Q1 2020 Earnings Call
Please standby we're about to begin.
Good day, everyone and welcome to the Exxon Mobil Corporation first quarter 2020 earnings call today's call is being recorded.
This time I'd like to turn the call Levered to the Vice President Investor Relations and Secretary Mr. Stephen Littleton. Please go ahead Sir.
Hi.
Good morning, everyone.
Welcome to our first quarter earnings call.
We appreciate your participation.
Okay.
Hi, good work and production my name is either.
I assumed the role Vice President Investor Relations Werent script.
Joining me on the call today is our chairman and CEO Baron.
Before discussing our goals I would like to express Oh, and all of you and your families are afraid.
Great can be appropriate steps good Friday.
These are challenging we're not supposed to them at times as the world deals, where you adapts to the crown and why it was permanently.
Global economies have slowed down significantly.
Let's work comparing to busy.
During the quarter, great quarter results into conquered share with you our business performed in the first quarter.
I've got a covered accordingly.
Our next one operating results very provide his perspective, the second Columbus broader market environment.
We're taking for both respond to be experimented and make sure we remain well positioned for the recovery.
Someone parents remarks, I'll be happy to address specific quarterly report it was old well there will be available to take your question.
Things, including the corporations actions related to covert.
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He was on market fundamentals.
Our comments this morning reference the slides available on the Investor section of our website.
I would also like to draw your attention could of course were saving folks might true and supplemental information.
This presentation.
As referenced in the cautionary statement. Please take note that in light of the cobot married to a pandemic.
<unk> spending plans we've put in place.
The forward looking statements for my best today, that's strange.
We will provide a perspective on the 2020.
During this call it provide a longer term perspective, as we head into next year.
I'll now highlight development since the fourth quarter on the next line.
In the upstream, which really makes it fell significantly through the quarter approximately 55%.
Impacts on the girl virus ripple through the global economy.
Never give me reducing demand.
Some of the operational standpoint.
Production increased by 2% from the fourth quarter.
Leading to the highest quarterly liquids production since 2016.
Putting a 15% increase.
For the Permian.
If you look at total production from the Permian It has increased by 20%.
Girl achieved record production in the first quarter, reflecting the benefit of the investment in additional four person capacity.
To further reduce your Nicole.
Oh for Brazil.
Our pool exploration well discovered hydrocarbons results are not being analyzed.
Further exploration activities.
In the downstream refining margins so to sum up more than doubles as first quarter 2019, I remain near 10 year lows.
Cobra impaired significantly reducing demand and watch.
Refinery utilization was essentially flat with lower maintenance levels during the prior quarter largely offset by reduced demand.
Margins improved in the chemical business. They look good in for more liquids feedstock prices.
Our employees that stepped up in a significant way to support the ongoing cobot 19 response efforts.
Yeah, we'll provide additional details on how we're maximizing production of key product.
Redirecting charitable contributions and lending or technical expertise that really paid healthcare workers first responders and others in the fight against the Corona wireless.
Let's move to slide four for an overview of first quarter results.
Okay. Warner left provides a view a first quarter results relative to fourth quarter 2019.
Contracts, let me walk me through the impact that would be identified items.
Starting with the fourth quarter 2019.
The results of $5.7 billion included identified items of $3.9 billion, notably the no way divestment.
Excluding these items fourth quarter results were $1.8 billion.
Despite this challenging environment underlying business results, excluding identified items were $2.3 billion.
$500 million from the fourth quarter.
As shown in the middle affects notice Paypal liquids growth and lower operating expenses increased earnings.
Absolutely Love your life will impact was a partial offset.
Yes, Scott first quarter earnings of a negative for kind of million dollars include aircraft to separate noncash identified items.
The first wasn't meant just where inventory valuation.
Given the significant drop in commodity prices in the first quarter. The book value of our inventory was adjusted downward to reflect the lower market values in accordance with U.S. care.
The lower cost go market adjustment resulted in a charge of $2.1 billion.
It was important to note that we may see further adjustments daughter here.
Potentially and unwinding, the first quarter impact depending on changes in commodity prices going forward.
The second item was related to impairments of about $800 million.
Market conditions in the first quarter, which included significant reduction in bulk commodity prices.
Equity markets required an assessment of carrying barriers for some parents.
This evaluation resulted in noncash asset impairment charges of approximately $800 million to recognize reduced market baggies assigning to goodwill and an upstream equity company.
Again, consistent with U.S. care.
Turning now to slide five well look at each of our businesses in detail excluding identified items I just discussed.
Starting with the upstream.
Upstream earnings excluding identified items decreased by approximately $1 billion, largely driven by lower prices, which reduced earnings by more than $1.7 billion.
What realization was down 25% thin gas realizations down 10% versus the fourth quarter.
This was partly offset by favorable foreign exchange impacts and higher volumes.
I rarely from strong growth in the Permian in Guyana.
Nor expenses and favorable tax items also helped to earnings.
On the next flights I will provide more details on volumes.
It was volumes grew by approximately 150000 oil equivalent barrels per day compared to the first quarter up 29 team.
Divestments, primarily the no wait now operator business reduced liquids volumes by 95000 oil equivalent barrels per day.
Growth of 100000 oil equivalent barrels per grade was underpinned by the Permian in Guyana phase one ramp up at CRO and Hebron in the upper Zakum project.
Permian production in the quarter was more than 350000 oil equivalent barrels per day, an increase of 56% versus the prior year for 126000 oil equivalent barrels per day.
Natural gas volumes were down 88000 to oil equivalent barrels per day versus the core prior quarter.
Good robot in Norway, Im a little very best Smith, as well as nowhere domain.
Moving to downstream on the next slide.
Earnings excluding identified items increased by more than $400 million relative to the fourth quarter of 29 team.
The absolute of your LIFO inventory adjustment.
And unfavorable foreign exchange impacts reduced earnings by nearly $700 million.
Favorable margin impacts increased earnings by more than $900 million.
The increase was driven by positive mark to market Prady benefits, which were partially offset by lower refining margins as demand declined in the quarter, particularly in March.
We also saw impact related to know the man covert 19.
But this was more than offset by lower expenses that increased earnings by $300 million.
Moving to the next slide I will discuss chemical results.
Chemical earnings excluding identified items increased by more than $800 million.
Take significant improvement in margins from north be cost across the value chain.
