Exxon Mobil Q1 2024 Earnings Call Transcript

Presentation

[Operator]

Good morning, everyone, and welcome to ExxonMobil Corporation's First Quarter 2024 Earnings Webcast. [Operator Instructions]

I'll now turn it over to Ms. Marina Matselinskaya. Please go ahead.

[Marina Matselinskaya, Director-Investor Relations at Exxon Mobil]

Good morning, everyone. Welcome to ExxonMobil's first quarter 2024 earnings call. We appreciate you joining the call today. I'm Marina Matselinskaya, Director of Investor Relations. I'm joined by Darren Woods, Chairman and CEO; and Kathy Mikells, Senior Vice President and CFO.

This presentation and prerecorded remarks are available on the Investors section of our website. They are meant to accompany the first quarter earnings news release, which is posted in the same location. Shortly, Darren will give you an overview of our performance, then we'll take your questions.

During today's presentation, we'll make forward-looking comments, which are subject to risks and uncertainties. Please read our cautionary statement on Slide 2. You can find more information on the risks and uncertainties that apply to any forward-looking statements in our SEC filings on our website. Note that we also provided supplemental information at the end of our earnings slides, which are posted on the website.

And now, please turn to Slide 3 for Darren's remarks.

[Darren Woods, Chairman and Chief Executive Officer at Exxon Mobil]

Good morning, and thanks for joining us. Our strategy and the way our people are executing created significant value in the first quarter. We delivered $8.2 billion of earnings and $14.7 billion of cash flow. Even more important, we continued to strengthen the underlying earnings power of the company. An important driver of this improved earnings power is our ongoing focus on structural cost savings, which reached $10.1 billion in the quarter versus 2019, furthering our progress towards our goal of $15 billion by 2027.

Capex in the quarter was $5.8 billion as we continue to invest in advantaged growth projects that will drive future earnings and cash flow. At the same time, we further strengthened our balance sheet, bringing our net debt to capital down to 3%, the lowest in more than a decade.

To reward our shareholders, we distributed $6.8 billion in cash, including $3.8 billion in dividends. For all of 2023, ExxonMobil was the third largest total dividend payer in the S&P 500. Only Microsoft and Apple paid more. We also repurchased about $3 billion of shares. Buybacks were temporarily paused until the shareholders of Pioneer voted on the combination of our companies, which they approved on February 7th. Post-close, we expect buybacks to ramp up to a pace of $20 billion a year.

Our ongoing success this quarter reflects the intense focus we have had for the past seven years on improving every aspect of our business. We developed a strategy tied more directly to our core competitive advantages. We reorganized the company to create a group of centralized organizations that fully utilized the significant synergies between our businesses. We set and met ambitious plans to improve the fundamental earnings power of the company. And we established a track record of excellence in execution that is second to none.

Our focus on shareholder value extends beyond the work we're doing to drive profitable growth. I'll give you three examples from the quarter that demonstrates how we're working to ensure that the value we've created is not diminished through third-party actions. First, we filed for arbitration to confirm our rights and establish the value that the Chevron/Hess transaction places on the Guyana asset. This will allow us to evaluate options to maximize the value for our shareholders. Any responsible management team would do the same.

Second, we're continuing our lawsuit against two special-interest activists masquerading as investors. We're asking the court to require the SEC's existing rules be consistently applied in order to restore the integrity of the system. We believe the system will only work properly if the rules are clearly understood and clearly applied to all parties. And third, we successfully defended the Pioneer merger against a frivolous lawsuit designed to abuse a legitimate legal process. These actions are so common, they are often referred to as a quote, merger tax. In our case, however, the court ruled in our favor and sanctioned the lawyer for operating in bad faith.

While the results of these efforts may not show up in any discrete quarterly result, they underpin long-term value and demonstrate our strong commitment to doing what's right.

I'll leave you with a few key takeaways. Our work to improve the fundamental earnings power of ExxonMobil is continuing apace. By executing with excellence on our strategy, we expect to grow our earnings potential by an additional $12 billion from 2023 to 2027 at constant prices and margins, a growth rate of more than 10% per year. A significant driver of this earnings growth will be our delivery of additional structural cost savings totaling $15 billion by 2027.

In the quarter, we continued to deliver unprecedented success in Guyana with growing production, creating additional value for our shareholders and the Guyanese people. Our strategic projects, which are another important driver of our planned earnings improvement, helped deliver record first quarter refining throughput and strong performance chemicals volume growth. And there are more projects planned for startup in 2025.

All of this is without the contribution of Pioneer. With Pioneer, we'll be positioned to drive earnings, cash flow, and shareholder distributions even higher. We continue to work constructively with the FTC as they conduct a very thorough review and remain confident that no competition issues should hinder the transaction. We've been working diligently on our integration plans, and we're ready to begin executing Day 1 on the significant synergies this combination will create.

