Exxon Mobil Corp (XOM) — Q4 2022 Earnings Call Transcript

Good morning everyone and welcome to ExxonMobil's fourth quarter 2022 earnings call. Thanks for joining us today. Here with me are Darren Woods, Chairman and Chief Executive Officer; and Kathy Mikells, Senior Vice President and Chief Financial Officer. Our presentation and prerecorded remarks are available on the Investor Relations section of our website. Our fourth quarter earnings news release is posted in the same location and will be joined by the transcript, once it's available. Shortly, Darren will provide brief opening comments and reference a few slides from his presentation. That will allow analysts more time to ask questions before we conclude at about 8:30 A.M. Central Time. During the presentation, we'll make forward-looking comments, so we encourage you to read our cautionary statement on slide two. Additional information on the risks and uncertainties that apply to these comments is listed in our most recent Form 10-Ks and 10-Qs. Please note that we also provided supplemental information at the end of our earnings slides, which are posted on the website. Also, as a reminder, we posted our Advancing Climate Solutions report, Sustainability Report, and Energy Outlook online in mid-December. We reference them in today’s presentation, and you can find them on our website under the Sustainability tab. Lastly, in the past we’ve held an annual Investor Day in March. We won’t be hosting an Investor Day in 2023. Last December, we laid out comprehensive plans for 2023 through 2027 as part of our Corporate Plan Update and the company is already executing on these plans. We’ve been enjoying the higher level of investor engagement that we’ve been having. We’ll continue to seek your feedback, to host events that give you access to our leaders and insights on parts of the business that interest you, and to share with you information about the company and our plans on more of a real-time basis. With that, I'll hand it over to Darren.

