Exxon turnaround sapped by chemicals, refining

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Exxon’s oil volume has risen year-over-year for five straight quarters after the company moved to ramp up in shale production. (Shutterstock)
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Exxon’s refining profit fell last year due to equipment outages. (AFP)
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Updated 29 January 2020

Exxon turnaround sapped by chemicals, refining

  • Chemicals and refining businesses blamed for weak fourth-quarter results

HOUSTON: At Exxon Mobil Corp, CEO Darren Woods’ plan to revive earnings at the largest US oil and gas company is being sidetracked by the two businesses he knows best: Chemicals and refining.

Another year of poor profit could require Exxon to re-evaluate its bold spending plans or weaken its ability to weather the next oil-price downturn, say oil analysts. Exxon already must borrow or sell assets to help cover shareholder dividends.

The world’s biggest publicly traded oil firm after Saudi Arabian Oil Co, Exxon was long considered one of the best-managed majors and most capable of coping with volatile prices due to its size.

Those advantages have slipped in recent years, however, with the drop in once-steady earnings from chemicals. Its total shareholder returns of negative 13 percent in the five years through this month compared with a 25 percent gain at Chevron Corp. and 82 percent at BP, according to Refinitiv.

Two years ago, CEO Woods promised to restore flagging earnings by heavily investing in operations even as rivals cut spending. The plan to crank up chemicals, refining and increase oil output pushes capital expenditures to as much as $35 billion this year, up from $19 billion in 2016, the year before Woods took over as CEO after running Exxon’s refining and chemical businesses.

Last March, he forecast potential earnings could hit $25 billion this year and nearly $31 billion in 2021, close to the $32.5 billion it earned in 2014 before the oil-price collapse.

The hoped-for payoff, however, has run headlong into a global chemicals glut, tariffs on US exports to China, and lower margins in fuels. Exxon’s refining profit last year fell on equipment outages.

The company declined to comment ahead of quarterly earnings, expected on Friday.

On Monday, Exxon shares traded under $65 — close to their level of 10 years ago.

The company recently telegraphed weak fourth-quarter results because of chemicals and refining businesses. Wall Street cut profit forecasts through 2021 on the sour outlook for both. Exxon “seems to be tracking way behind their own expectations,” said Evercore ISI analyst Doug Terreson, who slashed his quarterly forecast by a third, to 55 cents a share.

In chemicals, Woods expanded the company’s output of polyethylene, a business where it has 9 percent of global production capacity, to benefit from demand for plastic bags, food packaging and consumer goods. Output rose last summer at the depth of the US-China trade dispute, and industry margins for a key polyethylene fell 30 percent compared with levels between 2016 and 2018, said James Wilson, analyst at pricing provider ICIS.

“The industry ended up overbuilding,” said Pavel Molchanov, an analyst with investment firm Raymond James. “Exxon, of course, is among the companies that led that build-out.”

In refining, outages and higher maintenance costs at Exxon refineries in the US, Canada and Saudi Arabia hurt profit, according to regulatory filings.

Crude oil prices and slack global demand from the trade dispute are squeezing profit across the industry, said Garfield Miller, chief executive at Aegis Energy Advisers.

This month, an Exxon regulatory filing implied a loss in chemicals of about $200 million for the fourth quarter, and refining earnings of just $400 million.

In contrast, chemicals and refining delivered $7 billion to $11 billion annually for Exxon between 2013 and 2018. In the first nine months of last year, the combined profit was $2.37 billion. Exxon’s regulatory filing indicates 2019 earnings for the two at about $2.52 billion, the lowest in at least a decade.

Woods has halted the company’s oil output declines by ramping up in shale. Oil volume has risen year-over-year for five straight quarters, reversing annual declines between 2016 and 2018.

Ending the trade dispute represents the biggest challenge. Global demand for the plastic resins and pellets that Exxon makes is rising, said Marc Levine, chief executive of Plantgistix, which provides logistics for US plastic manufacturers.

“This is the first time in my lifetime and in the plastics industry’s lifetime where we make plastics resin for export,” said Levine.

China in 2018 placed an additional 25 percent tariff on US polyethylene imports, a move that helped send North American margins to the lowest levels since 2011, said Joel Morales, a polymers analyst at consultancy IHS Markit.

“Imagine having a lot of something and your biggest, easiest consumer you can’t do business with,” Morales said.

