Exxon Mobil Corp (XOM) — Q3 2021 Earnings Call Transcript

Thank you. And good morning, everyone. Welcome to our Third Quarter earnings call. We appreciate your participation and continued interest in ExxonMobil. I am Stephen Littleton, Vice President of Investor Relations. Joining me today are Darren Woods, Chairman and Chief Executive Officer, and Kathryn Mikells, our Senior Vice President and Chief Financial Officer. The full set of presentation slides and prepared remarks were made available on the Investor Relations section of our website earlier this morning along with our press release. During our call this morning, Darren will provide a few additional opening comments and reference a select number of slides from that presentation leaving more time for your questions. We expect to conclude the call at 9:30 AM Central Time. I would also like to draw your attention to the cautionary statement on Slide 2, and to the supplemental information at the end of the presentation slides on the website. I will now turn the call over to Darren.

Thank you, Stephen. Good morning. It's good to be with you today to discuss our strong third quarter results, and the progress we're making in growing shareholder value, and of course, to take your questions. I'd like to start by welcoming Kathy to the call, her first in what I know will be many. I can tell you that Kathy has hit the ground running, seamlessly joined the management team and has been broadly welcomed by the organization. While early in her tenure, we're already benefiting from her diverse experiences and wise counsel. Since we posted a full set of slides and remarks on the website, I'll keep my comments brief this morning. Starting with an overview of the work we're doing to position the Company to sustainably grow shareholder value. Our first priority was to significantly grow the value of our base business to achieve industry-leading earnings and cash flow growth. This work has been ongoing for some time, and it's built on the significant changes we have made to our organization and the increased focus on fully leveraging all of our competitive advantages in technology, scale, integration, functional excellence, and most importantly, our people. It has also allowed us to improve operating performance, drive down costs, and develop a portfolio of industry advantaged high return investments. Our businesses are driving returns and generating cash to maintain a strong balance sheet and fund future investments. The work we began in 2018 to develop opportunities in carbon capture and later low emission fuels plays to our competitive strengths, positions us to build a successful low carbon solutions business, and take a leading role in driving to a lower carbon future in hard to decarbonize areas. At the same time, we have to ensure our plans are robust to a wide range of future scenarios, including net-zero pathways and the continuing use of hydrocarbons. Our low carbon solutions business draws on the same core capabilities and competitive strengths used in our established businesses. This gives us optionality and builds resiliency into our plans. As the future takes shape and demand shifts across our businesses, we will maintain our advantage. Now, I will turn to our third quarter performance. The value of the organization’s hard work I just highlighted is showing itself as the market recovers. In the third quarter, we delivered excellent operational and financial performance with improved earnings and cash flow. We significantly improved our cash position, reduced total debt, progressed key projects, and set a number of best-ever operational milestones. Earnings for the quarter were $6.8 billion. Year-to-date earnings surpassed $14 billion on the strength of our upstream portfolio and industry-leading chemical and downstream businesses. Last year during the pandemic, we worked to improve our cost structure by $3 billion versus 2019. That progress continued in the third quarter. Our structural costs are now $4.5 billion lower than 2019 on an annual basis with a clear line of sight to continued improvements. Strong earnings and sound CapEx management resulted in cash flow after CapEx and dividends of $5.2 billion. We paid down approximately $4 billion of debt during the quarter and increased the dividend, maintaining 39 consecutive years of annual dividend growth. Good progress in improving the earnings power of our business, coupled with solid operating performance in a rapidly improving market, provides a good foundation for developing our future plans. We will finalize our plans over the course of November and will provide additional details in early December. I would like to take the opportunity of this call to provide a brief overview of some key planned priorities and objectives. Starting with our operations. In 2020, we delivered industry-leading performance in safety and reliability. Our go-forward plans intend to sustain that leadership position. We also established objectives to significantly reduce emissions intensity by 2025. Our focus in this effort has already paid off. We now expect to meet our objectives this year and are working to significantly raise the bar and reset our 2025 objectives. We are also ahead of schedule on our work to improve our cost structure; we expect to deliver more than $6 billion in structural savings by 2023. We continue to find additional synergies and greater efficiency throughout our new organization. We expect to keep our capital spend within the previously communicated range of $20 billion to $25 billion. This represents a significant reduction versus our pre-pandemic plans. Over the changes we've made to our businesses, our new project organization, and improved use of technology, we expect to deliver the same growth in earnings and cash flow as our pre-pandemic plans, offsetting the pandemic-induced delays. In addition, we can free up funds to grow our low carbon solutions business and further accelerate efforts to reduce emissions. From 2022 to 2027, our cumulative capital investment in emission reduction projects is expected to be $15 billion. This year, we made substantial progress in restoring the strength of our balance sheet. By year-end, we expect to be well within the debt-to-capital range of 20% to 25%. On Wednesday, we announced an increase in our dividend, adding to what is already a very attractive yield. In addition, given the improvements in our business and market conditions, we are expanding shareholder distributions by up to $10 billion over 12 to 24 months through a repurchase program beginning next year. Our plans are being built from the bottom up, with strong line ownership and a commitment to deliver. They are flexible and can be adjusted to adverse market conditions. They strike a strong balance across our capital allocation priorities, drive continued efficiencies, and significantly grow earnings and cash flow while competitively positioning us for a wide range of future scenarios, including net-zero pathways. We look forward to sharing more details with you later this year and into the first quarter of next year. With that, I will now turn it back to Steven.

