Q3 2022 Exxon Mobil Corp Earnings Call
Good day, everyone and welcome to this Exxonmobil Corporation third quarter 2022 earnings call. Today's call is being recorded at this time I'd like to turn the call over to Vice President of Investor Relations Ms. Jennifer Driscoll. Please go ahead ma'am.
Good morning, everyone. Thanks for joining our third quarter earnings call today at our new time of 730 a M central.
I'm, Jennifer Driscoll Vice President Investor Relations, joining me are Darren Woods, Chairman and Chief Executive Officer, and Kathy Michaels Senior Vice President and Chief Financial Officer.
The slide presentation, our prerecorded remarks in the news release are available on the Investor Relations section of our website.
Short lead there and will provide brief opening comments and reference a few slides from the prerecorded presentation.
This allows us more time for questions before I conclude at 830, a M central time.
During the presentation, we will make forward looking statements, which are subject to risks and uncertainties.
We encourage you to read our cautionary statement on slide two.
For additional information on the risks and uncertainties that apply to these comments. Please refer to our most recent form 10, Ks and 10-Qs.
Please note. We also provided supplemental information at the end of our earnings slides.
Now please turn to slide three and I'll turn it over to Darren.
Thanks, Jennifer.
Good morning, everyone before covering our earnings highlights I want to begin by recognizing the men and women of Exxonmobil.
While this quarter's results were clearly helped by a favorable markets.
Fact is we're in this position because of the hard work.
Commitment of our people over the past few years.
Where others pulled back in the face of uncertainty and historic slowdown.
Retreating and retrenching.
This company move forward.
Continuing to invest.
And bill to help meet the demands we see today.
And position the company for long term success in each of our businesses.
We understand how important our role is in providing the energy and products to the world needs.
While the market has clearly been a factor results. We report today reflect that deep commitment.
I mentioned this because it is at the heart of our company and its culture.
Well you know the role we play in are incredibly proud of it.
We work together as a team coughing.
Coughing and our mission and determined to do our part in meeting the world's energy needs and leading the way in a thoughtful energy transition.
Overall, I'm pleased with our third quarter operational and financial results.
Our natural gas realizations strong refinery throughput.
Robust refinery margins and rigorous cost control drove our earnings improvement.
We continue to increase production to address the needs of consumers.
Which contributed to earnings and cash flow growth.
Stronger balance sheet and significant value creation.
Our results also reflected the outstanding work of our teams across the world.
To operate our facilities reliably at high utilization rates.
Let me highlight a few examples of our progress.
First energy products boost.
Boosted overall refinery throughput to its highest quarterly level since 2008.
Responding to tight market conditions.
And we continue to make progress on the Beaumont refinery expansion.
Which will increase capacity by about 250000 barrels per day in the first quarter of 2023.
We also increased production from our high return assets in the Permian and Guyana.
Our production in the Permian Basin reached nearly 560000 oil equivalent barrels per day.
Building on our strong growth from last year, we grew our production in Guyana to 360000 barrels per day during the third quarter.
The Liza phase, one and two both exceeding design capacity.
We also had continued exploration success with two additional discoveries in the quarter.
Earlier this month first LNG production was achieved for Mozambique, the coral south floating LNG development.
<unk>, new supply and the growing demand for LNG globally.
We continue to expect total upstream production of $3 7 million oil equivalent barrels per day for the year.
Looking longer term.
We remain on track to grow low cost production and meet our 2027 plan.
With more than 90% of our upstream investments generating over 10% returns at $35 per barrel.
Our ability to increase production, while reducing cost improves our competitive position benefits.
Benefits consumers and generate capital to fund meaningful investments.
Demonstrated by one of our recent press releases announcing that our low carbon solutions business signed its first and the largest of its kind customer contract to capture and store up to 2 million metric tons per year of Cotwo.
This marks an important milestone in developing our newest business.
It's also a good example of how we're supporting other companies and reducing their greenhouse gas emissions.
We look forward to sharing more about our progress in developing an attractive low carbon solutions business in December as part of our corporate plan discussions.
We continue to actively manage our portfolio announcing the sale of our interest in the era of oil production operations in California.
And our refinery in billings Montana.
Proceeds from divestments completed year to date total $4 billion.
As we captured incremental value for these noncore assets in today's higher price environment.
These sales enabled us to concentrate on our higher value advantaged assets.
Finally, you may have heard earlier this month that with two degrees. The Russian government has unilaterally terminated exxonmobil has interest in Sakura, one and transfer the project to a Russian operator.
In March we stated our intention to exit the <unk>, one project and discontinue our role as operator.
And took an impairment of approximately $3 $4 billion at the time.
While our affiliate was enforced mature due to the unprecedented impact of global sanctions.
We continue to make every attempt to engage in good faith discussions with the Russian government and all software <unk> partners to affect a smooth exit to the benefit of all parties.
Our priority all along has been to protect employees the environment and the integrity of operations at the facility.
While the recent decrease violate our rights in Russia established by our production sharing agreement and.
And interrupted the exit process, we were working it did not prevent us from safely winding down our operations.
We're proud of our employees and the many significant achievements they led since 1996.
Including the most recent challenge of the government takeover.
We do not anticipate any new material cost associated with the exit.
This next slide illustrates the variability in the industry is experiencing across the markets most relevant to our business.
