Exxon Keeps Dividend Safe Through 2025

Exxon XOM announced a fourth-quarter $20.1 billion loss compared with earnings of $5.7 billion the year before. Included in the announced loss is a $19.3 billion impairment charge related primarily to dry gas assets in the U.S. but also western Canada and Argentina. Excluding those impairments, adjusted fourth-quarter earnings were $110 million, compared with $1.8 billion the year before, as downstream losses offset upstream earnings. Our fair value estimate and narrow moat rating are unchanged.

With the impairment expected after a filing in December, perhaps more important for investors were the other announcements made during the report. Most notable is the forward capital guidance typically reserved for the annual update in March. Exxon already announced capital spending guidance of $16 billion-$19 billion for 2021 last quarter, which was lower than the $21 billion it spent in 2020 which was $10 billion lower than 2019. It also announced updated spending guidance for 2022-25 of $20 billion-$25 billion per year well below the $30 billion-$35 billion it announced last March. It expects to be at the lower end of the range in 2021, which, along with the dividend, should be covered with operating cash flow at about $45/bbl, assuming continued poor downstream and chemical margins. Beyond this year, it expects to cover the dividend and capital spending at oil prices as low as $35/bbl or with capital expenditures at the upper end of the range at around $50/bbl, both assuming historical average downstream and chemical margins. These breakeven levels also include the $3 billion of structural cost advantages it achieved this year and the additional $3 billion it plans to generate by 2023. Any excess cash flow would go toward debt reduction and shareholder returns.

This guidance should calm investors who became increasingly worried about Exxon’s heady capital spending plans and safety of the dividend given the pandemic fallout and sustainability of future oil demand and prices.

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