Thank you, Darren. Operator, please open the phone lines for the first question.

Thanks. Good morning, everyone, and welcome, Kathy. I'm looking forward to working with you in the coming years. Darren, I'd like to start by recognizing your composure during the difficult questions you faced yesterday. I'm not sure everyone maintained the same level of patience during that testimony. This leads me to my first question: you have a new or refreshed Board and recently announced a revised low carbon gas investment strategy. I'm curious about how the new Board members perceive the investment opportunities you have, the carbon intensity, the returns, and the potential for free cash margin expansion. How have their perceptions changed in comparison to those of external stakeholders as you've discussed your strategy with them?

Thank you, Doug, and good morning. I want to start with a broader comment on the Board and the discussions we've been having. We've added more diverse perspectives to the Board, which has led to engaged discussions across the entire group. As people join the Company and understand our approach to these businesses and the opportunities we have, there's a general consensus acknowledging the strength of our portfolio and the industry-leading position of our investment projects. As you know, we launched our low carbon investments business earlier this year, which I previously mentioned during our Investor Day, linking it to the ventures we started back in 2018, focusing on carbon capture and low emission fuels. Our goal is to find investment opportunities that lead to lower emissions while being beneficial for shareholders, distinguishing us from others in the industry. We're aiming for a strategy that utilizes our existing competitive advantages. We believe we've identified a solid mix of opportunities that align well with our core capabilities. Moving forward, we can invest in both our established businesses and explore investments in low carbon solutions, still ensuring strong returns. As growth occurs across our portfolio, we can shift resources as needed to respond to market developments, a unique capability of our Company. Our global presence allows us to tap into diverse markets, and as these markets evolve with the transition, we can adapt our strategies to seize opportunities. There's a strong recognition of the advantages we offer in this area.

Well, thanks for that. Just a clarification. The $15 billion is about 8%, I guess, consistent with what I think the other US peers, so we shouldn't expect a big strategic pivot here, aka some of the European models, is that fair?

I think that's right. And you know, Doug, I’ve been pleased with what I would say is a broader and growing recognition of the challenges of addressing this space and the number of solutions that are going to be needed. And in particular, a number of areas that we don't have complete solutions yet, and the need for companies like ExxonMobil to help develop those. So, as you know, we've resisted what we think are some of the more, we call it, commodity opportunities in this space and focused on where we don't have good solutions and where we can leverage a unique capability and therefore generate what we think will be unique returns. That portfolio that we're talking about today is leveraging some proprietary technology to boost the returns there. Our approach here is not going to be what I would call an industry standard; it's going to be advantaged projects like we've tried to generate in the rest of the portfolio. I think as you think about that $15 billion, part of it's around our growth projects and making sure that we are building resiliency into those growth projects by putting in the necessary investments in technology to lower the greenhouse gases. So those projects become that much more robust. And the returns that we're showing for those projects comprehend that spend to lower the emissions. And then we've got new opportunities that we're pursuing that take advantage of some of the policy that's out there and generate returns. And then we're building and seeding what I would say the development of much larger scale projects that's going to require additional policy. And we're doing the work in anticipation of that, recognizing that as that policy front develops, we will be in a position to take advantage of that with projects that we've developed in anticipation of it.

