Exxon Mobil Corp (XOM) — Q1 2022 Earnings Call Transcript

Good morning, everyone. Welcome to our first quarter earnings call. We appreciate your interest in ExxonMobil. Joining me today are Darren Woods, our Chairman and Chief Executive Officer; and Kathy Mikells, our Senior Vice President and Chief Financial Officer. The slides and our prerecorded remarks were made available on our Investors section of our website earlier this morning along with our news release. In a minute, Darren will provide opening comments and reference a few slides from that presentation, then we'll conduct a question-and-answer session. We expect to conclude the call by about 9:30 a.m. Central Time. Let me encourage you to read our cautionary statement, which is on Slide 2. Please note, we also provided supplemental information at the end of our earnings slides, which are posted on the website. Now I'll turn the call over to Darren Woods.

Good morning, and thanks for joining us today. As we laid out at our most recent Investor Day, our goal is to sustainably grow shareholder value through the execution of our strategic priorities seen on this slide. As we think about recent events, our job has never been clearer or more important. The need to meet society's evolving needs reliably and affordably is what consumers and businesses across the globe are demanding and what we delivered this quarter. First, we continue to build our competitively advantaged production portfolio, bringing new barrels to market today, driven in part by the high-value investments we continue to progress through the pandemic-driven downturn in prices. A prime example of the benefits of our continued investments is Guyana. This quarter saw the successful start of the Liza Phase 2. Production is ramping up ahead of schedule and is expected to reach capacity of 220,000 barrels of oil per day by the third quarter of this year. Combined with Liza Phase 1, we will bring our total production capacity in Guyana to more than 340,000 barrels per day. Our third project Payara is running ahead of schedule with start-up now likely by year-end 2023. Yellowtail, the fourth and largest project to date on the Stabroek Block, received government approval of our development plan, is on schedule to start up in 2025. Further adding to our portfolio, we have made 5 new discoveries this year that have increased the estimated recoverable resources to nearly 11 billion oil equivalent barrels. Turning to the U.S., we continue to grow production in the Permian Basin. In March, we produced about 560,000 oil equivalent barrels per day, on pace to deliver a 25% increase versus 2021. Looking forward, we're also growing our globally diverse portfolio of low-cost capital-efficient LNG developments. In Mozambique, the 3.4 million ton per year Coral South Floating LNG production vessel is being commissioned after arriving on site in January. Coral South is on budget with the first LNG cargo expected in the fourth quarter. In addition to investing in high-value opportunities in our existing businesses, we are also advancing opportunities in our Low Carbon Solutions business. During the quarter, we announced plans to build a large-scale hydrogen plant in Baytown, Texas. We anticipate the facility will have the capacity to produce up to 1 billion cubic feet of hydrogen per day. Combined with carbon capture, transport and storage of approximately 10 million metric tons of CO2 per year, this facility will be a foundational investment in the development of a Houston CCS hub, which will have the potential to eliminate 100 million metric tons of CO2 per year and represents a meaningful step forward in advancing accretive low-carbon solutions. We also reached a final investment decision to expand another important carbon capturing storage project at our helium plant in Wyoming. In addition, we received the top certification of our management of methane emissions at our Poker Lake development in the Permian. We're the first company to achieve this certification for natural gas production associated with oil. At the end of the first quarter, we implemented a series of organizational changes to further leverage the scale and integration of the corporation, improve the effectiveness of our operations and better serve our customers. We combined our Downstream and Chemical operations into a single Product Solutions Business. This new integrated business will be focused on developing high-value products, improving portfolio value and leading in sustainability. As a result of these changes, our company is now organized along 3 primary businesses: Upstream, Product Solutions and Low Carbon Solutions. These 3 businesses are supported by corporate-wide organizations, including project technology, engineering, operations, safety and sustainability. Before I cover our financial results, I want to provide a perspective on the market environment. In the first quarter, a tight supply/demand environment, primarily due to low investment levels during the pandemic contributed to rapid increases in prices for crude, natural gas and refined products. Clearly, the