Exxon Mobil Corp (XOM) — Q2 2019 Earnings Call Transcript

All right. Thank you. Good morning, everyone. Welcome to our second quarter earnings call. We appreciate your participation on the call today and your continued interest in ExxonMobil. This is Neil Hansen, Vice President of Investor Relations. Joining me today is Neil Chapman. Neil is a Senior Vice President and Member of the Management Committee with responsibility for the Upstream. After I review financial and operating performance, Neil will provide his perspectives on the quarter and give updates on the substantial progress we've made on the major growth projects across the business. Following Neil's remarks, we'll be happy to take your questions. Our comments this morning will reference the slides available on the Investors section of our website. I'd also like to draw your attention to the cautionary statement on slide 2 and the supplemental information at the end of this presentation. Moving to slide 3. Let me start first by summarizing the solid progress we have made on our major growth plans along with other noteworthy accomplishments. Neil will go into more detail after my remarks, but I wanted to take a few moments to touch on some key highlights. For the first half of the year, we've made good progress on our growth plans. The fundamentals and long-term demand growth that underpin our investments remain strong. The competitive advantages we've built into our projects make them robust across commodity price cycles including the margin environment we are currently experiencing. We reached final investment decisions for nine major strategic projects in just the first six months of the year including projects from all three business lines. Offshore exploration success continued with four significant deepwater discoveries; three in Guyana and one in Cyprus and we achieved key milestones in the development of two of our LNG growth projects in Papua New Guinea and Mozambique. Liquids production increased significantly from last year with volumes up 144,000 barrels per day or 7% driven by strong growth in the Permian. We remain on schedule with plans to increase production in the Permian to 1 million oil-equivalent barrels per day by 2024, as we also continue to build-out supporting infrastructure and takeaway capacity. In the Downstream and Chemical businesses, recent project startups in North America and Europe are already making a positive contribution to results. These projects are accretive to earnings even in the current margin environment demonstrating the market resiliency we envisioned when making these investments. In particular, the Baytown steam cracker, which started up last year has performed exceptionally well with production exceeding design capacity by 10%. Lastly, we increased the quarterly dividend by 6% marking the 37th consecutive year of dividend growth. Positive momentum we generated in the first half of the year is in line with the plans we laid out in 2018 and reiterated in March and positions us very well to generate long-term shareholder value. I'll now highlight our second quarter financial performance starting on slide 4. Earnings were $3.1 billion in the quarter or $0.73 per share including a positive $0.12 per share impact from a tax rate change in Alberta, Canada. These results were in line with our expectations given the margin environment, seasonal impacts and planned maintenance we experienced during the quarter. The margin environment remained challenging in the second quarter as short-term supply and demand imbalances continued to pressure natural gas prices and industry product margins. Cash flow from operations and asset sales was $6 billion in the quarter. After adjusting for changes in working capital, which were primarily seasonal in nature and consistent. CapEx for the quarter was $8 billion and through the first half of the year CapEx is $15 billion representing 50% of the full year guidance we provided in March. The free cash flow deficit in the second quarter is a result of our strategy focused on the long-term and to grow shareholder value across commodity cycles leveraging our financial capacity. I'll now go through a more detailed view of developments since the first quarter on the next slide.