Thank you, Jennifer. Good morning, and I appreciate everyone joining us today. Before we dive into our 2022 results, I’d like to acknowledge our team. Their dedication and hard work, not just toward our company but also in addressing societal needs, led to the strong results we shared this morning. Their efforts have been challenging, from achieving top-tier safety standards and record environmental performance to managing inflation impacts, handling expropriations, and recovering from winter storms, all while navigating significant organizational changes. As I present our results, you will understand why our management team takes great pride in their efforts. While our outcomes were aided by favorable market conditions, our strategic investments in anticipation of this undersupplied market began years ago, well before the pandemic. We chose to invest when others withdrew, defying conventional wisdom, and we maintained these investments through both the pandemic and to the present day. This year, our enhanced asset portfolio, organizational reforms, and exceptional operational performance combined to yield industry-leading results across earnings, cash flows, return on capital employed, and total shareholder returns. Excluding asset sales, we experienced our best cash flow performance since the merger, and despite a decline in revenues, we generated higher profits than in 2012, our prior record year, which reflects a 400-basis point improvement in profit margin due to product mix upgrades, structural cost reductions, and disciplined expense management. 2022 also marked significant advancements across our five strategic priorities. We have strengthened our leading portfolio and increased production from highly profitable, advantaged assets in Guyana and the Permian, particularly when the world required it. We enacted several organizational changes to better utilize our scale and integration, enhance effectiveness, and improve customer service. We merged our downstream and chemical companies to create Product Solutions, the largest fuels, chemicals, and lubricants business globally. This integrated entity focuses on developing high-value products, enhancing portfolio value, and leading in sustainability. Furthermore, we now support our operations with corporate-wide organizations in projects, technology, engineering, operations, safety, and sustainability. We see further opportunities in supply chain, procurement, and finance. We have continued to grow our Low Carbon Solutions business, having recently signed a pioneering customer contract to capture and permanently store up to 2 million metric tons of CO2 per year. This agreement, in a sector challenging to decarbonize, illustrates how we can leverage our strengths to assist others in reducing their emissions while establishing a lucrative business with substantial growth potential. The recent passage of the US Inflation Reduction Act, which incentivizes hydrogen and carbon capture and storage, further supports this initiative. Accordingly, in December, we announced plans to invest approximately $17 billion in lower-emission opportunities from 2022 through 2027, an increase from our previous commitment of $15 billion. We also made notable progress in reducing greenhouse gas emissions from our existing operations and are on track with our 2030 emissions reduction goals, including achieving net-zero Scope 1 and 2 emissions for our unconventional operations in the Permian Basin by 2030. In addition to investing in industry-leading projects, we capitalized on robust markets to enhance our asset portfolio with about $5 billion in divestments of non-core assets. Our capital expenditures were consistent with our guidance. To further enhance transparency, in 2022, we introduced three new reports: The Lobbying Report, which discloses our lobbying activities and expenditures; The Climate Lobbying Report, detailing our U.S. activities at both federal and state levels; and our Investing in People supplement, which accompanies our updated Sustainability Report. Lastly, as I mentioned earlier, the dedication of our team was fundamental to our success this past year, just as it has been for decades. We consistently build on this advantage by attracting and nurturing top talent. Last year, we once again received recognition as the most attractive employer in the industry among U.S. engineering students, an honor we have been awarded for ten consecutive years. Our 2022 financial results, which led our industry, further confirmed the strength of the strategy we established five years ago. We increased earnings to nearly $56 billion, and $59 billion if we exclude identified items, significantly outperforming our peers. We achieved an industry-leading total shareholder return of 87% and a return on capital employed of 25%, marking our highest one-year ROCE since 2012. Cash flow from operating activities reached nearly $77 billion, also leading the industry. This allowed us to reduce net debt to 5%, strengthening our balance sheet and enabling us to continue our strategy of counter-cyclical investing. Our ongoing commitment to leveraging scale and integration has driven further efficiencies, achieving around $6.9 billion in structural cost savings compared to 2019, an increase from $5.3 billion at the close of 2021. We remain on track to meet our goal of $9 billion in structural cost reductions by the end of 2023. In line with our capital allocation strategy, we continue to reward our shareholders through a stable and growing dividend. In 2022, we raised the quarterly dividend by over 3%, marking the 40th consecutive annual increase. Additionally, we increased our share repurchase program twice this year. In total, we returned $30 billion to shareholders in 2022, including approximately $15 billion in dividends, setting a leading figure within our peers. These actions demonstrate our confidence in our strategy, the performance seen across our businesses, and our company’s bright future. We are proud of our team and their efforts to meet society’s evolving needs. As we continue to advance our strategy, we are committed to sharing their progress. Accordingly, we are enhancing our disclosures and increasing transparency. In December, we updated several key online publications. Our latest Sustainability Report outlines the 14 focus areas where we believe our company can have a significant impact. The Advancing Climate Solutions 2023 Progress Report details our approach to reducing greenhouse gas emissions in support of a net-zero future. This report includes updated resiliency modeling under the IEA Net Zero Emissions by 2050 Scenario, along with carbon pricing assumptions and an audit statement from Wood Mackenzie. It also discusses the value of a life-cycle approach to measuring company-specific emissions compared to Scope 3 targets. We believe that this life-cycle approach aligns better with ESG principles, accurately reflects a company’s commitment to reducing societal emissions, and avoids the drawbacks of specific Scope 3 targets. The update further provides insight into our initiatives to reduce methane emissions and examines the role of plastics in the energy transition, including our efforts to expand advanced recycling capacity to tackle plastic waste. Separately, we have revised our outlook for energy, offering our latest insights on energy supply and demand through 2050, which inform our business planning. This outlook examines trends in economic growth, technological advancements, and consumer behaviors, while also identifying potential effects of climate-related government policies targeting specific sectors. We highly recommend reviewing these publications for greater clarity on how we strive to be a leader in the energy transition; they can be found on our website under the Sustainability tab. Our 2023 plan remains rooted in our current strategy, building on our ongoing success. As I conclude, I want to emphasize a few key areas. Crucially, we will maintain our efforts to lead the industry in safety, operational excellence, and financial performance. We aim to profitably expand our business through strategic investments that meet global needs and reduce emissions. Additionally, we will capitalize on our new organizational structure to fully harness our scale and integration advantages and improve competitiveness. We anticipate another $2 billion in structural cost reductions, achieving our $9 billion savings target against 2019 levels. We will aim to capture additional organizational efficiencies by consolidating supply chain operations and centralizing most finance and procurement functions, enhancing the experiences of our customers, vendors, and employees. Our expected capital and exploration expenditures for 2023 are between $23 billion and $25 billion, which includes investments for our next developments in Guyana and increased expenditures in U.S. unconventional assets. This budget also encompasses advancements in our chemical complex in China and various emissions reduction initiatives. We will continue to work on reducing greenhouse gas emissions intensity in our operated assets and assist our customers in decreasing their emissions, particularly in sectors challenging to decarbonize. Our blue hydrogen project in Baytown will advance, featuring the largest blue hydrogen plant worldwide, capable of producing one billion cubic feet per day, alongside a carbon capture and storage project that could store up to 10 million metric tons of CO2 annually. We also plan to leverage our successes in Louisiana to broaden our customer base for our Low Carbon Solutions business. As the energy landscape shifts, our emphasis on core principles and investments in an integrated yet diversified portfolio of advantageous businesses will be critical for capturing value and excelling against the competition, regardless of the pace or direction of the transition. We remain dedicated to our capital allocation priorities: investing in beneficial projects, maintaining a robust balance sheet throughout commodity cycles, and sharing our success with shareholders. We have reaffirmed our commitment to a dependable and growing dividend and plan to further return our success through share repurchases, with up to $35 billion in total share buybacks projected for 2023 and 2024. The developments of 2022 underscore the importance of our strategic approach and the robustness of our strategies. We are optimistic about our achievements so far and even more excited about the opportunities on the horizon. With that, I'll turn it over to Jennifer.

