Exxon Mobil Corp (XOM) — Q2 2023 Earnings Call Transcript

Good morning, everyone. Welcome to Exxon Mobil's second quarter 2023 earnings call. I'm Jennifer Driscoll, Vice President, Investor Relations. I'm joined by Darren Woods, Chairman and CEO; and Kathy Mikells, Senior Vice President and CFO. Our slides, script and earnings release are available in the Investors section of our website. In a moment, Darren will provide opening comments. Then we'll take your questions. In conjunction with our recent announcement to acquire Denbury and related materials in this presentation, we've included additional information on Slide 2. During the presentation, we'll make forward-looking comments. These are subject to risks and uncertainties. Please read our cautionary statement on Slide 3. You may find more information on the risks and uncertainties that apply to any forward-looking statements in our SEC filings on our website. Please note, that we have supplemental information at the end of our slides. Now, let me turn it over to Darren.

Good morning. Thanks for joining us today. I'm pleased to be conducting our earnings call from our Houston campus. As of July 1st, our corporate headquarters is now located at the campus, alongside the senior managers of our businesses and centralized organizations. This is the first time in the company’s history that the senior leadership team of the corporation is located on one site and represents a critical step in continuing the transformation of our business enabling us to improve collaboration and alignment and further leverage synergies across our integrated businesses. The ongoing efforts to structurally improve our company and drive sustained, industry-leading performance was clearly demonstrated in our second-quarter results. We delivered earnings of almost $8 billion, two times higher than what we earned in the second quarter of 2018, under comparable industry commodity prices. That doubling of earnings reflects our work in the intervening years to reshape our portfolio of businesses, invest in advantaged projects, and drive a higher level of efficiency and effectiveness in everything we do. With these results, I would like to take a moment to recognize our people. Starting with all those that made the move to Houston. I’m sure you know moves like this are not easy and that many personal sacrifices are made. I’m very thankful for all who did this. Their willingness to disrupt their lives for the benefit of our company is a testament to the dedication of our people whose commitment and hard work underpin all the improvements we are making. I hope our shareholders take comfort in this one, small example of our people’s commitment to the company and have confidence in their resolve to further strengthen our position as an industry leader in all that we do. Our achievements this quarter also demonstrate the progress we’re making in solving the 'and' equation: meeting the world’s needs for energy and essential products and reducing emissions, both our own and others’. In the Permian, we set another production record and remain on track for an overall growth in production of 10% this year. As I said last quarter, our growth won’t be linear as we execute our development plans that balance and optimize capital efficiency, resource recovery, and production rates. Our priority will remain on driving value, not volumes. In Guyana, we achieved a record quarterly gross production rate of 380,000 barrels per day. Our team in Guyana continues to deliver excellent operating, environmental, and safety results, while optimizing and growing production. In fact, we see the potential to increase the combined gross capacity of these two FPSOs to above 400,000 barrels a day with further debottlenecking, which is nearly a 20% increase above the investment basis and a testament to the ingenuity of our people. In the Gulf Coast, we continue to profitably grow our business. In the second quarter we achieved mechanical completion of the Baytown chemical expansion. The project grows volume and improves mix with 750,000 tonnes per annum of additional performance chemical products. The Baytown expansion is the final Product Solutions component of the Growing the Gulf initiative announced in 2017. If you recall, the initiative committed to investments of $20 billion over ten years to capitalize on the US’s advantaged resources, economic growth, and strong regional support for our businesses and the jobs we create. 11 of the 13 projects are up and running. The Baytown expansion, after product qualifications, should begin contributing by the fourth quarter. And Golden Pass, the last of our Growing the Gulf projects, should have its first train up at the back end of 2024. The Growing the Gulf initiative is another example of executing our strategy, investing in advantaged, high-value growth, and delivering on our commitments. Improving the earnings power of our businesses also requires divestments. In the second quarter we completed the divestment of the Billings refinery. Including this sale, cash proceeds from divestments of non-strategic assets have totaled roughly $2 billion year-to-date. In advancing our efforts to better leverage corporate scale and integration, we established three new centralized organizations in the quarter. Consolidating activities previously embedded in each of our businesses: Global Business Solutions, ExxonMobil Supply Chain, and Global Trading. They’re all off to a good start and have clear lines of sight to improve performance and lower cost. Our Low Carbon Solutions business continues to make progress in building an advantaged, low cost, high-return business in capturing, transporting, and storing carbon. We announced a CO2 offtake agreement with Nucor, one of North America’s largest steel producers. And we signed an agreement to acquire Denbury, which will provide ExxonMobil with