Good morning everyone. It's good to be back on the call. As Neil said, before we take your questions, I'd like to share my perspective on the second quarter results, then I'm going to provide a few updates to the plans that we laid out in our New York March discussions. I want to start by acknowledging the strong liquids growth. As I said many times, volume is not a target. It is an outcome of our plans to grow value. Nevertheless, our liquids growth reflects well on the organization maintaining the schedule in the early stages of executing our Upstream growth plans. In terms of those growth plans, the ones we laid out in New York, I feel we're making outstanding progress. Permian growth is strong and on schedule. Guyana project plans are on or slightly ahead of schedule. And in the Downstream and Chemicals, 11 of the 19 projects that we laid out in New York last year are online and we finalized another six in the second quarter, going to provide some further details on these in the following slides. We are in a unique position versus the rest of the industry. We have a very attractive opportunity set. These are the advantaged projects that are robust at the bottom of the cycle conditions. So we have a very attractive opportunity set and we have the financial capacity to pursue them in a business that is very cyclical. In the second quarter, three of our major businesses were at low points in their cycles. As you heard from Neil, that's been a major factor in our quarterly results. While we obviously prefer margins to be at the top of the cycle, the current margin scenario was contemplated and we have the financial capacity to maintain our plans. In fact, we've built our growth strategies based on a full range of potential industry margins and the impact they would have on our financial results. That is why we put such importance on having a strong balance sheet to enable us to proceed with our long-term investment plans and weather through the cyclical nature of our business. On the whole, our businesses performed extremely well during the second quarter, actually they have in the first half of the year. Chemicals and Upstream reliability has been excellent and refining has also been strong with the exception of the three discrete incidents. The one in Sarnia, Canada; one in Yanbu, Saudi Arabia; and the one in Baytown, Texas that Neil referenced. Although, these are one-offs, they're not systemic to our overall performance. In total, we estimate the second quarter impact from these three instances to be of the tune of $150 million of earnings, that's the earnings impact. Of course, this is disappointing. Baytown and the Yanbu facility are now back in full production and Sarnia will be at marginally lower rates through the fourth quarter. I want to take this opportunity to update you on the fire that occurred at our Baytown olefins plant earlier this week. First and foremost is the safety of our people and those in the surrounding community. I'm pleased to say, there were no reported serious injuries. An investigation into the cause of the incident and the potential damage continues. And frankly at this stage, it's really too early to say much more than that. On the larger point of reliability, of course, it's an important focus area for us. It has been for a long time. We benchmark extensively and our Downstream facilities are ranked consistently better than the industry average. However, we must eliminate the significant one-off events, as we're just not satisfied with being an above-average industry performer. We're progressing a comprehensive reliability improvement program that we initiated late last year. This is leveraging insights across our Upstream, Refining, and Chemical businesses and it's also reaching out to leaders outside of our industry to ensure that we leave no stone unturned in our drive to lead industry reliability at all times.

Great. Thank you. Yeah. Thank you for your comments, Neil. We'll now be more than happy to take any questions you might have.

Thanks. Good morning, everyone, and Neil great to have you back on the call. Neil, I've got two questions, if I may. My first one not to be terribly predictable but – is on Guyana. Clearly, the exploration program Hammerhead you've dedicated both assets to appraisal drilling. I know you're – as I understand it from your partner you're going off to kind of fully appraise what could be a major development hub in the Longtail Turbot area. So I just wonder, if I could just push you a little bit on why you have not yet chosen to revisit the likely production trajectory because it clearly looks like you are running well ahead not least because to have a fourth and fifth boat and still had 750 means those would be undersized. So just could you frame for us what you see the potential like today on how that would play into on your 2025 outlook which is clearly out of date?

Yes, a bit out of date. You know, it's -- what we communicated in March was this big increase getting up to 750 KBD by that time. I would tell you, there is a tremendous amount of activity going on in the basin. I want to start at that point. As we said, we have the first boat on the way. We have the second boat in construction. We have three drillships. We have a tremendous amount of activity going on. And all of these items -- we're going at a great, great pace. We have to get up -- maintain alignment with our partners and with the government on each one. What I'm really focused on and the organization is focused on primarily is delivering on what we communicated to you and to the investment community. And that's the numbers we laid out in March. Of course, as I indicated, there are some -- we're very optimistic that that will be at least what we will do. We're just not ready to make another change to up either the production outlook or at this stage anything more on the resource base. You mentioned Hammerhead. Let me just make a couple of comments on Hammerhead. I think you are aware that we drilled two more wells on Hammerhead recently and the results were positive. I would describe them as reinforcing the high-quality reservoirs. We've now drilled three wells in Hammerhead. They're in communication, the press is in communication, which means there's very good connectivity which again suggests that there's good news at development planning. You talked about appraisal drilling. You know, we're going to be doing some appraisal drilling on Ranger, which we've not quantified yet. That's the large carbonate structure, of course. All of that being said, we just have a tremendous amount of activity going on. I want the organization focused on delivering what we've committed to. And frankly, the next significant update in terms of outlook for production, I don't think we'll give anything different until an update in March next year.

