Exxon Mobil Corporation (NYSE:XOM) Q3 2023 Earnings Call Transcript

Exxon Mobil Corporation (NYSE:XOM) Q3 2023 Earnings Call Transcript October 27, 2023

Operator: Good morning everyone and welcome to Exxon Mobil Corporation’s third quarter 2023 earnings webcast. Today’s call is being recorded. I’ll now turn it over to Ms. Jennifer Driscoll. Please proceed, ma’am.

Jennifer Driscoll: Good morning everyone. Welcome to Exxon Mobil’s third quarter 2023 earnings call. We appreciate your joining the call today. I’m Jennifer Driscoll, Vice President, Investor Relations. I’m joined by Darren Woods, Chairman and CEO, Kathy Mikells, Senior Vice President and CFO, and Neil Chapman, Senior Vice President. This presentation and pre-recorded remarks are available on the Investors section of our website. They are meant to accompany the third quarter earnings release, which is posted in the same location. Shortly, Darren will provide brief opening comments and reference a few slides from his presentation, then we’ll take your questions. In conjunction with our recent announcements regarding Pioneer Natural Resources and Denbury, we’ve included additional information on Slide 2 related to comments or information included in today’s presentation.

An aerial view of an oil and gas refinery, with its tall smoke stacks and complex piping.

Please be aware that this presentation is not intended to be a solicitation of any vote for approval. During today’s presentation, we’ll make forward-looking statements which are subject to risks and uncertainties. Please read our cautionary statement on Slide 3. You can find more information on the risks and uncertainties that apply to any forward-looking statements in our SEC filings on our website. Please note that we also provided supplemental information at the end of our earnings slides, which are posted on the website. Now please turn to Slide 4 for Darren’s opening remarks.

Darren Woods: Good morning. Thanks for joining us today. We delivered another robust quarter of earnings, cash flow and shareholder returns, reflecting our ongoing efforts to structurally improve our company and drive sustained industry-leading performance. We reported $9.1 billion of earnings, an increase of $1.2 billion compared to last quarter. While the market provided a bit of tailwind, our success was enabled by the continued strength of our operational performance, which reflects the hard work of our people across the company. Whether it’s continuing to drive efficiency in maintenance and turnarounds, running at high throughputs and utilization rates, or delivering big projects at first quintile cost and schedule, the excellent work of our people underpins our results and sustains our drive to deliver industry-leading performance in everything we do.

The work is fundamentally strengthening the underlying earnings power of the company, establishing a strong foundation to deliver industry-leading results in any price environment. Consistent with our capital allocation strategy, we continue to share the success of the company with our shareholders. This morning, we were pleased to announce a 4% increase to the quarterly dividend to $0.95 per share. This year is our 41st consecutive year of annual dividend increases, a record that we’re proud of and that we know our investors value highly. We continue to strengthen our portfolio of businesses by investing in advantaged high return opportunities while divesting businesses that are no longer a strategic fit. During the quarter, we closed on the sale of our Thailand refinery, bringing our year-to-date cash proceeds from asset sales to more than $3 billion.

We followed this in October with the close of the refinery sale in Italy. Recently announced acquisitions are great examples of the and equation, meeting the world’s needs for energy and essential products and reducing emissions. Acquiring Denbury strengthens our position to economically reduce emissions in hard-to-decarbonize industries, which today have limited practical options. We see the potential to drive strong returns with the capacity to reduce the nation’s carbon emissions by 100 million tons per year – that’s 20 times our current CO2 off-take agreements with CF Industries, Linde and Nucor, which by themselves could reduce CO2 emissions by an amount equivalent to replacing two million cars with EVs, roughly the same number of electric vehicles currently on U.S. roads.

We expect to close the transaction in early November with Denbury shareholders scheduled to vote next week. Earlier this month, we signed an agreement to acquire Pioneer Natural Resources in another all-stock transaction. This combination will further strengthen our already advantaged upstream portfolio and create significant value for the shareholders of both companies. Together, we will recover more resource more efficiently and with a lower environmental impact. We plan to accelerate Pioneer’s Permian net zero ambition by 15 years and fully leverage their advances in water recycling. This deal is a win any way you look at it – good for our shareholders, good for the environment, good for the economy, and good for U.S. energy security. Neil will say more about the benefits of the transaction in a few moments.

We’re also continuing to drive profitable growth organically. In energy products, we achieved the highest third quarter refinery throughput on record, driven by our Beaumont refinery expansion. At a time of strong demand and low inventories, this project is providing 250,000 barrels per day of much needed new capacity to the market. In addition, we recently started up our Baytown chemical expansion, which grows volume and improves mix. It provides 750,000 tons per year of new performance chemical capacity, including 350,000 tons of linear alpha olefins, marking our entry into this growing market. We delivered another quarter of strong operational and financial performance with earnings of $9.1 billion and cash flow from operations of $16 billion.

