Exxon Mobil Corp (XOM) — Q4 2019 Earnings Call Transcript

All right. Thank you. Good morning everyone. Welcome to our fourth quarter earnings call. We appreciate your participation and continued interest in ExxonMobil. This is Neil Hansen, Vice President of Investor Relations. Joining me on the call today is our Chairman and CEO, Darren Woods. After I cover the quarterly and full year financial and operating results, Darren will provide his perspectives on 2019 and the year ahead. Following Darren’s remarks, I'll be glad to address specifics on the reported results, while Darren will be available to take your questions on broader themes, including strategic priorities, progress on major growth projects, and views on market fundamentals. Our comments this morning will reference slides available on the Investors section of our website. I would also like to draw your attention to the cautionary statement on Slide 2 and the supplemental information at the end of this presentation. I’ll now highlight fourth quarter financial performance starting on Slide 3. Earnings were $5.7 billion in the quarter or $1.33 per share, including a positive $0.92 per share impact from the Norway divestment and a one-time tax item. Results were in line with expectations, taking into account the challenging price and margin environment we have previously communicated. Liquids realizations were essentially flat, while Refining and Chemical margins weakened significantly in the quarter. The broader margin environment remained challenging as short-term supply and demand imbalances continued to pressure natural gas prices and crude oil margins, despite modest improvement in the fourth quarter. Cash flow from operations in asset sales was $9.4 billion in the quarter. After adjusting for changes in working capital, cash flow from operations and asset sales was $11.1 billion. CapEx for the quarter was $8.5 billion and $31.1 billion for the full year, slightly ahead of the previous projection of $30 billion with better than expected pace on the Beaumont light crude expansion and Baton Rouge polypropylene projects. And of course, the early startup of Liza Phase 1 in Guyana. Full year PP&E adds and net investments and advances, a proxy for cash CapEx, was $26.8 billion. I’ll now provide a more detailed view of developments since the third quarter on the next slide. In the Upstream, liquids realizations were essentially flat, while gas realizations improved slightly. Production was in line with expectations with higher seasonal gas demand in Europe. Liza Phase 1 achieved first oil ahead of schedule at just under five years from discovery, which is significantly ahead of the industry average of nine years. We also announced the 15th and 16th exploration discoveries with the Mako and Uaru wells offshore Guyana. We closed the sale of our Norway non-operated assets during the quarter highlighting good progress today on our $15 billion investment program. In the Downstream, refining fuel margins decreased during the quarter consistent with seasonal demand. In addition, weaker high sulfur fuel oil pricing did not fully reflect in crude spreads. As a result, refinery margins weakened more than high conversion refinery margins. This had a notable impact on our Downstream results outside of the United States. This demonstrates the importance of strategic investments like the recently sanctioned resid upgrade project at a refinery in Singapore which will greatly improve conversion complexity. Reliability in the Downstream improved in the quarter, largely offsetting higher scheduled maintenance. Although long-term fundamentals remain strong in the Chemical business, polyethylene margins continued to be impacted by supply increases from industry capacity additions and, in the fourth quarter, higher naphtha feed costs. With approximately 25% of our polyethylene portfolio produced from liquids feeds like naphtha, this had a significant impact on our Chemical business line results. On the project side, the recently completed Beaumont polyethylene expansion is running well and producing at 5% above design rates. As part of our collaborative efforts to develop and deploy lower emissions technologies, we signed a two-year expanded joint development agreement with FuelCell Energy to optimize carbonate fuel cell technology for large-scale carbon capture and we extended our support of the MIT Energy Initiatives, low carbon research and education mission by renewing as a Founding Member for another five years. Let’s move to Slide 5 for an overview of fourth quarter earnings relative to the third quarter. Fourth quarter earnings of $5.7 billion were up $2.5 billion from the third quarter. Upstream earnings increased by approximately $4 billion driven by the gain on the Norway divestment, a favorable one-time tax item, higher volumes, and improved gas realizations. Downstream earnings decreased by $330 million due to lower margins and higher scheduled maintenance, partly offset by improved reliability and favorable year-end inventory impacts. Included in the Downstream results was a sequential $450 million negative mark-to-market impact on derivative positions, essentially offsetting the inventory effects. Chemical earnings decreased by $600 million driven by weaker margins and higher expenses supporting growth projects. Corp and Fin earnings decreased by approximately $500 million due to the absence of a favorable one-time tax item in the third quarter. Moving to Slide 6, full year earnings of $14.3 billion were down $6.5 billion from 2018. Upstream earnings increased by $360 million driven by the Norway divestment and higher liquids volumes. It was partly offset by lower realizations and expenses supporting growth. Downstream earnings decreased by $3.7 billion due to more narrow North American differentials, lower refining margins, higher