Earnings Call: Q3 2015

Oct 30, 2015

Good day, everyone, and welcome to this ExxonMobil Corporation Third Quarter 20 15 Earnings Conference Call. Today's call is being recorded. At this time, I'd like to turn the call over to the Vice President of Investor Relations and Secretary, Mr. Jeff Woodbury. Please go ahead. Thank you. Ladies and gentlemen, good morning. And once again, welcome to ExxonMobil's 3rd quarter earnings call. My comments this morning will refer to the slides that are available through the Investors section of our website. And as you know, before we go further, I'd like to draw your attention to our cautionary statement shown on Slide 2. Turning now to Slide 3. Let me begin by summarizing the key headlines of our performance. ExxonMobil generated earnings of $4,200,000,000 in the Q3. We maintain a relentless focus on our business fundamentals, including cost management, regardless of the commodity price cycle. Despite the challenging environment, the corporation also continues to deliver on its investment and and highlight the resilience of our integrated business model. Corporation's integrated cash flows underpin our our dividend and enable investment through the cycle to grow shareholder value. Year to date, the corporation generated cash flow from operations and asset sales of $27,600,000,000 with positive free cash flow of $7,400,000,000 even amid sharply lower commodity prices. Moving to Slide 4, we provide an overview of some of the external factors affecting our results. Global economic growth slowed during the Q3. In the U. S, growth tapered following the strong Q2. China's economy continued to decelerate and the recovery in Japan remained weak. However, there is some evidence economic stabilization in Europe. Crude oil prices resumed their decline after improving in the 2nd quarter, whereas global refining margins strengthened during the quarter. And in chemicals, both commodity and specialty product margins also Turning to the financial results as shown on Slide 5. As indicated, 3rd quarter earnings were $4,200,000,000 or just over $1 per share. The corporation distributed $3,600,000,000 to shareholders in the quarter purchase shares. CapEx was $7,700,000,000 benefiting from ongoing $7,000,000,000 and at the end of the quarter, cash totaled 4 point 3 $1,000,000,000 The next slide provides more detail on sources and uses of funds. So over the quarter, cash decreased marginally from $4,400,000,000 to $4,300,000,000 Earnings adjusted for depreciation expense, changes in working capital and other items and our ongoing asset management program yielded $9,700,000,000 of cash flow from operations and asset sales. U. S. Included net investments in the business of $6,200,000,000 and shareholder distributions of $3,600,000,000 There was no net cash flow impact from debt and other financing items. As you can see on the chart, the corporation fully funded all shareholder distributions and net investments with cash flow from operations and asset sales in the quarter with a marginal decrease to the cash balance. Moving on to Slide 7 for a review of our segmented results. ExxonMobil's 3rd quarter earnings and lower corporate costs. As shown on Slide 8, results were comparable to the 2nd quarter as lower upstream earnings offset stronger downstream results and lower corporate costs. Now on average, corporate and financing expenses are anticipated to be $500,000,000 to $700,000,000 per quarter over the near term. Turning now to the upstream financial operating results starting on Slide 9. Upstream earnings in the 3rd quarter were $1,400,000,000 down $5,100,000,000 from the Q3 of 2014. Sharply lower commodity prices reduced earnings by $5,100,000,000 where crude realizations declined more than $50 per barrel and gas was down more than $2 per 1,000 cubic feet. Note that favorable volume and mix effects increased earnings $110,000,000 driven by new project developments. All other items reduced earnings by $70,000,000 where the absence of asset management gains were partly offset by lower operating expenses. Moving to Slide 10. Oil equivalent production increased 87,000 barrels per day or 0.3% compared to the Q3 of last year. Liquids production increased 266,000 barrels per day or nearly 13% driven by project ramp up and entitlement effects. Natural gas production decreased 1,100,000,000 cubic feet per day due to regulatory restrictions in the Netherlands and field decline, primarily in North America. Turning now to the sequential comparison, starting on Slide 11. Upstream earnings were $673,000,000 lower than the 2nd quarter. Weaker liquids realizations reduced earnings $1,200,000,000 as crude prices were over $12 per barrel lower than the 2nd quarter. Volume and mix effects decreased earnings $30,000,000 All other items increased earnings $550,000,000 reflecting favorable foreign exchange effects, lower operating costs and the absence of the tax adjustment associated with the Alberta tax rate increase. Upstream unit profitability for 3rd quarter was $3.88 per barrel, excluding the impact of non controlling interest volumes. Year to date earnings per barrel were $5.81 Moving to Slide 12. Sequentially, volumes decreased 61,000 oil equivalent barrels per day or 1.5%. Liquids production, however, increased 40,000 barrels per day as new project growth and work programs were partly offset by scheduled maintenance and field decline. Natural gas production was 604,000,000 cubic feet per day lower than the second quarter, driven by entitlement effects, weaker seasonal demand in Europe and field decline. Moving now to the downstream financial and operating results starting on Slide 13. Downstream earnings for the quarter were 2 $1,000,000,000 up $1,000,000,000 compared to a year ago quarter. Our margins increased earnings by $1,400,000,000 Volume and other impacts reduced earnings $280,000,000 $110,000,000 respectively, primarily driven by maintenance activity mostly in the U. S. Turning to Slide 14. Sequentially, downstream earnings were up $527,000,000 Stronger margins increased earnings by $320,000,000 and higher volumes from lower maintenance activity contributed another $270,000,000 Other items reduced earnings by 60,000,000 dollars Moving now to the chemical financial operating results starting on Slide 15. 