The prolonged commodities rout is taking its toll on the largest U.S. oil company, with ExxonMobil announcing it plans to cut capital spending 25% this year.
Exxon anticipates capital spending of $23 billion in 2016, down from a reduced $31.1 billion in 2015. About a year ago, the company had projected its 2015 capital spending budget at $34 billion, a decline of 12% from 2014, but reined in spending as the year progressed.
“We have the financial flexibility to pursue attractive opportunities and can adjust our investment program based on market demand fundamentals,” CEO Rex Tillerson told analysts Wednesday at Exxon’s annual meeting.
Last month, the company reported that full-year earnings for 2015 fell by 50% to $16.2 billion, its weakest showing in more than a decade and a fraction of the near record annual profit of $44.9 billion it earned as recently as 2012.
The cuts in capital spending will come mainly from oil and gas production, with a slight decrease expected again in 2017, partly from chemical operations. Exxon expects production to be 4 million to 4.2 million equivalent barrels per day annually through 2020, essentially flat compared to 2015.
Exxon said Wednesday it was on track to start up 10 new upstream projects in 2016 and 2017, adding 450,000 oil-equivalent barrels per day of working-interest production capacity.
“We are focused on maximizing benefits across the energy value chain,” Tillerson said. “The company captures unique value from its diverse, high-quality resource base from exploration, development and production all the way through to the fuels, lubricants and petrochemical products used by consumers.”
Oil prices have plunged to a seven-year low this year, spooking investors and sending stock markets around the globe into turmoil. Exxon’s stock fell 15% last year but was up fractionally, at $81.85, in trading Wednesday.
Exxon on Monday sold $12 billion of new bonds, one of the biggest corporate-debt deals of the year and a sign investors remain willing to lend to higher-quality companies. “However, ExxonMobil’s borrowing costs relative to market benchmarks have risen since it sold bonds last year,” the Wall Street Journal noted.