Exxon Mobil Corporation

Good day, everyone, and welcome to this ExxonMobil Corporation first quarter 2020 earnings call. Today's call is being recorded. At this time, I'd like to turn the call over to the Vice President of Investor Relations and Secretary, Mr. Stephen Littleton. Please go ahead, sir.

Thank you. Good morning, everyone.

Welcome to our first quarter earnings call. We appreciate your participation and continued interest in ExxonMobil. As a quick introduction, my name is Steven Littleton. I assumed the role of Vice President of Investor Relations on March 15th. Joining me on the call today is our Chairman and CEO, Darren Woods. Before discussing our results, I would like to express our hope that all of you listening and your families are safe and taking the appropriate steps to fight the coronavirus. These are challenging and unprecedented times, as the world deals with and adapts to the coronavirus pandemic. Global economies have slowed down significantly as governments work to contain the disease. During the call today, we will put our results into context and share with you how our business performed in the first quarter. After I cover the quarterly financial and operating results, Darren will provide his perspectives reflecting on the broader market environment and steps we're taking to both respond to these challenges and ensure we remain well positioned for the recovery. Following Darren's remarks, I will be happy to address specifics on the quarterly reported results, but Darren will be available to take your questions on broader themes, including the corporation's actions related to COVID, progress on major growth projects, strategic priorities, 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 supplemental information at the end of this presentation. As referenced in the cautionary statement, please take note that in light of the COVID-19 pandemic and reduced spending plans we've put in place, many of the forward-looking statements from our investor day have changed. We will provide a perspective on updates during this call, and we'll provide a longer-term perspective as we head into next year. I'll now highlight developments since the fourth quarter on the next slide. In the upstream, liquids realizations fell significantly through the quarter, approximately 55%, as impacts from the coronavirus rippled through the global economy, significantly reducing demand. From an operational standpoint, liquids production increased by 2% from the fourth quarter, leading to the highest quarterly liquids production since 2016, including a 15% increase in liquids from the Permian. If you look at total production from the Permian, it has increased by 20%. Curl achieved record production in the first quarter, reflecting the benefit of the investment in additional ore crushing capacity which will further reduce unit costs. Offshore Brazil, the Weirapuru Exploration Well discovered hydrocarbons, and results are now being analyzed to inform further exploration activities. In the downstream, refining margins fell to similar levels as first quarter 2019 and remained near 10-year lows, with the COVID impact significantly reducing demand in March. Refinery utilization was essentially flat, with lower maintenance levels than the prior quarter, largely offset by reduced demand. Margins improved in the chemical business, benefiting from lower liquids feedstock prices. Our employees have stepped up in a significant way to support the ongoing COVID-19 response efforts. Darren will provide additional details on how we are maximizing production of key products redirecting charitable contributions, and lending our technical expertise to aid healthcare workers, first responders, and others in the fight against the coronavirus. Let's move to slide four for an overview of first quarter results. The table on the left provides a view of first quarter results relative to fourth quarter 2019. For context, let me walk you through the impact of the identified items. Starting with the fourth quarter 2019, the results of $5.7 billion included identified items of $3.9 billion, notably the Norway divestment. Excluding these items, fourth quarter results were $1.8 billion. Despite this challenging environment, the underlying business results excluding identified items were $2.3 billion, up $500 million from the fourth quarter. As shown in the middle section of this table, liquids growth and lower operating expenses increased earnings, while the absence of year and LIFO impacts was a partial offset. U.S. GAAP first quarter earnings of a negative $600 million include the impacts of two separate non-cash identified items. The first was an adjustment to inventory valuation. Given the significant drop in commodity prices in the first quarter, The book value of our inventory was adjusted downward to reflect the lower market values in accordance with U.S. GAAP. This lower cost of market adjustment resulted in a charge of $2.1 billion. It is important to note that we may see further adjustments during the year or potentially an unwinding of the first quarter impact depending on changes in commodity prices going forward. The second item was related to impairments of about $800 million. Market