In the third quarter crude prices move back within the upper end of the 10 year range.
As higher supply slightly exceeded demand.
Natural gas prices rose to record levels in the third quarter, reflecting concerns in Europe about the withdrawal of Russian supply.
As well as efforts to build inventory ahead of winter.
While natural gas prices recently moderated they remain well above the 10 year historical range.
In the U S prices increased by about 15% driven by higher summer cooling demand and inventory concerns.
Refining margins remained well above the 10 year range due to inflated diesel crack spreads.
<unk> from expensive natural gas and high demand for diesel.
Higher refinery runs and flat demand for gasoline in the U S resulted in refining margins declining from the second quarter.
In contrast, global chemical margins fell below the bottom of the 10 year range, reflecting the weakening global demand.
Margins in North America, and Europe has softened.
With regional pricing moving closer to global parity as demand and logistics constraints relaxed.
Asia Pacific remained in bottom of cycle conditions as Covid restrictions continue to suppress demand in China.
Despite these challenges our chemical products business delivered another solid quarter on improved product mix.
Drawing reliability and good cost control.
Before leaving this chart I want to make one other very important point.
The value of a diversified portfolio.
With just the three quarters shown you can see how the value has shifted across our different businesses.
Our diversified portfolio has served us well during the volatile swings in prices and margins across the various businesses.
As the energy system evolves, along an uncertain path.
The investments in our broad portfolio of advantaged businesses, including our low carbon solutions business will play an even more important role in capturing value and outperforming competition.
In the very near term and across a much longer time horizon.
Before I turn it over to Jennifer Let me recap our key takeaways on the quarter.
We continue to progress our advantaged investments drove additional structural efficiencies and creating sustainable solutions that deliver the energy and products everyone needs.
This has resulted in strong earnings growth.
Bolstered by higher refining throughput and cost control, which more than offset margin declines.
We've continued to strengthen our industry, leading portfolio and increased production from our high return assets in Guyana and the Permian.
In addition.
Earlier this month, our low carbon solutions business signed the largest of its kind customer contract to capture and store up to 2 million metric tons per year of C. O two.
This is a strong indication of the growth opportunity we have in this new business.
We've also continued to actively manage our portfolio.
Announcing the Ara upstream and billings refinery divestments and closing the sales of our Romanian upstream affiliate and <unk> Energy Canada.
Our diversified portfolio of advantaged businesses and robust balance sheet provide a strong foundation to invest in value accretive projects and drive attractive shareholder returns through the cycle.
In aggregate. The work we are doing today is delivering critical products in a very short market.
Longer term.
Delivering improvements that strengthen our structural advantages meet society's growing need for energy in modern products.
<unk> greenhouse gas emissions and double earnings and cash flow by 2027% versus 2019.
In short.
Profitably, leading our industry towards net zero future.
Thank you.
Thank you Dan.
Before we start our Q&A session I have two important announcements to share with you all please.
Please mark your calendar for our annual corporate plan update scheduled for Thursday December eight at 830, a M. Central standard time, when I'll be joined by Kathy Michaels to share the details of our corporate plan.
Additionally, please keep an eye out for 2022 advancing climate solutions report, we expect to publish it online in mid December .
That will begin our Q&A session. Please note that we will continue to ask analysts on the call to limit themselves to a single question as a courtesy to others and then we can take more questions from our people. However, please remain on the line in case, we need to ask any clarifying questions.
I'll turn it back to you Katie.
Thank you Mr. Siegal, the question and answer session will be conducted electronically. If you would like to ask a question. Please do so by questions. This starkey followed by the digit one on your Touchtone telephone we.
We will take our first question from Devin Mcdermott with Morgan Stanley .
Good morning, Thanks for taking my question.
Good morning.
So they were very strong results this quarter on the downstream business and you called out throughput volume and mix as some of the factors there, but I'm wondering if you talked a little bit more detail about some of the drivers here and then just more broadly there's a lot of moving pieces in the macro picture at the moment, if demand SPR draw as China reopening the EU embargo on Russia.
<unk> just to name a few I wonder if you could talk a little bit more about your outlook for refining as we head into next year as well.
Sure why don't I take the first question. He may give you the macro so if you look overall at our energy products business. Obviously, it was a really strong quarter.
That was.
From our perspective led by the volume increases we saw so we.
We had a record north American throughput.
Across the globe best results on throughput that we had seen since.
2008, and so if you look at the earnings bridge in terms of what happened quarter to quarter that was worth almost $1 billion kind of improvement is a big driver in the results for energy products.
You then look at what's going on in margins, obviously margins.
And in the quarter, they still remain well above what the 10 year average would be if we look at those softer margins. They were really driven by downward pressure on gasoline margins due to lower than usual summer demand specifically in the U S diesel demand continuing to be strong.
We then had some offset to that pressure that we saw on margin and specifically if you look at some of the positive offsets. We saw we saw some favorable timing driven impacts we try to separate this so you can kind of see it see it separated a part of that was just mark to market on our own.
And derivative portfolio that was worth about $250 million favorable impact in the quarter. Other price timing impacts were worth about 600 million favorable impact in the quarter that was really driven by derivatives that we used to ensure ratable pricing of refinery crude runs at.