the largest owned and operated network of CO2 pipelines in the United States. Combining Denbury’s assets and experience with our capabilities will significantly accelerate and expand our ability to profitably help customers reduce their emissions and allow ExxonMobil to play an even greater role in a thoughtful energy transition. It significantly enhances our competitive position and offers a compelling customer proposition to economically reduce emissions in hard-to-decarbonize heavy industries which, today, have limited practical options. Of Denbury’s 1,300 miles of CO2 pipeline, roughly 70% are in the Gulf Coast states of Louisiana, Texas, and Mississippi, one of the largest US markets for CO2 reduction and home to some of ExxonMobil’s largest integrated refining and chemical sites and nine of their 10 strategically-located CO2 storage sites are also in this region. We believe the transaction synergies will drive strong growth and returns. A cost-efficient transportation and storage system accelerates CCS deployment for both ExxonMobil and our third-party customers. It supports multiple low-carbon value chains, including CCS, hydrogen, ammonia, and biofuels. Ultimately, we see an opportunity to create a CCS business with the capacity to reduce emissions across the Gulf Coast by up to 100 million tons per year. This transaction will help us do that at a lower cost and faster pace. In fact, we see the potential for a third of the opportunity being actionable in the near term. Which takes us to our customers. Our latest offtake agreement extends our CCS customer base beyond industrial gas and fertilizers into steel. This project will tie into the same CO2 transportation and storage infrastructure we’ll use to serve CF Industries, located just 10 miles from Nucor. Focusing our efforts and investments in areas with concentrated sources of emissions allows us to capture the benefits of scale, reduce our spend per ton of CO2 captured and improve returns. Our work with Nucor supports Louisiana’s goal of reaching net-zero greenhouse gas emissions by 2050, and it increases the total amount of CO2 we’ve agreed to transport and store for customers to 5 million metric tons per year, equivalent to replacing 2 million cars with EVs, roughly the same number of electric vehicles on the road in the United States today. With the planned Denbury acquisition, the potential reduction could be up to 20 times that. As demonstrated by these new developments, we’re continuing to make significant progress in our plans to lead the industry in helping society reduce emissions. A major component of our improved earnings is the structural cost savings that we’ve achieved, currently at $8.3 billion. We remain on track to reach our target of $9 billion in savings by the end of this year. As we develop plans for future years, we’re committed to finding additional savings. Cash flow from operations totaled $9.4 billion in the quarter, or $13 billion excluding the change in working capital. Our year-to-date production of 3.7 million oil-equivalent barrels per day is on track with the full-year guidance we shared last year as part of our Capex investments totaled $12.5 billion year-to-date, also in line with our full-year guidance. And, consistent with our capital allocation philosophy, we continue to share our success with shareholders, distributing $8 billion in cash during the quarter, including $4.3 billion in share repurchases and $3.7 billion in dividends. Before we go to Q&A, I’ll leave you with a few key takeaways from the quarter. First, our work to structurally improve earnings power is paying off, demonstrated this quarter as we doubled earnings versus a comparable price environment in the second quarter of 2018. Our reorganizations, aggressive investments in advantaged projects, and significant reductions in cost are driving value and improving our competitive position. We’ve made great progress and have a clear line of sight to much more. In the back half of this year alone, we expect to bring on two advantaged projects: Baytown Performance Chemicals and the Payara FPSO in Guyana, further growing our capacity to generate industry-leading earnings. The company’s ongoing business transformation is giving the organization a better view of end-to-end value creation and focusing us on the highest value opportunities. Today, we are better positioned than ever to realize the value of our scale and the synergies from improving the integration of our businesses. For the first time in our history, we have a corporate technology, projects, trading, supply chain, and business solutions organization allowing us to apply the best solutions and talent to our biggest opportunities. And, importantly, we are developing the most talented people in the industry, providing unrivaled opportunities to meet some of society’s greatest challenges. Their work is delivering exceptional results, driving industry-leading returns on investments, and growth in earnings and cash flow. This, in turn, allows us to distribute cash to shareholders through share repurchases and a sustained, competitive, and growing dividend while maintaining investments in industry advantaged projects including investments in our Low Carbon Solutions business. By leveraging the advantages developed in our traditional businesses, we are laying the foundation for a world-scale, competitively-advantaged, low carbon business with industry-leading returns. The planned acquisition of Denbury is a step in that direction, improving our decarbonization proposition for customers, while generating attractive returns. In summary, we’re pleased with the quarter, the progress it represents and the improved earnings power of the company. We’re confident that we have the right strategy with the right leadership and best people to effectively execute it, delivering sustained growth in shareholder value.

