Q2 2020 Exxon Mobil Corp Earnings Call
Please standby we're about to begin.
Good day, everyone. Welcome to this Exxon Mobil Corporation second quarter 2020 earnings call.
Today's conference is being recorded at this time electronically or to the Vice President of Investor Relations and Secretary Mr. Stephen Littleton. Please go ahead Sir.
Thank you good morning.
Welcome to our second quarter Oh, we appreciate your participation.
An example arm Stephen Kim Vice President.
Yeah.
Before getting started I wonder afraid that I hope all of you all your families and calling for free.
The challenge is a world continues to pace.
With me today.
<unk> Senior Vice President Bill Chapman overseas upstream business.
I've got cover for me my name from operating results. They will provide his perspectives provide an update on the steps, we're taking to navigate their current market.
And I'm sure, we remain well positioned for recovery.
Following <unk> remarks, I will be happy to address specifics on a quarterly report results well now will be available to take your questions on board and things, including the corporation strategic priorities.
Any redemptions upgrades on major projects.
Whose arlon market fundamentals.
Our comments this morning referenced the slides available on the Investor section there were website.
I'd also like to draw your attention to the courseware statement on slide two and the supplemental information at the end of this presentation.
I'll highlight developments since the first quarter of this year on an ex right.
In the upstream liquids realizations fell by about 50% compared to first quarter.
Yeah, its impact from the grown a virus ripple through the global economy significantly reducing demand.
In response to be I'm personally when market conditions production was curtailed by approximately 330000 oil equivalent barrels in the quarter.
Despite considerable challenges, including global travel and supply chain disruptions, we were able to maintain strong operational performance and all of our businesses.
We also progressed growth projects, such as Guyana with phase one demonstrating nameplate production capacity.
Progress phase two Fps, so topside integration in Singapore.
In the Permian, Delaware Central processing in export facility start to go which enhances our immigrated position in the basin boot collection and processing of production from our Delaware basin assets and enable the Fisher lower cost delivery the Gulf Coast markets.
In the downstream refining margins decreased from first quarter levels, and where 50% promote senior anglos, reflecting the significant reduction in demand and the resulting impact really increased levels of chronic inventory.
Finally, sparing was approximately 30% with reduced demand, however utilization improved through the quarter.
Early signs of recovery from a lows, including demand for road transportation fuels.
Although bottom of cycle conditions persist in the chemical business margins versus staying at first quarter levels with lower realizations being offset by lower feedstock costs cobot 19 impacted demand in chemical industry impact across our portfolio was moderated by resilient demand in the packaging and hygiene.
Yeah.
Corporate level, our people continue to support Cobot 19 response efforts through our manufacturing operations and donations of critical products and resources, which Neil will highlight a bit later in the call.
We also launched a collaboration with universities environmental groups and other industry partners to find new and better ways to monitor and reduce methane emissions first of its current effort call project Astra is focused on developing innovative sensor network in the Permian basin to continuously monitor.
Methane emissions.
Larger areas to enable quick and efficient detection and repair of leaks.
Ultimately leading to lower emissions.
Let's move to slide four for an overview of second quarter results. The table on the about provides a view of second quarter results relative to the first quarter.
Starting with first quarter 2020, we reported loss of $7 million included unfavorable identified items of $2.9 billion.
Driven mostly by noncash inventory adjustment.
Excluding these items first quarter earnings were $2.3 billion.
Second quarter results included a 1.9 billion dollar noncash benefit from inventory valuation.
Actually reversing the first quarter impact due to the improvement in commodity prices relative to the end of March.
Resulted in a second quarter U.S. GAAP loss of $1.1 billion.
Excluding identified items there was a 3 billion dollar amounts in the second quarter down $5.3 billion from the first quarter.
Everybody effects of cobot 19, including the unprecedented decline in oil and product demand, resulting in significant declines in prices.
Impacts were in line with the market factors that we previously communicated.
Within the quarter April marked a low point with the result, improving through May and June. However, it's worth noting refining margins remain very challenged notably in North America with record high product inventories.
Beyond the significant reduction in prices and margins lower volumes in the quarter due to the demand impact from a pandemic reduced earnings by $600 million.
Lower operating expenses across all three of our businesses from reduced activity lower overhead logistics optimization and supply chain efficiencies improved earnings by $800 million.
These efforts demonstrate progress we've made towards our 15% cash opex savings target.
Moving to slide five upstream earnings excluding identified items decreased by approximately $3 billion, largely driven by lower prices with liquids realizations down, 50% and natural gas realizations down 25% versus the first quarter.
Foreign exchange in other impacts reduced earnings by $360 million.
Hi impacts were driven by timing of scheduled maintenance activity.
Lower European seasonal gas demand.
Expenses were lower in the quarter would savings related to efficiencies and work processes reduced unconventional and exploration activity in market related savings, including nor contractor rates and lower rates on materials and supplies.
On the next slide I will provide more details on volumes.
Thing volumes decreased by approximately 400000 oil equivalent barrels per day compared to the first quarter.
Due to the challenging market conditions, we curtailed production in unconventional in heavy oil assets starting in April.
Additional government mandated reductions were implemented in May as previously mentioned natural gas demand was seasonally lower primarily in Europe.
Well maintenance, notably in our LNG portfolio also contributed to lower volumes.
Compared to the second quarter 2019 upstream volumes decreased by approximately 300000, all gross barrels per day.
In addition to the factors I just referenced volumes were lower due mainly to the divestment of the Norway non operated assets at the end of 2019, it's worth noting that half of the divestment impacts was related to gas volumes.
Finally, we saw continued liquids growth from our investments in the Permian Abu Dhabi in Guyana, reflecting the continued value growth we are focused on.
Moving to downstream on slide eight earnings excluding identified items decreased approximately $2 billion relative to the first quarter.
Lower margins in demand impacts driven my cobot 19.
Decreased earnings by nearly $2.6 billion refining capacity spared inline with significantly reduced demand.
Prudent in the margin factor is the absence of first quarters unfavorable mark to market impact of $1.1 billion and an unfavorable impact of approximately $200 million in the second quarter.
This peer to peer impact was driven by significant volatility in the prices of undermine commodities.
Our credit program is structured to maximize the value from our global asset base, leveraging our logistics and insights across the value chain.
We are positioned capture value as market disconnects occurred.
For example by utilizing storage for crude and product from the logistics capacity tightens.
That said, creating any use of financial derivatives to capture arbitrage opportunities can introduce additional volatility in our results.
Through the timing recognizing opus financial derivatives.
Having the physical officer at the same time.
No what turnaround activity increased earnings by $190 million.
Goose expenses, including logistics efficiencies and lower contract rigs contributed another $220 million second quarter results.
Moving to the next slide I will discuss downstream results relative to second quarter 2019.
Earnings excluding identified items decreased approximately $1.1 billion versus the second quarter 2019.
We drivers are similar to what I, just described absent a significant mark to market effects associated with the swing in commodity prices.
I would highlight the half a billion dollar contribution we saw year over year from lower turnaround activity and increased production of higher value products. As a result of the recent investments in our manufacturing facilities.
Additionally, we continue to see the benefit of expense reductions and efficiencies discussed on previous slide which improved earnings by $340 million.