events in Ukraine have added uncertainty to what was already a tight supply outlook. Brent rose by about $22 per barrel or 27% versus the fourth quarter. Today, natural gas prices remain well above the 10-year historical ranges, driven by tight global market conditions and ongoing European supply concerns. The same tight supply to manufacturers have also pushed refining margins near the top of the range. Chemical margins in Asia have fallen sharply, with product prices lagging the steep increases in fees and energy costs. In our case, the U.S. ethane feed advantage provided a significant positive offset versus this global view. With that market environment as the backdrop, let me turn to our first quarter financials. Earnings totaled $8.8 billion, excluding an identified item, the after-tax charge associated with Sakhalin-1. As you know, we are discontinuing our Sakhalin-1 operations in Russia, which represented less than 2% of our total production last year, about 65,000 oil equivalent barrels per day and about 1% of our corporate operating earnings. As the operator, our priority continues to be the health and safety of our people and the protection of the environment. Of course, we remain in full compliance with all U.S. sanctions and are closely coordinating with the U.S. administration. Turning to structural savings. We continue to drive further efficiencies and now delivering more than $5 billion of annual savings versus 2019. CapEx totaled $4.9 billion for the quarter, in line with our full year guidance of $21 billion to $24 billion. Cash flow from operations was $14.8 billion, maintaining our strong balance sheet. Our debt-to-capital ratio remains in the low end of our 20% to 25% target range while our net debt-to-capital ratio dropped to about 17%. We returned $5.8 billion to shareholders, of which about 2/3 was in the form of dividends and the remainder, share repurchases, consistent with our previous program. We said during our Corporate Plan Update in December that we expect to repurchase $10 billion of our shares. This morning, we announced an increase to the program, up to $30 billion in total through 2023. This move reflects the confidence we have in our strategy, performance we are seeing across our businesses and the strength of our balance sheet. Before I leave you with a few key takeaways, let me share one other decision we made this month with respect to our workforce. Continually investing in our people and maintaining a strong culture are core strategic priorities and essential to achieving our long-term objectives. As part of that effort, we are tripling the number of employees eligible for stock grants by bringing in high-performing employees at earlier stages of their careers. Our goal is to increase our people's ownership in the company and importantly, in our financial and operating results. Secondly, in June, we will implement a 3% off-cycle compensation adjustment in the U.S. to maintain competitiveness. Our compensation and benefits programs are a key element of our total value proposition that enables us to continue to attract and retain the best talent in the industry. Let me leave you with a few key takeaways. We had a strong first quarter, and I'm proud of the organization's progress. The impact of weather on the Upstream volumes and derivatives and timing impacts in the Downstream obscured a strong underlying performance. We anticipate an absence of these impacts and strong refining margins will position us very well in the second quarter. We are making outstanding progress on our high-value growth developments in Guyana, the Permian and LNG. Our new Corpus Christi Chemical Complex is up and running ahead of schedule and generated positive earnings and cash flow in its first quarter of operations. We have strengthened the balance sheet and are creating value for shareholders through an attractive dividend and increased share repurchases. We are advancing hydrogen, biofuels and other low carbon solutions consistent with our intention to lead in the energy transition, leveraging our competitive advantages of scale, integration and technology. Finally, we are evolving our organization from a holding company to an operating company to better serve our customers' evolving needs and grow long-term shareholder value. Before we take your questions, I want to acknowledge the very real impact the high prices are having on families all around the world. You may recall that we anticipated this in 2020 with industry investment levels well below those required to offset depletion. That's why we work so hard to preserve our capital expenditures during the depths of the pandemic, ensuring that additional production was available to meet the eventual recovery in demand. Today, that long-term focus is paying off with growing production of industry-advantaged supply. We are continuing to focus on the fundamentals through ongoing investment in advantaged projects and low emission initiatives to ensure that we can continue to meet the critical needs of people all around the world reliably and importantly, well into the future.

