XOM Exxon Mobil Corp

By Christopher M. Matthews 

Exxon Mobil Corp. said Tuesday that it would cut its 2020 capital spending by 30% as global demand for oil is sapped by the coronavirus.

The largest portion of the $10 billion in cuts will be in the Permian Basin, the largest U.S. oil field, in Texas and New Mexico. Exxon said it would evaluate how the cuts would affect production.

"We haven't seen anything like we are facing today," Chief Executive Darren Woods said on a call with reporters Tuesday morning.

With the announcement, Exxon became the latest major oil firm to significantly reduce its budget in response to a crash in oil prices caused in large part by the response to the virus. Rival Chevron Corp. said last month it would cut its spending by $4 billion, or 20%. Large, international oil companies and U.S. shale producers have collectively slashed budgets by tens of billions of dollars.

Exxon's move comes ahead of a virtual meeting set for Thursday by the Organization of the Petroleum Exporting Countries with other oil-producing nations including Canada and Russia to discuss an agreement to cut oil production. But Russian and Saudi Arabian officials have said any truce in their fight for market share, which has also helped crater oil prices over the past month, must be accompanied by a production cut in the U.S.

Exxon, Chevron and other large U.S. oil companies are adamantly opposed to mandated production cuts, believing that a free market should sort things out. Many U.S. shale wells aren't economic at current prices, and producers will ultimately be forced to shut-in some wells.

But even globally coordinated production cuts would likely be insufficient to stem the rapidly building oil glut as the new coronavirus batters oil demand. Rystad Energy estimates global demand may shrink by 25 million barrels a day, meaning that even the 10 to 15 million barrels in cuts proposed by some Saudi and Russian officials wouldn't be enough.

Even with the cuts, Exxon will have trouble covering its dividend and capital expenses in 2020 without taking on debt or selling off assets. It sold $8.5 billion in bonds in March, using a window of opportunity to convert short-term debt into long-term debt at low rates. S&P Global Ratings downgraded the company's credit rating and unsecured debt in March.

(END) Dow Jones Newswires

April 07, 2020 07:55 ET (11:55 GMT)

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