Why has Exxon Mobil slashed its 2020 capital spending by 30%?

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Exxon Mobil Slashes 2020 Capital Spending by 30% Due to Pandemic-Induced Demand Drop

Exxon Mobil Corp. has reduced its planned capital expenditure for 2020 by 30%, lowering it to US$23 billion from an earlier projection. This significant cut is a direct response to the widespread decrease in energy demand and the subsequent fall in oil prices, both driven by the ongoing coronavirus pandemic. The company is specifically curtailing investments in its shale, natural gas, and deep water production segments.
Reduced Investment Across Key Sectors

The company's decision to cut capital spending impacts several crucial areas of its operations. Investments in shale production, where Exxon had previously allocated substantial resources for drilling leases and output increases, will see a notable reduction. Similarly, plans for natural gas and deep water projects are being scaled back. Exxon has also delayed investment decisions for major projects, including a liquefied natural gas (LNG) facility in Mozambique and certain offshore activities in Guyana, a region where the company had recently announced significant oil discoveries.
Deeper Cuts Compared to Industry Peers

Exxon's 30% reduction in capital expenditure is more substantial and implemented later than the cuts made by many of its industry rivals. While other major oil companies like BP, Chevron, Royal Dutch Shell, and Saudi Aramco have also reduced their spending plans by approximately 20% to 25%, Exxon's decision represents a more pronounced retrenchment. This move brings Exxon's planned capital expenditure to its lowest level in four years, signalling a significant recalibration of its investment strategy in the current market environment.
Anticipated Impact on Demand and Operations

Exxon anticipates a severe short-term decline in global oil demand, estimating a drop of between 25% and 30%. This forecast is based on the widespread impact of the pandemic, including reduced air travel, business closures, and stay-at-home orders, which collectively suppress fuel consumption. The company also foresees significant challenges related to storage and logistics becoming constrained, leading to anticipated widespread oil-well "shut-ins" across the industry. This challenging outlook is expected to affect Exxon's first-quarter financial results, with anticipated earnings drops of approximately US$1.4 billion in oil and gas operations and about US$800 million in refining.

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Why has Exxon Mobil slashed its 2020 capital spending by 30%?

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