So if you put that to the side, we delivered about $5 billion in earnings outside of those price timing benefits in the quarter and in addition to that.
All other offsets for softening refining margins, we saw very strong aromatics margins, we did a good job on revenue management. So we saw positive benefits there.
And then overall I would say end to end supply chain optimization right, both through procurement and logistics and trading benefits on top of that.
That's really embedded in the base business and so we expect to see benefits out of those areas theyre not always ratable every quarter, but if you look over time those benefits clearly accretive to the business.
Yeah, I would just add Devin maybe a couple of points on top of what Kathy just explained if you step back you will recall that we.
In 2018 came up with a value chain concept that we're using in the downstream and really looking to optimize from crude coming in the gate all the way to products being delivered at a customer's doorstep and the work the organization has been doing to optimize that value chain is.
Resulted in additional value and I think continues to make.
That business much more robust than what I would say the industry averages Kathy mentioned that the trading which has become an integral parts of that value chain optimization step and then I would add finally that a lot of work has been going into making sure that we are positioning those facilities in our downstream and our.
Honorees to be robust too.
<unk> demand landscape and so if you look at where we are investing in refining its precise that have integrated.
Chemicals, lubricants and fast growing clean fuels business and should we think that gives us a structural advantage versus broader industry. This has been is and always has been a thin margin business and so you you typically scratch through the thin low periods, which last for very long times and then take advantage of.
Of some of the highs and as a result of that thin margin business. If you look over time certainly in the west refining capacity has been on the decline we actually showed a chart last quarter and again this quarter that shows that drop in refining capacity.
If you look at some of the windfall.
Taxes that are being talked about within Europe .
I will put additional pressure on refining margins. So there is certainly a scenario out there that says we continue to see underinvestment refine and continue to see of that capacity coming out of the market and then depending on the build side of the equation how much capacity gets built out in the middle East we could see tight markets for some time to come.
Of course, we don't plan for that we plan for thin margins in.
Very tough conditions, and then hope for the best.
Great. Thank you.
We will take our next question from Jeanine Wai with Barclays.
Hi, good morning, everyone. Thanks for taking our questions.
Morning Jeanine.
Morning, Dan.
A question and only question that happened here.
On the balance sheet and cash return so I guess gross debt to cap now is just below the target range cash is now at 30 billion, which is at the top end of I believe that $20 billion to $30 billion level that you cited before that you want to maintain over time. So I guess what are the implications on the trajectory of the buyback and how are you really viewing.
The tradeoff between potentially accelerating buybacks sooner rather than later given just the mechanical synergies with the dividend and then just being more aggressive on dividend increases and there was a nice bump announced this morning to the dividend. Thank you.
Sure. So first of all I'd say, our capital allocation priorities Kantar.
Continue to be consistent and we're executing well against that we've got to continue to make sure. We're investing in the business. It's a long cycle business and that consistency is really critical we look for accretive acquisition opportunities were pretty disappointing in that area and you've obviously seen us more recently.
Looking to execute a number of divestitures in what's been a pretty good market for that activity. We are really focused on ensuring that we've got a fortress balance sheet that gives us all the firepower and flexibility that we need to operate through the cycles and be really prepared for the next downturn and then we're also really focused on <unk>.
Barring that we're sharing our success with shareholders, we're trying to get that balance right. You. Obviously referenced the fact that we increased our quarterly dividend by three.
And that'll be reflected in the fourth quarter dividend coming up here. Shortly we're in the process of executing a $30 billion up to $30 billion share repurchase program through 2023.
Are on track to get $15 billion of that program done by the end of the year. We did about $10 5 billion in share repurchases through the third quarter and if you look across the year that would put us at $15 billion in dividends and about $15 billion in share repurchases. So I'd say both are pretty balanced return.
To our shareholders and I think that puts us pretty well ahead of peers in terms of returning excess cash to shareholders. So we are mindful of our cash balance we ended the quarter at about $30 billion high.
It is possible that our cash balance is going to float up a little bit from there depending on what the market environment continues to look like.
And we will continue conversations with our board about the share repurchase program, but right now we're just continuing to execute our plan.
Great. Thank you.
We will take our next question from Doug Leggate with Bank of America.
Thank you and good morning, everybody.
Darrin I wonder if I could just ask you to opine.
Paying on a kind of a big picture issue you are seeing the number of your peers recently with the administration.
Relating to a number of things.
Folks are probably not.
Happy with your result this morning.
BD administration can you share.
Any thoughts you have about some of the risks presented by legislators around things like export bonds on products things of that nature.
Just given how strong your downstream profitability was smaller.
Yes, good morning, Doug.
Im going to probably pass on trying to predict.
We're different governments or administration here in the U S are going to go with respect to policy. We've been very explicit I think me along with many of the peers in the industry around what I would say are the mechanics, and the fundamentals of our industry and how it works and the implications for some of the policies being can.
<unk> and I would say that.
On the short term it may solve a political problem, but it will carry all the policies that we've heard people talking about the export bans particular windfall profit tax those will carry significant long term negative consequences and it's just a question of I think how they balance out.
Political equation versus what I would say are some of those fundamentals.
For me personally and for the company what I would say is I feel like we're well positioned.
Obviously, it would be disadvantaged to the industry, but I think within that disadvantage, we would find because of our footprint because of our diversification.