These results reflect the structural earnings improvements we’ve delivered over the past several years as we’ve improved our mix of assets and driven significant structural cost reductions, while maintaining our focus on industry-leading safety and reliability. We have lowered our structural costs by $9 billion since 2019, meeting our plan, and expect to deliver additional savings in the fourth quarter. We continue to identify opportunities to improve our base operations, including enhancing our maintenance and turnaround processes, strengthening our digital capabilities, and optimizing our supply chain. Our year-to-date production of 3.7 million oil-equivalent barrels per day is on track with our full year guidance. Capex investments of $18.6 billion year-to-date are on plan.

We expect 2023 capex to finish the year at the top end of our guidance range as we continue to invest in high return advantaged projects, our top priority for creating long term shareholder value. As always, we remain focused on sharing the company’s success with our shareholders. We delivered $8.1 billion in shareholder distributions in the third quarter, $3.7 billion in dividends, and $4.4 billion in share repurchases. With that, I’ll turn it over to Neil.

Neil Chapman: Thanks Darren. Good morning everyone. As we said with you recently, Pioneer is arguably the best Permian pure play company with the largest undeveloped Tier 1 inventory in the Midland basin. Pioneer’s premier asset base is matched by the quality of its workforce. Its employees are innovative and hard working and possess a deep knowledge of unconventional operations in the Permian. When you combine these attributes with our technology and industry-leading operational capabilities, we’re confident we can unlock far more value together than either of us could do alone. We expect synergies of approximately $1 billion before tax annually, beginning in the second year post closing, and an average of about $2 billion per year over the next decade driving double-digit returns.

This transaction not only strengthens our current position but it also transforms our portfolio, increasing our exposure to short cycle low cost to supply liquids in the United States. Based on our initial assessment, we expect our combined Permian production to increase to approximately 2 million oil-equivalent barrels per day by the end of 2027. Downstream, this merger also increases the integration between high value light Permian crude and our premier refinery and chemical footprint on the U.S. Gulf Coast. Finally, we’ve said many times that we’re working to solve the end equation, providing the energy and products society needs and reducing emissions, both ours and others. This transaction reflects both parts of our commitment. We will increase our Permian production with plans to accelerate Pioneer’s net zero plan to 2035 from 2050, and decrease our combined Permian emissions.

With that, I’ll pass it to Jennifer.

Jennifer Driscoll: Thank you Neil. We have two quick announcements to share with you. First, please mark your calendars for our annual corporate plan update scheduled for Wednesday, December 6 at 9:00 am Central time. [Indiscernible] and Kathy are going to provide formal remarks and take live questions from our sell-side analysts [indiscernible]. Second, please keep an eye out for our 2024 Advancing Climate Solutions report. We expect to publish it online in mid-December. With that, we’re going to begin our Q&A session. Please note we continue to ask analysts to limit yourselves to one question as a courtesy to others; however, please remain on the line in case we need any clarifications. Operator, please bring us the first caller.

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Q&A Session

Operator: Thank you Ms. Driscoll. The question and answer session will be conducted electronically. [Operator instructions] The first question comes from Neil Mehta with Goldman Sachs. Your line is open, please go ahead.

Neil Mehta: Good morning and thanks for the update. The first question for me is on the Permian here. Slides 17 to 19 are interesting and incremental. I was wondering if you could take a moment to walk us through it. Just in the context of the investor feedback we’ve gotten around the transaction, folks are looking for a little more clarity on the top line synergies that are going to come from better productivity. Thank you.

Neil Chapman: Yes, good morning Neil. You know, what we outlined in the slide with the earnings release is really the basis of what I’d always describe as real, quantifiable synergies that have created the deal space for this transaction. These synergies are already demonstrated in our existing operations, either in the Delaware of the Midland. It does not include the pipeline of new technologies that are either in the early stages of deployment or close to deployment. By applying what we’ve already demonstrated, we’re confident we can recover an additional 1 billion oil-equivalent barrels, more than either Pioneer or industry could have demonstrated with their existing performance. In the charts, we highlight two areas.

One, industry’s move to cube development. We’ve moved to cube development to get the higher net present value. We were the pioneer in that, and that’s obviously to avoid the parent-child impact. The top chart on there shows that we’ve been drilling cube since 2020 100% in the Midland, and you can see that over the period, Pioneer has moved to 100% cubes as well. In 2022, when we were both developing 100% cubes, you can see we’ve got equivalent recovery rates, but we’re at notably lower quality acreage, lower quality resource, so equivalent recovery at lower quality resource, and when we look at truly comparable acreage, and that’s really, really important because generalizations can lead to misleading results. In the bottom, we talk about adjacent Martin County, where us and Pioneer and one of our other peers are drilling the same 10,000 lateral cubes, you can see we get a 20% higher recovery, and that’s why we’re all targeting the same intervals.

These are [indiscernible] in similar proportions. What varies and what’s the difference is the stacking and landing zones, and what varies is the optimal wealth spacing that we are delivering, which includes things like vertical orientation. Just one final point on that, Neil, in terms of recovery – it’s not just about how you deliver cubes. When you’ve got better recovery, when you’ve got better capital efficiency, it gives access to economically developing what we would describe as secondary benches. As you’ll recall, like the Wolfcamp C and like the [indiscernible] mill extension, and in addition obviously we have other techniques that we attempt to keep confidential, which gives us this higher level of recovery.

