WEBVTT - The Humbling of Exxon 0:00:00.120 --> 0:00:02.920 Hi, I'm Carol Masser and I'm Jason Kelly. It's time 0:00:03.000 --> 0:00:06.200 for the cover story. Well, perhaps no company has been 0:00:06.240 --> 0:00:09.760 as profoundly humbled by recent events as Exxon. It's the 0:00:09.800 --> 0:00:13.200 west largest oil producer by market value, along one of 0:00:13.240 --> 0:00:17.320 the world's most valuable companies. Exxon was sinking into mediocrity 0:00:17.520 --> 0:00:21.000 even before the world was suddenly awash in cheap oil. 0:00:21.040 --> 0:00:22.720 Who would have thought we would have been talking about 0:00:22.840 --> 0:00:24.960 XN in this way. Maybe go back ten years or 0:00:25.000 --> 0:00:29.240 twenty years. It's really mind boggling. And what's interesting, though, Jason, 0:00:29.320 --> 0:00:32.440 is that the coronavirus has ultimately laid bare a decade's 0:00:32.440 --> 0:00:36.200 worth of miscalculations by the company, whether it's shale oil 0:00:36.240 --> 0:00:38.839 to Canadian oil sands and even a mega deal in Russia. 0:00:38.880 --> 0:00:41.800 I mean, Excen has spent so much money on projects 0:00:42.040 --> 0:00:43.919 then now it even has to borrow to cover its 0:00:43.960 --> 0:00:46.479 dividend payments. And when it comes to energy companies, as 0:00:46.520 --> 0:00:49.600 an investor, you expect those dividend payments. Well, and the 0:00:49.640 --> 0:00:52.480 numbers they don't lie, Carol, Xon needs a break even 0:00:52.520 --> 0:00:56.560 price of sixty dollars a barrel for that's five dollars 0:00:56.560 --> 0:00:59.760 more than VP and ten dollars more than Shell and Chevron, 0:01:00.040 --> 0:01:02.920 and maybe you've noticed oil is way way cheaper than 0:01:02.960 --> 0:01:05.440 that right now. And for a little more perspective on Exxon, 0:01:05.560 --> 0:01:08.000 once the undisputed king of Wall Street, X on today 0:01:08.080 --> 0:01:10.920 is worth less than Home Depot, which Jason has less 0:01:10.920 --> 0:01:13.920 than half its revenue. Check out the cover story The 0:01:14.040 --> 0:01:19.600 Humbling of Exxon. A decade of miscalculation turned a juggernaut 0:01:19.680 --> 0:01:24.200 into just another middling company. And that was before the pandemic, 0:01:25.080 --> 0:01:30.959 by Kevin Crowley and Brian Gruley. Darren Woods, chief executive 0:01:31.000 --> 0:01:34.160 officer of Exxon Mobile, was chipper as he bandied with 0:01:34.240 --> 0:01:39.479 industry analysts on January thirty one about his company's poor performance. 0:01:40.240 --> 0:01:43.480 The coronavirus had yet to spread far beyond China, but 0:01:43.560 --> 0:01:45.560 Woods had prepared to say a few words about it 0:01:45.600 --> 0:01:49.559 if anyone asked. No one did. As for the lower 0:01:49.560 --> 0:01:53.360 earnings and sliding share price, Woods assured his conference call 0:01:53.400 --> 0:01:57.120 audience that things were under control. Oil prices languishing in 0:01:57.160 --> 0:02:00.080 the sixty dollar a barrel range weren't a problem but 0:02:00.120 --> 0:02:04.160 an opportunity. We know demand will continue to grow, driven 0:02:04.160 --> 0:02:07.720 by rising population, economic growth, and higher standards of living, 0:02:07.880 --> 0:02:11.400 Wood said, we believe strongly that investing in the trough 0:02:11.440 --> 0:02:15.440 of this cycle has some real advantages. He went on 0:02:15.600 --> 0:02:18.600 to describe how Exxon would spend in excess of thirty 0:02:18.600 --> 0:02:23.160 billion dollars on exploration and other projects in more than 0:02:23.240 --> 0:02:26.960 any other Western