3rd quarter chemical earnings of $1,200,000,000 2 sequentially. Stronger margins increased earnings mix added $40,000,000 Other items reduced earnings $220,000,000 reflecting the absence of asset management gains. Now on Slide 17, we want to reinforce the importance of the corporation's focus on business fundamentals regardless of commodity prices. And this focus underpins our solid financial and operating results throughout the business cycle. Our first imperative is operational integrity, ensuring safe, efficient and Next, we work to maximize the value of our assets by increasing facility utilization and reliability. Incremental barrel of oil produced or refined through improved reliability is one of the most profitable. The next imperative is cost management. Reducing our cost structure is an ongoing focus function organization, capturing benefits from economies of scale, shared research and development programs and technologies, shared services and common shared services and common best practices. We currently run ExxonMobil with about the same number of employees as Exxon had just prior to the merger with Mobil. We're also quick to capture market cost savings. Our global procurement organization is dedicated to capturing the lowest life cycle cost for goods and services. As you can see in the chart on the left, we are achieving significant market savings in the current business climate. So far this year, we've achieved a net reduction of $8,000,000,000 in capital and cash operating costs. And I'll note that this amount is in addition to the $4,500,000,000 decrease in planned 2015 CapEx relative to 2014 spend. Further, in the upstream, unit costs are down about 10% year to date compared to last year. And finally, our longstanding track record of superior project execution is a distinguishing characteristic of ExxonMobil and results in higher return capital efficient assets due to a lower capital base and on time delivery. Turning to Slide 18. Through our differentiated project development capability, we are unlocking the value of our deep and diverse upstream portfolio. Excellent progress has been made on our investment plans to start up 32 major projects between 20 12 2017. We've started up 21 of these projects, including 5 this year, which added more 750,000 oil equivalent barrels per day of working interest production capacity. More than 90% of these volumes are liquids or liquids linked to LNG. We are achieving a strong reliability from our projects, including more recent startups such as Kazama Satellites Phase 2 in Angola, Adrian South in the Gulf of Mexico and the KRL its early startup in 2014 and quick ramp up to full capacity, the project has produced nearly 9,000,000 gross tons of high quality LNG and has delivered more than 125 cargoes to customers. Now since start up, we've progressed low cost debottlenecking activities to enhance production rates. Our systematic approach has increased gross capacity of the PNG LNG project from 6 0.9000000 to 7,300,000 tons per year. This is yet another example of ExxonMobil's projects were commissioned in September. In Nigeria, Eiraha North Phase 2 started up 5 months ahead of schedule and $400,000,000 under budget. This subsea development ties back to existing infrastructure shown in the photo, avoiding the need for another FPSO vessel. Gross peak production is estimated at 65,000 barrels of oil per day and will increase total Eirha North field production to approximately 90,000 barrels per day. Also in September, the first ever subsea compression facility started up at Oshkard in the Norwegian North Sea at a depth of nearly 1,000 feet. This is a prime example of developing and applying advanced technologies to unlock previously uneconomic reserves. At peak, the project is expected to add gross production of approximately 40,000 barrels of oil and more than 400,000,000 cubic feet of gas per day. And finally, in Indonesia, at the Banyu Europe development, start up of the central processing facility is expected by year end, enabling gross production to ramp up to more than 200,000 barrels per day. Moving now to exploration on Slide 19. We continue high grading our 92,000,000,000 we are conducting the largest 3 d seismic survey in the company's history to evaluate the resource potential of the 6,600,000 Acre Stabroek Block. Additional exploration drilling is planned in the first half of twenty sixteen. Offshore Nigeria, we secured interests in 2 high potential blocks, building upon our 800,000 acre position. These blocks are adjacent to where we made And in the U. S. Permian, we acquired And in the U. S. Permian, we acquired rights to 48,000 acres in the core of the Midland Basin adjacent to existing operations. We've grown our operated portfolio in the basin to over 135,000 net acres from a series of update on our downstream business, where we are selectively investing to grow higher value product sales. We recently announced the expansion of our hydrocracker unit at the Rotterdam refinery shown in the picture to the left. The project will utilize ExxonMobil's proprietary hydrocracking technology, efficiently producing Group 2 premium lube based stocks and ultra low sulfur diesel to meet growing market demand. Rotterdam refinery is fully integrated with our chemical manufacturing. The hydrocracker project will increase production of higher value products and further strengthen the refinery's position as a leader in the European refining industry. Construction is expected to begin in 2016 with startup projected in 2018. This project along with recently completed base stock capacity expansions at our Baytown, Texas and Singapore refineries will further enhance our position as the world's largest producer of loop based stocks. Now in addition to these capacity expansions, we're investing across our lubricants value chain. At our petrochemical complex in Singapore, we announced the construction of a new synthetic lubricant blending plant to extend the production of Mobil 1, our flagship synthetic engine oil brand. This new plant will employ blending technologies, drive increased operating efficiency and enable us to support the growing Asian market demand from premium synthetic lubricants. Start up isn't planned in 2017. Moving now to a discussion of year to date cash flow on Slide 21. This graphic illustrates the corporation's sources and uses of cash. Our integrated businesses provided $26,000,000,000 of cash flow from operations, which supports shareholder distributions and funds our investments. Scale of these cash flows and our balance sheet strength provide the financial flexibility to invest through the cycle. Cash flow from operations and asset sales of $27,600,000,000 funded shareholder distributions and nearly all of our net investments in the business supplemented by small increase in debt financing. These investments have attractive financial returns and justify the additional leverage. Our objective is to pay a reliable and growing dividend, directly sharing the corporation's success with our shareholders. Quarterly dividends per share of 0 $0.73 are up 5.8% versus the Q3 of 2014. We have also maintained the share buyback program, but have prudently tapered it over the past 9 months consistent with changes in the business environment and the corporation's cash requirements. Share purchases to reduce shares outstanding are expected to remain at $500,000,000 in the Q4 of 2015. And finally, year to date, the corporation has generated $7,400,000,000 of free cash flow, reflecting the performance of our integrated businesses and our disciplined capital allocation approach. So I would now like to conclude this morning's comments with just a summary of our year to date performance. In short, earned $13,400,000,000 reflecting the benefits of our integrated business model, which captures value throughout the cycle, as demonstrated by our strong downstream and chemical results. Upstream production volumes increased to 4,000,000 oil