Exxon Mobil Corporation

Good day, everyone, and welcome to this ExxonMobil Corporation fourth quarter 2019 earnings call. Today's call is being recorded, and at this time, I'd like to turn the call over to the Vice President of Investor Relations and Secretary, Mr. Neil Hansen. Please go ahead, sir.

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

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

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

Thank you, Mr. Hanson and Mr. Woods. The question and answer session will be conducted electronically. If you'd like to ask a question, please do so by pressing the star key followed by the digit 1 on your touchtone telephone. We request that you limit your questions to one initial with one follow-up so that we may take as many questions as possible. If you're using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. Additionally, please lift your handset before asking your question. We'll proceed in the order that you signal us and we'll take as many questions as time permits. Once again, that's star 1 if you'd like to ask a question. We'll take our first question from Neil Mehta with Goldman Sachs.

Good morning. And Darren, again, we appreciate you jumping on the call and doing these with us. I guess my first question is around the capital spend. And so I think what you're signaling is capital spend in line with the prior guidance, which if I remember was $33 to $35 billion. And can you just talk about the framework if the environment stays challenging, especially across downstream and gas? Is there downward flex on that spend, or is the Exxon framework that you spend through the cycle with the long-term orientation?

Good morning, Neil, and thanks for your comments. So as I said, we have, with the price environment and the cash draw, really taken advantage of some of the organizational changes that we made last year. We formed a corporate-wide projects organization, bringing together the experience and capability in that space into one organization that can then be deployed across our entire asset portfolio. The upstream reorganization has given us a real good line of sight across the businesses, one that wasn't as clear in the past with the functional organization. So we're using those changes to take a real hard look at the opportunities we've got. Of course, the chemicals and downstream business is doing the same thing and looking for additional efficiencies to shape that portfolio. We're also looking at options to pace and to move projects forward. around and out if we can do that without compromising the long-term value that we built those projects on, the basis that we built those projects on. I think there's opportunity in that space. If we continue to see very low margins and cash draw that we want to address, we've got optionality to do that. We can move some things out and we can also slow down the pace in the Permian. We don't want to compromise the scale of the development in the Permian, so there's a balance to be struck there. But we've got optionality, and I think as we go through the year to come, we'll keep a real close eye on kind of how the market develops and then keep a hand on the lever to make sure that we make adjustments as we need to. I think it's one of the great advantages of having a very large portfolio. We've got lots of optionality here, and so I think we're real comfortable with it. And the one criteria is that we may defer some value capture, but we don't want to eliminate or pass up any value capture.

Yeah, that's very clear. And then just to follow up on your comments on the Permian, we were looking at the red line versus sort of the green bars, if you will, on the Permian slide. And it's hard to extrapolate too much quarter to quarter, but the production was a little bit more flat, Q4 versus Q3. Is that just the timing of completions associated with the cube design, and should we expect that acceleration at some point earlier this year? And then just how do you think about Midland versus Delaware? I think one of the comments that was made on the conference call a couple of quarters ago was that Midland's going really well but Delaware is not performing as well as you would like on the drilling side. So any color there would be helpful.

I think with respect to the first point you made around the difficulty of extrapolating from any one quarter is exactly right. I think when we introduced that and Neal Chapman talked about it, we – We said it wasn't going to be a smooth development and that we would see a lumpy progress with respect to the volume's growth. So I wouldn't draw a whole lot. We haven't seen anything in that development which would suggest anything other than continuing on that path. But again, it will be lumpy. And I think if you look back at that red line, you'll see that lumpiness has been playing out historically. And I think you're going to see that as you continue to go forward. I think, you know, a really important point, if you look at the volumes that we delivered in the Permian, we're above what we said we were going to do last year at the investor day by about 20,000 barrels a day. So, you know, that's clearly on track. With respect to the Permian and the Delaware, of course, as I said, the Delaware is much earlier in its development cycle. The organization continues to learn as we're going through that development. And I would tell you, we're making really good progress in what we're seeing there. Neil did talk about the Delaware being more difficult than the Midland, but I would also say, again, another advantage of the reorganization that we did last year in bringing kind of the best of ExxonMobil with the best of our XTO organization into this space is that we're making really, really good progress with respect to that and like what we're seeing. And as I said, I'll tell you, the guys and Neil are real excited by the potential here, and I know they're anxious to spend some time in March taking you through some of the proof points of that. But I would tell you, we like what we're seeing in the Delaware, and while it is different than the Midland, nothing to suggest that the opportunity there is not as great, if not better, frankly. Thanks very much, Darren. Sure, Neil. Thank you.

