Please stand by. We're about to begin. Good day, everyone, and welcome to this Exxon Mobil 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 first quarter earnings call. My comments this morning will refer to the slides that are available through the investors section of our website. Before we go further, I'd like to draw your attention to our cautionary statement shown on slide two. Turning now to slide three. Let me begin by summarizing the key headlines for first quarter performance. ExxonMobil delivered earnings of $4.9 billion. 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 four, we provide an overview of some of the external factors affecting our results. Global economic growth continued to moderate in the first quarter of 2015. U.S. growth slowed relative to the fourth quarter, whereas China's economy decelerated further, and growth in Europe and Japan remained weak. However, there are recent indications that growth may be improving, particularly in Europe. As you know, energy prices continued 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 remained advantaged relative to liquids cracking. Turning now to the financial results as shown on slide five.
As indicated, ExxonMobil's first quarter earnings were $4.9 billion, which represents $1.17 per share. The corporation distributed $3.9 billion to shareholders in the quarter through dividends and share purchases to reduce shares outstanding. Of that total, $1 billion was used to purchase shares. CapEx was $7.7 billion, which is in line with our plan. Cash flow from operations and asset sales was $8.5 billion. At the end of the quarter, cash totaled $5.2 billion, and debt was $32.8 billion. The next slide provides additional detail on sources and uses of funds. Over the quarter, cash increased from $4.7 billion to $5.2 billion. Earnings adjusted for depreciation expense, changes in working capital and other items, and our ongoing asset management program yielded $8.5 billion of cash flow from operations and asset sales. Uses included net investments in the business of $6.8 billion and shareholder distributions of $3.9 billion.
Debt and other financing increased cash by $2.7 billion. 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 billion in the second quarter of 2015. Moving on to slide seven for a review of our segmented results. ExxonMobil's first quarter earnings of $4.9 billion were $4.2 billion lower than a year ago quarter. Lower upstream earnings were partially offset by stronger downstream results. In the sequential quarter comparison shown on slide eight, earnings decreased by $1.6 billion as lower upstream and chemical earnings were partly offset by stronger downstream results. Guidance on corporate and financing expenses remain at $500 million-$700 million per quarter. Turning now to upstream financial and operating results, starting on slide nine.
Upstream earnings in the first quarter were $2.9 billion, down $4.9 billion from the first quarter of 2014. As you can see, sharply lower realizations decreased earnings by $5.5 billion, where crude declined by almost $54 per barrel, and gas was down more than $2.60 per thousand cubic feet. Favorable volume and mix effects increased earnings $340 million, driven by growth from new developments. All other items added another $250 million, primarily due to favorable tax effects. Moving now to slide 10. Oil equivalent production increased 97,000 barrels per day, or 2.3% compared to the first quarter of last year. Liquids production increased to 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 to 188 million 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 $2.6 billion lower than the fourth quarter. Realizations decreased earnings by $2.4 billion as crude declined almost $22 per barrel and gas decreased more than $1.20 per thousand cubic feet. Favorable volume and mix effects improved earnings by $260 million, driven by higher LNG facility utilization, entitlement impacts, and growth from new developments. All other items reduced earnings by $500 million, 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 million 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 $1.7 billion, an increase of $854 million compared to the first quarter of 2014. Higher refining and marketing margins increased earnings by $1 billion. Positive volume and mix effects added another $70 million, and all other items decreased earnings by $260 million, including higher maintenance activities and unfavorable foreign exchange effects. Now turning to slide 14. Sequentially, first quarter downstream earnings were up $1.2 billion. Stronger global refining margins increased earnings by $900 million, while unfavorable volume and mix effects reduced earnings by $70 million. All other items added $340 million, primarily from lower expenses and maintenance activities.
