By Jennifer Hiller and Shariq Khan
NEW YORK (Reuters) - Two years into an ambitious growth plan to revive earnings at the largest U.S. oil company, Exxon Mobil (N:XOM) said on Thursday it would stick to its plans to "lean in" to spending even as its shares have lagged its competitors, which are cutting costs.
Oil prices have fallen over 20% this year, natural gas is at its lowest price since the 1990s and the industry's long-term outlook is clouded by a push toward cleaner fuels. The entire oil industry has fallen out of favor with investors, but Exxon, once the industry’s cash flow and profits leader, has tumbled particularly hard.
The company is "mindful of the current market environment," but will stay with its strategy of "leaning into this market when others have pulled back," Exxon Chief Executive Darren Woods said at the company's annual investor day meeting. He first laid out plans to improve profits through investment in 2018, and Thursday's message did not diverge from that.
The industry faces a drop in demand for its products this year as the coronavirus spreads globally, but "the longer term horizon is more clear," Woods said, arguing that improving living standards mean the world will need more oil.
But Exxon's total share return is -26% over the last five years, far behind the other global oil majors, according to Refinitiv Eikon data, while the broader S&P 500 Index has returned 49%.
The company plans to spend between $30 billion and $35 billion a year through 2025. Spending will rise from $31 billion last year to about $33 billion this year.
Exxon is likely "in for another tough year," said Biraj Borkhataria, an analyst with RBC Europe Limited. With weak oil and gas prices and muted refining margins, Exxon will "barely" cover its capital spending with free cash flow and its dividend coverage will be "the worst" among its rivals, he said.
Its growth plans include a big bet on U.S. shale, where output has surged, making the United States the world’s largest oil producer, and on Guyana, where an Exxon-led consortium has made one of the biggest discoveries in years.
In the Permian Basin, the top U.S. shale field, Exxon has slightly slowed its pace of development. It has 58 drilling rigs at work now, but said it will drop that number 20% this year as it picks up drilling speed.
It is racing its closest U.S. rival, Chevron Corp (NYSE:CVX), to reach 1 million barrels of oil-equivalent per day there, and Exxon said it still will surpass that target by 2024.
Following weaker 2020 earnings, Exxon reduced its earnings growth target for 2025 by around $10 billion to about $30 billion, said Anish Kapadia of Palissy Advisors.
On Tuesday, Chevron said it had up to $80 billion in its war chest that it could use for shareholder returns over the next five years regardless of oil prices.