ExxonMobil to curb 10% of oil, gas output in Q2; Permian to take bigger hit

ExxonMobil said Friday it expects to cut global upstream production by 10% or 400,000 b/d of oil equivalent in the second quarter through shut-ins and curtailments in response to the oil price collapse and plunging global demand.

Permian oil and natural gas production will drop by about 100,000 boe/d in Q2, or 28%, from 352,000 boe/d in Q1, as ExxonMobil shuts in newer, promising wells to preserve their higher flow rates for when prices recover, said CEO Darren Woods.

"A lot of these wells that are early in their life or just started up, you get very high production rates," Woods told analysts during an earnings call. "You're better off deferring that high production rate into a period with better pricing."

At the same time, Woods said ExxonMobil is working to slash drilling costs in the Permian so that its remaining production can stay competitive during extended low prices.

"The challenge we've got today is the investment we're making to get into that position and that's what's inhibiting us,' he said. "But once we get into it, we feel really good about operating competitively in an oversupplied market."

Woods said ExxonMobil's Permian drilling rig count would be slashed by about 75% to 15 rigs by the end of the year.

ExxonMobil's shut-ins would bring the entire sector's announced production cuts to 3.8 million b/d in response to very low oil prices as storage facilities reach their limits, according to S&P Global Platts Analytics.

GUYANA TARGET DELAYED

ExxonMobil's Q1 oil and natural gas production was flat from Q4 at 4 million boe/d, although Permian volumes increased by 20%.

Guyana remains and "integral part" of ExxonMobil's long-term growth plan, Woods said, but the project has been delayed by about six months to a year as a result of the country's election uncertainty and the challenges of rotating crews to prevent virus spread. That will push the target for producing 750,000 b/d from 2025 to 2026, he said.

Global refinery throughput in Q1 was also essentially flat quarter on quarter at 4.1 million b/d, with slowdowns in the US and Europe offset by slightly higher throughput in the Asia Pacific.

The company expects continue pressure on refining margins into Q2, with scheduled maintenance next quarter in line with Q1.

ExxonMobil posted a Q1 loss of $610 million as sharply lower prices forced it to write assets down by $2.9 billion.

Earlier this month, ExxonMobil announced it would slash its 2020 capital spending by $10 billion, about 30%, to $23 billion. The biggest cuts are expected in the Permian Basin, where ExxonMobil is by far the most active driller.

FUTURE OF OIL DEMAND

Woods tried to strike an optimistic tone about the long-term future of the fossil fuel sector, despite the blow it has been dealt from coronavirus lockdowns. He said global energy demand is still projected to grow by 20% by 2040, with more than half being met by oil and natural gas.

ExxonMobil expects global oil demand to contract in 2020 by between 4 million and 12 million b/d, likely in the high end of the range.

Woods said OPEC's nearly 10 million b/d in voluntary cuts that took effect Friday would be insufficient to offset the loss in demand.

"The bottom line here is it's going to be a very challenging summer, with a pretty sloppy market as we move into the last half of the year," Woods said. "I hope for surprise with a quick recovery, which we have not ruled out, particularly given our experience in China."