Q2 2019 Earnings Call
Yes.
For me the code.
It's 4596 to seven.
Thank you Mary have your name with spelling Lee.
First name Michael mice, CH, A.L. last name, which VI CH.
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Yep.
Thank you your company.
Era Stoke A.I.E.R.A.
I E R. A.
Correct.
Thank you all police you into the second quarter of Fynineteen earnings call, you're going to hear music until they began.
Thank you.
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And the supplemental information at the end of this presentation.
Moving to slide three.
Let me start first by summarizing the solid progress we've made on our major growth plans along with other noteworthy accomplishments.
Neil will go into more detail after my remarks, but I wanted to take a few moments to touch on some key highlights.
In the first half of the year, we've made good progress on our growth plans.
The fundamentals and long term demand growth that underpin our investments remains strong.
The competitive advantages, we have built into our projects make them robust across commodity price cycles, including the margin environment. We are currently experiencing.
We reached final investment decision for nine major strategic projects in just the first six months of the year.
Including projects from all three business lines.
Offshore exploration success continued with four significant deepwater discoveries.
Three in Guyana, and one in Cyprus, and we achieved key milestones in the development of two of our LNG growth projects, and Papa New Guinea and Mozambique.
Liquids production increased significantly from last year.
With volumes up 144000 barrels per day or 7%.
Driven by strong growth in the Permian.
We remain on schedule with plans to increase production in the Permian to 1 million oil equivalent barrels per day by 2024.
As we also continue to build out supporting infrastructure and takeaway capacity.
In the downstream and chemical businesses recent project startups in North America, and Europe are already making a positive contribution to results.
These projects are accretive to earnings even in the current margin environment.
Demonstrating the market resiliency, we envisioned when making these investments.
In particular the base the Baytown steam Cracker, which started up last year has performed exceptionally well.
With production exceeding design capacity by 10%.
Lastly, we increased the quarterly dividend by 6%.
Marking the 37th consecutive year of dividend growth.
Positive momentum we generated in the first half of the year is in line with the plans we laid out in 2018.
And reiterated in March.
And positions us very well to generate long term shareholder value.
I will now highlight our second quarter financial performance starting on slide four.
Earnings were $3.1 billion in the quarter or 73 cents per share, including a positive 12 cents per share impact from a tax rate change in Alberta, Canada.
These results were in line with our expectations.
Given the margin environment seasonal impacts and planned maintenance, we experienced during the quarter.
The margin environment remain challenging in the second quarter as short term supply and demand imbalances continue to pressure natural gas prices and industry product margins.
Cash flow from operations and asset sales was $6 billion in the quarter.
After adjusting for changes in working capital.
Which were primarily seasonal in nature and consistent with historical trends.
Cash flow was $7.2 billion.
An increase of $1 billion from the first quarter.
Capex for the quarter was $8 billion and through the first half of the year Capex is $15 billion.
Representing 50% of the full year guidance, we provided in March.
The free cash flow deficit in the second quarter as a result of our strategy to focus on the long term.
And grow shareholder shareholder value across commodity cycles, leveraging our financial capacity.
I'll now go through a more detailed view of developments since the first quarter on the next slide.
Starting first with the upstream.
Average crude oil prices were higher than the first quarter.
With Brent up $5.63, and Debbie Ittai up $4.93.
Exxon Mobil's liquids realizations increased by $5.09.
In line with the increase in crew markers.
Gas realizations on the other hand were down in the second quarter.
This was consistent with a typical three to six month crude linked LNG pricing lag that we experience.
And a 51 cents decline in Henry hub pricing.
As production growth continues to outpace demand in the us.
Gas realizations were also impacted by weaker prices in Europe .
With lower seasonal demand and an increase in LNG imports.
Production in the Permian averaged 274000 oil equivalent barrels per day, an increase of 21% relative to the first quarter.
Permian production is up nearly 90% from the average production we saw in the second quarter of last year.
In addition to three exploration discoveries in Guyana in the first half of the year.
We recently completed construction of the FPSO for lies a phase one the lives of destiny.
Which is now in transit to Guyana.
We also made a final investment decision for the 220000 barrel per day flies a phase two project.
And we updated the resource estimate to more than 6 billion oil equivalent barrels.
We also progress toward a final investment decision for the Mozambique LNG project.
By securing approval of the Roomba development plan from the Mozambique government.
We announced plans to expand unconventional operations in Argentina is Vaca Muerta basin.
And expanded our weren't growing deepwater exploration portfolio.
Including the acquisition of $7 million deepwater exploration acres offshore Namibia.
In the downstream industry refining margins improved during the quarter, but remained near five year lows.
Unrelated reliability reliability events at the Baytown, Sarnia and yanbu refineries negatively impacted second quarter results.
We expanded our group to lubricant base stocks portfolio with increased production from the Rotterdam Hydrocracker and a further expansion in Singapore.
Although long term fundamentals remained strong in the chemical business.
Para xylene margins weekend during the second quarter as a result of supply lengths from recent industry capacity additions.
We achieved another important milestone in our plans to grow high value premium chemical product sales.
With the startup of the polyethylene expansion at Beaumont.
Which will capture integration benefits with the Baytown steam cracker.
And once lined out is expected to be accretive to earnings and cash flow in the current margin environment.
We also announced a final investment decision for the Gulf Coast growth venture and Corpus Christi.
Where with our partner Sabic, we will construct we will construct a 1.8 million ton per year steam cracker and derivative units.
We continue to progress research and development of lower emissions technologies.
In the quarter, we signed a joint development agreement with global thermostat.
To advance breakthrough technology to capture and concentrate carbon dioxide emissions from industrial sources.
Including power plants.
We also initiated a partnership with the department of Energys National Renewable Energy Laboratory.
And National Energy Technology Laboratory to research and develop a range of lower emissions technologies.
With a specific focus on ways to bring biofuels and carbon capture and storage to commercial scale.
Both of these important efforts are aligned with our focus on leveraging fundamental science to develop breakthrough solutions that can help reduce global emissions.
Let's now move to slide six for an overview of second quarter earnings relative to the first quarter of the year.
Second quarter earnings of $3.1 billion were up nearly $800 million from the first quarter.
Upstream earnings were up approximately $400 million.
Driven by higher liquids realizations, and one time tax items.
Partly offset by lower natural gas prices.
Downstream earnings increased by more than $700 million due to improved fuels margins.
Wider north American crude differentials and the absence of negative mark to market derivative impacts.
Improvements in downstream earnings were partly offset by the previously mentioned reliability events.
And finally chemical earnings.
Were lower by $330 million.
With higher scheduled maintenance and weaker para xylene margins.
Turning to slide seven I'll expand on the impressive year over year increase and upstream volumes.
Production in the second quarter of 2019 was 3.9 million oil equivalent barrels per day.
An increase of more than 260000 oil equivalent barrels per day relative to the second quarter of last year.
Representing a 7% increase.
The higher volume was driven by production growth of 129000.
Oil equivalent barrels per day in the Permian.
Which represents an 89% increase from the prior year quarter.
Increased production from Hebron and Kaombo also contributed to the higher volumes.
Lower maintenance in Canada, and the absence of impacts from the earthquake and Papa New Guinea.
Combined with stronger seasonal gas demand in Europe provided additional volume uplift.
The bottom left chart.