scheduled maintenance, and the absence of the Germany retail and Augusta divestments in 2018. Included in the year-over-year results was a negative $420 million mark-to-market impact on derivative positions offsetting any benefits from the inventory effects. Chemical earnings decreased by $2.8 billion driven by weaker margins, higher expenses supporting growth, and the absence of a one-time tax item. I’ll now provide more insight into the challenging 2019 price and margin environment on Slide 7. Cyclically low prices and margins across our business lines accounted for a year-over-year earnings decrease of $7.5 billion. All other earnings drivers netted out to a positive impact of $1 billion. The chart at the bottom left of the page provides a view of commodity prices and margins over the past ten years and the relative position of the environment we’ve seen in 2019 and 2018. The fourth quarter saw further deterioration in prices and margins, especially Chemical margins with the increase in liquid feed costs. While margins weakened from 2018 and remain on the low end of the 10-year range across many of our business lines, these levels are generally consistent with the scenarios we use to test our investment decisions. Despite the challenging margin environment, long-term demand fundamentals remain strong. Growth in demand in 2019 for Upstream liquids and natural gas, distillate products, and polyethylene was at the higher end of the compound annual growth rates experienced over the past ten years. While making investment decisions based on long-term fundamentals is challenging, when near-term prices and margins are under pressure, it provides us with the opportunity to leverage our competitive advantages including significant financial capacity. It allows us to benefit from the favorable environment that occurs when others pull back and the cost of investing declines. I’ll now spend some time looking at the full year performance of each of our businesses in more detail starting with Upstream. Volumes grew by 119,000 oil equivalent barrels per day with liquids growth driven by Permian, Hebron, and Kaombo. Efforts to high grade our portfolio also resulted in gains on asset sales, primarily from the Norway divestments. Liquids and gas realizations also impacted earnings with declines of 8% and 17% respectively. In the Downstream, more narrow North American crude differentials and lower margins reduced earnings by $3 billion. The change in differentials accounted for $1.7 billion of that year-over-year decrease. Full year industry margins were 19% lower than 2018, pressured by new industry capacity additions that exceeded demand growth by 800,000 barrels a day. Regarding IMO, we continue to see clean/dirty product spreads expand in the fourth quarter. However, light-sweet and heavy-sour crude differentials have been slow to respond with lower global supply of sour crudes. Strong global refining runs coming out of forward maintenance and the previously mentioned industry capacity additions contributed to this situation. The chart on the upper left of this page shows medium heavy-sour crude discounts relative to Brent through 2019. While the spread has expanded recently, crude discounts are not at parity with high sulfur fuel oil prices. The marine fuel supply chain fundamentals are still transitioning. Feed and product pricing have not reached equilibrium, placing pressure on low to medium conversion margins. We would expect this to result in fewer heavy-sour crude rents, ultimately leading to higher discounts and market parity. Scheduled maintenance in the Downstream was higher than normal due to preparation for IMO. In fact, 2019 represented the highest level of scheduled maintenance for the Downstream in the past 15 years. This activity level decreased earnings by $700 million relative to 2018. As shown on the bottom left chart, we expect 2020 scheduled maintenance to be more typical in line with our historical average. Moving to Slide 11, I’ll provide more perspective on the Chemical margin environment and its impact on earnings. Our Chemical portfolio is well-positioned to take advantage of low-cost feed and energy costs with over half of our polyethylene capacity in North America. This is balanced with our production footprint in Asia Pacific, which positions us near key growth markets. However, the current margin environment remains challenged with excess industry capacity despite demand growth of 4% per year since 2016. Relative to 2018, lower margins reduced Chemical margins by $1.8 billion. In the fourth quarter, polyethylene margins were further impacted by tighter feed supply resulting in a 65% increase in the cost to produce ethylene from naphtha. Key industry price spreads declined by 40% on average for the year. Given our product mix, this is important. Since these changes impacted approximately 60% of our production. The significance of these market factors will vary across the industry depending on product mix. Growth-related expenses, unfavorable foreign exchange, and the absence of a one-time tax item also decreased Chemical earnings by approximately $700 million. I’ll now provide a more detailed overview of the fourth quarter cash profile shown on Slide 12. Fourth quarter earnings, when adjusted for depreciation expense and changes in working capital, yielded $6.4 billion in cash flow from operating activities. The $4.3 billion impact from working capital and other relates to non-cash adjustments for the gain on the Norway divestment. Fourth quarter proceeds from asset sales of $3.1 billion primarily reflect the cash received for the Norway asset sales. Fourth quarter additions to PP&E and net investments and advances were $7.4 billion. Gross debt was largely unchanged, and cash ended the quarter at $3.1 billion. With that, I will turn the call over to Darren.

