Q2 2022 Exxon Mobil Corp Earnings Call
Please standby were about to begin.
Good day, everyone and welcome to this Exxonmobil Corporation second quarter 2022 earnings call. Today's call is being recorded at this time I'd like to turn the call over to the Vice President of Investor Relations Ms. Jennifer Driscoll. Please go ahead ma'am.
Good morning, and good afternoon, everyone. Thank you for joining Exxonmobil second quarter 2022 earnings call.
I'm, Jennifer Driscoll, Vice President Investor Relations.
Here with me today are Darren Woods, Chairman, and Chief Executive Officer, and Kathy Michael <unk>, Senior Vice President and Chief Financial Officer.
Our quarterly presentation with prerecorded remarks was posted earlier today on the investors section of our website along with our second quarter earnings news release.
During our lives one hour conference call, Dan will provide brief opening comments and reference a few slides from the earlier presentation before we move to the question and answer period.
May I remind you that during this call. We may make forward looking statements, which are subject to risks and uncertainties. We encourage you to read our cautionary statement on slide two.
We also have provided supplemental information at the end of our earnings slides, including reconciliation.
Now please turn to slide three and we'll turn the call over to Darren.
Thank you Jennifer.
Morning, and good afternoon, everyone.
Thanks for joining us today.
Our second quarter operational and financial results were very strong.
While the market has clearly been a factor.
Our results reflect our focus on the fundamentals as well as plans and investments we've put in motion several years ago.
And stuck with the depths of the pandemic.
They also reflect the outstanding work of our teams across the world to.
Cooperator facilities safely at high utilization levels.
Which drove needed production and throughput.
We are proud of their commitment to supply them with energy and products the world needs.
Delivering on our strategic priorities.
Increased production higher realizations and aggressive cost control generated strong earnings and cash flow.
We also delivered excellent safety and operating performance.
As global demand recovers, we continued to invest in our portfolio and grew our year to date production in the Permian by about 130000 oil equivalent barrels per day versus the first half of 2021.
For the full year in the Permian, we expect to achieve 25% production growth for the second consecutive year.
In Guyana, our total capacity is now more than 340000 oil equivalent barrels per day.
Our Liza phase one development is producing above design capacity with excellent performance.
These are phase two started production earlier this year and has recently reached the design capacity of 220000 barrels per day.
As demand has continued to recover so as production from our industry, leading refining circuit.
We increased throughput by 180000 barrels per day in the first half of 2022 versus the first half of 2021.
We continued to demonstrate our value as an essential partner during the quarter.
For example, Exxonmobil has recently been awarded an interest and cutters North field East expansion.
We've worked closely with the Qataris for decades.
This attractive agreement further leverages, our experience as a global leader in LNG.
Giving us the opportunity to help grow cutters LNG capacity by 30 million tonnes per annum by 2026.
Partnerships such as these are also an important part of unlocking future opportunities in our new businesses like carbon capture and storage.
We recently signed a multiple mou's to explore the development of large scale Ccs projects in China, Australia.
Nevertheless in Indonesia.
Lastly, we further strengthened our portfolio by advancing a significant refining capacity expansion on the U S Gulf Coast.
Discovering new resources in Guyana.
Progressing LNG production in Mozambique.
And addressing noncore assets with the announced divestments totaling more than $3 billion.
We continue to invest through the pandemic with the understanding that demand would recover.
With the Beaumont refinery expansion, we are on pace to increase our refining capacity on the U S Gulf coast, but more than 17% or.
For 250000 barrels per day in the first quarter of 2023.
During the quarter, we also announced two discoveries in Guyana, adding.
Adding to the estimated recoverable resource base, which is nearly 11 billion barrels.
Natural gas began flowing at coral LNG project offshore Mozambique.
The project remains on track to achieve the first LNG cargo later this year.
Finally, we progressed, our divestment program at an advantageous point in a cycle.
Asset sales include X T O energy Canada.
Our Romanian upstream affiliate.
Barnett shale gas assets.
Barnett shale divestment closed in the second quarter.
