Chairman: Exxon in good political standing in Guyana -insists dividends remain priority for shareholders

Feb 02, 2019 News

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(Texas) Exxon’s Chairman and Chief Executive Officer, Darren Woods, expressed confidence in his company’s political standing in Guyana, where it is developing a huge offshore oil field, and reiterated that dividends remain a priority in shareholder returns.
Woods, who was named CEO at the start of 2017, made the first appearance on a quarterly earnings conference call by any Exxon CEO.
“We don’t have any concerns about the political dynamics,” in Guyana, he said. There has been criticism in that country over the government’s Exxon contract, which opposition political parties view as being too favorable for the oil giant.
The royalties from oil production are expected to bring a windfall to Guyana, a poor, thinly populated South American nation.
The Guyana field, which is expected to start production in 2020 and hit 750,000 barrels a day by 2025, contains an estimated five billion barrels of crude and equivalents.
Woods’s appearance on the call followed the company’s Friday morning report of fourth-quarter earnings per share of $1.41 that easily topped the consensus estimate of $1.09. Exxon shares are up $2.75 to $76.03 today.
His predecessors as CEO, Rex Tillerson and Lee Raymond, didn’t appear on conference calls. As the longtime industry leader and a famously insular company, Exxon apparently didn’t see a need for its CEOs to participate in the calls, making Exxon a rare major company not to do so.
Woods, a more open CEO, decided to break with that tradition, and analysts and investors welcomed his participation. They have said Exxon would benefit from having the CEO on the call to better convey its story, especially since the company’s standing in the investment community has fallen in recent years amid production and earnings disappointments.
Guyana probably is the most important development project being undertaken by Exxon and is critical to the company’s goal of hitting five million barrels of oil equivalent (BOE) production by 2025. That figure includes natural gas converted to an equivalent amount of oil based on energy content.
“It’s important to keep in mind that when we enter a country, our mindset is to be there for a lifetime–30 to 40 years,” Woods said. He added that the company has “engaged with the sitting government, the opposition and communities” in Guyana to make sure the “development is understood.”

Woods was asked on the conference call about the risk of a pause in the Guyana development given the political opposition. He downplayed that danger.
Woods said that Exxon expects that “governments will change” over the course of Exxon’s involvement with a host country and that it seeks to build goodwill with many constituencies to ensure it remains a welcome partner.
Woods was also asked about Exxon’s priorities for capital allocation. The company has scaled back its formerly large stock buybacks as it boosts capital spending to hit ambitious production goals. The company bought back $425 million of stock in 2018–enough only to offset equity grants to employees.
Exxon pays a quarterly dividend of 82 cents, which results in a yield of 4.3%. The company is expected to increase the payout in April to about 85 cents.
Woods said on the call that Exxon’s priority is to “fund a reliable and growing dividend” which is important to shareholders. The company covered its dividend payments last year of $14 billion from free cash flow of about $20 billion.
An analyst asked Woods about capital allocation, noting that Exxon’s capital expenditures are expected to rise to $30 billion in 2019 from about $26 billion in 2018, pressuring free cash flow. Exxon was able to boost its dividend in 2018 and pay down about $4 billion in debt. Exxon faces more constraints this year, the analyst said, because of higher capex and lower oil prices. Woods replied that Exxon has “challenged itself on an optimal capital structure” but wasn’t more specific.
Chevron (CVX), which also reported strong results yesterday, has generated stronger free cash flow than Exxon as capital spending on major projects is moderating, and Chevron was able to buy back $1.75 billion of stock in 2018 after initiating a share-repurchase program.
Chevron, whose shares are up $3.95 to $118.60 today, yields 4%. With stronger free cash flow and growing energy production, Chevron is more favored on Wall Street than Exxon, which produced just over 4 million BOE per day in the fourth quarter, up less than 1% from the 3.99 million barrels in the year-earlier period.
Chevron’s production rose 7% to 2.93 million BOE a day in 2018 and it expects an increase of 4% to 7% in 2019. Exxon sees first-quarter production at a similar rate to the fourth quarter.

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