Thank you, Neil. Good morning everyone. It’s great to be on the call with you today. Let me start by sharing my perspective on last year, beginning with margins. There is no doubt that 2019 was a challenging year for a number of our businesses. I think Neil’s chart made that point - near or at 10-year lows on prices and margins for Gas, Refining, and Chemicals. The fourth quarter was particularly challenging for our Chemical business. Of course, it’s important to understand what’s driving us and the implications for our businesses and our investment plans. As Neil said, and I’ll show you later, the product demand underpinned our investments in each of these sectors remains solid. Depressed margins are driven by excess capacity, which will be a short-term impact particularly if the industry pulls investments back significantly, which by the way we are beginning to see. We know demand will continue to grow driven by rising population, economic growth, and higher standards of living. We know that excess capacity will shrink, typically faster than people think, and margins will rise; then, new capacity will be needed. These are the classic price cycles of capital-intensive commodity industries. We believe strongly that investing in the trough of this cycle has real advantages. As industries pull back, project costs come down, resulting in lower cost capacity additions, which are then available to catch the cycle upswing. This is a win-win, capturing high margins at a lower cost. The downside, of course, is to grow on cash, which we are seeing and responding to. Our organization is very focused on driving further efficiencies and looking for opportunities to optimize or pace our investment portfolio while preserving value and reducing the draw. Our new projects organization in Upstream business lines is giving us a good line of sight on the best options to grow value efficiently. We also have a very healthy balance sheet, built for times like this, giving us a significant advantage in maximizing medium to long-term value. While we prefer higher prices and margins, we don’t want to waste the opportunity that this low price environment provides, which leads me to our 2019 performance. Our portfolio of integrated businesses helped in facing the short-term headwinds, generating $14 billion in earnings. If you normalize our 2019 results for the industry’s price and margin environment and evaluate them on the same basis we used last March at our Investor Day, earnings were in line with the potential we communicated. This is a theoretical exercise, but an important one. We can’t control the short-term price environment; stripping out the market impacts allows us to judge the underlying progress we are making in building a stronger business. The lower price environment puts additional focus on driving efficiencies in both capital outlays and operating costs. It also drives us to ensure the schedule and mix of our capital expenditures are optimized. This is something our organization is focused on. In 2019, we made good progress in upgrading and focusing our asset portfolio with the divestment of our Upstream Norway business. We remain excited by our investment opportunities. Even in the price environment we saw last year, our investments would perform. It reinforces our capital investment strategy, which is invest in the long-term fundamentals while considering short-term lows. We made good progress on our projects in 2019 and used our financial capacity to mitigate the price environment resulting in a year-end leverage of 13%, a level we felt very comfortable with. We increased production by 119,000 oil equivalent barrels per day, a 3% increase over 2018. Nearly all of this is attributable to our success in growing liquids, which increased by 120,000 barrels per day or 5% relative to 2018. The continued ramp-up in the Permian Basin was a significant driver of this growth. We continue to see good progress in maximizing resource recovery, efficiently deploying capital, and optimizing production in our Permian development. Additionally, we made good progress on our logistics, refinery, and chemical investments that leverage Permian production, giving us greater value through an integrated approach. We had another good year exploring with six major deepwater discoveries, five in Guyana and one in Cyprus. Guyana discoveries resulted in a 2 billion barrel increase in estimated recoverable resources, now exceeding 8 billion oil equivalent barrels. We had four of the top 10 discoveries in the world and five out of the six largest oil discoveries. In recognition of this success, for the second year running, Exxon Mobil was named Explorer of the Year. We’ve also made progress in developing new lower emissions technologies to help address the risk of climate change. While renewables like wind and solar play an important role, they don’t solve the emissions challenge for every market, geography, or application. Deciding on these new technologies will reduce emissions while meeting the growing demand for affordable and reliable energy. In 2019, we signed or extended eight agreements with a variety of companies and institutions to expand research into lower emissions technologies, adding to the more than 80 collaborations we have in place across academia, national labs, and energy centers to scale up advanced biofuels, carbon capture technology, and less energy-intensive manufacturing processes. These efforts address sectors that account for 80% of emissions, such as commercial transportation, power generation, and industrial sectors. In summary, looking at the year in total, I am pleased with the progress we have made, particularly in light of the challenging market conditions. Almost two years ago, we outlined a plan to grow the value of our corporation robust to the price cycles inherent in our industry. Two years down the road, we are delivering on those plans while doing what we said we would. With the increased supply and corresponding drop in margins, we’ve increased our focus on efficiencies while we continue to optimize our investment portfolio, again, taking advantage of the optionality that comes with a large number of opportunities, which I’d like to turn to next. In Upstream, I’ve already mentioned our success in Guyana. Development of our deepwater portfolio in Brazil, another key asset, remains on track with exploration activities planned over the next couple of years to better quantify this high potential resource. We are also making good progress in the Permian, which I’ll talk more about when we get to a slide later in the deck. In the Downstream, three of our major projects are online and contributing to earnings and cash flow even in last year’s challenging market. These projects position us well for the growth in demand of higher-value distillates and lubricant-based stocks. The remaining projects in our Downstream portfolio progressed consistent with our plans. These projects have all been tested against the margin environment we saw in 2019 and all would be earnings and cash accretive. In our Chemical business, eight of our 13 growth facilities are online, and we reached final investment decisions on another four last year, which again remain attractive even when tested against the 2019 market environment. Across the board, we remain extremely confident in the value of our project portfolio. Each project leverages our competitive advantages and is underpinned by growing demand. Demand fundamentals remain strong, supported by a growing population, economic expansion, and higher standards of living. You can see these fundamentals reflected in historical growth in demand for the energy and products that we provide, including demand growth in 2019. Of course, growing demand is only part of the equation. In our business, large capacity additions can overwhelm short-term demand growth and push margins down. That’s the story of 2019, and it’s built into the planning basis for our projects. Our investment strategy builds on long-term fundamentals, leverages our competitive advantages, and delivers projects robust to down cycles. This will structurally improve Exxon Mobil’s capacity to generate earnings and cash flow, which we laid out at last year’s Investor Day. This approach has resulted in our most attractive investment portfolio since the merger 20 years ago. This also generated a portfolio with an average return of 20%. We’ve seen no market developments over the course of 2019 that have changed this. However, we are using the 2019 price environment