Falling crude prices and a climate change investigation create woes for oil giant.
Declining profits, a shaky credit standing and climate change investigations launched in two states have created a perfect storm of sorts for Exxon Mobil Corp, which reported its lowest quarterly profit in more than a decade recently. Reacting to the falling numbers, the world’s largest publicly traded oil company has vowed to slash spending by 25% this year while also suspending share repurchases.
News of Exxon’s profit decline comes as crude oil prices have dropped dramatically over the past few years. The 2014 high of more than $100 a barrel has tumbled sharply to around $30 a barrel. The falling prices have signaled problems across the board for oil companies, which have announced cuts in investment in new wells to bolster cash reserves. Exxon is anticipating a capital spending cut of $23.2 billion in 2016, down 25% from the year before.
The decline of crude oil prices isn’t Exxon’s only current worry. The attorneys general of New York and California have launched investigations into the company’s actions regarding climate change. The investigations seek to determine if Exxon lied to the public or investors about internal studies on the risks of climate change to the company’s future business. The New York inquiry also is looking into a period of time during which Exxon funded groups to discount climate change even as its in-house scientific experts reported the potential consequences to the company’s executives.
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While Exxon has rejected claims it tried to suppress research into climate change, some are calling for criminal investigations into the allegations. Supporters of more in-depth investigation include such political heavy hitters as Bernie Sanders, Al Gore and Hillary Clinton.
As bad news piles up for Exxon, the company’s stellar AAA credit rating is also on shaky ground. Standard & Poor’s hasn’t removed the company’s AAA rating just yet, but it has officially put it on CreditWatch. That move could be S&P’s first step in pulling Exxon’s perfect rating.
Belt tightening has become a common theme for energy companies as crude oil prices fall. S&P, however, has warned cuts may just not be enough to staunch the bleeding the industry now faces.
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