We’ll now begin our Q&A session. Please note, that we continue to request that analysts ask a single question as a courtesy to the other analysts. However, please remain on the line in case you need any clarifying questions. Now with that, operator, please open the line for our first question.

Thank you. Good morning, everyone. Darren, I wonder if I could pick up on the cost-saving target. And I guess my question is, post Denbury, and given that we're already halfway through 2023. Where does that $9 billion cost-saving target go through the end of the plan period through 2027?

It goes up, Doug, in short. I think as you know, and we've been talking about the reorganizations that we've been executing over the years with some of them just recently executed, puts us in a position to really capture a lot of efficiencies across the whole of the enterprise this year as we develop our corporate plans. Obviously, one of the objectives of these new organizations is to take stock of what they've got in their portfolio and identify the opportunities to further capture the benefits of scale and the synergies that exist between the integrated business and what for the first time represents an opportunity to actually manage processes across these integrated businesses. So I think we've got an opportunity set to drive that cost reduction even further as we head out further in the planned horizon. And my expectation is, when we come back at the end of the year after we've developed the plans, reviewed them with the board and then share them with all of you, we'll provide some perspective on what that opportunity looks like going forward.

Would you care to offer an order of magnitude, Darren?

Doug, I tell you to go back to the Investor Day materials from March of 2022. We had some bridges in it where we kind of laid out earnings and how much structural cost savings we're driving, earnings improvement relative to volume and mix. And I think if you just look at the size of those bars, you'll get a rough order of magnitude.

And then going forward, but I'll leave it there. Thanks.

You bet. Thank you, Doug.

Good morning. Darren, you've been clear that you think there’s value to be had potentially in M&A in both low carbon and the Permian and Denbury really well into the former of those two. I'd be curious on your perspective on whether on the M&A markets right now and how are you thinking about approaching opportunistic value creation to that?

Yes. Good morning, Neil. Our viewpoint on this area, which has consistently drawn interest and discussion over several quarters, remains unchanged. We are focused on identifying opportunities that create unique value for our shareholders. Any potential opportunities need to surpass what ExxonMobil or any individual acquisition could achieve on their own. Essentially, we believe that the combination must provide significantly greater value. Since we began emphasizing our competitive advantages in 2018, a key motivation has been to unlock value that others cannot reach. As I've pointed out in this quarter's remarks and prior quarters, we are making significant strides in leveraging these advantages to drive business performance and improve bottom line results. As we progress and enhance our technology portfolio, we open up more chances to discover unique value opportunities with other companies. While we actively seek these opportunities, we will not lower our standards for generating returns and increasing value for our shareholders. As Kathy has mentioned previously, we are selective acquirers, and I do not anticipate this stance changing.

Thanks, Darren.

You bet, Neil.

Hey, good morning. Thanks for taking my question.

Good morning.

So I wanted to ask about the Permian. You've had strong results so far this year and in the slides you had some interesting charts and some of the advantages you see versus peers and how you develop the asset. I was wondering if you could dive into a little bit more detail on that. When you think about some of the specific drivers that allow you to get such better MPV versus other cube development in the basin, what are those in your view? And as part of that, could you address the resource recovery trends you're seeing and the improvement there and any room for further upside on that?

Yes, sure. Al, I guess maybe start by going back to the approach we outlined in the 2018-2019 timeframe where we said ExxonMobil can bring a different game to the unconventional space and really bring to bear and leverage the capabilities that we have versus many others who are competing in that space. And key amongst those was taking advantage of our scale and balance sheet to develop this asset at scale. And so, you may recall, we talked about the cube development, which was really focusing on how you maximize overall recovery and not near-term production. That wasn't a particularly well-received approach back in the 2018-2019 timeframe, but I think with time, it's demonstrated its value and it's actually manifesting itself in the results that you see today, which is, we're focused on making sure that as we develop the resources and all the benches in that resources, particularly the ones that are connected, that we do that in an optimum way, that develops and maximizes the recovery versus initial production rates. And so that's really important. That cube development, we continue to evolve that. I think we've gotten to a stage now where we feel really good about how we're executing that development. We focused on capital efficiency. And I would tell you today, we are setting records for the length of our lateral wells, which, again, lowers the cost associated with accessing the resource. And importantly, as you drill longer wells, it's critical that the productivity of each foot of that well remains constant. And so, we've done a lot of work to make sure that the productivity of each foot is consistent as we drill longer and longer. So that's driving capital costs down pretty significantly. And then I would say, we've got a lot of technologies that we're trialing, ones that I won't go into specific detail on to try to match some eyes recovery. And we've got those technologies deployed in the field. We've got some early results that are quite encouraging, but they aren't at the scale today to manifest themselves completely in our results. So, I think all those things together continue to give us a lot of confidence that not only have we moved to the front of the pack and demonstrated industry leadership with what we've got today that we see a lot of upside to that as we move forward and I don't think we've reached the end of the optimization process yet.

