Nightmare Scenario
Exxon warns it may write down natural-gas assets worth billions as the pandemic continued to weigh on fossil fuel companies.
The Wall Street Journal reports Exxon Posts Third Consecutive Quarterly Loss for First Time
Exxon Mobil Corp. XOM posted its third consecutive quarterly loss for the first time on record Friday and disclosed that it may write down the value of natural-gas assets worth as much as $30 billion, as the coronavirus pandemic continues to pressure the world’s biggest oil companies.
The Texas oil giant reported a loss of $680 million in the third quarter compared with a profit of $3.17 billion during the same period last year.
Exxon Chief Executive Darren Woods invested heavily before the pandemic to grow Exxon’s oil and gas production by 2025. That decision has backfired as commodity prices plunged this year, forcing the company to make substantial cuts and painful choices about where to invest.
On Thursday, Exxon said it could cut as much as 15% of its global workforce, or about 14,000 jobs, as the struggling oil company tries to cut costs and survive the Covid-19 downturn. In all, big oil producers and services firms are collectively shedding more than 50,000 jobs.
Exxon Mobil Weekly Chart
Exxon Mobil Monthly Chart
Let This Sink In
Exxon Mobil Market Summary
Zoom Overtakes Exxon Mobil
Business Insider reports Zoom overtakes Exxon Mobil in market value amid COVID-19 pandemic
In Thursday trades, Zoom Video is now worth $140 billion, surpassing Exxon Mobil’s market capitalization of $137 billion, according to data from YCharts.com.
The change in fortunes for Zoom and Exxon highlights how swiftly the COVID-19 pandemic has impacted the US economy, and life in general.
As rolling economic shutdowns swept across the US in late March due to the spread of COVID-19, schools and businesses relied heavily on the video chat software platform from Zoom to conduct daily life in a semi-normal state.
This led to a surge in business for Zoom, and helped power its stock higher by as much as 658% year-to-date. Within the first three weeks of US shutdowns, Zoom added 100 million new customers, representing a quick double.
Exxon Warns of $30 Billion Shale Writedown
Bloomberg reports Exxon Warns of $30 Billion Shale Writedown Decade After XTO
Exxon Mobil Corp. warned it may take up to $30 billion in writedowns on natural gas fields acquired more than a decade ago, and reported a third straight quarterly loss.
Exxon is confronting one of its biggest crises since Saudi Arabia began nationalizing its oilfields in the 1970s. If the company takes the full $30 billion impairment, it will be the industry’s worst in more than a decade, according to Bloomberg data.
The company lost $680 million, or 15 cents a share, during the third quarter, compared with the 25-cent per-share loss forecast in a Bloomberg survey of analysts. The shares fell 1.6% to $32.45 at 12:09 p.m. in New York and are down more than 50% for the year.
That was in stark contrast to Chevron Corp., which disclosed a surprise profit as the company’s oil-production and refining divisions outperformed analysts’ expectations. Chevron’s shares rose 1.1%. European supermajors Total SE, Royal Dutch Shell Plc and BP Plc also turned in better-than-expected third-quarter performances.
Exxon stock has underperformed Chevron but outpaced Shell and BP. The drop has sent Exxon’s dividend yield soaring to more than 10%, a level that indicates investors expect the payout to be cut.
Ten Questions
- Exxon Mobil yields a nice 10.67% dividend. That’s nice, but will the dividend last? The company affirmed the dividend, but that does not make it especially so.
- Will fossil fuel companies survive, for how long, and in what form?
- Biden wants to “phase out” fossil fuels. Will he? Can he? Will the next Senate be willing to go along? Will AOC and the Greens demand even more?
- Will biden work out a deal with Iran, flooding the market with more oil?
- What about work-at-home?
- When is there a big push for electric cars?
- When will plane travel rebound?
- If energy is undervalued, how long will it be before the market agrees?
- How many more writedowns are coming?
- Chartwise, a nice double bottom may be in play. Are you nimble enough to play? Will there be a whipsaw?
I do not know the answers to those questions and no one else has full answers either.
But those are the kinds of questions value investors need to answer.
The answers to questions 5, 6, and 8 may seem obvious but are they priced in? That answer may depend on the answer to questions 3, 4, and 9.