The other two are anticipated to close later this year subject to regulatory approvals.
Overall, it was a very strong quarter in both financial results and in progressing our strategic priorities.
The strong second quarter results reflect a tight global market environment, where demand has recovered to near pre pandemic levels and supply is treated.
The situation was made worse by the events in Ukraine, which have contributed to increases in prices for crude natural gas and refined products.
In the first quarter average Brent crude prices rose by about $22 per barrel.
In the second quarter, Brent crude prices moved up by another $12 per barrel pushing the benchmark marginally above the 10 year range.
Natural gas prices remain well above the 10 year historical ranges amid ongoing concerns about European supply.
Refining margins are even more pronounced versus the 10 year range.
At very high levels, reflecting the significant impact on refining capacity, resulting from the pandemic.
In July we saw some relief as margins moderated with improved supply and demand balances.
Global chemical margins in contrast remained near the bottom of the cycle.
We did see a slight improvement in the quarter, mainly in Asia Pacific.
Margins in North America tightened during the quarter as product prices continue to lag the steep increases in ethane feedstock cost consistent with higher gas prices.
Before recapping, our financial results, let me touch on the market environment that underpins them.
As I mentioned in my prerecorded remarks, large annual investments in oil and gas production are required to offset normal depletion.
More is required to grow net production.
Prior to the pandemic.
Industry investments were below historical levels.
The economy wide shutdowns during the pandemic exacerbated the problem.
We are now experiencing tight markets across most of our businesses as supply lags demand recovery.
We clearly see the tightness in supply and refining where the closure rate during the pandemic was three times the rate of the 2008 financial crisis.
Given the long investment cycle times growing supply will not happen overnight.
At Exxonmobil throughout this period, we stayed focused on the fundamentals and letter IOC peers in oil and gas investments.
And then when others leaned out including investments in U S refining capacity.
Notably with our Beaumont refinery expansion.
Our investments over the last five years are paying off today and helping to meet the needs of families everywhere with greater supply than otherwise would be the case.
Oh progressing investments in our traditional businesses. We're also advancing a portfolio of opportunities consistent with our core capabilities and low carbon solutions.
We expect that these two will pay off in the years ahead.
For our shareholders and for our environment.
With that as a backdrop, let's turn to the second quarter financial results.
Earnings totaled nearly $18 billion on increased production higher liquids and natural gas realizations and strong refining margins.
We continue to drive efficiencies with $6 billion in structural cost savings versus 2019.
We remain on track to achieve more than $9 billion in savings by 2023.
Capex was $4 $6 billion in the quarter.
And $9 5 billion year to date.
We remain on track for our full year Capex guidance of $21 billion to $24 billion.
Cash flow from operations was $20 billion further strengthening our balance sheet.
Our net debt to capital ratio declined to about 13% while the gross ratio is now at 20% the low end of our targeted range.
We returned $7 $6 billion to shareholders during the quarter in the form of dividends and share repurchases.
The increase in distribution reflects the confidence we have in our strategy the performance, we're seeing across our businesses.
The strength of our balance sheet.
I will conclude with a few key takeaways.
As I mentioned earlier, we are now experiencing tight markets across most of our businesses.
Our supply of lags demand recovery.
Our strong performance reflects the sizeable investments we've been making over the past several years and our focus on the fundamentals.
Those two things put us in great position to deliver increased production at a time when the world needs. It most.
We're continuing to increase production of low cost barrels in Guyana in the Permian.
We're doing all of this while maximizing output of our existing facilities.
<unk>, a new daily production records set by PNG LNG in July .
Our new Corpus Christi complex was cash and earnings positive in the first half of the year with the world scale steam crackers demonstrating design capacity.
Our U S. Gulf Coast refining capacity is poised to increase by about 250000 barrels per day with the startup of the Beaumont refinery expansion project in the first quarter of 2023.
Two new LNG projects are also advancing.
Coral LNG in Mozambique is set to deliver its first cargo in the second half of this year.
Our Golden pass LNG project.
