Q1 2021 Exxon Mobil Corp Earnings Call
Good day, everyone and welcome to this Exxon Mobil Corporation first quarter 2020, 'twenty one earnings call.
Today's call is being recorded and at this time I'd like to turn the call over to the Vice President of Investor Relations and Secretary Mr. Stephen Littleton. Please go ahead Sir.
Thank you and good morning, everyone welcome to our first quarter earnings call.
We appreciate your participation and continued interest in Exxon Mobil.
Steven Oakland, Vice President of Investor Relations.
I am pleased to welcome Darren Woods, Chairman of the Board and Chief Executive Officer of Exxon Mobil, who will be joining me for the call today.
After I cover the quarterly financial and operating results Darren will provide his perspectives on our quarterly results and how we are positioned for 2020 one.
Following those remarks, Darren and I will be happy to address any questions.
Our comments this morning will reference the slides available on the investors section of our website.
I would also like to draw your attention to the cautionary statement on slide two.
The supplemental information at the end of this presentation.
I'll now highlight developments since the fourth quarter of 2020 on the next slide.
Across all three businesses improved results reflect encouraging signs of the recovery from the pandemic as vaccinations are administered and some restrictions are lifted.
In the upstream liquids and gas realizations improved significantly versus the fourth quarter.
Production was higher driven by lower government mandated curtailments and higher seasonal gas demand in Europe.
And as part of oil.
Efforts to high grade our portfolio, we announced the sale of most of our non operating assets in the United Kingdom Central and Northern North Sea.
The sale price of more than $1 billion subject to closing adjustments and has potential upside of approximate $300 million.
Angel payments based on commodity prices.
In the downstream we continue to realized improvements in the North America refining margins. However, Europe margin remained impacted by COVID-19 lockdowns.
Well, we have seen improved demand for gasoline and diesel.
Jet demand remains impacted by global travel restrictions.
During the winter storm, our Texas from refineries were able to provide power to more than 200000 homes through our cogeneration facilities.
During the quarter, we announced the intent to convert both payout toner, Australia refinery and a slog of a refinery in Norway to fuel import terminals as overall industry rationalization continues.
In the quarter, there were approximately 500000 barrels of industry rationalizations amounts.
From chemical industry.
Industry supply shipping constraints and strong demand resulted in global average margins improving to the top of the historic 10 year range.
We were able to capture the benefits of these improved margins with strong reliability.
The rapid recovery of our operations from the winter storm.
In addition, we have continued to deliver further cost efficiencies.
Across the corporation improved prices and margins. In addition to cost reduction initiatives resulted in increased cash flow from operations, enabling debt reduction of more than $4 billion in the quarter.
In February operations across all three businesses were impacted by winter storm Yuri.
Repairs were completed and operations fully recovered by the end of the quarter.
Finally, we have established a low carbon solutions business to commercialize and deploy our portfolio of emission reduction technologies.
The new business will initially focus on carbon capture and storage one of the critical technologies required to achieve net zero emissions and the climate goals outlined in the Paris agreement.
Let's move to slide four for an overview of first quarter results.
The table on the left provides a view of first quarter results relative to the prior quarter.
First quarter earnings were $2 7 billion, including $31 million of identified items related to severance.
Earnings excluding identified items were $2 $8 billion, an increase of $2 7 billion versus the fourth quarter.
Despite the impacts of the winter storm, which you will see called out in the table earnings improve across all businesses, primarily due to higher prices and margins.
There was a $300 million benefit in the quarter from Mark to market impacts on open financial derivatives for which the physical trading strategy had not close.
We expect a realized the full earnings impact of these trading strategies.
Codes in the future.
Also we are continuing to benefit from structurally lower operating costs and all of our business lines.
On the next slides I will cover a brief summary of quarterly results.
I will focus my comments on the underlying business performance excluding identified items.
Upstream earnings improved by over $1 $8 billion in the first quarter with liquid realizations, increasing by 42% and gas realizations by 33%.
The earnings change associated with volume was negatively impacted by mix and timing effects, which offset higher production versus the prior quarter.
Lower expenses, including structural efficiencies contributed approximately $170 million in earnings.
On the next slide I will cover a brief summary of upstream volumes.
Upstream volumes increased by an average of approximately 100000 oil equivalent barrels per day compared to the fourth quarter of 2020.
Gas volumes were 12% higher mainly due to seasonal gas demand and lower scheduled maintenance.
Liquids were down 3% with winter storm impacts and higher maintenance.
Lower retirements due to higher prices negatively impacted volumes by approximately 40000 oil equivalent barrels per day.
Reduced government mandated curtailments increased volumes by about 60000 oil equivalent barrels per day.
And gas demand was higher by approximately 70000 oil equivalent barrels per day, mainly due to seasonal gas demand in Europe.
Guyana and Permian production were essentially flat versus the fourth quarter of 2021.
However, compared to the first quarter of 2020 Permian production was approximately 20% higher excluding the impacts of the winter storm, an average of around 395000 oil equivalent barrels per day in the quarter.
Guyana production increased by approximately 70% or 19000 barrels per day over the same period.
Moving to slide seven.
Downstream earnings improved by over $300 million in the first quarter. Despite the impacts of the winter storm.
During the quarter margins improved by nearly $500 million as North America product demand continued to rebound.
There was almost $400 million of earnings benefit from expense reductions in the quarter.
Including structural efficiencies related to maintenance optimization.
<unk> and marketing.
We also had unfavorable foreign exchange effects and the absence of prior period inventory impacts during the quarter.
A reserve for amounts terminal conversions is included in the other factor.
Moving to chemicals on slide eight.
Chemical had a strong quarter delivering over $1 $4 billion in earnings.
More than a $700 million improvement versus the fourth quarter.
Margins improved by $500 million, driven by tightly supplied polyethylene and polypropylene markets impacted by the winter storm, where at its peak approximately 75% of U S polyethylene capacity was offline.
Performance product demand enter packaging and durable goods was resilient through the period.
During the quarter, we had strong reliability, which positioned us to capture the improved margins.
We continued to deliver cost reductions through turnaround and maintenance scope optimizations contributing an additional $150 million to earnings in the quarter.
On the next slide I will summarize results versus the first quarter of 2020.
Versus the first quarter of 2020 earnings increased by around $500 million.