Momo players hoping for a double-bottom may have an easier go of the decision.
Mish
Without Natural Gas Turbines, the solar and wind power industry does not exist. Solar and Wind Power lack the absolute essential key that any electric generation source requires: Dispatchability, the electricity is there when you need it. Solar and Wind require that Utilities have twice the generating capacity to produce electricity when the wind don’t blow or the sun don’t shine. Everything else is eco fantasy.
As for electric cars, when I can drive to St. Louis from my home (a six hour drive) without re-charging , then I will be interested. The Oil and Natural Gas Industry will be around for many more decades.
Submarines and aircraft carriers are powered by small nuclear reactors. Why aren’t the trains?
The future of oil is plastic and all the other chemicals that come from it. And probably kerosene for the airplanes unless they are actually brave enough to ban air travel for the sake of climate change.
I don’t think stock valuations matter at the moment but that will pass at some point. And oil & gas usage is not going away any time soon although prices may come down to a point where only the lowest cost providers can survive.
George Gammon interview of Art Berman a couple a days ago on this topic.
I see Exxon’s share price is down nearly 70% from its highs, despite all the Government stimulus.
It’s because Zoom has rarity value in its captive customer base where oil and gas companies are, as are oil and gas deposits generally, ubiquitous.
There’s nothing “captive” about them at all. Switching costs are low and there are plenty of good alternatives, including free ones like MS Teams. Zoom is insanely overvalued but they do have a brand that’s now a verb so they do have a chance to try to find something else that actually does lock people in.
First I want to start by saying the very premise of this post is false, it must be because I saw the president on TV last night saying how Covid is done, history, over, and he is responsible for the greatest economy the US has ever known.
Second point; yes FAANG stocks and Zoom and a lot of other companies are “worth more than Exxon,” but is that a comment on Exxon? Or is that proof that the entire equity market no longer has any rational price discovery?
A 10.67% yield in a negative real return world is insanely high, why are buyers not bidding up shares of Exxon to get that return? Don’t you think it is telling that they are not a takeover target for Saudi Aramco or some other oil big? In fact those other companies also see the calandar running out on them as well.
All your questions related to demand, about phasing out fossil and oil, yes that is going to happen, is happening, California for example just passed a law requiring that no new oil based motor vehicles will be sold there in 15 years. What do you think that will do to the resale value of all existing ICE vehicles out there? Yes they will still be legal to own and sell, but who would want one when gasoline or diesel is tripled, quadrupled, or more? When you may not even be able to find it?
What California does today others will (have to) do tomorrow. The “value” of oil giants and their fields will drop over time even as prices at the pump will rise over time. There are trillions and trillions of dollars invested in oil companies and oil infrastructure, from wells, to refineries, to pipelines, to millions of gas stations with all their tanks and pumps and etc. The price of a gallon of gas for everyone not just Californians, is going to skyrocket, and I predict the states or federal government will be forced to take over and maintain that industry, or at least subsidize it because people have so many trillions invested in fossil powered motor vehicles that when investors ditch oil company stocks those vehicles are going to be dead without fuel. This could happen next year, or in 10 years, but the day will come when oil investors just sell off and buy Amazon shares. Leaving hundreds of millions of cars and trucks useless. California (and other) governments want fossil phased out, but how do you force investors to sit by and watch their investments be phased out? They are headed for the doors already. Without their investments the corporations cannot stay in business, so rather than an orderly phase out over 15 years what California just did was order the execution of oil companies. Cars may not be bone dry this year, but gas prices are going to become unaffordable for all but the wealthy and sooner than you will believe. Only government has deep enough pockets to do a prolonged phase out of one of the largest industries on the planet.
With oil being phased out just how well do you think those oil assets are going to be maintained? Who will dump the millions per year into refinery maintenence? Who is going to pay to clean the restrooms or unplug vandalized toilets at gas stations? If you were in charge of making the financial decisions for such companies and knew your days were numbered would you bother to repair a refinery that had an accident? Would you be building any new stations? Or would you be retiring assets as they wear out and just never replace them?
California is about 14% of the US energy industry market. They just said no new fossil powered vehicles after 2034. Energy companies cannot lose 14% of their market and stay viable. So California might as well have passed a national law ending fossil because those companies cannot do business in the rest of the nation without that largest state economically speaking. Of all industries in all of capitalism the single most dependent upon markets of scale is oil. The investments are just too huge to get by on less than universal energy dominance.