Which will provide 18 million tons per year of new LNG supplies remains on schedule to start up in 2024.
Once completed.
Golden pass will increase LNG from the Gulf coast by 20%.
In addition, we continue to divest non strategic assets and opportune point in the cycle.
We delivered strong safety and reliability.
Controlling cost.
These moves are improving our asset mix lowering our breakeven and boosting our resiliency.
Our low carbon solutions business continues to grow our portfolio of opportunities with the four newly.
Alrighty and you're one of the largest energy providers in Europe , and so would love your perspective on.
The European energy challenges that are being face right now how does the continent ultimately work its way through it and what is Exxon mobil's role in providing energy to the region.
Sure well good morning, Neil.
You're touching on what is a very challenging situation today.
And that reflects I think the complexity associated with.
Making a massive change too.
System that so critically important to People's lives and so I think going forward and what we're seeing happening today is what I'd say is a broader net being cast with respect to how we think about the transition and how that evolves.
Making sure that we've got a diversified portfolio of energy and one and sources of energy that are not dependent on any one nation state which is.
I think an important.
Step that we're seeing being taken.
I think there'll be a drive over time to make sure that they're leveraging.
The resources available to them and I'll just make one example would be the potential that we see for fracking in unconventional gas in Germany, I think the industry has proven over the years that.
Unconventional gas can be produced safely.
You then have a secure source of supply and economically and reliable source of supply and so I think there is an opportunity. We're certainly exxonmobil could play a key role. We also have a fairly large refining footprint in Europe , we have been working hard to upgrade those facilities to make sure that we're driving.
Their emissions footprint to zero and developing plans to do that and within this current crisis have really stepped up.
The efforts to reduce our consumption of natural gas in fact, if you look at our refining circuit, we reduced the use of natural gas by 65%.
The equivalent gas used for about for powering about 2 million homes in Europe , and so there are some substantial steps that we can take with respect to optimizing our current operation longer term, we're opening up looking at projects to expand our LNG import facilities and of course, we are.
Bringing LNG projects online we've got the Golden pass project here in the U S, which will allow us to export LNG from the U S and to Europe , and so we've got Mozambique, and Thats coming on the back end of this year and of course, we've got work going on in PAA, and PNG and so bringing more LNG supplies to help offset some of the rush.
<unk> gas going into Europe will be another really critical.
Step forward and a diversification of supplies for Europe .
Thanks Darrin.
The follow up is around capital returns just talk to US just talk through how you're thinking about the dividend where there hasn't been a reset this year at least.
And whether it makes sense to return back to dividend growth.
And return of capital very strong buyback number in the quarter.
How are you thinking about tracking towards the $30 billion that you outlined.
A couple of months ago.
Sure I'm happy to take that so look as you know our first priority is to continue to invest in the business and we talked last quarter about the fact that we expected to build our cash balance to between $20 billion to $30 billion.
Which gives us both a strong balance sheet and a strong cash balance, which we view as a competitive advantage that provides us flexibility through the cycle. We're trying to strike the right balance in terms of share repurchases and dividends as you know we raised our quarterly dividend by <unk> <unk> in the fourth quarter of 2021 and last quarter, we triple.
The size of our share repurchase plan, which is now up to $30 billion of share repurchases. This year and next so we're definitely focused on being efficient as we look to return capital to shareholders and obviously the share repurchase program has a secondary benefit of reducing the nominal size of our.
And so I'd say, we're trying to strike the right balance our board reviews. This pretty regularly and we feel good about about where we're at right now.
Thank you Kathy.
Thank you and just a reminder single question per analyst. Please.
Jennifer.
We'll go next to Doug Leggate with Bank of America.
Alright. Thank you good morning, everyone. Thanks for taking my questions.
I Wonder if I could ask first about natural gas in Europe , specifically.
Specifically European gas production, obviously, that's come down a bit over the years, but it was some of it was up sequentially in the second quarter when normally we see.
Seasonal downtrend for you guys in the summertime.
Is this how we should think about European gas production going forward.
