When the fossil fuel industry finally winds down in the coming decades, 2020 will stand as a pivotal year. Major corporations have been knocked off their pedestals, and there’s no bigger fall than Exxon’s.
Late on Monday, the company announced it was writing down the value of oil and gas fields it had previously planned to develop by as much as $US20 ($27) billion. It’s the biggest such writedown in Exxon’s history and indicative of the immense pressure the pandemic and resultant economic slowdown have put on the company and the oil industry at-large.
In the announcement, the company also said it would spend less on exploration, which makes sense given the huge drop in oil demand. It had previously planned to drop $US30 ($41) billion on exploration and other capital expenditures every year through 2025. Now, it’s looking at spending $US16 ($22) to $US19 ($26) billion in 2021 and $US20 ($27) to $US25 ($34) billion after that through 2025. Now, I’m no oil analyst, but planning an increase in spending after 2021 seems pretty optimistic given the fact that we may have just passed peak oil demand and, with a Joe Biden presidency, the prospect of more robust climate policy (or any climate policy, really) in the U.S. and globally seems a lot more likely. Turns out, I’m not alone.
“In this environment, it makes no sense to me at all. What’s the hurry?” Mark Stoeckle, senior portfolio manager at Adams Funds, told Reuters, referencing Exxon’s plans to boost investment after next year. “I don’t think it’s going to help them with investors.”
On its own, this new of Exxon’s historic writedown would be staggering for a company that has all but defined the American oil industry for decades. But it comes after a series of Earth-moving changes at the company. Even before the writedown, Exxon reported to the Securities and Exchange Commission that up to a fifth of its proved oil reserves — an economic term defined by the SEC — could lose that status due to low oil prices. It has lost billions over the first three quarters of 2020, and the free fall has led its stock to plummet. Because of that, Exxon was booted from the Dow Jones Industrial Average after a 92-year run. It’s floundering isn’t just about money either; the company also lost the spot as the largest American oil company to Chevron.
That hasn’t stopped Exxon from paying out shareholders a hearty dividend, which is around $US15 ($20) billion. But it has led the company to pursue layoffs; in October, it announced a plan to shed 14,000 jobs. Exxon’s continued financial decline and layoffs even as it pays out shareholders point to the danger of unmanaged decline for the oil industry.
I feel like a broken record saying this, but the coal industry is a huge warning of what that decline could look like if safety measures aren’t put in place for workers. Just last week, St. Louis Public Radio reported that Peabody Energy is eliminating a healthcare benefit program and life insurance for retired miners in what is just the latest sign of how coal companies’ are failing the workers who made them billions. Biden’s climate plan includes a call to help coal miners and communities that sprung up around mines and power plants to get the benefits they deserve and transition to the 21st century. But if the past year has shown us anything, oil and gas industry workers are going to need the same kind of help.