Moving to the next slide I will discuss chemical results.
Remember earnings excluding identified items decreased by just over $100 million.
The margin impact quarter to quarter was flat.
Second similar trend in feedstock cost in product realizations.
While we benefited from resilient demand into packaging in hedging segments, Provenge 19 had a more significant impact on our durables in the automotive sector, resulting in overall reduced volumes impacting earnings by $170 million.
Consistent with what we saw across the corporation reduced expenses, including impacts from turnaround and maintenance efficiencies and supply chain savings improve chemical earnings by $110 million in the quarter.
Turning to slide 11, chemical earnings excluding identified items increased by more than $150 million relative to the second quarter of 2019.
Higher margins from lower the cost improve earnings by $140 million. This is more than offset by lower volumes from cobot 19 impacts on demand.
However, we saw dramatically lower experienced improving earnings by nearly a quarter over billion dollars with drivers consistent with what we saw on the prior slide the next slide highlights the strong progress we've made to date, reducing spin in response to the current market environment.
Back in April we amount, so we will be reducing 2020 capex by 30%.
Cash operating expenses by 15% through the second quarter, we are on track to meet or exceed these targets.
Cash operating costs in the second quarter were down about 15% relative to the first quarter with reductions across all three of our businesses as I previously mentioned.
Cost reductions reflect decreased activity maintenance and turnaround efficiencies reduce contractor rates.
Lower structural cost from logistics optimization prior chain efficiencies.
As we optimize work processes, including how and where we perform work we have identified structural opportunities that have lowered our cost.
In terms of our capital spend second quarter was down 25% versus the first quarter.
We are pacing investment in the near term, while prioritizing capital Optionality that preserves long term value.
Additionally, we have optimized project execution plans to further reduce spin.
Our short cycle investments, particularly in the Permian provide us with optionality as the market recovers.
Want to be well positioned to capture the eventual upswing.
Moving to slide 13, let me highlight steps, we've taken to improve liquidity and ensure the corporation as well position to manage the current marketing environment.
During the quarter, we leverage our access to capital markets by issuing approximately $15 billion in debt, including approximately $5 billion of euro denominated bonds.
This issuance enabled us to capture a cracker Bureau burn rates and diversify our fixed income investor base.
The corporations total liquidity has increased significantly since year end 2019.
As Neil will discuss in greater detail momentarily. We believe we now have sufficient capacity to weather the near term market challenges and preserve our long term growth brands and capital allocation priorities.
Let's turn to the next page four look into second quarter cash profile.
Second quarter cash flow from operating activities was in line with our projections of the cobot managing impacts.
There was the increase in working capital in the quarter driven by seasonal reduction in payables and a continued inventory bills coming out of the first quarter.
Associated with the steep reduction in demand.
Gross debt increased approximately $10 billion in the quarter, reflecting the steps I just mentioned two increased liquidity in light of the current market uncertainties.
As a result, we ended the quarter with $12.6 billion of cash.
Turning to slide 15, I will cover a few key items for consideration with regards to our outlook for the third quarter.
In the upstream economic production curtailments are expected to average 60000 barrels as market conditions have continued to show improvement.
And we're forecasting the impact of 140000 oil equivalent barrels with a full quarter of government mandated curtailments in line with public announcements.
In the downstream, we anticipate scheduled maintenance to be down slightly from the second quarter. However, as we reflect on the current business environment, including the high inventory levels, we would expect margins to remain very weak.
In chemical we anticipate demand improvement in key durable and automotive sectors, partly offset by higher lead costs.
Gadget maintenance is expected to be in line with the first quarter of this year.
Separate and financing expenses are expected to be about $800 million and we expect continued spending reductions consistent with our amounts target.
With that I will now turn the call over to Neil.
Thanks, Steven it's great to be on the call. This morning.
I hope that all of you joining us annual families a safe and healthy.
And I went to extend the gratitude everyone here that Exxon Mobil to all of the men and women looking on the front lines to fight the Vivus and to help those suffering from its effects.
I'd also like to thank our employees, but all that they are doing to support the response efforts globally.
As we indicated joined the first quarter, we anticipate indicated pandemic unrelated economic shutdowns, which significantly impacted the financial performance of companies across multiple sectors in the second quarter.
And we're seeing not reflected in the results announced today.
Steven just discussed the same external factors evident in our second quarter earnings and cash flows.
However, there's reason to be encouraged that we may have seen the trough in April when WT.
Historic low point, and then began to rebound as economic activity picked up and demand showed signs of increasing.
By the ended the quarter WT 100 until around $40 for battle with brand trading slightly above that.
Oh prices have remained relatively stable at that level in recent weeks.
I'd like to begin with a few over arching comments on one of them as challenging coaches. This industry has seen.
We have acted quickly and decisively while preserving long term value.
Organization has responded with a level of commitment and professionalism that has been exceptional.
We rapidly adjusted our plans and ask the organization to deliver on very aggressive new targets.
Have delivered.
So all of the challenges this environment as presented we have safely maintaining the integrity and continuity of our operations, while also making the necessary adjustments to code at 19 to provide a safe work environment for our workforce and support global response efforts.
This success should not be underestimated.
Centrally all of our global facilities upstream downstream and chemical operated without interruption.
You can imagine the challenge of maintaining a virus free environment on offshore platforms and refineries.
Our workforce live and work in close proximity.
Got to charge planes to move on rotating operating staff all over the globe without the availability of commercial planes.
We've had to lease hotels in multiple cities to quarantine off folks before they stop at 30 day rotations.
Our organizations ingenuity has been remarkable.
We've responded quickly to the rapidly changing price and margin environment by shifting in facilities when necessary and capturing value from the rapidly changing prices leveraging our extensive supply chains around the world.
I'm very pleased with the progress, we've made reducing costs and pacing investments to adjust to the market conditions.
Steven described we set very aggressive operating and capital expense targets.
Organization is exceeding those targets, which positions us very well for the rest of the.
We ended the quarter with more than 12, and a half billion dollars of cash which is in line with the business needs.
Given this level of liquidity, we don't see a need to take on additional debt.
Before I dive into the business.
Want to highlight some of the amazing work on people have done in response to coated pandemic.
These assets included Reconfiguring manufacturing operations, optimizing processes and delivery systems, enabling us to increase production of essential chemicals that are critical to the world's medical response, including nice appropriately alcohol to hand sanitizer.
Specialty polypropylene for masks and medical gone.
Our people have stepped up to contribute educational supplies to schools fuel and pp for first responders and financial support to food banks and many other related causes.
Hasn't already.
Thank you to visit our website to see full of inspiring ways. Our employees have contributed during this time of need.
Now I'll turn to what we're seeing in the markets.
Consistent with oil prices, reaching historic lows, our own retail sales reflect a bottoming at transportation fuel demand in April followed by some encouraging signs of recovery.
Shape of the recovery varies by region the demand in Asia recently surpassed what it was a year ago.
This data is from the International Energy Agency, what we saw with a historic demand contraction for transportation fuels with countries around the world impacted at nearly the same time, but we are seeing a recovery from the recent lows.