Well, I can obviously -- well, I didn't want to be impertinent by saying out of date, so let me just clarify what I meant. When you first gave the 2025 target, the guidance was 500,000 barrels a day. It's now more than 750,000 and you still haven't changed the 2020. I know it's a long way away, but that was my point. But my follow-up, Neil is probably a little bit of an off-the-ball question, kind of related to the disposal pace on the kind of the use of proceeds. My understanding is that you recently conducted a study with a buy side on opinions on share buybacks return of cash to shareholders and how you would -- how you might consider that in the future perhaps even with a potential to lean on the balance sheet. I'm just wondering if you could share your thoughts as to what was behind that the reason for that survey and whether you're still comfortable with the pace of the disposal program you laid out at the Analyst Day. Now, I'll leave it there. Thanks.

Yeah. I mean again, Neil can maybe make a comment in a second, on the specifics of the survey. Let me just make some comments on the disposal program. We highlighted $15 billion. I told the investment community that was a risk number. In other words, I anticipate we'll have to put more in the market to achieve that number. We're on track with that. I would tell you we're -- we communicated that in March. We're just four months into a three-month program. And so -- a three-year program rather. And we're on track with the marketing. What we said, at that time, was in terms of our capital allocation that there's no change in the priority continuous -- our use of cash use of capital starts with investing with value-accretive projects. Secondly, we're going to maintain our growing dividend. We want to maintain our financial flexibility and then we'll look at how else -- what else we do with the cash in terms of buybacks. And that's the way, I think we have discussed it for many years and we'll reinforce that in March. Of course, we indicated then that with $15 billion on the planning basis that could result in returning some cash to the shareholders. But we will look at that as that cash comes in, and we'll set that based on the market conditions at the time. Neil, do you want to talk about the survey?

Yes. No, again just as Neil mentioned, the discussions we've had with a few buy-side firms, I wouldn't classify it as a survey. We certainly reach out to them to talk about how you might execute a buyback program. It wasn't intended to get a different perspective on our capital allocation priority, which as Neil mentioned, remain the same. It was more to gain a perspective from a few buy-side firms on -- if you execute buybacks what's the best approach to do that, what's the philosophy you should take. But again, Doug, I wouldn't classify this as a survey. It was a discussion with a handful of the buy-side firms of some of our larger shareholders.

Understood. Appreciate the answers guys, and thanks again for getting on Neil.

Yeah. Thanks, Doug.

Hi, everybody. Neil financial results in the first half of 2019 seem to be tracking below the plan highlighted at Analyst Day for 2020. Although the company made clear at the time that those projections were predicated upon flat Brent rail and flat Downstream and Chemical margins too. So my question is when adjusting for market factors and whatever else you may deem appropriate, are you still comfortable with the 11% return on capital employed and $25 billion annual earnings figures for 2020? And if so, what factors will help bridge the gap from the first half 2019 actuals to the full year 2020 projections? Or do you think we'll get there solely from normalization of the market factors that Neil mentioned on page 9 in his opening comments?

Yeah. What Neil is -- I – again, we got -- we have Neil’s quiet here of course, but if in doubt -- I'm -- this is Neil Chapman. I'm going to answer the question. Doug, I would say, remember when we laid out this plan in March 2018 what we were trying to indicate is the earnings power, the cash flow power that we're bringing into the business at constant prices and at flat margins. At that time, we said we did a flat $60 dollars a barrel and we do it for Chemicals and Downstream at 2017 actual margins and that was our intention. And of course, we go back and skewered our performance. And I think that's what you're asking is how are we doing if you take away the price and margin impacts of the current earnings. I would say we're pretty much matching the plan. The significant -- the concern we've had of course has been these reliability events, particularly the ones that we’ve had in the Downstream. Outside of the ones that we reported in the first and second quarter, there's nothing material that's changed from our plan that we laid out last year. It doesn't mean to say there aren't pluses and minuses. It doesn't mean to say we have some positive surprises and some negative surprises, I think that would be naive to say everything is absolutely perfect. But on average, I would suggest that we're pretty much tracking the plan, and there's no reason at this stage for us to adjust those outlooks that we laid out 18 months or so ago.

Okay. No, I realize its imperfect, but just wanted to try to get a gauge on it. So, thanks a lot.