The January US-China agreement does not remove Chinese or US tariffs on chemicals, plastics or oil.

Exxon has ramped up asset sales, aiming to collect $15 billion by next year to balance spending. So far, results have been tepid. It expects to receive about $3.6 billion from selling Norwegian oil and gas production assets.

Weak demand for those assets comes as rivals have written off the value of their own properties. BP, Chevron, Equinor, Repsol and Royal Dutch Shell last year cut a total of $22 billion primarily on US assets due to sharply lower gas prices. Exxon has not signaled whether it expects any writedowns.


Saudi fund shells out to help US cellular seafood pioneer

Updated 27 February 2020

Saudi fund shells out to help US cellular seafood pioneer

  • KBW Ventures joins ‘visionary’ $20m backing for San Diego food innovator

JEDDAH: A California innovative food company that produces seafood directly from fish cells is stepping up expansion plans with backing from “visionary investors” including KBW Ventures, the Saudi investment fund founded by Prince Khaled bin Al-Waleed bin Talal.

BlueNalu, based in San Diego, on Wednesday announced the completion of its $20 million Series A round of funding.

The financing will allow the company to develop a pilot production facility in San Diego, expand its worldwide staff, implement strategic alliances for global operations and prepare for its market launch.

The Series A round is co-led by Stray Dog Capital, CPT Capital, New Crop Capital and Clear Current Capital, each of which took part in BlueNalu’s seed round. The company secured $4.5 million in 2018 and has attracted investors from 11 nations so far, demonstrating global interest in the firm’s potential.

New investors include KBW Ventures, which supports innovative companies, such as BlueNalu, that have potential for growth and can sustainably feed the world.

BlueNalu’s A round attracted a significant number of strategic investors offering expertise and infrastructure in supply chain, operations, sales, marketing and distribution.

Strategic investors include global supply chain leaders that will provide guidance and raw material expertise to BlueNalu. These include Nutreco, a global leader in animal nutrition and aquafeed, and Griffith Foods, a global product development partner to the food industry, with expertise in market insights, food science, culinary and sensory optimization.

Strategic investors also include organizations with expertise in operations, sales, and distribution, including Pulmuone, a leader in healthy lifestyle and sustainable food products with distribution in Asia and North America; Sumitomo Corporation of Americas, a global investor and supplier of goods and services, including foods; Rich Products Ventures, the corporate venture arm of Rich Products Corporation, a leading supplier of icings, cakes, pizza, desserts, appetizers and bakery products.

FASTFACTS

• BlueNalu announced the completion of its $20 million Series A round of funding.

• The financing will allow the company to develop a pilot production facility in San Diego, expand its worldwide staff, implement strategic alliances for global operations and prepare for its market launch.

• The company secured $4.5 million in 2018 and has attracted investors from 11 nations so far, demonstrating global interest in the firm’s potential.

“BlueNalu has made considerable progress toward bringing cell-based seafood products to the world,” said Lou Cooperhouse, the company’s president and CEO.

“We have designed and executed a platform technology in which we will ultimately offer a broad array of sustainable cell-based seafood products to consumers, and our team has been extremely focused on implementing systems and processes that will be needed for cost-effective, large-scale production.

“We are thankful to the committed group of visionaries who participated in our earlier financing round and have invested again in this round, and we are eager to form partnerships with these five strategic investors, so that we can launch our cell-based seafood products in nations around the world,” he added.

“BlueNalu has demonstrated global leadership in cell-based seafood, and has the team, expertise, strategy and networks that are key to its success,” said Chuck Laue, co-founder and chair of Stray Dog Capital.

“As global demand for seafood continues to increase, and our supply continues to be compromised, we are excited at the potential for BlueNalu to play a significant role in feeding the planet in the decades to come.”

“BlueNalu has achieved a number of milestones in a short period of time, and we are proud to have backed this company since its origins,” said Chris Kerr, chief investment officer of New Crop Capital.

“We have seen extremely rapid global growth in plant-based foods, and BlueNalu is clearly at the forefront of this next generation of alternative proteins that many are predicting will have considerable growth and significant market penetration in the coming years.

“BlueNalu will offer a sustainable solution to consumers, free of mercury and environmental contaminants that will support the health, sustainability and biodiversity of our ocean. This is clearly a win-win-win for human health, sea life and for our planet,” he said.