Reflecting the improving demand trends, we're seeing the view of the next 18 months is similar to ours.
That forecasting a rebound in road transportation fuels with fourth quarter to Twentytwenty demand expected to be at similar levels to the fourth quarter of the price.
The recovery in jet fuel demand is likely to be much slower.
By far the sharpest reduction in demand on the slowest recovery expected.
As you would expect the impact of low demand was apparent in the second quarter.
Finally crude throughputs about 15% below 2019 levels.
This resulted in pressure on margins, which Stephen discussed a few moments ago looking more broadly at total liquids demand the second quarter was down about 20% year on year.
It's important to note the actual loss of demand was known to the somewhat expected considering the low end of the range was about 30%.
Simply but the demand destruction in second quarter was unprecedented in the history of mode in oil markets.
To put it in context absolute demand fell to levels, we haven't seen in nearly 20 years.
We've never seen a decline with this magnitude in place before even relative to the historic periods of demand volatility following the global financial crisis, and as far back because the 19 seventies oil and energy crisis.
In response to this low demand we saw a similarly unprecedented reduction of supply in the second quarter as OPEC plus was down approximately 11 million barrels a day in May and June.
With American production shut ins are estimated to have peaked at more than 2 million barrels per day.
However in line with the extraordinary drop we saw in demand inventory levels increased unprecedented levels and we anticipate it will be well into 2021 before the overhang is cleared and we returned to pre pandemic levels.
As mentioned clearly the industry is taking significant steps to reduce production we have taken decisive action in this regard as well.
Tailwinds impacts in the quarter were about 330000 oil equivalent barrels per day, roughly two thirds of these volumes with economic contaminants in unconventional and heavy oil.
We both the majority of production from a shorter cycle unconventional plays back on line in July as market conditions recovered.
For all heavy oil assets, we took advantage of the economic tailwinds to pull forward planned maintenance.
Well, we completed a maintenance shutdown online too and it's now back on line.
In the Middle of July we shutdown line, one similar plan maintenance and this is expected to return to service in late August.
Looking ahead to the third quarter, we anticipate an impact of approximately 200000 oil equivalent barrels per day from could tailwinds with about 70% to those mandated by governments.
Turning to Permian Basin.
Second quarter production was nearly 300000 oil equivalent barrels per day, that's a 9% increase this is in second quarter 2019.
We continue to anticipate Twentytwenty production will be about 345000 oil equivalent barrels per day.
I am just 15000 barrels per day from what we discussed back in March despite the containment and the sharp reduction in capital expenditure and still more than 70000 barrels a day above the full year 2019.
During the quarter, we started up the Delaware basin central processing, and exporting facility, which we refer to as cowboy.
As I discussed in March this is a key building block.
Poker Lake nature development.
As we've discussed previously the short cycle nature of opinion assets also provides flexibility to pace development reduced spend and preserve cash in the current environment.
We could tell a rig count by about half ending the quarter with 30 rigs in the Permian Basin, and we expect to cut that number by at least half again by the end of this yet.
Our activities for the rest of the will be focused on poker like where we will continue to leverage our development scale advantage and utilize the above surface investments we've pursued in the last 18 months, including California.
In light of the recent low price environment. We also pushed at the flowback of a large is today cube development to the third quarter.
This is the 27 well keep in the Midland Basin that I referenced at our Investor day.
Again this decision reflects our focus on making the appropriate decisions to maximize the value of each well and adapt as market conditions become more favorable including optimized completion timing for already inventory of drilled uncompleted wells.
In Guyana, Lisa Phase one demonstrated production capacity of 120000 barrels per day during the quarter.
The response to a mechanical issue that we experienced in may we slowed by logistical challenges of mobilizing technical experts and materials in country.
Jacoby to restrictions.
As a place to being resolved and we expect to get back to full capacity with 100% gas injection.
Just.
We're still actively investing for the future in Guyana with full drilling rigs as of the end of June with one on exploration and three on appraisal and project development drilling.
Subsequent to the cold trend drilling at yellowtail to identified two additional high quality hydrocarbon bearing reservoir one adjacent on one below the yellowtail field.
Lisa Phase two remains on schedule for Twentytwenty to start up you can see the so in the photo which is currently in Singapore Topsides integration.
We are continuing to work with the government on approval from the pie all redevelopment plan.
Without final resolution of the election results and signing any new government. There is a potential for delays to the schedule.
Having said that.
Very clear and it's all parties in country understand the importance of progressing the developments quickly given the significant benefits all stakeholders, especially the citizens of Guyana.
Let's now turn to the progress we're making on the aggressive cost reduction measures. We put in place earlier this year, starting with capital expenditures.
In April we reduced topline for this year by 30% $23 billion.
We're on pace to meet or exceed that target in fact, our annualized run rate in the fourth quarter is expected to be around $19 billion.
We expect to be lowest still in Twentytwenty one.
Savings during the second quarter were primarily driven by short cycle unconventional activity, but I should note that were also adjusting the pace at the other investments in all of our businesses.
As we previously mentioned, we continue to take a thoughtful and comprehensive approach to these cost reductions in partnership with contractors partners and governments you will hear me say several times. This morning, the importance of addressing the short term market challenges, well conserving cash and preserving long term.
Value and future Optionality.
It helps us ensure that while investments maybe just said in some areas the opportunities remain.
Given the continued uncertainty and volatility we will continue to adjust capex reductions as needed while also being mindful that the pullback was seen across the industry today.
Pretty well lay the foundation for supply challenges in the future and we want to make sure we're positioned to capture the eventual upswing.
In addition to our targeted mean attend Capex deductions. We also laid out plans to reduce cash operating expenses by 15% in twentytwenty.
Again, we are delivering we're ahead of pace to achieve that target with savings coming from a wide range of activities, including lower unconventional activity optimizing supply chains, lower material and service costs and what process improvements to reduce support and overhead costs.
So just a few examples of savings a widespread across the corporation.
More importantly, we're doing it without compromising safety or operational integrity.
Over the past few years, we underwent a reorganization of our businesses, what primarily functional organization instructions to aligning along value chains.
These reorganizations reduce the senior leadership structure and associated overhead and improve the line assigned across the value chains to best to drive performance from our assets.
Since our Investor day in March we discussed how this organization has provided a new lens on the business to identify and improved ways to drive efficiencies.
Might recall Darrin need to point, that's our plan for this year included reducing our operating cost on our base assets by more than $1 billion and he said that we do even better in Twentytwenty one.
And we came into the current environment in a good position to respond quickly.
We're confident that we will meet or exceed our cost reduction targets for twentytwenty.
Looking ahead to Twentytwenty, one we see significant potential for additional reductions based on identification of the long term structural efficiencies reduced activity levels and an evaluation of our workforce requirements, including the potential to further reductions in overhead.
And management positions.
Ill plans to continue looking at reductions business by business and country by country.
Consistent with our annual budgeting process, we're working through these plans that we would expect to have been finalized during the second half of the.
And share them with you early next year.
Let me now address capital allocation.
Our long term capital allocation priorities remain unchanged in the depletion commodity business you have to invest in accreted advantage projects to sustain a strong foundation to generate cash flows into the future.