This is not just about Exxon either, it puts Ford, GM, and other car makers on notice that they are going to be extinct within 15 years if they do not switch to electrics. So wether the technology is ready or not in 15 years the internal combustion engine is going to be history. Of course hobbyists will still tinker with old gas powerd cars, but they will not be able to use them for much more than antique car events. Most older cars will be sculpture rather than transport. There will still be a very small amount of oil turned into gasoline for those people, but it will be the equivalent of about $40 per gallon by today’s standard. That is a lot of infrastructure and expertise to maintain for a few thousand car hobyists, the price is going to be ruinous for most people.
I think the market is already agreeing, if not leading, the verdict that oil is over. Ah the irony when a new natural ice age starts and they will do anything to up CO2 in the atmosphere to try to soften that blow, they will recreate the entire industry to do it at a cost of so many trillions. Fortunately I cannot live that long, but there are people alive today that could live to see it.
I don’t think they’ll achieve it by 2034, and I suspect hybrids will still be allowed. Nevertheless reliance on traditional fossil fuels is on the the wane as you say.
You are not thinking outside the box Scoot. Ridesharing with subscriptions in electric junkers is the future. You will have to pay a subscription fee every month just to access these rideshares whether you use them or not, and then pay more when you do use them. You think you will sit there and let a computer do the driving for you? So you can play a video game or do homework, or read a novel? Nope, you will be REQUIRED to submit yourself to advertising the entire time you are in this rolling shitcan. And they will tell you that it must be so or they would have to double the prices, in fact you may actually have the option to turn the ads off for an extra fee.
Time for people to recognize once and for all; YOU have your money no matter its source and everyone wants to part you from it. Up till now you had the discretion about how to spend it or not to spend it all. But technology is changing and soon you will not have any choice in the matter. Whether it is a ride, a meal, or any other basic function of life you will be paying per use and paying subscriptions just for the access to buy. And it will all be filled with ads so crappy and disturbing that they will make more money for those rare moments you simply pay to turn them off.
Think about it, when was the last time you watched TV that someone was not paying for even when not in use? Remember when you could get free TV albeit with ads, just by putting an antenna on your roof? What do you pay now? I know my Charter bills amount to $159 per month and I never even watch TV anymore because the ads are so sickening, especially the ones that promise their pill may cause you vomiting, diarrhea, stroke, death, or vaginal flatulence. Those should be banned from the dinner hours, but the more revolting they are the more they will be able to charge you to opt out and that is coming.
I can access very few news outlets on the net anymore because I have an ad blocker I refuse to turn off. Most are now by susbscription only, but those not charging your cards every month demand you submit to ads that ruin your experience and cause your computer to crash or run so slow it might as well have crashed.
The value of human life to politicians is the sum of your net worth now, and if you think that corporations have not got that message you are wrong.
I was always very thin. About 12 years ago corporations like Levi Strauss realized that they got all their profits from a small range of sizes worn by the majority of people and they stopped making the sizes that fell on either end of the size bell curve. Try to find size 28 jeans today. Fortunately middle age spread put me into 33’s but even those are not always available. Soon everything will be pretty much one size fits all and you can like it/pay for it, or you are free to make your own.
The markets are slowly but surely refusing to cater to all but the most profitable because they cannot raise prices high enough to cater to those “orphan” ends of the bell curves. A lot of what we take for granted today is going to be history, one day for example kids will ask parents why older houses have a mini concrete road going from the street to the biggest room in their house. And because the parents were babysat in big day care buildings that used to be called schools they will not know the answer.
Just try for a moment to imagine the most horrible future possible where you are worth nothing except as a consumer/slave. Then make the image worse, you will be getting closer to the truth.
I’d prefer to be more optimistic. Things of course will change more than any of us can imagine, they always have. However there are always both good and negative changes and in the past the good changes have mostly outweighed the negative. In my opinion anyway -:)
The problem with eternal optimism is you are doomed to disappointment. On the other hand if you just remain stolidly pessimistic you will never be disappointed.