Moving now to the chemical financial and operating results starting on slide 15. First quarter chemical earnings were $982 million, down $65 million versus the prior year quarter. Higher margins on lower feedstock and energy costs increased earnings by $240 million. Favorable volume and mix effects added another $30 million, and all other items reduced earnings by $340 million, mainly due to unfavorable foreign exchange effects. Moving now to slide 16. Sequentially, chemical earnings decreased by $245 million on lower commodity product margins. Positive volume and mix effects were more than offset by other impacts. Moving next to the first quarter 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 seven 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, first bitumen production was achieved from the Cold Lake Nabiye expansion, which was completed on schedule and on budget. Nabiye 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, Nabiye will develop 280 million barrels of recoverable reserves. In the Gulf of Mexico, we initiated production from the Hadrian South subsea development in late March.
I'd highlight that one of the Hadrian wells recently tested at 200 million cubic feet of gas per day, representing one of the highest production rates on record in the Gulf of Mexico. Daily gross production from Hadrian South is expected to reach approximately 300 million cubic feet of gas and 3,000 barrels of liquids from two wells. In Angola Block 15, we successfully started up Kizomba Satellites Phase 2 project, notably ahead of schedule and below budget. This capital-efficient project is a subsea development tied back to the existing Kizomba B and Mondo FPSOs and leverages available ullage for processing, storage, and offloading. Project develops 190 million barrels from three 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 Banyu Urip 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, Banyu Urip 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-startup activities. Facility startup is now expected by mid-year.
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 Pirmam well and are evaluating these results. Additional drilling is planned in the next several months. Offshore Guyana, we are drilling the Liza wildcat, 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 stock 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-performance lube base stocks to meet global demand growth. In Canada, commissioning is underway at the Edmonton rail terminal, a 50/50 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. The facility will also enable us to deliver additional advantage 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. This is another example of ExxonMobil's commitment to optimize manufacturing operations, improve energy efficiency, and to reduce both environmental impacts and operating costs. In conclusion, ExxonMobil's results underscore our continued focus on business fundamentals and our competitive advantages regardless of market conditions. In the first quarter, the corporation earned $4.9 billion, 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 $8.5 billion, generating positive free cash flow, which highlights our disciplined capital allocation approach. Corporation distributed $3.9 billion to shareholders, and we remain dedicated to creating shareholder value through the cycle. That concludes my prepared remarks, and I would now be happy to take your questions.
Thank you, Mr. Woodbury. The question and answer session will be conducted electronically. If you would like to ask a question, please do so by pressing the star key, followed by the digit 1 on your touch-tone phone. We request that you limit your questions to 1 initial with 1 follow-up, so that we may take as many questions as possible. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Additionally, please lift your handset before asking your question. We will proceed in the order that you signal us, and we will take as many questions as time permits. Once again, ladies and gentlemen, star one at this time for any questions. We will go to Doug Leggate with Bank of America Merrill Lynch.
Thank you. Good morning, Jeff.
Morning, Doug.
I'll try two, if I may. The first one is on the, for want of a better expression, the upstream capture rate. Specifically, I'm looking at the very strong international gas prices this quarter, which seem to hold up a lot better relative to the oil benchmarks. I guess the mix in this, there's a lot of moving parts obviously, but the mix also saw U.S. gas production decline. I'm wondering if you can just hit those two specific issues on what's going on with the margin and whether you expect that strength to continue. I've got a follow-up, please.
Yeah. Well, Doug, we generally don't provide forward guidance on the commodity prices. In the first quarter, our total gas realizations were about $6.11. As you know, that's a combination of our flowing gas as well as our LNG sales. Those LNG contracts have mixed fiscal terms that, in many cases, are benchmarked to liquid prices, obviously with some type of a lag effect associated with the market conditions.
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 a LNG perspective, if you remember from our prior discussions, it is a very significant part of our portfolio. 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. My follow-up is maybe a little aspirational in terms of whether you'll answer it or not. At our conference in November, and I guess multiple times since, you guys have described Exxon as positioned for this type of environment as it relates to M&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. I'll leave it at that. Thank you.
Yeah. 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. 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. Likewise, we keep a very alert to opportunities on the horizon for acquisitions. 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.
Morning, Jeff.
Morning, Neil.
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. As I think about Kearl, Angola, Gulf of Mexico starting up, you've got some ramp towards the back end of the year as well. 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.