Your next question comes from the line of John Rigby with UBS.

Thank you, and hello, Darren. I just wanted to go to, I think, the fourth bullet point on your key messages. You do flag up driving efficiencies and improving the base business, and although I think a lot of the focus does fall on your investment program, I mean, you need to fund it, and it seems to me The evidence suggests that there may have been some shortfalls in generating the earnings and cash-based business to fund that investment. Is that a fair observation? It's difficult to disaggregate underlying performance from the cyclical conditions, but are you able to identify where there have been some unexpected shortfalls and whether there are business improvement plans, et cetera, to go after? changing that into 2020.

Yeah, thank you, John. Good morning. Just on that with respect to the shortfalls, as I said in my prepared comments, it's really a function of the margin environment that we've seen out there and the sectors that we've invested in in terms of our production capacity and the configuration of that capacity. As you look around the different chemical businesses and downstream businesses, what you typically see quarter on quarter and year on year and the big drivers of change and movement is how the margins vary and impact each of the configurations in the investment. So as an example, and as Neil Hansen mentioned, we have liquids cracking in the chemical business in the quarter of the charts that he showed. That clearly had an impact on the quarter. And so there's a lot of structural change as we look across the businesses. That's basically what we're seeing is the spreads that have changed across both the chemical and downstream business, given our configuration, have impacted us. That doesn't worry us particularly. In fact, if you go back in time in chemical, that configuration was very attractive and made us really good money over a number of years. We've had some significant investments in that space here recently, which has created this imbalance in supply and demand. But the business is growing fast and will come out of that. So we expect to see the chemical business and our base business return to where it was in the past as that demand growth continues and that excess supply capacity is coming down. Don't forget, too, in the downstream, significant turnaround here last year. As Neil said, the highest level of turnaround has been in the last 15 years. So a lot of capacity was offline last year. You can't overcome capacity that's shut down. So this year, I think we're back to more normal levels. We should see the business return to where it's at. I think as you couple that low environment with some of the growth projects that we've got in place and the expenses that come with that, you see the impact with that. But beyond that, I think the business is running sound. We've always had a focus on efficiencies and becoming – Better operators, that's, you know, and we find in margin environments like this, it just sharpens that focus and makes it even clearer to the organization why that is so important. And so that's what I referenced. I'd tell you our folks are motivated to roll their sleeves up and dig deep and hard and support the growth plans that we've got going forward. I think the final point I'd make there just in terms of our operations and execution, you don't have to look much further than the projects and the points I tried to make and what we delivered across our entire portfolio. That was in refining, that was in chemical, and that was in the upstream. The things we talked about two years ago were very large projects, basically delivered as we said and working as we said. So that's significant. And I would just Again, reemphasize, the project in Rotterdam, which was a brand-new technology and process, never before implemented in any refinery around the world, we brought that on, came up, and it's operating today exactly as designed. That's a pretty astounding accomplishment that I don't think any of our competitors could make today.

Right. Good, thank you. And just a quick follow-up. You mentioned FIDs for Guiana and Brazil in 2020. Could we expect Mozambique as well at some point in the year?

Yeah, Mozambique we're working with our partners on. We're making progress with respect to that, but I would think as we make progress, we'll FID that when we get to the right stage. I think right now we're working towards a timeline that would give us production somewhere back in 2025, something like that. Okay. Thanks a lot. You bet. Thanks, John.

Next we'll go to Doug Terrison with Evercore ISI.

Good morning, everybody.

Good morning, Doug. Good morning, Doug.

Darren, declining dispersion of returns on capital for the big oils suggests that competitive advantages may be converging between the different industry players over five to ten years. And on this point, you guys have historically indicated, and I think you did a few minutes ago, I think technology and scale and integration were key advantages that differentiated ExxonMobil and will lead to value creation over longer-term periods. So my question is whether this premise is still as valid in your view, meaning while your portfolio of opportunities is arguably the best in the peer group, maybe the strongest in a long time, are you still as confident as ever about the strength of your competitive advantages and the returns profile and that results will prove this over time? Or has it changed? And if it has changed, which areas are becoming more difficult to defend?

