Exxon Mobil Corporation

Please stand by. We're about to begin. Good day, everyone, and welcome to this ExxonMobil Corporation first quarter 2023 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, Mrs. Jennifer Driscoll. Please go ahead, ma'am.

Good morning. Welcome to ExxonMobil's first quarter 2023 earnings call. Thanks for joining us today. I'm Jennifer Driscoll, Vice President, Investor Relations. Here with me are Darren Woods, Chairman and Chief Executive Officer, and Kathy Michaels, Senior Vice President and Chief Financial Officer. Our presentation and pre-recorded remarks are available on the New Investor Relations section of our website. They're meant to accompany the first quarter earnings news release, which is posted in the same location. Shortly, Darren will provide opening comments and reference a few slides from this presentation. That'll give analysts more time to ask questions before we conclude at 8.30 a.m. Central Time. During the presentation, we'll make forward-looking comments which are subject to risks and uncertainties. We describe some of them in our cautionary statement here on slide two. Additional information on the risks and uncertainties that apply to any forward-looking statements are listed in our most recent form 10-Ks and 10-Qs available on our website for investors. Also, please note that we provided supplemental information at the end of our earnings slides, which are posted on the website. And now, please turn to slide three for Darren's remarks.

Good morning. Thanks for joining us today. Following a record year, ExxonMobil delivered the highest first quarter earnings in our history, even as energy prices and refining margins moderated from the fourth quarter. This ongoing success reflects the hard work of our people. executing our strategic priorities, and fully leveraging our competitive advantages. Through investments in advantage assets, fixed improvements, and cost and operating discipline, we are delivering the structural earning improvements outlined in our corporate plan update last December, and expanding the energy supplies needed to meet growing global demand. Compared to the first quarter of 2022, we added about 300,000 oil equipment barrels per day to global supply, primarily from a 40% increase in production from Guyana and the Permian Basin. The increase more than offset our divestments in the expropriation of Saucland I, which we no longer account for, but which importantly remains part of global supply. In addition, our Beaumont refinery expansion reached nameplate capacity in the quarter. This 250,000 barrel a day expansion is the largest U.S. refinery addition in a decade, helping meet society's ongoing need for transportation fuels. In Guyana, we're pleased to announce that we reached final investment decisions for Uaru, the fifth offshore project, which will bring on even more production from this low-cost, low-carbon intensity resource. Uaru will provide an additional 250,000 barrels a day of gross capacity the startup targeted for 2026. Earnings in our product solutions business benefited from the team's solid operational execution, with top quartile turnaround cost and scheduled performance during a particularly heavy planned maintenance period. In low-carbon solutions, we're building momentum across several fronts. In early April, we announced a long-term agreement with Linde to capture, transport, and permanently store up to 2.2 million metric tons of CO2 annually. Hydrogen, we announced front-end engineering and design contract for the world's largest low-carbon hydrogen facility in Baytown. Heads of agreement with SK Group of Korea for offtake of blue ammonia from that facility. As we said during our low-carbon solution spotlight earlier this month, our low-carbon projects must be advantaged and deliver competitive returns. The ability of our low-carbon projects to compete successfully for capital is important if the world is going to meet its emissions aspirations. The incentives included in the Inflation Reduction Act are a positive step forward, although permitting and other regulatory improvements are still needed. In Europe, by contrast, the policy approach remains far more prescriptive and punitive. This is true whether we're talking about the emissions reductions needed to put the world on a path to net zero, or the production needed to provide Europe with affordable and reliable energy. The progress we're making across the company is underpinned by the continuing evolution of our business model. Effective on May 1st, two new enterprise-wide organizations will be up and running. Global Business Solutions will centralize a majority of our finance and procurement operations, enabling us to deliver simplified, corporate-wide processes. ExxonMobil Supply Chain will consolidate supply chain activities globally. These organizations will focus on leveraging our scale to drive efficiencies, improve operating and financial results, and importantly, deliver an improved experience for customers, vendors, and our people. On June 1st, we plan to launch our new enterprise-wide trading organization. Global trading will bring together expertise from across the company in crude, products, natural gas, power, and marine freight trading. We plan to build on our record 2022 results, leveraging the unique insights we gain from participating across each of our value chains and all along their entire length, with a global operating footprint larger than any of our competitors. Now, let me cover the quarter's headlines. We're pleased to have delivered $11.4 billion of earnings, a record first quarter following a record year. A significant contributing factor was structural cost savings that now total approximately $7.2 billion, which keeps us on track to meet our target of $9 billion by the end of this year. Cash flow from operations totaled $16.3 billion, and our net debt-to-capital ratio declined to 4%, further increasing the strength of our balance sheet while supporting shareholder distributions of $8.1 billion in the quarter, including $3.7 billion in dividends. Despite a dynamic market, our underlying performance remains rock solid and well ahead of our competition, reflecting the many improvements we've made over the last six years and, of course, the hard work of our people. Our diverse portfolio of advantaged businesses, improvements in mix, structural cost savings, excellence in execution are driving industry-leading earnings, cash flow, and shareholder value. Combined with the strength of our balance sheet, we have the capability to win across a wide variety of market conditions, deliver strong returns, while meeting the evolving needs of society, including the need to reduce emissions. Leveraging the capabilities and advantages developed in our traditional businesses, we're building an advantaged new business, Low Carbon Solutions, which is positioning us as a leader in the energy transition. our own and others' emissions and establishing long-term value of creative growth opportunities that will underpin continued growth in shareholder returns. With that, we turn the call over to Jennifer.