Thank you. My proper follow-up if I may, I'd like to ask Kathy a question if that's okay and also commend Stephen for the prepared remarks put up in the slide deck, that's terrific for your disclosure. Thank you for that. Kathy, my question for you is, as an outsider so to speak coming in what do you see as the appropriate capital structure, dividend policy, dividend metrics like coverage and so on for a Company like ExxonMobil? How should we expect your stamp to be on that shareholder return dividend policy and so on going forward and obviously the buyback part, I assume is part of that as well?

To take a step back and say, how do we think about capital allocation for the business, Doug. And I would start with, first of all, we've got to invest in the advantaged projects that we have that have very strong returns, and that's from Guyana to things like bio-fuels and the Strathcona project. Obviously, we've been very focused on maintaining a strong dividend. I think the Company did a great job as it went through the pandemic, really protecting that dividend and that's a priority for us. And with that, I have a strong balance sheet, and you've seen our focus over the course of this year in strengthening the balance sheet. In this quarter, we reduced debt by about $4 billion. After we consider those priorities, if we've got available cash, we will then look to distribute that to shareholders, and you've obviously seen that in the buyback announcement that we had. I think it's important also to just recognize that the Company looks to have a balanced approach and maintain flexibility. We have seen the Company reduce its capital expenditures pretty significantly, in part to protect the dividend as the pandemic was ensuing. So, we do have flexibility as we think about capital allocation, but those are our priorities. Obviously, share repurchase programs are an efficient way to distribute capital to shareholders, but that's how we think about it.

Welcome again and thanks for taking my questions.

Thank you.

Thanks, Doug.

Hi. Good morning, everyone, and thanks for getting me back in the queue. Apparently, I don't know how to operate my work phone anymore after maternity leave, so thank you.

Good morning.

Good morning. Maybe just following up on Doug's question, but asking it in a little different way, can you just talk about how the new Board is weighing evidence that increased oil and gas investment is probably warranted, not just from Exxon, but globally against what's becoming essentially a mandate from investors to allocate capital to the energy transition, and how does that seemingly dual mandate square with the current medium-term CapEx range? We know you reiterated it, but we understand that the low carbon solution and emission reductions will now have a larger share and that CapEx spend is extending beyond the medium-term range.

I'll begin with that and if Kathy has anything to add, I'll turn it over to her. You mentioned a dual mandate, which presents a significant challenge for our Company and society as a whole. We are driven to transition to a lower emissions energy system and future, while also recognizing the immediate and growing demand for energy. It's essential to find a balance and proceed carefully to ensure that the transition does not harm communities or compromise people's living standards. This challenge is evident in Europe, where we've seen issues arise due to business depletion and a lack of investment following the pandemic. The combination of reduced supply, decreased investment, and increasing demand creates pinch points in the market. The Board and management are keenly aware of this and aim to utilize our experience and insight in this field to navigate these challenges. We strive to lead the industry towards a lower emissions future while ensuring that communities do not get left behind in terms of their access to affordable and reliable energy. Our investments are designed to strike this balance. I'm pleased with the progress we've made since 2018 and 2019, despite setbacks during the pandemic. As we emerge from that period and witness market recovery, the benefits of our structural changes are becoming clear. We're achieving the same level of value with significantly lower capital and expenses, thanks to our team's efforts and the technology we've implemented. All projects in our capital portfolio remain on track as we manage spending effectively, demonstrating the strength of our new project organization. The positive results you're observing reflect the good work being done and indicate our ability to operate more efficiently while also expanding into lower carbon initiatives, where we are identifying new opportunities.

Thank you. My second question is about the share repurchases. For the repurchases planned over the next 12 to 24 months, how did you determine the up to $10 billion level and the two-year timeframe? We are also curious about the conditions that will influence the pace and total amounts.

Sure. Overall, we decided the amount in the pacing looking out at our future plans and what our expectations were against the capital allocation priorities that I walked through earlier relative to the free cash flow that we're expecting we'll generate. Now, obviously market conditions have a lot to do with exactly what that's going to turn out to be, hence the range that we provided and the range in timing that we provided. But I think you should start off thinking about that as ratables over that two-year range that we discussed. And then we'll assess market conditions in terms of adjusting the pace of the program over time.

Great. Thank you.

