The era of the mighty U.S. major oil industry is coming to an end as the country’s largest petroleum company is in big trouble. While ExxonMobil has been the most profitable U.S. oil company in the past, it suffered its worst year on record.
ExxonMobil’s free cash flow declined from $24.4 billion in 2011 to $1 billion for the first nine months of 2016. The reason for the rapidly falling free cash flow is due to skyrocketing capital expenditures and falling oil prices. But, this is only part of the picture.
… in 1997, Exxon spent $11.8 billion on capital expenditures while producing 2.5 million barrels per day (mbd) of oil. However, their capital expenditures nearly tripled to $34 billion in 2012 as total liquid production fell to 2.2 mbd. Basically, Exxon spent three times more money in 2012 to produce 300,000 barrels per day less than it did in 1997.
It seems as if Exxon realized early on that peak oil had finally arrived (privately, of course), so it decided to not waste too much money on future oil projects. Instead, the company spent a massive amount of money on stock repurchases over the past two decades… especially since 2005.
The lion’s share of their stock buybacks were between 2005 and 2014. In that ten-year period, Exxon purchased a staggering $220 billion of its own shares. Now compare that to the company’s total capex spending of $245 billion during the same time period.
As we can see, Exxon’s long-term debt has exploded from $6.9 billion in 2013 to $29.5 billion in the first half of 2016. Basically, the company is now borrowing money to repurchase shares or pay dividends.
Exxon Mobil Corp. (recently) warned that it may be forced to eliminate almost 20% of its future oil and gas prospects, yielding to the sharp decline in global energy prices.
The 100+ year era of the U.S. major oil industry is coming to an end… and fast. Unfortunately, Americans have no clue just how dire the situation has become as many probably still believe in the delusion of “U.S. Energy Independence.”
I would imagine by 2020, the U.S. will be a much different place. Regrettably, most Americans are not prepared.