Yeah, thanks, Doug. I appreciate the question. Obviously, competition always makes this a challenging area, and you've got to continue to innovate if you want to try to maintain a premium above and beyond what the rest of competition is doing. And we remain convinced that – that premium will be driven by technology and technology developments. And I would also tell you we're convinced that that premium will be earned through our other competitive advantages. I've talked a lot about the project execution that we've got in place. I think that is a huge competitive advantage. So I continue to believe that we will have returns on capital employed that are higher than our competitors, driven by those advantages. I think, though, you've got to step back and look at that over a broader timeline. If you look at where we're at today in the investments that we're making, those projects are very accretive and very high returns, but we're in the early stages of the capital without realizing the benefits of those. And so I think as you go through time, you're going to see that move in any one year, but over the longer cycle, you're going to see the advantages of those begin to accrue. I mean, look at what we're doing in Guyana and the comments that I've made around the discovery. It's an enormous amount of resources that the organization has found and are bringing on with leading-edge developments. That's got to drive better returns. I mean, the chart that we've showed demonstrates that. Look at what we're doing in the downstream business. Historically, a low-margin, low-return business. One of the reasons why we haven't invested – heavily in that business in the past, is we couldn't find advantage investments to change that yield profile. With the breakthroughs that we've had in some of our process technology work and catalyst, we're now unlocking some of that, as you've seen with Rotterdam. Again, there's technology that's giving us an upgrade in value at a capital cost much lower than what the rest of industry could achieve. We're taking that same process technology into Singapore and and upgrading even lower value streams to higher value products. So again, at a lower capital cost. We're going to see those at higher returns. And if you look on the chemical side, we're very focused, and the investments we're making are all driven by performance products. You start with large-scale facilities. You fill them initially with commodity, and then you grow performance products, and eventually those products those plants switch over to all performance products. And so, again, a higher return. So each one of the businesses, we have a clear line of sight of how we gain advantage across competition. And the question is, when will those manifest themselves? It will be, one, a function of where we're at in that investment versus production cycle and where any one year those margins are at. But ultimately, I don't see a change in the recipe or the dynamics that would change where we've been historically.

Okay. And then also, the integrated business model has been the most productive model in the energy sector for several decades, although I guess changes to competitive structure could always change that in the future. So consistent with the points I think you just made about technology and execution and multinational experience, et cetera, do you still consider the integrated model to be optimal and the one that holds the greatest potential? for superior returns and shareholder outcomes. And also, Darren, has your thinking changed any on this topic over the past several years?

Yeah, I would tell you I still believe this is an area of value. And the only change in my thinking is how much more potential there is to be realized in that process. You know, I think you're aware, Doug, that we brought the entire organization together on the Houston campus starting in 2014. First time in the history of our company where we had all of our businesses on one location, which allows those organizations to continue to explore and look for synergies. And I would tell you that we're in the early stages of finding a lot of significant opportunities. The projects organization is a great example of that. First time in our history that we had our upstream chemical and our downstream projects organization together. a lot of opportunities to take advantage of each of the strengths of those organizations applied to the other parts of the organization. So we like what we're seeing there. I tell you, if you want to look to a concrete example of what integration has brought to the company, look no further than the logistics that we started investing in to connect our upstream developments with our downstream and chemical assets In 2018, as the differentials opened up, we made $1.8 billion on that disconnect, which I think only an integrated company could capture. That comes and goes, and as we talked about in 2019, those differentials weren't there, but we anticipate that they'll be back. And the final point I would make with integration – If you look at what we're doing in the Permian and the investments that we're making in chemical and refining, those are geared towards the barrels coming out of the Permian and some of the opportunities we see with those barrels. That would have been hard to do if we were a standalone downstream company or a standalone upstream company. It's only having both of those and being able to understand what's happening in each of those areas that you can find some unique values. I'm convinced we have a lot more advantages to bring to the table that over time begin to manifest themselves as we continue to exercise the organizations that we've put in place down at the campus.

Yeah, it sounds like the case is as strong as ever, at least for you guys. And thanks again for joining us, Darren.

You bet, Doug. Nice talking with you.

