Tuesday, February 11, 2020

Exxon Cracking Down on Employee Travel After Profit Collapse

Eight new Mobil stations have opened in the Bajío.

(Bloomberg) -- Exxon Mobil Corp. has been scrutinizing employee-travel budgets since the largest North American oil explorer posted its worst quarterly profit in almost four years, according to people with knowledge of the matter.

Auditing teams have fanned out to some divisions to analyze travel requests involving industry conferences, according to the people, who asked not to be identified because they aren’t authorized to talk publicly. An Exxon spokesman didn’t respond to a request for comment.

The austerity measures are unusual for Irving, Texas-based Exxon, one of the few major explorers to avoid job or dividend cuts during the 2014-16 oil slump. The restrictions may also signal intensifying concern among Exxon leadership about the prospects for a recovery as China’s coronavirus outbreak slams global energy demand.

Although Exxon has thus far shielded its sacrosanct dividend from the oil-price slump, chinks began to appear in the crude giant’s armor as far back as 2016, when S&P Global Inc. revoked the company’s gold-plated credit rating for the first time since the Great Depression. Although Exxon has steadily raised annual dividends, cash flow hasn’t kept pace, forcing the company to use borrowed money and asset sales to fund the payouts.

“It’s only prudent,” said Jennifer Rowland, an analyst at Edward D. Jones & Co. in St. Louis who has a ‘hold’ rating on the shares. “Commodity margins across the board are at decade low and oil and gas prices are also down. What’s in their control is costs.”

Exxon has been punished by investors since disclosing fourth-quarter results on Jan. 31 and warning that conditions in its chemical business will remain “challenging” for the rest of this year. Since that report, the company shed about $17 billion in market value.

The company’s stock rose 1.2% to $60.67 at 11:55 a.m. in New York.

U.S. oil and gas explorers large and small are straining under the dual pressures of weak commodity prices and investor demands for richer returns. In January, Chesapeake Energy Corp. terminated a deferred-compensation plan as part of broader cost-cutting efforts, just weeks after warning it may go bust. Meanwhile, Oasis Petroleum Inc. has cut executive salaries and incentive payouts.

‘Unique Position’

Apache Corp., Halliburton Co. and Pioneer Natural Resources Co. have also made deep cost cuts as the sector’s outlook has darkened.

“Exxon is in a unique position among the majors right now in growing and spending aggressively in a counter-cyclical manner,” said Matt Murphy, an analyst at Tudor, Pickering, Holt & Co., who has a ‘hold’ rating on the stock. “In this environment, to continue to grow the dividend, it makes sense to wring out non-core costs and strip that outspend down a little bit.

Murphy estimates Exxon will outspend cash flow to the tune of $10 billion this year.
(Updates with analysts’ comments in fifth, 10th paragraphs)
--With assistance from Kevin Crowley.

To contact the reporters on this story: Lucia Kassai in Houston at lkassai@bloomberg.net;Joe Carroll in Houston at jcarroll8@bloomberg.net

To contact the editors responsible for this story: Simon Casey at scasey4@bloomberg.net, ;David Marino at dmarino4@bloomberg.net, Joe Carroll, Carlos Caminada
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