Thank you, Darren. Now, let's proceed to the Q&A session. Jennifer, could you please open the lines for our first question?

Hi there. Thanks for taking my questions. Two things. First on your comment Darren on runaway inflation. Obviously, the Permian gets a lot of the headlines there. I was wondering if you can talk a little bit about the offshore environment, ExxonMobil is one of the most active in the space there. So, I just want to get a sense of what you're seeing in terms of inflation in offshore? And then second question is on CapEx and I probably shouldn't do this. But if I take the fourth-quarter numbers and annualize them, it would be above the 2023 guide, obviously, I have to adjust for a little seasonality there. But I would have thought you'd be adding growth CapEx 2023 versus 2022, plus you have the inflationary pressures as you mentioned. How much contingency is there in the 2023 CapEx guidance? And what are the risks there, the upside or downside? Thank you.

Good morning, Biraj. Let me address your last question first before moving to the first. Regarding capital expenditures, we've indicated that we expect to be at the higher end of the range we provided, reflecting a slight increase due to our ongoing projects. I want to emphasize that our long-term range aligns well with our strategic plans and the pace we outlined coming out of the pandemic. Our project teams have developed a solid plan to advance these investments, and I feel confident about our progress and the efficiencies we are achieving with our capital expenditures. Despite the pause we experienced during the pandemic, we managed to offset those challenges and maintain our productivity levels moving forward, which I'm very proud of. I expect us to remain within that range, and we will keep you updated if there are any changes as our plans evolve. As for inflation, I’d like to highlight that year-on-year, our organization has effectively captured synergies and leveraged our purchasing power to offset the inflationary pressures we encountered, which was no small feat. With regards to different projects globally, it really depends on when we engaged contractors and sourced our equipment. In the Permian, for instance, there's a lot of activity leading to tighter supply and demand, putting pressure on pricing, while in other areas, that pressure is less pronounced. We are using our business's scale and our long-term commitments with contracting partners to control costs effectively and ensure they are invested in the long-term alongside us. Overall, I believe we've done well in keeping our capital productivity high. Kathy, do you have anything to add?

Just the other thing I would add is I'd really caution you about taking the fourth quarter CapEx and exploration expense and kind of annualizing it because we tend to run a bit higher in the fourth quarter and the expenses and kind of prorated over the years. Overall, 2022 came in right about where we expected it. And when we talked about our Corporate Plan in December, we said we expect it to be at about $23 billion to $25 billion in 2023. And that we expected to see a little bit of an increase year-over-year, in part because Payara has been pulled forward, so we have a little more spending there. China One is starting to spool up and obviously, our emission plans are also spooling up. So, right now I'd say we're very consistent with our expectations and the guidance that we've given you.

Okay. Thank you for the color.

Sure.

Hi, good morning. Thanks for taking our question.