In the capital intensive cyclical business such as ours. It is critically important to maintain a strong balance sheet.
This enables us to sustain through the commodity price cycle and be flexible when opportunities present themselves.
It has been a strength of this corporation for decades, and it is an advantage that we will maintain.
Finally, we have a long history of providing the reliable and growing dividend a large portion of our shareholder base has come to view that dividend as a source of stability in their income and we take that very seriously.
While we manage our capital allocation priorities over the long term, we also recognize the need to balance in the near term to respond to market conditions.
Response to the unprecedented environment that we find ourselves and we've taken decisive action in Twentytwenty.
To recap what we've done so far this year.
We have reduced short term capital spending by more than 30%, we're on pace to reduce cash operating expenses by more than 15%.
We've increased that to a level, we feel is appropriate to provide liquidity given market uncertainties and we will hold it at that level.
And we're continuing to pay a reliable dividend.
Given the ongoing uncertainty in the business environment, we developing plans that will enable us to maintain our capital allocation priorities over the near term.
These plans contemplate the price environment that is consistent with a range of third party estimates and in line with the shape of the recovery that I discussed moments ago.
The plans will include reducing operating expenses and identifying additional opportunities to efficiently thermal capex doing so will enable us to maintain the dividend and how debt at its current level.
Of course, this is a volatile market and we continue with certainty how the market will evolve from here.
Simply too many unknowns.
While we are developing plans based on what we have a third parties can reasonably expect happened we have to maintain a certain degree of flexibility to be able to respond to potential improvement will further degradation.
Before we open up the call for questions I want to reemphasize a few key points.
People continue to demonstrate to commitment to safety and operational integrity and continuity in an incredibly challenging environment.
Company continues to benefit from the integration advantages, we build across the value chain.
We remain focused on driving down costs and pacing investments to manage the near term market challenges.
We maintain financial capacity in line with our business needs and the market environment.
We will continue to be there for the communities on frontline workers, who depend on the products and support we can provide to come out beyond going pandemic.
I'm confident in our organization Endo plans, we will overcome the challenges of the current environment just as we've overcome many challenges in the past.
Thank you and we look forward to taking your questions.
Thanks for your comment thank you.
We'll now be more than happy to take any questions you might have.
Thank you Mr. built and Mr. Chapman.
Questions that answer session will be conducted electronically if you'd like to ask a question. Please do so by pressing the star key followed by the digit one on your touched on telephone.
Request statue limit your questions to one initial with one follow up so that it may take as many questions as possible.
If you are using a speakerphone. Please make sure that your mute function is turned off to allow yourself to reach our equipment.
Additionally, please lift your handset before asking your question overseeing the order that you signal us and we will take as many questions as time permits.
Once again, please press star one I just told telephone to ask a question.
We'll take our first question from Jeanine Wai with Barclays.
Hi, good morning, everyone.
On a journey.
Bernie.
Next question is on the debt and in terms of voluntary.
Hey, guys any additional debt.
Ladies and gentlemen, assumption even though.
Thank you.
Thank you ma'am thank you.
Thanks.
The presentation.
Really helpful jumping off the message is that.
Hey, Jeff Capex should affect land.
But the impact on Fortinet.
Well the line.
Good morning, Jeanine this as Neal thanks for joining the call good to hear from you.
And of course as you are aware in response to this environment, which clearly has been unprecedented we've never seen.
Demand crash, so far so deep, but never seen prices and margins crash that much and.
And that's why having a strong balance sheet, so important and I would tell you that's why the financial discipline. This corporation at the many many decades has been so critical it means you can whether the big storms that means you can whether the large scale disruptions and of course. It also means you can toward the loyalty of our shareholders by sticking with them when the business.
Recovers and sticking with.
The plans we have in place to protect this balance sheet and maintain our dividend as we've just been discussing describing we took really really decisive steps for this year. So the short term capital spending reduction of 30% to 15% and in operating expenses. This is very much in line.
With what we saw in April earnings call, you will recall that data and laid out all plants than what we said we needed to do at that time. We've done. The results are on track can are aligned with our expectations that we set out the plan. So this year. When these reductions were now developing plans that they're going to enable us to maintain our capital.
Allocation priorities over the near term of these plans contemplate a price environment, that's generally consistent with third parties.
Yes, we've seen the third party assessments of the price environment going forward converge and were in line with those.
All plans to maintain debt at the current levels and maintain our dividend include further reductions in operating expenses and we're working hard to identify additional opportunities to what I always describe as efficiently just capex and that.
Yes, the optionality and the future value that response to these short term needs.
Great. That's really helpful. Thank you very much like Oh, My guess is just on the Strider Capex reductions that you mentioned.
Yes, if oil prices remodels.
Thank you.
My project you mentioned.
Well the Clos.
Yes.
Thank you.
Yes.
Maybe Apple TV.
Hi, Linda.
It's not warranted.
The lower than this makes money.
On slide is saying you then project that was that one emanated from the more Jackson option.
Blame thing as I mean, right at that meeting in lung cancer.
Thank you.
Yeah, Thanks, Jenny well.
We remain committed to progressing the structural improvements to our earnings and the cash flow that we've laid out for the last three years, but we have to be more selective in pacing those investments in light of the market environment and of course and as we've described and that you Darrin described as well in.
April we've completed a thorough review of all of our ongoing investments.
And our ongoing investment opportunities.
But in our business that means you got to work with resource owners you got to work with partners you got a liquid stakeholders, we got to identify areas, where we can differ spending but conserve cash in the near term and of course, because if that loan to value. What we have done and I think we've done really successful easily identified mark you deficiencies when you look.
Thank you bye projects synergies that will offset the cost of these deferrals, but it will be impacts I mean, that's for sure and there will be impact mainly in timing and that's to the earnings and cash flows potential that we previously communicated so.
So.
I think from our comments on our actions in the short term will defend the balance sheet and we'll protect the dividend by taking short term assignments in capital investments.
In terms of what we will do next year of course, we're working through that now and that's part of annual planning process and we're working through that now and as Youre well aware plant Cross cuts process concludes with a review the board of directors in November that will be the same this year as it is every year and when we have.
Clarity on what the capital.
Spend will be next year of course, we will communicate to you.
Mentioned in my comments my expectation is capital spending next year will be lower than the fourth cogen run rate in terms of M&A and could that provide a different options.
Janine cost.
We're looking about all the time.
We are looking all the time.
And if the right off the change comes up and we may elect to to move on that but what I would say is and I said this before and I certainly said at the Investor Day, we have I would say the very rich just said competitive investment opportunities within this company already.
I think that company out there that compete can compete with that and so there's no need for us to do that M&A, we don't need to do that we had very very attractive investments to make but.
Yes, we always look at that option.
Yes, Thanks Jenny.
Next question comes from the line of Jon Rigby with yes.
Morning, John.
And John your line may be muted.
And I was still continue to John.
Okay, well move on front out to Doug Leggate with Bank of America.
Well. Thank you can you give me okay.
Okay, and Doug scandal, how you do a good morning able to get to here can you and long steel.
So a lot of questions.
I'll stick with.
Neil you talked about with one rig capex when he believes in the second hall and below that 2020 long on you are still drawing the Permian on your Stellarex futures in Guyana can you guys can form that Bob will still include global capital and what I'm trying to get to this summer.