oil company. While we would prefer higher 0:02:27.000 --> 0:02:29.960 prices and margins, he said, we don't want to waste 0:02:30.000 --> 0:02:34.600 the opportunity this low price environment provides. Over the next 0:02:34.639 --> 0:02:38.680 several weeks, COVID nineteen ravaged the oil industry by vaporizing 0:02:38.680 --> 0:02:42.079 global demand. Just as Russia and Saudi Arabia launched a 0:02:42.120 --> 0:02:45.800 price war. Investors were stunned to see oil fall to 0:02:45.840 --> 0:02:48.360 an eighteen year low of twenty two dollars and seventy 0:02:48.360 --> 0:02:51.200 four cents of barrel at the end of March. An 0:02:51.200 --> 0:02:54.520 agreement aimed at cutting output and boosting prices failed to 0:02:54.560 --> 0:02:57.880 halt the slide, and on April twenty some oil contracts 0:02:57.919 --> 0:03:01.560 were trading for less than zerollers were paying buyers to 0:03:01.600 --> 0:03:05.040 take the crude. The fallout for producers large and small 0:03:05.120 --> 0:03:09.680 has been devastating. You're seeing fragilities exposed, says Kenneth Medlock, 0:03:09.760 --> 0:03:12.639 the third Senior Director of the Center over Energy Studies 0:03:12.680 --> 0:03:17.440 at RICE, University's Baker Institute for Public Policy COVID nineteen 0:03:17.560 --> 0:03:21.280 is doing things that nobody could have imagined. Perhaps no 0:03:21.400 --> 0:03:24.840 company has been humbled as profoundly by recent events as Exxon, 0:03:25.400 --> 0:03:28.760 the West's largest oil producer by market value and an 0:03:28.760 --> 0:03:31.440 industry paragon that sets the bar not just for itself 0:03:31.720 --> 0:03:35.720 but for its competitors, And the pandemic isn't primarily to blame. 0:03:36.160 --> 0:03:39.560 The culprit is just as much the company itself. The 0:03:39.560 --> 0:03:44.080 coronavirus has laid bare a decade's worth of miscalculations. XN 0:03:44.240 --> 0:03:47.000 missed the wild and lucrative early days of shale oil. 0:03:47.520 --> 0:03:50.520 An adventure in the oil sands of Canada swallowed billions 0:03:50.560 --> 0:03:53.760 of dollars with little to show for it. Political tensions 0:03:53.800 --> 0:03:57.280 doomed a mega deal in Russia. Exson ended up spending 0:03:57.320 --> 0:03:59.760 so much on projects that it has to borrow to 0:03:59.800 --> 0:04:03.880 come for dividend payments. Over a ten year period, Exon 0:04:04.040 --> 0:04:06.800 stock has declined ten point eight percent on a total 0:04:06.840 --> 0:04:11.320 return basis, which includes dividends. The company's major rivals all 0:04:11.360 --> 0:04:15.040 posted positive returns in that period, except for BP, which 0:04:15.040 --> 0:04:17.600 had the deepwater horizons built in the Gulf of Mexico 0:04:17.680 --> 0:04:21.200 In the wider s and P five hundred index has 0:04:21.240 --> 0:04:25.520 returned nearly two The oil business is all about how 0:04:25.600 --> 0:04:28.520 much you produce, how low you get your costs, and 0:04:28.560 --> 0:04:32.400 how well you capture resources for the future. Exon produces 0:04:32.440 --> 0:04:35.760 about four million barrels a day, essentially the same as 0:04:35.800 --> 0:04:40.560 ten years ago, despite repeated vows to push the number higher. Meanwhile, 0:04:40.680 --> 0:04:43.760 the company's debt has risen from effectively zero to fifty 0:04:43.760 --> 0:04:46.720 billion dollars, and its profit last year was a bit 0:04:46.760 --> 0:04:49.799 more than half what it was a decade ago. Once 0:04:49.839 --> 0:04:53.240 the undisputed king of Wall Street, XN today is worth 0:04:53.320 --> 0:04:56.560 less than Home Depot, which has less than half the revenue. 