Highlights the strong year over year liquids growth of 177000 barrels per day, an increase of 8% from the second quarter of 2018.
Importantly, this marks the highest quarterly liquids production since 2016 and have the highest second quarter liquids production in a decade.
Moving to slide eight I'll review, the second quarter 2019 cash flow.
Second quarter earnings when adjusted for depreciation expense and changes in working capital.
Yielded $6 billion in cash flow from operating activities.
There was a $1.2 billion draw on working capital in the quarter, driven primarily by lower seasonable seasonal seasonal payables.
This impact is in line with a typical seasonal pattern of a working capital draw in the second quarter.
Which has been on average about $2 billion over the last decade.
Other items included the impact from the Alberta tax rate change, which resulted in a noncash benefit to earnings of approximately $500 million.
While no significant asset sales have completed year to date.
Asset marketing activities are in line with our divestment plans.
And consistent with our expectation of generating $15 billion from asset sales by the end of 2021.
Second quarter additions to pp any.
And net investments in advances were $6.9 billion.
Driven primarily by increased activity in the Permian basin.
Gross debt increased by approximately $4 billion in the quarter.
And cash ended the quarter at $4.2 billion.
As I've discussed and as you can see we are leveraging our financial capacity to invest and advantaged value accretive projects through the commodity price cycle.
This is an important element of our strategy. So let me provide some additional perspective on the next slide.
The chart at the top left of the page provides a view of commodity prices and margins over the past 10 years.
And the relative position of the environment, we've seen in the first half of 2019 to that range.
While margins so far this year have been on the low end of the 10 year range across many of our businesses.
These levels are consistent with historical experience and importantly, consistent with the scenarios that we anticipate when we make investment decisions.
In fact, even in today's market environment.
As mentioned in the previous the recent chemical and refining project startups that I previously highlighted.
Our contributing positive earnings and cash flow.
The cyclical nature of these businesses makes it critically important.
To have the financial capacity to invest across commodity price cycles and grow the dividend.
Over the past several years, we've taken advantage of these downturns and commodity prices to assemble the best set of opportunities that Weve had in 20 years.
And we're now investing consistent with our strategy to capture value from those opportunities.
This combination of financial capacity to invest through the cycle.
And a deep portfolio of attractive investments is unique and industry.
The chart on the bottom left of the page highlights our annual free cash flow generation over the past several years.
Cumulative free cash flow over this time period as well in excess of our cumulative dividends.
This provided a strong basis to make value accretive investments.
And grow the dividend over time.
And we view those two efforts as being closely linked together the ability to grow the dividend requires continued investments and accretive resilient opportunities across price cycles.
During times of price volatility, we keep for long term in mind.
As there can be a number of opportunities to capture incremental value by investing when others are pulling back.
With our financial strength and a competitively advantaged portfolio, we've been able to invest counter cyclically and a number of key growth areas.
Taking advantage of attractive low cost environments.
I will now provide some perspective on our outlook for the third quarter starting on slide 10.
In the upstream we expect volumes in the third quarter to be in line with the second quarter.
We will also see the impact of the absence of the second quarter onetime non us tax help of approximately $500 million.
In the downstream, we expect Permian crude differentials to narrow as additional takeaway capacity comes online.
Industry refining margins are expected to be in line with seasonal demand patterns.
Scheduled maintenance in the third quarter should be significantly lower relative to the second quarter.
Chemical margins are expected to remain under pressure.
As the market continues to work through supply lengths from recent capacity additions.
Consistent with the downstream scheduled maintenance in the chemical business in the third quarter is also expected to be lower.
And I'll provide some additional details on scheduled maintenance on the next slide.
As we've previously discussed scheduled maintenance in the downstream this year will be higher than normal in part due to preparation for IMO 2020.
Planned maintenance and downtime tends to be seasonal.
In line with demand patterns.
And consistent with this we expect the impact from scheduled maintenance in the third quarter to be lower relative to what we experienced in the second quarter.
And then in the fourth quarter, we anticipate maintenance activity to pickup as we enter into the fall maintenance season.
But activity again should remain.
Below second quarter levels.
The estimated earnings impacts for the third and fourth quarter for the downstream are shown on the upper left chart.
In the chemical business as shown on the bottom left chart.
We also expect lower scheduled maintenance with the impact in the third and fourth quarters below what we saw in the second quarter.
We hope this provides you with some helpful perspectives on key drivers of anticipated market and planned factors for the upcoming quarter and with that at this time I'd like to hand, it over to Neil.
Good morning, everyone. It's good to be back on the call.
As Neil said before we take your questions I'd like to share my perspective on the second quarter results and then I'm going to provide a few updates to the plans that we laid out in our New York March discussions.
I want to start by acknowledging the strong liquids growth.
As I've said many times volume is not a target.
It is an outcome of our plans to grow value.
Nevertheless, the liquids growth reflects well on the organization maintaining schedule.
In the early stages of executing our upstream growth plans.
In terms of those growth plans the ones, we laid out in New York.
I feel we're making outstanding progress.
Permian growth is strong and on schedule.
Guyana project plans are on or slightly ahead of schedule.
And in the downstream and chemicals and 11 of the 19 projects that we laid out a new York last year our online.
And Wi Fi deed another six in the second quarter.
And to provide some further details on these in the following slides.
We are in a unique position versus the rest of industry.
We have a very attractive opportunity set these of the advantage projects, that's a robust at the bottom of the cycle conditions.
So we have a very attractive opportunity set and we have the financial capacity to pursue them in a business that is very cyclical.
In the second quarter three of our major businesses were at low points in their cycles.
As you heard from Neil that's been a major factor on our quarterly results.
While we obviously prefer margins to be at the top of the cycle. The current margin scenario was contemplated and we have the financial capacity to maintain our plans.
In fact, we built our growth strategies based on a full range of potential industry margins and the impact they would have on our financial results.
That is why we put such importance on having a strong balance sheet.
To enable us to proceed with a long term investment plans and whether through the cyclical nature of our business.
On the wholesale businesses performed extremely well during the second quarter.
Actually they have in the first half of the year.
Chemical and chemicals and upstream reliability has been excellent and refining has also been strong with the exception to the three discrete incidence the one in Sarnia, Canada, one in Yanbu, Saudi Arabia, and the one in Baytown, Texas that Neil referenced.
Although these are one off a not systemic to our overall performance in total we estimate the second quarter impact from these three incidents to be of the tune of $150 million of earnings Thats the earnings impact.
Of course this is disappointing.
Baytown and the yen move facility and now back in full production.
And Sarnia will be marginally lower rates through the fourth quarter.
I want to take this opportunity to update you on the fire that occurred at our Baytown olefins plant earlier this week.
First and foremost is the safety of our people and those in the surrounding community.
And investigation into the cause of the incident and the potential damage continues.
And frankly at this stage, it's really too early to say much more than that.
On the larger point of reliability of course, it's an important focus area for us.
It has been for a long time.
We benchmark extensively on our downstream facilities are ranked consistently better than the industry average. However, we must eliminate the significant one off events as we just not satisfied with being an above average industry performer.
We are progressing a comprehensive reliability improvement program that we initiated late last year.
This is leveraging insights across our upstream refining and chemical businesses and is also reaching out to lead is outside of our industry.
To ensure that we leave no stone unturned in our drive to lead industry to liability at all times.
Slide 14 summarizes the progress of our major portfolio.
