Exxon Mobil Q2 2024 Earnings Call Transcript

Yeah. Good morning. Neil. I'll start with a few comments and then let Kathy kind of add on top of that. I would say early days yet, two months in, but the work of the team prior to the change in control and then what we've seen since then is extremely encouraging. As we've stated, the Pioneer assets basically delivered a record performance in the second quarter and if you think about the context of doing that with all the change that was going on with respect to the merger, I think a real testament to the quality of the people there and the work that they've been doing. So I'd say vectors are all pointing up. I think probably better than what we had anticipated, but I would also say it's early in the process. The teams today are working very well together, which has led to frankly identifying a lot more value opportunities than frankly I think either of us could see when we were on opposite sides of the fence.

And now that we're together working, we see essentially a lot of opportunities to transfer the best practices of ExxonMobil into Pioneer and likewise to transfer a number of best practices from Pioneer into the ExxonMobil base which when you think about our size has some tremendous leverage associated with it. And so that's all being worked through in detail. As you know, when we commit to some of our objectives, they're based by some very detailed plans that sit behind them. The organization today is working those plans, but we already see significant upside potential, not only in the magnitude, but in the pace at which we'll be able to deliver them. So I think a really positive story there. And I'll let Kathy maybe add some additional details. Kathy?

Sure. I think one of the things we've been really pleased by is the number of learnings that we've already had from Pioneer and so not only will we bring our technology and cube development to them, but they're bringing a bunch of learnings to us. So we're already utilizing their remote logistics operations center in our own drilling and completions operations in order to improve supply chain. They've done some things on the procurement side I'd say that we think can help us to kind of leverage up our expertise. They've been really good over the years of blocking up their acreage. So we think that's another thing that ultimately we can benefit from.

And then as I think everyone knows, they've got a quite large water infrastructure in the Midland basin and we'll be looking to also leverage that. So we've been really pleased with what they bring to the table and we're off to a really good start as we look at building and integration development plan with them that fully utilizes the technology that we bring to the table. And so we're going to have a corporate plan update in December. We're going to do a spotlight on the upstream and we'll update where we're at with the synergies and how we're looking forward at that time.

And I'd just I guess cap it off, Neil, with we said at the time we announced the acquisition that we were going to produce more barrels at a lower cost in a more environmentally friendly way that continues to be the case. That's obviously good for our company. But more importantly as we said at the time and would continue to emphasize, it's good for the U.S. It's good for the U.S. economy. It's good for the people living in the U.S. It's good for U.S. businesses and critically, it's good for U.S. energy security. So I think this is as I said at the time going to be a win-win proposition for all.

Sure. I'll take that, Betty. Thank you and good morning. Good to hear from you again. I would say what you're seeing is the collective effort of our organization focusing on what is a very high value development and making sure that we are taking advantage of all the opportunities we can find to safely grow production. And as you commented, we're seeing some significant improvements with production rates well above what we had based the investment decision on and that's continuing across all three of them. We try to take that into account as we develop the next. And so in theory, you would think we build that into the base and don't continue to see that, but frankly, our experience is telling us otherwise, which is this organization complemented by the work that we're doing with our technology organization, our global operations and sustainability organization, every element of the organization that we have now created and functionalized is very focused on maximizing values.

And so with these new organizations and that focus, they continue to find additional opportunities. So I would bet that we'll continue to see outperformance versus the basis on which we FID, but I would also tell you that every development is unique on to itself. And obviously, we got to get it up and running and then let the teams get after it and find the opportunities to safely increase its capacity. But I would just tell you, I would bet on our people to find that. We've got a long history of doing it and it's clearly demonstrating itself with this unique and valuable opportunity here.

You bet. Thank you, Betty.

Good morning.

Yeah. I'll start with that and then I'll let Kathy add anything that she wants to. But I would say actually, we've been fairly aggressively going after the -- remember, I think back in 2019, we had announced that we were going to divest about $15 billion over time. Of course, we got into the pandemic and we said we're not going to -- this is not a forced march. We're going to basically divest when the market conditions ensure that we can realize the value that we think the assets that we are marketing can be realized. And frankly that's what we've been doing. So as you look at where we're at to date second quarter this year, I think we've basically gotten to the $15 billion in the upstream.