Looking beyond our plan period and into the future, we see attractive, large-scale opportunities to leverage our core capabilities in our existing businesses and in brand new markets with brand new products, something our competitors can't do. The success of this company and our unique set of competitive advantages is built on our greatest strength and most important advantage, great people. They are the best team in the business, able to successfully overcome any challenge. Through their work at ExxonMobil, they are making a positive difference in the world, meeting people's essential needs for energy and products today and far into the future. I'm extremely proud to represent them and cannot thank them enough.

Before we begin our Q&A session, I wanted to take this opportunity to introduce Jim Chapman, our new Vice President, Treasurer and Investor Relations. Jim brings a breadth of capital market and functional experience to this role and is looking forward to working with all of you. Thank you.

[Marina Matselinskaya, Director-Investor Relations at Exxon Mobil]

Thank you, Darren. Now let's move to our Q&A session. As a courtesy to the others in the queue, we ask all our analysts to limit themselves to one question. However, please remain on the line in case we need any clarifications.

With that, operator, please open the line for our first question.

Questions and Answers

[Operator]

Thank you. [Operator Instructions] The first question comes from Devin McDermott of Morgan Stanley.

[Devin McDermott, Analyst at Morgan Stanley]

Hey, good morning. Thanks for taking my question. And Jim, congrats on the new role if you're on the line. I wanted to start on Guyana and not on the arbitration process, although I appreciate some of the posted prepared remarks on that. But instead just on the operations and growth potential, yet another really strong operational quarter. And then you've now also taken FID on Whiptail, which is new since the last call, and gives us now line of sight and all the planned development through the end of this 2027 guidance period.

And if we step back as you bring these new FPSOs online, you also have very active exploration and appraisal program. So I was wondering if you talk a little bit about that exploration and appraisal strategy here, what you're focused on over the next few years, the additional opportunities you see and how that influences your view of longer-term growth potential post '27 in Guyana?

[Darren Woods, Chairman and Chief Executive Officer at Exxon Mobil]

Yes, sure. Good morning, Devin. I'll try to address the broader picture here for you. I'll start, though, with just following up on the comment you made around the operations, performance of the operations. I think while we build these projects and bring them on in record time under budget, the value that the organization then drives from them through the operational optimization and looking to debottleneck, brings us significant additional value. And I continue to see opportunities to do that as we bring these platforms on. So feel really good about the collective effort of the organization to drive value of the plans that we already have in place through 2027.

As you say, we're doing more exploration. I think every time we drill, we're collecting information that allows us to better characterize that whole block and focus in on potential new areas of opportunity. And that's basically the work that our teams are very engaged in, is continuing to collect information, continuing to do seismic, continuing to drill, and through that work, update our reservoir models, update our understanding of that block, and then look for new opportunities. And that's going to be a continuous progress.

So I feel -- that's what the work that we're doing. And as we develop that, learn more, we'll put together more longer term plans. And once we have confidence that we've got a clear line of sight to how this plays itself out going forward in the future, we'll bring that to the community and share that with all of you.

Kathy, anything to add?

[Kathryn Mikells, Senior Vice President and Chief Financial Officer at Exxon Mobil]

I just mentioned we had planned kind of four of what I'll call wildcat wells this year. We did have one discovery, a new discovery, Bluefin. We haven't quantified what that is yet, but as you mentioned, Darren, most of the drilling that we're doing is more about supporting existing production and the next couple of projects that we have coming online.

[Devin McDermott, Analyst at Morgan Stanley]

Great. Thanks.

[Operator]

The next question is from Neil Mehta of Goldman Sachs.

[Neil Mehta, Analyst at The Goldman Sachs Group]

Good morning, Darren, Kathy team. Just wanted to build on the comments on structural cost savings. So Slide 7 is helpful. It gives us a little bit more of a breakdown by each of the four segments of how you're thinking about cost savings to get to the $15 billion. But I was wondering if you could put a little bit more meat on the bone so you can give us examples potentially by segment of things that you're doing so we can bring that story to life.

[Darren Woods, Chairman and Chief Executive Officer at Exxon Mobil]

Yes, I'll talk maybe on the macro with respect to where the costs are coming from and how they break down and then I'll let Kathy add any specifics that she wants to. But I'd just say, Neil, if you look at what we've been doing here in the $10 billion of structural cost savings that we've achieved to date, really has to do with the reorganizations that we started back in 2018 and the continued progress we make and centralizing activities, finding areas of synergies and focusing on how do we drive the most value out of those synergies, eliminating areas of duplication, taking expertise and experience that we've had in the past scattered across the corporation in different silos, putting those into centralized organizations, getting the collective wisdom of that group and experience to focus on some of our toughest challenges. Part of that is making sure that we're the lowest cost supplier and so reducing cost is a big challenge that the organization's looking at. And these experts are continuing to look for opportunities to optimize and to strike the balance of higher reliability, safer operations, while continuing to find efficiencies. And that's exactly what they've been doing.