There was a total price margin improvement of about $1 $3 billion, driven by higher upstream prices and chemical margins as the market recovered.
This was partially offset by lower downstream margins, but excludes the mark to market impact of unsettled derivatives.
It was driven by the absence of a benefit in the first quarter of 2020.
Cost reduction efforts, including structural efficiencies in maintenance and supply chain optimization and the amounts work force reductions contributed over $1 billion.
<unk> to earnings.
Moving to slide 10, I'll provide further details on our cost savings and Capex reductions.
Excluding energy and production taxes cash operating expenses were $9 2 billion in the first quarter.
$1 billion lower than the same quarter last year.
This reflects the significant structural improvements achieved in 2020 from our ongoing cost reduction initiatives.
Capital expenditures were $3 $1 billion in the quarter on track towards the lower end of our full year guidance.
This reduction of over $4 billion versus the first quarter of 2020 was enabled by the flexibility of our short cycle unconventional assets and by our ability to pace downstream and chemical projects consistent with market conditions.
As Darren will cover later, we're able to do this while preserving Vermont term value of the opportunities.
Moving onto a summary of cash flow on slide 11 cash.
Cash flow from operating activities was $9 3 billion in the quarter.
Excluding working capital effects. This was up $3 2 billion from the fourth quarter of 2020.
Reflecting our ability to capture higher prices and margins and the results of our cost reduction efforts.
We reduced debt by more than $4 billion consistent.
Consistent with our capital allocation priorities, we ended the quarter with $3 5 billion of cash.
Turning to slide 12, I'll cover a few key considerations for the second quarter.
In the upstream government mandated curtailments are expected to be in line with the first quarter we.
We expect lower volumes with seasonal gas demand and higher maintenance.
The sale of the UK central and northern North Sea assets is expected to close near mid year.
Subject to regulatory and third party approvals.
In the downstream, we anticipate demand improvement in line with third party forecasts, we're continuing to recover at a slower pace than gasoline and diesel.
Higher scheduled maintenance and turnarounds are planned for the quarter.
In chemicals, we anticipate a tight supply and demand balance with ongoing industry maintenance impacting global supply.
And we have higher planned turnarounds in the quarter.
Corporate and financing expenses are anticipated to be about $600 million.
And we expect to further reduce debt if price and margins remain at current levels.
With that I will now turn the call over to Darren.
Thank you Steven and good morning, everyone. It's good to be back with you.
At this time last year I joined the call and discuss the challenges of COVID-19.
How we plan to respond.
At that time, we were early in the pandemic, but the call to action was clear.
We made some tough decisions and committed to bold actions.
And our fourth quarter call I reviewed our results and.
The success, we had in meeting and in some cases, beating those bold commitments.
We made a lot of progress over the course of a challenging year.
The positive results, we announced today reflect not only last year's work, but the work we started years ago.
Worked that has positioned us to take advantage of market improvements.
Today I joined the call to put that work in context I'll discuss the foundation for success that we've laid and how it will manifest in growing shareholder value.
Value that will further materialize as markets continue to recover.
As the world transitions to a lower carbon future.
Our successful response to the unprecedented challenges of 2020 has its roots in two critical initiatives started years earlier.
<unk> was our focus on developing an industry, leading portfolio of advantaged investments to recapitalize, our businesses and increased capacity to generate earnings and cash.
Prioritize investments in these opportunities last year are paying dividends this year, and we will continue to well into the future.
The second initiative, which began in 2017 and was completed in 2019 was the significant restructuring of our businesses.
Reducing functional silos organizing along value change and consolidating competencies.
This greatly reduced organizational complexity and interfaces and overhead.
Provided a clear line of sight to the market increased ownership for earnings at all levels and improve the speed and quality of decision making across the corporation.
Importantly, it helped our people better relate their work to our Bottomline results.
See the benefits of this in the first quarter results.
Pre structural changes we've permanently reduced operating expenses captured.
Capturing $3 billion in 2020 versus 2019 with.
With further efficiencies in the first quarter and more expected through the year.
In total we expect to achieve $6 billion of annual savings by 2023 versus 2019.
At the same time, we reduced emissions operated safely and delivered best ever reliability performance.
Our focus in this area also paid off in the first quarter with a well managed response to the Texas ice storms minimizing impacts and speeding recovery.
Throughout 2020, we work to strike a difficult balance dramatically, reducing near term spend without compromising longer term value.
We used our balance sheet to maintain spending that was critical to shareholder value, including sustaining a strong dividend.
We also maintained our work in advancing low carbon technologies and developing projects with the potential to significantly reduce societies emissions.
This work is crucial and underpinning our long term future.
And then continuing to grow shareholder value.
It also facilitated the launch of our low carbon solutions business in the first quarter.
A strategic business that we expect to grow with significant investments as we advance low carbon technologies.
We prioritize maintenance activities, ensuring essential work was completed last year.
And the remainder early this year ahead of the anticipated demand recovery.
We reduced 2020, capex by 30% versus our original plan.
Despite facing project execution, and leveraging our global projects organization to prioritize and optimally slow projects.
We are continuing to pace projects to rebuild the balance sheet and pay down debt.
In the first quarter, we made significant progress.
Investments are in line with our outlook for the year of 16% to $19 billion and debt was reduced by over $4 billion.
Throughout this time, we've never lost sight of the long term fundamentals of our business.
We knew economies will recover populations in living standards would continue to grow ultimately driving demand for our products and an industry recovery.
Today, we are beginning to see this and are well positioned.
Thanks to our efforts over the last few years, we are a stronger company with an improving outlook.
You will of course recognize this chart, which we've used since our third quarter call last year.
At that time, we made the point that the pandemic had driven industry prices and margins to unsustainably low levels.
And while hard to predict when that margins and prices would rebound.
And today, we're seeing this rebound, which is happening faster than we thought and for some sectors rising to higher levels than anticipated.
The upstream is back within the 10 year range with Brent prices, improving by roughly 40% since the fourth quarter.
Natural gas up by about a third.
In the downstream margins remained well below the bottom of the 10 year range.
Chemical margins on the other hand has swung from the bottom to the top.
One thing is for sure these margins and prices will continue to move.
We faced our plans on a conservative outlook and are positioning our businesses to be successful at or below the bottom of these ranges.
At the same time, we're making sure that when the upswings com we take advantage.