Either excellent global sustaining capital is amenable X tools that help people thought.
Yes, Thanks, Doug just just to tick.
Clarify one point.
Run rate of 19 is in fourth quarter not the second half just so you are aware at what I said.
Thanks, I expect Doug it will be lower we will fund all the guy on or opportunities as they come forward.
Of course, as we look it up capital spend we're looking hard at the priorities on them.
And Guyana, we will continue to fund and you're well aware that Lisa teams in construction I'm confident we'll move on payout as well and intense if the Permian at one of the great attractions of short cycle. As you can take that capital off quickly and of course you can then you can put it back on pretty quickly.
As well our current planning is that we will continue to reduce the number of rigs we have out in the Permian through the second half of this year.
I think we a badge, but remember the numbers about 30 rigs in the Permian.
We ended the third quarter ended the second quarter I would anticipate will be in the range of 15, maybe 10 to 15 at the end of the and that really is just a short term.
To to manage our current capital.
Planning.
And those rigs that we have in the family it will be focused on that polka like development. So what we're doing this with concentrating with concentrating developments in the Permian in that core activity in polka Lake that we've talked about for the last two times last two investor days.
I would tell you in terms of ongoing sustaining capital.
Im always reluctant to our business to put a number to that because as your portfolio changes and as you make as you make divestments, it's not a number to lock in and I'm really really reluctant to put a number on that I would tell you it's somewhat easier in the chemicals and downstream businesses.
No I mean, I think an order of magnitude on sustaining capital in those businesses will be in the $2 billion to $4 billion range, but I think in the upstream is more difficult to.
Quantifying that way.
I understand is picking up machines and spending answer.
Well as shown on this going back on me and my second question.
Got you use you use and just in terms of plays off the list of potential what the way.
Okay. So my question like this our understanding is quite alcohol as well ahead of schedule.
No I believe in Indonesia, right there that are those.
On Sunday is also the beach is not yet finished its view of the development and although we do not yet how the government.
It doesn't seem to be ahead of schedule. So what is what exactly you signaling one high level.
In terms of the risk or the potential for Italy.
Well done it's really very simple.
Everything we in the partners can do to progress.
On schedule, we are doing and we've done you know I've said to our organization. Many times, we need to be ready to move as soon as the government is ready and we already we're ready to F.I.D. This project, but we need an approved development plan.
And that approved development plan needs to come from the government and all the work, but they phase and on the development plan. That's that's been worked for a long long time.
Courseware waiting for resolution like everybody else of the election, and I think you're very familiar with what's happened down that there was a vote. There was the recount and then there's been a series of legal actions that have taken place since that time, what we know.
Is it all parties and guy on a one to progress this development.
Courseware in regular contact with both the.
President Granger in the end you asked Pico FC Coalition and we're also in discussions of the PPP and Jeff day, and if anomaly and what we continue to stress.
The government is that if the project does get delayed it's a loss of values.
The country and they understand that it's very very clear the government understand it's very very clear the ministry of energy understands.
It's very important.
That we get this development plan, so that we can as I'd in the September timeframe.
There are weather conditions that if you meet miss a certain window it could resulting in delay of some lumpiness and that's what we're trying to work towards I'm, I'm confident and I still get resolved, but Doug it's.
We need that approval of the development plan and that's what governments have to do and obviously, we'll work with them as I said, we're ready to go.
Thanks, Thanks for the safety of sticking up a bit about.
Yes, and I appreciate it good to hear from Doug.
All right next question comes the line of Neil Mehta with Goldman Sachs.
Thank you Stephen Thank you Neil.
But first question I had it was around the dividend did that Neil your comments. There was no. This is that it is imperative for you guys to defend could you talk about.
That the business logic and financial logic behind defending the dividend, especially in light of sort of the bidding reductions we've seen.
And are likely to be up coming from your competitors.
Yes.
We see it this way and Neil I tell you capital allocation priorities as I said in my prepared comments there are unchanged I don't think youd expect anything different.
I see the three legs of the story, it's a commodity business. So you've got to invest in advantage projects, you've got to invest in accretive projects. That's the way to sustain a strong foundation and to generate future cash flows but across the business. The cyclical we know that it's volatile we know that.
Thats the norm and therefore, it's important to maintain strong balance sheet and that's what we've done for yes. It enables us to sustain for the commodity cycle. It enabled us to work through this quarter and that's really really important but said we have a long history. In this corporation of providing this reliable and I would tell you in it.
You know growing dividend for 37, yes.
A large portion of our shareholder base I mean, Stephen make correctly, I think something like 70% of our shareholder base at retail investors ask Rick.
And that investor sets come to view that dividend as a source of stability in their income.
And that's something we take really really seamlessly said, we manage this capital allocation priorities over a long term but.
Obviously, it's a balance and obviously, we recognize the need to balance in the near term to respond to what we've seen in these market conditions in market environment. So that's why we've had the cuts in Capex and Opex and Thats why we took on.
More damage in the last four months to a level that we feel.
He is appropriate to provide liquidity given the uncertainties in the market, but as I said, we don't plan to take on any more debt.
We now developing plans that the labels to maintain this capital allocation priorities over the near term.
And that includes sustaining the dividend and up plantains contemplate a price environment, that's consistent with third parties.
Of course, we look at sensitivities on the upside and the downside to that we are we're aware of what those will be and that's why we're moving on to the reduction of operating expenses and the short term short term.
Reductions in capital expenditure that.
Will enable us to maintain the dividend and that will enable us to hold on debt to current levels.
Yeah, I mean, you're well aware you we can't know with certainty how the market will evolve from the other there's too many unknowns of course, so you have to maintain a degree of flexibility to be able to respond should the recovery not play out as expected, but I, we feel very confident that we will be able to maintain that level of debt and and.
Taking that dividend.
LIFO Rhem.
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Your months.
Great.
Keep on going back to the capital spending question, but I do think that it's an incremental pointed disclosures I just wanted to clarify some things here. So.
Are you seeing that has the end the year your fourth quarter annualized headline capex and cash Capex will be.
$19 billion and then in 2021.
Pay will be below that all else equal right now and then can you just talk about the buckets, where you could see some downside.
Relative to the plan that setup.
Yes, yes, well you're correct that is what I said in the fourth quarter, we expect to be at an annual running rate $19 billion and what I said was I expect I anticipate will be lower than that $19 billion and Twentytwenty. One of course, we have an annual plan process. That's the way we work in this case.
Money and we ultimately review that plan with our board of directors in November and that will be finalized and that's why I'm always saying I expect we will do that we'll finalize the plan ultimately whether directors and we'll communicate.
That to you.
Selling I think in terms of where we're taking those cuts clearly the short cycle.
In the unconventional space is the way you can turn on capital in turn off capital relatively quickly and so the quickest cuts and the largest cuts. We've made as we discussed has been in the unconventional space now just in the Permian Neil I'd tell you. It is across all the unconventional space and that will continue in the downstream and Ken.
Nickel projects, it's really a question of deferrals.
We're not stopping any of these projects were deferring them with the spending them and.
