ExxonMobil’s survival skills tested amid crisis, change

HOUSTON — Over the last 135 years, Exxon Mobil has survived hostile governments, ill-fated investments and the catastrophic Exxon Valdez oil spill. Through it all, the oil companymade bundles of money.

But suddenly Exxon is slipping badly, its vulnerabilities exposed by the coronavirus pandemic and technological shifts that promise to transform the energy world because of growing concerns about climate change.

The company, for decades one of the most profitable and valuable American businesses, lost $2.4 billion in the first nine months of the year, and its share price is down about 35% this year. In August, Exxonwas tossed out of the DowJones Industrial Average, replaced by Salesforce, a software company. The change symbolized the passing of the baton from Big Oil to an increasingly dominant technology industry.

“Is Exxon a survivor?” asked Jennifer Rowland, an energy analyst at Edward Jones. “Of course they are, with great global assets, great people, great technical know-how. But the question really is, can they thrive? There is a lot of skepticism about that right now.”

Exxon is under growing pressure from investors. D.E. Shaw, a longtime shareholder that recently increased its stake in Exxon, is demanding that the company cut costs and improve its environmental record, according to a person briefed on the matter.

Another activist investor, Engine No. 1, is pushing for similar changes in an effort backed by the California State Teachers Retirement System and the Church of England. Last week, the NewYork statecomptroller, Thomas P. DiNapoli, said the state’s $226 billion pension fund would sell shares in oil and gas companies that did not move fast enough to reduce emissions.

Of course, every oil company is struggling with the collapse in energy demand this year and as world leaders, including President- elect Joe Biden, pledge to address climate change. In addition, many utilities, automakers and other businesses have pledged to greatly reduce or eliminate the use of fossil fuels, the biggest source of greenhouse gas emissions, and have embraced wind and solar power, and electric vehicles.

As recently as last month, Exxonreaffirmed it plans to increase fossil fuel production, though at a slower pace. The company is investing billions of dollars to produce oil and gas in the U.S., offshore fields in Guyana, Brazil and Mozambique.

Exxon committed to its strategy even as it acknowledged that one of its previous big bets did not gowell. Exxon said it would write down the value of its natural gas assets, most ofwhich it bought around 2010, by up to $20 billion. The company is also laying off about 14,000 workers over the next year or so.

But if this crisis is an existential threat, there has been no acknowledgment from Exxon’s executive suite.

“Despite the current volatility and near-term uncertainty, the long-term fundamentals that drive our business remain strong and unchanged,” Darren W. Woods, the company’s chairman and chief executive, said at a recent meeting.

As a trained electrical engineer and 28-year company veteran, Woods speaks with the same cool self-assurance as his more famous predecessors. But he has kept a lower profile than Lee R. Raymond, who dismissed concerns about climate change in the 1990s and early 2000s, and Rex Tillerson, whose international wheeling and dealing between 2006 and 2016 helped him become President Donald Trump’s first secretary of state.

While Raymond and Tillerson were dominant figures in the industry, they leftWoods withmanyproblems that were at least partly obscured by higher oil and gas prices.

Raymond’s public skepticism of climate change damaged the company’s reputation. Tillerson was slow to take advantage of shale drilling, which lifted the U.S. oil industry. His foray into the former Soviet Union and Iraq provedto be expensive failures. When he bought XTO a decade ago for over $30 billion to acquire fracking expertise and prized natural gas fields, gas prices were at their peak. As the commodity price declined in the years since, the company lost money and wrote off much of the investment last month.

Raymond declined to comment. Tillerson did not respond to a request for comment. Exxon responded to questions mainly by referring to previous public statements by Woods and the company.

Casey Norton, a company spokesman, said the acquisition of XTO had “brought people and technology in addition to potential resources” that helped the company be successful in shale fields in the Permian Basin.

In the first few years on the job, Woods followed the broad strategy set by Tillerson by borrowing and investing heavily to expand production. The pandemic forced Woods to change direction. The company now plans to spend onethird less on exploration and production through 2025 than it had originally planned.

Yet the changes Exxon is making, while big in absolute terms, seem like tinkering compared with what European oil companies are doing. BP has announced that it will increase investments in low- emission businesses tenfold over the next decade, to $5 billion a year, while shrinking oil and gas production by 40%. Royal Dutch Shell, Total of France and other European companies aremaking similar moves at varying speeds.

Exxon executives have said they recognize an energy transition is underway and necessary. But they have also asserted that it wouldn’tmake sense for the company to get into the solar or wind energy business. Instead, the company is investing inbreakthrough technologies.

Exxon refineries might also someday become major producers of hydrogen, whichmany experts believe could play an important role in reducing emissions. The company is betting on carbon capture and sequestration.

Energy experts said it was possible that Exxon could come up with new uses for carbon dioxide like strengthening concrete or making carbon fiber, which could replace steel and other materials.

“If Exxon and other major oil industry players crack those nuts, the entire discussion about hydrocarbons changes,” said Kenneth B. Medlock III, a senior director at the Center for Energy Studies at Rice University. “That kind of change is slow until it’s not. Think about wind and solar, whichwere slowuntil theyweren’t.”

A big increase in oil and gas prices could also allay some of the concerns about the company, at least temporarily. In recentweeks, as oil prices have climbed on optimism about a coronavirus vaccine, so has Exxon’s stock.

But John Browne, a formerBPchief executive, said it was not clear that Exxon and the other big American companies would transform their businesses adequately for a low-carbon future.

“They may decide just to carry on and harvest and say, ‘Let’s see what happens in the long run,’ “he said. “That’s quite a risky strategy nowadays.”