<unk> ability to position ourselves competitively with whatever policy comes down the road and so our focus is really making sure people understand what the potential consequences of some of these policies are being.
Considered and then in parallel with that obviously staying very focused on what I think the root cause.
Issue here is just making sure that people all around the world and here in the U S get.
Affordable and reliable energy, we recognized the pain that high prices caused unfortunately, the markets that we're in today is a function of many of the policies.
Some of the narrative that's floating around in the past.
And we are basically have been working to make sure that Oh.
When needed when the products were required which we anticipated youll recall back in 2020, we made the point that the industry is under investing we continue to lean into the investments to spend at a rate higher than.
And the rest of industry. So that when the call came we would be there to answer and I think the results you've seen here in the third quarter is exactly that those investments are paying off we've grown our production both in the upstream and are growing our production in the.
The downstream in the refining business with the expansion in Beaumont, and then a real focus on reliability and high throughput and so we keep trying to reiterate that we are doing what we can within the boundaries of what's available to us today and then longer term, we are making the investments.
Good for.
The administration's constituents and good for our business.
So the answer Darren Thank you.
Okay.
We will take our next question from Neil Mehta with Goldman Sachs.
Thank you very much and good morning, Darren I would love your perspective on on M&A and just how you see that fitting into the go forward framework and specifically around upstream consolidation, but also low carbon consolidation.
You said that you want to grow that business over time to be the size of the the refining and chemicals business. Thank you.
Sure, Yes, good morning, Neil.
We've talked about this over the years quite a bit and I would tell you that the whole.
M&A space and divestment space is something that we are.
We're constantly working obviously, our strategy, which you've seen us execute here over the last several years.
<unk> hi.
That's kind of what we're doing we laid out a divestment program, but we took our time and we're patient waiting for market conditions to develop.
That would favor us as sellers.
That's what you've seen transacting here.
As we look at.
Acquisitions and opportunities constantly.
The market thinking about that and looking forward, but we've got a fine.
Opportunities, where we can see a clear synergy and develop a clear competitive advantage so that.
We bring some unique value to the transaction.
We're evaluating and looking at that in our traditional businesses I think with time those will show up but we'll be very selective and strategic around that and I would say, we will do it when the market conditions are favorable for doing that.
On the low carbon solutions.
Longer term the concept.
Sounds.
Sounds good in terms of M&A, but I would just put that in the context of this is a very immature market and so there aren't a lot of established businesses out there today that are.
Have what it takes to be successful in this space.
You think about starting a industry from scratch.
And what's required in terms of.
Policy regulation investment.
Connecting all the different pieces of a brand new value chain that is a complicated equation. Unfortunately, one that we think plays to our strengths.
The recent deal that we announced with CF industry for us really demonstrated that in terms of the complexity of putting together each element of that value chain too.
Successfully come up with a deal that is value accretive and generates profits and it's good for the planet. It's good for our shareholders and so I don't know how much we'll see how that develops I would think in the M&A space, we may over time.
See opportunities.
That we can uniquely leverage.
And then we will bring those into the portfolio when it makes sense to do that.
Yes, Sir.
We'll take our next question from Stephen Richardson with Evercore ISI.
Good morning.
I appreciate all the disclosure around the CF industries.
Project I was wondering if you could talk about it.
Probably comes as no surprise to anybody that you announced this shortly after the IRI was passed.
But also could you talk about.
What needs to happen on the policy.
On the policy side to kind of improve that abatement curves and kind of move more projects.
Along and then also I think in the prepared remarks, you mentioned that theres still some hurdles with permitting.
Love to see that at the local level state level.
And where those might be and then finally, if you could just address returns how should investors think about the returns available on these projects considering kind of policy and some of the risks around that versus some of the more conventional upstream or downstream projects. Thank you.
Sure Justin Yeah, I mean, it may start with the first point you made around the timing of that was certainly the IRI contributed.
Contributing to the value proposition, there I would say that that project.
Deal was being worked well before that and would work with the existing.
Policy, it's been enhanced with the new policy, obviously, and what I would just say with respect to what that.
Does it essentially opens the aperture in terms of Seo.
Oh, two that can be cost effectively captured.
Or avoided and if you think about the challenges associated with economic projects to capture and sequester cotwo.
Really important variables and that would be the concentration of the <unk> the more diluted streamed more expensive capturing step and so you need greater incentives to catch more to capture more dose streams and so the IRS allows you to more economically pursue more dilute streams, so that opens up the opportunity space there.
Another really important variable is the distance to sequestration.
And the transportation cost of moving to that and so the further away you are from those sources are from the from the storage side the higher the cost and again that helps with that space and then obviously there is some incentives for.
Hydrogen.
And.
Additional incentives for direct air capture so I think directionally those things are going to help but I would also say that.
To achieve the ultimate objective and driving emissions down to net zero youre going to capture a lot of dialogue streams and the cost will be a lot higher and so we're going to have to find additional incentives for that whether it be through market forces and market's developing for <unk> or additional policy with.
Respect to what.
What else has to happen obviously, we're at the very early stages of this project, where we've got the economic incentives laid out we have a path forward, but theres a lot to be done we've got to get permits for storing the cotwo we've got.
Some extensions to put on the pipeline so there's other regulatory permitting.
