Earnings Call: Q1 2015

Apr 30, 2015

Good day, everyone, and welcome to this ExxonMobil Corporation First Quarter 2015 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, sir. Thank you. Ladies and gentlemen, good morning, and welcome to ExxonMobil's Q1 earnings call. My comments this morning will refer to the slides that are available through the Investors section of our website. So before we go further, 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 for 1st quarter performance. ExxonMobil delivered earnings of $4,900,000,000 These solid financial results demonstrate the value of our integrated businesses in a lower commodity price environment. Regardless of our current market conditions, we remain focused on business fundamentals and competitive advantages that create long term shareholder value. Upstream production volumes were more than 2% higher compared to a year ago quarter, benefiting from new developments in Papua New Guinea, Canada, Angola, Indonesia and U. S. Onshore liquids plays. ExxonMobil's Downstream and Chemical businesses had strong performance across all regions, driven by lower feedstock costs and improved demand, coupled with our competitive product and asset mix. Moving to Slide 4, we provide an overview of some of the external factors affecting our results. Global economic growth continued to moderate in the Q1 of 2015. U. S. Growth slowed relative to the 4th quarter, whereas China's economy decelerated further and growth in Europe and Japan remain weak. However, there are recent indications that growth may be improving, particularly in Europe. As you know, energy prices continue to decline in the quarter, leading to lower cost of supply in the downstream and stronger global refinery margins on higher demand. Meanwhile, chemical gas cracking margins softened on lower product realizations, but remain advantaged relative to liquids cracking. Turning now to the financial results as shown on Slide 5. As indicated, ExxonMobil's 1st quarter earnings were $4,900,000,000 which represents $1.17 per share. The corporation distributed $3,900,000,000 to shareholders in the quarter through dividends and share purchases to reduce shares outstanding. And of that total, dollars 1,000,000,000 was used to purchase shares. CapEx was $7,700,000,000 which is in line with our plan. Cash flow from operations and asset sales was $8,500,000,000 and at the end of the quarter, cash totaled $5,200,000,000 and debt was $32,800,000,000 The next slide provides additional detail on sources and uses of funds. Over the quarter, cash increased from $4,700,000,000 to $5,200,000,000 Earnings adjusted for depreciation expense, changes in working capital and other items and our ongoing asset management program yielded $8,500,000,000 of cash flow from operations and asset sales. Uses included net investments in the business of $6,800,000,000 and shareholder distributions of $3,900,000,000 Debt and other financing increased cash by $2,700,000,000 Yesterday, the Board of Directors declared a cash dividend of $0.73 per share, a 5.8% increase from last quarter. Share purchases to reduce shares outstanding are expected to remain at $1,000,000,000 in the Q2 of 2015. Moving on to slide 7 for a review of our segmented results. ExxonMobil's 1st quarter earnings of $4,900,000,000 were $4,200,000,000 lower than a year ago quarter. Lower upstream earnings were partially offset by stronger downstream results. In the sequential quarter comparison shown on slide 8, earnings decreased by $1,600,000,000 as lower Upstream and Chemical earnings were partly and financing expenses remain at $500,000,000 to $700,000,000 per quarter. Turning now to Upstream Financial and operating results starting on slide 9. Upstream earnings in the Q1 were $2,900,000,000 down $4,900,000,000 from the Q1 of 2014. As you can see, sharply lower realizations decreased earnings by $5,500,000,000 where crude declined by almost $54 per barrel and gas was down more than $2.60 per 1,000 cubic feet. Favorable volume and mix effects increased earnings by growth from new developments. All other items added another $250,000,000 primarily due to favorable tax effects. Moving now to Slide 10. Oil equipment production increased 97,000 barrels per day or 2.3% compared to the Q1 of last year. Liquids production increased 129,000 barrels per day or 6%, benefiting from new projects, work programs and favorable entitlement impacts, partly offset by maintenance activities. Natural gas production decreased 188,000,000 cubic feet per day or 1.6%. Field decline and divestment impacts were partly offset by volume adds for Papua New Guinea LNG and higher entitlements. Turning now to the sequential comparison starting on Slide 11. Upstream earnings were $2,600,000,000 lower than the 4th quarter. Realizations decreased earnings by $2,400,000,000 as crude declined almost $22 per barrel and gas decreased more than $1.20 per 1,000 cubic feet. Favorable volume and mix effects improved earnings by $260,000,000 driven by higher LNG facility utilization, entitlement impacts and growth from new developments. All other items reduced earnings by $500,000,000 reflecting lower benefits from tax items and absence of the Venezuela ICC award, partly offset by lower operating costs. Now moving to Slide 12. Sequentially, volumes were up 194,000 oil equivalent barrels per day or 4.8%. Liquids production increased 95,000 barrels per day on new project growth and entitlement effects, partly offset by field decline. Natural gas production was up 594,000,000 cubic feet per day, driven by stronger seasonal demand in Europe and higher LNG facility utilization, partly offset by field decline. Moving now to the Downstream financial and operating results starting on slide 13. Downstream earnings for the quarter were $1,700,000,000 an increase of $854,000,000 compared to the Q1 of 2014. Higher refining and marketing margins increased earnings by $1,000,000,000 Positive volume and mix effects added another $70,000,000 and all other items decreased earnings by $260,000,000 including higher maintenance activities and unfavorable foreign exchange effects. Now turning to Slide 14. Sequentially, 1st quarter downstream earnings were up 1 point increased earnings by $900,000,000 while unfavorable volume in mix effects reduced earnings by $70,000,000 All other items added $340,000,000 primarily from lower expenses and maintenance activities. Moving now to the chemical financial operating results starting on Slide 15. 