The Humbling of Exxon
Bloomberg Businessweek|May 04, 2020
Years of miscalculation turned a juggernaut into just another middling company. And that was before the pandemic
Kevin Crowley and Bryan Gruley

Darren Woods, chief executive officer of Exxon Mobil Corp., was chipper as he bandied with industry analysts on Jan. 31 about his company’s poor 2019 performance. The coronavirus had yet to spread far beyond China, but Woods had prepared to say a few words about it if anyone asked. No one did.

As for the lower earnings and sliding share price, Woods assured his conference-call audience that things were under control. Oil prices languishing in the $60-a-barrel range weren’t a problem but an opportunity. “We know demand will continue to grow, driven by rising population, economic growth, and higher standards of living,” Woods said. “We believe strongly that investing in the trough of this cycle has some real advantages.” He went on to describe how Exxon would spend in excess of $30 billion on exploration and other projects in 2020, more than any other Western oil company. “While we would prefer higher prices and margins,” he said, “we don’t want to waste the opportunity this low-price environment provides.”

Over the next several weeks, Covid-19 ravaged the oil industry by vaporizing global demand just as Russia and Saudi Arabia launched a price war. Investors were stunned to see oil fall to an 18-year-low of $22.74 a barrel at the end of March. An agreement aimed at cutting output and boosting prices failed to halt the slide, and on April 20 some oil contracts were trading for less than zero—sellers were paying buyers to take the crude. The fallout for producers large and small has been devastating. “You’re seeing fragilities exposed,” says Kenneth Medlock III, senior director of the Center for Energy Studies at Rice University’s Baker Institute for Public Policy. “Covid-19 is doing things that nobody could have imagined.”

Perhaps no company has been humbled as profoundly by recent events as Exxon, the West’s largest oil producer by market value and an industry paragon that sets the bar not just for itself but for its competitors. And the pandemic isn’t primarily to blame; the culprit is just as much the company itself.

The coronavirus has laid bare a decade’s worth of miscalculations. Exxon missed the wild and lucrative early days of shale oil. An adventure in the oil sands of Canada swallowed billions of dollars with little to show for it. Political tensions doomed a megadeal in Russia. Exxon ended up spending so much on projects that it has to borrow to cover dividend payments. Over a 10-year period, its stock has declined 10.8% on a total-return basis, which includes dividends. The company’s major rivals all posted positive returns in that period, except for BP Plc, which had the Deepwater Horizon spill in the Gulf of Mexico in 2010. The wider S&P 500 index has returned nearly 200%.

The oil business is all about how much you produce, how low you get your costs, and how well you capture resources for the future. Exxon produces about 4 million barrels a day— essentially the same as 10 years ago, despite repeated vows to push the number higher. Meanwhile, the company’s debt has risen from effectively zero to $50 billion, and its profit last year was a bit more than half what it was a decade ago. Once the undisputed king of Wall Street, Exxon today is worth less than Home Depot Inc., which has less than half the revenue.

Former CEO Rex Tillerson oversaw that eventful span before leaving to become President Trump’s secretary of state. Under Tillerson, Woods ran Exxon’s then-successful refining business. The rangy, white-haired graduate of Texas A&M University is known for his unfailing optimism and affability. (Woods declined to be interviewed for this article.) The size of the job he has now is difficult to overstate. In an unprecedented crisis he’s guiding what author Steve Coll, in his book Private Empire: ExxonMobil and American Power, called “a corporate state within the American state … one of the most powerful businesses ever produced by American capitalism.”

For four decades Exxon has plowed ahead, eyes on the distant horizon, keeping its financial returns healthy, share price steady, and dividend rising through wars and recessions, Democratic administrations and Republican. Now the world will see how well Exxon can survive a pandemic—and whether it has what it takes to thrive in the aftermath.

On Jan. 30, 2009, Exxon reported a profit of $45.2 billion for 2008, at that time the biggest annual profit ever recorded by a public U.S. company. Revenue was $425 billion, the stock closed that day at $76, and Exxon pumped more oil than any OPEC member except Saudi Arabia and Iran.

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