Thank you, Darren. Now let's move to Q&A. As a courtesy to other analysts, please limit yourself to a single question. That way we can accommodate more questions from more people. Also, please remain on the line in case we need to ask any clarifying questions. With that, operator, please open up the line for our first question.

Thank you, Mrs. Driscoll. 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'll go first to Neil Mehta with Goldman Sachs.

Thank you so much. Darren, you've spent a lot of time in the refining business over the years, and you've had a perspective on these calls that margins were going to start to normalize, and we're seeing some indication of that. I'd just be curious on your views on what you're seeing in terms of product demand, and then how do you think it's going to manifest itself through the refining system from a margin perspective over the next couple of years.

Thank you. Yeah, good morning, Neil. A couple points. I think as we're looking at the refining margin, obviously the first I would make is we don't really pride ourselves on being able to forecast margins, so I'll caveat everything I say with the recognition that, you know, given the impact that demand has on the margins, given the fairly static supply side of the equation. It's often difficult to know exactly where things are going to go. But I would say, as you look at where we're at today, I mean, this is seasonally a low point as you head into second quarter, then third quarter and driving season when you tend to see supply and demand tighten up and margins improve. You typically see early in the year a lot of refining turnarounds, which take a lot of capacity offline. in that lower demand season. And then when those turnarounds are finished and capacity comes back out, you get a surge of supply. And so you generally see refining margins drop off here in kind of this valley between the supply coming back and then demand picking up as you head into early summer and onto here. So I think that's important context in terms of what we're seeing right now. Gasoline demand looks pretty reasonable, frankly. I think jet demand and transportation looks like it's kind of trending up, and certainly from listening to some of our customers in that space, expectations of fairly healthy air transportation or airline travel miles going forward in the summer. So I think my view is we're going to see the typical push-up in the summer and see margins rise. Longer term, I saw it comes back to what happens in China. China has been a source of not only demand but also of exports. Their exports have been higher in the first quarter, but it depends to see how those play out going forward. If we see similar levels of exports as we saw last year, my expectation is that will put additional upward pressure on the margin. So I think that's kind of the things to watch. The last point I'd make on refining margins, which I think is somewhat structural, typically the marginal barrel in refining comes out of Europe. And so Europe is the price setter for global markets, ex-transportation. You've got high gas prices in Europe with, I think, the potential to go higher. You've got high carbon prices in Europe. And so that marginal tier of production is – a lot more expensive than it's been historically, and that's going to keep, I think, pressure on higher prices for the globe and, therefore, better margins if you're producing outside of Europe.

Okay, Darren. Thanks so much. Okay.

We'll go next to Doug Leggett with Banks America.

Thank you. Good morning, everyone.

Good morning, Doug.

Darren, I wonder if I – I wonder if I could kick off first on disposals, another reasonable contribution from non-core asset sales. Can you characterize where you are in that process and what you think you might have still in front of you in terms of non-core asset sales? And I've got a quick follow-up.