equivalent barrels per day, up 2.7% year on year. Volume contributions from a portfolio of new developments underscore our project our achieve our production target of 4,100,000 barrels per day for the full year with additional project ramp up and seasonal gas production increases throughout the Q4. Solid operating results combined with continued investment and cost discipline generated cash flow from operations and asset sales of $27,600,000,000 and free cash flow of 7 point $4,000,000,000 Our commitment to shareholders remains strong as the corporation distributed $11,500,000,000 through the end of the third quarter. So regardless of industry conditions, we remain focused on what we control and are driven to create shareholder value through the cycle. This concludes my prepared remarks, and I certainly would be happy to take your questions. Thank you, Mr. Woodbury. The question and answer session will be conducted electronically. Our first question comes from Doug Leggate with Bank of America Merrill Lynch. Thank you, everyone. Good morning, Jeff. Good morning, Doug. A couple one housekeeping and one strategic question, if I may. Just on housekeeping, this quarter, I guess, the number it jumped out to us was your tax rate. And I'm just trying to understand, is that just a mix effect? Or is there anything unusual going on there that we should be aware of? But put another way, if we had a sustained low oil price environment, I'm guessing we would expect that the tax rate would remain at the press level. Is that fair? Yes. Well, the tax rate, if you think about it from a quarter on quarter perspective, Doug, it's down just shy of 12% and there are 2 components. 1, as you said, is the mix effect across our related items that reduced the tax rate by about 3%. So we're still consistent with our guidance that assuming the current commodity prices and our existing portfolio mix, we would anticipate an effective tax rate between 35% 40%. If you unwind the 3% one time impact in the Q3, that takes you up to 35%. And if you look at year to date, our effective tax rate is about 37%. So our guidance of 35% to 40% is right on. To be clear, that's a consolidated rate or is that including affiliates? That's just consolidated, right? That's consolidated. Got it. Okay. My follow-up is, I guess I'm going to go to Guyana. So one of your partners is suggesting that there's the reasonable potential for an early production system here. And I'm just wondering, given that as operator, we really you're the kind of source of all knowledge, so to speak. Can you give us some idea as to how you're thinking internally about scale opportunity, given just the embryonic nature of this whole situation? Whether there is an early production system plan. And I guess, I know there's a lot of embedded questions there, but the relative importance that Exxon is giving this within your general portfolio in terms of personnel allocation and things of that nature, just a broad feel as to how you're thinking about this, what looks like a fairly interesting area? I'll leave it there. Thanks. Sure, Doug. Let me step back first and just remind you, the exploration program as a whole is really designed to ensure that we're targeting opportunities that will high grade our resource portfolio. As you heard from us earlier this year, we're very encouraged with the initial results of Guyana. As I've said previously, Doug, and as you seem to imply, we've got one well in an area that's very large, 6,600,000 acres, very encouraged by the initial result. As I said in my prepared comments, we do have a very active seismic program underway that is informing us as we put together our plans for some drilling activity in the first half. Now obviously, we're taking all that information real time and we're incorporating into our thinking, but it's really too early for us to share any specific plans. But rest assured, Doug, we will look at the full range of development options to see how we can best monetize the resource with the objective of achieving optimized return on investment. Thanks, Jeff. Appreciate the answer. You bet. We'll go next to Doug Terreson with Evercore ICI. Good morning, Jeff. Good morning, Doug. So, I had a point of clarification as well. What was the asset sale that was highlighted on Slide 6? And was this $500,000,000 after tax amount included in the operating earnings that isn't in the $1.01 per share? Yes. So the 500 dollars from cash flow represents a number of multiple assets. As we've said historically, Doug, we have as part of the key component of our asset or our business is a very active asset management program to high grade our portfolio. So the 500 $1,000,000,000 or $500,000,000 positive cash impact really represents many different transactions that occurred over the quarter. On a quarter on quarter basis, it was the absence of a trade that we did Q3 of last year. Okay. I see. And also on capital spending, it's running about 20% below last year's level. And while the gap seems to have narrowed somewhat versus the recent quarter, it's actually widened versus the first half in the upstream. So my question is whether or not you provide some color on the spending trends and also any insight that you may have on the trend for 2016 in light of the pretty significant changes that are being announced by some of your competitors that is if you have any guidance at this point? Sure, Doug. I mean, I'll say in short that our CapEx guidance has not been changed. We're still saying have a guidance for this year at $34,000,000,000 and 2016 and $17,000,000,000 below $34,000,000,000 Of course, we'll provide an update in the analyst meeting in March. But as I alluded to last quarter and you see in the savings that I talked about year to date, we are seeing substantial capital efficiencies on the CapEx side. We are running lower than our plan and it is reasonable $34,000,000,000 Okay. And thinking forward, Doug, I'd also say that those type of efficiencies and improvements that we're capturing, including market savings and a stronger U. S. Dollar will be extrapolated forward into the 20 162017 programs. Okay, great. Thanks a lot. You bet. We'll go next to Brad Heffern with RBC Capital Markets. Good morning, Jeff. Good morning, Brad. Just sort of following up on the past question, obviously, you identified the $8,000,000,000 in cost savings so far. I'm curious what inning we're in, if you will, as far as cost savings go. Do you feel like you've harvested the majority of savings that you expect to have as a result of the downturn? Or is there a lot more to come? Well, Brad, I think just stepping back, we are never satisfied with our cost structure. We are as is clearly mentioned many times, we're always working to reduce the structural cost in our business. So I would never tell you that we're done. Within the market capture, the market benefits, we continue to work actively with our service providers to identify innovative lower cost solutions that end up being win win solutions outcomes because they know we've got the financial capability to invest if we have the right cost structure and ultimately