Thank you, Darren. One last piece of housekeeping I wanted to mention is that ahead of the segment reporting change next quarter, we plan to provide you annual and quarterly information for the past 5 years using the new reporting segments to assist you with your modeling. We plan to post the new data on our website around mid-June. Also, please note that starting with this call, we ask our analysts to limit themselves to a single question, so that we can fit in questions from more people. However, you may remain on the line in case a clarification is needed. And with that, operator, please provide the instructions and then open the phone lines for the first question.

Good morning, Darren and Kathy. So I guess my question is a little bit of a 2-part question then. The buyback, $30 billion over 2 years. Previously, you talked about, I think, $10 billion mostly in 2022. So should we assume the $30 billion essentially ratable, $15 billion this year? And then if that's the case, it still seems like there's a lot of excess cash potentially building out at the strip prices. So how do you think about any excess cash, debt reduction, et cetera, given where the leverage is versus targets now?

Great. Thanks very much. So look, we don't know exactly how long the strong market conditions that we're seeing today are going to persist. And we learned some pretty tough liquidity lessons during the pandemic. So our cash balance has been building a bit. You would see that it was $11 billion as we ended the quarter. So you should expect with the backdrop of the strong market conditions that even with the higher buyback program that we announced this morning, we would be building our cash in the near term potentially between $20 billion to $30 billion over time. And so that really addresses our need for flexibility in what's an incredibly uncertain environment and ensuring that we'll continue to appropriately invest in the business and sustain the share repurchase program that we talked about through 2023. In terms of just how to think about the pace of the program, it's up to $30 billion through the end of 2023. We obviously got $2.1 billion done in this quarter. You should think about us looking to get up to a ratable pace. And that roughly, we'd be looking to get $15 billion done a year, again, looking to sustain the program kind of more consistently over this 2-year period. So that's how I would think about kind of roughly where we see our cash balance and just looking to maintain a lot of flexibility in what's a pretty uncertain environment. And we did learn some real lessons during the pandemic. We used to try and hold our cash balance, call it, between $3 billion and $5 billion and run a lot of commercial paper. And when the pandemic hit, that was quite problematic for the company. So we're going to be a little bit more conservative here in the near term.

Our question is related broadly to your global gas opportunities. Can you talk about how you see the evolution of the U.S. market? And how do you see certified gas playing a role in U.S. supply? And I guess, do you intend to really look for a global outlet for a portion of your U.S. gas? And we understand that Golden Pass provides a great opportunity to capture the spread, but maybe are you thinking about some other opportunities besides Golden Pass?

Thank you, Jeanine. It's great to hear from you again. I would like to make a general comment about the LNG business. The pandemic significantly impacted our sectors, causing delays in capital spending and the introduction of additional capacity. Now that the pandemic is easing and demand is recovering, we are witnessing very tight markets globally, which has a substantial effect. The situation in Ukraine has further complicated supply uncertainty. As a result, we are in a dynamic and high-priced market, and we've seen maximum capacity utilization worldwide, moving as much LNG as possible. Our Coral LNG project is set to launch later this year, which will help alleviate some of that tightness. You also mentioned Golden Pass, which plays a crucial role in our strategy to secure LNG supplies to meet global demand. It's essential for us to have the ability to trade barrels and supply different regional markets. We will continue to seek opportunities in LNG as it is an important part of our portfolio. We are making progress with opportunities in Papua New Guinea and planning further investments in Mozambique. Overall, I believe LNG will be a foundational part of our supply chain and a vital component of our business offering.

And I would just add, you asked a little bit about that top rating that we got on methane management in Poker Lake in the Permian. And we would say we really see a market over time building for lower emission products, and that really plays into that. And we would certainly hope that we'd also start to see a premium on those lower emission products, right? And we'd say that's consistent across our business, but we definitely are looking to play into that going forward.

Yes. I would just add to that. Obviously, that would be a benefit, but it's certainly not the main driver with respect to making sure that our operations have very low emissions and very low methane emissions. And so that's a core part of our commitment in running these facilities. And to the extent the market pays a premium for that, that's an advantage that we'll look to take advantage of.

I wanted to ask about the structural cost reduction goals. You continue to make good progress there. But the question is, can you add a little bit of color around what you're seeing on just broad cost inflation, labor and otherwise? And how, if at all, that impacts some of those goals and targets over time?

Sure. So I'll start out with just saying, we feel good about the progress that we're continuing to make. At the end of the fourth quarter, we had said we've gotten to about $5 billion in structural cost savings relative to 2019. We're now at $5.4 billion. So I'd say, overall, we feel really good about that progress. Obviously, we have now put in place the new organizational structure, which should drive incremental efficiencies on top of just driving better operations, faster speed to market, better deployment, faster deployment of resources to the highest opportunities across the company. We're not immune to inflation, obviously, and we would see a fair amount of both energy and feedstock inflation coming through the business in certain areas that put a little bit of pressure on margins. Overall, in terms of how we're managing that, it flows through 2 parts of the operation. So one is on CapEx. We feel really good about where we're at there because during the pandemic, we really took the opportunity to extend contracts on work that was coming forward. So I'd say while the shorter cycle work programs obviously have some inflationary pressure, the teams are working really hard to offset that. Overall, I'd say we really try to leverage master service agreements, self-manage kind of procurement. We utilize a diverse set of global contractors across the globe in trying to really manage inflation. So through the quarter right now, I'd say we're doing a pretty good job of offsetting it, but it's obviously something that we're watching really closely.