to challenge ourselves to further optimize the portfolio and drive greater efficiencies. We expect to benefit from this effort. It hasn’t led us to change our 2020 CapEx guidance. Our projects remain advantaged, and the economics are robust across industry price cycles. Let me use our most recent startups to demonstrate this, starting in the Downstream and Chemical sectors. Leveraging the capabilities of our organization, our scale, and our technology are essential in developing industry-leading projects. The benefits are only realized when executed efficiently, another Exxon Mobil strength. You may recall that we shared a version of the chart on the left during our Investor Day. The grey area represents our estimate of the net cash margin for every refinery in the world at 2019 prices. The blue line represents our Rotterdam refiner before our recent investments. The second line represents the yield improvement we executed with the first-ever deployment of the processing catalyst we developed. This final line is what we actually realized after a year of runtime, no different than what we’ve planned. This would be expected for industry-standard proven technology. However, it’s a significant accomplishment for a new technology that significantly improved Rotterdam’s earnings last year. This next line shows the Antwerp margin before our coker investment. Next, we show the expected margin improvement assumed in the project basis. Finally, the actual margin improvement. The project is performing better than expected in a very low-margin environment. The Beaumont polyethylene expansion started up ahead of schedule and it’s exceeding design rates by 5%, while the new Baytown steam cracker and polyethylene lines are operating 10% above design rates. Combined, these projects contributed over $600 million in 2019’s very low margin environment. As the markets recover, their contributions will be even more significant. Bottom line, we delivered these investments in line with our commitments. They are meeting or exceeding expectations and adding value in extremely challenging market conditions. Let me turn to the Upstream in Guyana. Reaching first oil in Guyana was a major achievement for all stakeholders and it is the culmination of years of hard work and dedication by the people of Guyana and our project team. First oil was achieved ahead of schedule, five years faster than the average timeline for the industry, and at an industry-leading development cost. Liza phase 1 will continue to ramp up production to 120,000 barrels a day over the next couple of months, while Liza phase 2 is progressing well with the startup scheduled for early 2022 in line with our commitments and at the leading edge of the industry. The chart on the left provides perspective on industry cost and schedule. We are continuing to work with the government towards FID at Phase 3 Payara, with its targeted startup in 2023. Looking more broadly, as mentioned, we’ve increased the estimated recoverable resource from the Stabroek Block to more than 8 billion barrels, an increase of 2 billion oil equivalent barrels. We’ve now had 16 successful wells out of 18 drilled, including our recently announced discoveries at Mako and Uaru. Resource size across these 16 successful wells equates to an average of more than 500 million barrels per discovery or the equivalent of a giant for each discovery. We recently brought in a fourth drillship to the basin and are making plans for a fifth. Significant potential remains beyond the first few phases as we move to test Kaieteur and Canje Blocks to the north and east of Stabroek. Increasing the scope of our exploration activity, and development and appraisal drilling when costs are low relative to recent years enables us to increase the value of this substantial resource, which is good news for the country and for the investors. Let me turn now to another major growth play, our integrated Permian development, which made significant progress in 2019, again in line with our commitments. Let me start by saying that we are still in the relatively early days of this development, particularly in the Delaware Basin. For perspective, we’ve developed roughly 20% of our resource in the Midland and only around 3% of our resource in the Delaware. We are continuously optimizing our cube development drilling, and our subsurface technology is enabling us to tailor well spacing, resulting in higher production, improved recovery, and capital efficiencies. Last year, we made considerable investments in above-ground compression, separation, and logistics infrastructure. This supports the current drilling program while building cost-efficient infrastructure for future drilling. This follows the comprehensive development plan laid out last March and captures the capital efficiency of scale of development. I noted Neil Chapman and his team are excited by the potential and are looking forward to discussing the magnitude of the improvements we're seeing at our upcoming Investor Day. I do want to touch briefly on our expectations for 2020, though again, we will provide more detail in March. As I mentioned before, our Guyana Phase 1 ramp-up and Phase 2 construction will continue, and we will broaden our exploration efforts as we work through the considerable, undrilled potential in the basin with five additional wells planned. We expect to make considerable progress in the Permian with the completion of the Cowboy Center delivery point, execution of the first large-scale cube development, and volume growth of 200,000 oil equivalent barrels per day by year-end. We are anticipating FID for the next wave of our major growth projects, including Guyana Phase 3 and Brazil. We are also planning for significant exploration activity over the next two years in Brazil as we begin to test the tremendous potential of our acreage position. In the Downstream, our recent project startups will capitalize on the margin uplift associated with higher value products and we expect higher refinery utilization in 2020 coming off a year of significant scheduled maintenance. In the Chemical business, we will continue to grow sales of performance products, and even with the near-term margin pressures, we expect our recent project startups will continue to deliver earnings and generate positive cash. Across the corporation, we will maintain a sharp focus on improving our base businesses, driving efficiencies, and optimizing the value of our investment portfolio. We will continue to actively market less strategic assets in an effort to high-grade our portfolio through value-accretive divestments. Of course, we will continue to leverage the key competitive advantage of our financial capacity to capture industry-leading value across price cycles. Given the attractiveness of our organic investment opportunities, this was an important advantage last year. As you can see in this chart, as the margins in the Downstream and Chemical business dropped to historic lows, we utilized our financial capacity to fund projects that improved our competitiveness and positioned us to capture the eventual upswing. Our leverage increased slightly during the year but remains well below our peer group in the broader energy sector. To give you a sense of our scale advantage, 1% of incremental leverage equates to about $4 billion in additional debt. While our financial capacity is an important advantage, it’s one we use very thoughtfully, given the volatility of our industry and the opportunities that come with it; we strive to maintain a significant buffer to preserve optionality. Before I hand it back to Neil, I’ll offer a few closing thoughts. As we’ve demonstrated over the past two years, we are committed to delivering on our investment plans and high-grading our asset portfolio to strengthen the earnings and cash generation of our business across a broad range of price environments. We have a very rich set of investment opportunities, and as we work to develop these opportunities, we remain focused on optimizing total value over the long-term. In the 2019 price and margin environment, we have increased our efforts to drive further capital efficiency and optimize pace without compromising value. We will remain thoughtful in utilizing our financial capacity, but we will take full advantage of it to capture value-accretive opportunities without compromising our flexibility. Finally, we will continue to focus on improving our base business and driving efficiencies across the entire corporation. With that, I will hand it back to Neil.

