Looking for ways to bolster its bottom line in the aftermath of the pandemic-fueled oil price crash, Exxon Mobil Corp. must do more to rein in its massive spending program, which could include slashing the dividend in 2021 if petroleum demand continues to wallow and oil prices hold near $40 per barrel, analysts said.

"The company cannot continue to fund its large cash-flow deficit for years to come without starting to compromise the strength of its balance sheet. A recovery in oil prices and the company's end-markets and/or a large reduction in capital spending is needed to support its balance sheet over time," Edward Jones analyst Jennifer Rowland said in a Sept. 8 email.

Since 2019, Exxon — the largest publicly traded energy company in the U.S. — has not generated enough free cash flow to cover its roughly $15 billion annual dividend due to its counter-cyclical capital spending program, Rowland said.

At current oil prices, Exxon can cover a good chunk of its capital spending from internally generated cash, but will have to borrow to cover the whole dividend, Raymond James analyst Muhammed Ghulam said in a Sept. 9 email.

"Despite this, we view a dividend cut as unlikely, given how important the payouts are to a significant portion of the company's shareholders," Ghulam said.

However, Rowland said that if oil demand and prices fail to rebound from the impacts of COVID-19 in the next few months, this could put Exxon's dividend in the cross hairs for a cut in 2021.

"We do not expect the company to make a rash decision on its dividend," she said. "Instead, we think the company will wait until 2021 to evaluate the level of its dividend based on the demand environment at that time."

Raymond James energy analyst Pavel Molchanov expects Exxon's dividend will be safe through at least the next year. "But if oil [prices are] still around $40 next summer, then all options will be on the table. There is an inherent tension between maintaining the current dividend level and sustaining a viable pace of drilling activity. There is only so much that capital spending can be curtailed," Molchanov said in a Sept. 9 email.

Exxon said in April it would trim 2020 spending by 30%, from $33 billion to $23 billion, and slash its operating budget by 15%. But by the end of the second quarter, Exxon Senior Vice President Neil Chapman said additional cuts for 2021 were in the works. This was followed by Exxon being dropped from the Dow Jones Industrial Average for the first time in 92 years.

Oil companies tend to do all they can to protect dividends during periods of financial hardship, but tough times can force them to make hard decisions. Several of Exxon's peers in Europe — BP PLC, Eni SpA and Royal Dutch Shell PLC — trimmed second-quarter payouts to shareholders after their earnings were battered in the first two quarters of the year. It was Shell's first dividend cut in more than 70 years.

To maintain the dividend and contain current debt levels, which more than doubled in 2020 to more than $69 billion following a second straight quarterly loss, Exxon executives admitted during a July 31 second-quarter earnings call that the deeper cuts could include job losses.

Exxon announced a voluntary layoff program for 1,500 employees in Australia, and more workforce cuts at Exxon's other global locations will be forthcoming to help blunt the impact of the oil market collapse.

"We have evaluations underway on a country-by-country basis to assess possible additional efficiencies to right-size our business and make it stronger for the future," Exxon spokesman Casey Norton said in a Sept. 2 email.

Exxon could also be looking to reduce positions in the U.S., altering its employee performance structure in April, Business Insider reported July 24, by increasing the number of workers that must be placed in the lowest performance category. This means those workers could be on the chopping block.

From an operational standpoint, a majority of Exxon's 2020 budget cutbacks so far have been aimed at its short-cycle facilities in the unconventional space, including the Permian Basin, since these projects can be brought online and offline faster than longer-cycle ones. Exxon's Permian Basin rig count was reduced to 30 in the second quarter, and the company is planning further reductions that will bring total rigs down 75% on the year to just 15 rigs, Chapman said.

Exxon warned in its Aug. 5 Form 10-Q that it may be forced to write down as much as 20% of proved oil and natural gas reserves if prices remain depressed through the second half of the year. Exxon's reserves totaled 22.4 billion barrels of oil equivalent at the end of 2019, which would imply a nearly 4.5 billion boe write-down.