Which is why we went to great efforts to preserve our portfolio of investments while building in flexibility.
So why we test each investment against a wide range of market scenarios.
And insist on structural advantages to generate leading returns at any price.
Today's portfolio of opportunities is the best we've seen in 20 years.
90% of our upstream investments and resource additions over the next five years, including Guyana, Brazil and the Permian.
Generate 10% returns at $35, a barrel or less.
In Guyana, we're continuing to progress Liza phase two.
<unk> is on schedule and we've begun planning for the next development yellow tail.
The backlog development offshore Brazil is advancing towards a final investment decision.
And we're delivering greater efficiencies in the Permian.
Efficiencies that are driving down cost per drilling and completions, while improving recovery rates and growing production.
Based on these improvements and without additional capital we've increased our 2021 outlook to between 410 and 430000 oil equivalent barrels a day.
The Corpus Christi Chemical complex is ahead of schedule with a projected startup in the fourth quarter.
We expect to complete the project for about 25% less than the average cost of our Gulf Coast steam Cracker.
This facility is a key development in our plan to grow sales of high value performance products by 60% through 2027.
As we focused our activities on the highest value investments. We also worked hard to preserve the value of the projects we were pacing.
As I mentioned, our global projects organization played a critical role in this.
Working closely with contractors partners and resource owners to find efficiencies and reduce spend.
Every project was reevaluated and tested against conditions informed by the pandemic.
While all remained attractive and in our portfolio the highest value opportunities were given priority.
<unk> projects were evaluated for optimum breakpoints with work continuing until these were reached you can see this in the photos, which show the project status at the time, the pandemic hit and when they were paused.
Working closely with contractors, our team successfully offset deferral costs with efficiencies and market savings and preserved portfolio returns of greater than 30%.
The Capex outlook, we provided incorporates resumption of these project activities over time as the market recovers and we make progress deleveraging.
Striking the right balance in our capital allocation priority was critical.
As demonstrated by the price and margin chart.
This was particularly true in the depleting businesses of the upstream.
The value of the choices made here are shown in the next couple of slides.
We are excited by the results of the significant work and strategic investments made since 2017 to reshape our portfolio into one of the most price competitive in the industry.
Generating strong returns in a variety of price environments.
Chart on the left similar to the one used our Investor day.
So as the Brent price needed for upstream resource investments made in 2020 to generate a 10% return.
As you can see more than 90% of the investments required Brent price at or below $35 a barrel.
On the right are the anticipated cash flows resulting from the projects retained in our 2020 investment program.
For this year and in 2025.
As you can see the investments we've made in 2020 are making a significant contribution now and into the future.
This is particularly true in the Permian shown on the next slide.
Last year, we reduced Permian capex by about 35%, but maintain a level of investment to support our technology efforts and drive improvements.
This work contributed to an additional 100000 oil equivalent barrels per day in 2020 versus 2019, and an increase of 60000 barrels per day in the first quarter of this year versus the first quarter last year.
This work also drove significant progress across a number of variables as shown on the left.
Higher well productivity and lower cost resulted in positive free cash flow in the fourth quarter of last year.
Which will continue through 2021.
In addition, with the poker Lake processing facilities online and pipelines Commission. We can ensure production is delivered to the highest value outlet at the lowest cost.
Hopefully these last two charts to help illustrate the importance of striking the right capital allocation balance sheet to preserve longer term value, particularly in trying times.
Our first quarter results helped demonstrate this we maintained our strong dividend Jenna.
<unk> generated strong cash flow.
Liberty further cost reductions.
Remained flexible and disciplined in our capital spend.
Delivered excellent safety environmental and reliability performance.
And advanced solutions for a lower carbon economy.
As we progress through this year, we'll maintain our capital priorities and a balanced approach our.
Our planned capital range for 2021 remains $16 billion to $19 billion with the out years at 20% to $25 billion.
If market's taken unexpected downturn, we have the flexibility to adjust.
If margins and prices stay higher than plan.
We'll deleverage faster rebuilding the balance sheet.
As the price and margin chart I reviewed earlier demonstrated things can change quickly.
<unk> balance sheet remains a critical advantage in a capital intensive commodity business.
It also provides an important foundation from managing an uncertain future and the transition of the energy sector, which I will turn to next.
I'll start by restating, our strategy in addressing their risks of climate change and energy transition.
Strategy based on four pillars, we've had in place for many years bigger.
It begins with mitigating emissions in our operations, which has been a focus for decades.
Versus 2016, 2020, ghd emissions are down 11%.
The methane flaring reductions, we committed to in 2018 and established aggressive emission reduction plans through 2025.
Putting us on a trajectory consistent with the goals of the Paris agreement.
We are committed to providing products to help customers reduce their emissions.
Across the globe, we're helping economies decarbonize by providing natural gas for power generation.
Reducing emissions by more than a half versus coal.
Our chemical products reduce vehicle weight, lowering transportation emissions and preserve shelf life of food, reducing waste and agricultural emissions, our fuels and lube products proved efficiency also helping to reduce emissions.
We're also proactively engaging on climate policy, we've demonstrated this through our support for the Paris agreement and economy wide price on carbon.
Consistent regulations to reduce methane emissions and frameworks to support investment in carbon abatement.
And finally, we are focusing on developing and deploying scalable technology solutions that are needed to reduce emissions on a larger scale.
We're focusing on the hard to decarbonize sectors of power generation heavy duty transport and industrial manufacturing.
We've launched our low carbon solutions business to commercialize technologies and accelerate large scale emission reductions in these areas.
Since 2000, we've invested more than $10 billion and lower emissions technologies and have plans to invest an additional $3 billion by 2025.
Our initial emphasis is on carbon capture and storage or Ccs a technology critical to achieving the goals of the Paris agreement.
I expect the magnitude of investments to grow as we work with industry governments and communities to advance attractive project concepts that also generate shareholder value.
Having said this it's important to keep the current level of planned investments in perspective.
When you compare the investment levels of our upstream downstream and chemical businesses with the size of their markets are spend represents less than <unk> three per cent of the total addressable market.
And you do the same for our planned investments in Ccs they represent over 3% of the total addressable market.
More than 10 times the level of investments in our traditional businesses.
We think this is reasonable given the early stage of this market development.