Great. Thanks, Darren.

You bet.

Good morning. Thank you.

Good morning, Sam.

This question is about EOR. Hopefully, you don't find it too far afield. But because you are experiencing a technical difficulty.

Devin, you are kind of breaking up on us. Sam, are you available? Operator, let's try another question and come back to Sam.

Hi, good morning. Thanks for taking my question. So I'm just looking at your bridge for energy products and you have over $2 billion of negative margin, it's right in line with the number out of your 8-K, so no surprises there, but definitely a bigger decline on a relative basis than we're seeing from your couple of peers that have reported so far. So, just looking for any additional color on the drivers of that margin decline? Maybe there's something to call out around regional mix or crude slates that are a bit more unique to Exxon?

Yes. I wouldn't say there's anything unique. I mean, this is a straight flow through of just what the industry refining margin reduction is kind of flowing through. We would see a much bigger reduction coming out of where we have a bigger footprint. So I would say even though the US tends to have better margins than the rest of the world, we obviously have a very big footprint in the US. And so, just that footprint drives a bigger absolute number and absolute decline, but it's just a straight flow through from the change in industry margins.

Yes, the size of our refining business is much, much larger than our peers. So the impacts associated with the changes in those margins have a bigger impact on us than you'd see with our peers.

Sure. I was just looking at it's kind of like a 50% cut to the 1Q number on the margin side. But yes, thank you very much. I appreciate it.

Yes, hello. Good morning.

Good morning, Roger.

Good morning.

I would like to follow up on the chemicals margin. You mentioned in the opening remarks about pricing being at 2018 levels, but margins have improved significantly. However, the chemicals sector hasn’t fully returned to its peak in 2021. Can you provide any additional insights into how the outlook for chemicals may be improving? I ask this because we are observing softness in NGL prices in the US alongside expectations for much higher exports, as well as discussions around increased chemical capacity in China. How should we reconcile what appears to be a strengthening market with better margins against the potential influx of new capacity in this sector?

Yes, absolutely. I can offer some insights on that and then see if Kathy wants to add anything. First, I want to emphasize that the efforts we've made over the years to maintain a well-diversified feed slate for our chemicals business are continuing to yield positive results, especially as market dynamics shift and price spreads change. Our organization is skilled at responding to these price signals and adjustments in feed sources, which contributes to our bottom line and places us in a stronger position compared to many competitors, thanks to our flexibility and feed options. Looking globally, early last year, the COVID lockdown in China affected chemicals demand significantly. However, as we've entered this year, there are growing expectations for an uptick in demand from China, and we're beginning to see that happen. In fact, our chemical performance in the second quarter was stronger than in the first quarter, indicating reasonable demand. The main challenge we face, as you noted, is the increase in supply. Our advantages in feedstock and our integration with various refineries worldwide enhance our position in this environment. It may take some time for demand to outpace the surplus supply in the market, but I want to highlight our substantial investments in chemicals over the last five years. I'm particularly pleased that all the new projects we've launched, even during a low cycle for our chemical business, are generating positive earnings and cash flow. This positions us well for when the market rebounds and reaches its peak cycle. I feel confident about our business positioning, and we're achieving what we aimed for: our business continues to outshine competitors during challenging conditions. As the market tightens and margins improve, we'll find ourselves in an even stronger position.

And I would add a couple of quick stats to that. So relative to competition, again, our geographic footprint is pretty advantaged. And so, we're about 35% larger in North America than, I'll call it, rest of industry. And then the other thing I'd point out that gets to what Darren just said about some of the projects we've been implementing, those projects helped to support an improvement in our overall mix. And so, this quarter, we saw a 6% increase in performance chemical products and those carry a higher margin. So those are some of the more systemic things that help to drive improvement relative to competitors.

Thank you for the follow-up question about carbon capture. Considering that global coal and oil demand are reaching record levels in 2023, I’m curious if you’re feeling any external pressure to speed up efforts in this area. A couple of years ago, many expected we would have already seen peak demand for various energy sources, but that hasn’t occurred. Given the likelihood of increased carbon emissions, are you experiencing any additional pressure to advance carbon capture initiatives?

