In 1999, Exxon Mobil Corporation (NYSE:XOM) struck a merger with Mobil, and it foresaw the move as a game-changer in its business. Fast-forward to 2020, the narrative changed. The business reported a significant drop in its oil reserves, terming it the lowest notch since it merged with Mobil.
Explaining the decline
Exxon believes that the low prices resulting from the outbreak of Covid-19 in 2020 propelled the change. According to the company, it needed to survive and cut down on its capital expenditures.
The significant slump in the company’s reserves compels it to focus on strategy. It discloses that the drop left it with only 15.2 billion oil and gas barrels in 2020. The figure stood at 224 billion a year before, according to sources.
Exxon struck a merger with XTO Energy in 2020, which saw the two acquire significant shale gas properties. The new merger succeeded in adding about 2 billion barrels to the existing reserves. The shift has pushed Exxon to the edge, so it decided to cut gas properties’ value. Sources show that it cut the value by a figure of about $20 billion over the previous year.
Exxon confirms that it has been through other challenging situations in the past and made it through proper strategy. It says that the current challenges won’t be an exception as it expresses optimism about the future.
The company has faced similar challenges before
The company talked about the 2014 to 2016 downturn, a case scenario that saw it experience a 4.8 billion cut in reserves. The business terms the recent phenomenon worse than that experienced back in 2014.
Exxon hasn’t yet lost hope and says it will make its decisions based on the prevailing conditions. It could choose to add the reserves it removed in the future in case the oil prices recover.
The other things that could cause the business to change its mind will be if it witnesses an increase in operating efficiencies or cost reductions.
Exxon has made a series of difficult choices in its quest to survive. For example, it laid off a section of its workers. It closed 2020 with 72,000 workers, a drop from 74,900 at the end of 2019.