Starting with the upstream I'm going to provide some more details on Permian and guy on the subsequent following pages.
In Brazil, our current development is proceeding on schedule.
We expect to spud the first exploration well on Oahu and Thats. The block that's adjacent to conquer with our partner Petrobras in the second half of this year.
We passed two significant milestones with host government approvals of our development plans for the Paqui LNG in Papua New Guinea, and Roma in Mozambique.
In the downstream of three investments at Beaumont Rotterdam and Antwerp. These are all upgrading low value streams to higher value streams that lined out and all the contributing to earnings and cash.
And in the second quarter, we completed the Fi de of the three remaining major refinery projects that are in our growth plans.
In chemicals, the new Baytown cracker into polyethylene plants are performing well and the expansion of the high margin thermoplastic elastomers business and send to preen started up in may of this year.
All these investments are also accretive to current earnings.
We started of the third polyethylene plant of Beaumont in July and that was one month ahead of schedule.
We also completed the Fi DS of four major new world scale plants in the first half three of which were in the second quarter.
That's a new polypropylene line of Baton Rouge, Alenia Alpha olefins plant at Baytown that will be a new product to exxonmobils chemical portfolio.
An expansion to our industry, leading high margin propylene plasma business at Vista, Max which is also a baytown.
And the largest steam cracker that we have ever built plus the derivatives of Corpus Christi.
On slide 15, you can see that our unconventional Permian and Bakken volumes are growing in line with plan.
We increased our Permian volumes by 20% in the second quarter, which is up 90% versus the second quarter last year.
We're now at 51 rigs in 12 Frac crews in the Permian, We bought 67 wells to sales in the second quarter.
Our unique development plans, which are focused on maximizing long term value of the resource and leveraging the scale of Exxon mobile to drive capital efficiency are delivering encouraging results.
The rocks in well performance is extremely strong.
And as I said previously our approach is to understand the impact of development and operating practices on both IP rates and long term recovery.
Drilling a single well and applying the logic completion with higher intensity Frac, Jay can yield high eyepiece, but may yield lower ultimate recovery. This is drilling several wells with less intense completions.
Capital efficiency is critical and it's an area where our team is constantly looking for ways to improve.
It's all about balancing capital outlay, eyepiece, and the ultimate recovery to achieve the highest value.
We've ramped up activity above surface with the ongoing construction of our cowboy central delivery point facilities in the poker Lake region of the Delaware.
And we finalized the Epay I thought I'd to proceed with the greater than 1 million barrel, a day liquids pipeline to the Gulf Coast.
The Permian level activity is high.
And we're making great progress.
Page 16, our first Sps So Lisa Destiny is en route to Guyana.
The startup is scheduled for the first quarter of next year.
But I am optimistic we will do better than that.
We completed the F. I'd on the secondary FPSO, Lisa too, which is close to double the size of lease the one in the second quarter.
And that will start up in 2020 two.
The startup of the third Fps so for the pay out on a quarter development remains scheduled for 2023 startup.
We've had three further discoveries in the first half of 2019, hi model to lap year in yellowtail.
We're continuing to assess the results of these discoveries and a not yet ready to finalize their resource size.
However, the stabroek resource will be six plus billion oil equivalent barrels and again as I've said before this resource continues to grow.
We anticipate three further exploration wells in the second half.
They are likely to include Triple tail, you auto and Mac.
With the potential for foreign to spud before year end.
We currently have three drillships in the basin and the fourth will be on station in the fourth quarter.
On the bottom left we've included a chart to illustrate the continuing increase in our inventory of future exploration prospects.
I've included page 17 to remind you of our upstream divestment plans through 2021.
We've previously communicated that we anticipate asset sales of $15 billion.
As I said before the $15 billion is a risk number and I anticipate that some of the divestment candidates that we put in the market will not realize our retention value.
But the marketing program is on track.
And includes the assets listed on the right.
We're also in marketing discussions on other assets that are not public.
So I have not of course listed them here.
Again this program is on schedule and we anticipate delivering the $15 billion previously communicated.
Finally on slide 18, a quick update on the significant growth milestones in our integrated ethylene and polyethylene business on the Gulf Coast.
The baytown among belvieu investments have been online for some time and as I said earlier are accretive to earnings even at the current low margins.
The polyethylene units at Mont Belvieu started up in 2017, and our operating at capacity.
The ethylene steam cracker at Baytown, we started up last year is operating at 10% above design capacity.
The third polyethylene line of Beaumont started off in July ahead of schedule.
This was the first line in the world to start up on the higher value, but notoriously difficult to produce within a gas phase reactor metallocene polyethylene and that was from the first day of operations. We're very pleased that our startup was flawless.
In the second quarter, we completed the Fi de of the largest steam cracker, we will have ever built plus the derivatives.
And they are going to be located a corpus with our partner centric.
This will be highly advantaged versus the industry Gulf coast investments based on location and of course, the adjacency to the Permian lower capital cost and high value products startup is scheduled for 2022.
The fundamentals supporting these chemical investments remained strong.
All of this is being done to what we know we'll be increasing global demand supported by population growth and a growing middle class.
In summary.
Our organization is absolutely focused on delivering the operating performance, we expect today and on delivering our growth plans.
We have a high level of confidence that we will deliver on our performance through the first half of this year demonstrates that we're on track.
So with that Neal I'll hand back to you right for the company. Thank you for your comments Neil.
I will now be more than happy to take any questions you might have.
Thank you Mr., chairman and Mr. Hanson.
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We'll take our first question from the line of Doug Leggate with Bank of America.
Thanks, Good morning, everyone and Neil Great to have you back on the call.
Mila I've got two questions. If I may my first one not to be terribly predictable is on Guyana.
Clearly the exploration program Hammerhead you you dedicated both assets. So appraisal drilling I know you as I understand it from your partner, you're you're going off to kind of fully appraised what it could be a major development hub.
And long tailed turboten area. So I just wonder if I could just push you a little bit on why you have not yet.
Chosen to revisit the.
The likely production trajectory because it clearly looks like you're running well ahead, not least because to have a fourth and fifth board and still has some 50 means those would be undersized. So just can you frame for us what you see the potential like today on how that would play into your 2025 outlook.
Which is clearly out of date.
Yeah I've added at a date.
You know, it's what we communicated in and in March was this big increase getting up to 750, K. BD by that time I would tell you.
There is a tremendous amount of activity going on in the basin I want to start to that point, we as we said we have the first vote on the way we have the second boat in construction, we have three drillships, we have a tremendous amount of activity going on and all of these items.
Are we getting a great great pace.
We have to get to maintain alignment with our partners and with the government on each one what I'm really focused on in the organization is focused on primarily as delivering on what we communicated to you into an end to the investment community and that's the numbers that we laid out.
In March and of course as I indicated there are some.
We are very optimistic.
But that will be at least what we will do that we're just not ready to make another change to either the production outlook or at this stage anything more on the resource base. You mentioned Ham ahead, let me just make a couple of comments on Ham ahead.
And I think you have some are aware that we drill two more wells on the Ham ahead recently and the results were positive.
I would describe them as them.
Reinforcing their high quality reservoirs.
If we've now drilled three wells and Ham ahead.
They are in communication the pressures in communication, which means as very good connectivity, which again suggests that as good news for that development planning.
You talked about appraisal drilling you know we're going to be.
