Exxon's New CEO Shifts Investments to Quick-Earning Shale Oil

(Bloomberg) -- Exxon Mobil Corp. is trading in long-term projects that pump oil over decades for U.S. shale drilling that can be switched on or off as crude prices change.

Long a world leader in multi-billion dollar oil and natural gas developments that take years to build and even longer to profit, Exxon is diverting about one-third of its drilling budget this year to shale fields that will deliver cash flow in as little as three years, said Chairman and Chief Executive Officer Darren Woods.

Next year, U.S. shale will absorb 50 percent of Exxon’s worldwide drilling budget, Woods said Wednesday during his first public appearance since succeeding Rex Tillerson in January. Output from shale wells will grow an average of 20 percent annually through 2025 as Woods intensifies the company’s focus on the Americas.

“The shift from long to short is really a reflection of the opportunity that has grown in the short-cycle business,” Woods said. “That part of the business isn’t in discovery mode; it’s in extraction mode.”

Exxon was a late-comer to shale, shunning it for the first decade of this century as a niche that couldn’t generate enough output to make a mark on the balance sheet of a major international explorer. When Tillerson steered Exxon into shale drilling with its $34.9 billion acquisition of gas explorer XTO Energy in 2010, he conceded Exxon had missed out on the first wave of the fracking revolution.

Woods, a 52-year-old electrical engineer by training, joined Exxon as an analyst in 1992 and rose through the ranks on the refining and chemicals side of the business. In an appearance before analysts and investors at the New York Stock Exchange, he discouraged observers from assuming his background in the so-called downstream side of the business would tilt his decision making.

Using “past actions of mine as a rule book" to assess future decisions probably won’t work, according to Woods. Exxon’s leadership-development process prepares executives to oversee any part of the corporation, so that “when you go through that management process, you become fungible,” he said.

Woods deferred several times during his presentation to his main rival for the CEO’s job, Jack Williams, to provide insight on the company’s shale and other oil-drilling activities. Williams, a senior vice president and member of Woods’ four-person inner circle, oversees Exxon’s oil production and refining business lines.

Cool and Controlled

The new CEO’s relaxed, controlled demeanor harkened to that of his mentor, Tillerson, presenting analysts with a seamless leadership transition. Like his predecessor, Woods deflected questions about quarterly and annual financial and production metrics by stressing Exxon’s multi-decade horizons on dividends, profitability and value-creation.

Exxon won’t be "making decisions based on annual or short-term views," Woods said.

The world’s biggest oil explorer by market value will spend more than $5.5 billion this year to drill wells in the U.S. Permian and Bakken shale regions, among other so-called short-cycle assets, Exxon said in a  statement on Wednesday. The Irving, Texas-based company is targeting annual output equivalent to 4 million to 4.4 million barrels of oil a day, excluding the impact of divestitures. 

Investors may still be looking for more as Exxon “continues to struggle to showcase upstream volume growth over the near to medium term,” said Vincent Piazza, a Bloomberg Intelligence analyst. The company’s production has fallen in four of the past five years and averaged 4.05 million barrels a day in 2016.

Exxon has never been more out of favor with analysts in its modern history. The proportion of ”buy” recommendations among analysts following the company is at its lowest since at least 1997, two years before the $88 billion Mobil merger. Seven analysts have the equivalent of a sell rating on the company, with five buys and 17 holds.


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