KEY POINTS

  • Exxon is reportedly eager to maintain its annual $15 billion annual dividend
  • Earlier this year, the company borrowed some $18 billion to improve its cash position
  • Exxon shares have plunged 35% year to date.

Oil giant ExxonMobil Corp. (XOM) is on the verge of enacting significant cuts in jobs and spending in an effort to save its 8% shareholder dividend, ahead of what is expected to be a disappointing second-quarter earnings report.

Reuters reported that the scale of the cuts are unknown but noted that in April the company already reduced its 2020 budget by 30% to $23 billion.

Exxon, America’s largest oil company, is reportedly eager to maintain its annual $15 billion annual dividend and must make cuts to preserve the payout. Analysts have warned that the company will not generate sufficient cash from its production operations to afford paying the dividend.

Earlier this year, the Texas-based company borrowed some $18 billion to improve its cash position.

But the company is facing a torrent of problems.

Analysts are expecting Exxon to post a quarterly loss of $2.63 billion on Friday – the company’s first back-to-back quarterly losses in more than three decades.

As with all other energy firms, Exxon has been hammered by falling oil prices and a plunge in demand. Exxon shares have plunged 35% year to date.

However, spokesman Casey Norton told Reuters that Exxon has no plans to conduct layoffs due to the pandemic.

“We are continually monitoring market conditions and our deep portfolio has flexibility to adjust our plans,” Norton said.

But in late 2019, Exxon revised its U.S. employee review system such that the number of workers designated for the lowest category could increase to up to 10% this year – up from 3% last year. Employees in that lowest ranking often leave the company unless they can show improvement in performance.

Exxon has almost 75,000 employees around the world, with about 40% in the U.S.

Exxon’s Chief Executive Darren Woods has asserted that demand for oil and gas will recover later this year.

But Woods’ plan to raise about $15 billion via asset sales through 2021 has had mixed results. In 2019, the company raised almost $3.7 billion through asset dispositions, but this year that figure has plunged to $86 million.

“[The asset sale program] has fallen a bit behind schedule but there have been reports there are several packages out,” said Cowen analyst Jason Gabelman.

Jennifer Rowland, an analyst at Edward Jones, warned that even if Exxon raises enough cash to pay this year’s full dividend, a dividend cut remains “a real possibility in 2021.”

“There is only so much Exxon can continue to lean on its balance sheet before they start to jeopardize” the dividend, Rowland said.

Exxon has raised its dividend every year for the past 37 years.

Paul Ausick, writing in 24/7 Wall Street, said that in the event Exxon were to write down any of its assets, it could badly hurt the company’s share prices.

“The stock already trades 44% below its 52-week high,” he wrote.

Ausick added that if Exxon cut its dividend, “investors could race for the exits.”