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spk02: Good day, everyone, and welcome to this ExxonMobil Corporation first quarter 2022 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, Mrs. Jennifer Driscoll. Please go ahead, ma'am.
spk10: Good morning, everyone. Welcome to our first quarter earnings call. We appreciate your interest in ExxonMobil. Joining me today are Darren Woods, our Chairman and Chief Executive Officer, and Kathy Michaels, our Senior Vice President and Chief Financial Officer. The slides and our pre-recorded remarks were made available on our investor section of our website earlier this morning, along with our news release. In a minute, Darren will provide opening comments and reference a few slides from that presentation. Then we'll conduct a question and answer session. We expect to conclude the call by about 9.30 a.m. Central Time. Let me encourage you to read our cautionary statement, which is on slide two. Please note we also provided supplemental information at the end of our earnings slides, which are posted on the website. Now I'll turn the call over to Darren Woods.
spk06: Good morning, and thanks for joining us today. As we laid out our most recent investor day, our goal is to sustainably grow shareholder value through the execution of our strategic priorities seen on this slide. As we think about recent events, our job has never been clearer or more important than The need to meet society's evolving needs reliably and affordably is what consumers and businesses across the globe are demanding and what we delivered this quarter. First, we continue to build our competitively advantaged production portfolio, bringing new barrels to market today, driven in part by the high-value investments we continue to progress through the pandemic-driven downturn in prices. A prime example of the benefits of our continued investments is Guyana. This quarter saw the successful startup at Leesa Phase 2. Production is ramping up ahead of schedule and is expected to reach capacity of 220,000 barrels of oil per day by the third quarter of this year. Combined with Leesa Phase 1, we will bring our total production capacity in Guyana to more than 340,000 barrels per day. Our third project, Piara, is running ahead of schedule, with the startup now likely by year-end 2023. Yellowtail, the fourth and largest project to date on the Statebrook Block, received government approval of our development plan and is on schedule to start up in 2025. Further adding to our portfolio, we have made five new discoveries this year that have increased the estimated recoverable resources to nearly 11 billion oil equivalent barrels. Turning to the U.S., we continue to grow production in the Permian Basin. In March, we produced about 560,000 oil equivalent barrels per day, on pace to deliver a 25% increase versus 2021. Looking forward, we're also growing our globally diverse portfolio of low-cost, capital-efficient LNG developments. In Mozambique, the 3.4 million ton per year Coral South floating LNG production vessel is being commissioned after arriving on site in January. Coral South is on budget, with the first LNG cargo expected in the fourth quarter. In addition to investing in high-value opportunities in our existing businesses, we are also advancing opportunities in our low-carbon solutions business. During the quarter, we announced plans to build a large-scale hydrogen plant in Baytown, Texas. We anticipate the facility will have the capacity to produce up to 1 billion cubic feet of hydrogen per day. Combined with carbon capture, transport, and storage of approximately 10 million metric tons of CO2 per year, this facility will be a foundational investment in the development of the Houston CCS Hub, which will have the potential to eliminate 100 million metric tons of CO2 per year and represents a meaningful step forward in advancing accretive, low-carbon solutions. We also reached a final investment decision to expand another important carbon capture and storage project at our helium plant in Wyoming. In addition, we received the top certification of our management of methane emissions at our Poker Lake development in the Permian. We're the first company to achieve this certification for natural gas production associated with oil. At the end of the first quarter, we implemented a series of organizational changes to further leverage the scale and integration of the corporation, improve the effectiveness of our operations, and better serve our customers. we combined our downstream and chemical operations into a single product solutions business. This new integrated business will be focused on developing high-value products, improving portfolio value, and leading in sustainability. As a result of these changes, our company is now organized along three primary businesses, Upstream, Product Solutions, and Low Carbon Solutions. These three businesses are supported by corporate-wide organizations, including projects, technology, engineering, operations, safety, and sustainability. Before I cover our financial results, I want to provide our perspective on the market environment. In the first quarter, a tight supply-demand environment, primarily due to the low investment levels during the pandemic, contributed to rapid increases in prices for crude, natural gas, and refined products. Clearly, the events in Ukraine have added uncertainty to what was already a tight supply outlook. Rent rose by about $22 per barrel, or 27% versus the fourth quarter. Today, natural gas prices remain well above the 10-year historical ranges, driven by tight global market conditions and ongoing European supply concerns. The same tight supply-demand factors have also pushed refining margins near the top of the range. Chemical margins in Asia have fallen sharply, with product prices lagging the steep increases in feed and energy costs. In our case, the U.S. ethane feed advantage provided a significant positive offset versus this global view. With that market environment as the backdrop, let me turn to our first quarter financials. Earnings totaled $8.8 billion, excluding an identified item, the after-tax charge associated with Soclan 1. As you know, we are discontinuing our Soclan 1 operations in Russia, which represented less than 2% of our total production last year. about 65,000 oil equivalent barrels per day, and about 1% of our corporate operating earnings. As the operator, our priority continues to be the health and safety of our people and the protection of the environment. Of course, we remain in full compliance with all U.S. sanctions and are closely coordinating with the U.S. administration. Turning to structural savings, we continue to drive further efficiencies, now delivering more than $5 billion of annual savings versus 2019. CapEx totaled $4.9 billion for the quarter, in line with our full year guidance of $21 to $24 billion. Cash flow from operations