I believe what we are witnessing today reflects the challenges the world is facing, along with an incomplete set of solutions. Unfortunately, for several years, the focus has primarily been on wind, solar, and electric vehicles, while other alternatives we were advocating for and attempting to develop were not considered or accepted. This has hindered society’s progress in reducing emissions. Currently, there is an acknowledgment that we need more solutions, and the industry is capable of providing these. In this complicated and costly transition, it is essential to have as many solutions as possible on the table, without excluding any, while maintaining a focus on reducing emissions. This realization is beginning to resonate. The area we are concentrating on, which involves molecule-oriented segments of our business, is still in its early stages. We are leading in this field and have secured third-party emissions reduction opportunities that few others have, as well as significant investments in progress. People are acknowledging our commitment to lead the industry. While there is a desire for faster progress, this is tied to the opportunities available, especially considering the role of the Inflation Reduction Act and its pending regulations, which are crucial for developing a carbon market that is not yet established. We are still in the early phases of this process, and many players have vital roles to fulfill. We believe we are doing our part, but other components need to align for success. Furthermore, advancements in technology will be necessary to lower costs and enable us to address more diluted streams of CO2. We are actively working on this, and I am optimistic about our technology pipeline and the potential to commercialize innovations that will further reduce emissions reduction costs in the coming years. We have a lot of work ahead, and we are making significant progress, feeling assured about our leadership role.

Great. Thank you.

Hello. Is that is that better, sound-wise?

That is better. That's better, Sam. Welcome back.

I'm okay. So this question is about EOR as it pertains to Denbury. I think there's some optimism that EOR barrels might be credited with carbon attributes because it varies more CO2 than the associated emissions of the oil. And so, maybe that's option value, but I was just wondering where you stand on that topic and if it was at all a factor as you look at different asset classes and saw that EOR was available?

Yes. So I would say, obviously, that's the core business today of Denbury and had facilitated infrastructure that they have in place. That frankly for us was not a key driver, strategic driver of the opportunity. I think EOR certainly in the short term can play a role. But if you think about the broader opportunity, it's really around carbon capture storage, sequestration and keeping the carbon under the ground. So that's the longer-term play for us. I mean, as I just commented here about the challenges with the regulation and the translation of the IRA into regulation, we've got Class 6 well Permian, that's going to be required for sequestration. That's a fairly slow progress to date. So, there's a lot of work that has to go into putting these pieces together so that we're successful. I see EOR as providing a lot of optionality in the short term that as we're bringing on carbon capture facilities, working with third parties and we start capturing the CO2. If we don't have everything lined up on the sequestration side, the EOR gives us an opportunity to progress these things and not lose schedules. So, I think right now that's the way I would think about it. It's certainly not a strategic thrust for us as a company.

Understood. Thank you so much.

You bet. Thank you.

Good morning. I wanted to explore the debottlenecking opportunity you mentioned in Guyana, as being 20% above design capacity is quite significant. Darren, could you elaborate on what you are observing? Are these changes related to the subsurface, modifications in equipment, or improvements in uptime? Can you provide some context for us? Additionally, this could lead to substantial advantages for a couple of your other projects in the pipeline, so please share how this impacts your outlook on future opportunities. Thank you.

Yes, absolutely. Thank you for the questions. This is something that the organization has been developing for decades. I'll categorize it into three main areas. First is the design and construction of the projects. We've built up a capable project organization over the years, resulting in facilities that are well-designed and constructed properly, providing a solid foundation to optimize and enhance production opportunities without compromising design specifications and ensuring we remain within safe operating limits. We've successfully done this across many of our facilities. This project organization further enhances our capabilities with their expertise in project development and construction. The second area is our operations organization, which focuses on maximizing utilization and production. The mindset within the company is that once we've invested in these assets, it’s the operations team's responsibility to run them reliably, safely, and in an environmentally conscious manner, all while maximizing the value from these investments. They have excelled in this regard through numerous small improvements. This has been evident not only in Guyana but across all our capital projects, ensuring we get the most value from our investments. The third area is our technology organization. We have consolidated our technology teams, shifting from a business-focused structure to a capabilities-driven approach. This has allowed our top talent to collaborate on our most significant opportunities, fostering innovation and creativity. The close partnership between technology and business, driven by a shared commitment to create value, facilitates the implementation of more technology in the field, supporting our operations in optimizing production. I expect, as I mentioned in my earlier remarks, that we will see the first two FPSOs exceed 400,000 barrels per day as we continue to optimize, all while maintaining safety and environmental responsibility. I also anticipate similar improvements when the third FPSO comes online. Ultimately, we believe that as we continue developing these projects, we will uncover similar optimization benefits based on the inherent capabilities we’ve established within our businesses.

