ExxonMobil to write off up to $20 billion of assets in its biggest impairment ever

Oil major ExxonMobil will take an impairment charge of $17 billion to $20 billion in the last quarter of the year after removing certain dry gas assets from its development plan and reduce spending plans for the next year.

ExxonMobil said on Monday it has completed a review of its forward business plans.

Under the plan, ExxonMobil said it would prioritize near-term capital spending on advantaged assets with the highest potential future value, including developments in Guyana and the U.S. Permian Basin, targeted exploration in Brazil and Chemicals projects.

Darren Woods, chairman and chief executive officer for Exxon Mobil Corporation, said: “Continued emphasis on high-grading the asset base – through exploration, divestment and prioritization of advantaged development opportunities – will improve earnings power and cash generation, and rebuild balance sheet capacity to manage future commodity price cycles while working to maintain a reliable dividend”.

ExxonMobil has lined up several priorities and actions as part of its annual business plan.

These include leveraging the significant cost savings realized in 2020 that are on track to exceed announced reductions of $10 billion or 30 per cent of capital spending and 15 per cent of cash operating expenses.

Key to ongoing expense management are business line reorganizations and efficiencies that include a global workforce reduction of 15 per cent by year-end 2021, ExxonMobil explained.

The plan also includes continued pacing of investments. Namely, the company expects $16 billion to $19 billion in capital and exploration expenditures in 2021 and $20 billion to $25 billion annually through 2025.

ExxonMobil noted that the next priority is reserving the long-term value of the company’s investment portfolio by offsetting costs associated with project delays. The company plans to double earnings by 2027.

Another action ExxonMobil is planning to take involves the removal of less strategic assets from its development plan as a result of the growing strength of its portfolio.

Assets removed include certain dry gas resources in the Appalachian and Rocky Mountains, Oklahoma, Texas, Louisiana and Arkansas in the United States, and in western Canada and Argentina.

The decision will result in a non-cash, after-tax fourth-quarter impairment charge of approximately $17 billion to $20 billion.

According to Reuters, this is ExxonMobil’s biggest impairment ever.

Finally, the plan includes an increased focus on monetization of less strategic assets to grow the portfolio of potential divestments, including certain North American dry gas assets, contingent on buyer valuations.

Woods said the business environment in the fourth quarter is showing signs of improvement despite the resurgence in COVID-19 cases and accompanying economic restrictions.

“Prices and margins for many of our businesses have improved from the third quarter and when coupled with continuing efforts to reduce spending and capture additional efficiencies, quarter-to-date cash flow has improved versus our plan assumptions”, Woods said.