Second the benefit of immigration.
Additionally, lower expenses contributed approximately 30% of the earnings improvement.
That's kind of mix praised for look at first quarter cares profile.
First quarter earnings when adjusted for depreciation expense non cash identified items changes in working capital and other than the other impacts yielded $6.3 billion and cast roll from operating activities.
Castro from operations and asset sales was $6.4 billion.
I hope to distributions were $3.7 billion, consistent with fourth quarter, and leaving $2.7 billion after distributions.
First quarter additions, the P.P. acne and net investments in advances were $6.5 billion.
As noted in the press release Capex was $7.1 billion in the quarter.
At the announced productions and implement it Catholics will turn down over the course with over four main here.
Gross debt increased approximately $13 billion in the quarter has it took steps to increase liquidity in the current market environment.
As a result, we ended the quarter with $11.4 billion okay.
Turning to slide 11, I'll cover a few items for consideration with guards to our outlook for the second quarter.
Given the challenging market conditions production will be lower in the second quarter due to economic shut in the market related curtailment.
At this time estimated second quarter in Paris is 400000 oil equivalent barrels per day.
Also in the upstream.
For gas production will be lower due to seasonal demand with an expected impact of approximately 100000 oil equivalent barrels per day.
In the downstream were seen impact from reduced demand continued pressure on refining margins.
For the second quarter, we anticipate sparing of approximately 25% of are finding capacity.
Scheduled maintenance is anticipated to be in line with levels from the first quarter.
Hey, chemicals, we anticipate continued more to support from lower liquids heats up pricing, while noting that overall realizations remain near bottom cycle for many of our product.
Then permit for the second quarter chemical demand is mix.
And across products segment.
The man for packaging and hygiene is expected to remain strong.
Automotive and durables demand will continue to be challenge.
How much of downstream scheduled maintenance is expected to be in line with the previous quarter.
Corporate financing expenses are expected to be about $900 million.
Finally, we will continue to progress spending reductions in line with our recent announcement.
With that I'll turn the call over to bear.
Thank you Steven and good morning, everybody.
Oh volatile junior families are safe and healthy.
We certainly appreciate you taking time to join us today.
I think we can all agree that these are very challenging times.
No I speak for many when I say that our thoughts are with.
Those who had been personally affected by this pandemic.
With the healthcare workers and first responders or on the front lines.
This morning, I will discuss how we're approaching the current circumstances.
Now we are working to keep our people and community safe.
Managing through the near term market downturn, and preserving long term shareholder value.
As you well know today, we faced to acute challenges.
Global threat to public health.
And the significant global economic downturn.
Helping in the commodity price collapse.
Were started with an oversupply situation was made more extreme five sudden an unprecedented drop energy man.
Economy shutdown to stop the spread to the virus.
As a capital intensive commodity business, certainly whether the ups and downs of many price cycles.
However, I have to say never seen anything like what the world is experiencing today.
Our response is primarily focused on three areas.
Protecting the health and safety of our employees in communities.
Keeping our operations running to provide the critical energy and products that are important modern life.
And the Kogan response efforts.
And to aggressively reducing spend in today's depressed markets.
Oh preserving value to ensure we earned the best position for the eventual recovery.
I know that there are a lot of different views on what the future holds but I want to be clear on how we see it.
The long term fundamentals that drive our business have not changed despite the current uncertainty and volatility the fundamentals the underpinned our business remains strong.
Do I say that.
We know that in the coming decades populations will grow to more than 9 billion people by 2040 up from just over 7 billion today.
Billions of people into the middle class and seek lifestyles and products that require energy.
Economies will expand once again.
Of course, there are likely to be some bumps in the road over the short term, but historically periods of economic contraction or followed by periods of significant growth.
Finally, as a result of growing population increased prosperity and economic expansion.
If you consumption will increase.
Even with the current downturn projections show energy consumption growing by 20% through 2040.
Most of the growth will be in developing nations.
More than half of that energy demand will be met by oil and natural gas.
As you all know we're a company that focuses on the long term.
Our strategy in business is based on long time Horizons, which is why we always go back to the fundamentals.
At the same time, we have to address short term challenges such as the unprecedented market conditions, we face today.
I'm not losing sight of long term value.
This is exactly what we're doing.
Well, taking advantage of the options a deep portfolio and strong balance sheet provide.
Reprioritizing spend to conserve cash we're progressing projects that structurally improve the company.
We remain committed to our capital allocation priorities.
Investing in industry advantage projects, they grow cash flow in support of reliable growing dividend and strong balance sheet.
Obviously in this environment, it's critical to strike the right balance across these priorities and to remain flexible to market developments.
Including an eventual recovery.
And of course do all this while keeping our people and community safe protecting the environment and delivering the products the society rely on.
Further to that point, let me take a few minutes to discuss our response to the pandemic.
Early into the pandemic, we activated our emergency response teams and implemented our business continuity plans.
People, who could began working from home.
While additional cleaning personal protective equipment and distancing protocols were put in place at our facilities.
To date, we've been largely successful.
Any exposure and infection that are sites.
To support societies broader response.
Increased or production, both eisman purple alcohol.
He ingredient sanitizer.
And specialty polypropylene in medical mask and hospital gallons.
On top of that are people in Baton Rouge reconfigured operations to produce the land package and distribute medical grade hand sanitizer.
For doing this product to health care providers first responders in Louisiana.
Your New Jersey.
Mexico, Ohio.
Pennsylvania in Texas.
We're also supporting efforts to design produce and distribute new reusable medical mask and face shields to help with the shortages.
And we're helping our communities around the world.
Donations to schools support for food banks, and fuel meals and masks for healthcare workers in first responders.
I'm extremely proud of our employees, they're taking care of themselves and their families supporting response efforts around the world and doing their jobs.
I want to turn to next.
Starting with the Pandemics impacts on the market.
This chart provides a perspective of third party supply demand projections.
Dotted lines represent <unk> forecast and the blue shaded area shows a range of demand projections.
You can see it's a pretty broad range.
Our views are pretty consistent with the <unk>.
April and may demand down 25% to 30%.
I think significant reductions in the use of gasoline and jet fuel.
As we reach the fourth quarter, we expect demand will be below last year due to lost economic activity.
Of course, there's a lot of uncertainty on the timing of the recovery.
We're planning for slow one.