Thanks so much.

You bet.

Good morning, Ryan.

Good morning. I have a question regarding the upstream sector. Despite the current pricing environment, the upstream performance for this quarter has been somewhat disappointing, not just for your company but also for other peers that have reported this week. This seems largely influenced by the global gas market conditions. Could you discuss the factors or challenges you encountered during the quarter in relation to pricing compared to key benchmarks? Additionally, were there any obstacles in trading or other influencing factors, and how do you anticipate these will change for the rest of the year?

I'll let Kathy maybe dive into a little more detail. I would just say, with respect to pricing and the impact on the business, actually our quarter came in pretty much in line with what we had expected. If you looked at the 8-K that we put out and our best attempt to model the impact. Just from the market environment, we are pretty rigorous in making sure that when we put an 8-K out there, it's really focused on discrete planned events, but much more importantly on what the market impact has been to the business quarter-on-quarter. And so I think that kind of laid out pretty consistently with what we expected. Obviously, gas prices were down, but I think refining margins are down a bit but still in very healthy territory. And if you look at the fundamentals, quite frankly, as we head into the back half of the year, I think as demand picks up, we're going to see limits that we have on additional supply, I think, come back into the mix and see the supply/demand tighten up a bit. So, my expectation is, the back half of the year, we'll see some upward pressure just given demand changes in the limited options we have to significantly increase supply. Kathy, anything to add to that?

Yes. I'll mention a couple of other things to you. As a result of some of the divestments we've done over the past year, if you look at our gas portfolio, we're now about 45% LNG, so a little bit more tipped to LNG. If you just look at kind of impact of pricing across our gas portfolio and results, I mean, Henry Hub was down about 40%. TTF was down almost 50%. And the last thing I'd say is we always talk about the fact that on LNG a lot of our contracts are tied to lagged oil prices. And so, if you just look at where oil prices were in the fourth quarter kind of relative to where they are more currently, I'm going to call them down roughly $10 a barrel. And so, that pricing impact would have flowed through as well. And then the last thing that I will mention associated with our trading results is, if you exclude mark-to-market, so if you look in upstream, mark-to-market was a positive for us in the quarter. But if you exclude it mark-to-market, I would have then said our gas trading results were a little bit lighter this quarter. So kind of all of that packaged together, I think, gives you a pretty good understanding of our gas results.

Great. Thank you.

Hi. Good morning. I wanted to ask about another energy transition area that's been receiving some attention in the media in terms of Exxon's activity, which is, lithium drilling and then refining. And it seems like you're waiting a bit more into the space. I'm wondering how you view that opportunity, given your expertise in drilling and refining of materials in the ground. And if that development in that space was contemplated at all in that $17 billion energy transition budget that you previously laid out? Thanks.

Sure. Yes. Maybe I'll just come back to kind of the fundamentals of how we think about ExxonMobil's participation in the transition space. And it comes back to the focus on leveraging the advantages that we have as a corporation where we believe we can add unique value. That's why we have, since the very beginning, stayed focused on what I'd say is the molecule side of the equation in carbon capture and hydrogen and biofuels. But we're looking at, frankly, all the areas that we believe we have an expertise and a unique capability and seeing if there's a fit for products or solutions that can help society decarbonize. Lithium and production of lithium from brine water is, if you think about what's required to do that is really an extension of a lot of the current capabilities that we have in our upstream. It requires a good understanding of the subsurface, requires a good understanding of reservoir management, requires drilling and injections. And so, I think the below surface things are very much in line with the skills and capabilities that we've built out over the decades in our upstream business. The processing of the brine and extracting the lithium is very consistent with a lot of the things that we do in our refineries and chemical plants and in fact, in some of our upstream operations. So that piece of the equation is, again, not new to the company. So as you look at all that, I think the capability, the skill set that we have, the operating experience that we have all lend themselves to that. And then, of course, there's the question of how does the market fundamentals look and supply and demand? And do we see a role for what we're doing there? And frankly, we've been looking at that for quite some time. I'd say we're still early in evaluating the opportunity, but we believe that by, again, applying our advantages in this space that we can bring on a much-needed resource, lithium, one that's predicted to go short, we can bring it on at a much lower cost. And I think importantly, with much less environmental impact versus, say, the open mining that they're doing in other parts of the world. So this, to us, feels like a potential win-win-win opportunity, a win using our capabilities, a win from an environmental impact standpoint and a win in terms of supplying markets with a crucial component to electrification and EV. So, I think that's kind of how we're thinking about it. And we're, I'd say, actively exploring that opportunity set and like what we're seeing so far.