And then if you look at what we've been doing in the downstream, there's another few billion dollars that we've added on top of that. So frankly, from a cleaning up the tail standpoint, we've made significant progress. Obviously, there's a few more things that we're working on and we'll continue to assess every one of the assets in the portfolio make sure that they are competitively advantaged. And frankly, as we look at new investments, we force those investments to compete on an industry-wide basis and make sure that their advantaged versus the industry and therefore can be supply product at low cost to supply. We also do that with all of our existing assets.

And if they're not competitively positioned on an industry supply curve, then the organization has two options. Either we come up with an advantaged investment that makes them more competitive and moves them to the left of the cost on the cost of supply curve or we look to divest and that process has been ongoing across all of our businesses. And then obviously, the timing of when we then take action is a function of realizing the value that we think those divestments should bring and we're patient. We're not going to rush that process. But I would just say staying after it, being very steady, waiting for the market to meet to be where it needs to be in order for us to reevaluate has paid off significantly. And basically we're delivering on what we said we were going to do and we'll continue to look at it, but I wouldn't -- I don't see any big step changes here in the medium term.

And the only other thing I'd note, Neil, is you can see in our cash flow bridges...

Doug.

Sorry. I'm sorry, Doug. But you can see in our cash flow bridges, we're pretty consistently every quarter bringing in more proceeds from the divestments that are occurring in the first half of the year that was $1.6 billion. And then I would just note we had a lot of activity in upstream and so that generated some positive earnings for us in the quarter. And so if you look at my prepared remarks that we published earlier this morning, I talk about sort of $380 million in the upstream being kind of these other one-off items and that was a lot of earnings coming in from divestments only partially offset by the one-off cost associated with Pioneer.

Yeah. Good. Appreciate that. Sorry about that, Doug.

Doug, congratulations on the new shop, new platform.

Sure. Yeah. You broke up just a little bit on that, Devin, but I think I got to gist of your question. If I don't hit the mark, then please steer me in a slightly different direction.

I think your question around what's required to kind of continue to move along in our investments in the low carbon solution across the portfolio of products that we've been talking about. I would just say fundamentally we expect in the low carbon businesses and in fact some of these new products that while they contribute to a lower carbon future, they also bring significant value in use in today's application. They have to compete in the portfolio. They have to be advantaged versus what's out there today and they have to basically generate good returns across the commodity cycles. And so the fundamental philosophy that we've been applying in the base business also is required in these, the new businesses that we're trying to generate.

So that's foundational what each of Dan Emmons in particular, but then the stuff that's coming out of the product solutions organization has also got to meet that initial hurdle. And then as you look across each of them, the hurdles to clear to deliver on that expectation very little bit. I would say in Dan's business with the carbon capture and storage, he and his team are building a brand new business. And so there are very few I think examples of where the company is not only developing the technology and the infrastructure and logistics system, but also developing the capacity to supply while developing the demand and developing the market in general and advocating on what I would say are the initial policies needed to get things kickstarted.

So there are a lot of moving parts. I would say the broader industry and business community frankly haven't gotten far enough along this to truly appreciate just how complicated it is. But I would say leveraging the capacity and capability that we've built over the decades doing this in other parts of our company particularly in the upstream that we're leveraging those capabilities and making really good progress there. On the blue hydrogen project, as we've worked through the engineering and we've got a really good line of sight to what that project can deliver, obviously, a critical element of that is getting the IRA legislation translated into final regulations and that's a process that's been ongoing.

We're optimistic that the regulations will reflect the intent of the legislation. And if it does, I think we'll have a very attractive project that we can then FID here once those regulations are finalized. So I'm optimistic in that space. And as you may have seen, we've just added another 500,000 tons of carbon capture and storage into Dan's portfolio and there's a pipeline that the team continues to work. So we see continued opportunity and growth with good returns in the carbon capture side of the equation.