0:04:57.080 --> 0:05:01.200 Former CEO Rex Tillerson oversaw that eventful span before leaving 0:05:01.480 --> 0:05:06.080 to become President Trump's Secretary of State. Under Tillerson, Woods 0:05:06.120 --> 0:05:10.400 ran Exn's then successful refining business. The rangey, white haired 0:05:10.440 --> 0:05:13.279 graduate of Texas A and M University is known for 0:05:13.360 --> 0:05:17.880 his unfailing optimism and affability. Woods declined to be interviewed 0:05:17.880 --> 0:05:20.640 for this article. The size of the job he has 0:05:20.720 --> 0:05:25.280 now is difficult to overstate. In an unprecedented crisis, He's 0:05:25.279 --> 0:05:28.600 guiding what author Steve call in his book Private Empire 0:05:28.720 --> 0:05:32.640 Exxon Mobile and American power, called a corporate state within 0:05:32.680 --> 0:05:35.920 the American state, one of the most powerful businesses ever 0:05:36.000 --> 0:05:41.360 produced by American capitalism. For four decades, Exxon has plowed ahead, 0:05:41.760 --> 0:05:45.440 eyes on the distant horizon, keeping its financial returns healthy, 0:05:45.760 --> 0:05:49.760 share price steady, and dividend rising through wars and recessions, 0:05:50.120 --> 0:05:54.440 Democratic administrations and Republican Now the world will see how 0:05:54.440 --> 0:05:57.440 well Exon can survive a pandemic and whether it has 0:05:57.440 --> 0:06:03.279 what it takes to thrive in the aftermath. On January thirty, 0:06:03.480 --> 0:06:06.480 two thousand and nine, Exxon reported a profit of forty 0:06:06.520 --> 0:06:09.359 five point two billion dollars for two thousand and eight. 0:06:09.680 --> 0:06:12.360 At that time, the biggest annual profit ever recorded by 0:06:12.400 --> 0:06:15.479 a public U S company. Revenue was four hundred and 0:06:15.480 --> 0:06:18.560 twenty five billion dollars. The stock closed that day at 0:06:18.600 --> 0:06:22.120 seventy six dollars, and Exxon pumped more oil than any 0:06:22.120 --> 0:06:26.719 OPEC member except Saudi Arabia and Iran. Tillerson had been 0:06:26.800 --> 0:06:30.480 CEO for three years, a gruff Texan who had risen 0:06:30.520 --> 0:06:33.839 through Exon's rough and tumble drilling and exploration businesses. He 0:06:33.960 --> 0:06:36.400 was about to make his biggest deal to date, the 0:06:36.440 --> 0:06:39.480 thirty one billion dollar acquisition of x t O Energy, 0:06:39.920 --> 0:06:43.599 the largest independent U S producer of natural gas. The 0:06:43.680 --> 0:06:46.400 deal was bold, not just because of the price, but 0:06:46.480 --> 0:06:49.680 also because in buying x t O, Exxon was tacitly 0:06:49.720 --> 0:06:53.479 acknowledging that concerns over greenhouse gases would spur demand for 0:06:53.560 --> 0:06:58.320 cleaner gas. The purchase surprised some investors, who couldn't easily 0:06:58.360 --> 0:07:01.440 see how the company would make a return. This wasn't 0:07:01.440 --> 0:07:04.719 like Exxon, known for an iron discipline about cutting deals 0:07:04.720 --> 0:07:09.640 that offered clear, reliable payoffs. Tillerson told analysts, will probably 0:07:09.680 --> 0:07:11.800 suffer in the near term. As we put it together, 0:07:12.360 --> 0:07:15.640 this is really about value creation. Over the next many years, 0:07:16.920 --> 0:07:19.640 x t o s expertise was in extracting gas from 0:07:19.680 --> 0:07:24.720 subterranean rock using newly developed fracturing techniques. But as Exxon 0:07:24.800 --> 0:07:28.720 assimilated the company, wildcatters such as Harold Ham of Continental 0:07:28.800 --> 