Good morning, Jeanine.

Good morning Kathy, good morning Darren. I have questions regarding the downstream, which performed well in 2022. How do you anticipate the EU embargo on Russian product imports effective February 5th will affect your refining margins? We understand there are several variables at play regarding your refining operations, especially in the Gulf Coast and Europe, along with the potential benefits for diesel margins as Russian exports decline. However, we must also consider the likely additional tightness in BTO supplies. Thank you.

Sure, I'll address that. Starting with the overall market, the recent refining margins we’ve seen are largely influenced by the pandemic, which led to the shutdown of capacity and a resulting lack of that capacity as demand picks up. The situation remains tight, and I expect it to continue that way until additional refinery expansions occur, especially in Asia and the Middle East. The effects of the Russia situation and the ban on products entering Europe could have some short-term consequences, but those products will ultimately be necessary. The main issue is how the disruption will affect logistics and supply chains, which have been operating efficiently. This disruption will lead to some short-term inconsistencies in the market, but I anticipate that the system will eventually stabilize and re-optimize, though we may see increased costs due to less efficient logistics. I don’t foresee a long-term impact; rather, it will be a short-term challenge, and the key will be how long it takes for things to rebalance. More fundamentally, refining will be affected by demand, especially with economies recovering and China emerging from its COVID lockdown. The overall economic forecast and the severity of any potential recessions this year will play a significant role. If demand rises and economies continue to grow, we will likely see tightness persist and consequently higher refining margins, which should remain strong this year and possibly into 2024.

Great. Appreciate all the color. Thank you.

Sure.

Yes. Thank you, Darren and Kathy. I wanted to spend some time on the Permian outlook for 2023, you made some comments in the prepared remarks about getting to over 600,000 barrels a day. So, I guess that's about 10% growth as we think about 2023. But just your thoughts on volumes and then ultimately, where should we think about plateau?

Thank you, Neil. I want to take you back to 2018 when we discussed our strategy in the Permian, where we aimed to reach 1 million barrels a day of production by 2025. However, when the pandemic struck, we indicated that our plans would be delayed by roughly two years, shifting our target from 2025 to 2027. Currently, we are projecting that our Permian production will hit approximately 1 million barrels a day by 2027, which aligns closely with our original goal from 2018 and acknowledges the delays we mentioned due to the pandemic. In 2021, we increased production by about 90,000 barrels a day, and we achieved a similar increase in 2022. This growth was driven by organic development and drilling into production, alongside the reduction of our drilled but uncompleted wells (DUCs) inventory. During the pandemic, there was little incentive to ramp up production, so our focus shifted to drilling. Once we entered a higher-priced environment, we concentrated on reducing our inventory and bringing those wells online. Looking ahead to next year, we plan to rebuild our inventory to an optimal level that we can maintain over the next few years. In terms of reaching 1 million barrels a day by 2027, this translates to a compound annual growth rate of about 13%. Growth won’t be consistent each year and may fluctuate by roughly 5%. Each year's production will depend on our development plans and how they unfold during that specific time. Ultimately, we are on track and progressing as planned. I'm optimistic that by focusing on technology advancements and improving efficiency, we will either achieve our production targets at lower costs or enhance productivity and increase production. This will rely on our continued efforts to leverage technology and operational improvements in the Permian.

Thanks, Darren.

Hey, good morning. Thanks for taking my question.

Morning.

So, I wanted to ask about the Chemicals business and if we look at the margin chart that you have in the slide deck, it's the one part of the portfolio where margins are still below the 10-year range. I was wondering if you could talk a little bit about the trends that you're seeing there as you move into early 2023 with China reopening and that potentially being a positive driver for margins. And then also just talk through some of the discrete growth projects we got coming on over the next few years to drive that earnings growth you talked about at the Investor Day last year, I think Baytown, you noted later this year and get the China Chemicals Complex still a few years out, but some of the growth projects and the progress there as well?