When working with our partners and we're working with MPC contractors, and we're working with local authorities and that is why we've not been specific at this stage, which project we're deferring over what period on way when we have clarity with all of our partners of course, we look we will share with you.
Thanks, Neil Thanks.
Yes.
Next question comes to mind, as Doug Terreson with Evercore ISI.
Good morning, everybody.
Hi, good morning.
Neil economic value added or maybe a for Exxon Mobil and really every super major beer is declined steadily during the past decade, or so even though we've got a range of commodity prices and margins and we're now saying the start to the super majors falling to three and four decade lows versus SP 500.
And on this 0.1 rate could be that companies are investing cyclically or or Countercyclically, which I think is just you.
Despite secular deteriorating or deterioration competitive conditions.
That is a decline in value creation that we've seen so two questions. First question is how do you think about the secular slash cyclical risk part and the applications for spending and then second with Exxon Mobil stock at a 40 year low participate 500 why wouldn't Miss argue for.
Additional transformation of the company's business structure financial metrics executive pay incentives or whatever you think is important or do you think that the current Atlanta sufficient animal eventually accomplish the objectives. So so what's the market missing here.
[laughter], we can discuss this for a long time, Doug So I'll try and be six and look at it okay. Thats, how do we think about this business.
We don't think the long term has changed it has got cyclical business. The fundamentals are not have not changed the population will continue to grow economies will continue to grow this relationship between.
Hi, it'll progress all you can describe it as human development and energy consumption is absolutely clear.
And the demand for energy.
Hi, all third parties is going to be up 25% by 2040. So so we don't see that's changed and in our business of course, which is it depletion business.
Just a question.
Growth in demand, it's the depletion as well as you know demand for crude oil and again I apologize. It all these numbers exactly right is it is about 0.7% annual growth and gas is probably 1.3, but the depletion is about 6%. So there is a need for and hydrocarbon hydrocarbons to to come into them.
Okay and people to invest hydrocarbons to meet that energy demand in the winner the when it will be the company with the strongest portfolio and the company with the strongest operating results and that's what we've been discussing.
Last however, many three investor meetings and of course, we've talked about and be very very quick.
We got the strongest set of development opportunities in the upstream and we've got the most we got one of the most aggressive divestment programs and we're driving costs at the business in the downstream we're not focused on growing fuels, we're focused on a grading fuels basically to distillate diesel jet fuel.
And based on some meat that market demand and and cost in chemicals chemical demand, which is growing fast is driven by this growth in middle class and we feel very well positioned in that business. So I don't see anything changing there's no evidence of anything is changing to any of that to me that is okay. We'll show in terms of.
What do we need to do and should we be doing more.
I would tell you Doug that's what we're focused on.
You only when and as commodity business, if you have the lowest cost structure.
And driving cost out to your business and upgrading your portfolio is what this business is all about in terms of some of the comments or had executive compensation and in terms of workforce reduction.
Course, we're looking at every element of that as you would imagine when we go through a quarter like that but I would tell you we were already looking at all this and we started that process.
And we reorganized this company back in I guess 2018 in 2019 with big changes in organization structure in both upstream and downstream. So I would tell you in my opinion, we're looking for structural efficiencies to improve this portfolio to be than most competitive.
In any industry and in a business, where we believe the long term fundamentals on not changed and we don't see any evidence that changed at this stage I guess meal to become I might add as we did the restructuring in two businesses along the value chain comps growth, what we're able to really identifies total well cost of delivery of our products.
Identifying efficiencies across that entire value chain at a rate for a higher don't really anticipated and that's where we're going to start to see additional efficiencies going forward, Yes, Steven Stephens right right, Doug and I would tell you that.
This evaluation that we're going to as part of this year's plan to setup cost structure for future years 21, and beyond we are looking at very significant efficiencies and lower operating expenses and and I know you're going to ask me. Okay. What is the known but that is part of our planning process. It will share with you at the end of it you know what I'm going to section.
But I said in my comments, we do see that potential further workforce reductions, including overhead and management positions, but we'll look at that reductions by function by business by country and thatll be a basis, we will conclude those plans.
During the summer months similar review that with the board in November.
Okay. So it sounds like we'll hear about a kind of an updated plan for potential or normalized earnings that you provided in the past maybe next spring that good whether that would be our intent, yes, exactly right exactly right. Okay. Thanks, a lot gas Joe appreciate it thanks.
Yes.
Next we'll go to Roger read with Wells Fargo.
On a rocky and good morning.
Okay, Yes.
Yes, Mark can Roger Moore.
Right more interesting than what the meal.
I'd like to maybe come at the Capex question, a little bit part way, there or what but as you think about what happened in the post 2014, Capex katzman saw tremendous about at the productivity.
Any inefficiency in Austin adoptions, just from your contractors subcontractors universe.
Doesn't look like there is the same level cost catch the come out on that particular part. So I think about Capex plan from the roughly 30 billion to good sub 20 billion range.
And the flows, but Oh, we didnt see a more significant impact on.
Whether it's at sort of the industry in terms of the ability to blame me oil and gas projects to market. You know that is maybe the main results here I guess, what I'm trying to think of is it just want to get on Rob. This would it be downturn did have a bigger impact on the industry Deliverability, you got to touched on that on the internet geologist interesting.
Interesting getting your thoughts on that.
Well I think look you. This eight when you look across the industry and we read the same reports that you do and there's been a dramatic cutback in our industry on capital expenditure and history says that it was the result of that this is a depletion business and when we all know what happens when you don't invest in this business. It's certainly suggests that will be the.
This time around.
But I always say I counted really talk about what we're doing and why we're taking these short term stats, while preserving the long term value that is our objective I would tell you that we are working very hard with contractors the material suppliers on every angle to drive further efficiencies and cost.
Okay.
The.
Yeah, the the contracting industries hungry because it's been so much capex taken out of the business and people are suspended and the spend so many projects that we're working very very hugging.
I have to tell you in the downstream chemicals and upstream I am.
Well first of all I'm really pleased how well BBC contract as a working with US is a great. It illustrates the great partnership we have with them.
And jointly with taking efficiencies and with offsetting the cost of these deferrals with increased efficiencies out that's what I'm, saying, that's what we're seeing in the business in terms of.
Ability with the industry stops investing will that impact the long 10 of the ability to step up and reinvest again.
There's always that chance, but.
Experience in a commodity business suggests that.
When the demand is that the market will deliver I don't see any difference here I am very optimistic though.
As a result of not just the oil crash in 15 16, but what we've seen today will fundamentally.
Will fundamentally push this industry to do things more efficiently and take structural cost sensitive construction in a way that we have not previously.
Okay Thats all.
I think so I mean, it's all your gauging the majors, so much productivity and efficiency clubs out of the industry whichever the cycle, but especially in these.
Cycle moments.
I would tell you just as a as a business owner Roger it's unbelievably frustrating right.
We sure deficiencies in the base case.
But I agree with you when times get like they spent the et cetera, it's extraordinary how the industry can find opportunities to do things more efficiently and take more cassette Saudi I interrupted your second question.
No. That's why right second question shifting gears, a little bit back to YOD off mall, Doug mentioned earlier.
[music].