It takes time to restart businesses and consumers confidence to grow.
Hopefully it happened faster than we think.
For the full year estimates range from a loss of four to 12 million barrels per day.
We expect it could be on the higher into the range.
As you can see from the Red line, while significant the announced cuts of Opex plus.
Totaling about 13 million barrels per day.
Our insufficient to offset the loss in demand.
We're seeing this and growing global inventories are low market prices, an increasing number of shut ins.
Based on the third party demand projections, and the announced OPEC plus reductions supply and demand coming to balance and then go short sometime in the second half a year.
When you factor in the growing number of industry shut ins this could happen faster than projected.
Again, depending on the recovery in demand.
It does happen, we don't expect to see a marker response until the inventories are working down.
Bottom line here, it's going to be a very challenging summer.
A pretty sloppy market as we move into the back half a year.
We've adjusted our plans to a low price and margin environment through year end.
Our price projections tend to be at the low end of third party estimates.
So again I hope for surprised with the quick recovery.
We have not ruled out, particularly given ongoing experience in China.
Well, it's still early days there are some reasons to be cautiously optimistic as signs of demand in economic activity are beginning to pick up in China.
With April cells in three of our key business is back in line with and slightly above the same period last year.
It's too early to tell if its initial rebound will be sustained.
Or if it reflects the broader economy.
Or if it is even relevant to other economies around the world given a range of government responses and policies.
Nonetheless, I find it somewhat encouraging.
And it supports what I know will be true in the medium to long term.
Commies will recover.
However, in the short term, we need to compensate for the significant loss in demand in revenue.
Which is why we announced a 15% reduction in cash Opex <unk>, 30% reduction in Capex for 2020.
We initiated an effort in the fourth quarter to drive efficiencies and lower cost.
Which has served as a springboard to this broader and much deeper effort.
Spending will be maintained on activities that are critical to the integrity of our operations the safety of our people and the protection of the environment.
We're focusing on capturing additional efficiencies and lower market prices.
Referring less critical spend and prioritizing quick pay out items.
As you can see in a chart these efforts already yielding results.
And your progress as we expect to see further reductions to achieve our announced target.
While doing this we remain sensitive to the unknown.
Particular, we're working hard to ensure we maintain the capacity quickly respond to market changes.
We want to be well positioned to capture the eventual upswing.
Turning to capital took a similar approach.
You may recall during our Investor day that we discussed reductions in our capital spend.
Based on market conditions at the time.
I said, then that we would continue to monitor the markets and make further reductions if required.
Shortly thereafter, we intensified work with our venture partners resource owners and contractors to optimize spend in light of the growing impacts of the pandemic.
We set an aggressive objective reduced spend without compromising the project advantages for returns.
Any inefficiencies had to be offset with market savings or other efficiencies.
I'm very pleased with the work we have done to date.
Extensive collaboration we've identified opportunities to reduce our capex by 30%.
Down to 23 billion in more than offset peripheral cost preserving the returns and project advantages.
As we concluded much of this work during March very little of it isn't reflected in our first quarter spend.
As we progress for the year, we'll see the reductions ramp up.
The clearwire spikes to savings I'm, very confident that we will be or target.
Reducing small capital projects most of our sites.
Slowing the pace of some downstream and chemical projects and pushing out the development of Mozambique LNG.
The largest share of the reduction will be in our unconventional business specifically the Permian basin.
For the short cycle investments are more readily adjusted.
Let me provide perspective on this.
As we discussed in March we have the flexibility to reduce spend in the Permian, while maintaining scale preserving capital efficiency and maximizing resource recovery through our Q developments.
You will show these charts, indicating the range of production associated with potential reductions in capex.
Our revised plans are indicated by the Red Diamond the bottom end of the range.
Over the course of the year, we expect a ramp rigs down by about 75% in the Permian.
Ending the year at approximately 15 rigs.
Our remaining development activity will be focused on poker Lake in the Delaware Basin.
What we're seeing high productivity wells and maintaining a scale advantage.
It will include utilization of the recently completed line one at the Cowboy Central delivery point.
Since most of 20 points production is locked in with the work already completed reduction in capital spend will primarily affects 2021.
Where we expect volumes will be down 100 250000 barrels.
Barrels per day.
Previous estimates.
In 2020, the impacted reduce capex will be much lower.
How about 15000 oil equivalent barrels per day.
He much larger production impact will be associated with shut ins.
The high production rates of wells in the first two years of operation.
It makes economic sense to shut these wells in during very low price environments.
For this reason, we expect to shut in roughly 100000 oil equivalent barrels per day.
Duration to be shut ins will obviously depend on evolving price environment.
Let me move next to an update on Guyana.
Got it remains an integral part of our long term growth plans and as such is a high priority.
Our lead the phase one operations have been largely unaffected by the Pandemics.
Production ramp up is progressing and should reach full capacity in the second quarter.
We've also manage the impact on me said phase II.
And this project on schedule for 2022 startup.
Unfortunately, the ongoing election process and uncertainty around the next administration has slowed government approvals of the play our development plan.
In addition, the challenge of rotating crudes do the impact of Covidien 19 has temporarily slowed our drilling campaign.
As a result, we expected delay and our future developments of roughly six to 12 months.
Pushing our production objective of more than 700000 barrels per day in 220 26.
Finally, let me say a few words about our financial capacity.
Which has been built for times like this as.
As you know the strong balance sheet is a core competitive advantage in an integral part of our strategy, allowing us to maintain our capital allocation priorities across the price cycles.
This approach has proven itself during these trying times.
Allowing us to selectively advanced critical investments to structurally improve our business, despite very low demand and margins.
We issued debt of $8.5 billion in the first quarter, increasing our debt to capital to 24%.
In raising cash balances for more than $11 billion.
We also increased our revolving credit facilities to $15 billion.
With our cash this gives us a solid backstop and these uncertain and very volatile market.
In anticipation of a slow economic recovery, we took advantage of a market window in April issue another $9.5 billion.
Taking our estimated debt to cap was 26%.
Increasing cash to about $18 billion.
This provides a strong foundation to managed to remain challenging to 2020.
Of course as always.
We'll need to keep an eye on developments and respond accordingly.
In closing I want to reemphasize that the fundamentals that underpin a business remain unchanged.
Our capital allocation priorities also remains the same.
Investing to create value.