Sure, Doug. Good morning. Well, I think if you look at the plans we set ourselves, I think back in 2018 where we talked about particularly in the upstream, increasing our divestments and taking a very thoughtful approach there, making sure that we were positioning ourselves that when the market was right and we had interest from buyers that we had assets ready to sell and divest has worked fairly well. We've been, I think, pretty successful at consistently putting assets in the market and realizing the value of those. We should hit the... objective that we set back in 2018, probably sometime this year. And then we've got, as we continue to work on high-grading the portfolio, continue to look at assets that we don't see are strategic necessarily or where we see a potential value, higher value for others, we'll continue to feed that investment portfolio and market those assets. So my expectation is we've got an inventory of things going forward and would expect to see, in my mind, kind of consistent rate of being out in the market and basically finding, seeing if we can find buyers who have a higher use for the assets than we do and therefore better value and therefore deal space. I just would make the final point that, you know, as we look at divestments, it is a value proposition. We are comfortable with everything we've got in the portfolio. It's really a question of how do we optimize and maximize the value. And that's been the focus from the very beginning and continue to be one. So we're not, you don't have to sell anything. It's only if we find a valuable opportunity to do that.

I appreciate the answer. I think I couldn't remember if Jennifer said one question or one plus one follow-up. So I'll risk a follow-up very quickly. I'll delicately ask this question if I may. Obviously, Kathy was on the wires this morning talking about how picky Exxon would be on M&A. I just want to ask you if you feel that you need to backfill your Permian position at any time in the future. I'll leave it there. Thank you.

Yeah. Okay, Doug, I'll give you this one plus one. It amazes me that the amount of questions that come in this space, I think we've been pretty consistent as we've talked about it. We're always looking for an opportunity for an acquisition and one that grows value and it's got to be value accreted. It's got to be one where what ExxonMobil brings to the table actually increases what either company would do independent of one another. And so that's kind of, I'd say, the underlying approach. While we're in a depletion business and we've got to work real hard to continue to bring volume on, we're not actually in the market to find volume. uh, we're, we're in the market to find value and, uh, we're willing to kind of let volumes do what they, they will do, uh, in the search for making sure that anything that we bring into the portfolio is a creative and is a unique, uh, a unique value contribution for, for the shareholders. And so, I mean, we're looking, we're working really hard on our technology portfolio in the Permian. I've talked about that in the past. My view is, uh, success in technology and, um, developing proprietary technology, which improves either resource recovery or the cost of developing that resource, whatever that is, whatever value level our technology can bring to the table, that obviously opens up deal space. And to the extent that we're very active in the Permian, we've got a really good anchor business there, and we're working real hard on opening up the value proposition of our current acres with technology that will open up potentially opportunities for acquisitions, but that's down the road. That's work that we've got to demonstrate to ourselves. There is a unique value proposition there, and then my view would be we'll leverage that to the full extent that we can. But I'd make the same. That's true for any of the areas of our portfolio where we've got a substantial business today and ongoing technology work to make advances. That's, I think, really what's going to underpin where we focus our attention.

Thank you for that.

And as a reminder, we would like you to limit yourselves to a single question. Thanks.

And we'll go next to Devin McDermott with Morgan Stanley.

Hey, good morning. Thanks for taking my question. Morning. So I want to stick with the Permian, but I'm not going to ask an M&A question. I wanted to ask about the results you're seeing there. And if you look at the production in the quarter, you guys reported 615,000 barrels a day. It's strong sequential growth versus 4Q, and also puts you already in line with that 10% growth target that you had laid out for 2023. So I was wondering if you could talk a little bit about the productivity trends and the driver of the strong results that you're seeing there, and then also how you're thinking about the evolution of production for the balance of this year.