Hey, good morning. I want to get your thoughts on asset sales first. As the slides highlight, you're making some progress in certain opportunities there. In the past, you've talked about a broader $15 billion program pre-COVID. I'm just wondering how you're thinking about asset sales as part of your portfolio optimization or streamlining over the long term. And does the $15 billion plan still hold as we look out these next few years?

Good morning, Phil. Thanks for the question. Yeah, I would tell you the work that we did prior in announcing that divestment was really around high grading the portfolio, and what we laid out was what we thought was the opportunity. That portfolio set in terms of the assets that we're looking at hasn't changed from the standpoint of anything coming out. In fact, what I would say is we continue to evaluate where we can better leverage our competitive strengths and high-grade that portfolio, I think you'd see the opportunity set that underpins that divestment portfolio growth. And then of course, our ability to execute those opportunities and high-grade the asset portfolio will be a function of finding buyers who put a value on that that's consistent with what we think we need in order to take that out of the portfolio. So, that's work going on. I would tell you; we did a lot of work last year maintaining our push in this space but not willing to really push anything out to a market where we didn't see the value that we expected to get. I think as the markets now recover, it's a much more attractive market to sell into, and we're seeing the kind of buyer response and valuations that we think are more consistent with what we're looking for. So, my view is we'll see continued progress in that space and I would expect it to pick up here compared to certainly 2020 when the market was much more challenging.

Got it. And if I could ask just one more question on the buybacks, the strength in chemicals right now, the improving downstream environment, it would seem like you should be able to cover your dividend at about $50 Brent, looking at 2022, even if CapEx were higher in that $20 to $25 billion range. And if I were to layer in $5 billion of buybacks, that'd be about $10 in the oil price. So, it would seem like the ratable plan could be covered at maybe $60 Brent; and obviously, prices are higher than that. I'm just curious if you think that math is reasonable and if it is right that maybe excess cash could still go to either more buybacks or towards more Balance Sheet deleveraging and just how you think about those. Thank you.

I will begin and then invite Kathy to add anything if she has. I believe your break-even calculations are significantly higher than ours. One of the challenges is that we haven't yet had the chance to present the plan we are developing and the discussions we are having with our board. That will come in due time. However, the work we've been doing, particularly regarding operational expense reductions and the opportunities we see ahead, as well as the capital productivity we are now demonstrating, can be categorized into two main areas. First, the project organization, which I've mentioned before, has proven to be highly successful in consolidating strong organizations across the company and ensuring we assign the best resources to projects that meet our needs. Their capabilities are leading to significant improvements in capital efficiency. The second area is technology. We've outlined a plan for the Permian, where we pre-invested and conducted extensive delineation to understand our assets. We are bringing in technology and performing thorough trials and tests, which required some initial capital investment. As I've described, we are pursuing a long-term strategy that leverages ExxonMobil's strengths in the Permian, transitioning from a short-term focus to a more sustained approach, and we are seeing that work yield substantial value with lower expenditures. This success is due to the organization's efforts to enhance efficiencies and fully utilize the broader capabilities of ExxonMobil's technology portfolio. This is how we aim to achieve everything we've discussed. Additionally, given market conditions, predicting the market can be difficult. We've prepared plans with considerable flexibility that are resilient even in low-price environments without jeopardizing our capital allocation strategy. If market prices exceed our lower projections, we will have extra cash and resources to manage, which I'll now turn over to Kathy to discuss further.

Just one other thing that I'd address which you referenced, and that's continuing to strengthen our balance sheet. We clearly intend to do that. And so, at the end of this quarter, our leverage ratio landed at I think technically 25.3. And we've talked about the fact that as we look at the fourth quarter, we expect to move into a more comfortable zone within that range and further reduce that in the fourth quarter. As we look out to next year, we do have debt coming due, which we would expect to retire, and so I would expect to see a bit of a further reduction in debt moving towards the lower end of that range over time. Again, we're looking to strike the right balance and, on the share, repurchase side, what the commodity cycle looks like as we enter 2022 is going to have a lot to determine what the rate and pace of the share repurchase program looks like.

I appreciate the additional thoughts. Thanks.

Thanks, Phil.

Hey, good morning. Thanks for taking my question.

Good morning, Devin.