Rewarding shareholders with a reliable growing dividends and maintaining a strong balance sheet.
Well, we work to conserve cash in the near term.
We remain focused on enhancing long term value.
Leveraging our competitive advantages in the Optionality provided by deep portfolio of opportunities.
We do all this while working to ensure the safety of our people in communities.
Doing our part to support Society response to the pandemic.
Our company remains strong.
People have the skills experience and 42 to not only face the challenges but to find opportunity and then.
Emerging stronger than ever.
With that.
Went back to Steven and we look forward to take your questions.
<unk>.
Thank you for your comments Darren will now be more than happy.
To take any questions you might have.
Thank you Mr. little tenant Mr. whats the question and answer session will be conducted electronically.
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Once again, please press star one I touched on telephone to ask a question.
We'll go first to Sam Margolin with Wolfe research.
Good morning, <unk> as well and you said.
Thank you, Dan let's get cash.
Have you a secular energy demand growth.
For the cyclical pace and it's something you deploy a lot of human capital teasing out just walking off agency forecasts or anything so I wonder.
That is moving around here in the early days of its crisis for example.
Jet fuel huge component of demand growth that CAD 2030, but.
Maybe structurally changed if there's anything on your forecast I'm on the demand side that a change and I'm tired of a structural a longtime basis that might inform how you deploy capital on the other side of the crisis period of the cycle yeah within the prior range of of your saga airplanes.
Well, thank sample Oh football as well as you and your family.
Yeah, I know, we've looked at that frankly, a real difficult to.
A plan a longer term horizon and factor in the impacts of what we're seeing today when and what we're seeing today hasn't fully played out yet so.
Yes.
Caveat in my comments with the fact that a over in the middle of this thing and so we'll see how they kind of plays out to the rest of the year sticks with the forecasts are out there and what I showed in my prepared comments, but if you look back in time.
And you can take 911 as an example, you have these dips and then over time.
You see a recovery and why you start in the lower point you see continued growth in the slope is very consistent with what the world's experienced in the past I.
I don't think events like this change.
The basic human nature, or People's wants and desires I don't think it changes.
People.
Drive to improve improve their their living.
Andrew for their prosperity only get changes the economic growth that's required to support growing populations, particularly in some of the developing world. So.
As you look further out and get pass this short term a challenge I think we're going to be back to the same fundamentals that we've always talked about because people want a better standard of living for themselves and their family that is a very basic human dynamic and as I've shown before how many times as people standards of living.
Grows as economies grow the demand for age we go with it.
Okay, and then just given as a follow up to that being a pad exit rate.
Capital spending relative to the price Bobby can.
Thanks, Yeah LNG.
Exxon had a number probably get identified.
Yes I'd be.
The structural challenge with that I think possible. It seemed like they were a lot of party that what they're seeing utility model, which sort of compressed in the challenge.
Profile of it.
Yeah, I think it seemed like today Exxon asset class in that regard.
Yeah, I do think of that.
Slowing capital spending team some number closer to your prior five year Ranjan LNG. The category that you think might have a structural slow down in the outer years I'd be 2025 or those projects still get ahead at parity.
So I think you know Sam if you go back to the longer term growth forecast in the demand for fuel LNG and gas continues to be.
A fast growing product and demand.
For LNG continues to gross I think that's going to continue to pay to play a role I think the if you look at the capital projects that were sanctioned in moving for many of those have slowed down some have been counts and so I think as we go through this year, there's going to be.
Some things changing around which projects get sanctioned and move forward what the timeframe as those projects are.
And of course to demand will pick back up and we'll see gas continue to grow. So my suspicion is we'll see some shifting around in the schedules, but again the fundamentals are going to require additional LNG and so I would expect to see that continue to develop and be represented a fairly large extending our portfolio what I would say on the utilities type Rick.
You know it really depends on the specifics of the project I think you can't look at those as one asset class as you move around the world there are different.
Dynamics and challenges in risk associated with different LNG projects and what we look to do is to make sure that the returns of the specific projects.
Meet our criteria and so that's I think how we look at it and you get a kind of separate each one individually and look at it.
We've got pretty high slide, but make sure that we maintain the returns that we need to as a corporation.
Thank you Sam. Thank you so much beat that makes you too.
Well the next to Jon Rigby with.
Yes. Thank you.
Just a follow on for Matt just.
Two things around that commentary about the slowdown speed up of of activity.
Can you give a little bit more color on the process you go through about sort of identifying.
Which assets.
Multiple will slow down how you.
So.
Identify how you puts a value through some lower spending period, and then internally give some indication how quickly you.
You could mobilize again in terms of people I'm spending a move back up to this cadence that you were running out pretty quickly.
It's possible.
That's my first question.
Okay. Thanks, John.
Yeah, the process and if you recall when after our Investor day as.
The salaries and Russian major announcements and then the the impact to the Kobin started picking up we shortly after that around mid March issued a statement that said, we were going to revise our capital and opex targets for the year, we're going to significant revise those.
And then basically announced about a month later, what the reductions where the process we went through.
I would characterize as a grassroots process in terms of bringing our businesses together.
Talking about the challenges in what we needed to do as a company and then letting the businesses and our project organization step back and start engaging with the relevant stakeholders to figure out how best to make this change in.
The point I made in my prepared remarks was a fundamental.
Principal looking at this was how do we do this recognizing the stopping some projects and.
And the and a in progress we'll have some inefficiencies and costs associated with it we need to offset those and find ways to do that in this market.
To provide that and the fact that everybody was experiencing these challenges ought to get people send their motivations to work together and find efficiencies and so you know one key criteria was figuring out where those biggest opportunities where and therefore are taking advantage of that to make sure that we did not compromised.
Turns in the projects and so part of their criteria.
As understanding which ones had more flexibility than others, hence the large reductions and unconventional the short cycle investments we had some.
A lot more opportunity in that space. So we saw a large reduction there that was a key driver. The other than was just looking at the pay out of those projects the opportunity the rewards associated with them and thinking through from a.
Economic profit standpoint, or how we want to think about those what's the cost benefit of slowing some of those projects and so that was another big factor and.
Third then with working with our partners and the resource owners to get alignment on that so that was it was a.
Fairly robust process with a number of people involved we were fortunate to have our projects organization in place you know last year in April 1st time, the company's history, we put all of our project efforts into one organization and I would tell you that has pay huge huge dividends. During this process the ability to look across Darren.