Yeah, well, good morning. I would say we haven't changed our year-end targets, and so the guidance that we gave as part of the corporate plan discussion last year continues to hold. I think we've said in the past that as you look at production in the Permian, it's going to be a little bit lumpy, and so I wouldn't take any one data point, any one quarter's numbers and extrapolate from there. I think you're going to see some movement in that up and down. I would say generally speaking, We like what we're seeing in terms of productivity in the Permian. You all know we, several years ago, had our strategy on maximizing oil recovery versus initial production rates. That led to a very different development approach, trying to work across this cube design, work across all the benches simultaneously to maximize ultimate recovery. I think we've been developing that approach, fine-tuning it, testing it, and evolving that concept. We like where we've gotten to with that approach. I think we're seeing the results of that starting to manifest itself. Our expectation is that we'll continue to, I think, differentiate our production and what we're able to do versus many of our other competitors who started off on this best bench, high initial production rates. With time, I expect to see them pivot maybe a similar approach, but I think we've got a real good head start on that, like what we're doing there. I think we see some encouraging signs on the early stages of that, and we're going to keep pressing on that, maintain rigs and the capital levels that we've been talking about pretty consistently, and then we'll see how the rest of the year plays out. But we're sticking at this point to – same year in guidance that we gave late last year.

Great. Thanks, Darren.

Welcome to the next dude, John Royal with JP Morgan.

Hi, guys. Good morning. Thanks for taking my question. So on the Beaumont expansion, can you talk about how the capacity is being absorbed in the market and given what's happened to cracks and the general concerns around demand today and the You know, granted, I think Darren's commentary on the market was probably a bit more positive, but are there any concerns about adding capacity at a time where fundamentals appear to be weakening?

Yeah, I would say the short answer is no. Look, we all know these markets are volatile. They move up and down. We focused, I'll remind you, on the Beaumont expansion. This is something that we focused began planning and developing many, many years ago. It was really built on the Permian production and the changes and transportation differentials by bringing crude into the front end of the Beaumont refinery and making the intermediate products to fill our conversion capacity and backing out imports of intermediates and saving the transportation of those intermediates that are typically coming from afar. We justified that project on a transportation differential and felt that that provided a reasonable return with the expectation that on top of that we would see the value of the additional fuels and the higher value products that we were producing. Exactly what we're seeing today. It is very well positioned on the cost of supply curve. And frankly, that's how you need to think about this business. So irrespective of where the margins go, Our view is all of our facilities need to be on the far left of the curve so that we've got a difference between the marginal price center, and I have every expectation that the capacity that we brought on in Beaumont will, I know it's on the far left-hand side of the cost of supply curve, so I feel pretty good about its competitiveness.

Thank you.

We'll go next to Sam Margolin with Wolf Research.

Good morning. Thanks for taking the question. Good morning, Sam. So I think, you know, looking at the numbers, what sort of jumps off the page is the cash balance. And you've been pretty transparent about this topic and, you know, the imperative to build a fortress balance sheet. But I wonder, you know, if the direction we're going with cash, you know, even net of shareholder returns that are continuing to increase, um and you know that are well within sort of your targets um you know if we're kind of getting beyond fortress and into something even bigger than that and you know if there's any if there's any thought around kind of the absolute level of cash today and and really what's optimal and i think i'll just you know i'll catch that with historically you know exxon had kept a very lean balance sheet um on both sides uh relative to sort of the production base and the cash flow base and so um it's it's a little bit different than the history of the company, and so would appreciate your thoughts on it. Thank you.

Sure. I'll go ahead and take that, Sam. I mean, our capital allocation approach, I think, has been very consistent and very clear, and we had talked about the fact that we would expect our cash balance post the end of the year to kind of ebb and flow depending on how market prices and margins evolve. So I'd say we're very comfortable with where we stand. You know, it's important for us to have a really strong balance sheet in order to ensure that we stick to our capital allocation priorities through the cycle. That's investing in the business and competitively advantaged high return projects. It's maintaining a very strong balance sheet. That balance sheet gives us all the firepower and confidence we need to succeed across a very wide variety of market conditions, which is obviously what this industry faces. Clearly, we're looking to share our success with shareholders, and you see that through a more consistent share repurchase program and a growing dividend. So we feel pretty good about our cash balance. I would just also mention that we're in a relatively unusual market environment compared to what we've seen in the past. ExxonMobil's average debt rate is about 3%. You can look up what people are earning on short-term cash. I think three-month treasuries are at 5% today. So, you know, right now we're not incurring a negative cost of carry on that cash balance, and that's certainly one of the things that we look at as well. So we feel really good about where we're at today in our balance sheet.