Hey. So, the first one I wanted to ask on is just on some of the cost and efficiency trends. You've done a really good job executing on some of the structural savings that you talked about previously, and the latest message is now to exceed the $6 billion target by 2023. I was wondering if in light of that you could comment on whether or not you're seeing any inflationary trends across the portfolio, be it through labor, inflation, service cost inflation, and to what extent you are seeing the ability to offset that as we look into 2022 and beyond.

I don't believe we are unaffected by the challenges facing nearly every business globally. We are experiencing some of these pressures in our operations. Regarding our significant investments in projects, it's somewhat counterintuitive that we maintained a long-term perspective as we entered the pandemic. We didn’t abandon these projects; instead, we collaborated with our partners and contractors to pause and later resume them in a strategic manner as market conditions improved. The efforts made last year provided our partners with stability regarding work and future opportunities. We managed to secure favorable market conditions at that time. In terms of capital management, we have performed well and are positioned to mitigate many inflationary pressures. On the operational side, the rising energy costs are affecting our manufacturing, but we generally hold an advantage since our facilities are more energy-efficient than those of our competitors. Although energy costs are increasing industry-wide, we are managing to keep ours lower. Additionally, fluctuating market prices in the commodity sector depend on the marginal costs and supply dynamics. This has helped maintain our margins. Moreover, concerning supply chain and inflation challenges, our established organizations are now fully operational, enabling us to leverage efficiencies and synergies in a more favorable environment with higher margins and increased activity. We can identify efficiencies and counterbalance much of the inflation we’re facing. There are various factors at play across different segments of the business, but overall, we are handling inflationary pressures effectively, allowing us to continue achieving the earnings growth we have targeted.

Great. Very helpful. And my second question is on the Permian. Very strong results in the quarter, a pretty sizable increase in the production expectation for this year as well. I was wondering if you could talk a little bit more about some of the trends you're seeing there from an operational improvement and capital efficiency standpoint, knowing that you did some of the pre-investment that you mentioned before, and then also the cadence that's kind of spending activity as we look into 2022.

Certainly. We have contiguous acreage that we believe will benefit from a more manufacturing-oriented approach in the Permian. We made initial investments to delineate that acreage to better understand its potential, as not all of it has the same characteristics. The reservoirs vary across the area, so we aimed to target those zones with the highest productivity. Additionally, we focused on optimizing subsurface extraction rather than just achieving high initial production rates, prioritizing maximum recovery instead. This strategy is proving effective. Our investments in development corridors and infrastructure have positioned us to pursue our chosen areas in a cost-efficient manner, which is now yielding results. Our operations in the Permian reflect a manufacturing mindset centered on efficiency, which is visible in our performance metrics. Furthermore, we are integrating our scientific and technological expertise from across the organization, particularly from our corporate research group, into our operations in the Permian and other unconventional areas. This integration is also delivering positive results. We are committed to trying out new technologies, expecting to see improvements in production and capital efficiency moving forward. Regarding overall activity, we aim to operate within our outlined strategies while maximizing our capabilities. We must ensure our technological advancements keep pace with our operational efforts and remain within our optimal production areas. This balance influences our decision-making. We may consider adding a few more rigs while adhering to this philosophy, but we won't expand into new areas or opportunities until we've optimized our current plans.

Great. Well, congrats on the great results. Thanks for taking my questions.

Good morning. Thank you.

Morning, Sam.

First question is on back to the capital program, and I recognize that we're in front of the board process and things are still being hammered out, but I think the way the market is conceptualizing the range is that the spend for the underlying asset base today, including the growth projects is probably tighter than the range that you've communicated, and the top end of the range is sort of a rainy day fund for special opportunities that arise either in the low carbon sphere or otherwise. Do you think that's a fair assessment as we think about 2022? And I think it flows into an earlier point about breakeven as well. How do we think about the outflow on CapEx within the range which obviously influences that commodity price breakeven assessment?

Sure. Obviously, this year, our capital spending has been purposefully constrained and we think we're going to come in, I'd say at the lower end of that $16 billion to $19 billion range we've provided. We are expecting higher CapEx in the fourth quarter and a significant increase as we head into 2022. What underpins that is further investments in Guyana, focused on Auraiya Yellowtail appraisals, with drilling in Brazil now moving into the startup stage, so more significant spending heading into there. We obviously paused a number of downstream and chemical projects. Those are restarting, and so we'll start to see that spend in the fourth quarter and kick up pretty significantly into 2022. And I'd also mention that as we look to accelerate our reductions in greenhouse gas emissions and intensities specifically, we will be spending a bit more in that area. If you think about how that is going to cause us to kick up, I'd say that clearly will put us in that $20 to $25 billion range, and then clearly, we would leave ourselves some level of flexibility in that range for things that we can't fully anticipate as we sit here today.