Neil Mehta: Thank you Neil.

Operator: The next question comes from Bob Brackett with Bernstein Research. Please go ahead.

Bob Brackett: Good morning. When you talk about your two million barrel a day initial sort of view of where production from the combined entity can get to in 2027, how do I think about the gating factor? Is that a fixed rig or activity or capex program and the volume is an outcome, or is that a volume target and you’ll adjust activity down as more synergies come through?

Neil Chapman: Yes Bob, it’s Neil again. I want to be clear – we don’t have a volume target. We have a value target, we have a volume outcome, and that’s really, really important. For our basis, we’ve talked about an outcome being a million barrels a day by the end of 2027 based on our Delaware and Midland Basin. Based on our initial assessments of Pioneer’s plans, obviously we’ve had access to that through the due diligence process, we see that with similar capital spending as Pioneer has today, and you can equate that to a similar number of rigs, we would anticipate that Pioneer’s production under Exxon Mobil and Pioneer’s combined operations would also get to a million barrels a day by the end of 2027. If you add current production in the Midland Basin from both Pioneer and Exxon Mobil today, it’s already at a million barrels a day.

It’s really important, though – volume is an outcome. We’re striving for the value, that’s why we focus on the cube development. But I would say the basis is consistent with existing capital spending that Pioneer are making today. We do anticipate, as I’ve just outlined, improvements in recovery. We do anticipate improvements in capital efficiency based on the synergies that we outlined in the earnings release, but that’s not really built into that outlook of a million barrels a day from the Pioneer operations.

Bob Brackett: Very clear, thank you.

Operator: The next question is from Devin McDermott with Morgan Stanley. Please go ahead.

Devin McDermott: Great, good morning. Thanks for taking my question. I wanted to stick with upstream and take advantage of having you on the call here, Neil, and ask about Guyana. The slide noted that production is now coming in ahead of plan for the full year, a little bit better than your full year target, and part of that is the Payara start-up, part of that seems to be debottlenecking. I want to just focus on the debottlenecking opportunity. Could you walk us through how much uplift you’ve realized so far versus nameplate, how much is left, and then the repeatability of this outperformance as we look at the additional FPSOs that are set to start up over the next few years.

Neil Chapman: Yes, thank you. We’re really encouraged by what we’re seeing in Guyana. Let’s just start with the two boats that are in our operation today. Liza 1, or Destiny had a nameplate capacity of 120,000 barrels a day. We’re consistently running that at about 150,000 barrels a day. Liza 2, Unity was a 220 capacity and we’ve been running that consistently above 240,000 barrels a day, so those two combined are getting close to 400,000 barrels a day, which is quite a bit, and this comes from, I would just say, good operational performance. You look at every aspect of the operations, you tweak them, you push them, and you can get more and more out. Now, we’re starting up Payara, which is 220,000 barrels a day nameplate capacity.

We would hope we would expect to have a similar type of uplift. There is no reason to think that we wouldn’t. We have to start that up–the plan is to start that up in the middle of November, and that would give us a combined nameplate capacity of 560,000 barrels a day, but obviously with the first two boats running more like 400,000 barrels, we expect to be in excess of 600,000 barrels a day of production. Just to add to that, we’ve got three more boats in the pipeline, as you’re aware. All three of the boats in the pipeline – that’s the Yellowtail, Uaru, and then Whiptail, these are all larger boats, they’re all 250,000 barrels a day. Yellowtail and Uara are in construction. Whiptail, we’ve submitted the development plan to the government, and we would hope and expect to reach FID in 2024 for that, and that will give us a combined nameplate capacity of 1.2 million barrels a day at the end of 2027, but that doesn’t include the uplift in performance–production performance that we’ve got on the first two boats.

You know, we were certainly–our message to the organization is start it up safely, start it up on time, each boat – that’s what we’ll do on Payara, and once we get settled, we’ll try and follow the same protocols that we’ve done on the first two boats and strive to get maximum production out of the boat, and that’s obviously good for the shareholders, it’s good for the co-ventures, and it’s even better for the country.

Darren Woods: Yes, I would add to Neil’s comment, if you recall, we brought all our projects organization together to make sure that we were leveraging the best capability in terms of development in designing these projects. We’ve also brought together our technology organizations, and the big benefit we have there is we’re now leveraging not only the capacity that was in the upstream in terms of optimization around these facilities, but we’ve decades and decades of experience of people optimizing and running our chemical plants and our refinery facilities to squeeze out and optimize every piece of the production pipeline and make sure that we are at the designed limits of the different equipment. That optimization, which has been kind of the lifeblood of the refining business, given the very narrow margins, has big payoffs when we apply it to the upstream facilities, and so there’s an additional benefit just in terms of leveraging the broader organizational capability, which again has been part of our strategy from the very beginning, is to make sure that we’re bringing to bear the best thinking across the corporation on the most important facilities and projects, and this is certainly one of those.