the that we'll continue to drive meaningful improvement in our cost structure while maintaining high operational integrity. Okay. Thanks for that. And then thinking about onshore U. S, can you talk about the current rig count in across your 3 major basins? And there was obviously a big decline last quarter. Can you talk through how much of if it's declined further, how much of that is just pure efficiencies versus the amount of activity you'd like to have? Yes, it's probably both of that. It's both efficiency as well as an intentional effort to manage our spend given the business climate. That is down from our peak. And That is down from our peak. And in essence, it's down because of the reasons I've already stated and that is we continue to see significant improvements in operational performance, cost and productivity. So while the rig count is down, part of that is offset by the improvement in performance. But the second part of it again is due to a deliberate effort to manage within our means. Great. Thank you. You bet. We'll go next to Evan Kalia with Morgan Stanley. Yes, good morning, Jeff. Hi, Evan. Yes, just first to follow-up on the CapEx on the $8,000,000,000 of cost savings year to date. Can you give us a color of the composition in that reduction between capital and cash costs? And I thought I heard you say that's in addition to the $4,500,000,000 step down from 2014 to 2015? Yes, Evan. It isn't in addition to the 4.5. So the 8,000,000,000 is really from our target, our CapEx guidance that we had provided. In terms of the split between CapEx and OpEx, I just generally speaking, I'd just tell you it's a little over $1,000,000,000 CapEx, the rest is OpEx, cash OpEx. Got it. It helps if you think about 16. On my second question is on LNG. I mean, I know there is a mix in contract durations within your global LNG portfolio and it changes over time as contracts some contracts reopen as have been ported. But can you give a can you quantify the aggregate spot market exposure in your portfolio for Exxon into 2016? I can generally tell you that it's a fairly low component of our portfolio. Remember, our LNG projects continue to be a key component of our portfolio and it is a very important part of our margin generation. And as you may have heard us say in the past that when we go to FID on these big multi $1,000,000,000 complex LNG projects, we typically contract under long terms, our LNG volumes, our proved LNG or proved reserves with very little bit left for spot. So less than 10%, is that a fair assumption? That's a fair assumption. Great. I appreciate it. Our next question comes from Phil Gresh with JPMorgan. Hey, Jeff. Good morning. Good morning, Phil. Just a quick follow-up on the capital cost reduction number. Spending to take advantage of this environment that as we look ahead to next year, you could actually have a good year over year benefit from that? Yes. Well, clearly, the strength of our balance sheet and our ability to continue to invest through the cycle provides an added benefit. Those projects that are in execution right now coupled with the capability of our global procurement organization to capture market savings allows us leverage those benefits in the current projects. Likewise, if you rewind a bit to our discussion around the Lower forty eight unconventional activity, we are taking full advantage of high grading the services that were provided. We're very well positioned to advance certain commodity purchases. But rest assured, we're taking full benefit of the current market climate. Is there any way to quantify the benefit of pull forward plus project roll off? No, Phil, it's really hard to do that. I mean, the business is very expansive in terms of scope and scale. We got a lot of those cost savings vary dramatically between asset and geographic regions. So it's really difficult for us to go ahead and break that down further. Okay, understood. My follow-up question is just on the M and A bid ask spreads. Other companies have sounded a bit more upbeat. I know in the past you said you think they're too wide still. So anything changed there in the past few months? And with respect to how wide they've been for how long? Has that surprised you at all given where we are in the cycle relative to past cycles? Well, I mean, all I really can say about it is as you would envision, I mean, the bid ask price is really a function of a number of factors, obviously, including the business climate, but also prices have a view to share have a view to share with respect to where it's going. I would tell you from our perspective, it's business as normal. As you've heard me say several times, Phil, that we've this is a key component of our ongoing business, not only acquisitions, but high grading our portfolio from divestments. I would simply just say that any acquisition will have to compete with our diverse inventory of investment question comes from Neil Mehta with Goldman Sachs. Good morning. Good morning, Neil. Hey, Jeff, I want you to comment a little bit on the downstream here. And maybe we start off with some of the announced divestments Chalmette and Torrance. And talk through a little bit of the strategic logic behind divesting those assets and then what we can read, if any, from how you think about the downstream portfolio as a percentage of the mix of the company? Sure, Neal. Maybe I can start with just a reminder for the group that as I said a moment ago, this is a very important part of our overall business activities, the asset management focus. And from a downstream perspective, if you look at the last decade, we have divested more than 1,000,000 barrels a day of refining capacity, something like 6,000 miles of pipeline in over 200 fuel terminals. And I start there because it just highlights that we our portfolio through identifying appropriate investment opportunities you're seeing in Rotterdam, in Singapore, focusing on risk balancing on our portfolio and then pursuing monetization opportunities. Obviously, there's a lot of variables that go into a lot of variables that go into such a decision for the downstream, including our large manufacturing footprint in us was to monetize those assets and to continue to focus our investments on areas that will upgrade our existing portfolio. Many of our sites being advantaged, a lot of those investments focused on things like expanding our feedstock flexibility like you see in our plans to expand the Beaumont refinery, like expanding our logistics flexibility, like we talked about previously with the Edmonton rail terminal, expanding our higher yield, higher value products, which you're seeing with the Rotterdam refinery and Antwerp refinery. And underlying all of that is further capturing increased value from our integrated business model. And then the follow-up question, Jeff, is a follow-up to Phil's question around M and A. And as you think about the U. S. Unconventional business, you did a tuck in here, 48,000 acres in the Permian. Is that the right strategy for Exxon to continue to look for incremental bolt on acquisitions of acreage that you can tuck into the portfolio under XTO