1st quarter chemical earnings were $982,000,000 down $65,000,000 versus the prior year quarter. Higher margins on lower feedstock and energy costs increased earnings by $240,000,000 Favorable volume and mix effects added another $30,000,000 and all other items reduced earnings by $340,000,000 mainly due to unfavorable foreign exchange effects. Moving now to Slide 16. Sequentially, chemical earnings decreased by $245,000,000 on lower commodity product margins. Positive volume and mix effects were more than offset by other impacts. Moving next to the Q1 business highlights beginning on Slide 17. In our upstream business, we continue to pursue attractive investments to commercialize our unparalleled resource base. As discussed during our recent analyst meeting, 2015 will be yet another active year for new developments, including 7 major project startups, which will add another 300,000 barrels of oil per day to working interest capacity. We reached several milestones over the last few months. Starting in Canada, 1st bitumen production was achieved from the Cold Lake Navier expansion, which was completed on schedule and on budget. Navier produced 12,000 barrels per day in March with volumes expected to increase to a peak of more than 40,000 barrels per day by year end. Over its expected 30 year lifespan, Navier will develop 280,000,000 barrels of recoverable reserves. In the Gulf of Mexico, we initiated production from the Hadrian South Subsea development in late March. And I'd highlight that production rates on record in the Gulf of Mexico. Daily gross production from Hadrian South is expected to reach approximately 300,000,000 cubic feet of gas and 3,000 barrels of liquids from 2 wells. In Angola Block 15, we successfully started up the Kazama Satellite Phase 2 project, notably ahead of schedule and below budget. This capital efficient project is a subsea development tied back to the existing Kusama B and Mondo FPSOs and leverages available allage for processing, storage and offloading. Project develops 190,000,000 barrels from 3 fields and gross production is expected to reach 70,000 barrels of oil per day, helping to boost total Block 15 production to 350,000 barrels per day. In Indonesia, the Banyan Europe development is more than 96% complete and commissioning activities are well underway. The project's crude transport system, which includes onshore and offshore pipelines connected to a floating storage and offloading vessel has been installed and had its first lifting in April. Through implementation of early production concepts, Banyan Europe is now producing 75,000 barrels of oil per day gross. Early strong well performance enables continued use of existing early production facilities along with the ramp up of the central processing plant. We expect to reach peak field production of more than 200,000 barrels per day by year end. The Kearl expansion project in Canada continues to progress ahead of schedule. All major construction activities are now complete and our focus has shifted to commissioning and pre start up activities. Facility start up is now expected by mid year. So with respect to our exploration program, we continue to pursue a diverse set of opportunities. In Romania, additional drilling is ongoing in the deepwater Neptune block and data collected from these wells are being integrated into development planning for the area. Drilling operations in the Kurdistan region of Iraq are continuing and we drilled and tested the Permam well and are evaluating these results. Additional drilling is planned in the next several months. And then offshore Guyana, we are drilling the Liso Bald Cat, which is the country's first deepwater well. Lastly, in the Gulf of Mexico, we were the apparent high bidder on 11 new exploration blocks in lease sale 235, further strengthening our acreage position. We plan to utilize our advanced seismic imaging capability to enhance opportunity evaluation on these blocks. Turning now to Slide 18 and an update on our downstream investments, which further strengthen our Advantage portfolio. Here again during the quarter, we achieved several milestones. We completed the Lube base dock facility expansions at our refineries in Singapore and in Baytown, Texas, building on ExxonMobil's leading technology in our worldwide manufacturing footprint. These investments will help supply high high Terminal, a fifty-fifty joint venture between Imperial Oil and Kinder Morgan. The terminal will have a capacity of 210,000 barrels per day and will provide logistics flexibility to support efficient, cost effective market access for our growing Canadian oil sands production. Facility will also enable us to deliver additional advantaged crude to our refinery system. Ramp up of loading activities is expected over the next few months. Finally, we also continue to extend our operating cost advantage by improving energy efficiency of our facilities. We recently funded and started construction of a new 84 Megawatt cogeneration plant at our Singapore refinery, which will enable the shutdown of less efficient power generation facilities and reduce carbon dioxide emissions. Upon startup, the unit will add to our total 5.5 gigawatts of gross cogeneration capacity around the world. And this is another example of ExxonMobil's commitment to optimize manufacturing operations, improve energy efficiency and to reduce both environmental impacts and operating costs. So in conclusion, ExxonMobil's results underscore our continued focus on business fundamentals and our competitive advantages regardless of market conditions. In the Q1, the corporation earned $4,900,000,000 demonstrating the value of our integrated businesses in a lower commodity price environment. In the upstream, we increased production from new developments, while in the downstream and chemical segments delivered strong results across all regions. Resulting cash flow from operations and asset sales were $8,500,000,000 generating positive free cash flow, which highlights our disciplined capital allocation approach. Corporation distributed $3,900,000,000 to shareholders and we remain dedicated to creating shareholder value through the cycle. Now that concludes my prepared remarks and I would now be happy to take your questions. Questions as time permits. We'll go to Doug Leggate with Bank of America Merrill Lynch. Thank you. Good morning, Jeff. Good morning, Doug. I'll try 2, if I may. The first one is on the for one of a better expression, the upstream capture rate. Specifically, I'm looking at the very strong international gas prices this quarter, which seemed to hold up a lot better relative to the oil benchmarks. And I guess the mix in this kind of there's a lot of moving parts obviously, but the mix also saw U. S. Gas production decline. So I'm wondering if you can just hit those 2 