Our portfolio leverage their relationship with our contractors has been a big big help.
[noise] with respect to your last for your question around how quickly can you respond I think you heard in my comments again, we are anticipating a recovery in fact, I know one will happen and that these projects remain attractive and we'll want to pursue those and so.
The Big question is when and when will that recovery happened when we want attorneys back on so one of the challenges. We gave the organization is while you are taking steps to make these reductions keep an eye on the future and make sure. We have a clear line of sight of how will restart and ramp things back up again and so all the plans we've put in.
Place not only have a ramp down a plan, but we're also working how we could quickly ramped back up and of course that will vary by project and by the circumstances within those projects.
I feel again confident that.
This organization is striking a really good balance between taking a short term action, but preserving long term value.
Right.
And then just to the follow up just I'm getting to comment on on on Kens solvency as you referenced was still the towards the boltzmann's the cycle, but it seems to me last couple of quarters is being some signs of improvement.
That tend to lead the quarter. This one can primarily to do for the full in.
Liquids prices so some.
Has that things are starting to talk a little battery the into the operationally you'll pull from the macro.
Well, if you think what we've talked about in the past.
What we're seeing the chemical industry is what caused the classic commodity cycle. We had a lot of capacity brought on in the short term loan growth remains good and those products that excess capacity is overwhelm that growth in short term and therefore driven margins down to what we're seeing.
Back in the last year will really through last year that has not changed.
We continue to see basically a a links and oversupply there and the benefits we saw in the first quarter is really around feedstock and feedstock prices dropping off.
To the other point within that is just if you look at the mix of chemical products that we make some of those in response to what we're seeing with Cove. It in the products required.
Demand is growing pretty significantly we haven't been position to make some specialty products that supply a those markets and demand for those types of products that we've seen a boost in that and obviously as the code.
Impact start to to wind down.
You should see some of that revert back to what would be standard demand levels.
I can tell you organization I mean to refocus on it on a challenging marketplace seeming anything to add.
John the other thing I'd add is if you notice in the bar I mean, a chunk of put out there we did see really.
And then some improvement in Opex, which was earnings minutes in force this quarter and the chemical business.
Okay, that's going to stuff. Thank you.
We'll go next to Neil Mehta with Goldman Sachs.
Good morning team. Thank you Ed Thanks for taking the question there and I guess first question is around.
Capital allocation and dividend sustainability.
One of your peers reduce their dividend in light of that the macro environment just want to get your views on light levels distribution, how you think about dividend growth and debt and how you think about that in terms of prioritization around capital allocation.
Sure Good morning, Neil.
I think as I said in my prepared remarks, you not repeated in some of our press release the.
Priorities in the capital allocation scheme that we've got have not changed with what we're seeing here in the short term and get it kind of comes back to a large business that has a depleting assets, you've gotta continued to invest and industry advantaged accretive projects, if you're going to sustain.
A strong foundation to support the business going forward to successful business to support a growing reliable dividend and maintaining a strong balance sheet. So the projects investments are critical foundation to the long term health of the business and then obviously if you look at our shares.
Holder base.
70% of them, our retail or long term investors that that look for our dividend and see that as an important source of stability in their income and so we have a strong commitment to that.
And finally, making sure that we have a balance sheet.
To manage the volatility that we see and the ups and downs the price cycles. Obviously, we're in a pretty big <unk> here, which is outside of the normal price cycle volatility, but I think weve demonstrating that the balance sheet is handling that through this timeframe. So.
So that that priority remains the same and then I think the question and I talked about this isn't the investor days, how you balance across his priorities in the short term and Ah. So today as we face. These very short term challenging market headwinds, we are making sure that we're maintaining that dividend and continuing to advance to the project.
With the expectation that we'll see a recovery revenue rise more cash will come and which will allow us to continue investing those projects.
And so that we're not making a trade off on the medium to long term, but one in a short term based on the needs of our investment base and I would just tell you that we'll continue to strike that balance as we go forward at this market evolves and we see a changes and.
A recovery that's a slower than what we have even anticipated recognize we've been pretty conservative in our outlook will have to.
Step back and look to see if we need to make any further adjustments there but.
My view is if you don't have those investments you're not providing the foundation to support that dividend a lot of the projects that we've been putting in place to capital we've been spending here over the last couple of years those projects come online and start contributing cash. So I think we're going to begin to see here in the next year or so a lot of the benefits of.
She was the investments we have been making in that will contribute to the cash and provides the basis to support to dividends.
And the follow thank you there and then the follow up is just around.
The capital structure in the balance sheet as we indicated in your slides you felt the balance sheet and you know.
She has are lower than you appear set but you had a in taking on debt at a quite accelerated pace here over the last couple of years.
There are a governor that you'd look at it say.
He has to go and take on any more debt and just talk about.
On the importance of the strike the balance sheet to you as you think about wanting to stay priorities.
Sure.
Just maybe start first with the draw that we've had on the balance sheet and I think the context to keep in mind as we've done that is.
What I would call is a restructuring of the business are bringing and.
Hi margin profitable.
Investments into the base to strengthen the structural capacity of the of the company and so that's been an important priority for us and the reason why we've increased the investment is to make sure that were.
Building, the capital base and the assets to be successful and the markets that we expect to be in here over the next decade, so low cost high margin oil barrels.
Hi performance products and chemicals to meet the growing demand there and configuration of key integrated refining assets to make sure that we've got the yield profile, that's consistent with demands a the society half. So those investments are pretty strategic and pretty foundation and the idea was to structurally improve the business through those.
Vestments and so that has a priority as we did that we wanted to make sure that we maintain the capacity to manage the swings and as you see a today, we have that capacity. So we manage that met that objective.
And as we look longer term watch the right level you know our view is it has to be sustainable something that the business continue to continue to bear.
And allow us to have continued attractive and competitive access to the debt markets and so making sure that we keep that in a range that allows us a good access and people continue to see us as a sound investment and basis for a loaning money. She was going to be important. So we try to keep all that balanced Rex.
Nizing that they're going to be short term debt debt.
Dips in that.
Process.
We feel right now we're at pretty good around where weve leveraged up to and the resources that we have available fourth we think we've got a what we need to kind of manage through this year.
All right. Thanks, Thanks Terry.
Sure.
Well go next to Roger read with Wells Fargo.