was $14.8 billion, maintaining our strong balance sheet. Our debt-to-capital ratio remains near the low end of our 20% to 25% target range, while our net debt-to-capital ratio dropped to about 17%. We returned $5.8 billion to shareholders, of which about two-thirds was in the form of dividends and and the remainder share repurchases consistent with our previous program. We said during our corporate plan update in December that we expect to repurchase $10 billion of our shares. This morning, we announced an increase to the program, up to $30 billion in total through 2023. This move reflects the confidence we have in our strategy, performance we are seeing across our businesses, and the strength of our balance sheet. Before I leave you with a few key takeaways, let me share one other decision we made this month with respect to our workforce. Continually investing in our people and maintaining a strong culture are core strategic priorities and essential to achieving our long-term objectives. As part of that effort, we are crippling the number of employees eligible for stock grants by bringing in high-performing employees at earlier stages of their careers. Our goal is to increase our people's ownership in the company and importantly, in our financial and operating results. Secondly, in June, we will implement a 3% off-cycle compensation adjustment in the U.S. to maintain competitiveness. Our compensation and benefits programs are a key element of our total value proposition that enables us to continue to attract and retain the best talent in the industry. Let me leave you with a few key takeaways. We had a strong first quarter, and I'm proud of the organization's progress. The impact of weather on the upstream volumes and derivatives and timing impacts in the downstream obscured a strong underlying performance. We anticipate an absence of these impacts and strong refining margins will position us very well in the second quarter. We are making outstanding progress on our high-value growth developments in Guyana, the Permian, and LNG. Our new Corpus Christi chemical complex is up and running ahead of schedule. and generated positive earnings in cash flow in its first quarter of operations. We have strengthened the balance sheet and are creating value for shareholders through an attractive dividend and increased share repurchases. We are advancing hydrogen, biofuels, and other low-carbon solutions consistent with our intention to lead in the energy transition, leveraging our competitive advantages of scale, integration, and technology. Finally, we are evolving our organization from a holding company to an operating company, to better serve our customers' evolving needs and grow long-term shareholder value. Before we take your questions, I want to acknowledge the very real impact the high prices are having on families all around the world. You may recall that we anticipated this in 2020 with industry investment levels well below those required to offset depletion. That is why we worked so hard to preserve our capital expenditures during the depths of the pandemic. to ensure that additional production was available to meet the eventual recovery in demand. Today, that long-term focus is paying off with growing production of industry-advantaged supply. We are continuing to focus on the fundamentals through our ongoing investment in advantaged projects and low-emission initiatives to ensure that we can continue to meet the critical needs of people all around the world reliably and affordably well into the future.
spk10: Thank you, Darren. One last piece of housekeeping I wanted to mention is that ahead of the segment reporting change next quarter, we plan to provide you annual and quarterly information for the past five years using the new reporting segments to assist you with your modeling. We plan to post the new data on our website around mid-June. Also, please note that starting with this call, we ask our analysts to limit themselves to a single question. so that we can fit in questions for more people. However, you may remain on the line in case clarification is needed. With that, operator, please provide the instructions and then open the phone lines for the first question.
spk02: Thank you, Mrs. Driscoll. The question and answer session will be conducted electronically. If you would like to ask a question, please do so by pressing the star key followed by the digit 1 on your touch-tone telephone. Once again, we request that you limit yourselves to one question so that we may take as many questions as possible. We'll take our first question from the line of Phil Gresh with JP Morgan.
spk03: Yes, hi, good morning, Darren and Kathy. Good morning. So I guess my question is a little bit of a two-part question then. The buyback, $30 billion over two years. Previously you talked about, I think, $10 billion mostly in 2022. So should we assume the... $30 billion is essentially a rateable $15 billion this year. And then if that's the case, it still seems like there's a lot of excess cash potentially building up at the strip prices. So how do you think about any excess cash, debt reduction, et cetera, given where the leverage is versus targets now? Thank you.
spk11: Great. Thanks very much. So, look, we don't know exactly how long the strong market conditions that we're seeing today are going to persist. And we've learned some pretty tough liquidity lessons during the pandemic. So our cash balance has been building a bit. You would see that it was 11 billion as we ended the quarter. So you should expect with the backdrop of these strong market conditions that even with the higher buyback program that we announced this morning, we would be building our cash in the near term, you know, potentially between 20 to 30 billion over time. And so that really addresses our need for flexibility in what's an incredibly uncertain environment and ensuring that we'll continue to appropriately invest in the business and sustain the share repurchase program that we talked about through 2023. In terms of just how to think about the pace of the program, you know, it's up to $30 billion through the end of 2023. We obviously got $2.1 billion done in this quarter. You should think about us looking to get up to a ratable pace and that roughly we'd be looking to get $15 billion done a year. Again, looking to sustain the program more consistently over this two-year period. That's how I would think about roughly where we see our cash balance and just looking to maintain a lot of flexibility in what's a pretty uncertain environment. You know, we did learn some real lessons during the pandemic. We used to try and hold our cash balance, call it between $3 and $5 billion, and, you know, run a lot of commercial paper. And when the pandemic hit, you know, that was quite problematic for the company. So we're going to be a little bit more conservative here in the near term.
