ExxonMobil will record impairment charges of $17 billion-$20 billion in the fourth quarter related to certain natural gas assets, which are no longer a part of the company’s growth plans. The energy giant is writing down its non-strategic assets amid dismal oil demand and plunging oil prices.
The assets that will be impaired include certain dry gas resources in the Appalachian and Rocky Mountains, Oklahoma, Texas, Louisiana and Arkansas in the US, western Canada and Argentina. Exxon (XOM) stated that it has completed a review of its forward business plans and intends to prioritize near-term capital expenditure on “advantaged assets” with the highest potential future value. Such assets include developments in Guyana and the U.S. Permian Basin, targeted exploration in Brazil and chemicals performance products.
Meanwhile, the company aims to bring down its capital and exploration spending to $16 billion-$19 billion in 2021, and then increase it to $20 billion-$25 billion annually through 2025. Exxon has been cutting down its workforce and reducing its costs to navigate the current challenges. The company plans to slash its global workforce by 15% by the end of 2021.
For 4Q, Exxon stated that the business environment is showing signs of improvement despite the rise in COVID-19 cases and accompanying economic restrictions. (See XOM stock analysis on TipRanks)
In November, Truist analyst Welles Fitzpatrick reiterated a Hold rating on Exxon and increased the price target to $39 from $36. The analyst noted that the company continues to generate cost improvements and operating efficiencies in each segment, though he still expects it to outspend its cash flows by nearly $7 billion in 2021 and by over $3 billion in 2022.
Fitzpatrick added that Exxon Mobil’s prospects would improve if management took at least a “slight cut” in the dividend payout.
The Street is also sidelined on the stock, with a Hold analyst consensus based on 2 Buys, 7 Holds and 1 Sell. Shares have tanked 45.4% so far in 2020 and the average price target of $40.75 indicates an upside potential of about 7% in the months ahead.
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