Yeah, and I would add, Sam, I think we mentioned history, and recent history is certainly true that we ran a fairly lean on cash, but if you go further back to some of the really high cycles, we carried more cash, and it reflected the commodity cycle and the nature that Typically, we're bringing in a lot of cash at the top of the commodity cycle, but that's an important asset as you move into the bottom of the cycle, particularly when you're trying to maintain the consistent investment levels and continue to advance the projects in the portfolio. So I think in times where the markets are on the high end of the cycle, I would expect to see cash balances higher so that we're well positioned as we go into the low end. Thank you so much.

We'll go next to Roger Reed with Wells Fargo.

Yeah, thank you.

Good morning. Good morning, Roger. Yes, what I'd like to ask on the specific commentary about the $7.2 billion in savings on track for the $9 billion this year. Could you characterize a little bit where that's come from to date? How, you know, kind of general inflation within not just the oil field, but, you know, in general, how that's affecting that? And is $9 billion, like, is that the end of the program, or is there something to happen beyond that? I know I'm kind of asking three questions in one, but they're all focused right around the seven to nine. So... If you'll allow me, I'll throw that at you.

I'll try and circle around that kind of suite of questions for you, Roger. So I'd start by saying overall, we feel really good about the progress that we've made. We're very much on track for the $9 billion at the end of this year relative to 2019. If you look overall at where a number of, I'd say, different programs are driving savings for us, one is just improving the overall productivity across our workforce. If you think about how that's manifested itself in Upstream, it's been a significant reduction in what I would describe as above-field costs. That's been a real focus of that organization. We've made a number of different organizational changes over the past couple of years. I would describe those generally as looking to centralize kind of key functions across the company that have been done disparately. Previously, our global projects organization would be a great example of that. Last year, more recently, the combination of our downstream and chem organization into our product solutions business, a lot of simplification coming across that business as a result, combining our engineering and research kind of groups collectively together, and then just recently announcing the combination of our supply chain across the organization and setting up a global business services organization and combining our global trading capabilities across the company. And so that's all about improving the experience for our employees, for our vendors, for our customers, and continuing to drive efficiencies and, importantly, effectiveness across those organizations. We would have seen, actually, the benefit of some of that in this recent quarter. We talked a little bit in our presentation about the fact that our maintenance activities, we had a pretty heavy turnaround quarter, and those maintenance activities really came in at the first quartile, so much better than what we had planned for, shorter duration. That enabled us, obviously, to have better throughput than we would have been planning overall for the quarter. And so that's a big area of savings for us, and that's another organization that we have recently centralized in our global operations and sustainability group. So that gives you, I'd say, a little bit of a characterization of where savings are coming from, and certainly some of the more recent changes that we've made in the organization we'd expect to drive efficiencies and effectiveness going forward from here. And then just the last comment, like, does the program end? So just to be clear, we've talked about a specific time period externally because we thought that would be helpful and transparency. Internally, we don't actually manage this as, hey, there's one time period that we're focused on as opposed to we are focused on continuing to drive structural cost savings over time. Those are embedded in the plans that we shared with you last December, and obviously we'll be doing an update when we come to the end of the year, and so we'll talk in more detail about what we see from there on a go-forward basis.

And the final point I'd make to build on what Kathy said is we have seen, with all these organizational changes, as our people have come together in the new organizations and focused on The objectives of those organizations and what the corporation is trying to achieve, we find a lot more opportunities than we could envision even going into the changes. So my expectation is as these new organizations come together, they'll begin to find things. The organizational changes we've already made are continuing to find things. So our expectation as you head into the future is we'll continue to drive change. efficiencies and deliver structural cost savings onto the bottom line.

And then I'll just circle back. You asked a little bit about inflation. We actually have put an additional disclosure in our press release so I'd encourage you to look at that. If you look at the quarter you know we more than offset inflationary cost pressure with the structural savings that we were able to generate. Overall I'd say the organization is is doing a good job at looking to offset inflation and what's obviously been a higher inflation environment recently.

Thank you.

You're welcome.

We'll go next to Jason Gableman with TD Cowen.