With our industry, leading position and decades of experience in Ccs were well positioned to successfully compete in this growing and potentially large future market.
As we've tried to illustrate in this chart today, we're the global leader in capturing <unk> in fact, we've captured more anthropogenic cotwo than anyone in the world.
We have an interest in over one fifth of the world's Ccs capacity and significant holdings in C O two pipelines.
Grass roots large scale Ccs projects leverage our competitive advantages in technology and project management.
As well as decades of experience, bringing new ventures to market.
This is important particularly from this potentially fast growing large market and it's why we launched the low carbon solutions business.
Which is evaluating an advancing plans for more than 20, new ccs opportunities around the world.
Last week, we introduced the concept of a multi industry Ccs hub to capture and store C. O two emissions from the heavy industry around the Houston ship channel.
We think a carbon capture innovation zone similar to an enterprise zone, where incentives and policies are designed to encourage economic growth is a smart way to advance this idea.
We help bring together government incentives and private sector investment along with new policies and regulations that would encourage innovation.
Houston is an ideal location for a major project.
Plants, along the heavily industrialized ship channel represents some of the hardest sectors to decarbonize they're.
We're also relatively close together, providing project scale and reducing unit costs.
Houston's proximity to the Gulf of Mexico also provides direct access to suitable storage locations.
U S Department of energy estimates the geology beneath the sea floor has the capacity to safely store all the C O two at the entire country currently produces.
For the next 100 years.
As currently envisioned the project could capture 50 million metric tons of Cotwo per year by 2030 and twice that by 2040.
This would put Houston well on its way to reaching its goal of becoming carbon neutral by 2050.
This concept will need support from many different parties, both private and public.
Regulatory and legal support at all levels of government will be crucial for establishing incentives and attracting investment.
The federal government already provide some carbon reduction incentives such as tax credits for electric vehicle wind solar and Ccs enhancing these credits or establishing a market price on carbon emissions combined with appropriate rules and oversight would accelerate solutions.
Long talked about the importance of innovation.
This multi use a hub concept is just one example of how we're looking to take on large complex challenges and find solutions to help meet society's demand for a lower carbon future.
This can play an important role in positioning the company to deliver long term shareholder value.
The first quarter results clearly show that we're on the right path and well positioned for a continued market recovery.
We will remain flexible while focusing on disciplined investing in high return competitively advantaged projects.
This will provide the foundation for strong cash flows a strong dividend and a strong balance sheet.
We will remain relentless in structurally reducing cost by fully leveraging our new organization, who.
We will continue to deliver industry, leading safety and reliability performance meet.
To meet our emission reduction plans and help society transition to a lower carbon future.
And we will do all this to grow shareholder value.
I look forward to taking your questions.
Thank you for your comments Darren will now be more than happy to take any questions you might have.
Operator, please open up the lines for questions.
Thank you Mr Woods and Mr. Littleton.
And 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 Touchtone telephone.
From your request that you limit your questions to one initial with one follow up so that we may take as many questions as possible.
We'll take our first question from the line of Devin Mcdermott with Morgan Stanley.
Good morning, Thanks for taking my question.
Good morning, David Good morning, Devin.
And congrats on the strong results good to see some of the cost reduction from growth investments are really paying dividends here in 2021.
My first question is actually building out some of the last points you are making Darren.
Carbon reduction efforts and the Houston hub, specifically I think it's a very.
Interesting concept, there's a lot of potential I was wonder if you could elaborate a policy standpoint, what types of things are needed or policies need to be put in place in order to bring these types of projects to fruition and then are there other parts within your portfolio globally, where there are already policies in place to make these types of investments viable today.
Sure. Thanks Devin.
So I think as I mentioned in my prepared remarks, you know what we're looking at doing in this space and reducing Cotwo cross economies is really establishing a new business. One that today doesn't have clear market drivers and the governments have demonstrated and.
Other industries, when they're looking to reduce C. O two they provide stimulus to cat to catalyze the advancements of new technology I think the big difference with what we're talking about here versus some of the other initiatives that the government has supported us theres not an existing biz.
Business or market that provide some level of financial incentives and so I think the work that has to be done with the government is aligning on.
The incentives to drive investments across crossed ended industries to drop and lower this year to price.
And we think we can do that and do it at a very attractive.
Our rate of return at much lower prices than what the government is currently spending to reduce C. O two and if you recall from our Investor day.
We had a chart that showed the cost associated with reducing <unk> through carbon capture and compare that to the cost of Sidoti removal.
Through other mechanisms and.
We have the opportunity to reduce.
Significant levels of <unk> at a much lower cost than current policy. So that'll be an important part policy to drive incentives, you'll need policies and frameworks to support.
The legal regime for storing a C O two will need permitting to to put the facilities in place and run the pipeline's you'll need.
Some frameworks to support the storage and <unk>.
Access to the storage offs sure. So there's a number of areas that will need to be addressed and that obviously will have to work with the industries involved here.
Our work with them collaboratively to bring the two and then also of course the communities that will be operating in we have to work with them and we think thats all possible. If you think about the work we do around the world and establishing new ventures, bringing new ventures to market. This is very consistent with our experience base and I'll just point to Guyana, where essentially.
We have started from.
Grass roots, a brand new oil and gas industry and working very closely with the government and community there in Guyana. So we've got experience in this space. We've got experience working in collaboration with other industry partners and experience working with governments to bring these complicated things together at scale and make a significant.
<unk> contribution.
Great that makes a lot of sense and my second question is just on the cost reduction so you'd realized 3 billion last year and if you look at the slide deck in the first quarter.
You're down about 1 billion per.
First quarter of 'twenty, one first the first quarter of last year. So annualized 4 billion dollar reductions that bar and you mentioned in your prepared remarks that you expect the reductions to increasingly through this year and I know you have a longer term target of $3 billion of incremental cost reductions by question, specifically, though is how should we think about the cadence.
These cost reductions flowing through for the balance of this year, but over the next few years and as you've embarked on these restructuring initiatives have you found opportunities that might allow you to exceed this target overtime to $6 billion total target.
Yes, sure I guess, let me just maybe start with day, where you ended and with respect to the $6 billion and I just want to make the point, it's not a target it's not something that we've laid out and asked the organization to figure out how to achieve it it's actually part of the plans that we built and so the organization has a clear line of sight to the reductions in theirs.