or does larger scale M and A of U. S. Conventional assets create value at the right price? Well, we think it is the right strategy. We think everything is available for us to consider. It will be a full range from our investment activity to the bolt on acquisitions that you've seen us do here in the Lower 48 on conventional in the last 2 years to larger scale acquisitions where fundamentally it keeps on going back to that test. It has to compete with the investment opportunities that we have in our portfolio. And if the view is that we can capture additional strategic value and overall our assessment is that we'll get capture longer term accretive performance then it really sets up the stage for something that we'd be interested in. And remember, we keep that financial capability so that we are agile to respond to opportunities that come along. Makes sense. Thank you very much Jeff. Thanks Neil. Our next question comes from Paul Cheng with Barclays. Hi, good morning. Good morning, Paul. Jeff, two questions, if I may. One quick one, just a clarification on the quarter. Did I maybe I missed it. Did you tell us what is the actual asset sales gain on the P and L in this quarter? And also whether there's any timing benefit like from the price realization for your downstream? Well, on the first question, Paul, what I said was, there really is from our earnings impact, there's really nothing for us to share. There's nothing notable across the transactions. Your second question, can you repeat that again? No, that's part of the first question is that, do you have typically that when you buy Ku because of the long haul, sometimes that when oil price is dropping that you have a price realization benefit on the finalization. Do you have that number you can share with us? Yes. So quarter on quarter, it's a negative about a $100,000,000 on sequentially, it's negative about $200,000,000 So sequentially, it's about $200,000,000 negative. And second question is a little bit more strategic. If I look at your portfolio, say broadly divide them into deepwater oil sand, shale oil and LNG. When you look at those buckets, can you rank for us that in terms of the attractiveness of future investment within your portfolio on those buckets? In other words, which one is ranked the highest and which one is the lowest within your portfolio today? Yes. Paul, I'd ask you to think about it a little bit differently that within each one of those resource types, there is a range of attractiveness in terms of value. We may have some very attractive resources in each one of those categories that would compete very effectively ask you to think about is that we have a very diverse, that I'd ask you to think about is that we have a very diverse and deep resource base that we are able to participate in each one of those resource categories. And within those resource categories, we've got very high value investment opportunities that will effectively compete for allocation of capital. Yes, that's fair. Maybe let me ask from another angle then. Out of the 98,000,000,000 barrel of your resource, do you have a rough estimate how much of them based on today's technology and the physical term, you will be able to generate more than a 10% return under $60 brands? Well, on the 92,000,000,000 barrel resource base, again, I'd ask you to think about it differently because what the organization does is we will continue to optimize our development alternatives to make sure that we maximize the return on these barrels. So if we identify a resource that we don't think we can get an attractive return on, there will be other means to go ahead and either implement a different development scheme that will reduce the economic risk and improve the return or ultimately we may choose to go ahead and monetize the asset. So it's a dynamic portfolio that is really working towards getting the greatest value from every barrel. And then of course, we complement that with our application of technology. I mean, I'll just use the unconventionals as a good unconventional resources. Another good example is in oil sands, how technology is being applied to really improve the profitability and allow us to capture greater value from those resources. So I think it really speaks to the strengths of ExxonMobil. We have the know how, we've got the excellence in how we go ahead and do our development planning, how we identify value added real time technology to enhance our investment choices. And then of course, leveraging our ability to interface with the resource owners to find the right fiscal environment to go ahead and progress the investments. Okay, very good. Thank you. Okay. Dan Margolin with Cowen and Company has our next question. Good morning. Good morning, Sam. So on the last call, there was a little bit of inquiry about kind of growth opportunities post this round of guidance in 2018. It strikes me that through U. S. Gas is a really big component of your resource base without pulling much weight in income today. And perhaps there's an opportunity for that slug of resource to provide some of that sort of outer year growth. I was wondering if you could just maybe walk us through your broader views on gas, specifically any kind of path you see for that tranche of production to start contributing a little bit more to the overall income profile? Sure. Let's start Sam with our energy outlook. And if you think about the energy outlook, gas is growing about 1.6 percent per year. From an LNG perspective, from where we are, say, 20 10 to 2,040, we expect LNG demand to triple from current capacity. So that really sets up, if you will, the investment case. And then globally, we're very well positioned with gas assets around the globe to participate not only in the domestic market, but in the LNG market. So maybe if I can focus now on just the U. S. For a moment. We have had a constructive view that gas is going to continue to grow in the U. S. As gas replaces coal for power generation. Our gas resource base is also significantly underpinning our investment in our petrochemicals. So our expansion, for instance, at the Baytown refinery to add ethylene lines, 1,500,000 tons per annum, as well as a concurrent investment at Mount Bellevue to add polyethylene lines. In fact, metallocene polyethylene will be underpinned by advantaged feedstock that is U. S. Natural gas. And then furthermore, it also positions us to provide a source for LNG export into the global market. By way of example, we're progressing through a regulatory review, the Golden Pass LNG export facility. Of it as a brownfield development because it was all the original investments associated with the export facility is going to be advantaging that site as we move forward into an export facility. Okay. Yes. So that kind of brings me to my follow-up, I guess. How much of your investment evaluation process is geared around integrating some of the resources that you have in place. So for example, could you as you see kind of U. S. Gas here get pressured in the near term from improved economics from unconventional producers, would that ever lead you to accelerate your investment