Yeah, Thank you and good morning.
Foreign Roger.
That's what I want to ask given that.
Capex catcher done the ones industries and.
Yes, let's call them elected shut ins mcginnis part about that plus or price driven.
What do you think.
Other side of this years in terms of depletion rates and the reason I asked is that the the follow up breakfast after the investor event.
Yeah.
Very clear discussion from Exxon side that you know this 6% to 8% annual decline is out there and to comment from the bus on their analyst Investor side was we haven't seen or so is this something that brings that more and the four and how do you see that within exxon's portfolio.
Yeah. Thanks for the question Roger.
I think you know that I don't think you're going to see that change when you say you haven't seen at our our experience with.
You know were physically managing that every year and so we're pretty confident and what are the physics are associated with production of oil and gas resources that we've got what often maybe obscures the view as a lot of work programs that companies are doing to maintain offset that decline which doesn't often.
They're not discrete projects so to speak so it's often hard to model those but there is a lot of active in fact, we do that ourselves to offset that that natural decline work.
An act that takes resources that takes capital and investment spend so I think what you you're going to find which I'm not sure. If this is where your question was heading but as you strip out some of that work in those programs to reduce activity to mitigate that.
Decline because of the revenues aren't there to support it I think you'll see that decline rate manifest itself more explicitly across the industry. So my my view would be you'll probably get a better visibility into that it won't be a change per se around what naturally happens through production it'll just be that the offsets.
Aren't necessarily masking that underlying decline rate and then just stepping back maybe more broadly to your question.
You know I was at the Investor Day, I think as a company we continue to believe.
That the industry as a whole has been under investing for the demand is gonna be needed in the future.
Usually a what's happened here with the Corona virus and the drop in prices is going to pull out more capital.
Now the industry have you seen as you've already seen which is going to exaggerate that issue. So I.
I think on the back end of this I'm going to find a marked at eventually gets a lot shorter than we were already anticipating.
Oh.
Thanks for that.
Great that's the right direction.
To me.
Well from Roger accurate.
I guess the next question I'd like you go to on the downstream. Obviously, you mentioned that things had improved or were improving in China, we'll see if that sustains within the U.S. and Europe.
You know weve seen the first signs of some of the Lockdowns come off I'm. Just curious you had any kind of more and he had a responses in terms of north American or European demand trends.
Yeah, well that's.
Something we're keeping a really close eye on it as you know what are the tell signs in terms of what we see and.
April was significantly lower demand a month than what we saw in March and side.
I saw that as the depth of Corona virus impact if you look at kind of going forward and into May and what we what we are using terms are looking try and get a view of that looking forward is sales of our retail assets around the world.
And using that to see how what kind of demand response with people.
Generally around road transportation and we are seeing.
Improvements really across all three markets, we've seen in may volumes trending up in Europe, we see that happening in the U.S. and we see that also in Asia Little Asian didn't drop nearly as far as as Europe or the U.S. and so there are some I'd say encouraging.
Early signs and the transportation sector, particularly road transportation.
I think on aviation and that's probably going to take a little bit longer we haven't seen.
The uptick in that space yet.
Okay.
You're welcome take care.
We'll go next to Doug Leggate with Bank of America.
Thank you are good morning, everyone. Darren I hope everybody is doing well over there are no obviously will appreciate all the.
Comments, you guys have been making into how you've adjusted your business adopted this situation we're in right now.
One of two questions there really follow ups I guess, what new last fall I want to be a little bit more direct if I may on what are the circumstances. Darren I think typically you obviously underlying issue the dividend, but one of the circumstances, we'd be with other envisage that Exxon Mobil becomes dividends.
Well good morning dog and everyone's fine here. Thanks for asking I hope the same is true with you look you know yeah, I know you're looking for a very explicit answer all I would tell you is we think it's a dividend is an important part of the value proposition that we provide to our shareholders particular.
Given the base of our shareholders.
It would depend on the circumstances that we're seeing the market and how.
Prolong we think those circumstances are going to exist. So I mean I would just tell you we're gonna have to wait and see how the market plays itself out if we find ourselves with some.
Sustained truck structural deficit that says the business is going to have trouble a over a much longer time period, we have to step back and rethink that but frankly, we're not seeing that today. If you. If you look at some of the early signs I think we see some encouragement and going into may and so.
I think we're going to have to kind of play that by year end. The beauty of the dividend is its flexible we the board considers that every quarter and we're obviously looking at the macro environment looking at some of the.
Kind of a tale of health are out there.
Our organization working very hard around worsen leading metrics that we can keep an eye on to see which direction things are going and so were then continue to look at that and make decisions. As we go forward to ensure that for the long term. This business is strong and it hasn't or a good foundation to provide.
Continuing dividends out into the future and.
Products that the world are going to need.
Oh I understand it's a tough one to two onto explicitly I guess the.
Perception out there as the and we're all about shell has given you cover given the industry publication of wholesale reset I just want to see if you could you know all for some matson perspective, but I appreciate you onto him to the extent anyhow.
Hello. This is Ken made Doug blunt sure it because they just let me just stay on that when we're not I don't really looked at what shells going to decide our dividend policy frankly, it's it's it's a function of our investment base and the commitment that we've made to them.
The opportunity set for sure my follow up is Kennedy related.
The credit agencies to call, obviously picked it could be done in March.
You've obviously got that presumably did shared with them we were doing where.
There's been a limit, but you would be comfortable alone the balance sheet to go and again is tens of dividend believe pick as well I guess your capital. This flexible it's a dividend is sacrosanct.
We have is the balance sheet get to a level, where you're more comfortable either thanks.
Well again, I know I know you'd like.
Real specific numbers, but I would just tell you know one of the principles that we had managing.
The balance sheet is to make sure that we maintain capacity because as we've just seen here. This quarter. It's you know the Mark has got a lot of volatility at it and therefore, we need to have.
Foundation or base that allows us to accommodate that volatility and we need to have access.
Additive access to the market. So we're going to make sure that we stay.
In a range that allows us to competitively continue to competitively access to debt markets, when we need them and make sure that we got a buffer that allows us to Ron and continue to manage the ups and downs that are not going to go away and this commodity based business. So again, it's not it's a an ongoing conversation something that the board Tonight.
Spend time talking about and looking at and we're going to kind of continue to.
Adjusted as we go forward.