Next we'll go to Roger Reed with Wells Fargo.

Yeah, thank you. Good morning. Welcome to the call, Darren. Morning. I guess, you know, so much of what we've heard from Exxon and from some of your peers is, you know, it's definitely an unfavorable, call it, I guess, generally cyclical downturn here across all the various pieces. But the one area I was kind of curious about and, you know, is as weak as anything else seems to be on the global gas side. You're one of the major players in the LNG markets. You've got several different locations where you're looking to expand over the next couple of years. I was just curious how you see that sort of playing its way out and whether or not there are any issues on the demand side there.

Yeah, you look at, I think, separate out maybe the LNG business with domestic gas business. Those have some slightly different dynamics associated with them. Overall, continue to see very good growth in the gas business. LNG, I think we're seeing and projecting about 4% growth, annual growth in LNG. I think both stories, both domestic and LNG, is, again, it's very similar to the discussions that we were having in the downstream and chemicals, which is fairly solid and good growth, but we're seeing short-term oversupply and, therefore, lower margins. And our expectation is that that demand will continue to grow, in part driven by concerns of climate change and replacing coal for gas, but also just as economies grow and people's standards of living grow and more power is needed, gas is a very reliable and secure source of supply for power generation. So I think that dynamic is going to continue to happen. I think the LNG oversupply over time will work itself out, and I think investments in that space will probably slow, and eventually the demand will catch up to the supply and things will improve. Again, it's the same dynamic of capital-intensive, long-cycle investments. And as those come onto the market and compared to demand, it just takes some time for those to reach some balance. But you typically see that, and I don't think that dynamic is going to change. That's why, of course, we're very focused as we look at these investments of making sure that as you look across the global supply curve, that we're on the left-hand side of the cost-to-supply curve, that the projects that we're investing in will have advantages and be lower cost than those the broader industry and competition so that as that oversupply impacts margins, we're on that left-hand side and can still see advantages to having those investments. That's the same dynamic that I've talked about in our downstream and chemical investments. The large investments that we brought online, and yet we're making money in bottom-of-the-cycle conditions. Why? Because they were advantaged, and we wouldn't invest in those until we found a way to get them advantaged. Same is true in the LNG business.

Great, thanks. And then kind of along the lines of some of the other things you've talked about on, you know, potential for deferring CapEx if needed to keep things in balance, as we think about the dividend growth, and I know you can't, you know, give us the number or whatever, it goes to the board, but how should we think about dividend growth in a kind of cash flow context? constrained environment with the larger commitment here to the CapEx side?

Well, I think as I've talked about before, as we look at the business from a macro standpoint and allocation of capital, we start with in order for this business to maintain capital, a long-term value proposition, we have to continue to invest and we have to continue to develop projects and opportunities that are advantage versus industry. So that's a priority, making sure that we invest in this capital, too, and certainly in the upstream to offset the depletion that we know occurs in both the crude and gas side of the house. And in the downstream, making sure that we're using technology to improve the yields as society's demand patterns change. and those yield profiles change on a barrel of crude. Chemical is to keep up with the pace of high-performance products that meet the needs of growing economies and populations where their standards of living are improving. That's kind of job number one, and we've got to make sure that we continue to do that to keep pace and to have a long, prosperous business as we look into the future. We also feel very firmly that we've got a commitment with our shareholders to provide a reliable and growing dividend, so we would continue to look to do that and ride through these price cycles. Given the strength of the long-term fundamentals, we think that's an appropriate thing to do, and so we'd look to continue that trend of steady and reliable growth. And then, of course, it's maintaining... the balance sheet in our financial capacity where it needs to be to ride through these cycles and to take advantage of the opportunities that we see in the down cycles, and then to also mitigate and manage the volatility that we've seen and recently experienced. So that's kind of, as we think about it, the primary criteria for how we use cash. And at the end of the day, we've met all that criteria, and we've got additional cash, and then we go into buybacks and return excess cash to the shareholders. That's been the model for a long time. And I would tell you that that model remains pretty effective as we think about what we need to do in this business.

Thank you.

Thank you.

Next we'll go to Phil Gresh with J.P. Morgan.