spk20: Your next question comes to the line of Janine White with Barclays.
spk01: Hi. Good morning, everyone. Thanks for taking our question.
spk06: Good morning.
spk01: Good morning. Our question is related broadly to your global gas opportunities. Can you talk about how you see the evolution of the U.S. market and how do you see certified gas playing a role in U.S. supply? And I guess, do you intend to really look for a global outlet for a portion of your U.S. gas? And we understand that Golden Pass, that provides a great opportunity to capture the spread, but maybe are you thinking about some other opportunities besides Golden Pass? Thank you.
spk06: Very welcome, Jeanine, and good to hear from you again. Just maybe a broad comment on the LNG business. Obviously, as we're seeing across each of our sectors, the pandemic had a pretty profound effect with respect to deferring, delaying capital spend, and therefore additional capacity coming on. And as the pandemic has subsided and demand has recovered, we're seeing very tight markets and And then with the Ukraine and the situation there, that has added a significant additional level of uncertainty around supply. And so I think a very dynamic market and a very high-priced market. And what we've seen in response to that is basically very full capacity utilization all around the world, maximizing the amount of LNG moving. Obviously, we've got our coral supply. LNG starting up later this year, which will help contribute and ease some of that tightness. And then you mentioned Golden Pass, which is an important leg of our strategy of making sure that we have access to LNG supplies that we can supply demand all around the world. And that's a very important part of our strategy and energy going forward is making sure that we've got barrels that we can then move and trade in the across the different regional demand centers. And so I think we're going to continue to look for opportunities in LNG. It's an important part of the portfolio. We've got opportunities in PNG that we're progressing. Obviously, additional investments in Mozambique are in the future as well. And so I think it'll be a very important foundational layer of supply and a really important part of our overall business offering.
spk11: And I would just add, you asked a little bit about that top rating that we got on methane management, you know, in Poker Lake and the Permian. And we would say we really see a market over time building for lower emission products. And that really plays into that. And we would certainly hope that we'd also start to see a premium, you know, on those lower emission products, right? And we'd say that's consistent across our business, but we definitely are looking to play into that going forward.
spk06: Yeah, I would just add to that. Obviously, that would be a benefit, but it's certainly not the main driver with respect to making sure that our operations have very low emissions and very low methane emissions. And so that's a core part of our commitment in running these facilities. And to the extent the market pays a premium for that, that's an advantage that we'll look to take advantage of.
spk02: Your next question comes from the line of Devin McDermott with Morgan Stanley.
spk05: Hey, good morning. Thanks for taking my question.
spk02: Good morning.
spk05: I wanted to ask about some of the structural cost reduction goals you continue to make good progress there. But the question is, can you add a little bit of color around what you're seeing on just broad cost inflation, labor and otherwise, and how, if at all, that impacts some of those goals and targets over time?
spk11: Sure. So I'll start out with just saying that we feel good about the progress that we're continuing to make you know at the end of the fourth quarter we had said we had gotten to about five billion in structural cost savings relative to 2019 we're now at 5.4 billion so I'd say overall we feel really good about that progress obviously we have now put in place the new organizational structure which should drive incremental efficiencies on top of just driving a better operation faster speed to market, better deployment, faster deployment of resources to the highest opportunities across the company. We're not immune to inflation, obviously, and we would see a fair amount of both energy and feedstock inflation coming through the business in certain areas that put a little bit of pressure on margins. Overall, in terms of how we're managing that, you know, it flows through two parts of the operation. So one is on CapEx. We feel really good about where we're at there because during the pandemic, we really took the opportunity to extend contracts on work that was coming forward. So I'd say while the shorter cycle work programs obviously have some inflationary pressure, the teams are working really hard to offset that. Overall, I'd say we really try and lever master service agreements, self-managed kind of procurement. We utilize a diverse set of global contractors across the globe and trying to really manage inflation. So through the quarter right now, I'd say we're doing a pretty good job of offsetting it, but it's obviously something that we're watching really closely.
spk06: Yeah, I would just emphasize the point that Kathy made, but I think one worth remembering that this longer-term view that we took during the pandemic and trying to maintain a level of investment, we also recognize that as economies recovered and demand picked up, that we would potentially see inflation, and so we were very focused on, in anticipation of that, trying to lock in some of the pricing and savings during low points that we could then take advantage of early on in the recovery, which is... The final point I would make is with the new organization, it's working hard, and our leadership team is working hard to offset inflation and... job of that. We think we've got a pretty good handle here, certainly in the short term.
spk20: Obviously, we'll see how the market develops. All right. Next question will come from the line of Neil Mehta with Goldman Sachs.