Yes, I can help with that. Let’s look at both aspects of the Chemicals sector. Starting with demand, last year we faced challenges due to the lockdowns in China, which significantly affected a major chemical market and impacted demand. However, as we enter this year and the Chinese economy begins to recover, I expect demand to rebound. The severity and spread of global recessions will also influence this situation. If the current outlook holds true and recessions are less severe than expected, we could see an improvement in chemical demand as well. On the supply side, which is a key factor affecting margins currently, many chemical projects were put on hold during the pandemic, leading to deferred investments. Now, as we recover from the pandemic, we've observed strong chemical margins in 2021 and 2022, and significant investments have been made to increase capacity. This increased capacity is coming online at a time when we've experienced some demand slowdown. It reflects the typical supply and demand fluctuations within the commodity cycle, which have been amplified by the pandemic's effects. It may take some time for demand to catch up and fully utilize this new capacity, but I am confident we will return to growth, and the markets will eventually tighten again. As for our projects, we are optimistic. We had to pause some initiatives during the pandemic and make difficult decisions regarding capital allocation. We had never before halted projects midstream, but our team effectively managed this pause, maintaining our status and collaborating with contractors to enhance efficiency. We are now recommencing these projects according to the plans established during the pandemic. We recently launched the polypropylene unit in Baton Rouge, and anticipate our Baytown Vistamaxx and LAO projects to come online in the middle of this year. Additionally, the China One project is progressing well and is expected to launch in 2025. Overall, we are very positive about these investments and our plans are on track as expected.

Great. Thank you.

You bet.

Thank you. Good morning, everyone. Good morning Darren.

Morning Doug.

I would like to ask about your approach to the European windfall taxes. I understand you are seeking some resolution and treating these as non-recurring. Could you explain your reasoning compared to how your peers are handling this? Additionally, were there any cash impacts in the current quarter that I should be aware of? Thank you for addressing my question.

Sure. So, I'll first just talk about the financial impacts. In the current quarter, we wouldn't have had material impacts. Obviously, there were some countries in Europe that had passed incremental taxes earlier this year. So, I'll point to Italy and the UK, as an example. And so we would have been accruing those appropriately. You would have seen as part of our identified items that we booked $1.8 billion associated with 2022. Overall, increased additional European taxes. Now, in terms of the cash impact that doesn't really hit in 2022, we just took the overall accrual and those payments will end up occurring both in 2023 and in 2024. It just depends on the individual countries. But if I take an overall step back and say we looked at what happened in the EU and said, it's not legal and it's the opposite of what is needed, right. So, what's needed right now is more supply and instead, what's been put in place is a penalty on the broad energy sector. So, I'll contrast that with what's happened more recently in the United States with the Inflation Reduction Act. Right there you see policy that's put out to incent industry, both to accelerate technology and decelerate investment, that's greatly needed, especially in areas where the industries in terms of lowering emissions are still pretty nascent, things like hydrogen and CCS, and you're already seeing investment start to flow into those industries.

I would just add, Doug, that we have been engaging with governments throughout Europe. There is definitely a sensitivity regarding the future impact on investments and the willingness of industries to continue investing in what is already a challenging market environment, particularly in Europe, which has become increasingly uncertain and unstable. I believe there was apprehension going into this situation, and it seems likely that many in the industry will see this as yet another reason to scale back their investments in Europe. Additionally, I don't think we will see a positive ripple effect globally, given the negative repercussions on an industry that depends on stable policies and some degree of certainty when making significant investments over a lengthy period. My impression is that this will lead to many unintended negative consequences, resulting in reduced enthusiasm for such investments.

Appreciate your perspectives, guys. Thanks so much.

Thanks very much Darren and Kathy. Darren could you just make some sort of high-level comments about the competitive landscape you see across the business? I know this is sort of a broad question, but upstream Energy Products, Low Carbon Solutions, how do you see competitors' behavior?

