Here’s why Exxon’s stock traded lower Monday

Here’s why Exxon’s stock traded lower Monday
Written by:
Jayson Derrick
December 1, 2020
  • Exxon's stock lost more than 5% on Monday.
  • The company updated its spending outlook through 2025 that disappointed investors.
  • Management's oil outlook through the coming years isn't particularly bullish.

Oil giant Exxon Mobil Corp. (NYSE: XOM) has seen its stock fall more than 5% on Monday in reaction to management’s updated outlook for the next decade.

What happened to Exxon?

Exxon’s losses so far in 2020 stands at more than $2 billion and is likely to expand through the final quarter. The oil and energy sector has been among the hardest hit amid the COVID-19 pandemic as work-from-home and stay-at-home orders drastically reduced demand for fossil-fuel.

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In reaction to the company’s poor performance and a less-than-stellar outlook for the energy sector, Exxon slashed its spending outlook through 2025.

Management said it will spend at most $19 billion on new projects and other investments in 2021, followed by annual spending of $20 billion to $25 billion from 2022 to 2025. By comparison, the company previously forecasted annual capital expenditure to be at least $30 billion annually through the halfway point of the decade. 

The company also committed to suspending its investments in natural-gas assets and cautioned investors to expect a large write-down of at least $17 billion and up to $20 billion in the fourth quarter.

Reversal of fortunes

Exxon’s Monday update may signal its 2018 outlook is just a pipe dream. Granted, the company can’t be blamed for its poor performance during the pandemic, but investors are rightfully so readjusting their view on the stock.

Back in 2018, Exxon CEO Darren Woods guided towards $230 billion in spending over the years with the ultimate objective of doubling its profits by pumping an extra 1 million barrels of oil and gas a day by 2025, according to The Wall Street Journal. 

Instead, Exxon’s path towards doubling its 2018 profits could come two years later than initially modeled. However, any timeline related to increasing its oil and gas production is unclear and management is reviewing its targets.

Energy woes for the next decade?

Internal Exxon documents reviewed by The Wall Street Journal show the oil giant lowered its internal oil price projections for each of the next seven years by at least 11% and up to 17%, WSJ reported on Nov. 25.

Coupled with Monday’s spending outlook, there is reason to believe Exxon expects the energy market to deal with the negative effects of the COVID-19 pandemic perhaps long after the disease’s lifespan.

Evercore ISI analyst Doug Terreson told WSJ Exxon needs to fundamentally remake itself to thrive in a multi-year long period of weak oil prices. But investors may react positively to a fundamental remake of the iconic and historic company.

“The market is indifferent as to whether they are larger or smaller. Investors want them to be more valuable,” the analyst told WSJ.