spk14: Yeah. Good morning, team. A question we wanted to focus on was around downstream. And Darren, you know the refining business really well, given your leadership role there over the years. And So I'd love you to kind of characterize how you're seeing the crack and refining market environment, which is obviously extraordinarily strong. And then put that in the context of the quarter, which was softer in downstream. But to your point, I think a lot of that was timing effects. And it feels like things should sequentially move in the right direction as you move into 2Q. So the big picture question around the refining macro and then tie it into how you're thinking about the sequential move in your earnings power from here.
spk06: Sure, and good morning, Neil. Yeah, I may again start, and I feel like we're going to be a little bit of a broken record with respect to the anchoring a lot of what we're seeing in the market today across our sectors with the pandemic. And you'll recall as we were going through that, you know, very deep down cycle where demand for fuels products dropped significantly, there was a lot of refinery rationalization. In fact, refineries were shutting down at a much, much higher rate than historical averages. four times, if not higher. And so you had a lot of capacity coming out of the marketplace. There were new facilities that were planned or in progress, primarily in the Middle East and out in Asia. Those got deferred and delayed because of the crunch. And so you've got, I think, this period of time where you've taken a lot of capacity out, and new capacity that was planned or in progress has been deferred and delayed. And so we've got a period with lower supply. And then, of course, as demand has picked up, that has led to this very tight market and the higher margins that we're seeing. What compounded that then is the important role that Russia plays in supplying markets around the world. And with the uncertainty associated with that supply and potential impacts of additional sanctions, that's put, I think, additional concern and anxiety in the marketplace, which is leading to a very, very high margin environment. One, frankly, that I don't think is... Sustainable, one, and two, good for economies around the world. So I think we're in a bit of a very tight time frame. And as you talked about the first quarter, obviously we saw that evolve over the first quarter with kind of rising margins in January, February, March, and now into April, very high margins. And so I think that's something that we're going to see for quite some time, certainly here this year and into next, depending on obviously how demand plays out. final point I make, which you touched on, is you're right, this quarter reflects that ramp-up of margins, so you're not really seeing the healthy market that we're experiencing right now in the first quarter results. That will, I think, manifest itself in the second quarter. And then some of the timing impacts we expect to see unwind. Maybe I'll let Kathy just touch on those.
spk11: Sure, I'm happy to do that. And just to add a stat, our our March refining margin was about $4 higher than the average in the quarter. So that's kind of reflecting that ramp up that Darren just mentioned. And then obviously, in our prepared script, you would have seen us talk a fair amount to timing impacts that impacted profitability and downstream for the quarter. I think everybody understands the marked market on open derivatives, so I won't talk about that. But we had another 590 million of other timing differences about 400 million of that was also tied to derivatives. We had 200 million that associated with cargoes where the derivatives actually closed in March, and then they reversed when the physical deliveries occurred in April. So I'd say the way you should think about that is we took a $200 million bad guy in March, and we will see a $200 million good guy in April. We also had 200 million associated with settled derivatives that we just use to ensure pricing of our refinery crude runs is ratable. The way you should think about that is it's kind of a wash over time. Sometimes that pricing mechanism gives us a positive and a quarter. Sometimes it gives us a negative and a quarter. Over time, it's just a wash. And then the last impact that we talked about was just commercial pricing lag. And the way I would think about that is, We were in a steep rising price environment over the quarter, and so we had pricing that was a little bit lagging. If we're in a stable environment, that pricing will catch up. If pricing kind of turns to a downward curve, then we'd actually get a little bit of a benefit. So that's how I think about it as you're trying to, you know, just model the evolution into the second quarter here. You know, the bottom line is, obviously, we're carrying a lot of positive momentum as we stand here today.
spk20: Thanks, guys.
spk02: Next, we'll go to Doug Leggett with Bank of America.
spk08: Thanks. Good morning, everyone. Let me first of all thank the investor relations team for the better presentation of results. So thanks for that, Jennifer. But I'm also, you know, we're losing a question here, so I'll temper the enthusiasm. But I'm kidding. Thank you. So, guys, my question, Darren and Kathy, is on your balance sheet. Darren, going back some years, I guess a couple of years ago, you talked about don't expect Exxon to go back to the days of zero net debt. We're going to have a more efficient balance sheet. I just wonder if you can frame that for us today, then what we should expect that to look like, because obviously that speaks to go forward cash distributions, buybacks, cash on hand, the whole thing, and obviously dividend policy. So that's my question for today, please.
spk06: Yeah, thank you, Doug, and good morning to you, and I appreciate your compliments to the IR team. I know they've been working hard to make sure that they're improving the transparency and giving you the information that you need to help understand what we're doing here and the business results that we're achieving. I think to your point on the balance sheet, and you'll remember what we started back in 2018 was this counter-cyclical approach where we leaned on the balance sheet during the depths, made those investments with an eye on the fundamentals and the expected recoveries and to take advantage of the ups with investments and facilities in the ground and then reinvest and lean into the down cycles. And I would tell you, Generally speaking, that continues to be an ambition of ours, and part of our strategy is to try to drive the countercyclical investment approach, which has worked out very well for us and is paying off in today's market. That's, I would say, one philosophy. Obviously, it is tempered by just the availability of cash and how deep and high the swings in the commodity cycle are, and so I think part of that balance sheet, and I'm going to Tossed it to Kathy here in a minute to let her make some comments on it. But part of that is just going to be a function of where you're at in the cycle and how severe that cycle is. And so there will be periods, I think, where you see some movement in both cash and how the balance sheet is structured based on where we're at and where the revenues are. And I would also tell you, though, that what's not going to change is being very focused on making sure that any investment that we make is advantaged across the cycle. You'll recall my definition of disciplined investing is not an absolute level, but more of making sure that anywhere you spend money that you're convinced that you'll be the low-cost supplier with an advantage versus the rest of the industry. That will be successful as you move through the cycle. Kathy?