I think it's important to put the cost reductions in context that as we've made these reductions, our reliability has improved. As we've made these reductions, our safety has improved, we have less injuries on our facilities all around the world. As we've made these reductions, our environmental performance has improved. And so it's a great example of how we can do both of these things with the right experience and capabilities. And so that's -- and I think we're -- we've just -- are at the early stages of the last of quantifying the value and developing a clear line of sight to how we can take advantage of the most recent centralized organizations, we'll be going through a plan process this year.

Now that we've got those organizations in place and working with the rest of the businesses and the other centralized organizations to figure out, what more can we bring to the table. But I'm extremely optimistic that not only will we hit the $15 billion certainly by 2027, but I suspect we'll find even more. And then with respect to, I'd say macro breakdown, I think the way to think about it is roughly split evenly today between our upstream and our product solutions business.

Kathy, any specifics you want to add?

[Kathryn Mikells, Senior Vice President and Chief Financial Officer at Exxon Mobil]

I guess a little bit more color I'll add. If I just talk about, Neil, what went on in the period, we saw most of the year-over-year incremental savings coming through upstream and coming through energy products. In upstream, that was driven largely by operational efficiencies and in the information that we would have pushed earlier this morning, in terms of the more thorough discussion of the Investor Relations slides that we published on our website. I talked about an example at Kearl where we've basically automated kind of all of our heavy trucking there and how that drives both, as Darren mentioned, an improvement overall from a safety perspective, but also operating efficiency with the logistics and just efficiency of that trucking operation.

If I then contrast that with energy products, we had a really heavy slate of maintenance in this past quarter and those turnarounds were actually done more efficiently than the same turnarounds the last time the company would have had to have executed them. And so that drove structural cost savings for us.

If I then try and look forward, what do we anticipate between now and 2027? Part of what I mentioned is some of these centralized organizations are really responsible for driving savings across the company. And so we have our global operations and sustainability organization. That organization is using statistical maintenance analysis across our entire footprint in order to drive better efficiency and effectiveness in our planned maintenance activity. And again, as Darren mentioned, that should drive improvement in safety and importantly, improvement in reliability as well.

We have stood up last year, a global business solutions organization, and they're really responsible for standardizing some of these big end-to-end processes that we have, procure-to-pay, record-to-report -- record-to-report, as well as our planning activities. And as we standardize those, we can implement more technology in order to improve the automation of many of those activities. When we benchmark ourselves, we know that we're too heavy on manual activities relative to what we would consider best-in-class. And so that should drive incremental savings.

And then I'll just mention supply chain, again another central organization we stood up last year, really trying to now leverage the scale of the entire company. And so that's all about logistics, right. And how can we leverage our scale to drive more efficient logistics? How can we leverage our scale to drive more effective supply chain, including utilizing more effective procurement? And it's also about then driving down kind of materials and broader inventory as we just get more efficient. So as we look forward, we have big savings expected kind of coming out of those areas.

[Neil Mehta, Analyst at The Goldman Sachs Group]

Thank you. Big numbers. Thank you.

[Darren Woods, Chairman and Chief Executive Officer at Exxon Mobil]

Thank you, Neil.

[Operator]

The next question is from Roger Read of Wells Fargo.

[Roger Read, Analyst at Wells Fargo & Company]

Yes, thanks. Good morning. I'd like to come back to one of the things addressed in the opening comments on the Pioneer term [Phonetic]. Can you just give us an idea of what your -- what final hurdles we're actually waiting for here? I know there's various rules with the FTC and so forth in terms of days. Just curious what the -- what gives you the confidence on the Q2 close here?

[Darren Woods, Chairman and Chief Executive Officer at Exxon Mobil]

Yes. Good morning, Roger. I'll give you just kind of a high level perspective. I'm not going to obviously comment on the specifics of the discussion, the work that we've been doing with the FTC, other than to say, it has been a constructive engagement there. We're working with them cooperatively, supplied an enormous amount of material, documents, contracts, line items on productions and sales. And so I think a very thorough review of this transaction.

As we've said all along, we're very confident that there are no antitrust issues. And I would just say we're very optimistic that we'll continue, we'll meet the objective that we set very early to close in the second quarter.

[Operator]

The next question is from Betty Jiang with Barclays.

[Betty Jiang, Analyst at Barclays]

Good morning. Thank you for taking my question. Maybe bring in the question earlier about the cost savings, bringing that in the context of the $12 billion of earning growth potential you see between 2023 and 2027. Really appreciate additional color given on the key drivers between upstream, downstream and structural savings. But I want to ask about the cadence of that earning growth profile, whether that's expected to be ratable through the period and what do you see as the upside and downside risk to that outlook?