Doing some appraisal drilling on Ranger, which we've not quantified yet that's the large carbonate structure of course.
All of that being said, we just have a tremendous amount of activity going on I want the organization focused on delivering what we've committed to.
And then.
Frankly.
The next significant update in terms of outlook for full production I don't think we'll give anything different until an update in March of next year.
I kind of assume.
Well I didn't want to be in person by seeing the days, let me just clarify what I meant when you first gave the 2025 target. The guidance was 500000 barrels a day and that was more than 750 and you still haven't changed at 2020, I know, it's a long way away, but that was my point.
My follow up Neal is.
Probably a little bit of an off the wall question.
Kind of related to the disposal pace.
On the cloud the use of proceeds my understanding is that you recently conducted a study with a buy side on opinions on share buybacks return of cash to shareholders on how are you.
You know how you might consider that in the fourth and the future, perhaps even with a potential to lean on the balance sheet I'm. Just wondering if you could share your thoughts as to what was behind that is the reason for that survey on that whether youre still comfortable with the pace of the disposal program you laid out at the analyst day I'll leave it there. Thanks.
Yes, I mean, we are again Neal can maybe make a comment in the second on the specifics of the survey let me let me just make some comments on the disposal program.
We highlighted $15 billion I toe Isight I told the investment community that was at risk number.
In other words I anticipate we will have to put more in the market to achieve that number we are on track with that I would tell you where I am.
We communicated that in March we just four months into a three month program.
And so a three year program rather and.
We're on track with the marketing and what we said.
At that time was in terms of our capital allocation. There's no change in the priority continues at our use of cash use of capital starts with investing in value accretive projects.
Secondly, we are going to maintain our growing dividend.
We want to maintain our financial flexibility and then we'll look at how how else what else, we do with the cash in terms of buybacks and Thats. The way I think we've discussed it for many years and we reinforce that and.
In in March of course, we see indicated then it with a $15 billion on the planning basis that could result in returning some cash to the shareholders, but yeah. We will look at that as that cash comes in and we'll assess that based on the market conditions at the time.
He wants to Oakland facility, yes.
Again, just as Neal mentioned.
The discussions we've had with a few buyside firms I wouldnt classify it as a survey.
We certainly reached out to them to talk about how you might execute a buyback program. It wasnt intended.
Get a different perspective on our capital allocation priorities, which as Neal mentioned remained remain the same it was more to gain a perspective from a few buyside firms on if you execute buybacks, what's the best approach to do that with that philosophy, you should take but.
Again, Doug I Wouldnt classify the CIO survey it was a it was a discussion with a handful of the buy side firms or some of our larger shareholders.
Understood appreciate the answers guys and thanks again for getting O'neil.
Yes, Thanks, Doug.
Next we'll go to Doug Terreson with Evercore ISI.
Body.
Neil financial results in the first half of 19 of 2019 seem to be tracking below the plan outlined at analyst day for 2020, although the company made clear at the time that those projections were predicated upon flat Brent rail and flat downstream chemical margins too. So my question is when adjusting for market factors and whatever else you might deem appropriate.
Are you still comfortable with the 11% return on capital employed and $25 billion annual earnings figure for 2020, and if so what factors will help bridge the gap from the first half 19 heck tools to the full year 2020 projections.
Or do you think we'll get there solely from normalization of the market factors that Neil mentioned.
On page nine and his opening comments.
Yeah, well aneel outside again, we feel that we have Neil squared here of course, but if in doubt I'm getting this Neal jam and I'm going to answer the question and Doug I would tell you remember when we laid out this plan.
In March 2018, what we were trying to indicate is that the earnings power of the cash flow power that would bring into the business at constant prices and at flat margins and at that time, we said, we'd do to a flat $60 a barrel and we do it the chemicals and downstream at 2017 actual margins and that was our intention and of course, we go back and stupid on performance and I think thats. What Youre asking is how are we doing if you take away the pricing and margin impacts of the current earnings I would say, we're pretty much matching plan okay.
The significant significant the concern we've had of course has been these.
A reliability events, particularly the ones that we've had in the downstream.
Outside of the ones that we reported in the first and second quarter. There's nothing material that's changed from our plan that we laid out last year. It Doesnt mean to say they are on pluses and minuses. It doesn't mean to say we have some positive surprises and some negative surprises I think that would be naive to say everything is absolutely perfect, but on average I would suggest that.
We're pretty much tracking the plan and there's no reason at this stage for us to adjust those outlooks that we laid out.
18 months or so ago, Okay, now I realize its imperfect, but just wanted to try to get try to get a gauge on it. So thanks a lot Joe.
Next we'll go to Sam Margolin with Wolfe research.
Good morning.
My My first question is about the Permian.
You know the industry for a while now but.
Maybe coming to a head here is seems to be having some issues with spacing.
And its impact on productivity.
No we don't have a lot of precise numbers about.
Your spacing, but we do know that your development plan sort of calls for.
They call it a high concentration of lateral feet per square mile or did you. Just you have a lot of wells that are stacking up in your in your section. So can you talk about.
Just broadly this might be too complex a question I don't want to get too esoteric, but just broadly how you're.
Managing some of these issues we are seeing in the industry given the nature of your development plan in the Permian.
Yeah assignments.
Of course, what I'd like you I read of many of the different.
Results in the industry I would I would tell you that in terms of planning basis again, it's unchanged from the detailed plan that I laid out in March.
And what I said at that time that we are.
Driving a different approach than a than the industry with these really leveraging a combination of this large contiguous acreage that we've had and leveraging the scale up of Exxon Mobil and of course, you will recall that I went through all of that I also discussed at that time.
That term.
We are working on plans that will develop and drill multiple horizontal benches at one time.
Our feeling is that there is communication between these horizontal benches.
And if you go in and drill one bench now and expect to come back years later and drill the other benches.
We do we do see a we do believe this communication between the benches energy dissipates and our belief is that drilling up multiple benches simultaneously in the approach that I laid out pays to be the right way to go we're at the very early stages of that frankly, it's too early to highlight anything new from what I said.
Back in March of last year, I am aware that there are competitors out there who have looked at spacing and have moved along.
A line of having closer spacing than we have in our plans I have heard that I think everybody in industry is right about that.
My understanding is is the company involved in that has pulled back from it it hasn't been successful we have not taken that approach.
Spacing as not as tight effects. So it's early days, we have nothing new to report.
Versus what we said last time and as I said, we are we are on plan and.
Nothing nothing different.
Okay. Thank you. That's that's helpful. We'll go back to the to the barge materials My follow up is on chemicals and.
It's sort of a macro question you highlighted that there is some margin headwinds in the industry right now due to capacity but.
Capacity continues to get sanctioned globally, there's theres, if I'd sort of in the face of this margin pressure and so I was wondering from your perspective on on the demand side are you seeing you know a big pull for for a new supply in.
In the pet Chem chain, even even with some capacity related margin headwinds now and you know what does that say anything about the longer term cycle and what your high level views on on the on the Chem side, Yes, Sam I would tell you that and again and chemicals you have to break it down to the individual products and of course, we are heavily focused on ethylene and polyethylene and and those are the margins that we typically talk about on that and.
Neil highlighted the para xylene business, let me talk about ethylene and polyethylene because that's the major driver of our chemical business.
Polyethylene demand grows at about one and a half times GDP.