Thanks. That's very helpful. And then just a follow-up on carbon capture. The Reconciliation Bill is in the process now; there have been a few different drafts that have come out, each with distinct kind of carbon capture language and incentives in them. As you think about ExxonMobil's plan and proposition in that asset class, how are the early returns that you've seen in these draft bills and do you think they're sufficient to drive a real acceleration in activity for you there?

I believe predicting outcomes from the political process is as challenging, if not more so, than forecasting price movements. Let me share our approach to developing the low carbon business. It’s essential that our efforts leverage a competitive advantage. We aim to ensure that our investments yield distinct value that will benefit our shareholders. Our carbon capture initiative, launched in 2018, is part of this strategy, emphasizing how we can utilize our technology portfolio and our team's expertise to innovate beyond industry standards. Our philosophy also includes building a portfolio that aligns with existing policies without relying on future changes. We're avoiding assumptions that lead to disappointing project outcomes. With our extensive presence, we can engage with various global policies. Since we began offering low carbon solutions, numerous governments have approached us, eager to collaborate on aligning initiatives that support their goals. Additionally, we have a foundational level of investment that complements current policies without needing further assistance. There are also projects where we consider investments but require additional policy support to realize the expected returns given our resource commitments. It’s essential to begin developing these projects now to avoid falling behind if we wait for the policies to solidify. We are carefully strategizing on these projects to clearly communicate our needs to global policymakers, guiding them on what is necessary. As we look to the future, achieving our long-term goals will require new and enhanced policies worldwide. We aim to lead the industry in reducing emissions and aim to positively influence the development of these policies.

Thank you very much.

Sure.

Good morning.

Good morning, Roger.

Just wanted to probably a little bit of follow-up and the questioning that Phil was doing earlier as we think about the 2025 goal of roughly $30 billion in earnings. If we take this quarter and annualize it, not realize that's and just playing with the math, more than trying to force you into a corner, but you'd be at about $27 billion. And yes, prices are higher on the commodity front versus that $60 real, but what I wanted to understand as we look at the cash OpEx reduction that's pretty identifiable, then you have the portfolio and growth component. Where would you say you are on the portfolio and growth component today? And how should we think about that, maybe stair-stepping in over the next couple of years again against the sort of $60 real environment?

Let me start by sharing our perspective on this matter and ensuring we hold ourselves to a standard that doesn't rely on market assistance. When we mention doubling our earnings and cash flow potential, we normalize for the price environment. We don't plan to take advantage of market conditions or assume any increases, but rather use a constant price basis and focus on the structural improvements we're implementing. If the markets fluctuate, we expect to double our efforts; if they rise, we’ll achieve even more, and if they fall, we will still maintain a strong position. This is how we approach our margins for the year and this quarter, which are not aligned with the basis we are using for the long term. We're presently benefiting from favorable market conditions, but we don't expect that to be a sustained factor in our planning. This is an important context for the comments we're making. We've discussed structural efficiency, which is a significant focus. Once we complete our plan and receive endorsement, we'll detail these savings during our Investor Day. Regarding our projects across the businesses, they are generally performing as anticipated, and in many scenarios, they are exceeding our initial expectations. For instance, our investments in the Gulf Coast chemical plants are operating well above expectations in terms of reliability and throughput. The Rotterdam hydrocracker, utilizing new technology, is effectively converting low-value streams into high-value lubricant products with impressive performance. In our chemicals business, growth and value arise from penetrating the market with differentiated high-value products, and our team is effectively demonstrating their technical benefits to customers, allowing them to gain from these products. Lastly, as I've mentioned throughout this call, we are seeing significant benefits from completing these projects at considerably lower costs and with reduced capital expenditure, which aligns with the advantages we've outlined in our presentation.

Thank you for the insights. I'd like to follow up on the LNG markets, which have been quite strong, particularly in the global gas sector. Over the past couple of years, we've seen some hesitation from consumers regarding the signing of term contracts. Given that you have some projects that are nearly ready to go and others in development, could you provide any clarity on how customer behavior is changing or how willing they are to sign term contracts in the current LNG market?