Obviously, it's more of a flat line and I Wonder if you could address any.
Specific issues around for the <unk> could be revisited by the Dutch government I'll start given everything that's going on.
Sure and good morning, Doug Good to hear you again with respect to demand Youre right. If you. If you go back in time under more normal circumstances, we do see a seasonal decline in the second quarter with gas demand and Thats historically been in the numbers and we tend to foreshadow that.
In the first quarter typically.
This year, obviously circumstances in Europe are very different and we.
We actually foreshadowed in the first quarter that we didn't expect to see the same kind of seasonal.
The shortages that we were seeing in.
Europe at the time, and so I think going forward, obviously, a big question Mark will be how the whole landscape and supply picture shapes up in Europe , and also obviously a big factor in gas demand will be weather and so I think I wouldn't take this quarter as the new norm I think we've just got to stay attuned to.
How the landscape develops there what supply it looks like and then obviously you keep an eye on the weather.
With respect to your question on <unk> again.
The capacity is there.
Something that the Dutch government, obviously has control of an.
Evaluate the circumstances and makes decisions in terms of the production that they.
Our request our joint venture there Nam to produce and so that'll be a function of how the Dutch.
Such government ways off the demand for gas versus the supplies into the role they want it in.
To play with the capacity is there.
Thank you for that.
Kathy I Wonder a very quick follow up on Neil's question I Wonder if I could just ask very soon.
Specifically when you joined.
Seem to recall you.
Expressing some concern about the absolute scale of the dividend burden I realize there's a lot of operational cash flow growth in the future for Exxon, but when you think about the balances of buybacks dividend policy and so on is your objective.
Just absolute dividend burden to help us kind of calibrate what that might look like going forward and I'll leave it there. Thank you.
Yes.
Let me start with the board and we are very focused on ensuring that we take an efficient approach in terms of how we're returning capital to shareholders and obviously share repurchases are a very efficient way to do that.
As we look at the dividend I'd say, there's a number of things that we continue to evaluate I mean, clearly we think it's pretty critical that we have a competitive dividend and today. We think we do have a competitive dividend. We do look at that nominal level of the dividend and share repurchases do you have a secondary benefit of reducing that level.
But I'd also tell you importantly, all the actions we're taking in the business reduce our breakeven right. We talked about that a lot at Investor day, our breakeven came down to $41 a barrel from 44 kind of last year, we have a trajectory as we looked at the plan that we presented at Investor Day and base.
On that price that to kind of bring our our breakeven down further to $35 a barrel. So that just builds more resiliency in the business, which which makes I'd say the overall kind of dividend much easy for the company to both sustain and and in the future to grow.
That is how we look at it and how we think about that and as I said previously we're trying to strike the right balance in terms of growing that dividend and doing buybacks, which have the secondary benefit of reducing that nominal dividend and they also are a very efficient way for us to return capital to shareholders and then I'd say in.
Accordingly, we wanted to make sure we're taking an approach as it relates to our cash balance and our overall balance sheet that enables us to stay sustained both investments and shareholder returns through the cycle that is how we generate the highest value for shareholders and so we're very focused on doing that thanks.
Thanks, Kathy our breakeven point is very salient. So thank you.
Yes.
We'll go next to Devin Mcdermott with Morgan Stanley .
Great. Good morning, Thanks for taking my question.
I wanted to ask about the Permian.
Specifically and as you continue to post strong results there.
There were some comments on the posted prepared remarks on I think a bit of an acceleration or increase in activity broadly in short cycle in the back half of the year and I think thats referencing the Permian specifically so I was just wondering if you could comment if that reference refers to an acceleration in activity versus your prior plans and then also as you think about the.
Outlook over the next several years can you talk a little bit about some of the inflationary trends that youre seeing in the shale business and then also the ability to offset that with efficiency gains.
Yes, good morning Devin.
I will touch on that and then see if Kathy has anything to add.
With respect to Permian well the plan that we laid out some time ago and we're currently executing is hasnt changed.
We had a very slight ramp up as we head through the year.