And as I recall, the ethylene market is about a 150 million tons globally and so what that means is you need three to four new crackers per year, just to meet demand three to four world scale crackers per year actually what we see right. Now is the demand remains very robust around the world. It's all driven by the growing middle class around the world. That's the driver for plastics, that's the driver for polyethylene that middle class.
Having a highest standard of living and that drives the consumption of polyethylene. So.
Actually globally, we see the demand remaining very robust there's no changes at all what's happened is there has been a glut of capacity.
And so capacity is higher than demand in the polyethylene business. Unlike some of the other commodity businesses were in the demand sucks. It up relatively quickly now I will tell you that there are some further increments of capacity in ethylene and polyethylene to come online in the next year or so.
So we don't see any change in the fundamentals of the tool the gluts in supply today is all because of.
These new capacity increments, most of which around the Gulf coast and so I think the short term margins and if I was to try and predict short term outages in AVOD typically I would get it wrong, we do but.
Because of this extra increments of capacity to coming on in the next 12 months I would anticipate it to be pretty soft during that period now.
I've been in the chemical business for most of my career I think most of you know.
And of the chemical business is notorious for coming back faster than anybody anticipates, but on a planning basis I would expect it to remain soft at least.
For the coming.
Six months.
Thank you so much.
Next we'll go to Neil Mehta with Goldman Sachs.
Hey, good morning, and good to talk to you Neal Aneel. So the first question I had was just around the European gas, obviously, we've seen softness in global gas price is going to get a smaller part of the business mix than it was a couple of years ago, but can you just frame out how big that European gas is as part of the business on a go forward basis and is that a risk to profitability of the upstream.
If the upstream.
Yes, I mean, I I gave you some.
Approximate numbers hit any I think.
In terms of volumes of gas in our portfolio about 75% of volumes from gas is for core flowing gas, 25% is liquefied natural gas.
And of that.
75% slowing gas about half is in the U.S. and half is in the European markets I'm going to break it down for you.
If that European about half is growing again in half is a combination of.
As I remember, roughly Germany, UK and Norway. So so it's it's it's a relatively.
A large part in terms of volume, it's not a relatively large part in terms of the earnings of our business what I would tell you is.
The spot price as you've seen in LNG is.
Has dropped significantly of course over the last six months and Japanese JK and market price plus there the NBP price in Europe , and that's what's impacting the flowing gas prices and what we have seen.
And as you have seen a continued growth in demand for liquefied natural gas in Asia, that's been the big growth driver over many years, it's just the little it's not as high for the six months as this year as it has been in the previous two years I mean, as I remember and I don't quote me either these are approximate numbers I believe year to date Asia LNG demand is up about 3%.
Which is lower than it has been and the global demand for global supply of LNG is up north of 10%. So.
What happens that those cargos look for a home and they they can't find the home in Asia. They will get directed towards Europe . That's put pressure puts pressure on the European price and if you look at the European gas business, the inventory levels quite high in Europe as well right now that's what's putting the pressure on the spot LNG price and that's what's putting pressure on the flowing gas price.
No. That's helpful on the I guess the follow up is.
Relative to even at the analyst day Exxon shares have outperformed.
Youre smaller independent competitors in places like the Permian, how do you think about the environment for for M&A, an excellent role in consolidation in the lower 48.
Well first of all.
I would tell you that we're eyes wide open we're always looking for opportunities I mean, and I think one of the reasons you maintain a strong balance sheet that gives you that flexibility to act if you see something of value.
I always start in the upstream with this we have the strongest portfolio of opportunities that this cooperation as any upstream. This corporation has had since the merger of Exxon and Mobil in other words, we don't need to do anything I feel very very comfortable with the growth plans that we've laid out to you and we see and we can execute through 2020 five and beyond so we have the capacity to do something we don't need to do anything from a business. What we need to do is execute our current set of opportunities. So that's a great position to be in.
But we look we look all the time for value added opportunities I think thats the great part about looking at the portfolio.
And it's all a question of if something is out there which is competitive in our portfolio in other words upgrades the portfolio and we can bring a competitive advantage versus industry I mean, thats the way we look at it.
In the lower 48 in the Permian, specifically I here like you will hear a lot of chatter about potential consolidation down the road that the market that will play out in the market and you know for US you know what I like to say to our organization eyes wide open if there's an opportunity out there bring it forward, but I really want to make the point that we don't need to act. We don't believe we need to act right now we have a great opportunity set as it is you need to add to revenue.
Oh, I guess, that's absolutely right given the portfolio that we have we can be patient, we can be opportunistic and if we do see an opportunity to bring unique value with our competitive advantages.
And we can bring in something that's accretive to the value of our overall portfolio than obviously very interested in that type of an opportunity. Yes, I do I just want to go back to the Permian again and reinforce a point of my time here, we are taking a different approach to the Permian I mean, we are taking approach which is leveraging the scale of this corporation. It's a manufacturing approach we're doing it at scale, which obviously a lot of the smaller players. We don't have the capacity to do that and we're going to do it through the cycles. We have the capacity to do that we believe we have a significant capital advantage by doing it that way.
And as a result of that I think.
If we can demonstrate and we will and we are demonstrating that.
We can demonstrated it puts us in a position where we have an advantage development.
Plans that we could apply that to two other resources in the basin should we see fit to do so.
Thanks, guys.
Sure.
Next question comes from the line of Phil Gresh with JP Morgan.
Yes, hi, good morning.
I guess my question My first question.
It's good morning, yes, so it's a bit of a follow up to a couple of other questions have been asked maybe slightly differently. If we look at a quarter. There is a fair amount of debt added this quarter and you talked about kind of this investing through the cycle.
Yes, the $15 billion of asset sales that you are targeting.
Over the next three years and you want to keep.
As the balance sheet ready, if an M&A opportunity comes along but if we look at it that way.
And think about the way the strip looks right now does it make more sense.
To not think about share buybacks to just keep the balance sheet in the best shape you can.
With asset sale proceeds as you invest through the cycle just want to kind of tie that all together. Thanks.
Yes, when I started at Neal and maybe you can address anything you want to add but I think the strength of this balance sheet is rolling forward and important of course, but it's being is being demonstrated by the current market conditions because as I said in my earlier comments, we feel very strongly we have the capacity maintain our investment plans through these low points in the commodity cycle.
And actually we if we add the current conditions. If they were maintained and we see these as very low as you have seen that Neil pointed out from this chart. If they were to maintain those conditions. We still believe we have the capacity to execute our plans. If these conditions were to remain through 2020 five and still have some.
Powder to execute an acquisition should we want to do so but of course as something you watch closely hey, you constantly looking to match all of the time.
But today and on a planning basis, we feel like we have the capacity to make no change a tool to our plans and even at these low margins continued we can continue with our plans and Aneel you anything to add to that I was just thinking back to the investor day fill and when we talked about the sooner we convey that we felt very comfortable with the.
Investment program that we have available to us and we.
You talked about the.
The priority of doing a reliable growing dividends and that we felt comfortable with the balance sheet and that we didn't feel at that time that.
We needed to do any additional maintenance on the balance sheet and so to the extent.
We had proceeds come in from asset sales or.
Additional cash coming from higher prices and margins.
Given where we were in those priorities that likely the cash will then come back through buybacks, but that was obviously given our current or.
Assumed price and margin environment.
And we're in a different environment today, but.
When these proceeds come in from these asset sales, which is a target out to 2021.