Between your partner, having their call at this call today.
Nearby country, there was another discovery and the deeper zones.
And I talked about some of the deeper zones I. Just wondering how are you looking at that opportunity and how that fits within the sort of greater than 8.7 resource. So far how does it fit in the overall package what a yellow belt seen really tell you about that in some of the other opportunity. So.
Yes, well I think I think you're probably aware you know our latest appraisal well, which is on a prospect we call yellowtail too and.
Well, we discovered two I would tell you that additional high quality.
Hydrocarbon bearing reservoir and that it's very positive for us and it's very positive for the country and our partners one was adjacent to yellowtail and one was below yellowtail.
So that further gives us great confidence and we just had small learnings in terms of.
The potential at lower debt, so a deeper depths, we now on a prospect cold redtail.
I would anticipate we'll get some initial results in August on Redtail.
We're going to move into the Cai to block in August on a prospect coal tonnage.
And in and of course.
Subsequent to that we've got we've got to the exploration prospects that we're drilling up and later this year one in house alone and wanting bullet with which is on the can Jay block and my memory is correct I was and what we're doing in terms of selling them.
Thank you are aware were in block 59 down that we're in block 52 without partner Petronas.
And.
We're looking to drill a well on block 52 with our partner.
Potentially in the fourth quarter of this year I think the the learnings on the understanding of the whole resource base in that.
Offshore areas, Suriname, and Guyana, the more the more we find animal we drill them all we understand about about that whole prospects, but.
I would tell you that.
Everything we've seen this year is consistent with what we've been talking about and we're very encouraged and very excited by the prospects going forward.
Great. Thank you.
Oh sector.
All right next well go to Sam Margolin with Wolfe Research.
Hello, Good morning.
Monosem.
So.
Good.
The capex topic, but something that I think we landed on that's pretty important especially.
Vectors.
Yes, yes process.
Budgeting Capex was never explicitly tied to your expected sources of cash and that actually not affect the NYSE rate Committee will make it very clear that they were completely apples.
But that's just wasn't the right way to run the business and so I mean do you think it's a fair interpretation of your of your comments just to say that there's a real fundamental change in the way.
And that.
Okay.
Include dozens and other non operating factors are now a prominent part of that process and you should think about it that way or is this just a unique circumstance for the moment.
No I don't think it's a fair way of characterizing it I mean in the short term we have elected to do the following we've elected to take no more data on because we want to protect the strength of our balance sheet.
We want to we feel the great commitment to our dividend and so what have enough do you to and when you're in that situation. Its capital expenditure I see this is a short term reduction in capital expenditure to manage the current situation, we retain a very competitive balance sheet and you know that you've seen this disease, it's very come.
Pat to divest itself he is and we want to protect them and so we're doing that by taking short cuts and expenses. It doesn't change our fundamental belief that you need a strong balance sheet and you need to.
In the most attractive prospects the most competitive prospects around that so again time I I don't think it's a fundamental change I think it's a response to the show intend environment.
Okay, and I apologize for delivering that I just wanted to cloud.
On a related note.
It was in this process of high grading for the near term focus.
Perfect.
It seems like the LNG.
Next may have.
Paul.
Yes.
LNG sort of some other.
Also the company.
Yes.
Yes, I mean, we can we kind of lost to that but I want to so I'm going to try to interpret what I head.
Around LNG and the LNG projects and you are aware that we have.
Two significant opportunities in Mozambique.
And in Papua New Guinea, I think weak, but continuing and Papua New Guinea to work with the government.
The pain Yang Physicals and that process is ongoing we're continuing to work with our partners in Mozambique, both the government and our partners on the timing.
I think.
Consistent with what you see in our capital spending consistent with what you see across the industry that could be a time component and sensor.
A delay you will recall that both those two projects even in 2018, we were talking about then coming online in the 25 2025 type of period.
There is there is a chance that will slip a few years or live at a time beyond not yet I'm sorry sign we lost at if that wasn't the question you're looking for that's what I heard.
No.
Yes, good tied to some of the U.S.G. efforts as well, but if I back collection, a little bit their nasty that later, thanks bye. Thanks Sam.
All right next well go to Phil Gresh with JP Morgan.
Okay.
Hi, Good morning, Bell I guess I'm going to also.
I'm going to ask.
Another follow up I suppose on this topic, but.
As we look at at the current cash balances for the company and your Capex plans.
Is there any minimum level cash that you're I guess basing your commentary on that you would not planned to be adding additional debt.
And are there any is there anything in there or inorganically plan around asset sales or does that commentary completely organic in nature and I guess the bigger picture question is you're talking a lot about efficiency improvements and lowering cost so.
Structurally.
30 to 35 billion Capex, you've talked about is that something that your efficiency gains and things you believe actually to be lever that feature.
Yeah, Let me, let me try to address them and ER in order to asset sales I mean.
But it's not the best environment for selling assets, but I can assure you that we are in the market with multiple assets and we are progressing asset sales, whether they will finalize I've come to fruition time will tell but I think it all depends on what you're selling what market what location, what's the age of the asset et cetera. So.
Extremely active in that space, but I never like to try and.
Predict what will happen in the future of that because it depends on both the buyer on the seller, but we're still progressing and in terms of cost savings.
As I mentioned earlier on and how that impacts capex.
You know I'm optimistic that when times get really tough for everybody in the supply chain of project development project execution, you identify and drive new efficiencies. So you would hope that they can be retained and you would hope and we certainly plan that will benefit from those in the long term.
Will it change our capital expenditure from from.
$33 billion, which was our original plan for this year down to 23, just for the savings I think it's probably a little bit optimistic frankly, but we do see savings coming out and we do see savings coming for the long term attempt to the cash balance.
You know what we did once we took on low long term debt over the last four months at what we regard as.
Attractive certainly relatively attractive prices, but that was to provide more flexibility during this period and when you're in a voluntary volatile period higher cash is what we wanted to do and of course. It provides the optionality to reduce short term debt, but thats all part of a debt management cash management capital allocation process I guess.
I'd also add currently Phil we have a pretty high cash level given the amount of uncertainty that's out in the market, but if you go back in time, we've historically carry to cash balance in the you know $5 billion are lower and so right now obviously, we're in a compressed and in times of photos appropriate domain, and we had a probably level and liquidity.
Manages the next couple of quarters, just make sure we see on recovery is going to respond, but you know look back on your screen use that cash balances as substantially lower yes.
Okay. Thank you all session stage. So it's a double I guess was asking about with respect to sustain capital. It's just more specific to the Permian.
As we look at the exit rate there, you're talking about rig count and implicitly for capital spending.
I think your guidance for this year at 335 production, obviously implies something that's higher than that as an exit.
But are you I guess, this 19 billion or less extending that that should that imply to us that even that Permian production decline in 2021 or do you feel that they are levers available to you that does not be.
Embedded in that plant.
Yeah, I would tell you watch it at stuck it took about Permian this year first.
Our outlook for this year is pretty close to what I said at Investor Day, I think it's.
Against they'll correct me if things 345.
Okay. Okay D.. So that's about just 15 below and that really reflects because of the way we are developing the Permian with these large scale developments in large cubed elements.