Good morning. My first question is about the Permian. The industry for a while now but maybe coming to a head here it seems to be having some issues with spacing and its impact on productivity. We don't have a lot of precise numbers about your spacing, but we do know that your development plan calls for -- call it a high concentration of lateral feet per square mile or they're just -- you have a lot of wells that are stacking up in your section. So can you talk about just broadly this might be too complex a question. I don't want to get too esoteric, but just broadly how you're managing some of these issues we're seeing in the industry given the nature of your development plan in the Permian?

Yeah. Simon it’s -- of course, like you I read as many of the different results in the industry. I would tell you that in terms of our planning basis, again it's unchanged from the detailed plan that I laid out in March. And what I said at that time that we are driving a different approach than the industry with these really leveraging a combination of this large contiguous acreage that we've had and leveraging the scale of ExxonMobil. And, of course, you will recall that I went through all of that. I also discussed at that time that we are working on plans that we'll develop and drill multiple horizontal benches at one time. Our feeling -- there is communication between these horizontal benches. And if you go in and drill one bench now and expect to come back years later and drill the other benches, we do see or we do believe there's communication between the benches and it should dissipate. And our belief is that drilling of multiple benches simultaneously in the approach that I laid out appears to be the right way to go. We're at the very early stages of that. Frankly, it's too early to highlight anything new from what I said back in March of last year. I am aware that there are competitors out there who've looked at spacing and have moved along a line of having closer spacing than we have in our plans. I have heard that. I think everybody in the industry has read about that. My understanding is the company involved in that has pulled back from it. It hasn't been successful. We have not taken that approach. Our spacing is not as tight as that. So it's early days. We have nothing new to report versus what we said last time. As I said, we are on plan and nothing different.

Okay, thank you. That's helpful. We'll go back to the March materials. My follow-up is on Chemicals and it's sort of a macro question. And you highlighted that there's some margin headwinds in the industry right now due to capacity, but capacity continues to get sanctioned globally. There's FID in the face of this margin pressure. And so I was wondering for your perspective on the demand side. Are you seeing a big pull for new supply in the petchem chain even with some capacity-related margin headwinds now? And does that say anything about the longer-term cycle and what your high-level views on the chem side are?

Yeah. Sam I would tell you that and again in Chemical just to break it down to the individual products, and of course we are heavily focused on ethylene and polyethylene and those are the margins that we typically talk about. And as I recall, the ethylene market is about 150 million tons globally. And so what that means is you need three to four new crackers per year just to meet demand, three to four world-scale crackers per year. Actually, what we see right now is the demand remains very robust around the world. It's all driven by the growing middle class around the world. That's the driver for plastics, that's the driver for polyethylene. That middle-class having a high standard of living and that drives the assumption of polyethylene. So actually globally we see the demand remaining very robust. There's no changes at all. What happened is there has been a glut of capacity. And so capacity is higher than demand. In the polyethylene business, unlike some of the other commodity businesses we're in, the demand sets it up relatively quickly. Now I will tell you that there are some further increments of capacity in ethylene and polyethylene to come online in the next year or so. So we don't see any change in the fundamentals at all. The glut in supply today is all because of these new capacity increments, most of which are on the Gulf Coast. So I think the short-term margins and if I was to try and predict short-term margins inevitably I would get it wrong, we do. But because of these extra increments of capacity that are coming on in the next 12 months, I would anticipate it to be pretty soft during that period. Now I've been in the chemical business for most of my career I think most of you know. And the Chemical business is notorious for coming back faster than anybody anticipates, but on a planning basis, I'd expect it to remain soft at least for the coming six months.

Hey good morning. Good to talk to you Neil and Neil. So the first question I had was just around European gas. Obviously we've seen softness in global gas prices. Groningen is a smaller part of the business mix than it was a couple of years ago. But can you just frame out, how big that European gas is as a part of the business on a go-forward basis? And is that a risk to profitability at the upstream -- of the upstream group?