I mean.
The priorities that I've laid out around the investment the dividends in the balance sheet.
I used the term earlier this morning I used it in our Investor day balance, we've got a kind of balanced and based on.
What we see happening in the marketplace we today.
We have taken a position that we believe balances and what we're seeing as the quarter moves on if things don't play out the way, we think we see something that structurally very different than what we anticipate we'll look at a rebalancing that it's just difficult to tell right now frankly.
Claims going to walk through it thank you Doug take care.
Well go next to Doug Harrison with Evercore ISI.
Good morning, everybody.
Foreign Doug pointed out.
So there you reiterated your business plan, which you've got desire for a while the global prosperity would drive investment in that you guys would end up in selling versus your peers, who advantage investments.
And on this point you kind of also indicated that your priorities for capital management aren't going to change, but the pace probably would so my question is that you think that we know already that they're going to be broad changes Exxon Bottomland industries capital management program over the medium term, so what might be different meeting.
Just use the word balance to describe.
Approach.
I think we need better balance or maybe more.
And also how does consolidation plan to all of this that is if you think it does given the distress that we're saying and and energy markets today.
Yeah. Thanks, Doug I hope all is well with you on the balance there. Thanks.
You know that balance is going to be a very.
I'll call. It sector may be company specific point in terms of where everyone stands with respect to their balance sheet with their capacity there scale. Their integration. So I think the balance will be different and you know my view some segments of our industry today needed better balance.
Yeah, I think that will that will manifest itself I think there.
Yeah, you got to be able to survive through these downturns and yeah I think position your company to do that so I do think there there's a balanced as needed there I also think.
That or you know the demand will be there because of the fundamental.
Role it plays an economic growth in People's lives and so as as much as the short term kind of swings the industry around ultimately the demand.
For the products will come back and the industry's gonna have to respond to that demand and if in the short term.
A lot more conservatism comes in a lot less capital flows into the marketplace will open up that supply demand balance going forward and that will then incentivise things coming back in and frankly may lead to a less balanced in terms of what you're talking about so I think it's really a function of the capacity and capability of companies to kind of weather.
Through this short term period and I think.
You know some companies are better positioned to do that and others, which is probably leads you to your second point about consolidation.
I think again that that opportunity exists, particularly in periods like that if you look back in time when prices get low and companies get stressed you see that tend to happen not only in our industry, but in other industries. So that's certainly a.
A theme, which I think will resonate within the industry exactly how that plays itself out, though I think we'll just have to wait and see.
There is something else about that I mean.
<unk>.
It seems to me the ability to have.
Financial transactions warm, but.
When you guys bought mobile there was obviously lots and strategic American accommodation and other combination during that period as well. So do you think that were in an environment, where there isn't a strategic meritas fish and combinations, especially for a company.
Nor size.
Or do you think it's you think it's different this time around.
I know <unk>.
Come back to a lot of the a the value levers.
That that we saw with the Exxon Mobil merger me those those value levers I don't think have really changed overtime and so it's really a question.
Of what opportunities are out there where you can see some of those are probably a subset of the value levers that we saw with that of course as we look at opportunities and I've been asked this a lot of lot of times and.
These calls about acquisitions and.
And well always said as you know what can we have to look and find some unique value levers to justify the deal and if you can't do that then there's no space for the deal and that has really been.
I think the underlying.
[noise] criteria that we've had as we've looked at acquisitions as we continue to look at acquisitions and opportunities can we find a way of creating and extracting unique value out of some acquisition or.
And that's not going to change would continue to look for those things and if we find a notional excellent yeah.
You bet. Thank you, Doug I bet Yep. Thanks.
The next TG anyway with Barclays.
Hi, good morning, everyone.
My first question need good morning, Thanks for taking my questions. My first question, maybe asking guarantor criteria is on the Permian and even best that meaningful capital in the Permian, including infrastructure spending and your partners have indicated that the link website pipeline has not been delayed so is it fair to.
I think that one Exxon eventually does or there's some kind of higher level overall corporate capex that the Permian It would be the first call on gross capital from our turns perspective and no given the reduced capex in the Permian, but here is there any infrastructure build out that you need to address before you get back to your prior growth trajectory I know you mentioned that the line wanted.
I would like to Saudi is complete.
Yeah. Thanks Jenny.
So and Neil talked about this in our Investor day, as we looked at the range flexibility that we had and that was one of the points I think they've tried to make was we even within in early March as we looked at our investments and the unconventional space that we did have opportunities to ramp down spend and.
Investment there and still fully utilize the infrastructure that we're putting in place and making sure that we.
Got to return on those investments and frankly, it was pretty critical too.
To do that and maintained scale and scale advantage in the cost. If you think you know more broadly about what we're trying to doing the Permian, it's really with this long supply market in mind that we've got to find a way to get the cost the unit cost of production in the Permian down in the way we're approaching that is.
Through scale and technology, we think that's absolutely critical and so our view as to make that investment in the Permian very competitive and an oversupplied market, which I would tell you we're well on the way towards and so the cuts we've seen to date allows to continue to preserve the capital efficiency and allows us to do.
Can you with the.
The development acute developments to make sure maximizing the recovery and it utilizes our above surface facilities. So I think that's where we're at today and.
We were looking now you saw the and the in the presentation that Steven gave with the second quarter outlook, we are kicking economic shut ins.
In the Permian and that's not that's really a function of if you think about a lot of these wells are early in their lives for just started up you get very high production rates and from an economic maximizing the NPV of those wells you're better off.
Deferring that high production rate into a period with better pricing and so a lot of the shut ins that we're doing.
And the upstream are associated with kind of a value play around making sure that we're bringing those high production rates into him a markets more conducive to high production rates.
And of course, you know looking forward, depending on how the market.
He balls, we've got to flexibility to bring a lot of those wells back on quickly and ramp up what we're doing in conditional space. So it is.
You all I've talked about that we've talked about it that short cycle investment gives us a lot of flexibility and we're certainly leveraging it there's a lot of value there too I would tell you a we continue to feel very good about the ability for that resource when we get it online to compete in a low price environment. The challenge of got today is the investment going away.
And we're making to get in that position and that's kind of whats inhibiting us, but once we get into it we feel really good about operating competitively.
Oversupplied market.
Well, thank you for the very comprehensive answer.
