Exxon Mobil Corp, the largest U.S. oil producer, reported a drop in its fourth-quarter earnings on Thursday, as it wrote down $2.5 billion of assets in California and faced lower energy prices.
The company said it sold its oil and gas properties along the Southern California coast to Sable Offshore, a startup company, for $643 million, after facing regulatory challenges and operational issues. The deal resulted in an impairment charge of $2.4 billion to $2.6 billion in the quarter.
Exxon’s exit from California follows a similar move by Chevron, the second largest U.S. oil producer, which also announced a writedown of up to $4 billion in its California assets in December. Both companies have criticized the state’s energy policies as unfavorable for investment and development.
Lower Prices and Margins
According to a report by Reuters, Exxon’s operating results also suffered from lower oil prices and weaker fuel margins in the fourth quarter. The company estimated that its operating profits would decline by about $2.2 billion compared to the third quarter, to about $8.9 billion.
Brent crude prices, the global benchmark, averaged $82.85 per barrel in the fourth quarter, down 7% from the same period a year ago and 4% lower than the previous quarter. Fuel margins also contracted as demand remained subdued amid the pandemic.
The company said it expected to report a net profit of about $9 billion, or $2.20 per share, for the quarter, down 30% from the $12.7 billion, or $3.13 per share, it earned a year earlier, and 3% lower than the third quarter.
Natural Gas Boost
One bright spot for Exxon was the higher natural gas prices, which added about $600 million to its operating profits in the quarter. Natural gas prices surged in the fourth quarter, driven by strong demand from Asia and Europe, as well as supply disruptions and low inventories.
Exxon also took a smaller impairment of about $250 million in its chemicals business, which has been a steady source of income for the company in recent years.
The company is expected to release its full results on Feb. 2, along with its capital spending and production outlook for 2024.
Future Prospects
Exxon has been under pressure from investors and activists to improve its financial performance and reduce its carbon footprint. The company has pledged to cut its greenhouse gas emissions intensity by 15% to 20% by 2025, and invest more in low-carbon technologies and projects.
The company has also been exploring new opportunities in the field of nuclear fusion, which could offer a clean and abundant source of energy in the future. Exxon has partnered with a Canadian startup, General Fusion, to develop a fusion reactor that could be operational by 2030.
Exxon hopes that its efforts to diversify its portfolio and optimize its operations will help it overcome the challenges of the energy transition and deliver value to its shareholders and stakeholders.