I want to highlight the point that Kathy made, but it's important to remember that during the pandemic, we took a long-term view by maintaining significant investments. We acknowledged that as economies recovered and demand increased, inflation could be a potential issue. Therefore, we focused on locking in pricing and savings at every opportunity to benefit early in the recovery, which has been substantial. Additionally, with the new organization, our leadership team is working diligently to counteract inflation, and we feel we have a solid approach, particularly in the short term. Of course, we'll continue to monitor how the market evolves.

I have a question focused on Downstream. Darren, considering your extensive experience in the refining business, could you describe your perspective on the strong crack and refining market environment? Additionally, how does this relate to the recent quarter, which showed softer results in Downstream? I understand that much of this was due to timing effects, and it seems like we should see improvements as we head into the second quarter. So, could you discuss the broader refining macro and how you foresee the sequential movement in your earnings power from this point forward?

Sure. Neil, yes, I can start, and I feel like we're going to be a little bit of a broken record with respect to anchoring a lot of what we're seeing in the market today across our sectors with the pandemic. And you'll recall, as we were going through that very deep down cycle, where demand for fuels products dropped significantly, there was a lot of refinery rationalization. In fact, the refineries were shutting down at a much, much higher rate than historical averages or tons, if not higher. And so you had a lot of capacity coming out of the marketplace. There were new facilities that were planned or in progress primarily in the Middle East and out in Asia. Those got deferred and delayed because of the occurrence. And so you've got, I think this period of time where you've taken a lot of capacity out and new capacity that was planned or in progress has been deferred and delayed. And so we've got a period with lower supply. And then, of course, this demand has picked up, that has led to this very tight market and the higher margins that we're seeing. What's compounded that then is the important role that Russia plays in supplying markets around the world. And with the uncertainty associated with that supply and potential impacts of additional sanctions that's put, I think, additional concern and anxiety in the marketplace, which is leading to a very high margin environment. One, frankly, that I don't think is a sustainable one; and two, good for economies around the world. So I think we're in a bit of a very tight time frame. And as you've talked about the first quarter, obviously, we saw that evolve over the first quarter with kind of rising margins in January, February, March and now into April, very high margins. And so I think that's something that we're going to see for quite some time, certainly here this year and into next, depending on obviously work how demand plays out. Final point I make, which you touched on is, you're right, this quarter reflects that ramp-up of margins. So you're not really seeing the healthy market that we're experiencing right now in the first quarter results, that will, I think, manifest itself in the second quarter. And then some of the timing impacts we expect to see unwind. Maybe I'll let Kathy just touch on those.

Sure. I'm happy to do that. And just to add a stat, our March refining margin was about $4 higher than the average in the quarter. So that's kind of reflecting that ramp-up that Darren just mentioned. And then obviously, in our prepared script, you would have seen us talk a fair amount to timing impacts that impacted profitability in Downstream for the quarter. I think everybody understands the mark-to-market on open derivatives, so I won't talk about that. But we had another $590 million of other timing differences. About $400 million of that was also tied to derivatives. We had $200 million that associated with cargoes where the derivatives actually closed in March, and then they reversed when the physical deliveries occurred in April. So I'd say the way you should think about that is we took a $200 million bad guy in March, and we will see a $200 million good guy in April. We also had $200 million associated with settled derivatives that we just used to ensure pricing of our refinery crude runs is ratable, right? The way you should think about that is it's kind of a wash over time. Sometimes, that pricing mechanism gives us a positive in a quarter, sometimes it gives us a negative in a quarter. Over time, it's just a wash. And then the last impact that we talked about was just commercial pricing lag, right? And the way I would think about that is we were in a steep rising price environment over the quarter. And so we had pricing that was a little bit lagging. If we're in a stable environment, that pricing will catch up. If pricing kind of turns to a downward curve, then we'd actually get a little bit of a benefit. So that's how I think about it as you're trying to model the evolution into the second quarter here. The bottom line is, obviously, we're carrying a lot of positive momentum as we stand here today.