Yeah. I mean I'll give you some approximate numbers here, Neil. I think in terms of volumes of gas in our portfolio, about 75% of our volumes from gas is what we call flowing gas, 25% is liquefied natural gas. And of that 75% flowing gas, about half is in the U.S. and half is in the European markets. I'm just going to break it down for you. Of that European, about half is Groningen and half is a combination of as I remember roughly Germany, U.K. and Norway. So it's a relatively large part in terms of volume. It is not a relatively large part in terms of the earnings of our business. What I would tell you is the spot price as you've seen in LNG has dropped significantly, of course, over the last six months. Japanese, JK and market price plus the MVP price in Europe. And that's what's impacting the flowing gas prices. And what we have seen is we have seen continued growth in demand for liquefied natural gas in Asia. That's been the growth driver over many years. It's just a little -- it's not as high for the six months of this year as it has been in the previous two years. I mean -- as I remember don't quote me these are approximate numbers. I believe year-to-date Asia LNG demand is up about 3% which is lower than it has been and the global demand or global supply of LNG is up north of 10%. So, what happens there, those cargoes look for a home and they can't find a home in Asia, they will get directed towards Europe that puts pressure on the European price. And if you look at the European gas business, the inventory level is quite high in Europe as well right now. That's what's putting the pressure on the spot LNG price and that's what's putting pressure on the flowing gas price.

That's helpful Neil. I guess the follow-up is relative to even at the Analyst Day, Exxon's shares have outperformed your smaller independent competitors in places like the Permian. How do you think about the environment for M&A and Exxon's role in consolidation in the Lower 48?

Well first of all, I'd tell you that, we're eyes wide open. We're always looking for opportunities. I mean -- and I think one of the reasons you maintain a strong balance sheet, it gives you that flexibility to act if you see something of value. I always start in the upstream with this. We have the strongest portfolio of opportunities this corporation has -- in the Upstream this corporation has had since the merger of Exxon and Mobil. In other words, we don't need to do anything. I feel very, very comfortable with the growth plans that we have laid out to you and we see and we can execute through 2025 and beyond. So, we have the capacity to do something. We don't need to do anything from a business. What we need to do is execute our current set of opportunities. So, that's a great position to be in. But we look all the time for value-added opportunities. So, I think that's a great part about looking at the portfolio. It's all a question of, if something is out there, which is competitive in our portfolio in other words, upgrades the portfolio and we can bring a competitive advantage versus industry. I mean that's the way we look at it. In the Lower 48, in the Permian specifically, I hear like you all hear a lot of chatter about potential consolidation down the road. But the market -- that will play out in the market. For us, what I like to say to our organization eyes wide open. If there's an opportunity out there, bring it forward. But I really want to make the point that we don't need to act. We don't believe we need to act right now. We have a great opportunity set as it is. Do you have anything to add here, Neil?

Well, I guess that's absolutely right, Neil. And given the portfolio that we have, we can be patient, we can be opportunistic and if we do see an opportunity to bring unique value with our competitive advantages and we can bring in something that's accretive to the value of our overall portfolio, then obviously we would be very interested in that type of an opportunity.

Yes I do. Just to go back to the Permian again and reinforce the point I have made in my terms. We are taking a different approach to the Permian. I mean we are taking an approach which is leveraging the scale of this corporation. It's a manufacturing approach. We're doing it at scale, which obviously a lot of the small players wouldn't have the capacity to do that. And we're going to do it through the cycles. We have the capacity to do that. We believe we have a significant capital advantage by doing it that way. And as a result of that, I think if we can demonstrate and we will and we are demonstrating that, we can demonstrate it. It puts us in a position where we have an advantage development plan that we could apply that to other resources in the basin should we see fit to do so.

Thanks, guys.

Yes, hi good morning. I guess my question, my first question, so it's a bit of a follow-up to a couple of questions that have been asked maybe slightly differently. If we look at the quarter, there's a fair amount of debt added this quarter and you talked about kind of just investing through the cycle. You have the $15 billion of asset sales that you're targeting over the next three years and you want to keep the balance sheet ready if an M&A opportunity comes along. But if we look at it that way and think about the way the script looks right now, does it make more sense to not think about share buybacks to just keep the balance sheet in the best shape you can with assets or proceeds as you invest through the cycle? Just want to kind of tie that altogether? Thanks.