0:07:33.400 Resources and Scott Sheffield of Pioneer Natural Resources were discovering 0:07:33.400 --> 0:07:36.760 that fracking worked for oil. Too Soon, it became clear 0:07:36.800 --> 0:07:39.280 that the real riches in North Dakota and West Texas 0:07:39.280 --> 0:07:42.840 shale were in oil, because crude was rising in price 0:07:43.000 --> 0:07:46.640 while gas was plummeting. As the decade wore on the 0:07:46.720 --> 0:07:49.920 magnitude of oil accessible in US shale would make the 0:07:49.920 --> 0:07:53.760 country an energy superpower to rival OPEC. Yet it would 0:07:53.760 --> 0:07:57.080 be years before Exon would embrace shale oil. I would 0:07:57.120 --> 0:07:58.920 be less than honest if I were to say to 0:07:58.960 --> 0:08:02.880 you we aw at all coming, because we did not quite, frankly, 0:08:03.200 --> 0:08:07.440 Tillerson said at event at the Council on Foreign Relations. 0:08:08.120 --> 0:08:11.680 Later in nine he told the Houston Industry Conference that 0:08:11.840 --> 0:08:16.480 he probably paid too much for XDO a rare Exxon 0:08:16.600 --> 0:08:20.720 maya culpa. Tillerson didn't respond to requests for comment for 0:08:20.760 --> 0:08:24.640 this article. Exxon wasn't the only energy giant to whiff 0:08:24.680 --> 0:08:28.320 early on in the oil shell boom. So did Chevron, Royal, 0:08:28.400 --> 0:08:31.880 Dutch Shell, and BP. That's partly because the business was 0:08:31.960 --> 0:08:34.920 undergoing a fundamental change that the super majors weren't eager 0:08:34.960 --> 0:08:39.200 to accept. For decades, politicians and consumers were paranoid about 0:08:39.280 --> 0:08:42.960 running short of oil and gas. The biggest companies, led 0:08:42.960 --> 0:08:46.680 by Exxon, spent great sums exploring and drilling in evermore 0:08:46.679 --> 0:08:51.800 exotic and forbidding geographies seeking the next mother load. Shale 0:08:51.880 --> 0:08:55.760 changed the calculus. Nobody doubted anymore that there were oceans 0:08:55.760 --> 0:08:58.000 of oil in the ground, it was a matter of 0:08:58.040 --> 0:09:01.439 getting it out as inexpensively as you hood. The Hams 0:09:01.440 --> 0:09:04.839 and Sheffields, fueled by cheap money from Wall Street, were 0:09:04.920 --> 0:09:08.360 driving down extraction costs and ramping up production in old 0:09:08.400 --> 0:09:11.920 American oil fields that the big boys had long ago abandoned. 0:09:12.440 --> 0:09:14.760 Some of them were a short drive from exn's Irving, 0:09:14.800 --> 0:09:19.920 Texas headquarters. Exxon, meanwhile, was taking chances on far away lands. 0:09:20.640 --> 0:09:24.560 Consider Western Canada, where Exon invested in the Curl Oil 0:09:24.600 --> 0:09:28.000 Sands project. If you believed the world was short of crude, 0:09:28.080 --> 0:09:31.400 it sounded great. Millions and millions of barrels were waiting 0:09:31.400 --> 0:09:34.160 to be squeezed from Alberta sand, and Exxon had the 0:09:34.200 --> 0:09:38.000 technical prowess to plumb them. But upfront costs ran eighteen 0:09:38.040 --> 0:09:41.840 percent higher than expected, and in twenty fourteen, oil prices 0:09:41.840 --> 0:09:44.839 began a nearly two year swoon as OPEC flooded the 0:09:44.880 --> 0:09:48.400 world with oil in the hope of suffocating American shale drillers. 