Let me first thank the Investor Relations team for the improved presentation of results. So, thanks for that, Jennifer. My question, Darren and Kathy, is about your balance sheet. Darren, a couple of years ago, you mentioned not to expect Exxon to return to a state of zero net debt, and that we would have a more efficient balance sheet. Can you provide some clarity on that today and what we should anticipate regarding cash distributions, buybacks, cash on hand, and dividend policy? That was my question for today.

Yes. Thank you, Doug, and I appreciate your compliments to the IR team. I know they've been working hard to make sure that they're improving the transparency and information that you need to help understand what we're doing here and the business results that we're achieving. I think to your point on the balance sheet, and you remember what we started back in 2018 was this countercyclical approach where we lean on the balance sheet during the depths, made those investments with an eye on the fundamentals and expected recoveries and to take advantage of the ups with investments and facilities in the ground and then reinvest and lean into the down cycle. And I would tell you, generally speaking, that continues to be an ambition of ours and part of our strategy is to try to drive the countercyclical investment approach, which has worked out very well for us and is paying off in today's market. But that's, I would say, one philosophy. Obviously, it is tempered by just the availability of cash and how deep and high the swings in this commodity cycle are. And so I think part of that balance sheet, and I want to toss it to Kathy here in a minute, let her make some comments on it, but part of that is just going to be a function of where you're at in the cycle and how severe that cycle is. And so there will be periods, I think, where you see some movement in both cash and how the balance sheet is structured. And based on where we're at and where the revenues are, and I would also tell you, though, that it's not what's not going to change is being very focused on making sure that any investment that we make is advantaged across the cycle. You'll recall my definition of disciplined investing is not an absolute level, but more of making sure that anywhere you spend money you're convinced that you'll be the low-cost supplier with an advantage versus the rest of the industry that will be successful as you move through the cycle. Kathy?

Yes. And then the only thing that I would add to that Doug is occasionally, I get the question of why don't you just go and kind of pay off all of the debt you have as a priority. And I'd say, we're really comfortable with the level of debt that we have. And obviously, our gross debt-to-cap is at the lower end of the range that we talked about. And we said we're going to carry a little bit of a higher cash balance just reflective of the volatility that we've really seen in the market. So that's how I think you should think about it. But we're very comfortable with our level of debt and just being able to kind of manage at that level through the cycle.

Another question on the Downstream, if I could, Darren. I wonder if I could ask on the circular polymer efforts and some of the things you're talking about in terms of recycling in the plastics business. There's, I guess, the question is the overall approach between mechanical and molecular recycling and how are you seeing that market evolve? And is this conversion of existing facilities or new reactors? And then also, what are your expectations for the returns in that business kind of through cycle?

Thank you, Stephen. You highlighted a crucial aspect of our strategy as we move forward, particularly in plastics, plastics recycling, and biofuels. There's a perception concerning our refining footprint and its potential disadvantages as traditional fuel demand decreases. However, given the strong integration of our chemicals and refining facilities, now part of our Product Solutions business, we have robust platforms characterized by large scale and low costs. We see an opportunity to adapt these facilities to produce lower emissions biofuels and leverage existing equipment for advanced plastic recycling. For instance, we've begun converting some of our heavy cracking facilities in Baytown to recycle waste plastic, and we have ambitious plans in this area. The products generated will possess the same attributes as virgin products, but will utilize recycled waste. We're particularly focused on molecular recycling, believing we can leverage our facilities, technology, and marketing capabilities to our advantage. We aim to increase advanced recycling capacity to 500,000 metric tons by 2026, with 30,000 metric tons expected to be operational by year-end. Overall, we view this market positively; there's currently a strong interest and premium for these products. While we expect the market to stabilize over time, we anticipate sustained demand for the foreseeable future.

I wanted to ask a question about your international gas footprint and the maintenance cadence because it seems like you've mentioned in the slides that gas production is going to be higher than it typically is in 2Q and 3Q, but you do have higher scheduled maintenance. So I'm wondering if any of that maintenance is in the European gas footprint. And then more broadly, if you're seeing in the industry in Europe more tempered declines from European gas into the summer, just given where prices are? And if you expect that to be a feature of the market moving forward?