This is certainly an important focus area for us. I'll start with the overall strategy we've been executing over the last five years. As I mentioned earlier, we're seeing improvements in profit margins. In 2012, we had higher revenues, yet this year we've made more money with less revenue due to our improved net profit margin, which increased from about 10% in 2012 to 14% in 2022. This reflects our efforts to better position ourselves in the market. Looking at our sectors, in the upstream we are focusing on pursuing advantageous projects that fall on the lower side of the cost of supply curve. While we can't predict market cycles, we can manage the costs of the barrels we bring in, ensuring we remain competitive regardless of the environment. We're exiting businesses in our hybrid portfolio where we don't see those advantages. We're also concentrating on leveraging opportunities when others pull back. Resource owners recognize our commitment and capabilities in effectively producing barrels. In the Chemical business, our focus is on performance products, using technology to create high-value products for customers, leading to higher margins. We start projects with commodity grades and quickly transition to performance products, a strategy that is proving effective. In refining, we are evolving our yield and product offerings. Contrary to some beliefs, our investments in refineries position us well for an uncertain future, allowing us to produce essential products across a diversified range. We're also investing in low-emission fuels to meet growing market demands, exemplified by our Strathcona project and other concepts designed to align with this evolving demand. Our significant refining footprint positions us advantageously for producing low-emission fuel. Regarding low carbon solutions, there is considerable activity and interest globally, particularly with the IRA in the US. This space requires large-scale projects needing the expertise, size, balance sheet capacity, and technology that we have. While it may take time for the market to stabilize, I believe we are competitively positioned. When it comes to securing carbon sequestration for the long term, companies will want a partner with proven experience that can guarantee availability. I am confident that ExxonMobil will be looked to fulfill these needs.

Thanks very much.

Thank you, Alastair.

Thanks. A couple for Kathy, if I may. One is wondered if you could just address the balance sheet and how we're thinking about the differences in the cycle. So, obviously, significant deleveraging and at 5% net debt to cap, I know that's not your target, but it is notable. So, just wondering if you could address at what point do you start to think of the balance sheet as a bit of a drag and also your willingness to kind of continue to delever here acknowledging that there was a long time in the corporation's history where the balance sheet was effectively unlevered? Thank you.

So, I would start by saying we view our balance sheet very much as a competitive advantage, right and we know that during the upper part of the cycle, we've got to build a fortress balance sheet to make sure we have all the firepower we need and all the flexibility we need to then manage the downturn, which will inevitably come. So, that's how we think about the balance sheet. I think we've made terrific progress. I mean, if you look overall, this year, we paid down about $7 billion of debt, you already mentioned that our net debt to cap is about 5%. We obviously also learned a number of lessons during the pandemic and we have said, we have a willingness to carry a higher cash balance. Our cash balance is around $30 billion right now. So, I'd say overall, at any given point in time, our cash balance is ultimately going to depend on how the market environment ensues. But we know having a really strong balance sheet is a competitive advantage for us. We've been very clear about our capital allocation priorities and at the very top of that priority list is making sure we're consistently investing in advantaged projects, right. We're in a quite good position in terms of having a very rich portfolio of advantage projects, which we're bringing forward. And I think we've taken a very balanced approach and ultimately how we're sharing our rewards with shareholders in 2022, we ended up distributing about $15 billion in dividends and $15 billion in a share repurchase program. So, ensuring that we just have sustainable growing competitive dividends and efficiently returning cash to shareholders. So, that's how we think about it. And we are at the part of the cycle where you would expect us to see a very strong balance sheet, and we're very focused on ensuring that that's indeed what we have.

Good morning. Thanks for taking the question.

Morning Sam.

I'll ask about M&A actually, because you're describing a number of advantages that are very unique to ExxonMobil, not just at a corporate level, but even in individual asset classes, for example, that you might be in the early stages of efficiency and productivity gains in the Permian, which is really different than a lot of other operators are saying. So, it seems like a opportunity to consolidate and create a lot of value, but at the same time, there's other countervailing forces against that. So, maybe at this point, it would be great to just hear your thoughts on the overall M&A landscape and what kind of opportunities you see? And then also in the context of Kathy's comments on the balance sheet, which is obviously set up very well right now. Thanks.

Yes, thank you, Sam. I'll discuss that and see if Kathy has anything to add. The point you raise is very relevant; it's about how we can utilize our capabilities to add value to potential acquisition targets. Our focus is on leveraging our strengths to create additional value beyond what an acquisition could achieve on its own. We believe that with time, the work we're doing in the Permian will result in valuable opportunities that we can capitalize on as market conditions improve. Expectations from both buyers and sellers seem to be aligning around value. It's important to note that buying at the peak of a commodity cycle can be challenging; I prefer to focus on times when long-term price cycles are reflected in asset valuations. We are actively seeking opportunities to add value to undeveloped resources in the Permian. In the Low Carbon Solutions sector, while it is still in its infancy with limited opportunities, we anticipate potential growth over time. The Chemical sector poses challenges due to the technologies we apply to existing assets, but we are keeping an eye on it. Kathy, do you have anything to add?