Hey, morning. Thanks for taking my question. I wanted to ask a question on the downstream business and giving your global reach there. We're seeing reports that Asian refiners are contemplating run cuts while margins in the U.S. are still really robust. And I'm wondering if you see that dynamic as kind of balanced where cracks in Asia are zero but margins in the U.S. are still 20, and that's kind of representative of the market structure that we're in, or do you expect the weakness in Asia – margins to kind of force U.S. refining margins lower in the near term? Thanks.

Yeah, sure. I'll take that. I think, you know, the first comment I would make is, you know, over some period of time, it's typically pretty short. The world balances. You know, we always use the phrase the world is round. So it's hard to stay disconnected with the and the margins eventually have to equilibrate on transportation differentials. And so that's the model that I have in my mind. There are always short-term disruptions. We certainly saw that coming out of the pandemic with some of the logistics constraints. So there will obviously be periods of time where things constrain that, but generally speaking, that happens. I think the margins in the U.S. will be a function of what production source is setting the marginal layer of production. As I said earlier, That has historically come out of Europe, and their cost structures have increased, and so that marginal barrel is now higher, which is underpinning higher Gulf Coast refining. I don't, frankly, see that changing in the short term. Obviously, if additional capacity comes on, there's much lower cost, and that supply overwhelms any growth in demand, then we'll see the marginal price setter change, and then with time, that'll get balanced out based on transportation differentials. My sense of things is, you know, if you go back to last year and the export levels coming out of China and the balances in Asia, that stayed reasonably tight. The question will be, do we see the same thing this year? And I think time will tell.

All right. Thanks.

We'll go next to Stephen Richardson with Evercore ISI.

Thanks. This may be a bit of a follow-up on the questions previously about cost structure and the balance sheet, but I was wondering, Darren, if you could just address how and remind us how you're thinking about dividend growth, right? Because we've got clear evidence here that you've got foundational earnings growth. You've got projects that are coming on sooner and bigger. If you look at Guyana, the Permian's doing well. You're adding base capacity downstream. So Just wondering if you could remind us sort of on a mid-cycle basis how to think about and how the board thinks about dividend growth because certainly you've de-risked some of those foundational earnings.

Yeah, I'll start and then I'll hand it over to Kathy to build on. But I would just say generally as we think about the dividend, we try to keep the long-term in mind and also be extremely conscious of commodity cycles and the variability and the volatility that we see in the marketplace and making sure that we establish a level of dividends that are reliable, sustainable, and I'd like to see those grow with time. That's been our history. That's what you've seen us do. And you see us fight, certainly during the pandemic year, fight really hard to make sure that we sustain that. And that's, I think, a commitment that I feel really strongly about. And so it's really about making sure making sure that what we do there is sustainable for the long term. And then obviously we can balance, uh, disbursement, shareholder disbursements with, um, buybacks. But, um, I think maintaining a long-term perspective and making sure our shareholders feel rewarded through the dividend policy is a, an underlying principle. Kathy, you want to add anything to that?

Yeah, I'd say we look to take a very balanced approach as we think about shareholder distributions and getting that balance between a growing competitive dividend right as well as the efficiency through share repurchases. And I think we're striking a pretty even balance in that regard. And we definitely think about this over the long term as opposed to the near term given we're in a business that's highly cyclical. And so you've you know, seen us in the last two years, raised the dividend in the fourth quarter of the year. We're never going to get out in front of the board of directors. It's obviously something that we look at regularly, and we know it's important to ensure that dividend is competitive and growing. And, you know, about 40% of our shareholders are retail shareholders, so, you know, more of the moms and pops across the globe that, you know, are investors. And so we know it's important. It's something we're really focused on.

Thank you very much. Thank you.

We'll go next to Ryan Todd with Piper Sandler.

Great. Thanks. Maybe a question on the chemicals business. You saw a sequential margin improvement in your chemicals product business driven by advantage in pricing. Have we turned a corner in the chemicals environment? And can you talk about how you see the trajectory of margins in that business over the course of 2023?