You've highlighted an important aspect of our second quarter outlook regarding seasonality. Historically, we've observed a notable decrease in gas demand as we enter the second quarter. However, considering the current market conditions and global inventory levels, we expect to see less variation in demand from quarter to quarter. We aimed to convey that expectation in our outlook, indicating that seasonality will remain consistent moving forward. Additionally, in response to Jeanine's earlier question, we believe the market is relatively tight in the short term. The industry is making considerable efforts to address that, but the investment time cycle for increasing supply is lengthy, especially given today's demand and the tight market conditions. This situation is likely to persist for some time. As demand decreases, we anticipate that supply will begin to be allocated towards inventory stocking, shifting focus from immediate market demand to ensuring adequate inventory levels as we transition through summer into fall and winter. Lastly, the ongoing situation in Ukraine adds an unpredictable element, and it is essential for economies and governments worldwide to manage potential supply disruptions by maintaining strong inventory levels.

I have a question regarding capital allocation in light of the prevailing view that national oil companies around the world are keen to increase activity and bring new resources to market. However, most national oil companies, apart from a few, depend on foreign investment and partnerships with companies like ExxonMobil. On the independent operator side, there has been a consistent long-term spending outlook that has been beneficial for investors, offering a multi-year capital expenditure range. I'm curious about your thoughts on how this aligns with the industry's potential obligation to increase spending as demanded by national oil companies, and whether you believe these stable capital expenditure ranges can still be sustained in that scenario.

Sure. I'm happy to take that, Sam. So first of all, I would just remind you that we do have CapEx guidance that's out there, obviously, for this year, it's 21 to 24. And we've talked about kind of through 2027 range of 20 to 25. Now within that, we always try to leave ourselves a little bit of room understanding that there's these opportunities that can come up in the future. And obviously, we've made some investments in the type of opportunities that you're talking about in the past. And by the way, Golden Pass is a JV that we have with foreign investment that sits behind it as well. So I'd say we don't feel any particular pressure. I just reference back to what Darren said earlier, which is, we spend capital when we have confidence behind the projects and the returns that those projects are going to offer, right? And we're, I'd say, very, very disciplined at pressure testing those projects to make sure they're resilience across the, I'd say, wide set of market environment, given the cyclicality that we have in the business. So we feel great about the opportunities that stand in front of us right now. Obviously, we've got a low cost of supply barrels that we're investing in, be it Guyana or the Permian, Brazil. Darren mentioned the LNG projects that we're moving forward, which we feel really good about. Obviously, we've got in a Product Solution space, investments that we continue to make to support growth in high-value products, right, and to keep, I'd say, optimizing our Downstream circuit. So we feel good about that. If there are opportunities where we feel like there's a good return to be earned, we'll certainly look at potentially participating in those opportunities. But we're going to be very disciplined in our approach as you should expect from us.

Yes. And I would just add to that, Sam, if you look at the work we've been doing with our organization, the changes that we've made in the structure, the consolidation of capabilities across the corporation. One of the changes we announced on April 1 was a technology organization that combines the technical skills and capabilities and the engineering capabilities across the corporation. We've seen really good results doing that in the projects area. We think we've got a real opportunity in the technology area to realize similar benefits in terms of effectiveness on top of whatever efficiencies that might come from that work. And I would say that effectiveness in that concentration of technology and really getting the organization to focus on where we can add unique value and grow competitive advantage is going to be a really important part of continuing to be a valued partner with NOCs and others all around the world. Now our strategy here is to make sure that we're in a central partner that when NOCs and other resource holders want somebody who can effectively and efficiently develop the resource and doing it in a sustainable manner that the first name to come to mind is ExxonMobil, and then we bring those unique capabilities. And I would tell you, I have enormous confidence that that's what's going to happen. Things that we can see in the pipeline, the opportunities that we have in front of us to become more effective at what we do I think are huge and we're looking forward to then leveraging that business opportunities in the future.

I had a question on Guyana. The fourth FPSO, which you just sanctioned was lodged on 250,000 barrels a day. I'm just wondering, in your base case plans, are you assuming a similar size for the later FPSOs at that rate? And if I could add a second question. A few days ago, there was an announcement from the DOE around additional export capacity from Golden Pass. I was wondering if you could just help me understand whether that was just an administrative thing, whether that was you sort of re-looking at the project? Or is it some kind of future pricing ahead of debottlenecking there?