Steps that we have to take in the government, we're working with the government to make sure that we can do that.
<unk>, so that we can expedite the project to get it online and start reducing those emissions as the equivalent of 700 taken 700000 cars off the road. So it's a fairly.
Significant project in and of itself.
From a return standpoint, what I would say is and we've talked about this before.
We're insisting that the work we do here that we position ourselves.
Competitively versus the rest of industry and the thinking being that whatever incentives required for the marginal play.
They're out there to capture and store cotwo or.
Or developed biofuels or hydrogen that we will leverage our advantages to <unk>.
Drive a higher return and to make sure that the projects that we bring into the portfolio are competitive in our portfolio and thats exactly what were doing in <unk> is an example of that and accretive project is competitive in our portfolio.
That makes us money, while reducing <unk> and I would say there are more opportunities like that out there and the <unk>.
Thing that Dan is doing in as low carbon solutions business is looking for the opportunities, where we can bring something unique to bear and therefore drive.
Above industry average returns and we feel pretty good about the size of that opportunity set.
Thanks.
You bet.
We will take our next question from Sam Margolin with Wolfe Research.
Good morning, everyone. Thank you.
Great.
My question is about your gas realizations, which are a huge driver on the quarter.
Would you characterize those as well as contractual or more optimization driven and then this is.
And in denim, but I think the seasonality of the gas market has changed a little bit because Europe has very high demand in the summer now because of our storage imperative and so I wonder if you see that as a structural change to the global gas market and if it means anything for your investment prerogatives on the <unk>.
<unk> chain or even in the U S.
In gas because we're going to be exporting a lot.
So thats the question.
Yeah, that's fine I'll jump in and Darren can add if he has anything overall, if you look at our resolve.
We saw strong gas realizations, but we have an overall portfolio that 60% gas, 40% LNG the LNG tends to be tied to <unk>.
Crude related prices with a three to six month lag. So we're seeing the benefit of that lag now kind of coming through are resolved.
That really came through in the quarter.
Overall from a demand perspective, you're obviously seeing a really tight market. We saw in Europe . The building of inventory and how that has driven our prices in Europe building of inventory ahead of the winter and so structurally we would say there is going to continue to be a tight market until supply and demand.
Comes into equilibrium right in that there's only two ways that happen either more supply or or reduced demand than supply, especially supply of LNG does take time to bring online. It isn't something that is just a ticket that can be turned on overnight. The market's obviously responding to that we are.
We have projects that are bringing more LNG online Darin mentioned Mozambique.
Coral project, you know, reaching first gas production recently, we've got a golden pass, which is going to be coming online in 2024. So we have investments that will bring more capacity online in the industry. Obviously is responding to that but it is going to take some time. So I would say as we look at that season.
<unk>, we're always mindful of what's happening in terms of inventories and when inventories are being built are being drawn and what that means in terms of near term market conditions and so it's something we always keep an eye on yeah, I would just add Sam.
So once we get through this period, where.
We're building inventories were short in supply and therefore, you've kind of lost some of that seasonality that once we get to more of a balanced position, which.
<unk>.
Couple of three years out frankly.
We will start to see that seasonality show back up again, when we're back in more stable markets longer term. Our view on gas is always been that there is going to play a critical role in world economies.
For quite some time and initially it will go into power generation and back out call. That's one of the big benefits of gas today, but longer term a term as we continue to address emissions in the energy system transitions.
<unk> can be used.
For ammonia and hydrogen along with carbon capture and so you can find you can move into what I would say a low emissions, even lower emissions fuels and address the cotwo I think gas is going to play an important role in that so I think our view hasnt really changed that theres going to be a fundamental need for gas for quite some time and we're positioning ourselves to make sure.
That the portfolio of projects that we developed bring on natural gas.
On the left hand side of the cost of supply curve.
Continue to be focused on making sure that we're competitive under any <unk>.
Scenario price scenario that we can envision out there. So that's how we're thinking about that hasn't really changed frankly.
Thanks, so much.
Okay.
We'll take our next question from Jason <unk> with Cowen.
Okay.
Okay.
Thanks for taking my questions.
Maybe just one quick clarification before I ask my question, which is the dividend raise you used to do I think with <unk> earnings the past couple of years you've done.
With <unk>, so is that a shift of timing or just.
Any comment on that and then.
My question is just on the chemicals outlook as you mentioned.
There has been some weakening in the market just wondering broadly.
How do you see that market evolving in the next six to 12 months supply additional supply coming online additional demand weakness or will things get tighter.
Yeah I'll take the quick question on the dividend.
We would have raised the dividend at the same time last year one of the things I would mention is this is the 14th consecutive year, where we've had an annual dividend increase but we don't have a specific timing determined in any given point of the year in terms of when we make this decision we look at it over time, we're obviously focused on having.
A competitive sustainable growing dividend over time, we know how important it is to shareholders.
Roughly 40% of our shareholders our consumers and we know those people are very much focused on the dividend.
Yes on chemicals.
As you mentioned third quarter, we talked about softer demand.
We really saw that as a consequence of the Covid lockdowns in China.
We're aware of.
The impacts that Covid is continuing to have in China, and that's going to be a big determinant of what we see happening in margins and kind of supply demand balances going out in time.
How well.
China recovered from that and how quickly they can move out of this these periods of lockdown and get their economy economic activity moving back again.