Sure. I'll start then, and Kathy's got anything to add to it. I think these, like all the businesses that we're in, the underlying drivers of the chemical margins tend to be the commodity chemicals that are driven by supply-demand and the balances or imbalances in supply-demand. That margin, we saw a lot of capacity come on. You remember as we went through the pandemic, a lot of investments got stalled and pulled back. And then as we came out, those got turned back on again and have come onto the marketplace. We've seen a lot of capacity coming on. I expect we'll still see some of that come on here in the short term. And then in conjunction with that, the COVID impacts took a while for it to unwind through what I'd say is the global economy, which impacted Chemical demand, as you know, is very tied to economic activity. So if economic activity is constrained, then chemical demand is constrained. And we certainly saw that with the China lockdowns. Where we're at now is that capacity is out there and on. And it's just a question of where demand goes. And frankly, I think it's early with China. We do see some promising signs, but we'll have to see how that China demand and their economic activity picks up. The other point I would make is feed and feed optimization is a big part of the margin equation as well. We've got some fairly diverse assets with respect to the ability to manage feed and change feed stocks around. As gas prices came off, that gave us a better liquid to gas spread that allowed us to change some of our feed into our crackers and see the advantage of that. So that was a help. in the first quarter, some of that feed optimization, and that'll play into it as well. I think that's what you saw in the first quarter, and then these more macro impacts, we'll see how they play out as we go forward. Kathy, anything?

Yeah, the only other thing I'd add is we obviously brought on our Baton Rouge chemical expansion project late in the fourth quarter. That spooled up in the first quarter. That's part of an overall strategy of growing performance chemicals along with growing high-value products across our product solutions business, be it performance chemicals or low-emission fuels, high-value lubes. And so even though the market has been tough, that project actually had a positive earnings and cash flow contribution for us in the quarter. So that's a big part of our overall strategy in mixing up in both the chemical business and across our product solutions business. And we feel very good about the results that's bringing. You know, we obviously have an advantage in a very heavy U.S. Gulf Coast footprint, kind of relative to the global footprint, and that helped us in the sequential improvement in margin.

Yeah, it's a great example of where we're focused on advantaged projects that bring on advantaged low-cost capacity. So that polypropylene unit that we brought on, and really what is a pretty low point in the polypropylene industry, market to make positive earnings on a brand new piece of kit that starts up in the lowest of the cycle is, I think, a testament to the strength of the projects that we are investing in and bringing online.

Thanks, Darren and Kathy.

Thank you. Thanks. We'll go next to Alistair Sine with Citi.

Hello. I wonder if I could just ask about unit depreciation trends. There's quite a big change, first quarter versus fourth quarter in depreciation. Is there some sort of portfolio effect in here that we should be picking up, and how does that rate through the year, do you think?

Sure, I'm happy to answer that. What you tend to see in depreciation is some ebbs and flows associated with our asset management activities. When we're selling assets, sometimes we're taking a small impairment that runs through depreciation. And so I'd say you kind of have to take a step back from that noise in depreciation. If I put that to the side, the company has run about, I'll call it 19, 20 billion annually in depreciation and amortization. So that's how I think about it.

Okay. Thank you.

We'll go next to Biraj Borkatarye with RBC.

Hi, thanks for taking my question. I just wanted to follow up on trading. There's been various press reports about Exxon wanting to build up its capabilities in asset optimization and trading. And I'm just wondering where you are in that journey, because obviously we've seen some exceptional volatility in 2022 and early this year across oil and gas. And if I look at some of the numbers from some of your peers, it looks like that those businesses, the asset optimization could add up to, you know, 5% on ROSI in an exceptional environment. So you obviously have a big advantage with your refining footprint and your asset base. I'm just wondering how vigorously are you pursuing this opportunity and how long do you expect it to take to get to where you want to be on the trading front? Thank you. Sure.