Scoot, for the record, I always have been an optimist because it seems the happier way to live, and let’s face it, people don’t like to hang out with negative Debbie Downer people. But, on some key issues pessimism does help in moderation, elections are one of them.
I am optimistic for a Biden win, but feel burned that while Hillary won the popular vote in 2016 Trump won the anachronistic electoral college which was a compromise by our founding fathers to get slave colonies to join the union after the revolution. We know for a fact they cheated in the last election as well, as I have posted the findings of the REPUBLICAN controlled Senate Intelligence Committee report on a few occassions. Even the GOP in the senate admits that Trump actively sought and accepted assistance from russians in 2016 and oh how convenient that those findings were not released till AFTER the impeachment.
for the sake of sanity you must not be too disappointed when cheaters cheat, and the batshit crazy GOP is proof of why that is so.
No probs, I’m struggling to fight pessimism myself about many things at the moment.
i have the correct answers for all 10 questions, but i don’t want to spoil it for everyone.
I haven’t used Zoom, but I know some who used it for free. Question: how does Zoom make money by offering a free service?
Or to rephrase the question, how does Zoom plan to monetise personal data, when Google already does it. Will they knock down the price to consumer level?
Which tech giant will be able to buy Zoom at this valuation?
I have used it, the VA now does nurse/doctor appoinments over Zoom because of Covid, but when Covid is done they will retain it because they will say it saves them a lot of money. I do not pay for it (at least in the sense I am not seeing my cards charged for it) the VA does, but someone is paying for it. In this example taxpayers. While it is cheaper to do a Zoom appointment, for one thing I do not have to drive 21 miles to the clinic and then back home again, I do question the value of a doctor appointment where the doctor only sees a jiggly and poorly lit 2 inch by 2 inch image of your face. You know I moved here in late March from Oregon and I have never met my doctor except over Zoom.
‘I will now sit back and wait for boomers to chime in and say, “we will never get rid of oil and gas…blah..blah..blah.’
Well, not from this Boomer (age 72). EVs will take over and deliver cleaner air to metro areas. Solar/wind will continue to destroy dinosaur poop. Dino pee will be relegated to petrochemicals. Dino farts will continue for home heating, but better batteries at the utility level will reduce gas use for power generation.
Most people—except for Fat Donnie—want clean air, water, and land. We must reduce our use of dino waste in order to achieve these goals.
Yes, and unicorns are going to fart rainbow colored skittles. There is more money invested in the oil industry than any other industry PERIOD. Now you think those tens of trillions in investment are just going to be phased out in a matter of a few years? Well it is going to be gone in favor of electrics, but electrics will be so expensive that private car ownership in 10 years will be for the affluent/wealthy only.
The rest of us will be sitting in some self driving car owned by a corporation that charges exceptionally high prices for any ride, it will not be cleaned so you will sit in some drunk’s vomit from the night before, and you can be sure of one thing, the car will be made so cheaply you would never buy one even if you could afford it. That is the future of the transportation industry. And even that will not happen till government passes a law that exempts the Uber and Waymo and Lyft’s of the world against lawsuits when their computers have a glitch or get hacked and your family is killed by these monstrosities, just the way tobacco was exempted from lawsuits for it’s own deadly products.
Oh, and when a football game starts or ends, or any large gathering of people, be it 4th of July fireworks, or any other type of huge gathering, you will wait hours to get a ride from them. In fact pricing will be pretty much based upon demand, as the number of calls come in for rideshares the price will rise. You will be paying more than you ever did for a taxi.
I have never understood oil prices or oil stocks……they both often move in ways that make little sense to me. But……
Worldwide demand for oil is in decline….but oil still makes the world go around….and it will for a long time.
Ammonium nitrate fertilizer comes from petroleum. Without that we can’t begin to feed the nearly 8 billion people on the planet.
All plastics comes from oil.
Hydrogen economy? The cheapest way to make hydrogen is from natural gas..
Solar power is low EROEI compared to wind….and is losing some of its luster. Wind power is the biggest alternative power source that threatens oil right now..
Nuclear power is very likely to see a resurgence. There is a huge amount of money and R&D going into nukes. Nukes can be made safer and better than the legacy plants
Exxon is no doubt investing in alternative energy. I have no idea what that amounts to….but I’d guess its in the plan.