As you move outside of China, which is obviously dominates demand out in Asia and move more west into the U S and Europe I think Europe , obviously with some of the energy challenges that they're facing are going to have.
So much slower economic activity than would be historical so I expect to see some demand impacts coming from there and then in the U S. I would just say, it's kind of a I would just characterize it more as uncertainty I think some of the softness that we saw in the third quarter.
Was driven by inventory draw for many of our customers and we typically see that when there is uncertainty about where the futures going positioning ourselves for.
Eventualities, and making sure that they're covering themselves potential downside. So I think it's.
Tough to tell would love to see how how the fourth quarter plays out but.
<unk>.
In the short term certainly we see inventories coming down quite a bit and then longer term there will be a function of economic activity. Obviously and then just one other thing I had mentioned, we certainly see some industry supply that's coming on in the fourth quarter and we commented on that just in terms of our look forward expectations.
Thanks, Paul.
Thanks, Jason.
Yeah.
We'll take our next question from Raj broker carrier with RBC capital markets.
Hi, Thanks for taking my question.
I just wanted to ask about the LNG portfolio again.
Clarify.
What proportion of your LNG sales on the long term contracts and what proportion are sold on a spot basis. The reason I ask is because your assets are performing extremely well.
In Qatar.
Guinea and Goldman also so I just wondered if that has allowed you to sell some incremental spot cargo. So what proportion is under long term contract and if I could sneak a second one and it hasn't been a change to the 2022 Permian production.
Kind of guidance in terms of growth it looks slightly light relative to at least while I didn't I was wondering if anything's changed there. Thank you.
So the commentary I had made is in our LNG portfolio about 80% of our volumes would be under long term contract and we're seeing the benefit of the timing lag because those contracts are typically the pricing is tied to crude but it's lagged kind of three to six months. So we're seeing that benefit now coming through.
Our realizations.
Yes, I would say on the Permian one of the challenges there is over the years, what we've been doing is working really hard to make sure. We're maximizing the recovery of that resource and and I think we've talked before about some of the technology that we're bringing to bear to make sure that we are doing that in the most cost advantaged way obviously as we go through that we're optimizing.
And adjusting our development plans that continues to be the case. So I expect this year will probably come in about 20% up on last year's growth, which was up 25% from the year before so still very solid growth in the Permian and if you look.
More broadly we expect basically to to meet the objectives that we talked about the beginning year on overall predict production. If you look at what we had talked about the beginning of the year for total production this year and where we will end up the delta there of about 100000 barrels a day is really all driven by price entitlements in the.
We are a much higher price environment, so feel pretty good about the production growth that we're seeing across the portfolio. We've talked about the record production in the Permian and Guyana is obviously performing very very well with both of those.
Boats.
Running at above.
The city.
Yes.
Yes.
We will take our next question from Alastair Syme with Citi.
Thank you Kathy can I come back to the to the thank you.
Greg first question on energy products, and if we go back to the 8-K.
At the close of the quarter you seem to suggest.
Industry margins would be a headwind of almost $3 billion.
Today, the waterfall suggests.
You're going to be really seen half of that so I just wanted to understand I mean, I don't recall the thing.
It was as big a difference between your industry margins and indicating margins of your realized margin. So.
What is it do you think about the portfolio, that's allowing you to.
You bet.
Yes.
Our impact from I'd say straight up refining margins came in kind of right in the middle of the range that we provided for the 8-K and so beyond that I mentioned, we're seeing a positive beyond refining margins and aromatics margins overall revenue management, and then end to end supply chain optimization and.
<unk>, which would include trading profit benefits and so I'd say, if you looked at quarter to quarter, what we've seen in energy products. During the year Theres been a lot of volatility that's been basically tag to the moving price environment. If you look at that over a longer period of time say year to date.
It looks I would say a pretty pretty normalized and then we try to give you information on things that were priced timing stuff that occurred in the quarter, but overtime, we would expect to be pretty neutral and so I mentioned, specifically the program that we have that we used to run.
It is to basically ensure ratable pricing of refinery crude run overtime, we would expect that to be neutral you would've seen in the price timing impact.
Impacts that that was about a $600 million favorable impact for the quarter. So I would say what goes on in terms of overall supply chain optimization and how we're trading around our physical footprint doesn't come through our results Ratably every quarter. This quarter. It was obviously a lot stronger, but if you look at it over a long period of time.
That benefit that's embedded in the business clearly show through.
Do you think going forward.
You would expect to be closer to the industry margin.
It's really going to depend what the price environment is what comes out of our trading portfolio in the fourth quarter. Obviously I would say is you also looked at the overall benefits from the business I'd say the big positive volume factor that we had with something that.
Wouldn't get reflected in our 8-K, because we had incredibly high throughput and utilization.
So what I try to tell you is.
If you put the price timing impacts to decide we would start at about $5 billion in profit and energy products and then it's going to be about what the how the market unfolds in the fourth quarter I would just add to that the 8-K was really looking at what the market factors are and then to the extent that within the business we're working hard.
To improve upon that through the optimization that Kathy mentioned through.
Revenue management across that entire value chain and then trading is trading.
<unk> and with the accounting rules is that booking happens with time that comes in less than a ratable. We saw that in this use this margin bucket this quarter and that will move around as we move forward depending on the price environment that we're in.