And good morning, Raj. Thanks for the question. I think putting aside the press reports of the media, we've talked about this, I think, starting back in 2018. And what triggered our emphasis on China trade and the emphasis that we're putting on trade is the reorganization that we made coming out of the functional organizational construct into value chains. And as you move into value chains, the opportunity to trade along that value chain and generate insights and advantage along the value chain changes pretty dramatically. And so that moved to a value chain construct that we had early on between refining and downstream. We now have that with our product solutions organization. We've now integrated our upstream into those value chains. And so we've got a really streamlined and good view of the marketplace. And so we can now trade all along the entire length of the value chain. We can trade across those value chains. And then, obviously, we can take advantage of the global footprint, as you referenced, and trade along that global footprint and arbitrage between the markets. And so I think, you know, our organizational construct today gives us a much better line of sight and opportunity to optimize in the trading space. So we started growing that in 2018. That has been... what I would say is on a continuum of growth. We like what we see there. We brought talent in there. We've traded for a long time. We just gave the trading organizations within the company some different objective statements, and they've done really well responding to that, bringing value to the bottom line. And what we just announced is taking the trading organizations that today – are somewhat dispersed through the organization and consolidating those into one centralized trading organization for the whole of the corporation. We think that makes a lot of sense. We did a lot of work over the last couple of years to validate what the opportunity size was there and what would be needed to get after that, and we're now, I'd say, in execution mode with respect to putting the organization together, putting in the support systems, bringing in the talent, developing the talent, and growing the talent in that space. And so I would just think of it as a progression, a continuation with what we believe is huge opportunity, and we're going to do that in a very thoughtful, controlled pace, but one that is very focused on significantly growing the value proposition there really around our footprint. This is not about going out and taking speculative positions. This is about going out and optimizing, given the asset base that we have, the value chains that we're participating in, taking the insights generated from running those businesses and the opportunities that come with those insights and transacting on them. That's what the organization is going to be doing. And like I said, even in the short time, we've seen some really good results. I think we've got a clear line of sight to some additional ones. And the value of that opportunity will manifest itself in our business. This is really around trading on the value created through the transformation of molecules and developing products that people want and then moving those products around the world. So that platform gives our traders a great base to optimize off of. That's where we'll see the value accrue.

That's very helpful. Just, if possible, a quick follow-up. Does that change... at all the way you look to manage your cash balances going forward? I'm thinking about relative price cycles. If you have a higher kind of exposure to trading, maybe you would like to run with a higher cash balance generally. Am I wrong in that or is there any color would be helpful?

So we obviously take the company's working capital needs into consideration as we think about our balance sheet and our cash balance. You know, all else held equal, a bigger company means a bigger working capital needs, so that's how I would think about it. I'd also say as it relates to trading generally, I mean, there's some near-term, I would say, working capital that has to be brought in mind in terms of the trading organization. The profits that come through trading are, you know, different quarter to quarter, but I'd say year to year, pretty steady.

Got it. Thank you. Thank you.

We'll go next to Paul Ching with Scotiabank.

Thank you. Good morning. Good morning, Paul. Thank you. Can you give us an update where you are in Osama B and also in the Papua New Guinea LNG in terms of the Papua New Guinea expansion talk?

Yeah, I think just I'd speak to maybe the LNG portfolio as a whole. We're making good progress there. I'd say specifically in working through project concepts and designs and making sure that we're developing projects that are going to be on that left-hand side of the cost-to-supply curve, bringing on production that is very competitive in the marketplace to make sure that for the long term we have a robust portfolio. supply point there. I think good progress in both P&G and Mozambique with respect to that. We've had good progress with the government P&G in terms of getting the agreements that we need signed and helping us move forward, working with our partner there, Total. So feel good about the progress that we've got there, we're making there. And then with Mozambique, obviously been on hold for a while given some of the challenges there. And we'll continue to keep a close eye on that. And as the situation improves and we feel comfortable that we can successfully go in there and develop a project, we'll take the steps to go do that in conjunction with Total and the work that they're doing there.

Darren, can I ask? In Mozambique, Total seems to be optimistic about the security on the ground. They are just working full on the on the cost structure with the contractor. And do you guys still have concern on security or that you are going through the similar process on the cost structure side?

We work very closely with Total obviously given the same exposures and the work that we're doing there together. So I would tell you it's kind of a hand-in-hand approach that we're taking there, sharing information. We've had our own security folks out there assessing the situation. I would say our assessment is very consistent with Total's assessment. We don't see a lot of difference between what the conclusions they're coming up with and our conclusions. So we do like the progress that we've seen there. Obviously, we need to be convinced that we'll sustain that progress, and today I feel pretty optimistic about that.

Thank you.

Okay, I think that that completes our queue. So thank you, everybody, for your questions today. We will post the transcript of our Q&A session on our new investor website in a few days. Additionally, we look forward to connecting again on May 31st for our annual shareholders meeting. Have a nice weekend, everyone. And now let me turn it back to the operator to conclude our call.

This concludes today's call. We thank everyone again for their participation.