in things like ethylene crackers or even U. S. LNG facilities to sort of promote your own position? I think it's a good question, Sam. Think about it this way that we will time the investment in gas resource development activities to underpin value chain opportunities that we're pursuing. That is expansion into petrochemicals that would be the LNG exports. We will time those resource development activities to underpin the pin the value chain investments that we're pursuing. Perfect. Thank you very much. Great. Thanks, Sam. We'll go next to Blake Fernandez with Howard Weil. Jeff, hey, good morning. Question for you, a lot of your peers have been recognizing impairments and restructuring charges, I guess partially as a function of headcount reductions and OpEx reductions and then secondly, resetting internal price decks. I was wondering if you could remind me, is there a certain timeline that Exxon uses to reset the internal jack that they're using? And then secondly, with some of these operating cost reductions that you're seeing as part of that headcount related, in which case we may see some restructuring charges? Well, we don't have any plans Blake to have any restructuring charges. As I said in the prepared comments, we have really focused on rightsizing the organization through the history, particularly if you reference the merger of Exxon and Mobile to where we are today, we're down over 30% in terms of total employees. So we are constantly rightsizing that organization and identifying additional opportunities to improve the productivity of the organization as a whole. So we don't anticipate any restructuring charges. Okay. And it doesn't sound like there's a timeline on internal price forecasting or anything like that, like some company use a 3rd quarter or something like that? Well, I mean, I'll go back to talking about our what really informs us is our outlook on supply and demand. Okay. Okay. The second question for you very briefly. A lot of companies are starting to see lower decline rates as a function of increased reliability or some of the longer plateau projects coming online. This may be a better question for the Analyst Day, but I didn't know if you were witnessing the same thing in your portfolio. Well, I mean, generally speaking, if you look at our 10 ks, we've continued to update our, if you will, average decline rate over the long term, which is still about 3%. That does not include uplift due to major new project developments. But we have continued to invest in some very long life assets that have really very long plateau production rates like Kearl, like the LNG investments we made in Papua New Guinea and in Qatar. That gives a very strong foundation to our production, but importantly a valuable foundation that contributes significant cash flow. Okay. Thanks a lot, Jeff. You bet, Blake. We'll go next to Anish Kapadia with Tudor, Pinkering and Holt. Hi. Yes, my first question is going back to somewhat to the industry cost cutting and CapEx cutting that you're seeing. And it seems like some other companies cutting a lot more aggressively than yourselves given the state that some of those companies' balance sheets are in. I was just wondering on the back of that, when would you expect that to have some kind of an impact on your non operated production, given that we might see higher decline rates coming through with the lower number of infill wells being drilled, less tiebacks being put into place as projects get canceled? Well, Anish, that's a hard one to answer in terms of what others are going to do that results in volume impacts on our non operated. Recognize that a large part of our portfolio is driven by long life investments. These are multi decade investments that are generating volumes over the long term. Granted, there is a material component, there's much more shorter cycle investments. And we have seen some of the assets where we are not the operator, the activity drop off significantly because of weaker balance sheets. Of course, that may present an opportunity for us. Okay. Thank you. And my second question was on your U. S. Gas production. It seems like it's been fairly weak this quarter. It's down around 9% year over year. I think you've had some benefit with Hadrian coming on stream. Just wondering in terms of that trend and that decline rate, can you just give some kind of outlook of how you see your U. S. Gas production progressing, especially in kind of the current gas price environment and how you expect the gas environment to kind of evolve? What does that mean for your U. S. Gas production? Thank you. Yes. Large part I'll remind you that a large part of our gas is coming from our unconventional resources. We are the largest gas producer in the U. S. We have not been investing in drilling activity here very significantly, primarily given the outlook for near term gas demand and our we're going to as I said earlier, we're going to pace the investment program consistent with expected demand growth for conversion from coal to natural gas and power gen, the investment in petrochemicals, the regulatory approvals needed in order to export that gas and compete in LNG market. Unfortunately, given certain regulatory restrictions in the U. S, that does slow down the investment opportunities. And I think it really points to the opportunity the U. S. Has to more actively participate in the global market. That's great. Thank you. You bet. Ryan Todd with Deutsche Bank has our next question. Great. Thanks. Good morning, gentlemen. Maybe if you could do one higher level one first. If we think about project sanctions and your investment in long cycle projects right now, where do you think you are in the deferral or reinvestment process? Have you seen costs come down to a level at this point on long cycle projects, where you feel like it's time to kind of reaccelerate investment? Have you not deferred much in your view at this point? Or probably, I guess, what have you seen on FIDs? What FIDs could we expect going forward? Or do you think the costs need to come down further for you to get reengaged? Well, Ryan, I guess I would tell you that we haven't disengaged. We've maintained a active investment program. In addition to the 32 major upstream projects that I've talked about and then the FID decisions that we've taken on some of our downstream and chemical projects, we've given you some line of sight on the next tranche of upstream investment opportunities currently in various stages of either development planning or even in early stages of pre engineering, if you will. It gives you a sense for what we're working on. I want to remind you that we are capturing real time benefits through capital efficiency in our investment program. Those are structural improvements that we're capturing. Yes, there are market improvements that we're experiencing as well. But as we make the investment decisions, we test those investments across a very wide range of prices, including commodity prices. So and that's well within the current price environment. So the investments are very robust, resilient to a number of factors that can