Thank you for clarification.
We will take our next question from John Royall with Jpmorgan.
Hey, guys. Good morning, Thanks for taking my question.
Most of my Morass, but if you could just maybe talk about the status of the refinery strikes in France, I know you had.
A couple of facilities that were impacted there.
We're ramping back up.
Where are we now at those facilities and when do you expect them back in full and do you think it actually has a meaningful impact on your <unk> results for downstream.
Yes.
So we reached an agreement with the workers.
Some time ago, and those refineries are basically going back through the startup process when those refineries strike.
We've got to bring those units down and.
Freedom of hydrocarbon and so thats a fairly.
Thorough process of cleaning up the hydrocarbon clearing the hydrocarbon so we've got to bring those back up.
Fairly.
A rigorous process of starting those back out to make sure. We do that safely. So it takes some time to ramp things back up again and that's what the organization is working on I wouldn't expect it to have.
Have a meaningful impact I mean, obviously.
In a market that's short any capacity to come off that comes offline raises the overall prices within the industry and so I think net net that will probably there's some mitigation there with respect to our other refineries that are up and running so I don't think we'll see that in the results frankly.
Okay. Thank you.
We will take our next question from Ryan Todd with Piper Sandler.
Hey, Thanks, maybe if I could follow up on on the Permian.
And yet in your activity levels, there and expectations for U S supply growth in 2023, I would say probably been following a little bit across the board at least partially because of constraints across service providers as you look towards your 2023 program.
Do you anticipate stepping up activity levels in the Permian to achieve that program.
And if the market supports it is their appetite or interest or even ability on your part to accelerate further so.
How much activity increases baked into the program and how tight do you see the market there in terms of your ability to kind of move around that.
Yes, sure well I think the point you make are good ones in the market is tight and I think generally the industry theres not a lot of capacity.
As you look across the different steps required to bring on additional production. So I think that is tight that will obviously with time loosen up a little bit, but I think generally speaking for the industry as a constraint. Obviously every every company will have different degrees of freedom in that space.
We have some degrees of freedom, there, but I would just say.
We're staying very firmly grounded in our philosophy of making sure that the investments that we make generate high returns at low prices and so the the capital discipline that my definition of capital discipline is making sure that you spend money that's advantaged and has generated good returns even in the down cycle, we're going to stay.
Rounded into that and so anything that we do on the margin has to first and foremost meet that criteria that it's robust too.
Wide range of price environments, and that we'd be happy irrespective of what prices, we're seeing out the window, we've got capacity to do that frankly in some space. So we will on the margin.
<unk> spend money to where we can see an opportunity to bring that on but I wouldn't say.
If you look at kind of a range of Capex that we've provided over the years, we gave ourselves that range obviously.
Anticipated movement.
Not only within the year, but across from one year to the next and so.
We feel pretty good that with in terms of the ranges that we've provided our plans going forward.
Are you still very consistent with those ranges and Kathy will spend more time talking about that in December when she.
It takes you through the plan that we will get endorsed with the board next month.
Thank you Sir.
Right.
We will take our next question from Paul Cheng with Scotiabank.
Hi, good morning, Thank you.
Alright.
Okay.
Is that right.
I don't actually recall unit.
Paul about trading yet.
A contributor to the Wheatstone.
Alright, Tony I think the U S company, such as you surf one tends to take on more.
<unk> approach in treating comparing to Europe .
So just curious.
We can.
Company.
What changed.
Okay.
In Poland or that this is Jeff <unk>.
Circumstances.
And that when we're talking about trading.
Training, we referring to that is.
Making a big contribution this quarter. Thank you.
Yes, good morning, Paul ill touch on that and then Kevin you got anything to add jump in on the back but what I would say is I think we talked about this some years ago that we were when we move to the value chain cost structure. When we combined our fuels marketing organization with our refining organization and start looking at optimizing.
Value all along the.
The value chain.
Trading organization.
Became a much more relevant channel with respect to optimization and so at that time, so back in 2018.
We made.
The decision to invest more in trading and to change the approach there to optimize to act as an optimization tool along with all of our assets and as you may recall, we talked about asset backed trading and that continues to be.
An important part of the product solutions business and more specifically the downstream element of the business as well as our upstream crude and so that organization.
Has grown with time and continues to.
Perform that optimization function I think what youre seeing.
This quarter in particular is appointed Cathy made which is.
The way you account for trading that can be kind of noisy quarter on quarter and then if you look longer term you can see the value kind of embedded within the businesses and it is I would say very embedded within those businesses. So we don't break it out just because it is an asset backed trading strategy and therefore the value derived through that obviously is through <unk>.
Trading, but obviously also through running our refineries reliably having the product and.
Having the assets to support the arbitrage is in the trade activities that under that.
Create that value and this quarter, we saw with the way that the prices moved a bigger chunk of it booked in the quarter, but I would just say.
As you look at that over time, it is a meaningful contributor to the value equation and our downstream value chain.
And then the only thing I would add to that is we are trying to also tell you that there are some impacts that over time, we expect to be neutral. So the fact that we use derivatives to ensure ratable pricing of our refinery crude runs sometimes that's going to give us a positive in a quarter, sometimes that's going to give us a negative in a quarter over time it should be neutral.
