ExxonMobil, the largest oil company in the U.S. and a direct descendant of John D. Rockefeller’s Standard Oil, days are numbered. The once-great profitable oil giant is now borrowing money just to pay dividends. How long can this charade go on?

Good question. Now, some may believe that ExxonMobil was forced to borrow money to pay dividends due to the collapse in oil prices as a result of the global contagion. However, the company hasn’t been able to pay shareholder dividends from its cash from operations over the past four quarters, even with much higher oil prices.

The leading culprit as to why ExxonMobil lacks the available cash to pay dividends stems from the lousy economics of its U.S. oil and gas wells, especially the company’s shale oil portfolio. Ever since ExxonMobil ramped up its domestic shale oil production, that’s when the financial troubles at the company began to intensify.

The best way to compare ExxonMobil’s U.S. Upstream (oil and gas wells) performance, BEFORE and AFTER SHALE, is to go back to 2004. Even though the oil price fell considerably in Q1 2020, it was higher than the oil price in 2004.  For example, ExxonMobil’s U.S. Upstream Sector earned $4.9 billion in 2004 with an average oil price of $41.51 compared to a $704 million loss on a $42.82 oil price:

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Furthermore, look at the U.S. oil production differences between 2004 and Q1 2020. According to ExxonMobil’s 2006 Annual Report, the company’s average U.S. oil production in 2004 was 414,000 barrels per day (bd) versus 699,000 bd in Q1 2020. Even with higher oil production and similar oil price, ExxonMobil’s U.S. Upstream Earnings in Q1 2020 were dismal in comparison.  Moreover, the company invested $1.9 billion in CAPEX for all of 2004 on its U.S. oil and gas wells compared to the $2.8 billion just for Q1 2020.

Now, if we make the same comparison, but using Earnings and CAPEX per barrel, it becomes even more apparent:

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ExxonMobil enjoyed a nice $33 earnings profit per barrel in 2004 versus an $11 loss per barrel during Q1 2020. Again, the oil prices received were about the same, but the oil production in Q1 2020 was much higher. And how about the significant jump in CAPEX Spending per barrel from about $13 in 2004 to $44 during Q1 2020. Unfortunately, ExxonMobil’s financials in its U.S. Upstream Sector continue to deteriorate.

As I mentioned, due to ExxonMobil’s lousy financial situation, the company has borrowed money to pay dividends. The next chart shows why ExxonMobil increased its long-term debt over the past four quarters:

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ExxonMobil’s (Simple) Free Cash Flow was $2.6 billion from Q2 2019 to Q1 2020. My Simple Free Cash Flow figure was calculated by subtracting the company’s CAPEX spending from its cash from operations. The company then has to pay for its dividends from its Free Cash Flow. With ExxonMobil paying $14.9 billion in shareholder dividends over these four quarters, it was in the hole for $12.3 billion. So, how much did ExxonMobil’s long-term debt increase over this period?? How about $12.8 billion, or nearly the same amount necessary to pay its dividends.

Here is the increase in ExxonMobil’s long term debt over the four quarterly periods:

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Thus, the increase in the company’s long-term debt was used to pay shareholder dividends. How long can ExxonMobil continue this insane practice?? What happens during Q2 when the oil price will likely be half of what it was in the first quarter?? At some point, the company will be forced to cut dividends. When ExxonMobil cuts dividends, that will mark the BEGINNING OF THE END for the oil giant.

Lastly, by comparing the company’s Upstream (oil and gas wells) performance between its domestic and foreign operations, we can clearly see how little ExxonMobil is earning in the states in reference to the substantial CAPEX spending:

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If you scroll across the figures reported in the Upstream Earnings vs. CAPEX spending between the U.S. and Non-U.S. operations, ExxonMobil is investing one HELL of a lot of money in its domestic oil and gas wells and receiving very little in return.At least the company is investing about the same CAPEX as it earns (or more) in its Non-U.S. Upstream Sector.

Get this, ExxonMobil invested $11.9 billion in its U.S. Upstream Sector, while its earnings were a loss of $264 million. Again, the company is heading in the wrong direction.

With ExxonMobil investors holding onto the company’s stock because of the RICH Dividends they receive, how much longer can the company borrow money to pay these dividends? As soon as ExxonMobil cuts dividends, it’s only a matter of time before the company disintegrates into a much smaller organization… a similar fate now facing most U.S. shale companies.