On the lithium, same thing. While lithium is an established market, it's fairly small with respect to what its ultimate potential is. And of course, we're bringing on a new production method with some new technology. And so again, doing the work to understand what the investments required there are and to establish and ensure that we've got a real advantage versus what else is out there and what else needs to come on to meet the growing demand in lithium. But again, I feel good about that. We've told the team don't -- we're not looking to rush this through and get something, get money spent. We're looking to make sure that we build a very strong long term foundation. So none of the work that we're doing in these new businesses is scheduled driven. It's all about establishing successful long term foundations.

And then maybe just briefly touch on Proxxima and the carbon ventures, which -- that's a broader effort that we've been on for quite some time which is to say leverage our technical capabilities to transform molecules and apply that to markets that exist with unmet needs and I think we're making really good progress with Proxxima. We've got some I think very high barriers to entry and competitive advantages there. And so I'm anxious to kind of prosecute that business and establish it as quickly as we can because we see real potential there and same with carbon ventures. Again leveraging our ability to transform the molecules, shape the molecules and get some structures that improve performance. I think there's a big opportunity there. But that's -- I would say carbon Ventures is still early in the technology cycle, but I think we've gone far enough along to see some real opportunity there.

And as I said in my prepared remarks, the challenge I've given the product solutions organization is what's a realistic, but aggressive business plan look like and what would be the investment required to establish that. And that's good because it grows value today, but it also positions us well as those molecules become less demanded in their traditional applications, it becomes a much lower feedstock to these new applications. And so there's a lot of opportunity to diversify the slate and protect the business or diversify the business as we move through the transition. So long answer, but a lot of variables at play here, but frankly, all variables that we feel very comfortable managing. And I think the progress we're making there demonstrates our capability to manage those things.

Thank you.

Yeah. Good morning, John. I'll start with that and then let Kathy finish up. So the way -- the reason we put a range out on the capex is as we build these plans in the previous year starting around this time in the summertime and then kind of lock and load them in October. And obviously, there's a lot of things that develop and evolve from the middle of the previous year to as we go into this year that range is not meant to have you guys slice it down the middle and fix on a number. The range is to say we've got optionality here. And as things evolve, we may reduce some of the spending or if we find that the opportunities are panning out the way we expect, we may be on the other end. So that range is truly where we expect to be somewhere in depending on how things evolve and what the opportunity set looks like.

I mean, the key focus here is to make sure that we are investing in highly advantaged highly profitable projects. And basically, as we worked our way from October of last year into this year, we see a lot of attractive opportunities that we continue to invest in, which puts us at the top end of that consistent with what we understood the opportunities that could look like as we went into the plan process last year. That's why we're coming in at '25. And then, of course, we're using the Pioneer number to add on top of that. But Kathy, anything to add to that?

No, I would just say, obviously, we have a lot of projects coming online in 2025. And the exact pace of all of those and therefore making sure that we provided sort of enough room I would say in the initial guidance supporting of all of those projects that are coming online in 2025, we can't pinpoint, predict all of that as we put our plans together for the year. And so just as an example, China won't be a huge project. It's going to be coming online early on next year as an example. So there's always a little bit of give and take, which is why we give the range to start with.

So I would say consistent with the plans that we put out, the projects are all with obviously the exception of Golden Pass moving consistent with the plan development and the announced dates that we talked about. All of them I think we feel really good about in terms of the work that we're doing and the case for the contributions, the returns, the earnings that we expect to get out of those projects. I think we continue to feel good about. Underpinning all the projects is we never try to take a position on where we're going to be in the market cycle, but instead make sure that these projects when they come on can compete in any of the areas of the cycle and we've actually found that.

If you look at the investments we've made since 2018 brought online, if you look at the aggregate return of that portfolio, It's exceeding the basis in which we FID-ed those projects even as we've been, say, in the chemical business at bottom of cycle condition. So I think we continue to demonstrate to ourselves the time we spend to make sure these projects are advantaged in the best case is paying off. And then, of course, our global project organization is really continuing to drive very effective execution of the portfolio with keeping our cost well within the FID basis and generally delivering it faster and therefore bringing more value sooner. Kathy...