Hi, Darren. Thanks for taking my question. So as we look at where you are on the asset sale plan, you talked about $15 billion. Over three years, $25 billion longer term, there's been some reports out talking about maybe the plan is moving faster than that in terms of the three-year plan. So I just want to get your latest thoughts as to relative to the risks plan that you laid out there, how you're feeling about that now, and in terms of if it does come in better, is the first use of asset sale possible? proceeds basically going to be to fund any dividend coverage gap to this investment phase if we're at the bottom of the cycle here again in 2020? Or to your point on buybacks, is that even in the cards in that type of scenario? Thanks.

Sure, Phil. Good morning to you. I would tell you, as we introduced the divestment program, and Neil Chapman talked about that last year, You know, we always said it was a risk program, and the intention was to put – we would have more assets out because we didn't expect to transact on all those opportunities. And so I think the reports that you're seeing reflect the fact that there are – you know, we are looking – we've got a number of assets out in the marketplace today. Again, we don't expect to transact on all those, and so we've made some risking in judgment. And whether or not we exceed the numbers that we've talked about or, in fact, fall below, this will be a function of the buyers and the deal space we find with those buyers. Clearly, last year we found an opportunity where a buyer saw a higher value than we thought we could realize with our Norway assets that resulted in a transaction. I think a win-win for both of us. If we find more of those, more than we've anticipated, then I think we'll be above. On the other hand, we've had deals that we've worked and couldn't find the deal spaced and didn't transact. And that was the point I'm trying to make in my comments. This is really around a portfolio high grade. And the only way I can convince myself that we're upgrading the portfolio is if we realize a value for an asset that's higher than what we think we can realize by keeping it in our portfolio. And so I would just tell you, How fast that goes and how far we go is really going to be a function of the buyers and the opportunities that we find, and we're going to look at it that way. While we try to estimate what we think we'll bring in, I'm not going to sacrifice the value proposition to hit any particular number, and I'm not going to pace it. I'm not going to worry about the pacing as much as I am around the value proposition associated with it. And with respect to the proceeds, as I mentioned when we rolled this out, it's all really a function of the broader environment. If we see margins improve in our businesses, if we see prices rise in the upstream and we bring in more revenue, we'll look at those balances. We certainly want to keep our projects funded. We're going to continue to grow reliable dividends, so those are going to be the first calls on that cash. And then we're going to make sure that we keep the balance sheet whole and where we need it to be. And so I think those will be the priorities. And at the end of the day, we'll see where we're at with that and make decisions on buyback after that.

Sure. Okay. Second question, just I think probably the standard one we ask every quarter, but just it seems like the energy sector valuations continue to deteriorate here, at least for the public companies we're looking at on our screen. So From your perspective, you know, is this an environment where you think valuations are getting more compelling to you in terms of potential M&A opportunities, or just how do you think about that today? Thanks.

Yeah, thanks, Phil. I think, you know, well, first I would say I'm – I believe that the highest value opportunities are the ones you can generate organically because almost by definition you're not paying a premium for them. And so I think we've got a really attractive portfolio we've talked about and that's what anything that we do has to compete against is those organic opportunities. And so that's my starting point. And then we look to see if there are opportunities out there that we can transact on that compete or are better than those organic opportunities. And while the short-term market fluctuations are moving around and you see that valuation change, obviously the ability to capture that will be a function of people who are in the market selling and their longer-term views of their business and whether or not – what position they're in and whether they're forced to take the current valuations or whether they think longer-term and look at the value somewhat differently. So I think, again, it's kind of a – Difficult to talk about generically. It will be a very specific case-by-case basis. We, just as we're active in the divestment side of the house and have got assets that are out there marketing, we keep a very firm finger on the pulse of the industry and the opportunities and keep our eyes open for opportunities that could bring additional value to the company.

Okay, thanks.

Good talking to you, Phil.

And next we'll go to Baraj Borkataria with RBC.

Hi, thanks for taking my question. I have a question going back to the financial capacity. The numbers you referenced in your chart, I think, were net debt to market cap. What we normally kind of look at is either net debt to capital employed or net debt to cash flow. When you think about the capital employed number or the equity, I guess investors need to be confident in the the value of equity, and what we've seen in the last year or so is a number of your peers announce impairments due to low price tech. Are you willing to share what price tech you're using for oil and gas to test for impairments? That would be my first question.