First what I tried to get out with a price timing okay.
That's great and then just curious.
<unk> can also contribute to the goal.
Natural gas price realization.
You will recall that that had nothing to do with that.
We also have trading that that we would be doing within our upstream business and so you can see that some of those impacts reported in our results but.
That we have spot I would say exposure and we do we do trade around that as well very embedded in the business, it's not really.
Big a factor as what we would've seen obviously in energy products.
Okay. Thank you.
We will take our next question is from Neal Dingmann with tourists securities.
Good morning, all and thanks for the time My quick question is just on cost specifically could you all speak to your thoughts for 2023 on OLED Thats in place and and other rising costs, particularly in your two highest returning areas.
The Permian and Guyana.
Yes ill touch on that Neil I mean, obviously, we're subject to the same broad market forces that everyone is seeing out there and so.
Inflationary pressures across a number of our sectors and activities I think a couple of things.
One is as you will recall.
As we went through the pandemic in the downturn, we were very took a very concerted effort to work with our contracting partners and the recognition that we would be back that we would longer term.
B running rigs in.
Putting pipe in the ground and so try to enter into contracts that reflected that longer term objective and that has helped manage some of the inflationary impacts in that we kind of set some contracts back in the downturn with a commitment to continue to spend money going forward and so that's.
And offset and then of course the organization with all the changes that we've been making and remember we took our upstream organization.
Seven plus businesses down two to one and organized very very differently. We've centralized a lot of the function is really trying to harness our scale and leverage.
The purchasing power that we have and then cut our cost out so all of those efforts to become more efficient and more effective in the marketplace and reduce costs are having a significant impact we mentioned in the earnings release that to.
To date, we have $6 $4 billion of structural savings versus 2019, and we're well on our way to meeting the objective we set by in 2023 of $9 billion of structural save.
Savings, so that's helping to offset some of those inflationary pressures and then on top of that with decentralized organizations and more effectively leveraging the scale, we're getting what I would call what we term as kind of.
Short term efficiencies.
Purchasing power. However, you want to think about that that we don't put in the structural bucket, but actually helps us to offset costs and so we've challenged ourselves to deliver on our.
Expense budget for the year and to offset inflation. The organization is doing a pretty good job at that I think will be within rounding.
With respect to that and then next year. The organization is very focused on using the opportunities that have been created through the restructuring of our business to.
Offset those inflationary pressures.
We're going to stretch ourselves see how much that we can do.
Great details. Thank you all.
We have time for one more question.
Thank you we'll take our last question from Roger read with Wells Fargo.
Yes, good morning.
Maybe just to follow up on the capacity question that was asked earlier, but rather than just focus on.
Services capacity in a particular region or something like that Darren I was curious if you look at tightness be it.
LNG.
Finding et cetera, what are you.
Do you think it takes or do you believe that the capacity exists for the for the world to move forward to do what it needs to do over the next say two to three years to add capacity or do you see it as a situation where there probably is.
No other option, but to curtail demand for some period of time, just kind of a macro question, but you can't.
You brought it up in the intro.
Taken at me here is Tim.
What is the way out of this maze.
Yeah, well thanks Roger.
I think the.
Industry has been historically pretty good at flexing.
On capacity to meet to meet the demand and so I'm optimistic that with time the markets.
We've proven this I think over the years that the markets will come back into balance, but it is a function of time thinking the short term.
Everyone will squeeze what they can certainly you've seen us pushing as hard as we can too.
Make sure that we're running reliably and we're getting product to the marketplace to meet that need in the market I know everyone else.
Is trying to do the same so I think that.
That piece of it is sweating all of the existing assets as hard as you can is going to help in the short term, but longer but more structurally. It's just a function of getting these projects developed and on track I mean, Fortunately for us.
We've had a very.
Healthy pipeline of projects that have been in work and so.
It's not we're not out trying to find something to work on we were basically focused on delivering the pipeline that we've got in <unk>.
Bring it on as we talked about we brought in coral floating LNG Adamos peak. This this quarter.
That's additional capacity, we're progressing investments in Papa New Guinea, we've got Golden pass here in the U S.
Progressing very large LNG export terminal that should come online in 2024, that's going to probably increase the exports out of the golf coast by 20%. So I think the capacity is there is just a function of the time. It takes to build these very significant projects and I would also tell you that if you look at on the crew.
Side of the equation, making very good progress with the next spoke into Guyana.
We continue to believe we're going to bring that in a little bit early.
And we're progressing the ones after that so I think.
The capacity is there is the challenges.
Executing efficiently so that youre getting.
You're spending your capital efficiently and then doing it in a way that brings it on.
Expedite expedited fashion, which is what we're focused on doing and then just the one thing I'd add is on the demand side I think all companies that can.
Looking to Kinder, especially LNG.
That it can be there for either you sell across our footprint in Europe .
Already kind of switched over 65% of our use of LNG to other fuel sources. So that it can be there for either Nielsen I expect that other industry players are doing the same.
Great. Thank you.
Thank you.
Thanks, Roger and thanks, everybody for your questions today, we will post the transcript of the Q&A session on our Investor website. Early next week have a nice weekend, everyone and let me turn it back to Katie to conclude our call.
Thank you that concludes today's call we thank everyone again for their participation.
Okay.
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