spk11: Yeah, and then the only thing that I would add to that, Doug, is occasionally I get the question of why don't I just go and kind of pay off all of the debt you have as a priority, and I'd say no. we're really comfortable with the level of debt that we have. And obviously our gross debt to cap is at the lower end of the range that we talked about. And we said we're going to carry a little bit of a higher cash balance just reflective of, you know, the volatility that we've really seen in the market. So that's how I think you should think about it. But we're very comfortable with our level of debt and, you know, just being able to kind of manage at that level through the cycle.
spk20: Okay. Thanks, folks. Next, we'll go to Steven Richardson with Evercore ISI.
spk19: Good morning. Thank you. Another question on the downstream, if I could, Darren. I wonder if I could ask on the circular polymer efforts and some of the things you're talking about in terms of recycling and the plastics business. I guess the question is the overall approach between mechanical and molecular recycling, and how are you seeing market evolve? And, you know, is this conversion of existing facilities or, you know, new reactors? And then also, you know, what are your expectations for the returns in that business kind of through cycle?
spk06: Sure. Yeah. Thank you, Stephen. I think you touch on, I think, a really important part of our strategies as we look at going forward, not only in the plastics and plastics recycling, but also in biofuels. And I think what, you know, people have thought about with respect to our refining footprint and the size fuels demand declines, that those assets become disadvantaged. And frankly, given the integration that we have with those facilities, if you think about our chemicals and refining facilities integrated, which are now reflected in our product solutions business, the fact that we've got base stocks and lubricant facilities integrated with those, they are fairly robust platforms with large scale and low cost. And what we see is the opportunity that as demand shifts to convert those facilities to produce more lower emissions fuels through biofuels and to utilize existing equipment for advanced recycling and plastics. That's what you've seen us do in Baytown with conversion of some of our heavy cracking facilities on the refining side used to recycle waste plastic. We've got pretty ambitious plans in that space. We like what we see there. It gives products that have all the same attributes as virgin products, but obviously without the same, with the ability to recycle the waste. We like the molecular recycling. That's where we're focusing. We think we can bring an advantage there with one, our facilities, but two, our technology, and then three, with our marketing organization with respect to the marketing of those products. Feel generally good about that. We've got plans to drive that advanced recycling to 500,000 metric tons by 2026. Should have 30,000 metric tons in place by the end of this year. So I think in total we like what we see there. The market today is interested in those products, and there is a premium out there. So right now I think that looks pretty attractive. I suspect with time that may, you know, the market will stabilize, but we think it's going to be a pretty healthy market for some time to come.
spk20: Thanks very much.
spk00: Next, we'll go to Jason Gabelman with Cowan. Hey, morning. Thanks for taking my question. I wanted to ask a question about your international gas footprint and the maintenance cadence, because it seems like you've mentioned in the slides that gas production is going to be higher than it typically is in 2Q and 3Q. but you do have higher scheduled maintenance. So I'm wondering if any of that maintenance is in the European gas footprint. And then more broadly, if you're seeing in the industry in Europe more tempered declines from European gas into the summer, just given where prices are, and if you expect that to be a feature of the market moving forward. Thanks.
spk06: Yeah, good morning, Jason. Yeah, I think you've touched on the point that we made in our second quarter outlook with respect to the seasonality, which historically we've seen going into the second quarter a significant drop in demand for gas. And given where the markets are at today and the level of inventories around the world, our expectation is we're not going to see the same level of demand change quarter on quarter. We tried to indicate that in our outlook to suggest that we won't see the same level of seasonality going forward. I think, and as I said earlier in response to Janine's question, we do see this market being fairly tight here in the short term. Obviously, the industry is working hard to supply that, but the time cycle on investments and bringing additional supply on is fairly long. particularly in the context of where demand is at today and the tightness in the marketplace. I think that's going to continue to be with us for a while. And, you know, as you move, as demand declines, I think we'll see supply start to move into inventory. And so that purchases will move from meeting current demand out in the marketplace to meeting the demand to fill inventory to make sure that inventories are well positioned as we move through the summer and then back into the fall and into the winter season that the markets are well supplied. And then the final point I would make there is obviously with what's happening in Ukraine, there is a wild card there that I think most economies and governments around the world are going to make sure that they're trying to mitigate the potential implications of of that supply disruption by having good inventory levels.
spk20: All right, next we'll go to Sam Margolin with Wolf Research.