specific issues on how what's going on with the margin and whether you expect that strength to continue? And I've got a follow-up please. Yes. Well, Doug, we generally don't provide forward guidance on the commodity prices. In the Q1, our total gas realizations were about 6 point $1.1 And as you know, that's a combination of our flow and gas as well as our LNG sales. And those LNG contracts are have mixed fiscal terms that will in many cases are benchmark to liquid prices obviously with some type of a lag effect associated with the market conditions. So the strong European gases or international gas rather is really more of a lag effect. Is that how I should think about it? Well, I think from an LNG perspective, if you remember from our prior discussions, it is a very significant part of our portfolio. And we had been adding significant liquids linked volumes over the years and certainly is a factor for how our realization will change over time. Okay. I'll maybe try and follow-up on that one offline to get into details. But my follow-up is maybe a little aspirational in terms of whether you'll answer it or not. But at our conference in November, you and I guess multiple times since you guys have described Dexon as positioned for this type of environment as it relates to M and A. Obviously, we've seen one very large transaction already. I'm just curious as to if you could kind of qualify how you see the market in light of that comment and specifically whether Mozambique LNG is on your radar given that you've held an advisory role there with the government over in recent years? And I'll leave it at that. Thank you. Yes. Thanks, Doug. As we've discussed previously, think about it more broadly as asset management, which is a key component of our ongoing business. And we regularly assess our portfolio for higher value opportunities throughout the cycle. And as you have seen in our financial results that includes an ongoing program of marketing assets where we believe that they have greater value to others. But likewise, we keep very alert to opportunities on the horizon for acquisitions. And that may be bolt on acquisitions as I said in the past that provide natural synergies to existing operations that we can capture incremental value from or larger acquisitions that fundamentally will provide strategic value for us in the long term. As you know, we're not going to signal specifics as to what our intentions are, but we keep very much alert to where there may be opportunities for additional shareholder value. I'll remind you that given that financial strength that we have, we can invest through our cycle, including in resource development opportunities, investments in our manufacturing business, as well as potential acquisition targets. That was a more full answer than I expected. Thanks very much, Jeff. Thanks, Doug. Our next question comes from Neil Mehta with Goldman Sachs. Good morning, Jeff. Good morning, Neil. So on the quarter itself, it looks like production was a little higher than what we were expecting. Some of that was the PSCs, but I think some of it was the underlying projects here. And as I think about Kirl Angola Gulf of Mexico starting up, you've got some ramp towards the back end of the year as well. So just curious as we think about the balance of the year, could there be some upside to the base case production guidance? Or are we not thinking about some of the turnarounds? Anything you can do to provide some color on the shape of production over the course of the year would be very helpful. Yes. So just from a production standpoint, I'd tell you that our guidance that we provided in the analyst meeting last month remains the same about 4,100,000 barrels per day. We started the year very strongly. As you highlighted, we added significant volumes with our quarter over quarter or sequentially associated with new projects that we have brought on, which as you probably pointed out are continuing to ramp up. As I said in my prepared comments, we've got 7 new major projects starting up throughout the year. And this is part of our significant investment program that we had implemented several years ago that saw our CapEx peak up several years ago as we wanted to progress these mature assets to capture long term value and we're seeing the benefits of it today. Important in all that, Neal, is not only new projects, but our continual focus on the base, making sure that we have strong reliability and we'll continue to integrate our learnings into productivity improvements. Helpful, Jeff. And then if you could comment on 2 kind of top of mind or used optical subjects here. The first would be any comments around Exxon Torrents and how we should be thinking about the ESP and timing there? And the second as it relates to Russia, which I know you spent a lot of time in and how we should be thinking about the impact of sanctions on longer term growth from those operations? Sure, Nell. Now on Torrance, just to the benefit of the group, Torrance refinery in February experienced an incident which resulted in the damage to the electrostatic precipitator. And I'll say upfront that we certainly do regret the incident. And we're obviously going to be very diligent in understanding what the issues were, what learnings we can take from it and how do we incorporate that into our global business. But this precipitator is a emission control device that removes fine particles from exhaust gas. There are several investigations underway of both the state and federal level. Neil, at this time, we really can't estimate when the investigations will be completed and when the site may return to full operations. As I indicated, we have our own investigation that's in progress. I will say that we are diligently working to ensure continued continued supply to our customers. Some of the units at the refinery are operational and we are producing both gasoline and distillates. But we continue to evaluate in parallel with investigations, continue to evaluate options to reinstate our capacity there. With respect to Russia, broadly speaking, there's really nothing new to report at this point. As you know, the sanctions remain in place and we will continue to fully comply. I don't want to speculate when those sanctions will conclude, but I'll remind you that they do not include our Sakhalin 1 operation, which recently we're very pleased with the successful start up of the 3rd field our Kootenaghi. And also say that we've had a long standing and successful business in Russia that's really built on an effective and I'd say mutually beneficial relationship with our Russian partner. I guess the other point I'd leave