And we don't know what environment will be in at that time. So so it's difficult to predict exactly where that cash would go but we can reaffirm that the priorities are we're going to continue to invest in accretive projects pay a reliable growing dividend and ensure that we have the capacity and the financial strength to take advantage of opportunities that come available to us.
Including when we have a downturn in margin the prices, which as you know as we said a very attractive time to operate invest when cost are lower and when others are pulling back so theres no change to the priorities and what happens when that additional cash comes in from those proceeds again could occur over the next two or three years. It will be dependent I think on the price and margin environment at that time, and what opportunities we see available to US, yes, and Phil I'd tell you. This is this is not something new for US I mean, if you go back to the low crude oil prices in 15, 16, and Thats. When we went into the business and made the acquisitions in the Permian in Mozambique.
In Papua New Guinea, and in Brazil, and and again I go back to the strength of opportunities that we have right now is because at that low point in the cycle, we have the capacity to move and pick up some very attractive resources at very competitive prices.
I appreciate that and obviously you can't time, the asset sales quarter to quarter. So certainly I appreciate that.
And on the chemicals side I guess my follow up.
Some of my questions have been asked is that if I look at the performance of Exxon Mobil specifically.
Over the past five quarters you your earnings have gone down every quarter.
And I know this quarter you had some maintenance so some of that.
I will come back here.
But if I look relative to other some of your other peers, we have traditionally kind of tracked their performance.
I think they've seen a bit better performance recently.
In years has continued to degrading so just kind of sifting through the slides I know you called out para Xylene is one factor is that if you were to kind of disaggregate the performance.
Would you say that that is the primary factor that you think is differentiating your softer performance recently or are there other things we should be thinking about thanks, well I think there are other things I think what you have to start within the chemical business is looking at the configuration of the assets of each chemical company has been.
Our business is heavily weighted towards steam cracking in polyethylene order of magnitude, it's sort of 65% of our chemical business.
Polyethylene and ethylene margins for us have been very strong for multiple years, and we benefited from that and at this stage of the cycle. The ethylene polyethylene margins for the reasons that we already discussed are down.
If you have a chemical company that has 25% of its business in ethylene polyethylene and the rest of the business and other products you, probably wouldnt see that impact of ethylene and polyethylene, it's really driven by the configuration of assets that you had if we look across our chemical business chemical companies performance over the last 12 months in terms of operations in terms of delivering on their higher margin growth, it's been at or above plan.
The total impact we have seen is because of industry margins being down due to overcapacity that has been primarily driven by ethylene and polyethylene primarily driven by these big increments of capacity coming on the Gulf Coast Para Xylene is similar para xylene is also a significant part of our chemical company nowhere near the size of ethylene and polyethylene.
There has been some big capacity increment of para xylene, that's come online in China.
In the in the recent months and Thats put para xylene margins under pressure.
These are cyclical businesses.
The performance is no change the underlying drivers of these businesses are unchanged. The underlying drivers for demand are unchanged, what's really important for us is that we continue to deliver more competitive steam crackers in polyethylene businesses than anybody else.
Thats why I made the comments and we were talking about the latest investment to Corpus Christi. This is significantly advantaged, we believe versus any other Gulf coast investment.
It's a significantly lower capital cost, we're leveraging the scale of our upstream organization. We located the plan so close to the Permian is a cost advantage and we're producing.
Not commodity polyethylene, but higher value or higher margin polyethylenes and so we don't see Amy.
Change to the structure of this business. This is a margin impact driven by short term excess supply.
Okay I appreciate the comments.
Sure.
Next question comes from the line of Jon Rigby with Us.
Hi, good afternoon. Thanks to good morning, Thanks for taking the questions. Two please the first is.
I hear what you say about.
M&A opportunities and and so on in the Permian and I guess those will come round periodically annually you will take a look at those when when and if they arise.
But we've got the surplus transfer of rights opportunity coming up in Brazil.
In November and you could argue the valleys is somewhat more thing dealer. So I just wonder whether you could talk a little more about what your attitude is is to that and maybe if I just add my mind My second question straightaway.
I was just looking at your Capex profile.
In the us in the upstream and I see bumping up both sequentially and year over year, and I guess that may impact have something to do with your comments around infrastructure build out. So I just thought maybe bigger opportunity. If you could just sort of lay out the activities that move a little bit more detail around infrastructure as well as the drilling activity. Thanks, Yeah, Yeah, Yeah, Yeah sure. Thanks, John Let me start with the transfer of rights in Brazil.
Buoy us which causes the them the big reservoir down there the big resource lets them as in those transfer of rights I mean thats. The largest one there are other ones of course, but Brazil is by far the largest because it's so large.
I think everybody in the industry will have a look at that I'd be very surprised if they didn't but it is very very large it is saying you have those kind of size is.
I would I call discovered resources, it's relatively well delineated.
The way I look at it is we have to bring some advantage to that versus anybody else in the industry and if I can find a way where we can bring a significant advantage. Therefore, we can get more value for our shareholders and we don't just get into a.
A bidding war versus other players because I mean, that's not in the business, we want to be able to bring an advantage to that results should we want to participate we are looking at that resource as I can I'm very very confident all the major players are in the world. It doesn't mean to say that we're getting to act on it John but we're certainly looking at it.
Eight it is a large resource and it will be interesting to see how that plays out and obviously I don't think you'd expect me to say.
Much more than that and in terms of Capex.
Actually I'm very proud of where we are with 50% as a corporation of our Capex plan in the middle of the year and actually if you Peel the onion back further with 50% of our Capex plan and the upstream halfway through the year as well. So yes, we're tracking in total on plan. It doesn't mean to say there are some puts and takes in Iraq.
I think in terms of the above surface buildouts.
Particularly in the Delaware Basin.
What I laid out in March is we have to put a lot of upfront money to build out those facilities both compression and these.
Development Corredores on all of the logistics within the basin, that's part of our plan.
I would tell you.
There are puts and takes in all of that overall, we're on plan and it's it's well documented that.
Yes, it is taking longer to drill these horizontal laterals in the Delaware right now than it is in the Midland and use the numbers you've all seen the numbers that are reported externally is key.
For all the plays in the Delaware that we find a way to get those drilling times down closer to what we see in the Midland.
We are working that we're making decent progress of course, I want us to go faster, but were making decent progress so.
There is nothing.
Really to flag outside of what we've already said, it's within the range of what we'd expected.
And today, our Permian production of Permian production is accretive to earnings were making money in the Permian right now.
Thank you.
Yes sure.
Your next question comes from the line of barrage Borkhataria with RBC.
Hi, Thanks for taking my question just one other question on pay Oh.
I understand the develop the rationale for the pace of development in Guyana, and as you're taking advantage of the.
This is available a very good prices.
Well the Permian are you.
Concerned at all that the pace of your development and the impact it could have on the overall oil market again, not all of the growth is is oil, but a substantial amount of that exponential most Chinese oil and then if you take you guys plus chevron and a handful of your peers it looks like.
The majority of the the SEC that wants to grow volumes faster than the market is growing which suggests prices maybe on not that positive over the medium term thats one again.
Your thoughts on that and whether you think it's a it.
None at all thanks, Yeah, I think Raj I mean, I can't get I'll make some comments in the <unk>. If you have any feel free to jump in I mean, I think we laid out that pace and we said, we're going to get to a million oil equivalent barrels in the Permian and Bakken by 2020 four if I remember correctly.
