(Bloomberg) — Exxon Mobil Corp. will increase capital expenditures next year as the purchase of Pioneer Natural Resources Co. worth $60 billion, its oil production plans are expanding, threatening to worsen the expected glut of crude oil next year.
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Exxon plans to spend between $27 billion and $29 billion in cash by 2025, North America’s largest energy explorer said in a statement Wednesday. Annual spending will rise to about $30.5 billion over the next five years, up from about $24.5 billion before the Pioneer deal.
Exxon’s prospects are in stark contrast to those of other oil industry players. OPEC cut its 2024 demand growth forecast for the fifth straight month on Wednesday, less than a week after the cartel and its allies extended plans to keep crude out of the market until next year as prices struggle with a threatening surplus. Meanwhile, Chevron Corp. announced last week announced the first cut in annual spending since 2021 as the company prioritizes profits over production.
The budget increase is larger than Wall Street expected and could lead to skepticism among investors, as some investments are embryonic projects, according to RBC Capital Markets.
“Given that some of these areas are still nascent today, we believe the market remains skeptical about the earnings potential until we see further evidence of results,” RBC analysts including Biraj Borkhataria wrote in a note to clients.
Exxon fell 0.5% to $112.08 at 9:32 a.m. in New York, making it the worst-performing oil stock in the S&P 500 Index today.
Exxon expects to pump the equivalent of 5.4 million barrels per day by 2030, the most in the company’s modern history. Cost savings from the Pioneer deal closed in May were increased by 50% to more than $3 billion. The oil driller expects to save $7 billion in operating costs by 2030, which amounts to about half of its dividend payments.
Chief Executive Officer Darren Woods is investing in what he calls “beneficial” projects that can produce oil and natural gas at such low costs that they will be profitable well into the future, even as major economies transition away from fossil fuels, which hurts prices. Nearly all future investments, including those in the U.S. Permian Basin and Guyana, will yield 10% returns at less than $35 a barrel, about half the current oil price, Exxon said.
“We have very low delivery costs,” Woods said on a conference call with reporters. “We have, under a very wide range of price scenarios, very robust returns across the portfolio.”
Exxon has announced two new developments in Guyana, nearly tripling daily production capacity to 1.7 million barrels from current levels. Company-wide low-carbon investments were increased to $30 billion through 2030, up from $20 billion through 2027.
Woods’ strategy may make sense for shareholders in the long term, but analysts fear Exxon’s increasing oil production could contribute to the global oversupply forecast for next year. That, in turn, would complicate efforts by the Organization of the Petroleum Exporting Countries and its allies to control surpluses and maintain crude oil prices.
“It is Exxon that is very directly eating the oil market’s lunch, and especially Saudi Arabia’s lunch,” Paul Sankey, a veteran oil analyst and founder of Sankey Research LLC, said before the announcement. Weak Chinese consumption and growing supply from countries such as the US and Brazil lead to “considerably pressured oil prices.”
Woods’ refusal to stray from Exxon’s core oil and gas business has served the company well since 2021, when energy demand returned from the depths of the pandemic. The stock’s total return of over 100% over the past three years is more than double that of the S&P 500 and Chevron.
But analysts are beginning to question the wisdom of focusing on oil production growth at a time when the international crude oil benchmark is on track for a second straight annual decline, Chinese energy demand remains weak and OPEC+ is at millions of barrels production remains untouched. capacity, according to Citigroup Inc.
Here are some key points from Wednesday’s announcement:
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Guyana’s production will double to approximately 1.3 million barrels per day by 2030
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Permian production will grow to the equivalent of 2.3 million barrels per day by 2030, from about 1.4 million now
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Exxon claims to have more than double the number of well locations that break even at less than $40 per barrel than its nearest competitor
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A new proppant made from coke refining will improve recovery by 15%, Exxon says
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Exxon targets final investment decisions for liquefied natural gas in Papua New Guinea and Mozambique in 2025 and 2026, respectively
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Golden Pass and Qatar North Field Expansion will produce the first LNG by the end of 2025
(Updates with analyst commentary in fifth paragraph; CEO commentary in ninth paragraph.)
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