spk18: Good morning, how are you? Good morning. Question on actually just a longer-term sort of capital allocation question in the context of, you know, what's become kind of conventional wisdom that NOCs around the world are very interested in accelerating activity here and, you know, bringing new resource to market. But, you know, the majority of NOCs, with the exception of a few, rely on foreign investment and partners like ExxonMobil in the industry on the independent operator side. has framed, you know, a stable spending view over the long term, which has been something that's been, you know, very helpful for investors to have that multi-year CapEx range. So I'm just wondering your perspective on how that squares, you know, if the industry is going to get pulled into, you know, the imperative of NOCs to spend more and do more, or if, you know, you think these steady ranges of CapEx are achievable even within that context. Thank you.
spk11: Sure. I'm happy to take that, Sam. So first of all, I would just remind you that we do have CapEx guidance that's out there, obviously, for this year. It's 21 to 24. And we've talked about kind of through 2027, a range of 20 to 25. Now, within that, we always try to leave ourselves a little bit of room, understanding that there's these opportunities that can come up in the future. And obviously, we've made some investments in the type of opportunities that you're talking about in the past. And by the way, Golden Pass is a JV that we have with foreign investment that sits behind it as well. So I'd say we don't feel any particular pressure. I just referenced back to what Darren said earlier, which is we spend capital when we have confidence behind the projects and the returns that those projects are going to offer, right? And we're, I'd say, very, very disciplined at pressure testing those projects to make sure they're resilient across a, I'd say, wide set of market environment, you know, given the cyclicality that we have in the business. So we feel great about the opportunities that stand in front of us right now. Obviously, we've got low cost of supply barrels that we're investing in, be it Guyana or the Permian, Brazil. Darren mentioned the LNG projects, you know, that we're moving forward, which we feel really good about. Obviously, we've got in the product solution space investments that we continue to make to support growth in high-value products, right, and to keep, I'd say, optimizing our downstream circuit. So we feel good about that. If there's opportunities where we feel like there's good returns to be earned, we'll certainly look at potentially participating in those opportunities. we're going to be very disciplined in our approach, as you should expect from us.
spk06: Yeah, and I would just add to that, Sam, if you look at the work we've been doing with our organization, the changes that we've made in the structure, consolidation of capabilities across the corporation, one of the changes we announced on April 1st was a technology organization that combined technical skills and capabilities and the engineering capabilities across the corporation. We've seen really good results doing that in the projects area. We think we've got a real opportunity in the technology area to realize similar benefits in terms of effectiveness on top of whatever efficiencies that might come from that work. And I would say that effectiveness and that concentration of technology and really getting the organization to focus on where we can add unique value and grow competitive advantage is going to be a really important part of continuing to be a valued partner with NOCs and others all around the world. Our strategy here is to make sure that we're an essential partner, that when NOCs and other resource holders want somebody who can effectively and efficiently develop the resource and do it in a sustainable manner, that the first name to come to mind is ExxonMobil and that we bring those unique capabilities. I would tell you I have enormous confidence that that's what's going to happen, that things that we can see in the pipeline, the opportunities that we have in front of us to become more effective at what we do, I think are huge. I'm looking forward to then leveraging that business opportunities in the future.
spk20: All right, next question will come from the line of Raj Borkatario with RBC.
spk12: Hi, thanks for taking my question. I had a question on Guyana. The fourth FPSO which you just sanctioned was the large one, 250,000 barrels a day. I was just wondering, in your base case plans, are you assuming a similar size for the later FPSOs at that rate? And if I could add a cheeky second question. A few days ago there was an announcement from the DOE around additional export capacity from Golden Pass. I was wondering if you could just help me understand whether that was just an administrative thing, whether that was you sort of re-looking at the project, or was it some kind of future-proofing ahead of de-bottlenecking there? Thank you.
spk06: Yeah, sure. On Guyana, Raj, I would tell you that, as you know, we are having tremendous success with respect to discoveries there and the characterization of that resource. And I would just say that our teams have been very focused on making sure we have a good characterization of that resource, which will then be a really important part of how we choose to develop that resource in a cost-effective way to make sure that the cost of supply and obviously the returns for those projects lead industry. And so as we look at these bigger projects, production facilities make a lot of sense when you have the resources to support them because it brings your unit cost down, brings down your cost of supply. As we look at extending those developments in other areas of the resource base, it'll be a function of what we find, but I would say we would lean towards these larger developments. And we'll obviously lean towards extending some of the current developments that we have and taking advantage of whatever synergies we might have with those facilities. And so I wouldn't say there's a single recipe here. It's really tailoring the recipe to make sure that it's optimized for the development opportunities that we've got in front of us. And that's gonna evolve as we better characterize the resource base. And I will just say with respect to Golden Pass, that project and the work that we're doing there, we feel good about the progress that we're making and we're on schedule. The concept there is not changing.
spk20: Okay, thank you. Next, we'll go to Roger Reed with Wells Fargo. Yeah, thank you. Good morning. Good morning.
spk16: Maybe to come back a little bit to the Guyana question, and I was wanting to clarify one thing there, and then maybe just sort of a contrast to your Permian operations, given, you know, Permian production is higher today, but Guyana resources is probably larger. As we think about the 11 billion barrels of resource, should we assume that's exclusively oil at this point? I mean, that's been kind of our baseline given the type of production coming out. And then how should we think about the long-term gas situation there, the opportunity? And when I said versus the Permian, kind of thinking about those two as we look to the middle and latter part of the decade.
