ExxonMobil U.S. Oil & Gas Financial Train-Wreck: Producing Shale Is Destroying Its Bottom Line

The United States largest oil company, ExxonMobil, is facing a financial train-wreck in its domestic oil and gas sector. And, the majority of the blame can be attributed to Exxon’s move into shale. After Exxon acquired XTO Energy in 2009, a U.S. shale oil and gas producer, it has seriously begun to ramp up shale oil production in the Permian.

ExxonMobil plans on expanding Permian shale oil production to 600,000 barrels a day (bd) by 2025, up from the 115,000 bd as of October (thanks to the data from Shaleprofile.com). If you look at the chart below, Exxon’s Permian shale oil production shot up from less than 50,000 bd at the beginning of 2018, to over 115,000 bd in October:

Exxon is now the largest player in the Permian, according to the article, Exxon Becomes Top Permian Driller to Combat Falling Oil Output:

Exxon Mobil Corp. has overtaken rivals to become the most active driller in the Permian Basin, showing the urgency with which the world’s biggest oil company by market value is pursuing U.S. shale.

Exxon’s escalation in the Permian is essentially a bet that it can drill wells so cheaply that they’ll be profitable despite crude’s tumble since early October. The company says its shale wells can make double-digit returns with oil at just $35 a barrel.

Exxon moved into the Permian to stem a decade of falling domestic U.S. oil production. However, its statement that it will enjoy double-digit gains at a $35 oil price in the Permian may be more “delusional thinking” rather than company pragmatic optimism. I spent some time looking over Exxon’s financial statements, and I have to say I was quite shocked by their utterly dismal 2018 U.S. oil and gas financials.

While it’s true that Exxon enjoyed a substantial $20.8 billion net income in 2018, the majority of the company profits came from their non-U.S. or international operations. For example, Exxon’s total U.S. earnings were $6.3 billion last year compared to the $17.1 billion of international profits. Even though Exxon’s U.S. earnings accounted for a little more than 25% of total earnings last year, its U.S. oil and gas production sector only represented 7% of the company’s total profits.

NOTE: Exxon’s total $23.4 billion in U.S. and international earnings don’t include the $2.6 billion of corporate and financial costs, which result in a net $20.8 billion of profits.

To get an idea just how bad Exxon’s U.S. oil and gas financials have become, we must understand how it publishes its different financial data. Exxon, like most major oil companies, has three separate business components:

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