Yes, sure. On Guyana, Biraj, I would tell you that, as you know, we are having tremendous success with respect to discoveries there and the characterization of that resource. And I would just say that our teams have been very focused on making sure we have a good characterization of that resource, which will then be a really important part of how we choose to develop that resource in a cost-effective way to make sure that the cost of supply and obviously, the returns for those projects lead industry. And so as we look at that, these bigger production facilities make a lot of sense when you have the resource to support and because it brings your unit cost down, brings down your cost of supply. As we look at extending those developments in other areas of the resource base, it will be a function of what we find, but I would say we would lean towards these larger developments, and we'll obviously lean towards extending some of the current developments that we have and taking advantage of whatever synergies we might have with those facilities. And so I wouldn't say there's a single recipe here. It's really tailoring the recipe to make sure that it's optimized for the development opportunities that we've got in front of us. And that's going to evolve as we better characterize the resource base. And I will just say, with respect to Golden Pass, that project and the work that we're doing there, we feel good about the progress that we're making, and we're on schedule. The concept there is not changing.

To revisit the question about Guyana, I wanted to clarify something. In comparison to our Permian operations, while production in the Permian is currently higher, the resource potential in Guyana is probably larger. Regarding the 11 billion barrels of resource, should we assume this is exclusively oil at this stage? That has been our baseline considering the type of production. Additionally, how should we assess the long-term gas opportunities there? When I reference the Permian, I'm looking at both of these regions as we head into the middle and later part of the decade.

Yes, good morning, Roger. The resource varies across the Stabroek Block, and our development priorities focus more on liquid resources. Our current plans reflect this preference for liquid, and over time, we'll observe how these developments progress. We're collaborating with the government of Guyana to bring gas onshore, which will provide more cost-efficient and environmentally friendly power to the people, resulting in a cleaner and cheaper energy source. While there is some gas development in this area, we are primarily focused on liquids. As we advance through the field and assess the economics, we will develop resources that maximize capital efficiency and enhance returns.

Could you provide some insights on capital allocation? When considering your capital budget, should we view the range over the next few years as mainly influenced by timing? Or could the potential for higher commodity prices lead to an inclination towards the upper end of the range, possibly due to inflation? Are there also opportunities within the portfolio where additional organic capital could be deployed, such as in short or mid-cycle infill drilling or tieback projects? Does the increase in commodity prices create more chances for capital deployment?

Yes. I'll begin and then let Kathy add any further thoughts. The short answer is no. We have focused on looking through cycles, prioritizing long-term investments that can withstand various market conditions. We were heavily investing when prices were low, anticipating stronger long-term fundamentals. Currently, while the market is tight, we will remain focused on maintaining low supply costs and pursuing industry-leading projects. Our emphasis will stay on credible advantages in our manufacturing processes and the facilities we have developed. We will optimize within this framework but will not deviate from our long-term strategy in the Permian and interventional areas.

Yes. And I would say, certainly, timing over what's a relatively long-term period is something that we're trying to give a little flexibility for. I'd actually point to what we talked about on the Payara Guyana project. Originally, we said that was going to start up in 2024, and now we're saying we think it's likely it will start up at the end of 2023. So that would be an example of, we have initial planning that we do, but obviously, accelerating projects if we can bring them in, in a shorter time frame. And obviously, on or under budget is something we're always focused on.

First, I want to commend the Investor Relations team for the new format of the call and the increased disclosure; I really appreciate it. I need to apologize because I want to revisit the inflation question. Kathy, looking ahead over the next few years, can you share what percentage of your capital expenditures has fixed pricing and what percentage will be impacted by inflation? Additionally, in your presentation, you mentioned the 3% off-cycle compensation adjustment. Could you provide some context on how significant that number is for us?

Sure. So overall, I think we talked a little bit about inflation on CapEx and the fact that certainly in the near term, we're feeling pretty good because we did a lot of work during the pandemic. So we had caused some projects. And during the pandemic, we did a lot of work to actually put the contracts in place like finish the engineering and put the contracts in place at a point where I'd say there was some deflationary pressures in the market. So as it relates to our overall capital projects, we feel pretty good over the next couple of years. And obviously, strategically, the timing of when we do the engineering, when we go out to procurement, is something that we're always looking at and taking into consideration. And then I mentioned the fact that doing our own procurement globally to make sure that we're getting globally competitive bids is something else we do. We do spend a lot of money over the years as we're looking forward on the boats associated with Guyana development. And again, we approach that in a really strategic manner, so that we're managing those projects to the lowest cost, getting the specific design that we need. So that's how I would really discuss what's happening with regard to inflation.