The only other thing I would add is ultimately, we're focused on continuing to high-grade our portfolio overall. And you would have seen in the past year, in what's been a more buoyant market environment, you know that we've made a number of divestments where others saw more value in those assets than we saw. So, we're always looking at both sides of this equation. And depending on the market and what's available, and again, how we think about synergies, how we think about retention value, we'll look to transact, but only when we think it's going to earn good return for our shareholders.

Thank you so much.

Thank you.

Morning, thanks for taking my questions. The first one is for Kathy, just on a couple of items that I think impacted 4Q earnings. You had highlighted on the last earnings call that downstream trading benefits were particularly strong in 3Q and I was wondering if that continued into the fourth quarter? And you also highlighted in the 8-K for 4Q earnings that inventory impacts would be a headwind and that was hoping if you could quantify that as well? Thanks.

Yes. And so, we obviously in the third quarter quantified that we had a number of favorable timing impacts that we didn't necessarily think we're going to repeat. So, when you think about Energy Products performance in this quarter, you should think about the absence of some of those positives that we had overall last quarter, right. So, if I look at that just on a quarterly basis, overall, we had from third quarter to fourth quarter in Energy Products, unsettled derivatives of about $1 billion as a headwind, that's really the absence of largely a positive that we would have had in the third quarter. And then again, in the third quarter, we talked about the fact that we have a program associated with achieving ratable pricing in our refinery runs and that had given us, again, I'll call it benefit in the third quarter. And in the fourth quarter, price timing differences were negative to the tune of about $400 million. I think the most important thing, though, is to actually take a step back and look at the full year results because what we've told you during the year is, look, we're going to have these price timing impacts, especially mark-to-market on open derivative positions are going to move around quarter-to-quarter and during the year. But if you looked at Energy Products on a full year basis, our unsettled derivatives were basically neutral, right? And price timing impacts, and again, I would have referred to this coming largely out of our price inventory program, were about a $400 million negative when we look at just 2021 to 2022. So, like we have said all along, the quarter-to-quarter impact may be a little bit more volatile. But when you look at the full year results, it tends to settle itself out.

Got it. And then on the inventory, the year-end inventory impacts?

If you looked at overall year-end inventory impacts, they would have had the biggest impact in our Upstream business. And as part of the inventory adjustments we made, we had to look at gas inventories overall in Europe with prices declining pretty significantly. If you looked at our overall year-end adjustments to inventory outside of that, I would have called them kind of neutral to modestly favorable with the largest favorability incurring in Energy Products.

Got it. Thanks. My follow-up is about downstream maintenance, which appears to be particularly high in the first quarter. I'm curious if this high maintenance is just a result of multiple factors coming together in one quarter, or if we can expect higher maintenance throughout the year, or if there's something else at play. A bit more insight on that figure and the annual outlook would be appreciated. Thanks.

Yes, I’ll address that. The timing of the turnaround is really influenced by the expenditure in that area, which depends on the mix and the units being brought into turnaround at various refineries as well as the age of those units. Therefore, I wouldn't infer any structural changes or outlook for the year from this. It mainly relates to which refineries and which units are entering turnaround and the work required to get those units back on their maintenance schedules. That explains the situation.

Great. Thanks.

Thank you. I have a broader question following up on your earlier comments about competitive positioning. Compared to previous cycles, the competitive landscape in upstream oil appears significantly different, with fewer players in the industry and many major competitors strategically under-investing in oil. How do you believe this will affect global supply over time? Additionally, as you look ahead, how will this influence your competitive stance in the market? Does it create more opportunities for your company? In terms of exploration leasehold, competition, project development, or even asset transactions in the M&A sector, have you observed any impacts so far? How do you anticipate this evolving in the coming years given the altered competitive environment?