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 4.1 million barrels per day. We started the year very strongly, as you highlighted. We added significant volumes with a quarter-over-quarter or sequentially associated with new projects that we have brought on, which as you appropriately 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, 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. We're seeing the benefits of it today.
Important in all that, Neil, 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. If you could comment on two top of mind or news topical subjects here. The first would be any comments around Exxon Torrance and how we should be thinking about the ESP and timing there. The second as it relates to Russia, which I know you spend a lot of time in, how we should be thinking about the impact of sanctions on longer term growth from those operations.
Sure, Neil. On Torrance, just to the benefit of the group the Torrance refinery in February experienced an incident which resulted in the damage to the Electrostatic Precipitator. I'll say upfront that we certainly do regret the incident. 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. This precipitator is a emission control device that removes fine particles from exhaust gas. There are several investigations underway both at 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 a continued supply to our customers.
Some of the units at the refinery are operational, and we are producing both gasoline and distillates. We continue to evaluate in parallel with the investigations, 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. I'll remind you that they do not include our Sakhalin-1 operation, which here recently we're very pleased with the successful start-up of the third field, Arkutun-Dagi. Also say that we've had a longstanding 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, Neil.
We'll go next to Guy Baber with Simmons & 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 actually approached max rates there for the quarter. Could you talk about what you're seeing there? Could you also address confidence levels and 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. We are fairly consistently producing at 110,000 barrels a day gross. We were a bit short of that in the first quarter given some planned maintenance that we took. 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 on, we will get further economies of scale with the full operation. 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 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. 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. More specifically, the upstream non-U.S. spending was the lowest this quarter it's been since 2009, I believe. Could you just talk about that a little bit? 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?
Yeah. Let me take your first question in the broadest concept. 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 just fundamentally our construction costs. I will highlight to 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 response to a prior question that real time we've been able to integrate our learnings in the Kearl initial development into the expansion project. We continue to enhance our set of opportunities, including through commercial terms as well as optimizing our development plans. We continue to leverage what I'd say is the collective ingenuity between our service providers and our own people in identifying and pursuing more cost-effective solutions. 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.
To date, 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 48 to unconventional plays. In terms of our spend level, I would tell you that there is no new guidance. We've signaled a $34 billion target for 2015. We are making good progress in capturing the savings, as I said, that was incorporated into that spend level. 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 Calio with Morgan Stanley.
Good morning, Jeff.
Morning, Evan.
I'll start with a 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 is there broadly any change or shift in the longer commodity down cycle view that was espoused at the spring Analyst Meeting?
Yeah. Evan, let me see if I just give you some thoughts on a broader picture.
Currently, we're ranging anywhere from a one and a half to 2 million 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. As we all know, there was a significant inventory build in 2014 due to the oversupply, and that has continued year to date. That storage overhang will need to be worked off over time. While we may converge in the second half of the year, I 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 PNG, as Total finalizes development plan for its proposed second facility, I think it's this quarter. 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?
Yeah, just broadly speaking, thanks for raising PNG, Evan, because it really does spotlight the successful organization we have for our project execution and 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. It 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, Exxon Mobil 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.
Of course, we're 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.
Given the superior economics you've had on the greenfield facility, I presume that though a brownfield expansion would be relatively high within the rankings of your relative potentially upstream projects?
Yeah, most definitely.
Great. Thanks a lot.
We'll go next to Blake Fernandez with Howard Weil.
Thanks. Good morning, Jeff.
Morning, Blake.
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, et cetera. 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. You've heard us say before that we're price takers, and we really focus on those things that we control. Those things that we control are things such as cost, they're our reliability, they're our 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.
As I alluded to previously, given our financial capability, we're also able to invest during the cycle and capture a lower cost structure on resources that we had planned to commercialize in the future. 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 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. Noticing the debt balance has increased about $11 billion 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.
Yeah. I think it's a good question, Blake. When you think about 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 to 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. I think what you've seen with the increase in the dividend and our continuing the stock purchases underscores our commitment to shareholder distributions. 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.
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?
LNG utilization is broadly defined by several operational commercial factors, including maintenance, reliability of our facilities, and then market and commercial considerations.
Okay. All right. 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? On that, could you update us on activity and volume relative to last quarter, please, on the shale plays?