Thank you for your comments, Darren. We will now be happy to take any questions you might have.

Good morning, and Darren, again we appreciate you joining the call and doing these with us. My first question is around capital spend, and it appears that what you are signaling is capital spend will be in line with the prior guidance, which if I remember was $33 billion to $35 billion. Can you just talk about the framework if the environment stays challenging, especially across Downstream and Gas? Is there downward flexibility on that spend? Or is Exxon’s framework that you spend through the cycle with a long-term orientation?

Good morning, Neil, and thanks for your comments. Yes, as I said, we have looked at the price environment, and with cash draw really taken advantage of some of the organizational changes we made last year. We formed a corporate-wide projects organization, bringing together the experience and capability in that space into one organization that can then be deployed across our entire asset portfolio. The Upstream reorganization has given us a real good line of sight across the businesses, which wasn't as clear in the past with the functional organization. We’re using those changes to take a hard look at the opportunities we have. Of course, the Chemicals and Downstream business are doing the same thing, looking for efficiencies to shape that portfolio. We are also looking at options to pace and move projects around and out if we can do that without compromising the long-term value that we built those projects on. There are opportunities in that space. If we continue to see very low margins and cash for all that we want to address, we have the optionality to do that. We can move some things out and we can also slow down the pace in the Permian. We don't want to compromise the scale of the development in the Permian. There is a balance to strike, but we got optionality, and as we go through the year, we will keep a close eye on how the market develops and make adjustments as needed. We have a large portfolio, so we feel comfortable.