you with is that we have a very diversified portfolio with Russia just being part of that and it provides great opportunities for us to continue to grow shareholder value over the years. Thanks, Jeff. Thank you, Neal. We'll go next to Guy Baber with Simmons and Company. Good morning, Jeff. Thanks for taking my question. Good morning, Guy. I was hoping you could discuss Kearl performance a bit this quarter. It looks like some significant improvement relative to where it ran last year and that you could have max rates there for the quarter. So could you talk about what you're seeing there? And then could you also address confidence levels in a quick sustainable ramp up for the Kearl expansion and what that timeline looks like and some of the benefits of applying learnings from some of the struggles with ramping up Kearl 1? Sure, Guy. I appreciate the question. As we've said in the past, Kearl is an advantaged long life asset, one that has significant future potential as you look at how we further optimize the base. As you highlight, we have continued to improve on our reliability towards our operating targets and we are fairly consistently producing at the 110,000 barrels a day gross. We were a bit short of that in the Q1 given some planned maintenance that we took. But nonetheless, it's important to say that we are achieving higher rates. We've implemented some facility enhancement opportunities and we expect to see better reliability going forward. As I said in my prepared comments, the expansion is progressing ahead of schedule. When that expansion comes in comes on, we will get further economies of scale with the full operation. And as I've said previously, we are fully integrating the learnings from the initial development into the expansion real time such that we will expect to see better ramp up on the expansion versus the initial development. I'd also highlight a couple of other things. First, that we are making additional investments to maximize logistics flexibility. And as I mentioned in my prepared comments, the Edmonton rail terminal is going to provide additional flexibility. And that takes me to my second point that it really is fully integrated with our manufacturing business and we're capturing integration value throughout the if you will the full value chain from upstream, downstream in our chemicals business. That's very helpful, Jeff. Also I was hoping to get a general comment on what you all are seeing on the capital spending front when it comes to securing cost reductions and managing your CapEx according to the internal plan. It looks like you're tracking well to start the year from our vantage point. And more specifically, the upstream non U. S. Spending was the lowest quarter it's been since 2009, I believe. So could you just talk about that a little bit? And is that just reflective of major project phasing? Or have there been perhaps some significant cuts to the international CapEx in areas that are a little bit less visible perhaps to the base or elsewhere that you could talk about? Yes. So let me take your first question in the broader the broadest concept. And as we've talked previously, regardless of where we are in the business cycle, the organization stays very focused on driving down that cost structure, whether it be in operating costs or a focus on capital efficiency in our major projects. Across our spend, we are actively engaged with the various service providers and we are making some really good progress in capturing those savings from raw materials to services to our rig rates to our just fundamentally our construction costs. I will highlight just make a point that we have a very effective global procurement organization that is focused on capturing the lowest life cycle cost. And I think it really does advantage us from managing that from a global perspective. I think it's also worth noting that our efforts go well beyond just trying to reduce costs from our service providers as we do things such as continuing to integrate our learning curve benefits into our designs and execution plans. I shared with you in my prepared or my response to a prior question that real time we've been able to integrate our learnings in the Kearl initial development expansion project. We continue to enhance our set of opportunities including through commercial terms as well as optimizing our development plans. And we continue to leverage the what I'd say is the collective ingenuity between our service providers and our own people in identifying and pursuing more cost effective solutions. And I'll note that given our financial capability, we're able to accelerate equipment and commodities purchases in the softer market, which I think provides a real cost advantage to our project portfolio. Today, since the price decline, I'd say that the drilling and related services have been most responsive to the current market and we've captured about an incremental 20% reduction in our well costs from the Lower forty eight to unconventional place. In terms of our spend level, I would tell you that there is no new guidance. We've signaled a $34,000,000,000 target for 2015. We are making good progress in capturing the savings as I said that was incorporated into that spend level. But I this organization tends to over perform and I expect that we'll see further savings beyond what we had envisioned. Great. That's very helpful, Jeff. And congrats on the strong quarter. Thank you. Our next question comes from Evan with Morgan Stanley. Hi, good morning, Jeff. Good morning, Evan. I'll start with the macro maybe another aspirational question. Exxon touches more barrels than any U. S. Producer any refiner for that matter. Any color on demand trends that you're seeing? Or I mean is there broadly any change or shift in the longer commodity down cycle view that was espoused at the Spring Analyst Day? Yes. Let me Evan, let me see if I just give you some thoughts on a broader picture. Currently, we're ranging anywhere from 1,500,000 to 2,000,000 barrels a day oversupply. General feeling is that as you get into the second half, we'll see more convergence towards a balanced supply demand. But as we all know, there was a significant inventory build in 2014 due to the oversupply and that has continued year to date. And that storage will need that storage overhang will need to be worked off over time. While we may converge in the second half of the year, I'd tell you that there's still a lot of unknowns. And one of them being is how the unconventional production levels in the U. S. Will trend over time despite the fact that we've seen significant reductions in rig counts. Great. My second