<unk> built that into the plans where we're at.
Stuart the businesses every month.
Those plans and so we feel very good about what we've identified in the work that we have going on and the first quarter demonstrates that we are continuing to achieve the reductions I would not take the first quarter results and try to multiply those and move them out I think youre going to see things move.
With activities as you go through.
The year, but my expectation is the.
The theme that you're seeing with these reductions will continue and we will we will we are on track to deliver this.
$6 billion by the end of 2023, and I guess the final point I'd make here Devin is my expectation as we've been working our way through this and translating those plans into action is we'll find more opportunities.
I would expect it will be need to target the plans that we put out there.
We've got work going on now.
That kind of.
Both across the Corporation I mentioned, the fact that we have structurally changed.
Change the way we run our businesses that change has now aligned each of the sectors in terms of how we're organized and a lot of the processes that were used to execute the business that gives us an opportunity to take advantage of this consistency and processes and execution and find additional efficiencies and synergies and that works.
Underway, which we will continue to develop as we move through this year and I suspect we'll have more to talk about as we finalize our plans from the year at the back end and into next year's Investor Day.
Im real optimistic that the groundwork that we've delayed.
Since 2017, and looking at the businesses and how we reorganize are paying dividends today and continue to pay dividends well into the future.
I guess Dan great.
The other piece that we're seeing Devin is as we've invested in technology that starting to see any benefits in terms of reducing our overall cost structure with the advent of technology and IP investments.
It makes a lot of sense. Thanks, so much you bet. Thank you for your questions.
Next question will be from Roger read with Wells Fargo.
Hello, Good morning.
Can you hear me okay.
I think the storms here in Houston are affecting my connection a little bit so apologies.
Loud and clear.
Darren Great performance this quarter from the chemicals business I know a lot of issues from storms everything like that some crazy moves in the pricing where it was.
Just curious do you think the chemicals business is in a sense that a reset here in this I don't want to say Q1 performance continues but much better than let's say the last six to eight quarters in this business and as you think about that is it mostly demand is in our pricing performance, we hear a lot of talk about <unk>.
<unk> across the industry across industries I should say so I was just curious what all we should think about with chemicals.
Sure and thanks.
Thanks Raj for the question Roger I would say.
First quarter performance in chemicals, first and foremost reflects that organizations.
Our focus on running their operations reliably and safely in a lot of hard work to make sure that the integrity of the operations and the reliability of those operations are maintained and we.
We did.
A lot of work over last year, and I think moving into the first quarter that focus has really helped our manufacturing facilities.
Deal with the freeze and recover very rapidly from that so real proud of that effort wasn't easy, but that organization really delivered I think the other thing of demonstrations to focus that they've had for several years on growing their high performance.
Products and.
We knew that the demand for chemicals has been consistently strong and has been growing in excess of GDP growth around the world and that fundamental we think will continue for some time since chemical plays such an important role in peoples modern life and the conveniences of modern life and <unk>.
The critical importance of some of the products that chemicals made corp.
So the big challenge there, though is.
As supply comes on in fairly large chunks.
Different plants that tends to you know.
Result in supply and demand imbalances in lower margins and of course, we saw that last year and frankly going into this year, we kind of anticipated a lot of capacity coming on which would squeeze the margins in.
I mean, you'll make poor.
Challenging year I think what we've seen is with the impact of last year and the pullback in spending that was required due to the pandemic.
And then probably exacerbated by the Texas storm here with all the capacity in the Gulf Coast area that supply has gotten pretty tight as demand has continued to move in and what's the economic recovery and the rebound that we're seeing is puts some more demand into the system. So I think the first quarter reflects good operations. Good performance good focus.
On growing our high performance products and some really.
Helpful market conditions from a supply and demand standpoint.
My expectation as you move forward as we will see some of that supply come back on recovery from the ice storms and some of this new capacity.
It was deferred and will start to make its way back into the market and that will help you know probably eased some of the tightness.
But our expectation is we'll continue to see a pretty good market here this year for the chemical business.
Great. Thanks on that and then my other question balance sheet. Obviously, you made the debt repayments this quarter commentary about excess cash will go towards debt repayments don't expect you to fix the balance sheet in one year.
Reaffirm for us where you'd like to take the balance sheet over time above and beyond just understand you want to sustain the dividend.
Whats the right way to think about.
Whether it's debt to EBITDA or debt to cap number something along those lines.
Yeah, well you know as we've said with our capital allocation priorities as three legs to that stool, so to speak and obviously really important for the foundation of success for the future is investing in the right projects.
Particularly in the upstream with depletion nature of that business, we've got to find industry advantaged investment opportunities in the chemical business, making sure that we're investing in the high performance.
Products to meet the demands of growing demand that we're seeing around the world and in the downstream investing in strategic sites to high grade their production and make sure that the production is in line with demand in the marketplace and so that's critical element and Thats something that we stay focused on as we went through 2020, making sure that we didn't.
Compromise the value of that particular capital allocation priority.
The dividend, obviously, a critical part of that and sustaining that Darren dividend was a commitment that we've had.
For a long long time, and we stay committed to that so that's obviously going to be an important factor going forward and in the balance sheet is making sure that we maintain the capacity to ride through the commodity cycles and not compromise those first two priorities that I talked to you about and Thats. What we did in 2020, obviously the pandemic has a very unusual.
Year much much deeper than any typical commodity cycles. So we had to lean harder on that than we normally would.
Very committed now to making sure that we rebuild that in anticipation of future commodity cycles and I think what we said during the Investor day was we're going to shoot for something between 20 and 25%.
Debt to capital and that still feels like a reasonable place to be and we'll work our way towards that as we go.
Through this year and probably into next obviously dependent upon the price and margin environment that we find ourselves in.
Great. Thank you.
You bet. Thank you Richard.
And next we'll go to Janine Wai with Barclays.
Hi, good morning, everyone. Thanks for taking my questions good morning Jeanine.
Good morning. The first question that we have is on the balance sheet and we're just maybe looking for a little update here based on what Youre seeing so far.
On the macro and with your own operations is there any update to the 45 to $50 breakeven for 2021 day.
Capex you maintain the dividend I know Kevin's margins, David dramatically improve downstream margins, there's still kind of below the 10 year bond.
Yes. So if you if you remember how we did that breakeven as we made some assumptions about.