Thank you. You've raised an important point about under-investment in our industry. In the depletion business, we're not adequately addressing the depletion rates or matching them with growth, leading to tighter markets. As public discussion shifts and some competitors hesitate to invest, this limits the capacity that becomes available over time. The ongoing demand for oil, gas, and oil products persists until we have competitive, lower-emission alternatives that satisfy society's needs. This environment suggests that tight markets may continue. Over the past five years, our commitment to enhancing our ability to source oil and gas responsibly has gained recognition from resource owners globally. This position gives us an advantage in our opportunities. We continue to earn this advantage by effectively developing resources, completing projects ahead of schedule and within budget, which some competitors struggle to do. Our focus in this area is acknowledged and sets us apart from the competition. At the same time, we are mindful of the risks associated with the transition and making investments in low-emission technologies. Our core competencies serve us well across all our business segments, providing us with both flexibility and optionality. I am confident that our partners will recognize and appreciate this, which will reflect in our ongoing deals and business growth.

Thanks Darren.

Hey guys. Good morning. Thanks for taking my question. I just wanted to ask on the Beaumont expansion and how the ramp is going there. And in terms of profitability, we've got Midland trading above Cushing now, but that's probably not significant given diesel cracks are very, very strong. So, just wondering on the profitability of that project out of the gate relative to how you've been thinking about it when you sanctioned?

Yes, I'll take that. As I mentioned earlier, the concept for the Beaumont project was developed over five years ago. It focused on the feedstocks and intermediate balances for the refinery and the ways to optimize logistics, which justified the project based on improved logistics and lower transportation costs. This approach remains applicable regardless of the market cycle. Given our current position in the commodity cycle and the very high refining margins, I expect that the refining expansion will perform significantly better than initially anticipated due to the timing of the cycle. That's positive news, as it's essential for our investments to be resilient across all phases of the cycle. Moreover, it’s encouraging that we are not relying solely on the margins for a return on that investment. Even when refining margins decline in the future as we enter the lower end of the commodity cycle, this expansion will still strongly position our Beaumont refinery and add value. I feel very optimistic about this. We have made good progress, completing the mechanical work ahead of schedule, and we are successfully ramping up the facility.

We have time for one more question.

Thank you.

You bet.

Thank you and good morning. I'm glad to be part of this discussion. I wanted to follow up on Guyana. There were high expectations for an update, even though it won't be an Investor Day. I know development is progressing well, but I would appreciate any information about resources and any updates regarding the PSC political situation, as I have heard some concerns about that.

Yes, I believe you're right. We are making significant progress. As we've indicated, we brought Liza 2 online ahead of schedule and expect to do the same with Payara. Liza 2 came online quickly and began producing above nameplate capacity in the fourth quarter. I am very optimistic about the quality of these projects and our ability to operate them effectively. We have submitted Yellowtail for government approval, and I anticipate it will be a larger FPSO. I would say we are either on track or ahead of schedule and exceeding the expectations we've previously set regarding Guyana. The resource base continues to expand, and we are still making discoveries. A key part of developing these projects involves optimizing them based on these discoveries. We are balancing how to optimize our operations effectively, and I believe the government shares our positive outlook. The development of these resources and the associated value is benefiting the country, which is crucial. We have always maintained that this needs to be beneficial for the company, the government of Guyana, and the people of Guyana. This is evident as jobs and economic opportunities are increasing in the region. We have been collaborating with the Guyanese government on a project to introduce gas power, which aims to reduce emissions and improve reliability. Additionally, we are working to enhance various social services in the country. People are recognizing the progress we’re making. The fact that we are advancing projects more quickly and at lower costs is advantageous for the government, which appreciates that the benefits are materializing faster than expected. In summary, I think this reflects a strong partnership between the government and ExxonMobil, and I feel confident about the advancements we are achieving.

And any thoughts on the resource base or the next time you'll offer an update on that?

I think as the team continues to drill and then quantify and characterize the results of those drills, when it gets to a material improvement, we'll be out talking about that.

That’s great. Thank you.

Roger, thank you.

Thank you, everybody, for your questions today. We will post a transcript of our Q&A session on our investor website by the end of the week. Have a nice day, everyone. And I'll turn it back to the operator to conclude our call.