Exxon has generated a second quarterly loss in a row for the first time in the last thirty-six years. Its second-quarter loss came in at $0.70. The loss is attributed to the sharp decline in oil and energy demand over the past couple of months. Its second-quarter revenue plunged by half compared to the earlier year period. The company has announced to slash its capital investments from $33 billion to $23 billion for this year, with 2021 capital investment guidance of $19 billion. That represents the lowest capital spending in the past fifteen years. It has also been aggressively cutting its operational expenses to support margins and cash flows in a depressed oil price environment. Exxon plans to sustain dividends by lowering costs and slashing capital investments. “Exxon Mobil has “a long history of providing a reliable and growing dividend… we take that very seriously,” VP Neil Chapman said. The market analysts believe Exxon’s dividend strategy may appease investors in the short-term but the company has to pay a big cost in the long-term. Lower capital investments could reduce its production potential in the coming years. Its debt will also increase sharply as cash flows are not offering a cover to dividend payments. “As such, there is no avoiding a sizable increase in leverage, expecting Exxon’s net debt as a percentage of capital will rise from 19% at year-end 2019 to 27% at year-end 2020 – the highest leverage ratio since Exxon merged with Mobil in 1999,” RBC analyst Pavel Molchanov writes.