Oil producers need a certain oil price to stay solvent, because the cost of extracting oil keeps rising, generally speaking, as the best fields go into decline. Only Iran and Iraq have really big untapped reserves of conventional oil.
The shale oil boom has caused a glut….and price is often bordering on making extraction unprofitable.
If prices rise, then consumers have incentives to lower demand even more. So oil price needs to stay in a certain range so both buyers and sellers can do business.
The cost of fracking oil has apparently come down over the last five years, which is good…..cutting costs is the name of the game for producers like Exxon.
Global conflict makes the price of oil skyrocket. War is good for oil….the bigger the war the more it matters.
So…..a lot of variables are in play, many of which are either unknown or unforeseeable.
If oil price is volatile, then XOM share price is liable to be volatile too. I wouldn’t ever buy it for a trade….I really don’t care what the chart looks like…..but that’s just me. I’m not nearly as nimble as the algo traders…..or even the average day trader. And being nimble matters. You could easily become road kill.
From an investor standpoint, the best reason to own XOM looks to me to be the dividend….and I do doubt it will be cut much unless the company is really on the rocks…which they aren’t.
I don’t own any stocks….not looking to buy any stocks….fun to think about, but I only buy tangible assets.
Ammonium nitrate fertilizer comes from petroleum. Without that we can’t begin to feed the nearly 8 billion people on the planet.
All plastics comes from oil
You can say that it comes from “petroleum” but that petroleum or better said hydrocarbon is natural gas. There are entities that use oil as the feedstock, but it is much more complicated to crack oil into it’s component parts that a molecule like natural gas (CH4).
I was using “oil” as a general term…I know how it works. Among my other diplomas I have a chemistry degree somewhere . Oil and gas are both produced by Exxon, no?
Great informative comment, Eddie!
Thanks very much.
What’s Going On With the Stock Market? http://economixcomix.com/home/stockmarket/
I suspect fixed and variable costs, and breakeven points, along with accounting reporting has a lot to do with Exxon’s results.
That said, alternative energy has its own economics.
The first nails were pounded into coffin with the XTO chasing-a-mania gas purchase…Tillerson was a value-destroying CEO. Woods can’t right this ship, even with the Guyana plum. Continuing erosion from here.
Biden has been clear. He’s not phasing our fossil fuel but ending subsidies. That said the economics of coal stink. It’s going away. Even the geologists working in natural gas say we need methane recapture and must stop flaring. We will be using natural gas and oil for decades. It’s not about phasing it out but changing the mix to renewables
I seriously doubt Biden will end subsidies for oil, no matter what he says on the stump.
It won’t be easy. I grant you that
We need to start tapping into the gas coming out of cows and humans….
Which is why I am slowly buying bean futures…
Renewables?
Just need nuclear. Smart countries will do this especially thorium Dumb ones won’t.
I support nuclear. It ain’t happening. Nobody wants it in their backyard. Europe was adopting, not anymore. The Zeitgeist has changed. Was it Chernobyl, Fukishama?
Spam
The Maven has a spam filter that occasionally eats comments.
It caught all messages from one person and some from regulars.
I recovered some missing comments back to October 4. If a comment of yours vanishes that is not in a removed chain by me, let me know and I will take a look.
Mish
XOM was in a downtrend 5.5 years before COVID struck. Oil peaked 11-12 years before COVID struck. A MUCH larger trend is in play. Market forces will curb fossil fuels use, so 1.) greens don’t need to pass laws to reduce consumption and 2.) fully electric vehicles will become cost prohibitive.
Ok, you got me:
Why is that if incremental gains are constantly being made in battery tech?
Pound for pound, fuel stores 10x more energy than batteries. That is why commercial flight using only batteries is impractical at this time. Yes, battery technology is improving, but not at a fast enough rate to close that 10x gap anytime soon. The Lithium based battery technology uses a membrane to separate charge. As the membrane becomes thinner, more charge can be stored, but the chance of a member rupturing and leading to thermal run-away also increases. Car accidents happen and can rupture batteries with thin membranes. Revolutionary technology is needed to eliminate fossil fuel. Sending a man to the moon was evolutionary technology.
Three words for you – Hydrogen fuel cell
Luckily Pintos did not have this sort of flaw.