spk06: Yeah. Good morning, Roger. I would say, you know, the resource is a mix. And then depending on where you're at within the Statebrook block, that mix changes. Our development priorities is weighted towards liquid. So I think what you'll see in our plans and the way we talk about it is there's a bias towards liquid today. And then with time, we'll see how those developments evolve. We're doing some things with the government of Guyana to bring gas onshore to help deliver more cost-efficient and environmentally better power to the people of Guyana, give them a much lower-cost energy source and a much cleaner energy source. And so there is some development gas in that space. But I would say generally liquid is weighted, and obviously as we move through the field run the economics, we'll develop the resources that optimize capital and grow returns.
spk20: Thank you. All right. Next question will come from Ryan Todd with Piper Sandler. Good, thanks.
spk04: Maybe one on capital allocation. As we think about your capital budgets, not just for this year, but over the next few years, and the range that you have within those budgets. Should we think about that range as primarily driven by timing, or is there a possibility that higher commodity prices – should we think of that maybe pushing towards the higher end of the range through some combination of inflation or Are there opportunities in the portfolio to deploy a little additional organic capital, whether it's on, you know, short or mid-cycle infill drilling, tieback opportunities? Does the higher commodity price, you know, open up the door to a little extra capital deployment opportunity there?
spk06: Yeah, I'll just – start off and then pass it to Kathy for any additional comments, but I think the short answer is no. I think we have tried to emphasize looking through the cycles, looking at the long term and making sure that the investments that we make are robust to the whole of the cycle. You'll remember we were investing pretty heavily when prices were down in anticipation of longer term fundamentals. I would say while we're in a very tight market today, we're not going to let that Distract us from our focus of making sure that we have low cost of supply industry leading advantage projects and so That's the that remains the focus on the in the short cycle stuff. I think to the extent that we stay within our Edibly advantaged approach and the manufacturing process that we've set in and the boundaries that we set with respect to the facilities that we've built and pre-invested in. We'll continue to optimize around that, but we're not going to go outside of that broader strategy of the long ball game that we're playing in the permanent and the unconventional space.
spk11: Yeah, and I would say certainly timing over what's a relatively long-term period is something that we're trying to give a little flexibility for. I'd actually point to what we talked about on the Piara-Guyana project. Originally, we said that was going to start up in 2024, and now we're saying We think it's likely it'll start up at the end of 2023, so that would be an example of, you know, we have initial planning that we do, but obviously accelerating projects if we can bring them in in a shorter timeframe, and obviously on or under budget is something we're always focused on.
spk20: Good. Thank you. You're welcome. Next we'll go to Paul Chang with Scotiabank.
spk17: Thank you. Hi. Good morning. First, hopefully that also won't use my quota. I want to compliment IR for the new format on the core as well as the increased disclosure. We really appreciate it. I have to apologize first because I want to go back into the inflation question. Kathy, if we're looking out for your next several years, do you have a number you can share what percent of your CapEx is pretty much that have some pretty fixed pricing and what percent is going to be subject to the inflation factor? And also in your presentation, you talk about the 3% off-cycle compensation adjustment. Could you quantify that? How big is that number? for us. Thank you.
spk11: Sure. So overall, I think we talked a little bit about inflation on CapEx and the fact that certainly in the near term we're feeling pretty good because we did a lot of work during the pandemic. So we had paused some projects and during the pandemic we did a lot of work to actually put the contracts in place, like finish the engineering and put the contracts in place at a point where I'd say there was some deflationary pressures in the market. So as it relates to our overall capital project, we feel pretty good over the next couple of years. And obviously, strategically, the timing of when we do the engineering, when we go out to procurement, you know, is something that we're always looking at and taking into consideration. And then, you know, I mentioned the fact that, you know, doing our own procurement globally to make sure that we're getting globally competitive bids is is something else we do. We do spend a lot of money over the years as we're looking forward on the boats associated with the Guyana development. And again, we approach that in a really strategic manner so that we're managing those projects to the lowest cost, getting the specific design that we need. So that's how I would really discuss what's happening with regard to inflation.
spk06: And I would just add that the salary action that we announced this morning we're taking won't be material in the analysis that you're doing, Paul. Our intention would be to continue to deliver on the efficiency that's coming at the time that we had projected in our plan.
spk20: All right. Thank you. Next we'll go to Manav Gupta with Credit Suisse.
spk15: My very quick question here is, at the start of the call you indicated that Asian chemical margins are kind of below mid-cycle. And I just want to understand, generally when crude moves up, there is support for commodity prices. So there's two equations going on here, some capacity coming on, but crude is also moving up. So do you expect the margins to remain below mid-cycle for some time, or do you think that higher crude could actually push up the ethylene margins and stuff in the non-U.S. region on a go-forward basis? Thank you.