question, if I could, in P&G, as Total finalizes development plan for its proposed second facility, I think it's this quarter. I mean is there a potential for Exxon to recover more costs or improve your overall PNG LNG economics with a bigger integration of the 2 projects or infrastructure? Yes. Just broadly speaking, thanks for raising P and G Evan, because it really does spotlight the successful organization we have for our project execution commercializing our resources. What a great success story with a location that had limited infrastructure. The project was a significant feat for the organization in terms of being delivered on time and on budget, ramped up very quickly. It's been held at design rates and we're just very pleased with the outcome. As you think beyond that, the ExxonMobil and its partners continue to assess additional resource opportunities. As you reflect on whether you can pull together enough resource in which to underpin a subsequent train, that's part of what's being considered amongst the joint venture. I would tell you that that will be the most cost effective option compared to another greenfield development. So we of course we are very well positioned there and we are open to options to try to reduce the overall cost structure for in general resource development within Papua New Guinea. And given the economics, superior economics you've had on the greenfield facility, I presume that a brownfield expansion would be relatively high kind of within your the rankings of your relative potentially upstream projects? Yes, most definitely. Great. Thanks a lot. We'll go next to Blake Fernandez with Howard Weil. Thanks. Good morning, Jeff. Good morning. I think you pretty adequately addressed Guy's question on the capital cost trends, but I was hoping you may elaborate a little bit more toward the operating cost side. Many of your peers have enacted hiring freezes and headcount reductions, etcetera. And while I know we're not going to get a specific absolute dollar figure from you, I was just wondering if you could talk maybe about some trends we could expect to see on the operating cost side aside from just the capital trends? Sure. Blake, I would tell you that the comments I made earlier were really reflective of both our operating costs and our capital costs. The point I would emphasize for you is that really regardless of whether we're in the high price cycle or in a lower price cycle that we're in right now, the organization has remained focused on the fundamentals. And you've heard us say before that we're price takers. And we really focus on those things that we control. And those things that we control are things such as cost, there are reliability, there are productivity and it's how we structure the organization in the most efficient way. I tell you that we are very well positioned. We never lose sight of those fundamentals, but we're also very well poised that when we get into a down cycle like this that we can capture additional savings. And as I alluded to previously, that given our financial in the future. So, I in the future. So, I think very well positioned. We've got a very capable organization that keeps their eye on the fundamentals through the cycle. And I think we're as I've said in the past, we're going to lead that cost curve. Okay, great. The second question for you, Jeff. The recent decision to increase the dividend, obviously, an interesting time to enact that, obviously demonstrates confidence. But noticing the debt balance has increased about $11,000,000,000 from year ago levels. I'm just curious if you could talk a little bit about how you're thinking about shareholder returns and using the balance sheet to continue levering up depending on how long this down cycle would remain? Yes. I think it's a good question, Blake. I mean, when you think about from our from the perspective of our capital allocation, nothing's changed. We have maintained a very disciplined capital allocation approach throughout history in the highs and the lows with a focus on a long term horizon. We remain committed to our shareholders to invest in attractive business opportunities that are accretive financial performance and to continue paying a reliable and growing dividend. Across that business cycle, I'd say that we manage the cash by as we've said before returning the excess to our shareholders through share repurchases or borrowing to fund our investments. But I think what you've seen with the increase in the dividend and continuing the stock purchases underscores our commitment to shareholder distributions. And I think it also demonstrates the confidence that we have in our integrated business model. Right. Very clear. Thank you. Our next question comes from Asit Sen with Cowen and Company. Thanks. Good morning, Jeff. Good morning, Asit. So two quick questions. First on LNG utilization, you I think in your prepared remarks mentioned utilization improving a little bit. Could you elaborate? Is it primarily related to PNG ramp up? Or is anything else going on? So LNG utilization is broadly defined by several operational and commercial factors, I mean, including maintenance, reliability of our facilities and then market and commercial considerations. Okay. All right. And then shifting gears to the Permian. Jeff, last year, Exxon added about 65,000 net acres in the core Wolfcamp. How do you see opportunities evolving in this current macro environment? And on that, could you update us on activity and volume relative to last quarter please on the shale place? On the shale place? Yes. So broadly speaking, as I said earlier when we were talking about M and A that we keep alert to where we got opportunities to build the portfolio with accretive assets. So if those opportunities come along, we'll go ahead and consider them. We're making great progress as you heard in our analyst meeting in terms of cost efficiency improvements, productivity improvements, not only from our drilling and completions, but also initial well rates. So really good progress. We've got great opportunities in the Permian and in the Bakken. Just broadly speaking in the 3 key plays that liquid plays that we have in unconventional, we're running just south of 40 rigs right now. That's been trending downward in part commensurate with the efficiency and productivity improvements that we've been able to capture. And do you see how do you see this evolving in the balance of the year trending down through year end? Yes. We have been trending downward, like I said because we've been able to maintain real time capture of additional benefits. So I wouldn't translate that into a linear relationship with