Great. That’s really helpful color. Thanks.

You bet.

Thanks. Good morning, guys. The cash balance is still around $30 billion for about four quarters now. And Kathy, last quarter, you mentioned that you were comfortable holding the larger balance because of the net positive spread in interest rates versus your debt cost. The spread is still there, so you're probably not in a rush to do anything, but just wondering if this is still the best use of cash versus deploying it into higher rate of return projects or buybacks. And if the forward curve holds the current kind of strip right now, can you foresee Exxon going into a net cash position next year? Thanks.

Sure. And so, we're pretty happy with our overall balance sheet position right now. And I've stated for a couple of quarters now that we expect our cash balance is going to ebb and flow a little bit just based on how the commodity price environment and margin environment ebbs and flows. So we think it's pretty critical to hang on to a really strong balance sheet because it gives us the flexibility that we need through the cycle. If you look overall at what we're doing from an investment perspective, I would say we're never trying to constrain the organization in terms of deploying good capital investments. And that's across our entire business. It includes our LCS business. Obviously, the acquisition of Denbury will enable us to accelerate the growth of our carbon capture and sequestration business within LCS. And we're excited about that opportunity and profitably growing that part of our business. So I think it's really important when we talk about capital deployment that we are not trying to constrain the company from new capital projects that can drive good returns for our shareholders. And that's how we create, I'd say, the virtuous cycle of how we can then support competitive growing dividends that are sustainable over the long term and a more consistent share repurchase program. So I'd say we're really happy with our balance sheet. We intend to hang on to a higher cash balance than the company has done historically just to give us more flexibility as we think about how we manage the company over the long term and through the cycles.

To reiterate Kathy's point, the businesses are tasked with identifying advantageous projects that will position us ahead of our competitors and yield high returns and value. This is the directive they've received, and we plan to finance these projects as they arise. The main constraint on investment is the ability to capitalize on these opportunities, which is a challenge we present to our organization: to only fund initiatives that we believe can withstand a low-price environment, are ahead of our competitors, and align with the long-term fundamentals of the market. As we identify such opportunities and our organization remains focused on developing them, we will invest in them because this is how we create long-term value for the corporation and our shareholders.

Great. Thanks guys.

Good morning. Thanks for the time. My question is on OFS costs, just your thoughts, both domestically and internationally for the remainder of the year and into 2024, how you're thinking about either inflation or deflation?

Yes. I mean, the way that we're thinking about inflation and whether it's oilfield services costs or other costs across the business, I'd say we've gone to a point where we're actually starting to see inflation come off in certain cost categories. If you think about some of the chemicals that we would use in unconventional, things like sand, what we would call tubular goods, which would include piping and valves and those types of things, we're starting to see some deflationary pressure now. As it relates to things where labor is a high component of the cost, I would say, we're not yet necessarily seeing that deflationary pressure coming through yet. But overall, I'd say it's probably too early to see much of that come through the second half of the year. But as we're looking forward into 2024, I'd say we fundamentally feel like inflation is going to come off as we're looking forward because we're starting to see those signs across multiple categories now throughout the business.

Very helpful. Thank you.

Thank you. Good morning, guys.

Good morning, Paul.

Thank you. You mentioned plans to invest $17 billion in the low carbon business by 2027. The acquisition of Denbury is approximately 30%. You also indicated that there are many more opportunities emerging. Should we understand that the $17 billion figure may need to increase significantly?

Thank you, Paul. As you mentioned, the Denbury acquisition is not included in the $17 billion figure. To provide some context, we are just beginning to establish that business, and there are a lot of opportunities ahead. Dan and his team in the Low Carbon Solutions area have made significant strides in securing contracts with our three major customers, showing that we can help decarbonize challenging industries with limited alternatives. Additionally, we have a major investment opportunity in Baytown to develop the world's largest hydrogen plant, along with potential for low carbon ammonia. Overall, we have a strong portfolio, and with the commercial deals announced in connection with Denbury, there's demonstrated interest from potential customers in what ExxonMobil can offer. Regarding the $17 billion, that reflects an assessment of various opportunities and their associated capital needs. We are continuing to evaluate these projects, as some capital requirements have become more defined while others have shifted. Currently, we're maintaining the $17 billion estimate. The Denbury acquisition, if completed, could allow us to reduce some of our grassroots investments in logistics by utilizing the assets we gain from Denbury. This area is evolving, but it's crucial to note that we will uphold our standards for return on investment and the advantages we require from our projects. We need to be low-cost suppliers, leverage the corporation's strengths, and generate competitive returns, as these factors will influence the timing and scale of our capital expenditures. As we progress with this year's plan, Dan and his team are focused on executing and advancing the business after a year of operations. We will refine our plans and update the figures accordingly. Kathy, do you have anything to add for Paul?