That's not driven by anything more than we we see these it is extremely competitive we see them as left hand side of the supply curve and we see them as high returns and within our capacity to execute them to the standards that we expect to execute them. That's the way we're looking at what really is important.
In the commodity side in the commodity businesses is to make sure that we have a competitive advantage versus anyone else in terms of cost of supply and it's really driven by cost of supply. That's why I am so keen that we maintain our capital discipline in the Permian.
We must continue to work the capital cost down and to deliver on what we have laid out in our plans and remember this is a decline business you have to keep replacing your capacity and what's key for us in key to win in this business is to make sure that our portfolio is the most competitive in the industry and that's the basis of these plans in the <unk> and the Permian is a big part of that.
Anything to add on that I guess, you know the only thing I'd add globally the market again remains balanced.
Demand growth continues to be strong.
Obviously OPEC has remained committed to their cuts you have.
Oil, that's offline and Venezuela, and Iran, and other locations and so you are seeing growth in the Permian, but but I think overall, we're still seeing a relatively balanced market.
Alright, and your next question goes to Roger read with Wells Fargo.
Yeah. Thanks, good morning.
Roger Roger.
Well, if we could come back to I think it was slide nine the one show on the margins and.
Where you are relative to the tenure.
I was just curious, though as we look particularly at the.
Downstream in the chemicals, if you think about those margin performances call. It a lost opportunity or adjusted for your downtime kind of how much was truly margin loss versus hagee run at a normal level of activity, where you think those margins might have been kind of help us think about maybe where cash flow should be back half of this year, given maybe more normalized levels of downtime.
Yes, well.
Make sure I understand the question, what you what would be the impact.
If we didnt have the.
The.
The reliability engines is that your question.
Yes, what if we were to isolate only the the margin aspect in terms of price or.
Let's just say net margin industry offered versus net margin you captured.
Yes, I think.
Two things to bear in mind, and I think in terms of outperformance.
In the first half of the.
In the second quarter in refining.
I highlighted in my comments that there was a 150 million dollar earnings impact from those three significant reliability events.
Isolate those and that gives you a number there is a much larger impact from the heavier turnarounds scheduled maintenance that we have and Neil gave some numbers in terms of how that would manifest and how that will change in the third and fourth quarter.
Neil.
And Roger again, just so I understand what you're asking the charts on slide nine those are industry margins. So those are not the realization that we captured those are.
Again somewhat reflective obviously of our footprint, but they are they are industry margins.
I think the other thing to really really important here is the industry margins manifest themselves differently in each of the refinery plays it depends on your configuration.
Just to give an example, if you have.
No refining assets in Europe , and the European margins are low of course that will be it will hit the European players have not hit the players who don't have that.
Footprint in Europe .
And even if you just go into one region like the United States the refinery to different some a high conversion refineries. Some a low conversion refineries that are different margins for high and low margin in the U.S. There are different margins on the Gulf coast versus the Midwest and so.
When you look at these margins you have to Peel back the onion further and apply the specific margins to the individual configuration, both geographic and technical configurations of your refining assets that differs.
Differs from company to company what has been shown on the chart.
That Neil showed was a I think it was an average of.
Industry or an industry market price of the throat and Roger from maybe just from a downtime.
Maintenance.
Earnings impact in the first half of the year I think.
For the downstream in the second quarter. We showed on chart 11, it's roughly $5 million to $600 million I think the first quarter with a little bit lower than that and then for chemicals. It was a little bit below $200 million and then we tried to show on.
On slide 11, what that looks like in the third and fourth quarter. So again down significantly from what we've seen in the second quarter hopefully that gives you some some indication where we'll be in the second half of the year.
Yeah no that's.
Let's just go to go back to my point on on slide nine those downstream margins.
That reflects an equal weighting a third a third a third of markers in the us Europe .
And Asia.
And so if it's an average is an illustrative, but if you don't have a third a third a third in those three regions and your margins could be different.
Yes for sure no and I appreciate the clarification because my original interpretation was that was your margins not just industry margins.
Okay.
Okay and then.
Just a follow up question on the Permian I mean, I know we have the chart that shows the pace there, but you don't phenomenal performance in Q2, I think we're familiar with the timing of well completions and things like that.
As you think about Permian growth at this particular juncture.
This is what we saw in Q2, what you believe becomes more representative for Q2 is just kind of one of those quarters, where you're zigging and zagging a little bit. This is eggs above the line and maybe over the next couple of quarters, we zagg back towards the line.
Yes, as Sam mentioned, we don't have a lot of clarity on on a lot of what you're you're doing out there.
Or at least not contemporaneously. So I was just curious how you think about the performance in the Permian and maybe where that shakes out.
Well you know you have a capability on Zigging and Zagging I describe it is a lumpy and the reason I say as lumpy as because the way we are developing the muni. So we can drill a lot of Ducs, then we're going to Frac a lot.
At different times so.
I don't anticipate any if you could give up a chart when you see our red actual performance, yeah, that's kind of what you're going to see you're not going to see.
The same growth every single quarter.
But we're very confident that we can meet that.
What's a green.
Famously called the green below the green growth profile.
Roger I'd say, that's what we're going to.
We will need.
You're absolutely right it will be a zigging and zagging, but it's not necessarily the way everyone would develop its it reflects our development plan.
We're going to have particularly the Delaware these lung corridors of well pad.
And we're going to drill up multiple benches at one time and if you think about it moved those drilling rigs down that drilling rigs down the collateral, bringing those frac crews frac them and then you'll see a boost in production so.
I don't think it will be the right thing to do to just to look at every single quarter and say that we'll repeat that growth rate to every single quarter.
But I'm very confident that we're going to meet the overall growth rate that we represented in that famous green production profile.
Great. Thank you.
Sure.
Next we'll go to Paul Cheng with Scotia, Howard Weil.
Hey, guys good morning.
All right.
I have one downstream when upstream.
Neil for Permian I think.
In March was mentioning that the rig count probably go to about 55 exit rate. This year and then next year May go to 60 65, it depends on the activity level I'm just that's deals so not the game plan at this point not then has been change based on the additional information you have seen over the last several months.
Yeah, I would say.
You know the 55 number is a number that I would still think we will be at the year end and we haven't got any change in plan on that you know I really don't.
I don't get fixated on the number of rigs quite frankly, I mean that was a sort of what we estimate we will have if the productivity of these wells is better.
No we could reduce I mean, that's all about this capital efficiency that I keep coming back to.
So you know as a planning basis, I mean today, where what did I say 51, I think across across both basins right now.
Not in line with getting to sort of that 55 number Paul at the year end, but it could be 53. It could be 56 55, the best planning basis I can give you.
Hi, I guess my my question is that I mean based on what you see over the last several months the productivity and everything all feel good that is basic coty that you're still with the same period that you haven't really changed that's no material information that you have seen either improvement or deterioration comparing to your current pay.
Yeah, I mean, it is nothing to flag because it's within the range of a planning basis, you know I mentioned, a few minutes ago, what's really important is to increase or improve the drilling time in the Delaware.
I read about numbers and people are saying in the industry that it's taking 30% longer to drill.
The same length wells same linked lateral in the Delaware as it is in the middle and actually I think it's a totally different than that you know there are some parts, where that's too high and depending on the length of the lateral it's a change but it is indicative that it is taking longer and that is a key activity for us to get that drilling time down because.