Thanks, Viraj. We don't typically put out a price tech, and I don't have any desire to start doing that. Let me maybe tell you a little bit about how we think about pricing going forward. And the first thing I would say is I don't think any of our peers, and certainly within ExxonMobil, we feel like we can predict prices. I think there are just way too many variables involved, too many developments that occur over time to really, I think, get firm handles on where short-term prices are going to go. What we do do, though, is looking forward in the future, we start with kind of building up what I would say is a very fundamental approach to what will drive oil and gas demand, which comes back to economic growth and policies and all those assumptions and how we think about how the world will evolve with respect to our industry, we publish in our Energy Outlook. So if you're If you're interested in understanding, you know, what's driving our pricing assumptions, I would start with our energy outlook because that forms the basis of everything that we do with respect to how we think about the future and how we make investments decisions. Again, since that's our basis and then since our business is commodity, we continue to believe that in the medium to long term that market prices will be set by the marginal, the cost and return criteria of the marginal barrel that's needed to meet that demand. And so, you know, classic economics, supply and demand, marginal producer sets the market price. We try to take a kind of a high-level view of that, you know, what will be the resources that come on and meet that last barrel of demand. And that is the view that we take around what will kind of be the price-setting mechanisms in the market. And, of course, that evolves over time. And that's what sets – Generally, our price outlook is the economic and demand side of the equation, including advances in technology, including additional regulations and policy around the world. And then we look at where technology could go and what supply sources will come on and what will set kind of the cost of supply and then set our pricing. When we finish that exercise, we step back and compare our view with other published views, third-party views, and check for reasonableness. To the extent that other companies publish their numbers, we look and compare to make sure that our estimates at least appear reasonable. In general, they're always within the range, maybe perhaps on the low side of what we typically see out there, but that's how we do it. You can imagine that process does not lead to huge changes year on year simply because the fundamentals that are referred to don't dramatically change year on year. They do evolve, obviously. Certainly, if you think about the tight gas or the shell revolution, that was an evolving and developing story, and that obviously had impacts on marginal tiers of supply, which had impacts on pricing. But that has been kind of an evolution that's been built into the price deck over the years, and it's pretty constant now. So that's how we do it, and that's how we think about it. And then we make our investment decisions based on that and then test – really on the low side and the high side to make sure that the investments that we're putting in place are robust to the cycles that we know we're going to see.

Okay, noted. The second question, I just wonder if you could give us an update on Papua New Guinea. There were some articles this morning about negotiations with the government not going according to plan for the expansions. Could you just update us on where that project is and what that means for the FID?

Sure. Let me just start with maybe the bigger picture of Papua New Guinea. Obviously, we're the operator of the P&G LNG project, which was a $19 billion project. It's brought employment to about 3,200 people in Papua New Guinea. Since 2010, we've spent about over $4 billion on Papua New Guinean services, including about $2 billion spent with the landowner companies. We've invested almost $300 million in community and infrastructure programs focused on education, health, women's empowerment, a number of other areas. So the established business that we have there I think has been a real benefit to Papua New Guinea and obviously a benefit for us. We're looking at this expansion and we're looking at bringing in the Papua project with Totao along with Ping Yang and have been in negotiations with the government. We're disappointed here recently that we weren't able to reach agreement with the government on Ping Yang, but we're very hopeful that those discussions can move forward and continue. I think from our perspective, we've got to find a way to get to a win-win proposition. We've got a big portfolio of opportunities, as I've been referring to here this morning, and anything that we decide to FID and move forward with, has to compete within that portfolio. So that's the basis on which we're looking at this negotiation and working with the government. It needs to be a win-win. I think we'll continue to try to establish that with the government, but I also think we've got some time given all the other opportunities in front of us. And frankly, given where we're at today in the supply-demand balance of LNG, I think we've got time to work it with the government. And I'm hopeful and I'm fairly confident that at some point we'll find a way forward with them.

That's very helpful.

Thank you. Your next question comes from the line of Janine White with Barclays.

Hi. Good morning, everyone.

Good morning, Janine. Good morning, Janine.

So I guess my first question is on the Permian, and it's dovetailing off of Neil's question, and it's specifically on the rig count. So can you provide a little more color on how operations are going and if there's any change in the number of rigs you see required to make the million barrels a day that you laid out earlier? So when we look at the data, the rig count has been trending flat to down. over the past six months, and I know that the rig counts can be pretty deceiving given improving efficiencies and all, but have you encountered anything unexpected, in particular, we're referring to the subsurface in the Delaware?