spk06: I think it's an unusual time we've got in the chemical market just because we see a level of dislocation between what's happening in Asia and what we see happening in the Atlantic Basin. I think we made reference in the comments that our North America footprint in chemical and the ethane advantage that we have is actually help to mitigate this broader downturn that we're seeing with the global chemical markets, which are heavily weighted towards the downturn that we're seeing in Asia. I think as you look at crude prices coming up and the marginal supply in olefins being a liquid cracker and that's the feed, that as that crude price goes up, your feed goes up, your naphtha feed goes up. And so you've got cost increases on your feed. And because of some of the logistics constraints and the ability to kind of connect the markets, demand is somewhat dislocated. And so you've got oversupply in a market like China where you see some of the demand coming off with the lockdowns and logistics constraints. So I think we're in a unique period right now where you're seeing some regional imbalances and the inability to close those imbalances through logistics and transportation. Difficult to say how long that's going to last, but I think ultimately as markets open up, we'll see those equilibrate. Again, I think if crude remains high, my suspicion is that ethane and ethane cracking will continue to be advantaged, and then that will obviously move as crude prices move with respect to gas prices.
spk20: Thank you. The next question comes to the line of Lucas Herrmann with Exane.
spk09: Aaron, thanks very much for the opportunity. I just wanted to return to golden past, if I might, and a couple of aspects of the question. The first is just can you expand on the marketing approach and how you intend placing volume? It's a very large project, but it's a project which, to the best of my knowledge, has very little by way of contract at this time. So to what extent yourself and your partner QP will, how you'll be looking to market product. And just, can you give us some indication on the phasing of the startup of the three trains? I presume when you talk about 2024 startup, that's the first train. I guess I'd expect, you know, four to six months or so between the startup of each subsequent train. But any guidance you can give there would be helpful. Thank you.
spk06: Sure. Good morning, Lucas. Yeah, just to start on the back end of your question, You're right, train one is we expect to start up in 2024 and then the remaining trains in 2025. And, you know, the strategic drive behind that investment and that supply point was really getting a global, a balanced global footprint with respect to LNG supply. And so that Golden Plant Pass facility gives us an anchor point within the Americas to take advantage of the U.S. gas market and the developments that we've seen there. and the supply potential that we see in U.S. gas. And so that forms a really important anchor supply point, and we intend to use that with the trading business that we're growing in LNG and use it as an ability to trade and oftentimes bridge as some of our other LNG projects are being developed to bridge and supply between those projects that allow us to optimize and make commitments for projects with flexibility in terms of using Golden Pass as a supply point and then to also just trade in the spot market. So I think it's going to give us a lot of flexibility to supplement our longer term contracts for our bigger projects, but to also participate in the spot market.
spk09: So there's no intent to contract some of the volume in what could be a very constructive market for pricing. over the next two, three years for those who have supply coming on this, not near term?
spk06: I would tell you that the LNG organization is going to basically develop that portfolio in the way that they think maximizes the value of it. So I wouldn't take anything off the table. I'm suggesting that we've got a lot of optionality and flexibility, and the expectation is the LNG organization business and the individual running that take advantage of that flexibility to maximize the value, how I would characterize it.
spk20: Aaron, thanks very much. You're welcome.
spk02: And it looks like we have time for one more question, so we'll take that from Neil Dingman with Truth Securities.
spk07: Thank you all for squeezing me in. My question is on the Permian issue. Just wondering, I'm currently seeing you all running somewhere around 16 rigs and five spreads. I'm just wondering, will this continue to be around the level of activity needed in order to achieve that, I think, your goal around that 25% year-over-year Permian growth plans? And I was just also wondering if you could talk about maybe just broadly the degree of inflation you're currently seeing there.
spk06: Yeah, I would tell you that the plan that we had, and we've talked about with respect to the Permian specifically, is somewhere between 10% and 12%. rigs and then you know six to eight frac crews something like that and we're basically I think in line with that plan right now and you know part of that is making sure that we're the developments that we're pursuing are consistent with the base infrastructure the technology and the capital efficiency approaches that we've built into that development that tends to drive what we're doing there I think with and Kathy has touched on We, again, had anticipated the market recovery and some of the tightness and so had developed some contracting strategies and partnering with suppliers to try to mitigate that impact. That's paying off. We're seeing that advantage here in the Permian. Eventually that obviously will roll off. Some of the consumables and some of the labor tightness that we're seeing in the Permian, obviously that's starting to impact us as well, so we are seeing inflationary pressures. expectations that will continue to grow as the work activity opens up and as some of the logistics constraints get resolved and we're basically we've challenged a team to try to manage that and to make sure that as we look at progressing development and grow that production that we're doing it in a constructive way and not undermining the cost of supply or the advantaged position those those barrels where they sit across the supply curve for the industry. So I think this disciplined approach that we've talked about is not so much the spend, but in terms of efficiency and making sure that every dollar we spend there is productive. The challenge for that team is to make sure we don't lose productivity of the capital that we're spending.
spk07: Well said. Thanks, Darren.
spk10: Thanks, Darren. And thanks, everybody, for your time and for your questions this morning. We appreciate that. We will post a transcript of the call on our investor website early next week. Have a great weekend. Thanks.
spk02: That does conclude today's conference. We thank everyone again for their participation.
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