On the shale plays?
Yeah.
Broadly speaking, as I said earlier when we were talking about M&A, that we keep alert to where we got opportunities to build a portfolio with accretive assets. 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 completions, but also initial well rates. Really good progress. We got great opportunities in the Permian and in the Bakken. Just broadly speaking, in the three key plays, 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.
How do you see this evolving in the balance of the year trending down through the year-end?
We have been trending downward, like I said, because we've been able to maintain real-time capture of additional benefits. 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.
Yeah. Good morning, Jeff. Obviously, just moving over to Holland, Groningen's 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? 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 imposed.
Yeah. Obviously, you laid out a corporate production objective for the firm.
Sure.
Groningen's 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 quickly estimate the impact.
Yeah, sure. First, let me start with the impacts in our operating performance here. Both quarter-over-quarter as well sequential, 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. If they get worse, then that would be a negative delta.
Yeah. It really is a function of what happens due to changes in demand throughout the year. Yeah, certainly if there's more extreme restrictions, that will have an impact.
Okay. Something we'll watch. A broader question, which is more demand related. Obviously, ExxonMobil has refining chemicals, upstream businesses around the world. You've started to see some demand estimates from the main agencies be revised upwards. Apart from the chink of light that you saw in Europe, your opening comments were a little bit downbeat on the global economy. Just trying to gauge, I guess, whether you think that the recent increases in some of the demand estimates are real or not. If not, what might be the reasons, things like tertiary inventory building?
Yeah. 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 offline 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. Lastly, there was some fundamental demand improvement in a number of products like mogas, 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. Both?
You're talking about.
Global demand for products.
Yeah, global demand. Well, let me start with the chemicals business then. Our projection on global demand for the chemicals business is that it's going to continue to grow greater than the GDP by about 1.5%. Refining demand will, I think, 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. Now, 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. Let me give you a little bit more color on just the tax rate. As you've seen in our supplemental information, we had an effective tax rate of a little over 33%, and that's about a 12% drop quarter-on-quarter. As you would appreciate, the effective tax rate is an outcome of our business results across the geographies in which we operate within. 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 million 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? If you could address Hadrian North specifically.
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, That will give you a sense for the next tranche of development opportunities that are currently in play. Many of these are in development planning stages or even some in pre-FID, That will give you a sense for what's on the horizon. We don't broadcast planned FIDs in the future, We do give you a pretty detailed list of what's out there that we're working on.
Got it in front of me. Maybe if I could just put it another way, have you seen enough cost deflation in the deep water yet to maybe accelerate your investment potential in that area? Have you seen very little in terms of cost deflation?
Well, frankly, I tell you, Jason, that we're never really satisfied with the cost structure. We'll always continue to work on it. As you can appreciate, there are a lot of factors. As I indicated earlier, we have seen 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. 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. I tell you that we've got a very large, diverse resource base to work on. It allows us to be very selective in what we decide to pursue.
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, Jason.
Phil Gresh with JPMorgan has our next question.
Hey, Jeff. Good morning.
Morning, Phil.
One question on the quarter, you talked about the benefit from lower tax rates. I know you had proceeds from asset sales as well. Just wondering if there are any one-time benefits from asset sale gains.
As you saw in our materials that we sent out, there was about just under a $500 million 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. Those proceeds are really a result of sales really across our upstream and downstream businesses.
Okay. Got it. Then you've talked about a fair number of investments you're making in Europe to high-grade your refining capacity to distillates. I guess maybe just give us an update. Remind me of when that's supposed to be coming online, then on the U.S. side, what opportunities might there be to debottleneck or add new capacity here over the next few years if you think that that's a decent return project?
Phil, I guess you're referring to our Antwerp Coker?
Yes, exactly.
Good progress on that investment opportunity. I tell you that it's progressing towards a 2017 startup.
Okay. On the U.S., do you see any opportunities there to debottleneck capacity or add new capacity in any of your refineries in the next few years?