0:09:49.080 --> 0:09:52.480 With crew dipping below forty dollars a barrel. Exn's hand 0:09:52.600 --> 0:09:57.160 was forced in early seventeen, after investing more than sixteen 0:09:57.160 --> 0:10:00.520 billion dollars, the company had to erase three point billion 0:10:00.559 --> 0:10:03.360 barrels from its listing of crude reserves, most of it 0:10:03.440 --> 0:10:07.240 from Alberta. The company couldn't control oil prices, of course, 0:10:07.600 --> 0:10:10.080 but the oil sands right off was nevertheless part of 0:10:10.120 --> 0:10:14.400 the deepest reserves cut in Exn's modern history. Exon last 0:10:14.480 --> 0:10:18.640 year rebooked some of the Alberta reserves. Russia seemed more 0:10:18.679 --> 0:10:22.600 of a sure thing. President Vladimir Putin and Tillerson had 0:10:22.640 --> 0:10:26.720 a history. In two thousand three, under then CEO Lee Raymond, 0:10:27.040 --> 0:10:30.000 Exxon had come close to buying into Ukos Oil, the 0:10:30.080 --> 0:10:35.320 Russian oil producer owned by putin adversary Mikhail Hrodrokowski. Putent 0:10:35.320 --> 0:10:37.800 balked at the prospect of Exon calling the shots on 0:10:37.800 --> 0:10:42.000 production and other matters. Tillerson, then an Exon senior vice president, 0:10:42.440 --> 0:10:45.760 was just as wary of Putin meddling with Yukos. He 0:10:45.760 --> 0:10:48.800 helped persuade Raymond to back off, which forged a bond 0:10:48.800 --> 0:10:51.720 between Putin and Tillerson that no other Western oil company 0:10:51.760 --> 0:10:56.360 executive enjoyed. In eleven, Putin and Tillerson agreed on the 0:10:56.400 --> 0:10:58.520 first piece of what was envisioned as a three d 0:10:58.640 --> 0:11:01.760 billion dollar exploration to that opened vast tracks of the 0:11:01.800 --> 0:11:04.760 Russian Arctic thought to contain billions of barrels of oil. 0:11:05.480 --> 0:11:09.920 It was an ideal match. Exon wanted the natural resources, putin, 0:11:10.040 --> 0:11:15.080 the expertise, and money. Then in fourteen, the Obama administration 0:11:15.120 --> 0:11:18.920 imposed sanctions on Russia for its annexation of Crimea. The 0:11:18.960 --> 0:11:21.959 sanctions prevented Exxon from continuing work on most of the 0:11:22.000 --> 0:11:27.319 Russian project. Another big fish had gotten away again. Exxon 0:11:27.480 --> 0:11:30.880 probably couldn't have predicted Crimea, nor was it alone in 0:11:30.920 --> 0:11:33.920 seeking access to Russian crude, but maybe that's what you 0:11:34.000 --> 0:11:38.160 get for trusting putin. By the time Tillerson departed to 0:11:38.200 --> 0:11:41.439 join the Trump administration, Exon looked a lot different than 0:11:41.440 --> 0:11:44.640 it did when it reported those record earnings. Revenue and 0:11:44.679 --> 0:11:47.240 profit were a fraction of what they'd been, and the 0:11:47.280 --> 0:11:50.720 stock had lost its premium to other SMPI Index energy 0:11:50.720 --> 0:11:55.200 companies for the first time since worse for the first 0:11:55.240 --> 0:11:58.320 time since the Great Depression. Standard and Poor's had stripped 0:11:58.320 --> 0:12:01.320 Exon of its top credit rating, and the company faced 0:12:01.320 --> 0:12:04.199 a New York state lawsuit alleging that it had intentionally 0:12:04.240 --> 0:12:08.280 misled investors about the dangers of climate change. The company 0:12:08.320 --> 0:12:11.720 won the case in December twenty nineteen. When Woods became 0:12:11.760 --> 0:12:15.400 CEO in January twenty seventeen, there were the predictable media 0:12:15.440 --> 0:12:19.000 stories about him stepping out of Tillerson's shadow. That wasn't 0:12:19.040 --> 0:12:21.200 going to be easy, given the big right off, the 0:12:21.360 --> 0:12:25.240 S and P downgrade, and the other unfortunate circumstances he inherited. 