Yes. I would just add that the action we announced this morning will not significantly impact your analysis, Paul. Our goal is to continue to meet the efficiency targets we outlined in our plan.

My very quick question here is, at the start of the call, you indicated that Asian Chemical margins are kind of below mid-cycle. And I just want to understand, generally, when crude moves up, there is support for commodity prices. So there's 2 equations going on here, some capacity coming on, but crude is also moving up. So do you expect the margins to remain below mid-cycle for some time? Or do you think that higher crude could actually push up the ethylene margins and stuff in the non-U.S. region on a go-forward basis?

I think we are currently facing an unusual situation in the chemical market due to a disconnect between developments in Asia and those in the Atlantic Basin. Our North America operations in chemicals, particularly our advantage in ethane, have helped us cushion the broader downturn affecting global chemical markets, which are significantly influenced by the downturn in Asia. With rising crude prices, the costs of olefins, particularly from liquid crackers and naphtha feed, are increasing. This leads to higher feed costs. Additionally, logistics constraints are causing demand to be somewhat mismatched, resulting in oversupply in markets like China as demand recovers from lockdowns. We are in a distinct phase with regional imbalances that are difficult to address through logistics and transportation. It remains to be seen how long this situation lasts, but as markets stabilize, I believe these imbalances will correct themselves. If crude prices stay elevated, it is likely that the advantages of ethane and ethane cracking will persist and adjust alongside changes in crude prices relative to gas prices.

I would like to revisit the Golden Pass project and touch on a few points related to the question. Can you elaborate on your marketing strategy? How do you plan to position the volume? This is a substantial project, yet it seems that there are currently very few contracts in place. To what extent will you and your partner QP be focusing on marketing the products? Additionally, could you provide some insight into the phased start-up of the three trains? When you mention a 2024 start-up, is that for the first train? I would expect there to be around 4 to 6 months between the start-up of each subsequent train, so any guidance you could offer would be appreciated.

Sure. To address your question regarding the timing, we anticipate that the first train will come online in 2024, followed by the remaining trains in 2025. The strategic goal behind this investment is to establish a balanced global presence in LNG supply. The Golden Pass facility serves as a crucial point within the Americas, allowing us to leverage the U.S. gas market and the potential we see in U.S. gas supply. This facility will be an essential source for us. We plan to integrate it with our growing LNG trading business, using it as a means to facilitate trade and connect with our other LNG projects. This approach will enable us to optimize our commitments for projects and maintain flexibility in utilizing Golden Pass as a supply source, while also engaging in the spot market. This setup will enhance our ability to complement our long-term contracts for larger projects and participate actively in the spot market.

So there's no intent to contract some of the volume in what could be a very constructive market for pricing over the next 2, 3 years for those who have supply coming on this near term?

The LNG organization plans to develop its portfolio in a way that maximizes its value. I believe there are many possibilities and flexibility available, and the expectation is that the LNG business and its leader will leverage that flexibility to enhance value.

Thank you for squeezing me in and my question is on the Permian. Just wondering, I'm trying to assume you all running somewhere around 16 rigs and 5 spreads. I'm just wondering, will this continue to be around the level of activity needed in order to achieve that, I think, your goal around that 25% year-over-year Permian growth plans? And I was just also wondering if you could talk about maybe just broadly, the degree of inflation you just currently seeing there?

Yes. I would like to share that our plan for the Permian involves operating between 10 and 12 rigs along with a frac crew. Currently, we are aligned with that plan. It's essential for the developments we are pursuing to align with our established infrastructure, technology, and capital efficiency strategies, which guide our operations. As mentioned by Kathy, we anticipated market recovery and tightness and developed contracting strategies while partnering with suppliers to minimize the effects. This approach is proving beneficial in the Permian. However, we are beginning to feel the impact of some tightness in consumables and labor. As activity increases and logistics constraints are resolved, we expect inflationary pressures to rise. We have tasked our team with managing these challenges to ensure that as we advance development and production, we do so in a sustainable manner without compromising the cost of supply or the advantageous position of our barrels in the supply curve. Our disciplined approach focuses on efficiency rather than spending, ensuring every dollar invested is productive, and the team's challenge is to maintain productivity for the capital utilized.

Thanks, Darren, and thanks, everybody, for your time and for your questions this morning. We appreciate that. We will post a transcript of the call on our investor website early next week. Have a great weekend. Thanks.