jackson

But shares still fell to their lowest level in more than two years after the company said the spending would not boost near-term production, and investors who had expected large share buybacks were disappointed that executives did not announce any.

Exxon was once the industry’s profit and cash-flow leader, but sagging output and a sliding share price have pushed total return, or share appreciation plus dividends, into negative territory over the last five years, according to Thomson Reuters data.

By comparison, total returns are up 16 percent for Chevron Corp (CVX.N) and 40 percent for Royal Dutch Shell Plc (RDSa.L).

Exxon’s growth plan will require billions of dollars in spending spread across U.S. shale fields, along with refinery expansions and deepwater megaprojects. The company said investments should drive profit to $31 billion in 2025 with crude prices at or above current levels.

It was the first time Irving, Texas-based Exxon has given an earnings forecast so far in advance. Shares closed down 2.5 percent at $74.26, the lowest close since January 2016.

Darren Woods, who became chief executive in January 2017 after predecessor Rex Tillerson retired and became the U.S. secretary of state, also said he was committed to being more transparent with investors.

“There’s a lot different today, not just style,” Woods said at the company’s annual analyst day in New York. “My objective is to get this organization focused on driving value and turning that value into results that you all will see.”

Exxon said projects in Guyana and the Permian Basin region of Texas and New Mexico, as well as refining and chemical plant expansions, should drive earnings gains. Exxon reported an adjusted profit of $15 billion in 2017.

To achieve its goals, Exxon said it will boost spending on capital projects to $24 billion this year, $28 billion next year and an average of $30 billion from 2023 to 2025. Meanwhile, peers including Chevron are cutting spending or promising to hold budgets flat.

“Capex is the price you pay for cash flow,” said Woods, who added that every dollar in capital spending by Exxon in the past decade has generated $1.20 in operating cash flow.

Woods said he expected production to grow about 1 million barrels of oil equivalent per day (boe/d), to about 5 million boe/d in 2025 as 25 projects come online.

When an analyst asked if he would resign if the targets were not met, Woods did not directly answer, but said he intended to meet the long-range goals.

Tom Ellacott, senior vice president at consultancy Wood Mackenzie, noted that in the near term, Exxon’s production will be flat, and growth in the next decade will require hitting goals at five key development regions.

    In the Permian Basin, the largest U.S. oilfield, Exxon plans to triple production by 2025 at recently purchased low-cost acreage. The expansion highlights the increasing importance of U.S. shale alongside the company’s global megaprojects.


    Several analysts viewed the higher spending as problematic, even as they welcomed the pledge of greater transparency by a company that has been criticized for giving few operations details in recent years.

    “To us this highlights that there are no easy fixes to rejuvenate Exxon’s portfolio, and it is likely to take time for this investment to flow through into higher earnings, cash flow and returns,” said RBC Capital Markets analyst Biraj Borkhataria.

    Exxon’s operating margin, which measures profit after expenses, dipped to 5.1 percent last year, far below the industry median of 13.5 percent, according to Thomson Reuters data.

    Several analysts pushed Woods for still more transparency, asking him directly to participate in quarterly earnings conference calls. Unlike CEOs of most public companies including oil majors, Exxon CEOs historically have not joined the calls, where analysts can ask for operations details and outlooks.

    “Please disclose more and meet us more. We would be greatly appreciative,” Wolfe Research analyst Paul Sankey said to Woods at the meeting. Woods did not commit to being on the calls, but said he has been meeting more with investors in the past year.

    Chevron on Tuesday said it should be able to raise production 4 percent to 7 percent this year and buy back shares for the first time in at least three years even without a substantial rise in oil prices.

    Reporting by Ernest Scheyder; Editing by Bernadette Baum, Gary McWilliams and David Gregorio

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