0:12:25.760 --> 0:12:31.040 But Woods was determined to rebuild Exxon with projects in Brazil, Guiana, Mozambique, 0:12:31.040 --> 0:12:33.560 and Papua New Guinea, the sorts of efforts that for 0:12:33.600 --> 0:12:38.280 some shareholders conjured unpleasant memories of Canada and Russia. Exxon 0:12:38.360 --> 0:12:40.880 had also finally jumped into shale oil with a six 0:12:40.920 --> 0:12:45.079 billion dollar acquisition of acreage negotiated by Tillerson in West 0:12:45.120 --> 0:12:49.800 Texas's prodigious Permian basin. Other super majors weren't as eager 0:12:49.840 --> 0:12:53.640 to embark on new endeavors like Exxon. They'd spent heavily 0:12:53.720 --> 0:12:56.960 then paid for it. During the twenty fourteen twenty sixteen crash, 0:12:57.800 --> 0:13:01.440 Burned investors were cooling on energy stocks and diverting their 0:13:01.480 --> 0:13:05.160 money into tech, pharma and other sectors. Energy now makes 0:13:05.240 --> 0:13:07.600 up less than three percent of the SMP five hundred, 0:13:07.880 --> 0:13:10.880 compared with more than ten percent In two thousand nine, 0:13:11.320 --> 0:13:14.679 the growing movement to transition away from fossil fuels to solar, 0:13:14.760 --> 0:13:18.599 wind and other energy sources was also peeling away investment, 0:13:19.200 --> 0:13:21.760 such as the clamor in Europe that Royal, Dutch Shell 0:13:21.880 --> 0:13:25.120 and BP have both pledged to become carbon neutral by 0:13:25.120 --> 0:13:30.000 twenty fifty and invest heavily in renewable energy sources. Exxon 0:13:30.080 --> 0:13:33.360 has made no such pledge, instead investing in early stage 0:13:33.400 --> 0:13:36.560 green technologies, while insisting that the world will need more 0:13:36.559 --> 0:13:39.160 and more oil and gas until at least twenty forty, 0:13:39.600 --> 0:13:42.959 driven by China and India. Some on wall streets he 0:13:43.080 --> 0:13:46.800 demand peaking as early as twenty thirty. At his first 0:13:46.840 --> 0:13:50.959 annual investor Day in March seventeen, Wood's vowed to spend 0:13:50.960 --> 0:13:53.320 more on new ventures so Exxon would be ready when 0:13:53.360 --> 0:13:56.880 the market turned. We are confident, he declared before dozens 0:13:56.880 --> 0:13:59.880 of analysts and shareholders in New York. Our job is 0:13:59.880 --> 0:14:03.719 to compete and succeed in any market, irrespective of conditions 0:14:03.800 --> 0:14:07.760 or price. Even then, a lot of institutional investors were 0:14:07.800 --> 0:14:10.800 inclined to take an ex and CEO's word as gospel. 0:14:11.280 --> 0:14:14.520 But an odd turning point came a year into Woods's tenure. 0:14:15.120 --> 0:14:17.880 Wall Street analysts threw a little tantrum about the lack 0:14:17.920 --> 0:14:21.520 of forward looking data in Exn's quarterly reports. They were 0:14:21.520 --> 0:14:25.680 growing weary of sunny promises belied by a lackluster share price. 0:14:26.520 --> 0:14:28.640 With the company planning to spend so much money on 0:14:28.640 --> 0:14:32.000 stuff its rival saw a little need for the Analysts 0:14:32.080 --> 0:14:35.800 zeroed in on why Exon CEO never appeared on quarterly 0:14:35.840 --> 0:14:39.040 conference calls to answer their questions as the top bosses 0:14:39.080 --> 0:14:42.920 at almost every other SMP five company. Did we think 0:14:42.960 --> 0:14:46.120 times have changed and that Exxon may not necessarily be 0:14:46.200 --> 0:14:48.480 able to expect the market will continue to offer it 0:14:48.520 --> 0:14:51.640 the benefit of the doubt, a Barclay's analyst wrote in 0:14:51.640 --> 0:14:56.040 a February investor note. In other words, Exxon was no 0:14:56.160 --> 0:15:00.800 longer a special case. Two months later, Jeff woodbur then 0:15:00.800 --> 0:15:04.920 Exxon's investor relations vice president, promised that Woods would soon 0:15:04.960 --> 0:15:08.600 start participating in conference calls, saying, we believe that the 0:15:08.600 --> 0:15:11.240 investment community did not have a very good understanding of 0:15:11.240 --> 0:15:18.080 what our value growth potential was. Good morning, everyone, Wood said. 0:15:18.080 --> 0:15:20.800 When he stepped on stage at Exon's most recent investor 0:15:20.880 --> 0:15:23.800 day on March five in New York, he waited for 0:15:23.840 --> 0:15:28.560 a response. When none came, he said, good morning everyone, 0:15:29.040 --> 0:15:32.320 Still nothing, come on now, Wood said, a little bit 0:15:32.360 --> 0:15:37.160 of energy here. Nervous titters rippled through the audience. On 0:15:37.200 --> 0:15:40.440 that Thursday, the coronavirus had only begun to wreak havoc 0:15:40.480 --> 0:15:44.560 with America's health and economic well being. Social distancing wasn't 0:15:44.640 --> 0:15:48.040 yet happening widely, though. Guests that the Exxon presentation were 0:15:48.080 --> 0:15:52.000 offered small bottles of hand sanitizer. Woods mentioned the virus 0:15:52.040 --> 0:15:55.000 as part of a very challenging short term margin environment 0:15:55.280 --> 0:15:59.720 facing XN. It was a new twist on a familiar speel. 0:16:00.080 --> 0:16:03.560 Investors could have heard Tillerson spending years before the longer 0:16:03.640 --> 0:16:06.520 term horizon is clear, and today our focus is on 0:16:06.560 --> 0:16:10.440 that horizon. Wood said Exxon was, for the most part, 0:16:10.520 --> 0:16:13.880 sticking with its plan. Wood said he intended to pair 0:16:13.880 --> 0:16:16.960 spending barely six percent to a maximum of thirty three 0:16:16.960 --> 0:16:20.680 billion dollars for the year, and emphasized the company's optionality, 0:16:20.960 --> 0:16:23.760 a word he uses a lot to adjust spending to 0:16:23.800 --> 0:16:28.400 react to market conditions while others retrench. Wood said, we 0:16:28.520 --> 0:16:30.800 believe the best time to invest in these businesses is 0:16:30.880 --> 0:16:33.880 during a low, which will lead to greater value capture. 0:16:33.920 --> 0:16:36.360 In the coming up swing. You can do that if 0:16:36.360 --> 0:16:39.680 you have the opportunities and the financial capacity, which we do. 0:16:40.360 --> 0:16:44.040 This is a key competitive advantage of ours. Within forty 0:16:44.040 --> 0:16:47.800 eight hours, Woods plan was in trouble. The Russians and 0:16:47.840 --> 0:16:50.680 Saudi's unable to agree on how much crew to pump, 0:16:50.960 --> 0:16:55.040 started pushing oil prices down. At the same time, demand 0:16:55.080 --> 0:16:59.600 was spiraling lower as lockdowns proliferated around the world. Storage 0:16:59.600 --> 0:17:04.119 tanks and pipelines were overwhelmed with unwanted oil. Refineries reduced 0:17:04.160 --> 0:17:07.800 their inflows of raw crude. High cost wells were shut. 0:17:08.480 --> 0:17:12.760 Analyst Paul Sankey of Missouo Securities USA observed in an 0:17:12.760 --> 0:17:15.800 investor note that Exson was stepping up when the industry 0:17:15.840 --> 0:17:19.080 was stepping back. Turns out they were stepping off a cliff. 