Yeah, let me, I'll talk on a high level. First of all, I'm not a big believer in extrapolating rig counts into kind of What we're doing in the business and the approach that we're taking and the progress we're making in the development, I think it's a fairly crude measure, particularly for the work that we've been doing there. As you recall, what we laid out in the Permian, and particularly in the Delaware, was a large-scale approach which was unique to industry. That leverages the scale that we have as a corporation, leverages the technology that some of the resources that we have within the company. And we have been developing the tools to model and develop that resource that we think is pretty unique in the industry. We've used a lot of rigs to help delineate what we're doing in that space. And as we collect that information, build those models, and optimize, I think you're going to see movements around what we're doing there. So I would not, again, take too much, draw too many conclusions from, strictly speaking, the rig count. With respect to that work that we've been doing, as I mentioned in my prepared comments, we feel really good about the progress that we're making and seeing significant improvements in the initial production across 365 days and longer. We like what we're seeing with the recovery rates. We like what we're seeing with the D&C costs, and those are coming down. We like what we see around some of the well performance, particularly in the Delaware. I think if you look at the results that we're getting, we're leading industry, I think. It's fair to say. Good progress there. It's just really a question of how we want to continue going forward and pace that. I know that Neil and his team are looking at that in light of you know, the environments that we've come out of in 2019. And when we get to March, I think the folks will spend some time kind of sharing some of the proof points, some of the data with you to help you get a better picture of that, and then we'll talk more about kind of how we see the path going forward here. But bottom line, the potential of that and the value propositions that we've talked about haven't changed. If anything, we like it better.

Okay, great. That's really helpful. Thank you. And then just switching gears here quickly, as far as the light, sweet, heavy, sour spreads being slower than expected to adjust and the crude discounts maybe not being at full parity with the product pricing, you indicated in your prepared remarks that ultimately you expect these issues to improve or reverse. And so my question is, could this be a potential tailwind for as early as 1Q? And any additional comments you have on this timing and how you see that developing would be really helpful. Thank you.

Sure. When you say developing slower than predicted, I don't know that we ever had a real firm prediction on how this was going to play out. The markets have got a lot of variables that go into it. This was a known event that was going to happen. A lot of different players, a very fragmented market, lots of different actions with storage and inventory. I think it's really difficult to predict exactly how all those variables and all those independent actions come together and result in and what we're seeing in the marketplace. I can tell you what you see is explainable. You can certainly put a rationale behind it, how long it takes to play out and get back to what we think eventually will be more market parity. I think it's really a function of where the different inventories and how people are choosing to optimize around the new requirements with respect to IMO. The reason why we're convinced that eventually we'll get back to parity is because the fundamentals associated with IMO are pretty clear, and the economics of refining aren't real hard to figure out. As you've taken sulfur out and the valuation of high sulfur feedstocks and products have dropped down, that's got to make itself back into the crude, and crudes that are higher sulfur and heavier, they're producing more of those lower value products. ultimately have to reflect the fact that their product, the yield profile off that barrel of crude is less attractive. So I think that's a pretty foundational element of crude markets and refining, and eventually those will hold. And then the short term, depending on the different actions that folks have taken and what their position is and what moves they did earlier and what inventories look like, it's going to take time to work itself out. I would tell you from our perspective, we managed this based on the longer-term fundamentals. We made investments based on the longer-term fundamentals. We didn't make any investments that assumed credit for this transition and the benefits that might come along with it given a particular investment. We just recognized it would come. But the decisions that were made were based on more of the longer-term fundamentals.

Great. Very helpful. Thank you very much.

And operator, I think we have time for one more question.

All right, great. We'll take that question from Ryan Todd with Simmons Energy.

Thanks. Maybe a quick follow-up on some of your comments earlier on the LNG markets. Are you seeing any comment on whether you're seeing any pressure on existing or currently negotiated contracts? And Also, some of your European peers have been successful in offsetting at least some of the ongoing price weakness and the median term price weakness via active portfolio trading globally. I believe you've looked to increase those capabilities across your organization globally. Can you maybe talk about progress in that direction and how you may be able to mitigate median term weakness in global ONG prices?