activity levels. Very helpful. Thank you. We'll go next to Edward Westlake with Credit Suisse. Yes. Good morning, Jeff. Obviously, just moving over to Holland, Groningen has been in the news again. Just trying to understand what sort of decline did you assume that the Groningen field was going to have, say, over the next to 2017 in your planning numbers? And how do you assess the risk that it might actually be lower? And then I have a follow-up. Thanks. Ed, when you refer to decline, I think you're referring to the production constraints that have been posted. Yes. And obviously, you laid out a sort of a corporate production objective for the firm. Sure. Groenekind is a part of that. So I was just trying to get a sense of what was already in the numbers, so that if it does get worse, we can sort of quickly estimate the impact. Yes, sure. So first, let me start with the impacts in our operating performance here. Both quarter over quarter as well sequential, The actually Netherlands was up due to higher demand, but that was offset by some constraints. I'll be clear upfront Ed that we did incorporate the advertised restrictions into the volumes projections that we shared with you last month. Okay. So if they get worse then that would be a negative delta? Well, yes, it really is a function of what happens due to changes in demand throughout the year. But yes, certainly if there's more extreme restrictions that will have an impact. Okay. Something we'll watch. And then a broader question, which is more demand related. Obviously Exxon has refining chemicals upstream businesses around the world. You've started to see some demand estimates from the main agencies little bit a little bit downbeat on the global economy. So just trying to gauge, I guess, whether you think that the recent increases in some of the demand estimates are real or not? And if not, what might be the reasons things like tertiary inventory building? Yes. So from a downstream perspective, we did see margin improvements, but due to several different reasons. If you think about in Europe, there was some capacity that was brought off line within both Europe and Asia as well as due to lower crude prices as well as some planned and unplanned maintenance that was taking capacity off the system. Low gas distillate fuel oil. We saw similar benefits in the U. S. As well. Going into the future, I'd be a bit reluctant to extrapolate that beyond this quarter. The earnings performance, what about demand, sorry, or both? You're talking about Global demand for products. Yes global demand. Well, let me start with the Chemicals business then. I mean our continue to grow greater than the GDP by about 1.5%. Refining demand will I think it's going to be a function of what happens in the economies. Okay. Thanks very much. Our next question comes from Jason Gammel with Jefferies. Yes. Thanks very much. Hi, Jeff. Good morning. I just wanted to ask specifically about the international upstream earnings. Most of your peers have quantified the effect of the change in the U. K. Tax laws within their releases. And I appreciate that you've addressed the variance that has occurred in the other section, but I was hoping to get the absolute amount from you. Sure. Sure. Let me give you a little bit more color on just the tax rate. We as you've seen in our supplemental information, we had an effective tax rate of 30 little over 33 percent and that's about a 12% drop quarter on quarter. And as you would appreciate, the effective rate is an outcome of our business results across the geographies in which we operate within. Now most of that drop was really due to the portfolio mix of income across our business segments and our geographies. About 3% of that was associated with one time tax items primarily the U. K. Tax rate change, which amounted to about a $200,000,000 positive impact on earnings. Great. Appreciate that. Another question that's completely separate topic. Just in the current oil price environment without having seen a lot of deflation yet, are you expecting to make any FIDs this year? And if you could address Hadrian North specifically? Yes. So Jason, I would encourage you to go look at our recent financial and operating review. If you look at that, you'll see that we have a list of projects that we anticipate that will start up post 2017. And that will give you a sense for the next tranche of development opportunities that are currently in play. And many of these are in development planning stages or even some in pre FID. And that will give you a sense for what's kind of what's on the horizon. We don't broadcast planned FIDs in the future, but we do give you a pretty detailed list of what's out there that we're working on. Yeah. Got it in front of me. Maybe if I could just put it another way. Have you seen enough cost deflation in the deepwater yet to maybe accelerate your investment potential in that area? Or have you seen very little insurance cost deflation? Well, I mean frankly, I'd tell you Jason that we're never really satisfied with the cost structure and we'll always continue to work on it. But as you can appreciate there are a lot of factors. And as I indicated earlier, we have seen a what I would consider early innings of reductions in services like rig rates. We expect that we're going to be able to do a lot more. And as I alluded to previously, that also includes an expectation within our organization that we'll be able to further optimize these development plans to maximize shareholder returns. But I tell you that we've got a very, very large diverse resource base to work on. It allows us to be very selective in what we decide to pursue. And when we decide when we get to an FID stage, it's been tested across a range of economic considerations such that we're confident it's going to be accretive to our overall financial performance. Okay. Appreciate that. Thanks, Jeff. Thanks. Thanks, Jason. Bill Gresh with JPMorgan has our next question. Hey, Jeff. Good morning. Good morning, Bill. One question on the quarter. You talked about the benefit from lower tax rates. I know you had proceeds from asset sales as well. So just wondering if there are any one time benefits from asset sale gains? Yes. So as you saw in materials that we sent out, there was about a just under $500,000,000 cash flow benefit associated with asset sales. That translates to about a 50% reduction in the number if you unwind the remaining undepreciated investment that we have on our books. And those proceeds are really a result of sales really across our upstream and downstream businesses. Okay. Got it. And then you've talked about a fair number of investments you're making in Europe to high grade your refining capacity to distillate. I guess maybe just give us an update. Remind me when that's supposed to be coming online? And then on the U. S. Side, what debottleneck or add new capacity here over the next few years if you think that that's a decent return project? Yes. So Phil, I guess you're referring to our Antwerp coker? Yes, exactly. Yes. So really good progress on that investment opportunity. I'd tell you that it's progressing towards a 2017 17 startup. Okay. And then on the U. S, do you see any opportunities here to debottleneck capacity or add new capacity in your refineries in the next few years? Well, we regularly evaluate our portfolio both in the U. S. And internationally for where we can capture additional value for earnings growth. And I'd tell you that while I'm not in a position to go ahead and give you any indication specifically that we keep very mindful of where we can capture additional value. And it primarily falls in 4 key areas. 