I believe that the challenges in the global gas market highlight the need for secure and reliable sources of supply. However, we have not observed significant changes in how the market and consumers are viewing opportunities in this area.

Yeah. And our portfolio is heavily weighted to long-term contracts. About 80%, so we'd expect that to continue to be the case.

Thank you.

Good morning, team. Darren, you guys have a unique perspective into the state of global oil and liquids demand given your large downstream footprint, would love your perspective of where you see us in real-time in the demand recovery, how you see the path forward, and then how that ties into whether we're going to see refining margins back to mid-cycle or above in 2022.

Thanks, Neil. Good morning. Overall, we are witnessing a global recovery in economic activities, which is leading to an increase in energy demand. This recovery tends to fluctuate as we navigate various challenges, such as the impacts of COVID, but the general trend shows improvement. In sectors like road transport, commercial transport, and heavy-duty transport, we're seeing a return to historical levels. The notable lag in recovery is in air travel, which, while improving and showing progress quarter-over-quarter, still hasn't fully rebounded. For the demand balance to recover—specifically, regarding crude oil's movement into transportation markets—air travel needs to normalize. Economic growth will play a significant role in driving this demand, alongside the available supply capacity. The ongoing balance between supply and demand remains a crucial factor. We've observed an increase in refinery closures, which has been more pronounced than in the past. The elevated energy prices, including those for gas and LNG, are likely to create additional challenges for less competitive refineries. We need to wait and see how this develops, but we believe that when the downstream segment experiences a peak or tight supply-demand balance, it typically doesn't last long. Therefore, we are preparing our operations to succeed even in a low-margin environment, focusing on refineries that are well-integrated with our chemicals and lubricants businesses to reduce our reliance solely on the fuels market and to offer a more diverse range of high-value products.

And then I'd just comment as we look at industry utilization, it's kind of approaching, I'll call it the lower-end of what the 10-year range would look like. So as that recovers here slowly over time, that should give us some further opportunity for improvement.

Thanks, team. The follow-up is on the clean energy announcement today. The $15 billion of capital, how should we think about the returns associated with that, and is there a target that you have in mind? I go back to one of your competitors' inventory transition day where they said $10 billion of capital and maybe a billion dollars of cash flow in the out-years. Do you anticipate providing a quantification of cash flow associated with those $15 billion of investments, and how do you think about the hurdle rates in terms of those investments? And to tie into that, as you think about bio-fuels versus hydrogen, versus carbon capture, is there anything that really stands out as having outsized economic return at this point?

Sure. So, I would start by taking a step back and saying, we expect double-digit returns across all of our business, and we don't look at this business really any differently. If I look specifically at the capital that I'd say is targeted towards the low carbon solutions business, which is different from the emissions reductions that we're making across our own portfolio, either our existing business or the growth projects and looking to offset those incremental emissions that would come with growth projects, what I'd say is we look at that and say we think we can see really strong double-digit returns coming from there. We have a lot of biofuel projects that are embedded there, which are supported by current policy. There's the Strathcona project up in Canada would be a great example of that. Clearly, we are seeing some investments. Darren referenced the Houston Hub project where we have to seed those investments today. Carbon capture doesn't need fuller policy support. We referenced that earlier in the discussion today. But if we don't start to see the planning for those investments, we will be behind when the policy support comes. It's clear if we're going to make more progress toward a lower carbon future, more policies support does have to come. That is how we're thinking about it, and we see great opportunities in the space that we're targeting where we think the Company really brings advantage. Carbon capture, hydrogen, biofuels is our current focus, and we think we're going to be able to prosecute those projects and earn good returns.

I would add to that, Neil. If you consider biofuels, specifically the Strathcona project, it's not a typical industry-standard biofuels initiative. We're utilizing our process and catalyst technologies to enhance the value proposition in that area. The same applies to our efforts in hydrogen and the work we’re doing in carbon capture. In all these fields, we are committed to the challenge of meeting the demand for a lower-carbon, lower-emissions future, while ensuring that we create value for our shareholders. Our organization is focused on achieving both goals, and we’re not going to compromise on that.

Very clear. Thank you, guys.

So, Operator, Darren, and Kathy we probably have time for one more question.

Okay.

Thank you. Good morning.