The capital you invest last year hasn't material impact on the results. This year and so that's why it's only a 15 KBB reduction in terms of the following year, we haven't finalized those plans yet and of course, if there's no investment. These these difficult wells decline.
Rapidly, but but.
You are aware that we have a considerable number of Doug sitting out. There you will also be aware, it's a much higher cost of frac advantages to drill.
And that's really important so just looking at drilling rigs alone Doesnt tell you. The FFO story I don't anticipate that all volumes will reduce next year, we'll finalize that through the plan process, we'll finalize that with our board in November and of course will share that with you.
Yesterday in the first quarter next year.
Neil if you don't mind I.
Thanks, Phil also depend on web what's the business environment, It looked like and Thats. The beauty of the Permian, we'll be able to fix up or down depending on what we see in terms of the margin yeah.
Okay. So on the 19 billion your base case should be it would not decline.
Okay.
Certainly at a 19 billion dollar capital spending it would not decline.
Okay. Thank you.
Oh thanks.
All right next we will go to Jason Gammel with Jefferies.
Well, thanks, very much lower on the topic of the Permian I'm, hoping that might be able to adjust know what you see on the performance from wells that had been hotel, but are not being bought back on long, we say, we flush production from those wells.
Yeah actually.
You know, it's something we looked at very closely when we shut in these wells we wanted to be sure that when we bring them back online that they come back at you know what I always described as the same position on the type curve and Thats. Indeed, what we've seen we when we were confident that actually shut in we'd resume at or above what.
Based on that decline curve and Jason that's what we're saying.
Excellent maybe if I could just shipped over to the downstream talks about the margin environment still being pretty poor.
How are you able to given the flexibility of your system shift around product yields.
And I'm thinking really integration petrochemicals and being able to more maximize feed.
Into that system and away from fuels and then also how're you doing a jet fuel just given the significant inventory to meet demand for that product.
Yeah, I think Jason you have to start with jet fuel frankly, because of all the transportation fuels jet is obviously lagging the most and from our perspective, it's very clear that's because of the.
Lower international flights. So that's the biggest the biggest issue when you produce jet what are you going to do with it you got to push as much Jack's as you can enter the distillate pool into the diesel pool and actually the demand for diesel is quite strong and the margins are still relatively low and that's been.
Because the refine as a pushing Jane.
To the limits of the product quality pushing get done there, which is getting a if you like an oversupply into that jet cool. It is interesting on the.
On the diesel or distillate demand.
Just a little bit of data you know, we see U.S. truck vehicle miles back to the pre code at levels that it's a really significant point.
And so once you see.
Commercial transportation going back to those pre coated levels that is important but of course, we see.
Passenger vehicles lagging and jet lagging along in terms of chemicals.
Chemicals is a really interesting story in terms of what's happening in the demand for chemicals.
It's very different depending on the products that youre, making if you are making products, that's going into the packaging or medical industry. So think things like polyethylene.
The demand is very very strong and actually polyethylene demand is up 2% year to date, but not all polyethylene so saying some go into packaging and some go into durables and construction. So think of things like pipe construction pipe piping youre houses. So it's very very different overall, we see strong demand.
For products that are going into packaging medical weaker demand for products are going to auto in construction and that's important because it depends what feedstock you put into your steam practice to make the right products of course.
Over the last quarter, we saw.
Contraction of the feed advantage between whether you have cracking ethane, which causes gas or your cracking Napa there was little different differentiation in the second quarter between those feedstocks and at that time refiners with putting more and more liquids into that feedstocks certain.
Lee from a U.S. perspective, as this quarter has evolved in the last month or month and a half what you've seen has the advantage for gas ethane in this in the U.S.
The U.S. chemical plants that advantage is starting to open up again, which means more chemical producers are putting more gas in the feedstock of that chemical plants, which means that backing up Napa.
That's really what's happening.
It really helping them. Thank you.
Jason Thanks.
All right and we have time for one more question, we'll take that from Ryan Todd with Simmons energy.
Yeah.
Thanks, maybe just a.
A couple of quick one done on the downstream rupee you provided some color on the timelines for the.
Elmont expansion.
And whether whether that will be impacted from the time your point of view in terms of what you're eventual outlook a is third Permian production over the coming in.
Yeah, I would tell you.
Yeah, Ryan as I mentioned earlier on Yeah, we're still working with our partners APC contract as in terms of which of these downstream projects that we are postponing how long that spending will be and and you know we're just not in a position yet to communicate that externally not because we haven't fund of funds.
We're still working with contractors on that so injured costs, we will.
We will give you some some some further details of more details on that.
What I would tell you is.
There is likely to be at a spokesman tone that the magnitude of that aside went on that project will come back to you later on whether it's a month so right along with you know.
I'd, probably add affected if you think about what we're doing it for them and it's really all connected back to what was going on in the Permian So being able to sink goes up is going to be pretty critical.
Yes.
[music].
Okay. Thank you and then maybe one final one I think we've seen over the last couple of quarters, we've been pretty significant impairments.
From a number of your peers.
Regarding both driven by both kind of short term a long term pricing assumptions as lower list.
I'm certain assumptions on carbon transition can you talk a little bit about.
Where you are in the process of revisit some of those long term assumptions if anything.
In particular, where the oil sands have been hit pretty hard to my memory repairs, where the oil sands Kinda falls in terms of your.
Long term views regarding this.
Yeah, Yeah no I appreciate you asking that question. Thank you. Thank you Ryan.
I always start with impairment, saying, it it's really quite difficult to compare between companies on writeoffs impairment to depends on the quality of the resource.
And on the carrying costs it depends on your price margins assumptions depends on the development plans and you also have to put this as context on this there are different accounting rules as I think you're aware in Europe, I ask rascoe straight to a discounted cash flow GAAP rules that undiscounted cash flows. So those are two very significant point Tonight I would just off of that as back.
For us.
In addition to on normal monitoring for impairments throughout the year, we follow a very rigorous process. Each following those GAAP accounting rules. It is part of our annual plan process during that process, we refresh of use for long term demand and supply and industry condition.
Since each year, we look at that supply outlook, we looked at the cost of supply for oil and gas that drives the supply demand outlook that informs our view on prices and as I've said previously and we have said previously up prices.
Generally within the range of third party assessments, we are going through that work now on pricing.
And we have not finished at work when we have finished that work will review with our board of course, but again as we have seen previously what we're seeing so far it is in line with third party assessments as part of that process and as part of that plan process. We look at the development plans for all of our resource space.
And that would of course include oil sands.
And a key part here is when we plan to develop each resource when we've completed that work if changes.
Our long term views on prices or changes to our development plans are sufficient then we will follow the normal test for impairment and that's the process. We follow with following that process. This unit and that process will be finalized with a board review in November.
Thanks.
But your question right.
Yeah. Thank you.
Okay.
Right.
Well, we want to thank you for your time and thoughtful questions. This morning. We appreciate you allowed us to opportunity to highlight second quarter results and be decisive actions, we're taking to manage through these challenging times and position ourselves for the eventual recovery.
We appreciate your interest and hope you enjoy the rest of your day. Thank you and please we say thanks everyone.
That does conclude today's conference we thank everyone again for their participation.
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