That’s very clear. And then just a follow-up on your comments regarding the Permian. We’re looking at the red line versus the green bars on the Permian slide, and it’s hard to extrapolate how much quarter-to-quarter. But the production was a little bit more flat in Q4 versus Q3. Is that just the timing of completions associated with the cube design? Should we expect that acceleration at some point earlier this year? Also, how do you think about Midland versus Delaware? One of the comments made on those conference calls a couple of quarters ago was that Midland has gone very well, but Delaware is not performing as well as you would like on the drilling side. Any color there would be helpful.

Yes, your first point on the difficulty of extrapolating any one quarter is exactly right. When we introduced that end and Neil Chapman talked about it, we said it wasn't going to be smooth development and that we would see lumpy progress with respect to volume growth. So I wouldn't draw too many conclusions. We haven’t seen anything in that development suggesting otherwise. It's important to note that we have delivered volumes above what we said we would last year at the Investor Day by about 20,000 barrels a day. Regarding the Permian and Delaware, the Delaware is much earlier in its development cycle. The organization is learning as we proceed. We are making good progress in what we’re seeing there. Delaware being more challenging than Midland is true. However, the reorganization we did last year mixes the best of ExxonMobil with the best of our XTO organization, and we’re excited about the potential we see.

Thanks very much, Darren.

Thank you Neil and Darren. I just wanted to go to the fourth bullet point on your key message. You flagged up driving efficiencies and improving the base business, and although a lot of the focus falls on your investment program, you need to fund it. There may have been some shortfalls in generating earnings and cash in the base business to fund that investment. Is that a fair observation? It’s difficult to disaggregate underlying performance from the cyclical conditions, but are you able to identify where there have been some unexpected shortfalls? Are there business improvement plans to address this for 2020?

Yes, thank you, Jon. Just regarding the shortfalls, as I mentioned in my prepared comments, it's really a function of the margin environment we’ve seen across the board. The drivers of change and movement are how the margins vary and impact each of the configurations in the investment. As Neil Hansen mentioned, we have liquids cracking in the Chemical business which clearly had an impact on the quarter. There is structural change, and across the businesses, that's what we see—spreads that have changed, which have impacted us. This doesn't worry us particularly. Historically, that configuration was very attractive. We've made significant investments more recently, causing this imbalance in supply and demand. Demand is growing, and we expect to see the Chemical and base business return to where we were as that demand growth continues and excess supply diminishes. Don't forget too, in the Downstream, we had a significant turnaround last year. The capacity to shut down had an impact on results. But this year, we are back to more normal levels. So, tying growth and expenses with our projects and expenses will give you the impact we're seeing. But the businesses are operating well, and we are focused on efficiencies.

Right. Good. Thank you. And just a quick follow-up. You mentioned FID for Guyana in Brazil in 2020, so could we expect Mozambique as well at some point in the year?

Yes, Mozambique—we are working with our partners on that and making progress. I would think as we progress, we will make FID when we get to the right stage. Right now, we are looking towards a timeline that would give us production somewhere back in 2025.

Okay. Thanks a lot.

You bet. Thanks, Jon.

Good morning everybody. Declining dispersion of return to capital for the big oils suggests that competitive advantages may be converging between the different industry players over 5 to 10 years. On this point, you guys have historically indicated that technology, scale, and integration were key advantages that differentiated Exxon Mobil and led to value creation over a longer-term period. My question is, whether this premise is still valid in your view, meaning why your portfolio of opportunities is arguably the best in the peer group, and is there still the strongest in a long time? Are you still as confident as you ever about the strength of your competitive advantages and the returns profile? Or has it changed? If it has changed, which area is becoming more difficult to defend?

Thanks Doug, I appreciate the question. Obviously, competition always makes this a challenging area. You’ve got to continue to innovate to maintain a premium above and beyond what the rest of the competition is doing, and we remain convinced that that premium will be driven by technology and developments. Project execution is a huge competitive advantage for us. I continue to believe we will have returns on capital employed that are higher than our competitors driven by those advantages. Look at where we are today and the investments we’re making; they are very accretive and yield high returns, but we are in the early stages without realizing the benefits yet. But in the long run, those advantages will accrue. Look at our successes in Guyana and the discoveries. We have found an enormous amount of resources and are bringing them on with leading-edge developments. This has to drive better returns. The technology breakthroughs in our process work and catalysts are now unlocking these returns. We are continuing to see advantages across each of the businesses, proving that the dynamics remain intact from what we've seen historically.

Okay. And then also, the integrated business model has historically been productive in the energy sector. Changes to competitive structure could always make that change in the future. Do you still consider the integrated model to be optimal, and the one that holds the greatest potential for superior returns and shareholder outcomes? Has your thinking changed on this topic over the past few years?