Good morning, Paul.

Two questions please. Good morning. First is for the CapEx rate, and maybe let me add my welcome to the end of the line. You are the first person from outside to join the Company management committee. And also, with that quite frankly, for the past, say, 30 years, ExxonMobil hasn't had an official CFO grow. So, for that you have been there for several months. How do you think about the process in the, what's your O and M, as well as the criteria, do you see that there's room for change or adjustment, or do you think the current process is pretty good and you don't really have any changes that need to be made? So that's the first question. For the second question, Darren, when we are looking at your CapEx, has always been at least for the past 18 months, at $20 billion to $25 billion for the next several years. You maintain that, but your spending for the low carbon is going to be increased roughly by $2 billion a year from previously maybe $500 million to say $2.5 billion now. If the incremental spending is all being absorbed because you're doing better in other business, and be able to squeeze or save some NCA SI projects have been pushed out, if they are, what are those, and does the low carbon business say you targeting, I think it is 10% plus return. Is that going to be better than the project that you have pushed out? And what we've noted is Mozambique is notably missing in your press release when you're talking about the strategic investment, can you give an update on that? Thank you.

Hey. Well, I will start in and I guess the first thing that I would say is I've been really pleased with how the organization has actually welcomed me. You can imagine coming into a company like ExxonMobil, I would say I was a little bit anxious about what the receptivity would be, and both at the management committee, I'd say across the senior leadership team and across the company; people have just been really welcoming, which has been terrific. The other thing I would say is as I look at many of the company's processes, I'm really pleased by how rigorous and thorough they are. ExxonMobil puts a lot of work behind things before it comes out and then makes decisions and talks about those things. And so, you mentioned our FID process, which I think is incredibly rigorous. The Company added some time back a process that they call red-blue team, which is literally putting really smart people and competing them against each other to say, hey, as we're going to FID this project, tell us what a different perspective is and whether the project could be even better than what our base economics are, and tell us what a different perspective might be in terms of what some of the, call it, hidden risks might be in the project and have we evaluated all of that? That's the process where I'd say we take all of those learnings and then the base economics, how we're managing the risks of the projects, just get improved to an even greater level. So, I'd say I've been really pleased, and I'm really happy with just how the organization has accepted me as an outsider.

I think Kathy feels integrated into the team; she has joined us and the management committee sees her as one of us. It's been a great fit, and her different perspective is highly valued, enriching our discussions and debates, which will continue. Regarding your questions, I didn't catch the last one, but I’ll address your first question about incremental spending. Although we haven’t changed the range, it seems like the portfolio mix is evolving. There are three components to this change in our plans and the increased investment in low-carbon solutions while staying within our projected capital range. Savings have played a significant role, as I've mentioned throughout the call. Our goal has been to double earnings and cash flow, focusing on effectiveness rather than just volumes or capital expenditure. By finding efficient ways to achieve our goals, we’ve managed to reduce some capital spending. There’s also been some movement in projects, such as LNG, particularly in Mozambique. While we’re still committed to the project, we have to navigate current constraints. Some projects have shifted timelines, like our downstream and chemical ventures, but they are expected to come back into play soon. Additionally, we’ve built in some flexibility and headroom, which continues to be beneficial. We typically hover around our established budgets, allowing for some variation as schedules can be unpredictable. Ultimately, we assess whether these changes affect our ability to deliver on our value proposition. We are firmly focused on achieving earnings and cash flow growth, as we believe that drives total shareholder return.

I think you already touched a little bit upon what I thought was your last, Paul, and that was about Mozambique. Our core project is clearly moving forward, and you touched upon the project that we paused simply because of the security situation on the ground, which we'll continue to look at and revisit over time.

Are you still committed to that? I've heard some market rumors that Exxon may want to be involved in that project.

I wouldn't put much stock in the market rumors you're aware of, Paul; there are many people talking who don't really understand our discussions and how we view the project as a very competitive asset. It's substantial. We have ongoing opportunities with Total, and they are dedicated to the project. We maintain a strong working relationship with them and our other partners, which we intend to continue developing. We believe this will be very competitive in the long term and essential, so we remain committed to them.

Thank you.

Okay. Darren and Kathy, we want to thank you for joining us and for all on the call. Thanks for your time and above all questions this morning. We hope you enjoy the rest of your day. Thank you and please be safe.