conditions in the first quarter, which included significant reductions in both commodity prices and equity markets, required an assessment of carrying values for some assets. This evaluation resulted in non-cash impairment charges of approximately $800 million to recognize reduced market values assigned to goodwill and an upstream equity company, again, consistent with US GAAP. Turning now to slide five, we'll look at each of our businesses in detail, excluding identified items I just discussed, starting with the upstream. Upstream earnings, excluding identified items, decreased by approximately $1 billion, largely driven by lower prices, which reduced earnings by more than $1.7 billion, with liquid realizations down 25% and gas realizations down 10% versus the fourth quarter. This was partly offset by favorable foreign exchange impacts and higher volumes, primarily from strong growth in the Permian and Guyana. Lower expenses and favorable tax items were also a help to earnings. On the next slides, I will provide more details on volumes. Liquids volumes grew by approximately 150,000 oil equivalent barrels per day compared to the first quarter of 2019. Divestments, primarily the Norway non-operated business, reduced liquids volumes by 95,000 oil equivalent barrels per day. Growth of 100,000 oil equivalent barrels per day was underpinned by the Permian and Guyana Phase I ramp-up at Curl and Hebron and the Upper Zocum Project in Abu Dhabi. Permian production in the quarter was more than 350,000 oil equivalent barrels per day, an increase of 56% versus the prior year, or 126,000 oil equivalent barrels per day. Natural gas volumes were down 88,000 oil equivalent barrels per day versus the prior quarter, driven by Norway and Mobile Bay divestments, as well as lower demand. Moving to downstream on the next slide, earnings excluding identified items increased by more than $400 million relative to the fourth quarter of 2019. The absence of year-end LIFO inventory adjustment and unfavorable foreign exchange impacts reduced earnings by nearly $700 million. Favorable margin impacts increased earnings by more than $900 million. The increase was driven by positive mark-to-market trading benefits which were partly offset by lower refining margins as demand declined in the quarter, particularly in March. We also saw impact related to lower demand with COVID-19, but this was more than offset by lower expenses that increased earnings by $300 million. Moving to the next slide, I will discuss chemical results. Chemical earnings excluding identified items increased by more than $800 million, with a significant improvement in margins from lower fee costs across the value chain, reflecting the benefit of integration. Additionally, lower expenses contributed approximately 30% of the earnings improvement. Let's turn to the next page for a look at first quarter cash profile. First quarter earnings when adjusted for depreciation expense, non-cash identified items, changes in working capital and other impacts yielded $6.3 billion in cash flow from operating activities. Cash flow from operations and asset sales was $6.4 billion. Shareholder distributions were $3.7 billion, consistent with fourth quarter and leaving $2.7 billion after distributions. First quarter additions to PP&E and net investments and advances were $6.5 billion. As noted in the press release, CapEx was $7.1 billion in the quarter. As the announced reductions are implemented, CapEx will trend down over the course of the remaining year. Gross debt increased approximately $13 billion in the quarter as we took steps to increase liquidity in the current market environment. As a result, we ended the quarter with $11.4 billion of cash. Turning to slide 11, I will cover a few items for consideration with regards to our outlook for the second quarter. Given the challenging market conditions, production will be lower in the second quarter due to economic shut-ins and market-related curtailments. At this time, the estimated second quarter impact is 400,000 oil equivalent barrels per day. Also in the upstream, natural gas production will be lower due to seasonal demand. with an expected impact of approximately 100,000 oil equivalent barrels per day. In the downstream, we are seeing impact from reduced demand with continued pressure on refining margins. For the second quarter, we anticipate sparing of approximately 25% of our refining capacity. Scheduled maintenance is anticipated to be in line with levels from the first quarter. In chemical, we anticipate continued margin support from lower liquid feedstock pricing, while noting that overall realizations remain near bottom cycle for many of our products. Sentiment for the second quarter chemical demand is mixed, varying across product segments. Demand for packaging and hygiene is expected to remain strong, while automotive and durable demand will continue to be challenged. Summary to downstream, scheduled maintenance is expected to be in line with the previous quarter. Corporate and financing expenses are expected to be about $900 million. Finally, we will continue to progress spending reductions in line with our recent announcements. With that, I'll turn the call over to Darren.