Yeah. And I would just note it's especially a big year for our EMPS business. So I already did it China one. You noted a couple of projects. I mean, the Singapore resid upgrade project is a pretty big project. We have an upgrade project at Foley in order to bring on ultra low sulfur diesel. We've got the Strathcona project for renewable diesel coming online in 2025. So really big year for the EMPS business in terms of the number of projects we have coming online and then we're going to continue to expand our advanced recycling. So we'll be adding more capacity as well next year. So we noted again if you look at our IR slides, we talk about projects being a big driver of underlying earnings growth in the EMPS business and you see that supported by everything coming on in 2025.

Yeah, sure. I'll start with the last part of the question, which is it is a conscious decision to get weighted on liquid prices. And frankly, if you look at the LNG market and when you're building large LNG projects, you tend to sell those out and sign contracts in advance of the investments which the market today is linked to oil. And so we continue to have a desire to lock in a significant portion of those developments that we've got surety on the sales side of the equation as we bring those projects up. So my expectation is we'll continue to be awaited on that and we're very comfortable with that. In fact, there's been a huge drive since I've been in this job and brought Neil into the upstream to basically shift the portfolio and get a little heavier weighting in the oil side.

As I mentioned this morning on CNBC, if you look at the oil that we're producing today, we're producing more oil than at any time since the merger of Exxon and Mobil. So that strategy is beginning to manifest itself. On your Golden Pass, the project, so we've just gotten through the venture, just reached a settlement with Zachary and so that venture is in the process of kind of restaffing and getting started back up again. Obviously, we're in the very early days of that. So there's still more work to be done. And of course, the teams are very focused on getting back to work effectively executing and bringing that project in as quickly as they can and as close to the original schedule as they can.

Right now, our estimate is we're going to see about a six month slippage. So we had anticipated kind of first LNG the middle of next year. We now are looking at probably the back end of 2025 for first LNG and that's kind of where the current schedule is. But I would just condition that with the teams are just getting back up and running and they have a clear mandate to try to bring that in as effectively as they can. And again, my expectation is they'll do better than we currently think, but we've got work to do.

Thank you, Biraj.

Sure. No, I appreciate the questions to you, because I think you touched on a really important point. I think one of the advantages of the restructuring that we've done is we no longer identify our business with the products that we're making. So if you go back in time, the functional organizations that we established had refining organization that was producing refining products and we had a fuels marketing organization that was marketing fuels and we had a chemical company that was marketing chemicals. We've now combined all that into a product solutions organization, which is supported by a technology organization, which again Is not organized around any of our heritage businesses or heritage products, but instead is organized around core capabilities, core technical capabilities to deliver value to the businesses that they support.

So while it may not be intuitively obvious that change in structure and the way we think about and talk about the business has also opened up a lot of white space in terms of -- the challenge here is how do we take our core advantages, core capabilities. Some of it includes our existing footprint, but a lot of it includes our ability to upsell and to identify value and use applications and combine that with a technology organization that's very focused on applying core technology capabilities to business challenges and business opportunities, which is starting to unlock applications that frankly in the past wouldn't have been identified because they didn't fit in the context of the organizations that we had in place, but today the aperture is much broader and the playing field is much bigger.

And so we see that with Proxxima and carbon ventures. My expectation is as we go forward, we'll continue to talk about those markets and we'll talk about the applications that we're developing. And the technology organization is continuing to look at how else can we use our capabilities in manipulating the molecules and particularly hydrogen and carbon molecules to make products that society needs and at the same time reduce emissions. So I think that organization has been given a license, a hunting license to go out and find how we can lean into and create more value out there and grow earnings.

So my expectation is as we go forward well beyond the 2027 time frame, we're going to continue to bring in opportunity sets as we unlock them through the work of both our product solutions organization, but also our technology organization. And then, of course, we can take advantage of our projects organization to then go off and build these things at scale and do it at a lower cost than anybody else. So I think there's a really powerful combination there. And our horizon extends well beyond the 2027 in terms of thinking through the pipeline and making sure that we're positioned to be successful well into the future.

And I would just quickly add then and that's true for product solutions, which has got the chemical portfolio, our specialty portfolio and then what I would say are the energy portfolio, but more specifically the molecules that go into energy that we expect to become feedstocks of the future like they are today for our carbon ventures and Proxxima ventures. On the upstream side, we've got a lot of obviously growth potential through the back end of this decade. But we -- this is a depletion business. We recognize that. And so that organization continues to look well beyond the 2027, 2030 time horizon making sure that we have got a good understanding of what it's going to take to keep that pipeline full. So I feel really good about that. I think the way we've organized the businesses and the central organizations that we've put in place to serve those businesses is going to have huge payoffs here in this space.