Kind of low end of chemicals, and downstream margins and then average chemical margin and downstream margins going forward and recognizing that that wasn't necessarily a forecast. It was just one way to characterize it and the important point, we were trying to make.
We've made historically as you look at our breakeven here you can't just focus on the crude price that we've got significant businesses in both the downstream and chemicals that obviously impact that I would say we haven't tried to update that number I think what we tried to do with the Investor Day is just give you and others of the comp.
Evidence of that with our portfolio and the plans that we had we were robust to a very wide range of price is the fact that to chemical margins are as good as they are today.
Says.
Breakeven has come down but.
But frankly, we're not really sharpening our pencils anymore on that because we've got a plan and the foundations of that plan Hasnt changed and I, just think we feel better about the position that we're in today, given where the market's at.
We will take advantage of it while wallet share, but I would tell you that our plans aren't based on those sustaining themselves and as I said, we will pay down.
The debt and deleverage faster given to help that we're getting from the market right now.
Just put us in a stronger position from the future.
Okay, I figured I'd give it a shot.
My second question is on Capex. So for the 'twenty. One budget Q1 was in line with your plan you reiterated the 60 day $19 billion per year.
And not sure if I missed it somewhere but are you still targeting the lower half of the range given what youre seeing on the macro and performance for example in the Permian.
<unk> raised your production guidance always lately, but.
Is that based on the same level of activity that you originally forecasted or are you going faster than expected. We saw in the slides you cited the performance improvement, but some of the performance improvements would indicate that you are going faster. So you could be doing more activity. So just wanted an update on if you're still thinking about the lower half for the year.
Yes, so I think the guidance that we gave was 16% to $19 billion and as I said in my prepared remarks that that has not changed and what I said during the Investor day is that I expect to be on the lower end of that range in that expectation remains today.
They're not necessarily targets, we have a plan.
That the business is executing and that plan includes a spend level that spend level has not changed what we're seeing in the Permian and the point that I tried to make in the slides and prepared remark is what's changed really is the progress at the improvements that that business is making I and you know what the chart shows you I think is really really.
Impressive performance stuff that we had talked about and I believed and reorganizing and better leveraging our technologies better leveraging the competencies of the entire organization in this very important resource that we would see significant improvements with time I think I've been talking about that now for several years.
And what that organization is demonstrating is indeed, they are making improvements and making them at a faster rate than we had planned and so that update with the production is a function of that performance improvement we have not.
Increase the capital allocation.
That business day, or basically running at their planned spin.
And obviously that that is.
That plan is.
Across the full year and that number will.
Will be that will change over the year based on their plan.
Great. Thank you very helpful.
Sure. Thank you engineering.
Next we'll go to Phil Gresh with J P. Morgan.
Yes, hi, good morning Darren.
Morning, Phil.
My first question is a bit of a follow up on the capital spending obviously the run rate in the first quarter is very low and youre expecting.
The full year to be towards the lower end of the range. So call. It $16 billion to $17 billion you have the 20% to 25 billion.
Target out there for the long term.
It would obviously be a still a pretty big step up from 16 to 17 billion. So just more intermediate term as we think out to say 2022 shall we think of the spending being more gradual.
The ramp back up in terms of getting to the 20 to 25 long term.
Just any color there would be helpful. Thank you.
Sure No I think what's important so we've put the plan out our plan. We've got plans through 2025 with specific numbers, we're not we're not managing the business to ranges. We have plans in those ranges frankly reflect the recognition that this is we got a big business will a lot of variables impacting our projects things youre going to.
Move and we can't precisely call exactly when things will occur, but we've got a pretty good basis for that and that's the plan and that that range that we're showing reflects what I would say is you know how all these pieces tend to kind of come together and manifest themselves in any one quarter or a year and so that range gives us you know I think the right kind of flexibility to.
Two it too.
Make sure that what we're talking to you about some of that inherent durability in the plants.
Kind of wondering which end of that range will be yeah. We are we've got plans within that range and what I said continues to be the case that we're focused on delivering on those plans.
The way to think about the spending is recognized we put these plans together and reviewed them initially with the board in October and finalize them in November and then very quickly came out with it released it talked about that if you think about the October timeframe, where prices were at reflect on the chart that I showed you.
There was an.
Uncertainty as to exactly how the future would.
Manifest itself, we knew that recovery would come just based on some of those underlying fundamentals, but really difficult to call. So our plans basically were more backend loaded and so what youre seeing in the first quarter is reflection of the recognition that while things will recover that we made.
Still have some very challenging times here in the first quarter and into the second quarters from making sure that we were.
Building plans that comprehended that and anticipated that and would be robust to that and so that's kind of how we built it and why the numbers that you see in the first quarter.
Our lower than maybe what would be a ratable run rate is because we had anticipated a probably more challenging environment than certainly that we're seeing today. So that will ramp up I think the other point I'd make Phil is just you know.
The point I made about our paced projects and the good work that our project organization did.
And thinking through given a portfolio of very attractive high return projects and as I said, we tested all of those informed by what we're seeing with the pandemic tested whether or not.
They were going to generate the returns and kind of and bring the value that we had expected and all of them continue to look attractive.
And so we wanted to make sure that in.
In the short term we conserved.
Spend to respond to the challenges of the pandemic, but make sure that we.
Didn't compromise that longer term value and that was the real challenge of last year and the plans that we laid out reflect that and so as you move forward in the back half of this year and into next year, what you're seeing is some of those projects.
Zooming activities on those products projects and seeing that spend go up and so that's I think how I would suggest you think about that is feathering in those projects in a very.
Managed way that our project organization is working very closely with our partners and contractors to make sure that we bring those things back online and get that work going in a very efficient and effective manner.
Okay got it thank you.
My second my second question would just be coming back to the.
The Gulf Coast carbon capture opportunity I'm frequently getting asked for Exxon Mobil, whether this would be more of a just an opportunity to reduce your own ghd and methane emissions or is it something where it can be a third party business. It's actually a long term earnings driver for the company. So I'm curious how you would answer.
Matt.
I would say yes.
I think that that project has opportunities to do both if you.
And again, what we what we've been talking about for some time and I think if I go back a year ago.
<unk> test with respect to whether or not the company was focused on managing.