My follow up question as maybe following up on the other questions, but in a different way. Gary you you are probably some Korea psyche capital investment and attractive projects and if we end up being in a prolonged oil price environment at what point as it keep detrimental to the long term business to stay at the current capex level.
So sent at some point you need because they need and investment business or the cash side at this point dividend and you mentioned earlier on the call that there isn't economic crops are slowing down from the project, but you still think that there's long term fundamentals that arent.
Yeah, I think you will have to watch and see how the world a evolves I mean, I keep coming back to.
I know you guys probably feel like it's a it's a repetitive statement but.
The the basic.
Drivers of energy demand have not changed with what we're seeing today.
The demand drivers the fact that energy play such a critical role in People's everyday lives and the growth economy to meet mean that that energy will be needed. So it's really a question of timing and the recovery and again I think we're April is probably the depth of the impacts in our industry I hope that.
Truly certainly it's looking that way from the early signs, but we're going to let this kinda quarter play out I think the second quarter will be a challenging quarter and bill will have a better view around how the rest of.
The year shaping up and we'll continue to to adjust it we've got additional flexibility to use if we want to and if we start to conclude that based on some structural change, which frankly, it's hard to see right now, but if we see that.
We'll adjust the plans again.
Thank you so to answer your.
You're welcome.
Well the next to Jason Gammel with Jefferies.
Well, thanks, very much gentlemen, I'm just wanting to see what do you get you to elaborate a little bit proposal on the sources of the production curtailments that you're going to be into taking over the course of the core and although primarily <unk> based upon.
The economics of the individual close was somebody said the direction of host governments.
Yeah, No I would say 400 cake or Kaylee B D that we put in a Stevens a second quarter look ahead.
I would tell you the way to think about that is about two thirds of that roughly would be and the economic category.
At about half of that and.
Carl.
And then the other half and this economic steps that were taken in the Permian, which is really around preserving value curl with the low price environment I think more challenged from a competitive cost of supply basis, Permian, we get higher value by deferring some of those and so about a third got occur about third.
And the unconventional space and then about third associated with restrictions put on us by the governments around the world.
Yes, that's really useful are you actually somewhat we didn't get my follow up question, which was going to local well be operational performance accrual has actually been quite strong.
So you're talking about the central Oklahoma shut ins or but could you maybe elaborate a little bit more Bob.
And just situations, but could construing cool so kind of evolved.
No true.
Sure I know there's been a lot written about the out to tell you.
This has been again another.
Really.
Great benefit of the reorganizations that we've done a along the value chains are upstream you know we made a change in our downstream beginning in 2018, we made a change in the upstream.
In April 2019.
And so if you look today as we as we headed into this our ability to see end to end from from wellhead, all the way down to the customers I think.
Was the best in industry, frankly, certainly nobody heading better in terms that ability to see along and so we were very early into that process.
Making sure that we had a clear line of sight of how we would move the physicals and that we did not find logistics constraints of course, you know we've been investing in logistics, both out of Canada Carl.
With the takeaway capacity there on the rail and in pipe and we've invested in the Permian and take away capacity there and so we've got I think a good line of sight of where the bottlenecks are going to happen.
And really.
Secure position with respect to the logistics to move the barrels and we've applied our team has basically been keeping an eye on that.
Around the world not just out of those two a resource plays but but everywhere that we lift barrels making sure that we've got a clear line of sight of how we keep flowing to the extent to the economics.
A warrant that so we have not seen.
The logistics constraints, others have talked about on just because the fact that the the organization was able to kind of see some of those calling and take the appropriate steps to make sure. We think we didnt get caught with any of them.
Right and I really appreciate being censored.
Okay. Thank you operator would probably have time for a long haul call.
Okay, well, one next to Phil Gresh with JP Morgan.
Hey, good morning, there and things like weren't Bill question.
Yeah. So one of the one entity I guess bridges and the multiyear guidance was your asset sale plane.
And just wondering obviously this is a tough environment.
Asset sales. So I guess is it fair to assume that that labor.
The next one to two years might get pushed back a bit.
And then yeah in terms of the impact and a shorter term on the balance sheet.
That is that you need to the lower prices need to be more and the balance sheet in in terms. So just curious how you think about.
Toggling between those two items and I guess it does all kind of come back to the dividend questions being asked you noted that.
If the ads asset sale bridges and there you know do you look to the flexibility to dividends or something that can now thanks.
Yeah sure Phil Good morning to I would tell you you're absolutely the activity that we have the focus that we have around restructuring the portfolio.
And a high grading that portfolio hasn't really changed to the drivers and the motivation remain there. The work list that we had with respect to I'm getting assets in the marketplace and the divestments are still in place. It's a really question and what we've said all along is our ability to execute that divestment program will be a function of.
Finding buyers, who put a value on those assets of value that's higher than what we are we see with them and so that we find that deal space and transact and I think you know your point, which is a valid one and absolutely correct. I think is going to be harder to do that in an environment like this where people are attractive cash so.
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I would expect to see.
That does that divestment program slow just because of the market dynamics and the buyer seller.
Availability buyers.
And we're not we're not counting on that with respect to how we think about the business and how we're going to fund the ongoing business, we have not assume that we're going to.
Benefit from asset sales all of our plans are based on essentially managing with a portfolio that we have.
Okay, great on the second when I get this one is just around the quarter here Steve.
In your 8-K, you did you obviously the guidance items around these inventory impacts and you also gave guidance around the derivative impacts in the downstream side of business.
There's a little confusion.
On downstream, specifically with those derivative impacts, but could you just clarify the magnitude of death benefits. There was baked into I think the margin bar in the bridge.
Yes, Phil if you look at the margin factor.
Isn't that was the benefit of financial derivatives.
Oh I'm, calling.
$3 billion or so.
So minus and then obviously that was offset by weaker refining margins are brought it back down to about a 900 plus million dollar benefit to the downstream business.
Okay, great. Thank you.
Thank you Bill.
Operator.
This time I'll turn the call back to speakers for closing remarks.
Okay.
Thank you for your time and thoughtful questions. This morning, we appreciate you, allowing us to opportunity to highlight first quarter results and the steps, we're taking to not only managed through these challenging times, but to position ourselves for long term growth in the eventual recovery.
Appreciate your interest and hope you enjoy the rest of your day. Thank you please be safe.
[laughter].
This does concludes today's conference we thank you for your participation.
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