I'll start and then Neil maybe you can add anything you want to add. But I think the strength of this balance sheet is really important of course, but it's being demonstrated by the current market conditions because as I said in my other comments, we feel very strongly. We have the capacity to maintain our investment plans through these low points in the commodity cycle. Actually, we -- at the current conditions if they were maintained and we see these as very low as you have seen and Neil pointed out from his chart, if they were to maintain those conditions, we still believe we have the capacity to execute our plans if these conditions would remain through 2025 and still have some powder to execute an acquisition should we want to do so. But of course, it's something you watch closely. You're constantly looking at that all of the time. But today and on a planning basis, we feel like we have the capacity to make no change at all to our plans. And even if these low margins continued, we can continue with our plans. Neil, do you have anything to add to that?

Yes. I am just -- thinking back to the Investor Day Phil, when we talked about this, we conveyed that we felt very comfortable with the investment program that we have available to us. We talked about the priority of doing a reliable growing dividend and that we felt comfortable with the balance sheet and that we didn't feel at that time that we need to do any additional maintenance on the balance sheet. And so to the extent, we had proceeds coming from asset sales or additional cash coming from higher prices and margins given where we were in those priorities likely the cash would then come back through buybacks, but that was obviously given a current or an assumed price and margin environment and we are in a different environment today, but when these proceeds come in from these asset sales, which is a target out to 2021, we don't know what environment we will be in at that time. So it's difficult to predict exactly where that cash would go, but we can reaffirm what the priorities are. We're going to continue to invest in accretive projects, pay a reliable growing dividend and ensure that we have the capacity and the financial strength to take advantage of opportunities that become available to us including when we have a downturn in margin to prices which is as we said a very attractive time to operate and invest when costs are lower and when others are pulling back. So, there's no change to the priorities. What happens when that additional cash comes in from those proceeds again, could occur over the next two or three years, it will be dependent I think on the price and margin environment at that time and what opportunities we see available to us.

And Phil, I'd tell you, this is not something new for us. I mean, if you go back to the low crude oil prices in 2015-2016 that's when we lent into the business and made the acquisitions in the Permian, in Mozambique, in Papua New Guinea and in Brazil. And again, I go back to the strength of opportunities that we have right now is because at that low point in the cycle we have the capacity to move and pick up some very attractive resources at very competitive prices.

I appreciate that and obviously you can't time the asset sales quarter-to-quarter so certainly can appreciate that. On the Chemical side, I guess my follow-up to some of the questions that have been asked is that if I look at the performance of ExxonMobil specifically over the past five quarters your earnings have gone down every quarter. And I know this quarter you had some maintenance so some of that will come back here. But if I look relative to other some of your other peers where you have traditionally kind of tracked their performance, I think they have seen a bit better performance recently and yours has continued to degrade and so just kind of shifting through the sides I know you called Paraxylene as one factor. Is that -- if you're to kind of disaggregate the performance would you say that that is the primary factor that you think is differentiating your softer performance recently? Or are there other things we should be thinking about? Thanks.

Well, I think there are other things. I think what you have to start with in the Chemical business is looking at the configuration of the assets that each Chemical company has and our business is heavily weighted towards steam cracking and polyethylene by order of magnitude and it's sort of 65% of our Chemical business. Polyethylene and ethylene margins for us have been very strong for multiple years and we've benefited from that. And at this stage of the cycle the ethylene polyethylene margins for the reasons that we already discussed are down. If you have a Chemical company that has 25% of its business in ethylene, polyethylene and the rest of the business in other products you probably wouldn't see that impact of ethylene and polyethylene. It's really driven by the configuration of assets that you had. If we look across our Chemical company's performance over the last 12 months in terms of operations, in terms of delivering on their higher-margin growth it's been at or above plan. The total impact we are seeing is because of industry margins being down due to overcapacity. That has been primarily driven by ethylene and polyethylene primarily driven by these big incremental capacity coming on the Gulf Coast. Paraxylene is similar. Paraxylene is also a significant part of our Chemical company nowhere near the size of ethylene and polyethylene. There has been some big capacity increments of Paraxylene that has come online in China in the recent months and that's put Paraxylene margins under pressure. These are cyclical businesses. The performance has no change. The underlying drivers of these businesses are unchanged. The underlying drivers for demand are unchanged. What's really important for us is that we continue to deliver more competitive steam crackers in polyethylene businesses than anybody else. That's why I made the comments when we were talking about the latest investment to Corpus Christi. This is significantly advantaged we believe versus any other Gulf Coast investment. It's a significantly lower capital cost. We're leveraging the scale of our Upstream organization. We located the plant so close to the Permian. It's a cost advantage and we are producing not commodity polyethylene, but higher value or higher margin polyethylene. And so we don't see any change to the structure of this business. This is a margin impact-driven by short-term excess in supply.