Well, we regularly evaluate our portfolio, both in the U.S., internationally, for where we can capture additional value for earnings growth. I tell you that while I'm not in a position to go ahead and give you any indications specifically, that we keep very mindful of where we can capture additional value. It primarily falls in four key areas. One is trying to further improve our flexibility of our feedstock. Two 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. Lastly, as you saw with the Edmonton rail terminal, improving our overall logistics flexibility.
Okay. Very helpful. Thanks.
Thanks, Phil.
We'll go next to Doug Terreson with Evercore ISI.
Good morning, Jeff.
Good morning, Doug.
My question is also on Groningen. There's been a lot of commentary about the issues surrounding seismic conditions and property in the area. My question is whether or not we could 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. Then there's also been talk of some financial penalties, too. Any commentary that you could provide that would help us sort this out would be appreciated.
Yeah. Most of the information, as you know, has been digested in the media.
Yeah.
Just broadly speaking, the original target was about 42 billion cubic meters in 2014. That's been originally reduced down to about 36 billion cubic meters, 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. Broadly speaking, as I referred to it previously our production guidance has been incorporating the production constraints that had been advertised externally.
Got it.
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 comment that you made on Canadian crude. 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? Can you give us any differentials 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?
Yeah. 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. Maybe a quick follow-up on gas decline as well. We saw a relatively steep rate of decline in U.S. gas volumes quarter on quarter, and I realize there's a lot of quarter-to-quarter volatility. 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?
Yeah. 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 the Lower 48 to liquids plays, obviously, because we see the value proposition stronger. 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. As you all are aware, we've got an investment pending in Golden Pass to convert that terminal to a 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. Bottom line, it's going to improve the economy. 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.
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 and the fairly significant amount of barrels that came back in. As you think about the 4.1 million 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, et cetera, that we should think of 4.1 as really the right number?
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 a 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 4.1 million barrels per day. Obviously, if price changes up or down, it's going to have an impact. 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. We had assumed a price forecast that's comparable to where we are right now.
Okay, that's helpful. 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 during the first half of this year, so the Q1 and into Q2?
No, in fact, the guidance I'd give you, Roger, is that we'll go to see further capture opportunities as we progress through the year.
Should we think a majority has come through, a minority, a plurality?
No. We have been able to capture savings in the first quarter, but as I alluded to, not all parts of our cost structure have responded at 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.
Morning, Jeff.
Good morning, Brad.
Most of my questions have been answered. I'll try more of a macro one. Obviously, Exxon's 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, early in the 2020s?
That's a hard one to really answer. I would step back and 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 2010 and 2040. Fundamentally, that is how ExxonMobil sets its investment plans. 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. Broadly speaking it's hard for me to say whether the current level investment will cause any shortages in the future.
Okay. Thank you.
We'll go next to Anish Kapadia with TPH.
Hi. Good afternoon. I had 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. It didn't seem to be featured in any of the four projects you highlighted on the slide in the Analyst Meeting. Just wondering if this is something that's kind of dropped to the back of the queue that you've deprioritized in this environment and with your CapEx cutbacks.
Yeah. Not at all. Tanzania is, for the benefit of the people that are on the phone, Block 2 to date, we have participated in seven 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. 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 will confirm that there was one well we did not participate in. 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. Equally important, you all know that LNG projects are capital intensive. What we need to ensure is that we have a stable fiscal regime with appropriate terms and conditions to underpin that type of an investment.
Okay, thank you. Then one follow-up question. I suppose, going back to the acquisition market. What we're seeing is it seems like a lot of the U.S. E&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. 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. 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 we have one of the best, if not the best project execution organizations. Then we've got a leading downstream and chemical business that's fully integrated with our upstream. I'd say that, as a package, those characteristics provide the, if you will, the winning proposition for resource owners.
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 billions to lever up and still maintain the AAA?
I'd first say that AAA is really an outcome of our financial strategies. As you've heard us say previously that operating cash flows are our primary source of funding for both our capital requirements and shareholder distributions. We maintain a 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. 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. We're very mindful of our cash balances and 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 billion, $10 billion over the next year and a half?
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. I'll tell you that we're very comfortable where we are, and we're very mindful about where we are in terms of our debt. 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, first 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. 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.