I still believe this area holds value, and the only change is how much more potential is realizable in that process. We brought the entire organization together on one campus starting in 2014, marking the first time in our history with all businesses located together. This allows those organizations to explore and look for synergies. I believe we are in the early stages of finding significant opportunities. The projects organization example shows that we now have our Upstream, Chemical, and Downstream teams together, leading to many opportunities for synergy. An example of the value the integration has brought can be seen in the logistics investments we made, connecting our Upstream developments with our Downstream and Chemical assets. In 2018, as differentials opened up, we made $1.8 billion on that disconnect, which I think only an integrated company could capture. As we look at the Permian and the investments we’re making in Chemical and Refining, those investments are geared towards barrels coming out of the Permian. Only by having both businesses integrated can we extract that unique value. I’m convinced we have many advantages to bring to the table that will manifest over time.

Yes. It sounds like the case is as strong as ever at least for you guys. Thanks again for joining us, Darren.

You bet, Doug. Nice talking with you.

Yes. Thank you. Good morning and welcome to the call, Darren.

Good morning.

I guess much of what we've heard from Exxon and your peers indicates a cyclical downturn across various sectors. However, one area I was curious about is the global gas side. You are a major player in the LNG markets, with locations planned for expansion over the next couple of years. Could you provide some insights on how you see that playing out? Are there any issues on the demand side?

You should separate whether it’s the LNG business from the domestic gas side. Both have their unique dynamics. Overall, we continue to see good growth in the gas business. We expect about 4% annual growth in LNG. Both stories have similarities with solid demand and growth. However, we are currently seeing short-term oversupply, leading to lower margins. Demand will continue to grow, driven by concerns over climate change and replacing coal with gas. The ongoing growth of the economy means more power will be needed, and gas is a reliable source. In time, the LNG oversupply will resolve itself as demand catches up with supply, but substantial time is required for that. We need to be focused on the projects we’re committing to, and be on the left side of the cost supply curve. So even as margins fluctuate, we can maintain our advantage in the market.

Great, thanks. Additionally, along the lines of other comments on deferring CapEx when needed, as we consider dividend growth in a cash flow constrained environment, what should we keep in mind about dividend growth?

As I've stated previously, from a macro standpoint, we have to continue to invest to maintain a long-term value proposition. We have to develop advantaged projects to maintain our growth in the Upstream to offset depletion in crude and gas. In the Downstream, we need to employ technology to improve yields as society’s demand patterns change, and similarly in Chemicals to keep pace with performance product requirements. That's job number one. We are committed to providing a reliable and growing dividend. We expect to continue that trend of steady and reliable growth. Managing our balance sheet is also essential in navigating these cycles and taking advantage of opportunities that arise. Ultimately, if we meet our criteria and have additional cash, we will consider buybacks to return excess cash to shareholders.

Thank you.

Thank you.

Hi, Darren. Thanks for taking my question. As we assess where you are on the asset sale plan, you talked about $15 billion over three years and $25 billion longer-term. There have been reports suggesting the plan is moving faster than anticipated. What are your latest thoughts regarding the risks of the plan you laid out? If it does come in better, will the initial use of asset sale proceeds essentially be to cover any dividend gaps during this investment phase, or could buybacks be possible?

Good morning, Phil. With our divestment program, as Neil Chapman mentioned last year, it was intended to be a risk program with more assets on the market than we expect to transact. Reports indicating we are looking at a number of assets reflect the reality that we're working to identify value opportunities. If we find buyers valuing our assets higher than we expect, we may exceed our numbers. Conversely, we may have deals that do not transact if we can't find value. We have to ensure we realize the value for an asset that's higher than what we think we could generate by keeping it. The speed and extent of our divestments will depend on buyers and market conditions. Asset sale proceeds will first go to funding reliable projects, maintaining dividends. We prioritize maintaining our balance sheet where needed.

Sure, okay. Just one more follow-up: given the ongoing energy sector valuations appear to be deteriorating for public companies, do you think this is an environment where valuations are becoming more appealing to you for potential M&A opportunities? How do you view that?

I believe the highest value opportunities are those you generate organically. This is where you aren't paying a premium. We have a very attractive portfolio, and any potential acquisition needs to compete with organic growth. The fluctuations in short-term market conditions affect valuations, and capturing opportunities relies on sellers' perspectives. It’s case-specific and will vary based on ongoing industry dynamics.

Okay. Thanks.

You bet. Good talking to you, Phil.

Hi, thanks for taking my question. I have a question regarding your financial capacity. The numbers referenced in your chart were about net debt-to-market cap, but what I commonly look at is net debt-to-capital employed or net debt-to-cash flow. To consider the capital employed number and the value of equity investors need confidence in its valuation. Some of your peers have announced impairments due to lower price forecasts. Are you willing to disclose the price deck you are using for oil and gas to assess potential impairments?