Yes. Just the other thing I want to mention is, especially as it relates to the CCS business, what you're going to see over time is that we're building a backlog. And that backlog is what's going to support the future growing CapEx kind of over the longer term and the profitable growth of that business. So today, I would describe ExxonMobil's backlog is 5 million tons annually, supported by three very large industrial customers, one in the industrial gas sector, one in the steel sector, one that makes ammonia that's used for fertilizer, right? And if you just think about what that does for society, those 5 million tons annually, that translates into the conversion of about 2 million cars from gas-powered vehicles to electric vehicles. That's about all the cars around the road in the United States today. And when we talk about the overall CCS opportunity across the Gulf Coast, we talk about 100 million tons annually. That's 20 times that number. But I'm going to go back to the fact that it will be supported by customer backlog that supports a growing profitable business. So that's how you should think about it.

Great. Thank you. Can I sneak in a real quick question?

Of course.

Yes. Darren, do you have a number for the production in the Permian for this quarter?

620 koebd.

Thank you.

You bet, Paul.

Hi. Good morning, everyone. Just a follow-up, actually, just looking at your volumes upstream. First of all, you mentioned that there was turnarounds and stuff, but I wondered if you could talk about the recovery, especially in the light of the stronger Guyana volumes, the fact that your upstream volumes are down quite hard here. Is that going to be a rapid recovery in Q3 and back towards what kind of levels should we expect for the rest of the year? Thanks.

Yes. Sure, Paul, I'll take that. If you think about the first quarter, we were up pretty significantly, second quarter down from that first quarter, but essentially on plan with respect to the full year production levels that we talked about at the back end of last year when we put our plan forward. And I would tell you that there's nothing that we're seeing today that changes that guidance that we gave last year at 3.7 million barrels a day of production. So I'd say we're on track with that. We're not seeing anything that makes us change our mind. And obviously, we're working real hard to do better than that. But I would say, right now, we feel like we're on track to meet the plan and meet the numbers that we shared earlier last year.

Can you say more about the downtimes that you had in Q2?

Yes. I'll just mention, we had given a bit of guidance to divestment and scheduled downtime. And that guidance was that we thought we'd see a reduction of about 110 koebd as I said what the actuals were across both of those items. It was actually 120 koebd, and that's a sequential number. So we were down sequentially 120 koebd as a result of divestments and the scheduled downtime. If you then just look at why was our overall production down a little bit more than that, it was really driven by two things. So we've seen curtailments and obviously, OPEC is cutting production, and so we have an impact coming from that. And then in terms of unscheduled downtime, we had a short strike in Nigeria that tipped up our unscheduled downtime. But again, I would go back to what Darren said, we had guided for the full year at about 3.7 million oil equivalent barrels a day. And if you look at our year-to-date numbers, we're up about 15,000 on a year-to-date basis year-over-year.

That's super helpful. And then if I just follow up, if I look at your energy product sales, those are up just about as much, if not more, positively. Obviously, that's mostly Beaumont, I guess. But is there anything else to add there to the strength?

Yes. No, Beaumont is the main thing. And then we obviously had a bit less maintenance kind of going on, which helped our volumes as well. I'd mention that Beaumont was running at 90% utilization. So again, a really nice, I think, proof point and just the operational excellence across the company.

Great. I’ll leave it there. Thank you very much.

Thank you, Paul.

Thanks, everybody, for your questions today. We will post a transcript of our Q&A session on our Investors section of our website as soon as it's available early next week. Before we conclude, I have one important announcement to share with you. Please mark your calendars for the ExxonMobil Product Solutions Spotlight. It's going to be on Wednesday, September 20 at 1:00 Central Time. Jack Williams, Senior Vice President, who oversees Product Solutions will be joined by Karen McGee, President of Product Solutions and several other leaders from ExxonMobil to talk about this new group formed in April 2022. For additional information about this upcoming event, watch the Investors section of our website. With that, have a nice weekend, everyone, and I'll turn it back to the operator to close it off.