The risk of climate change and positioned for an energy transition was whether or not you're on both investing in solar and wind.
Frankly, I've been very encouraged about how quickly that conversation has evolved and the recognition that there remains a significant challenge above and beyond the role that wind and solar and electric vehicles will play, which they will play an important role, but above and beyond that how do you decarbonize. Some of these very difficult to decarbonize sectors and do.
In a way.
That is efficient and lowest cost to society and so that's the work that certainly we've been talking about for some time and the work that we've been investing in with respected technologies to bring down the cost of the technologies that we believe will be required to achieve that.
That's the venture that we launched in 2018, our carbon capture venture to start looking at how we could commercialize some of that technology and start looking for opportunities around the world. So all of that was happening with this view.
What I would say as a business opportunity to meet an evolving demand of society, which is a reduction in C. O two and the way we're thinking about that that's a new business. That's a new demand for that society. I think is a strong desire for and so we're at the early stages.
Our new business and what we've put out there is the opportunity to leverage the skills that we have the competencies that we've developed over decades.
The experience that we have in bringing new ventures to market working with governments.
And leveraging our own capabilities in this Houston ship channel represents exactly that and we'd be working with a number of.
Companies and industries, there so collaborating with others working with the government and we our own facilities would be involved in that so I think it's kind of a mix of all those things that you brought up Phil it's a an opportunity to reduce our own emissions and opportunity for others to contribute at scale in a cost effective way to reduce their emissions.
And then again potentially you know there is a emerging market for C.
<unk> reduction credits, maybe a way to meet that market demand as well and so I think it's early.
To take a real sharp pencil and lay all that out, but we think the fundamentals are there.
And just becomes it comes down to then working with the relevant parties to shape the policies and the frameworks and the construct of that projected to take advantage of that those emerging fundamentals.
Thank you Ed.
But you're also seeing is policies being established in other parts of the world. When you look at Europe or in Asia Pacific region that are interested in doing similar type of efforts to decarbonize the newpage decarbonize sectors.
Sectors of the industry.
No. Thank you I appreciate it look forward to hearing more thanks. Thank.
Thank you Phil.
And next we'll go to Doug Leggate with Bank of America.
Okay.
Thanks, Good morning.
Guys good morning Darren.
Hi.
Also two questions if that's okay.
Darren when you laid out at the Analyst day, I think you talked about are Neil had talked about something youre right from the 60000 barrels oil equivalent.
Suppose the lift products in your five year plan.
I realized you've got the UK away, but can you just moving it up to date.
I guess from the oil.
Oil price environment, what does the pace is picking up how you see that playing out.
Sure Doug Thanks for the question what I'd say is we laid that playing out quite some time ago, Neil talked about the work we've been doing in assessing the portfolio and upgrading that portfolio and obviously to a couple of levers to that one one lever is clearly the additional investments and bringing in.
You know more profitable lower cost.
Production opportunities and then working on.
Some of the tail items of our portfolio to see if others put a higher value on them, particularly given how rich the new opportunities where for us and so that portfolio of opportunities remains we've been out actively marketing a number of those and as you can imagine last year really slow that pace down just because of that number.
Buyers and.
I'd say the range of uncertainty with where the future was going the way I'd characterize it today is we're continuing that activity on those.
Assets in.
I'd say the work that we did in 2020 puts us in a really good position. This year, we did not compromise the value that we.
<unk> to achieve and that slowed things down, but I think as we go into this year, there's a different.
You this being taken on the future in the horizon in the price environment, which is generating more interest and so I the way I'd characterize it right now same set of assets.
A lot more interest in discussions happening and we'll see if we can find.
Find the right buyer and settle on a value that's a kind of a win win proposition and that work goes on.
Optimistic that we'll see.
That accelerated a bit but.
It will be accelerated based on a lot of work that's already happened and will continue to happen.
Great I appreciate that Mark.
My follow up is really more of a kind of philosophical question. Darren I guess youll recall yields was getting up there. So very you could see uncompetitive level in terms of if you ever wanted to do an equity we still have a consolidation question.
You've all that you've got a fantastic organic portfolio on some of your peers are not price.
Probably but that's the case you could argue.
And then growth is off the table for investors.
So when you wrap all that together I'm just wondering.
How does Exxon thinks about.
Or no.
Holiday.
The Permian production.
Well I would say as you point out we have a very strong organic portfolio and so I think that gives us a lot of flexibility.
Where we don't we aren't in a position where we have to go out and transact and look at acquisitions or mergers, but I would also tell you that you know at the end of the day, we're very focused on.
Maximizing our growth and shareholder value and so keeping.
A a kind of a firm eye on the opportunity set.
And if things develop if market conditions drive an opportunity that would be accretive.
Consistent with the existing portfolio and the capital allocation priorities that we've talked about then that would certainly be an opportunity. We'd look at I don't think we've take anything off the table when it comes to thinking about the future.
And how we might leverage our capacities and then if we find somebody where we can find some synergies with their capabilities and ours and to take advantage of that and.
Together grow value at a rate faster than we can organically.
That will all come back to and finished on the point that I started with is we the portfolio that we've got pretty attractive it's going or.
Whatever we do is going to have to compete with that attractive portfolio. We feel real good about that we'll keep an eye open but it's nice not to be in a position where we have to do something.
Okay. Thanks for taking my questions sure. Thank you Doug. Thank you bet operator, we probably have time for one more.
And one more set of questions.
Alright, Exxon will take our last question from Neil Mehta with Goldman Sachs.
Good morning, guys and Darren Thanks for coming on this call that I know investors value the transparency and hopefully you can keep this up regularly.
Just once a year I guess my first question is just on the board changes Exxon has announced some.
The changes to the board representation.
Obviously in the matter.
It'll have a proxy contest going into the shareholder meeting can you just talk about.
From your perspective, Darren why do you think that the current set of boards.
<unk> Board best represents the interest of shareholders and some of the changes that you made and what these changes are able to that.
Deliver for the shareholders.
Good morning, Neil.
Just start by pointing out this is the second time this year I've been on the call. So.
<unk> doubled from your your once once a year.
With respect to the board and how we think about that first comment I would make is.
Since I've been in this job.
Been engaging with.
Shareholders pretty consistently and.
Listening to their perspectives and taken their feedback on and I think as a result of that you've seen quite a bit of change in terms of how we interface.