1 is trying to further improve our flexibility of our feedstock. 2 is opportunities that we can further reduce our cost structure. The third one would be in areas where we can increase our higher value product yields. And then lastly, as you saw with the Edmonton rail terminal improving our overall logistics flexibility. Okay. Very helpful. Thanks. Thanks, with Evercore ISI. Good morning, Jeff. Good morning, Doug. So my question is also on Groningen. There's been a lot of commentary about the issues surrounding seismic conditions and property in the area. And so my question is whether or not we could kind of get a little bit more color on that situation, meaning it sounds like when you answered Ed's question a few minutes ago that the implications for production may be negligible, but I just wanted to make sure I heard that correctly. And then also there's also been talk of some financial penalties too. So any commentary that you could provide that would help us sort this out would be appreciated? Yes. So I mean most of that information as you know has been digested in the media. The just broadly speaking, the original target was about 42,000,000,000 cubic meters in 2014. That's been reduced originally reduced down to about 36,000,000,000 cubic meters and then in the first half of 2015 down to 16.5. It's still a very dynamic issue. Our understanding is there'll be some further guidance from the government coming out in July. But broadly speaking, as I referred to it previously, our production guidance has been incorporating the reduction production constraints that we that had been advertised externally. But it is having an impact and I don't want to mislead anybody. Okay. Just wanted to be clear on that. Thanks a lot. All righty. Thank you. We'll go next to Ryan Todd with Deutsche Bank. Great. Thanks. Maybe a follow-up on an earlier comments that you made on Canadian crude. Is there a can you give us how big is the rail terminal that you're working on up there in Edmonton? How much crude can you actually move out of there by rail once it's up and running? And can you give us any I mean differences have obviously been very tough up there in terms of heavy barrels. Any thoughts other than the crude terminal in terms of ways in which you might be able to optimize pricing going forward? Yes. So the capacity of that terminal is just over 200,000 barrels a day, 210,000 barrels to be exact. I'll emphasize the point I made earlier that it's part of our integrated businesses. It's a key element for us to connect our upstream business to our refining and chemicals business throughout the Gulf Coast and the Mid Continent. Okay. Thanks. And then maybe a quick follow-up on gas decline as well. We saw a relatively steep rate of decline in U. S. Gas volumes on quarter and I realize there's a lot of quarter to quarter volatility. But can you give us an idea of generally a good assumption for what you would assume for an annual decline rate in U. S. Gas? Yes. Well, I'd say just to your point, our gas activity has been fairly limited in the U. S. We have really transitioned a lot of our drilling activity in Lower forty eight to the liquids place, obviously, because we see the value proposition stronger. But I really back up and highlight the point that there is a real opportunity in the U. S. To commercialize this gas if we were to remove some of the barriers that we've got before us. And we've got as you all are aware, we've got an investment pending in Golden Pass to convert that terminal to LNG export facility. We think we're very well positioned with infrastructure. We think it is a great opportunity for the United States if we could increase the export options for the U. S. Producers. It's going to create additional investment. It's going to create additional jobs. And bottom line, it's going to improve the economy. So I think the call to the government would be one of really taking advantage of the opportunity that the U. S. Has to really build energy security not only in the U. S. But more globally by providing if you will free trade. Great. I appreciate the comments. Thanks, Jeff. You're welcome. Roger Read with Wells Fargo has our next question. Good morning, Roger. Are you there? Sorry about that. I was messing around with the speaker versus direct line. I'd like to follow-up a little bit on some of the volume guidance and the entitlements in a fairly significant amount of barrels that came back in? And as you think about the 4,100,000 barrels for the full year, the outperformance in Q2, is there upside based on entitlements? Or would you say that your projection based on sort of an expectation of the futures curve of oil prices etcetera that we should think of 4.1 is really the right number? Yes. I would tell you if you go back to the analyst presentation, we had assumed just for the sake of the presentation itself, we had assumed Brent price of $55 per barrel. And of course flowed that into our production sharing contracts to give you a sense for what we would expect in terms of volume and that is our target of 4,100,000 barrels per day. Obviously, if price changes up or down, it's going to have an impact. It's really I really don't have a rule of thumb for you when it comes down to entitlement impacts, which as you know include many different factors including the commercial structure as well as expenditure levels and obviously price. But we had assumed a price forecast that's comparable to where we are right now. Okay. That's helpful. And then back to the OpEx cost reductions, is there any guidance you can provide us on or any help you can provide us in terms of how that ought to work its way