significantly influence them. And that positions us very well to continue a continuous investment program, not get the inefficiencies of the stop and the starts, obviously underpinned by our financial capability and allows us to further capture economic uplift in the current market climate. Great. Thanks. That's helpful. And then maybe if I could ask one more specific one. On the last quarter, you provided some a little bit more granular production levels on some of your onshore assets where they were in the quarter in the Permian, the Bakken, the Woodford. Would you be willing to do to say what those assets produced in the Q3 and maybe what your Midland Basin acreage is up to at this point? Yes. So the Midland Basin acreage, as I said in the prepared comments, we're up to 135,000 net acres. In terms of production, our total gross operated production from the Permian, Bakken and Woodford is just shy of 250,000 barrels a day. Bakken is leading that at over 100,000 barrels a day. Permian is approaching 100,000 and the rest is in Woodford. Okay. Thank you. You bet. We'll go next to Edward Westlake with Credit Suisse. Okay. Getting to the top of the arrow, so I'll leave my contentious one for the second question. First one, you mentioned pick up extra acreage in Nigeria. Any signs that Nigeria is moving forward in terms of changing terms to sort of get those attractive reservoirs actually development flowing? Well, I think there's a clear recognition that there are some opportunities to stimulate further investment technology application within the country. And I think there is an earnest effort to try to put in place the right investment climate. There is significant opportunity in Nigeria. And as we said in the prepared comments, we're encouraged by the exploration results that we've had. But just we're going to have to wait and see where it moves. There are a lot of issues that they're dealing with and we've got to be patient, but we've got to make sure that we weigh in. But in short, I tell you that we're encouraged by the new government and where they're headed. And this is a small but potentially contentious issue. Just I saw Asia gas volumes down and I hear that Petronet in India is sort of rejecting cargoes or at least low on the take or pay commitments. I mean, just maybe talk through it's probably just a timing issue in terms of how that might affect volumes, but talk through about any issues with Asia Gas that we should be aware of just for modeling? Well, and I guess what you're referring to is on Asia Gas that were down sequentially. That's primarily due to some entitlement impacts associated with some quarterly true ups as well as some decline in other impacts. With respect to LNG contracts, they're confidential as you can appreciate. As I said earlier, all of our contracts are based on a longer time horizon. We've got various elements within the contracts to give us and the buyer some flexibility. But there's really nothing more to share beyond that. Thanks very much. Our next question comes from Paul Sankey with Wolfe Research. Jeff, I think when we met mid year, you were saying there hadn't been a major upstream FID this year. And at the same time, I'm seeing that you're consistently losing money in U. S. C and P. The 2, one is obviously long cycle, the other is short cycle. I was wondering in the short cycle case why you seem to be maintaining very high levels of activity when you've got nearly a $500,000,000 loss here and whether or not that's a function of perhaps oil profits being offset by natural gas losses or if I'm missing something about the breakdown of that loss? Thanks. Yes. So let me kind of give you a perspective of the upstream U. S. Business. Paul, all of our assets are managed to maximize returns through the lifecycle, which is obviously on a longer time horizon in the current price environment. As you heard me say before, we really focus on those things that we control like the integrity, reliability, productivity, importantly our development and operating costs, making sure that we got operational flexibility. And as you've heard in the downstream side, the pursuit of higher value product yields. I'd say that importantly, we invest in attractive opportunities through the cycle that will further enhance the profitability and capture savings in the soft market. And as I've said before, the current investment program that we are that we have underway in the U. S. Portfolio is attractive in this price environment. Based on the assumption that oil prices are higher in the future? No, not at all. So I'll remind Based on the assumption that efficiency gains will make it profitable in the future? Based on factual current data that we've got and how we manage the portfolio as well as the existing operations. Well, I guess what I'm looking at is it's nearly $500,000,000 loss in U. S. E and P. Right. So will that become profitable in due course at these prices? Again, we manage the business over a longer time horizon. And to be clear, our U. S. Upstream portfolio continues to generate positive cash flow. Okay. So it's cash. So what's the problem with the earnings then? Again, Paul, we've managed the business over the longer time horizon and we'll continue to do what we do very well and manage the things that we control, continue to work on the operating costs and the reliability. Yes, I understand. I'm just sort of slightly digging around just because it's been a fairly consistent loss and because it's short cycle. I think that's what I'm really driving out that I would have thought that it's a short cycle business therefore the short term performance might be better. Well, the increase in the loss in the Q3 was primarily driven by another reduction in crude realizations that we all experienced as well as some additional downtime in maintenance. Got it. Okay. Thanks, Jeff. I'll leave it there. Thank you. All right. We'll go next to Jason Gammel with Jefferies. Thank you. We've been pretty long to the call, so I'm just going to keep it to 1 and hopefully be fairly quick. Jeff, can you confirm that the Iraqi government has asked you to slow investment at the West Qurna project? And you comment whether you're now at peak capacity in Phase 1 of the project and whether you'd be able to hold that level if you're not investing? Well, on the first point, Jason, I really can't talk about discussions between us and the government. Production has remained above about 400,000 barrels a day in the Q3 with continued pressure support and that has grown over the recent past. And you expect that you'll be able to hold to that level? Well, it'll be our intent to maintain production levels. Obviously, that's going to require continued investment and pressure investment and pressure maintenance. Got it. Thank you. Roger Read with Wells Fargo has our next question. I guess maybe kind of following one of the questions earlier from Ed. As you look at other countries where maybe they're becoming a little more reasonable, whether it's your tax structure, royalty structure, PSCs, etcetera. We've seen Canada raise taxes. We've had Nigeria stuck in neutral for