0:17:19.680 --> 0:17:23.840 On March six, SMP again downgraded xn's credit rating to 0:17:24.080 --> 0:17:26.840 A A from a A plus and said it could 0:17:26.840 --> 0:17:29.280 happen again if the company does not take adequate steps 0:17:29.320 --> 0:17:32.560 to improve cash flows and leverage. A week later, the 0:17:32.600 --> 0:17:36.320 stock closed at thirty one forty five cents, the lowest 0:17:36.359 --> 0:17:40.359 since two thousand two. Investors started to wonder whether Exon 0:17:40.440 --> 0:17:43.280 might end its string of thirty seven straight yearly increases 0:17:43.280 --> 0:17:46.800 in its dividend. To cover that fourteen point seven billion 0:17:46.800 --> 0:17:51.399 dollar payment, the third highest among SMP five companies. Along 0:17:51.400 --> 0:17:55.080 with its aggressive capital spending, Exon needed crude to fetch 0:17:55.080 --> 0:17:58.320 about seventy seven dollars a barrel, the highest break even 0:17:58.359 --> 0:18:02.200 among oil majors, according to our BC Capital Markets. The 0:18:02.240 --> 0:18:04.919 stock began to recover in early April, but it was 0:18:04.960 --> 0:18:08.520 all too much. On April seven, Would said Exxon would 0:18:08.560 --> 0:18:12.480 cut capital spending to twenty three billion dollars a drop 0:18:12.520 --> 0:18:16.399 of an additional ten billion dollars or thirty and shave 0:18:16.480 --> 0:18:20.280 operating expenses by the bulk of the cuts would be 0:18:20.320 --> 0:18:24.000 aimed at the Permian. Exxon would defer some activities in 0:18:24.040 --> 0:18:29.480 its Guiana project while postponing investment decisions elsewhere. They cried Uncle, 0:18:29.680 --> 0:18:33.320 says Rice University's Medlock. With the cuts, the break even 0:18:33.359 --> 0:18:36.520 dropped to sixty dollars a barrel, still tops among the 0:18:36.520 --> 0:18:40.679 biggest companies. You could almost feel Woods gritting his teeth 0:18:40.720 --> 0:18:44.200 in the company's statement that day. The long term fundamentals 0:18:44.200 --> 0:18:47.959 that underpinned the company's business plans have not changed. Population 0:18:48.040 --> 0:18:51.280 and energy demand will grow, and the economy will rebound. 0:18:52.080 --> 0:18:55.520 Despite the cuts, Exxon still expected Permian production would rise. 0:18:56.119 --> 0:18:59.320 In other words, the company wasn't abandoning its strategy, it 0:18:59.440 --> 0:19:03.480 was just hit pause in deference to COVID nineteen. Woods 0:19:03.520 --> 0:19:07.320 certainly can't be faulted for not foreseeing the recent oil carnage, 0:19:07.520 --> 0:19:10.440 with the industry abandoning fracking and laying off more than 0:19:10.480 --> 0:19:14.480 fifty thousand workers in March alone, and Exxon isn't seeking 0:19:14.480 --> 0:19:17.400 government intervention to help save you as shale oil as 0:19:17.440 --> 0:19:20.960 ham Sheffield and others are. With as many as one 0:19:21.000 --> 0:19:23.880 in three shale players expected to exit the market one 0:19:23.880 --> 0:19:26.480 way or another, Exxon could be in a position to 0:19:26.480 --> 0:19:30.160 snap up cheap acreage after the virus retreats. The large 0:19:30.200 --> 0:19:32.520 companies might actually get bigger on the back of this, 0:19:32.800 --> 0:19:36.480 Medlock says. For now, though, it's hard not to see 0:19:36.480 --> 0:19:39.639 Exxon as just another company getting tossed around by the market. 0:19:40.520 --> 0:19:43.440 After the recent investor day, a reporter asked Woods of 0:19:43.520 --> 0:19:46.960 Exon was still capable of navigating today's up and down 0:19:47.240 --> 0:19:50.600 and down some more energy business. I don't think you 0:19:50.680 --> 0:19:53.680 stay in business for one thirty five years, Wood said, 0:19:54.119 --> 0:19:57.680 without being attentive to the needs of your customers, your stakeholders, 0:19:57.880 --> 0:20:02.119 and the communities that you operate in. It wasn't actually 0:20:02.200 --> 0:20:02.880 an answer.