But nothing significantly different than what we have been doing the plans that we have in place.
Should deliver and current production is in line with that 25% growth versus last year, which as you know is on top of 25% growth for the year before.
And as we saw in the package. If you look at our tight oil production in the U S versus 2017, we expect to end 2022 to three times the level of production. So I would say the strategy remains in place. The plans that we're executing remain in place we're looking for opportunities within the construct that we defined to extend and expand the activities, but frankly.
Given the tightness in the market.
The availability of rigs theres, not a whole lot of opportunity.
To move there and maybe I'll ask Kathy to cover the inflationary topic, yeah. So overall I'd say, we feel really good about how we're managing inflation.
Our overall structural cost savings kind of plan and program is very much on track.
As of this quarter, we're now at 6 billion in overall savings kind of relative to 2019. So we're feeling pretty good about that as we look at our kind of costs on a year over year basis. We obviously had a kind of seasonal increase in costs sequentially as we had a little bit more play.
Planned maintenance activity, but we feel very good that we're executing consistent with our plans and that we remain on track. We're obviously not immune to inflation, we did a great job certainly during the pandemic, especially when you think about our kind of longer projects that are global.
<unk> group was executing in terms of ensuring that we were at that point in time, when we were in a deflationary environment.
Really working hard with our service providers to extend contracts.
And looking to revise schedules associated with some of our projects, but still moving the engineering forward on those things so that we could pull them up if the market environment improve so we feel good about where we're at with our Capex programs overall and we feel good about the cost savings that we've dropped that we're driving I would also say it is.
<unk> always going to look exactly the same kind of quarter to quarter. We obviously just made some significant changes in our organizational structure that was put in place in April those will over time also drive additional efficiencies for us and we are working at constant I would say pipeline in this area to ensure that we.
Both driving greater efficiency across the business, but also effectiveness, which is equally important so I'd say, we feel really good about where we're at.
Great, Thanks, and I'll leave it there to get back on track with the one question.
We'll go next to Stephen Richardson with Evercore ISI.
Great. Thank you.
Good morning.
Darren I was wondering if you could talk a little bit about the refining outlook.
It's probably a more volatile environment than we've seen in a long time, certainly with less Asian exports are certainly out of China and.
And what's going on in Europe , I was wonder if you could maybe just talk about that.
Based on your background some some some.
Some insight there would be would be helpful.
Sure happy to do that Stephen Thanks for calling in.
You say, it's a volatile area I think the thing that's really changed in the refining landscape, which has impacted we're seeing that impact across a lot of industries in parts of our business as the pandemic.
If you go back since 2020, and as we've mentioned in our prepared presentation. The 3 million barrels a day of refining capacity has come out of the circuit.
The pandemic and what has typically happened, which is three times the rate of historical levels and typically a historical levels have been offset by new builds coming in and of course, a lot of those new builds got pushed out because of the pandemic and the lack of revenue in the extremely negative and poor refining margins until we've created this.
Hole with a lot more capacity coming offline without a whole lot of new capacity typically out in the developing and in.
Parts of the World in Asia, and the Middle East Arent that capacity is not coming on so we've got this gap demand recovers and we don't have the capacity to meet that which has led to.
Record record high refining margins. So I think the solution. There is with time before additional capacity to come on we're pleased that we had justified a fairly large expansion of our Beaumont refinery essentially based on transportation differentials that generated a reasonable return with potential <unk>.
<unk> and times times of tight markets, which obviously, we're going to be seeing as we bring this refinery expansion are the biggest expansion.
Over a decade in the U S and it's one that takes advantage of the utilities and the units that we already have and the connection that we have with the Permian. So a very advantaged project coming into the market at a really good time outside of that don't see a whole lot of additional expansions here in the U S. And then as we mentioned in the presentation over the next two years, probably 1 million barrel.
A day of capacity, including the $2 50 at our site coming on in the marketplace, which is still fairly short of the capacity that came off and so.
Our view is we're going to see.
What I say the tighter.
Supply and demand balance.