a number of years. As you look across the rest of the globe, are there any places where we're seeing some adjustments from a political standpoint that might make things more attractive over the next couple of years? Value chain for the energy sector, opening up the door to investment, opening up the door to investment. You think about some opportunities in West Africa that have opened up, East Africa. Now, of course, when you open up a new area, there are a lot of other issues we've got to deal with because there's limited infrastructure, perhaps not a well established fiscal basis. So it does take more time. But nonetheless, I mean, I would tell you from an encouraging foreign investment that there's been some pretty good progress out there that's increased the amount of opportunities that we've got before us. Okay. And as a follow-up to that, you mentioned earlier in the M and opportunities. As you look at kind of maybe a changing dynamic internationally and your exploration spending, because I think of that as kind of having to compete with the M and A side given the uncertainties in the longer timeframe. How is exploration spending kind of keeping up with the overall spending reductions adjusted for efficiencies and all that? Is it going to remain a similar percentage of total CapEx? Does it need to decline in this environment? Just curious which direction you're going to go there? Think about it as being more opportunity driven. It's a function of the opportunities, the maturity of our resource assessments and the appropriate timing to make the investment within our obligations to the resource owner. No percentages? I mean nothing to quantify. I mean it's a very large and extensive resource base that we're pursuing. But I will again remind you that it's solely focused on how it can high grade our existing portfolio. So after we've done the assessments and we have a better handle on what the prospect potential is, it's got to be able to compete before we do spend any more money there. We'll go next to John Herrlin with Societe Generale. Yes, hi. Two quick ones. How's Kearl going? Well, thanks for asking, John. I mean, Kearl is moving along very nicely. As you heard, we got the Kearl expansion started up ahead of schedule. It has been all the learnings have been fully integrated into the expansion project. It's ramping up quicker than initial development. And through the quarter, we produced in excess of 180,000 barrels a day gross. And I'll tell you that we have produced over the 220,000,000 design. Okay, great. Next one and last one for me is, you're seeing a lot of your IOC brethren kind of reduce their risk profiles. I think other people were kind of getting at this. Are you at all worried in terms of your global portfolio or if the world is global portfolio of having fewer potential partners for these large scale projects going forward? Or is this an advantage because you execute well? Well, I think a couple of thoughts there. One is that, clearly, we're in the risk management business. There's a lot of risks that we deal with, one of them being the geopolitical risks, another one being the economic risk associated with many multi year investment programs on these big multi $1,000,000,000 investments. We I wouldn't say that we are seeing a back off on interest by our typical partners in these type of investments. I would say that there's clearly a desire for us to continue to be in a leadership role in a lot of these big investments. We think we've demonstrated our credibility and I think that plays well not only with the resource owner but with the industry as a whole. Great. Thanks, Jeff. All right, John. Our final question today comes from Guy Baber with Simmons. Good morning, Jeff. Thanks for fitting me in here. Good day, Guy. I wanted to talk a little bit about North America Unconventional, but you've highlighted efficiency gains this year have been significant and the benefits from technology improvement. You obviously have a broad perspective across various plays in the Bakken, Woodford, Permian and your gas plays. So could you just talk a little bit about which specific play you see the greatest potential for continued efficiency gains and technology application? Really just trying to get some differentiated thoughts by play in the U. S. In terms of what the current view might be and maybe how that's evolved over the last year or so? It's a really good question, Guy. And particularly the way you ended your question because it has truly evolved over the last several years. Our prominent acreage holdings are in the Bakken, Permian and the Woodford. I would tell you that we're very excited about all those opportunities. Clearly, the Bakken is more advanced in terms of its development. Although, I would also say that we continue to capture additional cost and productivity improvements in the Bakken. The Permian has got multiple reservoir objectives, and I think that presents a unique opportunity to further optimize the value probably more so than the Bakken. And the Woodford is very early stages and it's really hard to compare and contrast at this point. But in summary, rather than saying one is better than the other, I'd tell you that they're all very exciting. They're all very important part of our portfolio and have significant value uplift potential for us in the future. Okay, great, Jeff. And then last one for me. The international downstream business performance was very impressive, obviously, but you earned more this quarter than all of last year combined. Can you talk about the fundamental margin outlook going forward for refining, particularly internationally? But we've been surprised by the strength of that market this year. And maybe the same for chemicals, just given those businesses have done such a tremendous job this year of offsetting the weakness in oil prices, so it's important. Yes. Well, as you know, broadly speaking, refining margins are really a function of product demand and available refining capacity, not only new capacity adds, but also rationalization of capacity in regions that have excess capacity. We do not provide a forward look on margins, but I would say that particularly in the non U. S, you've seen really good strength in Europe, Asia and very similar to the U. S. Driven by MoGas. I think the results really underscore the strength of our integrated portfolio. Thanks for the comments, Jeff. Okay. With no further questions in the queue, I'd like to turn the call back over to Mr. Woodbury for any additional or closing remarks. Well, to conclude, I again thank you all for your time and your questions. A very interesting period right now. I think you can see from ExxonMobil's performance that we continue to meet both our operating and our investment commitments. We are very focused on the fundamentals. We have always been focused on the fundamentals and we have seen that as being a very important element on the success of this corporation. So thanks for your questions this morning and we do appreciate your in ExxonMobil. Ladies and gentlemen, that does conclude today's conference. Thank you all for joining.