With the shareholders and in fact with with you in your community. So I think we are.
Responding to the feedback that we get I would tell you that every.
Decision that the board has made with new directors and we brought on six since.
I came into the chair in 2017 have all been.
In response to and related to the feedback that we've been getting to our shareholders in terms of the types of competencies and skill sets that they think would benefit.
Our company and managing.
For the future and frankly that continues to be an ongoing dialogue and we continue to look for what are the capabilities and skills required to successfully manage a business like ours. If you look at the board we have today.
And how we the Board Affairs committee dose through the processes I think first you got to recognize this is a.
Big business that spans the globe.
And also spans a number of different.
Industrial sectors consumer products sectors are very complicated a lot of challenges.
Challenges it across the different countries and across the different businesses and so really look to make sure that the folks that we bring into the board have the perspective and the experience of managing global.
Business is complex businesses ones once that span.
The globe and ones that have the kind of challenges that we see obviously, if you look at the industry and our company over time.
Technology, and the evolution of technology, and how that applies to our business has been a really important part of the value creation that we've driven over the years and a really important part in terms of the future and how that evolves and so technology and understanding of the technology Engineering Science is an important part of things.
We look for in terms of the skills and capabilities of the investors.
Our board members, if you think about the capital intensity of the business and how we are so intimately tied.
Tied into economic growth in economies around the world in People's standards of living <unk>.
Directors have had that prospect that experience in managing I think is important and you can see that in some of our directors that have that are experiencing capital intensive linked closely to <unk>.
Economic activity.
So that's important and then I think the third point I would make is.
Our understanding of and experience in transitioning businesses and from our perspective, it's not necessarily transitioning an energy company it's transitioning.
Business with fundamental drivers, how you think about the changes in those fundamental drivers and how you are effectively respond to those changes, while creating shareholder value and if you look at the folks that we have on the board a number of.
Of our individuals have really per.
Net and relevant experience to managing large corporations.
Essentially through transitions, albeit at potentially in different industries.
We also look to bring on industry experienced that I would tell you it has been.
Our.
Building competencies that we've been working to fill for quite some time, it's challenging to find someone who has the relevant experience and can relate to all the businesses that we're in the scale that we're in and the global coverage and I think we're very lucky.
Last year to engage with one zone. After he retired in the middle of 2020 and I'm very pleased that he came on board and bring some of the.
Experienced from Asia, which is obviously, a really important region for our company and the fact that that's.
A lot of the growth is happening so that was a big advantage and then the final point I'd make with respect to some of the new directors that we brought on is <unk>.
Thinking about a transition with all the uncertainties associated with it and the challenges how to best allocate your capital in that space and make sure that.
One that you are moving the business in the direction consistent with some of those broader trends, but doing in a way that protects shareholder value and generates returns and so some of the new directors have got some really good really good track record and thinking through and doing that and bring some of that additional perspective to many of our exist.
<unk> directors, who also have that capital allocation experience and so I think we've got a really.
Experienced board with a lot of complementary skills and the final point I would make which is really really important is the the chemistry of the board.
Culture that we have the willingness for those directors to work.
Collectively collaboratively engage discuss debate I think is absolutely critical and what we find today is our board meetings a lot of discussion a lot of exploring debating and all done in a very constructive way all done focused on driving ultimately driving value.
And so it's I think a very healthy.
Healthy.
Board that respects one another.
It's very focused at the same time and driving value and they've been a big part in helping reshape the company and setting us on the path that we're on now.
Thanks, so much Darren.
Thank you.
So the question is just on slide 16, as you think about your growth projects, you talked a little bit about Guyana can you just flush out more just how how big do you see this asset coming over time.
And what are the next big milestones, we should be looking out for and you Didnt mentioned Greenfield.
LNG projects as you think about those in the queue, where do those stand in terms of.
The projects that you would look to move forward.
Over the next five years.
Sure I would think with Guyana with respect to the potential of that resource base as we've talked about nine 1 billion oil equivalent barrels I would tell you that.
Is the current estimate and I wouldn't expect it to grow the recent announcement, we made with one or two.
Confirmed a deeper play and so I think additional opportunity or suggest suggestive of an additional opportunity and resources that we haven't fully quantified yet so I think it's a very.
Awesome.
Rich set of opportunities that we're going to continue to progress in that and I wouldn't look for a big Bang per say I would look.
For a continued and steady progression of bringing.
Those opportunities to market.
Laid out a plan that's pretty consistent with that working very closely with the government and the people of Guyana to continue to progress that resource and really.
Bring a lot of economic opportunity to the country and the people of Guyana and I think we're beginning to see the benefits of that manifest themselves and we will continue to contribute on a ratable basis. There. So I would just say a.
Good steady.
Drumbeat of improvement as we move.
Through those development and those projects I think today, we are talking to potential for seven to 10 <unk> six.
Six projects online by 2027 so.
Feel really good about what we're finding in Guyana and in a very constructive engagement with the government.
In terms of those developments.
With respect to LNG you know obviously.
Yeah, So you're going to continue to play a really important role as the economies around the world develop pop.
Populations grow People's standards of living ROE is all going to require power generation and gas is going to continue to play an important role in part because it's a really good substitute for coal and the fact that it's got a much lower emissions, obviously in lower particulate and also has the potential with time.
To basically be used in the making hydrogen.
That could play a role going forward as well. So I think gas is going to continue to be a really important part.
As societies and economies grow and as we move into a lower carbon future LNG and so in that context.
LNG opportunities remain an important part of the portfolio and we continue to work very closely with the governments.
Round.
Progressing discussions on how we continue to build on the portfolio that we have and expand those opportunities and do it in a way that both benefits the countries and the communities in those countries, but at the same time.
Are attractive to us and compete within our portfolio and so that work goes goes on we're continuing to have very constructive conversations and I would expect to see those advance.
At a pace thats consistent with those conversations landing at the right.
Right frameworks for progressing those projects.
Thanks, Darren Congrats on a good quarter. Thank you Neil Thank you Nicole.
Okay. Thank you Darren from participating and I want to thank the audience for your time and thoughtful questions. This morning.
We appreciate your interest and the opportunity to highlight our first quarter results.
I hope you enjoy the rest of your day and.
And please be safe.
And that does conclude today's conference we thank everyone again for their participation.
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