ExxonMobil urged by hedge fund to cut costs or risk dividend

Hedge fund DE Shaw has acquired a sizeable stake in ExxonMobil and is pushing for the company to cut costs, adding a source of shareholder pressure on management just days after another investment fund proposed a boardroom shake-up.

New York-based DE Shaw, which has in recent years become more prominent as an activist shareholder, told Exxon it was concerned the company’s spending could put its dividend at risk, according to people familiar with the matter.

The hedge fund is also concerned that Exxon is underperforming rivals such as Chevron, which has managed to weather the industry’s current crisis significantly better, the people said.

Energy groups are struggling to cope with the fallout of the coronavirus pandemic and historically low oil prices.

The move by DE Shaw emerged just days after Engine No 1, a new investment fund, launched an activist campaign against Exxon, at one time the world’s biggest oil company, and named four people it wanted to nominate for board positions at the supermajor.

The activist pressure has been building amid perceptions that Exxon remains wedded to a business model of increasing fossil fuel production, despite mounting doubts about long-term oil demand and deepening concerns about climate change. 

Exxon has dialled back outgoings after the pandemic combined with a Saudi-Russia price war to prompt a historic crash in April, sending US oil prices negative and leaving producers across the country reeling.

Last week it said it would write off up to $20bn worth of assets in North America and Argentina, as it sought to account for the impact of the price crash on its business. 

It has also announced plans to slash spending further next year, to $16bn-$19bn, before rising to $20bn-$25bn annually until 2025. It originally planned to spend $30bn-$35bn a year. It plans to sack 14,000 workers, about 15 per cent of its workforce, by the end of 2022. 

Despite the fallout, Exxon has so far rebuffed pressure to sacrifice its dividend; 2020 marked the 37th year in a row the company raised the payout. 

The exact size of DE Shaw’s stake in Exxon could not be learned. The head fund has previously been active in the energy sector, acquiring a stake in natural gas producer EQT in 2017. DE Shaw’s stakebuilding and pressure on Exxon was first reported by Bloomberg.

Engine No 1 holds $40m worth of Exxon stock, and its campaign for change at the company was backed by the California State Teachers’ Retirement System, the US’s second-biggest pension fund with a $300m stake in Exxon.

Engine No 1 published a letter to Exxon’s board calling for “much-needed change”, including an overhaul of management compensation, greater capital allocation discipline, and a “strategic plan for sustainable value creation”, as well as new board members.

The fund said its proposals were designed to help the company “secure” its dividend.


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