into the system or whether or not most of that has been captured kind of during the first half of this year, so Q1 and into Q2? No. In fact, I would the guidance I'd give you, Roger, is that we'll go to see further capture opportunities as we progress through the year. So can we think of majority has come through, a minority, plurality? No. I mean, we have been able to capture savings in the Q1, but as I alluded to, not all parts of our cost structure have responded to the same level and we'll continue to progress those and we expect increased savings over time. Okay. Thank you. We'll go next to Brad Heffern with RBC Capital Markets. Good morning, Jeff. Good morning, Brad. Most of my questions have been answered, but I'll try more of a macro one. Obviously, Exxon has always prided itself on investing with sort of a more long term demand viewpoint. Do you think that with the current down cycle, we've taken enough CapEx out of the industry that we're going to face more of a supply demand squeeze going forward maybe later in the decade or early in 2020? That's a hard one to really answer. I would step back just think about the overall energy outlook that we publish annually. We're fairly confident given the range of variables that we test that we're looking at about a 35% growth in energy demand between 20102040. Fundamentally, that is how ExxonMobil sets its investment plans. And obviously, we continue to test that not only annually, but periodically. In terms of how the business more broadly speaking is investing and whether that's going to be sufficient to meet that energy growth over time. There are a lot of variables in it including you may recall that in our energy outlook it really does require a very healthy progress on energy conservation. But broadly speaking, it's hard for me to say whether the current level of investment will cause any shortages in the future. Okay. Thank you. We'll go next to Anish Kapadia with TPH. Hi, good afternoon. I have a couple of questions. The first one was to get your thoughts on Tanzania LNG. I saw that you went non consent on the last exploration well with Statoil and it didn't seem to be featured on in any of the 4th projects you highlighted on the slide in the Analyst Day. Just wondering if this is something that's kind of dropped to the back of the queue that you've been prioritized in this environment and with your CapEx cutbacks? Yes. Not at all. I mean Tanzania is for the benefit of the people that are on the phone Block 2 to date, we have participated in 7 gas discoveries. We think total resource in place is in excess of 20 Tcf now. There is a lot of work to do in a greenfield development like this. Statoil and ExxonMobil have been progressing development plans for the initial discoveries. And then there's a broader consortium that has been looking at the potential for an onshore LNG facility. We would tell you that the upfront planning is progressing. I do I will confirm that there was one well we did not participate in, but I wouldn't use that as an indication of our lack of commitment. I think what's important here as we go forward is we get better definition of the project, but equally important, you all know that LNG projects are capital intensive. And what we need to ensure is that we have a stable fiscal regime with appropriate terms and conditions to underpin that type of investment. Okay. And then one follow-up question. On I suppose looking at going back to the acquisition market, what we're seeing is, it seems like a lot of the U. S. E and P companies and the integrated are pulling out of international investing more in the U. S. You seem to see a similar trend with some of the NOCs. So I was just wondering, are you seeing more value internationally and less competition internationally for assets now relative to the U. S. Market? Well, I think broadly speaking, it's a good observation. I mean broadly speaking, I think when capital becomes constrained that by definition that provides additional opportunities. I would say that from our perspective, it's the value proposition that we bring that we hope that resource owners will look to and that is our strong balance sheet, our leading return on capital employed, our operational expertise, the technology that we bring to resource development. I'll say that have one of the best if not the best project execution organizations. And then we've got a leading downstream and chemical business that's fully integrated with our upstream. And I'd say that as a package, those All All right. Very helpful. Thank you. Thank you. Our last question today comes from Pavel Molchanov with Raymond James. Thanks for taking the question guys. Can I go back to the balance sheet? You've always said maintaining AAA is critical. Given that you're not currently funding the dividend and the buyback from cash flow, what do you think is the cushion that you have in 1,000,000,000 to lever up and still maintain the AAA? Yes. I'd first say that AAA is really an outcome of our financial strategies. As you've heard us say previously that very strong focus and prudent approach to cash management throughout that cycle. We have, as you know, significant debt capacity, but we'll maintain our financial flexibility. And we'll continue to be very disciplined in how we invest and what we choose to invest in, but we're not going to forego attractive opportunities. And I think that's a key differentiating factor for ExxonMobil is that we've got the capability to respond when we need to respond. And we're very mindful of our cash balances and the how far we want to take our investment program. Okay. Can I press you just a little bit on that? Have you looked at what the credit agencies might say if you take on an additional $5,000,000,000 $10,000,000,000 dollars over the next year, year and a half? Yes. Yes. Well, we're very obviously, we look at all the variables when we talk about our cash management and our financing capability. We keep a very mindful look at what our commitments are in the future. But I'll tell you that we're very comfortable with where we are and we're very mindful about where we are in terms of our debt. But I'm just not going to quote any specific numbers. Okay. Fair enough. Appreciate it. 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, 1st and foremost, I want to say thank you for your questions. Very good, very insightful and I think it really brings more color to our business. So to conclude, I just want to thank you for your time and we very much do appreciate your interest in ExxonMobil. Thank you. Ladies and gentlemen, again that does conclude today's conference. Thank you all for joining.