The most overlooked business story of 2020
It's been a tricky year for stocks, with unexpected pandemic high-flyers like Zoom and Peloton and fluctuating pandemic victims like Carnival and United Airlines. But the fate of a declining giant has a deeper story: the oil titanium Exxon Mobil (XOM), which is likely to see its first annual loss in modern times this year.
Exxon became the World's Most Valuable Company in 2005, posting a profit of $ 45 billion in 2008 when oil prices approached $ 150 a barrel, the largest in US history at the time. Regulators asked for a tax and consumers cursed the company when gas prices hit $ 4 a gallon and most of the world experienced a sharp downturn known as the Great Recession.
Exxon competed with Apple for the most valuable company until Apple started running away with the title in 2013. It wasn't a shame on Exxon as the entire tech industry was on the rise. Since then, however, Exxon has slumped as oil's role in the global economy has declined - a transition that could accelerate if the future Biden administration takes on the greatest federal fulcrum outside of carbon energy.
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The drop in oil prices
Like most major oil companies, Exxon's share price and market capitalization move in proportion to oil prices, which have fallen by roughly half since 2014. Much of this is due to the new drilling method, fracking, which has flooded the world with oil and natural gas. At the same time, many countries subsidize green energy sources such as wind and sun, which dampens oil demand. The coronavirus recession torpedoed demand in 2020 and caused oil prices to fall, although they have now rebounded. Still, the current price of about $ 47 for West Texas crude oil is 56% below its 2014 high of $ 107 a barrel.
The once mighty Exxon is now leaner and more careful. The share price has fallen 47% since its peak in 2014, including dividend payments, outperforming the S&P 500 index by 114%. Exxon's market value is now $ 180 billion, a staggering 65% decrease from its 2007 high. Instead of # 1, Exxon is now the 37th most valuable company in the country. In August, S&P Dow Jones Indices removed Exxon from the Dow Jones stock index for the first time since 1928, when the company was known as Standard Oil of New Jersey.
Exxon is expected to lose around $ 1.8 billion this year, according to S&P Capital IQ. This would be the company's first annual loss since at least 1980. The company plans to lay off 15% of its global workforce, including 1,900 in the US. In October, it declined to increase its quarterly dividend for the first time since 1982, fueling speculation about an impending dividend cut.
All the big oil companies are struggling with low oil prices. But Exxon has even left the competition behind, particularly European firms like BP and Shell, which have been more aggressively trying to expand into renewable energy. "There's a very big gap between European oil majors and US majors," said Trevor Houser, director of energy and climate practices at research company Rhodium Group. “Europeans are really trying to become energy companies. The US majors didn't do that spin. If oil prices stay low, this bet by the European majors will pay off. "
Exxon is betting that the global economy will be fueled by oil and gas for the decades to come, which will propel Exxon's prices and prospects up again. It will be a long wait. Exxon, late in the fracking revolution, bought the XTO drill bit in 2010 for $ 30 billion - a price that then-CEO Rex Tillerson is now overstating. The deal would have looked smart if oil and gas prices had returned to their 2008 highs. Instead, prices collapsed.
History of the resistance to climate protection
Unprecedented losses in 2020 have forced Exxon to cut investments and reduce drilling targets in areas such as the Permian Basin in Texas. Activist investors are putting pressure on the company to do more to address global warming and improve financial performance. Earlier this year, CEO Darren Woods ridiculed other oil companies' green power plans as a "beauty pageant." However, in mid-December, Exxon released its own five-year plan to reduce carbon emissions. Climate experts are skeptical about Exxon's long history of opposing climate change.
Gasoline prices will be posted on a mobile station in Candia, N.H. on Thursday, April 30th, 2020. Rising inventories and lower demand contribute to the low prices. (AP Photo / Charles Krupa)
New president Joe Biden has no plans to offer Exxon redress. Biden has promised the most ambitious climate change agenda ever, with a goal of zero carbon emissions in the US by 2050. This would require a sharp drop in oil and gas consumption and the rapid introduction of renewable energies such as wind and solar energy. and other technological breakthroughs. Biden is likely to raise fuel consumption standards for vehicles, tighten pollution regulations for power plants, and promote new incentives for the use and production of renewable energy. Biden also vows to ban new drilling on public land and kill government subsidies to oil companies.
Exxon is not defenseless. The oil industry remains politically powerful and Exxon is still the biggest player. Drill bits provide high-paying jobs in traditional oil states like Texas, as well as swing states like Colorado, Ohio, and Pennsylvania. During the presidential campaign, Biden fought to appease climate activists without alienating energy workers. He insisted that he would protect energy jobs but also promised to "end fossil fuels". Exxon has never been exposed to such a threat.
Rick Newman is the author of four books, including "Rebounders: How Winners Go From Setback to Success". Follow him on Twitter: @rickjnewman. Confidential line: email@example.com. Click here to receive Rick's stories by email.
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