Sure. Good morning, Roger. I think the key message I would leave you with across our business is when you look at kind of pricing and margins is there's two pieces, two halves to the equation. There's the demand side and there's the supply side. On the demand side frankly to start with chemicals, we see the demand basically returning to the kind of growth that we've seen prior to the pandemic. So basically growing at 1% to 2% above GDP and so that's back on track from a growth standpoint. Certainly that's what we're seeing at the first half of this year. The challenge in that business with the margins has been frankly from the supply side of the equation with a lot of capacity coming on and a queue of capacity yet to come on.

And so that's been more of the story and chemicals, less of a demand and growth story and more of a supply story and a lot of supply coming out in the short term. And like the past, the challenge in the chemical business given the large chunks of capacity that come on in discrete times that you've got to grow your -- got to grow through that capacity to get your margins back up again. One of the reasons why we stay still very focused on low cost of supply, feed advantage and importantly performance products is to make sure that we've got advantages above and beyond the commodity cycle. And you see that playing out now in our chemical business with earnings that frankly are well above what would be expected given the challenging market conditions that we see in the margin environment.

China is growing despite maybe some of it is not growing at the rates that we've seen historically, the very high rates, but still growing at a healthy clip. And as you come around to the U.S., we're seeing kind of reasonable economic conditions and growth in the U.S. as well. Europe I think is probably the most challenged area of the globe. And frankly, with some of the policies we see Europe implementing, my expectation is becomes even more challenging quite frankly and unfortunately particularly unfortunate for the folks living in Europe given the -- I think the drag that the policy they're putting in place is going to put on their economy. So I think China is looking reasonable.

India is growing and it looks very, very healthy. The U.S. is looking reasonable with good growth. Demand for -- on the energy side of the equation with petroleum products continues to be very high, record levels of demand around the world and again, I think very good supply coming into the equation there, which is keeping -- has brought margins from those very high levels that we've seen in the first quarter and then back into last year. We're now getting back down into more typical ranges. And frankly, all of our plans anticipated that. It's always difficult to call the timing of it, but we certainly knew that the elevated margins that we were seeing in the refining business would ultimately come back into normal ranges.

My expectation going forward then is we'll continue to see what I would say is historical volatility levels in that and we'll see times when the margins spike and we'll see times when the margins are challenging. But again, we've built our refining business to be robust to those. And if you look at the work we've been doing to high grade that portfolio, we've taken out a lot of the low margin, less advantaged refineries and are now focused on the integrated refineries that have a mix of high value products that we're producing and are advantaged from a size and scale and cost standpoint.

And then on the gas side of the equation and the oil side equation, oil demand continues to be at record levels. Last year was a record. We anticipate this year will be a record and then next year will be a record. So demand continues to be fairly healthy from an oil standpoint. It's just a question of working through the supply that's coming on, most of that led by what's happening in the Americas. And then on gas that's going to continue to grow in demand and it's another -- again a function of the capacity is coming on. So I think good news is that we're seeing the industry be very responsive to the demand and frankly, it's very consistent with the foundation of the strategy that we put together, which is you got to be low cost. You got to be on the left hand side of the cost of supply curve. Thanks, Roger.

Great. Thanks very much for the question. And so you're right, if we look on an after tax basis, we had about $600 million overall on a pre tax basis for year-to-date where our structural cost savings is about $1 billion. So making really good progress. Continuing to optimize maintenance is a big driver of overall savings. We gave a number of $200 million in energy products in terms of my prepared remarks and that was just noting that in the half, we had a particularly heavy turnaround slate. And if we looked back at that same turnaround slate the last time we did it, we did it much more quickly and we did it at lower cost, hence the $200 million savings number that you mentioned.

We're also obviously driving savings in terms of supply chain and looking to get more efficient there. And all of our centralized organizations which we've kind of stood up over the last couple of years are really responsible for driving savings into the business. So whether that's global business solutions or whether that's supply chain or our global operating and sustainability group who works on our maintenance activities, we're really starting to see the uptick from the benefit that those organizations can bring by simplifying things and standardizing things and bringing better data analytics to optimize our overall organization. So that's what you're going to continue to see on a go forward basis.