As is obvious if you if you can't get that drilling time down to the level that you expect to in your planning basis.
You can do one of two things you can go about your volume. So you can add more rigs we still believe in our planning basis, we will get the productivity that we have and that reflects the number of rigs the capital outlay and the volumes that we're predicting but it is the most important thing I would tell you and the way we're going about it is.
We have we have moved and the total Exxon Mobil capability into this space and we are applying all of our drilling capabilities from all around the world to this very very important important area and.
You know I feel very very confident in our plans I feel very comfortable with.
Where we're heading and I wish we could close that gap faster.
And I think youre familiar with tons standpoint, you about 50 50 between Midland and Delaware should we assume that it will remain to be the case for the next one or two years.
Yes, actually I'm not sure where we are with 50 50 right now with we're still.
And we have more rigs in the Delaware today than we do in the Midland. So that's part of our development plans I mean order of magnitude if I remember I think we have.
Maybe maybe I think is 29 in the Delaware and 22 in the Midland right now just for the numbers and but you know our RM.
Our resource our well inventory in the Delaware is much much higher than it is in the Midland I think we've been quite clear and again I come back to this is such an early stage to jump to conclusions and just just to give you an indication we estimate we have a well inventory in the Delaware.
You know something around six and a half thousand.
So six and a half thousand well inventory we've drilled 100.
We drilled 100. So it's it's you know it's very tough to extrapolate from a 100 wells, where you're going to be with six now thousands and that's why I think it's so important that we stick to our long term planning basis, we know what we've got to do.
Let's try and extrapolate and draw conclude too many conclusions from that number of wells I think.
Yeah, I think just because I think we need to be careful about doing that.
Okay final question for me on under the IMO 2020 World.
Most to your ability and your we find a way to.
Take a high silver we see it as a feed directly to the coker.
Within rail system.
Yes, I think.
You know.
Yes.
As you know if you Peel back the onion on IMO with these new regulations. The ship owners have this multiple option. They can buy low sulfur fuel oil they can install scrubbers or they can switch to some other feedstock like liquefied natural gas and the way that plan plays out.
Is the demand for high sulfur reserve, we would anticipate will decline in the demand for low sulfur will increase and.
You know you would anticipate that will.
You know that could lead to a changing spreads of course I think if you have low conversion refineries.
You will be incented to run to reduce sulfur by running sweet crudes.
Our refinery stick on the Gulf Coast, a high conversion refineries with low fuel oil production.
And so we would say that we feel very well positioned in the US we have high conversion refineries. We added this big new Coker in Antwerp, and we're investing in projects that reduce high sulfur fuel oil production in Singapore. So.
And we've been planning this for this for a long long time.
The market will do what the market will do and I, but directionally, we feel like we are we sit in a.
You know a very strong advantage position.
Sure and I guess my question is that I mean can you take the high sulfur fuel oil.
In direct they fit into your corporate as a feedstock in itself.
Buying heavy oil so we pay is the heavy oil one your refinery by using the high sulfur fuel I guess, that's my question.
I think the the answer the answer to that is yes, if we have spare capacity.
I mean, I think thats the bottom line on that yeah. That's what they are therefore, you can do that but of course, we are.
You know were balanced across that's why we we invested in the coker for for a size that for our facilities across Europe , so but the answer is.
Fundamental yes, you could do that I think you have capacity.
Okay dense.
Thanks, Good. Thank you Paul I think we have time for one more question.
Turning to Sir well take our last question from the line of Jason gave woman with Cowen.
Yes. Thanks for taking my question at the end of the call. Firstly, we didn't touch on a couple of projects.
The Mozambique, LNG development and.
What's going on in Papa New Guinea.
You are putting your press release that you still expect to sanction Mozambique at the end of this year.
But there's been some reporting that there that you're looking at.
Maybe changing who is doing the PC.
On that project and I'm wondering if that could delay.
When you would sanction it.
And then just any updates.
On what's going on at Papa New Guinea with negotiations with the government would be helpful. Helpful. Thanks.
Yeah sure Jason I don't think in Mozambique.
You know, we're still proceeding on the planning basis that we had for area for and the the two lines that were going to put in an a rumor.
You know there is likely to be at least we read there will be a change in ownership on area. One of course, everyone reads out and Patrick.
Made some comments that he and I think earlier on this week publicly that.
We have had some very very preliminary discussions with total to say.
As as something more we can do to in area one in area four.
To get the capital costs down.
That's a very very early stages of course that.
And that ownership has not changed yet, but I think as Patrick said you know if there's something that is in the interests of both companies for sure. We will look at that to improve the capital efficiency button, but no change right now in our current planning basis Patrick's comments were more talking about.
If something comes down the road that is advantageous but both companies are both both consortiums more everyone area for them. Obviously, we would look at it but our planning basis just to go ahead with what we've already communicated intensive Papua New Guinea, and the Papua LNG and.
No change of government that President Murphy is in power and.
Yes, I met with him.
About a month ago and as he has publicly said and as as Petroleum Minister said they wanted to look at the legal aspects of pathway.
Our understanding is they've had that review and they're discussing the outcome of that review now.
As far as were concerned we have an agreement with the government.
Prime Minister morality understands that.
And I don't see any change, but you know we'll have to wait and see.
What comes out of the government discussions I have to say total as the operator on this block. So you you really have to talk more details with them.
Causeway concerned you know, we we have a contract we honor our contracts and we anticipate no change.
In that agreement.
Thanks.
If I could just ask the question another one.
About cams I know it's been covered.
Pretty in depth today, but appear had mentioned that they're seeing de stocking.
In China chemicals, the landscape in terms of inventory and there has been discussions.
Kind of about.
In emerging naphtha oversupply and I'm, just wondering if you're seeing one China kind of tapering back.
Its feedstock cost per purchases and if that is reverberating through the supply chain, particularly for NAFTA. Thanks.
Yeah, and just just just to make sure I understand the Jason you talked about de stocking of polyethylene.
No so.
Kind of.
Not not buying as much feedstock cost it for their naps.
Crackers.
And.
Inventory on hand.
Yeah, I mean I think.
You know, it's pretty typical in a commodity business people raise their inventory levels and reduce our inventory levels, sometimes people speculate in terms of where they think prices are going and margins are going up typically why people do that.
I don't know.
If if in China, there's a as a de stocking and folks believe that there is going to be some change in NAV. The price you know NAFTA NAFTA is driven by of course fundamentally by your expectation on crude oil price, but also the differential between napster and crude is driven by the supply demand of naphtha.
So I really.
Im I'd hate to speculate on why that de stocking I think what you have seen in the markets over the last 12 months is relatively low naphtha prices versus.
Crude oil.
And I I think that's primarily driven by this.
You know, it's more more light crudes on the market, which leads more condensate with these more nap there and so you're seeing a trend in that over recent months, but I think it would be to speculate on on short term.
Destocking in China or is I I don't think I can add anything to that.
Do you have any.
No.
But thanks thanks.
Great. Thank you. We appreciate you, allowing us the opportunity today to highlight the second quarter that included again excellent progress in the Permian and the achievement of a number of key milestones across our portfolio.
I appreciate your continued interest and hope you enjoy the rest of your day. Thank you.
And that does conclude today's conference we thank everyone again for their participation.
Oh.