We typically don’t publish a price deck, and I do not wish to change that practice. Let me explain how we think about pricing going forward. I don’t believe any of our peers, and certainly within ExxonMobil, feel we can predict prices. Too many variables are involved. We take a fundamental approach about oil and gas demand driven by economic growth and policies, forecasting how the market will evolve. I suggest reviewing our energy outlook for insights on our pricing assumptions. We believe market prices will be set by the marginal costs of producing the resources needed to meet demand. We continually compare our insights with other third-party forecasts for reasonableness.

Okay, noted. Could you provide an update on Papua New Guinea? There were reports indicating that negotiations with the government are not proceeding according to plan for expansions. What is your current assessment of the project?

Let me provide the bigger picture on Papua New Guinea. We are operators of the PNG LNG project, a $19 billion project benefitting approximately 3,200 people in the country. Since 2010, we’ve spent about over $4 billion on Papua New Guinean services and invested nearly $300 million in community programs. We are looking at this expansion and bringing in the Papua project with Total and the P'Nyang project, which involves government negotiations. We were disappointed recently that we weren't able to reach an agreement; however, I am hopeful we can move things forward to establish a win-win proposition. We have many opportunities, and given the supply-demand balance of LNG, we can take time to work with the government. I am confident we will find a way forward.

That's very helpful. Thank you.

Hi, good morning everyone.

Good morning, Jeanine.

Good morning, Jeanine.

My first question is on the Permian, dovetailing on Neil's question. Specifically regarding rig count—could you provide more details on operations? Is there any change in the number of rigs required to meet the 1 million barrels a day goal you laid out earlier? The rig count has been trending flat to down, and given efficiencies, have you encountered any unexpected issues, particularly in the Delaware subsurface?

I don’t put much stock into extrapolating rig counts into what we are doing in the business. It’s a basic measure for the work we do. We laid out a large-scale approach in the Permian, leveraging our technology and resources. We have been using rigs to delineate what we are doing; as we collect information and optimize, you’ll see movement in that regard. So I wouldn’t draw too many conclusions from the rig count. We’re making significant improvements—initial production across 365 days and longer is performing well, and recovery rates are good, especially in Delaware. I think we lead the industry here. Neil and his team are analyzing how to proceed moving forward, and we’ll share more insights in March during Investor Day.

Okay. Great. That's really helpful. Thank you.

Thank you.

Shifting quickly, regarding the light-sweet, heavy-sour spreads, which you've indicated have lagged in terms of adjustment, do you see this as a potential tailwind for Q1? Any additional comments on timing and how you see it developing would be helpful.

I’m not sure we had any predictions about the speed of this adjustment. The market introduces a lot of variables, and the situation has been known. A fragmented market and different storage actions make this complex. We believe in the fundamentals of the market. Eventually, parity will return as fundamentals for IMO are sound, and the better margins will prevail.

Okay. Very helpful. Thank you very much.

Thank you, Jeanine.

Operator, I think we have time for one more question.

Okay, thanks. A quick follow-up on your LNG comments: can you comment on any ongoing pressure on existing or currently negotiated contracts? Some European peers have offset ongoing price weakness via active portfolio trading globally; could you talk about any progress made in increasing LNG trading capabilities?

You're right that there are venues to use portfolio trading to mitigate shorter-term issues. While the LNG marketplace evolves slowly, many buyers still desire long-term contracts for secure supply. Lots of underlying dynamics reinforce the preference for historical transactions, and the market will shift gradually. Regarding our LNG trading, we’re proactively looking to evolve as market demand increases, and we are integrating more globally.

Thanks. One quick follow-up on Chemicals: In light of its tough environment, what market dynamics do you foresee over the next 12 to 18 months? You highlighted growth-related expenses of $160 million in the quarter; can you share the expected direction and magnitude of those growth-related expenses moving forward?

Sure. Regarding growth-related expenses, they stem from new investments in steam crackers or polyethylene lines we’ve recently completed, specific costs when bringing up new facilities that we categorize as growth expenses. The second category includes projects in construction, like our cracker in Corpus Christi, where the associated expenses are lower. Finally, expenses from proactive projects in the pipeline further out represent another factor. We gotta actively manage the costs but also recognize that the operations that must be funded reflect the overall value. We continue to monitor market conditions in the Chemical sector; while we anticipate a challenging year, we expect gradual improvements aligned with growing demand and improvement as excess supply decreases. We’ll focus on tighter management to maximize profitability.

Okay, thank you.

Thank you for your time and thoughtful questions this morning. We appreciate the opportunity to highlight our fourth quarter and full year performance that included several key milestones and continued progress across our portfolio. We look forward to seeing everyone on March 5th at our Investor Day in New York. Thank you for your interest, and enjoy the rest of your day.