Hi, thanks for taking my question. Just one, a question on Pay, so, I understand the question for the pace of development in Guyana. And obviously you're taking advantage of the services available at very good prices. For the Permian, are you concerned at all that the pace of your development. And the impact it could have on the overall oil market. I get not all of the growth is oil, but a substantial amount of that exponential growth chart is oil. And then, if you take you guys plus Chevron and a handful of your peers, it looks like the majority of the sector wants to grow volumes faster than the market is growing, which suggests prices may be not that positive over the medium-term. So I just want to get, your thoughts on that. And whether you think it's a concern at all. Thanks.

Yeah. Thanks, Biraj. I mean again I'll make some comments. And Neil, if you have any feel free, to jump in. I mean, I think, we laid out that pace and we said we are going to get to one million oil-equivalent barrels in the Permian and Bakken by 2024, if I remember correctly. That's not driven by anything more than we see these. And it's extremely competitive. We see them as less outside of the supply curve. And we see them as high returns and within our capacity to execute them to the standards that we expect to execute them. That's the way we look at it. What really is important, in a commodity cycle, in commodity businesses, is to make sure that, we have a competitive advantage versus anyone else in terms of cost of supply. And it's really driven by cost of supply. That's why I am so keen, that we maintain our capital discipline in the Permian. We must continue to work the capital cost down and to deliver on what we have laid out in our plans. Remember, this is a declining business. You have to keep replacing your capacity. And what's key for us. And key to win in this business is to make sure that our portfolio is the most competitive in the industry. And that's the basis of these plans. And the Permian is a big part of that.

Yeah, hey. Thanks for taking my question a the end of the call. Firstly, we didn't touch on a couple of projects. The Mozambique LNG development and what's going on in Papua New Guinea. You did put in your press release that you still expect to sanction Mozambique at the end of this year, but there's been some reporting that you're looking at maybe changing who's doing the EPC on that project and I'm wondering if that could delay when you would sanction it? And then just any updates on what's going on at Papua New Guinea with negotiations with the government would be helpful. Thanks.

Sure, Jason. I think in Mozambique, we're still proceeding on the planning basis that we have for Area 4 and the two lines that we're going to put in Rovuma. There is likely to be at least we read there will be a change in ownership on Area 1, of course everyone reads that and Patrick made some comments and I think earlier on this week publicly that we have had some very, very preliminary discussions with Total to say, is there something more we can do to between Area 1 and Area 4 to get the capital costs down. That's a very, very early stage, because of course that ownership has not changed yet. But I think as Patrick said, if there's something there in the interest of both companies, so for sure we will look at that to improve the capital efficiency. But no change right now in our current planning basis. I think Patrick's comments were more talking about if something comes down the road then it's advantageous to both companies or both consortiums more Area 1 Area 4 than obviously we would look at it. But our planning base is to go ahead with what we've already communicated. In terms of Papua New Guinea and the Papua LNG change of government there President, Marape is in power and I met with him about one month ago. And as he has publicly said and as petroleum minister has said they want to look at the legal aspects of Papua. Our understanding is they've had that review and they're discussing the outcome of that review now. As far as we're concerned, we have an agreement with the government. Prime Minister, Marape understands that. And I don't see any change, but we'll have to wait and see what comes out of the government discussions. I have to say, Total is the operator on this block, so you really have to talk more details with them. As far as we're concerned, we have a contract and we honor our contracts and we anticipate no change in that agreement.

Great. Thank you. We appreciate you allowing us the opportunity today to highlight the second quarter that concluded. Again, excellent progress in the Permian and the achievement of a number of key milestones across our portfolio. I appreciate your continued interest and hope you enjoy the rest of your day. Thank you.