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UPDATE 1-Exxon to offer spending outlook as investors seek clues to low-carbon returns

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  • XOM

(Updates with share price)

By Sabrina Valle

HOUSTON, Nov 30 (Reuters) - Exxon Mobil will brief Wall Street on Wednesday on its spending plans, with investors looking for how it will balance oil and low-carbon initiatives without compromising shareholder returns.

This year, the largest U.S. oil producer slashed costs by slowing several big expenditures while boosting investment in low-carbon ventures. The briefing will be the first opportunity for analysts to quiz executives on spending and proposed new investments in carbon capture and biofuels. Exxon's disclosure of expected returns targets are the "main concern" for shareholders, said Ben Cook, portfolio manager of Hennessy BP Energy Transition Fund, which holds shares in Exxon. Its nearly 6% dividend yield is critical to investors, he said.

A fourfold increase in low-carbon spending through 2027 to $15 billion raised "the question of which legacy projects will be pushed out and whether the new low-carbon investments could generate comparable returns" to oil, Scotiabank analyst Paul Cheng said.

The update will be the first under a board that includes three new members elected last spring by investors demanding the company cut spending, boost returns and better address climate concerns. Exxon has pivoted from questioning climate change to viewing it as a business opportunity. Investors will want to hear whether Exxon's increased spending on carbon capture and clean fuels will require cutting some oil and gas projects, Cheng said. Low-carbon could "remain a drag to the company's overall portfolio," Cheng said.

SPENDING REBOUND

Last month, the company signaled it would loosen its spending belt after pandemic-induced cuts, and restore between $4 billion and $9 billion to annual spending over the next few years. It also promised to resume share buybacks next year. Shares were up 44% year to date to $59.84 on Tuesday.

New oil and gas investments in offshore Guyana, Brazil, U.S. shale and in chemicals products have been included in the company's budgets. Offsetting the costs are proposed sales of billions of dollars in less productive assets.

In Guyana, Exxon recently raised its estimate of recoverable oil and gas to 10 billion barrels and projected output will grow eight-fold to 1 million bpd in 2027 - more than a fourth of the company's total 2021 output.

Another $8 billion deepwater oil project in Brazil in which Exxon holds a 40% stake was approved this year. Two drilling rigs were added in the U.S. Permian basin, raising Exxon's total to nine in the top U.S. shale field.

The company committed to a $30 billion liquefied natural gas project in Mozambique.

"Exxon will either add more spending or a tonne more spending," said Sankey Research oil analyst Paul Sankey. The question is "how much and where" it will put money in the shorter term, he said. (Reporting by Sabrina Valle; Editing by David Gregorio and Cynthia Osterman)