And then I would say longer term, as those centralized organizations start to standardize processes for the company, which are quite disparate as we sit here today, we'll be able to apply more technology to get I would say even more automated in the things that we do, which will drive further efficiencies for us long term. So whether it's getting more efficient on logistics or getting more efficient because we're standardizing now between ourselves and Pioneer, standardizing all the materials and things that we're buying. Those are the types of things that will continue to drive savings. And I think we have both the largest program by far of anybody in the industry and now a very proven track record that we feel quite good about typically over delivering on the initial plans that we develop. So we're feeling good about the progress we're making in that overall target to get to $15 billion in savings between 2019 and 2027.

Yeah. And I would just -- I guess one of the way to think about it, Josh, is for the first time in the history of our corporation, we've organized ourselves to take -- to focus on every aspect of delivering the business irrespective of what that business is, looked at where the synergies exist and are now taking the experience, the collective experience of the corporation and the expertise in each of those areas and focusing it on an opportunity set. So the size of our business gives us a huge advantage here. And so a lot of these things you're seeing are accruing by basically taking the best thinking that had occurred around the organization, around the world and then applying that uniformly everywhere it's relevant and that's happening time and time and time again. And so I think a very unique capability and capacity that frankly others can't match. And the benefits are showing up in these structural cost savings for sure, also showing up on the revenue side of the equation with respect to better marketing, better ability to sell into value. So there's I think huge benefit to the changes we've been making.

Good morning, Bob. Yeah. That comment I meant to imply for more broadly the whole low carbon solutions business set where as you look at each of those businesses, they've got their unique set of complexities. For lithium in particular, you're taking what is essentially a brand new technology, marrying that with some established technologies for subservice, some established technologies above surface consistent with our processing experiences and refining in chemicals. And so putting those things together in a new business to make a product I wouldn't say has complexities that people can't comprehend. I would just say, they're new and there haven't been very many people that worked their way through that.

Where some really unique challenges are is in the building brand new value chains and the carbon capture market as an example where there's just -- there's not an existing market today that pays for carbon removal as being incentivized with government policy. Government policy is forming. While at the same, time you're trying to build the infrastructure to support that market, the logistics, the supply and then at the same time develop a customer base. And so the complexity that I see in the low carbon space that's a particularly challenging one because of all the moving parts and all the work that has to be done to try to piece those things together to come up with frankly a business and business model that one, is sustainable for the long term and two, that generates returns that are competitive in the portfolio. But I have to say we're geared to do that kind of work.

Our experience lends itself to that. And frankly, what Dan and the team is accomplishing leaning on a lot of the core capabilities of the organization. We're tackling those challenges and making really good progress. Think on the hydrogen side of the equation, there's not a real vibrant market or a strongly economic market for a low virtually carbon free hydrogen. So that's being developed. Obviously, the government incentives are supporting that in the short term, but we've got to work our way to a market driven forces so that we are competing in an open market and not relying on government subsidies. So that's I think one of the challenges in that space.

But I think my comment was more generally that there's a lot of optimism around the low carbon businesses in general. But if you think about where progress has been made to date, most of that's been in the wind and solar and EV areas. And all those are playing into a well established markets. Power generation market is very well established. The automotive industry is very well established. Now they're bringing in new technologies that have some of their own unique challenges, but they're not building brand new markets. In our case and some of the businesses we're building brand new markets.

You bet, Bob. Good talking to you.

Thank you, Bob and thanks, everybody, for joining the call and for your questions. We're going to post the transcript of this call to the Investors section of our website by early next week. But before we wrap, I want to draw your attention to a couple of topics. First, a reminder, later this month, we will be issuing our annual global outlook, which includes our latest views on energy demand and supply through 2050 and which forms the basis for our business planning. And second, please market calendars for our corporate plan update and upstream spotlight, which is going to be on Wednesday, December 11 and for more information on that, again, please see the Investors section of our website. So with that, have a nice weekend and I'll turn it back to the operator to conclude.