Yeah, thanks, Ryan. I think you're right. Your observations are pretty solid in terms of there are opportunities with portfolio trading to try to mitigate some of that shorter-term weakness. And I think as you look at the markets, you see the markets kind of slowly evolving along those lines. At the same time, a lot of the buyers in the LNG market are interested in ensuring long-term deliveries and surety of supply, and so there is still a desire for the longer-term contracts. As new projects are FID-developed, oftentimes the financing requires secured outlets and terms on that. So there are a lot of underlying dynamics that keep what I would say is the more traditional longer-term contracts And so while I think the markets will continue to develop and there'll be more trading on top of that, I think there'll still be a layer of what I would say is the historical approach to LNG, and that'll be a very slow-moving transition over time. With respect to the LNG trading that we have, it's been widely reported, and I've talked about it the last time I was on. We have been looking and moving more into some of the trading as that market evolves, but our intention is to kind of evolve with the needs of the market, and that will just become a bigger piece of our business as that becomes a bigger piece of the market and more relevant to the market.

Okay. Perfect, thanks. And then maybe one quick follow-up on chemicals. Obviously, it's been a tough environment, and you talked about the eventual rebalancing from a supply-demand point of view. Can you talk about, I guess, as we look over the next 12 to 18 months, what you see maybe in terms of some of the market dynamics and the recovery from that point of view? And you highlight in your presentation growth-related expenses of $160 million. at least on a Delta basis in the quarter. You have a pretty active growth program. Any help on maybe the direction and magnitude of those growth-related expenses going forward?

Yeah, sure. I think, so let me start with your last point around growth-related expenses. I mean, obviously, as large capital projects, large manufacturing investments, as you progress those, there are costs that come along with them. I think you can think about those growth-related costs and three basic buckets. The first is, as you bring on new investments, so the steam crackers that we brought on, the polyethylene lines that we brought on, those different investments that are up and running, obviously there are costs associated with those new investments. And as we first bring those up, we categorize those as growth expenses because they're new facilities that And we want to make sure as we look at those, we think about those different than what the base expenses are since we are driving base costs down. We've got to at the same time recognize that more costs will come in from operating new facilities. So that's one bucket. Other projects that are in construction, so as an example, our cracker in Corpus Christi area, there are expenses associated with in-progress projects, which is another bucket to think about with growth. That's not often. oftentimes not as large because a lot of the costs associated with that development gets capitalized, but there are expenses that go along with it, so that's within the bucket. Then the third growth expense is as we look at further into the future and look at opportunities and project teams are working, the next project to fill the pipeline further out, that's a growth expense. In the chemical businesses, that's how you should think about those growth expenses. And obviously, we keep a pretty close eye on those and are making sure that as we grow, we're growing as efficiently as possible, but also recognize that that activity has to be funded and therefore recognize and accept those expenses. With respect to the cycle and how we see things playing itself out, it's really a function of Where growth goes, I mentioned really strong growth in the polyethylene business, the polypropylene business. We continue to see that. We'll have to see how the world economies evolve here. China obviously has got some challenges here in the short term that may manifest themselves in the quarter, so difficult to see how long and what impact that will have on where China goes. That's obviously a big player in the chemical business. Our perspective is... While we're interested in trying to look at how long that cycle is going to last and where it goes to, we recognize we don't control it. So focusing on the things that we can do to make sure that as we're in that down cycle that we're successful by making sure we're running efficiently, keeping our costs down, really ensuring that all of our production on the margin is profitable is what the organization is focused on. I think this year will continue to be a challenging year for our chemical business, but I think as we get in the year further out, we'll start to see some things improve, and then it's just the slope of that improvement will be a function of a lot of different things that, frankly, it's hard to predict that far out. I'll come back to, though, we know these cycles are going to happen, and we know the impact on our business is driven by the sectors that we've chosen to invest in and market in, If you go back in time, those decisions have proven to be very beneficial to the company. And, in fact, one of the reasons we find the margins where they are is because that's attracted a lot of additional investment. Growth will take us out of that, and it's just a function of while we're waiting for that growth to catch up and exceed that capacity, we've got to make sure that we're managing this business as tightly as we can so that we can stay as profitable as we can.

All right, thank you.

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

And that does conclude today's conference. We thank everyone again for their participation.