[Kathryn Mikells, Senior Vice President and Chief Financial Officer at Exxon Mobil]

Sure, I'm happy to answer that question. And so if you look at overall, we've said $15 billion in cost savings from 2019 to 2027, we've achieved kind of on a year-to-date basis, about $10 billion, that means we have about $5 billion to go. You wouldn't expect that cost savings or other drivers of improvement are necessarily ratable. I mean, we see different initiatives kind of come quarter to quarter. So I'd say I don't expect it to be -- to be ratable, but I expect us to put up meaningful cost savings every year.

If you then look at some of the other drivers of that earnings growth, I think it's really important as you think about the [ E&PS ] business, that growth really goes hand in hand with execution of strategic projects, which also drives our high-value products growth. We expect to about double the volume of high-value products from '19 to 2027. And in 2027, we expect those products will comprise about 40% of our total earnings at a kind of constant margin.

This year, we're relatively light on strategic projects in E&PS. Next year in 2025, we will be really heavy and so we'll have the Strathcona Renewable Diesel coming online, we'll be executing the Resid Upgrade project in Singapore and we'll have China One coming on, amongst other things, including increasing our capacity for advanced recycling at certain locations. So we have a lot of activity that will then start to bring incremental earnings power in 2025 and beyond.

And then I'd say if you look over at what's happening in the upstream business, we're continuing to get growth obviously out of Guyana and the Permian, that growth and advantaged assets is a real key driver in terms of overall growth in upstream. One of the things you would have seen in our presentation is that on a year-to-date basis now 44% of our production volumes in upstream are from these advantaged assets, which are a key driver of earnings growth.

And then I'd say the other thing to think about in upstream is we will start to get production growth. So actual volume growth improvement, but that tends to come more strongly in the beyond 2025 period. So hopefully that gives you a good feel for some of the big drivers and when we would be anticipating them starting to get reflected in our underlying earnings.

[Darren Woods, Chairman and Chief Executive Officer at Exxon Mobil]

Yes, and I'll just add to Kathy's comments. If you look at cost reductions, which Kathy talked about the value of those contributing to our earnings growth, I think there's not a lot of downside there. I think with the structural changes that we've made and have yet to realize the benefits of, we've got a pretty good track record now here over the last seven years of actually seeing those what were initially concepts translate into bottom line savings. And so we've got a very high degree of confidence and that frankly, our challenge in reducing cost or driving improvements in the business is not a lack of ideas or opportunities, it's how we prioritize and execute the highest value of those. So we've got a great opportunity set for improving our own business. And it's just a question of pacing that in a way that maintains the other objectives that we have in the business in terms of delivery day in and day out.

On the revenue side of the equation and to Kathy's point, the strategic projects are kind of at the heart of growing the revenue and the value side on the top line. And I would say we recognized going back in time, that critical to doing that was advantaged projects, and then an organization that had the capability to effectively deliver those advantaged projects. And then finally an organization that was capable of starting those up seamlessly and getting them online quickly.

And I think if you look at the big projects that we brought on to date, all this portfolio of projects we developed back in 2018, we're continuing to execute that. The ones we brought online, we've been very pleased with, one, with the project execution, the technologies organization's contribution to that and then how we've started up and run those. And so I think that gives me a lot of confidence going forward that the model that we put together, the focus that we put in each of our businesses to contribute their area of expertise to overall corporate success, is demonstrating a lot of success. And so I've got a lot of confidence going forward that we'll deliver that, continue to deliver that portfolio that's demonstrated its value to what we've done to date. And so I think feel pretty confident about delivering through 2027 and frankly beyond.

[Betty Jiang, Analyst at Barclays]

Great. Thank you. That's a really robust pipeline of projects to watch. Thank you for all the detailed answer.

[Darren Woods, Chairman and Chief Executive Officer at Exxon Mobil]

Sure.

[Operator]

The next question is from Bob Brackett of Bernstein Research.

[Bob Brackett, Analyst at Bernstein Research]

Good morning. I had a question around on the use of the phrase, carbon materials. It seems fairly new, it feels fairly new, feels again, pursuing some things in the battery chain. Could you give us a little more flavor on what you're contemplating there?

[Darren Woods, Chairman and Chief Executive Officer at Exxon Mobil]

Sure. Good morning, Bob. It's good to hear from you. I think one of the points we're trying to make is this company has a very broad suite of capabilities that's anchored, frankly, in technology, and technology that's focused on transforming hydrogen and carbon molecules. And a lot of what we've done to date and the value that companies generated over the last many decades has been a function of energy and the consumption of those molecules to meet the growing demands for energy.

But we also have a very broad portfolio of other products that we make through that molecule transformation expertise into the chemical business, as well as lubricants and fluids and things that we do out of our refineries. So there's a much broader set of capabilities and products than I think, frankly, what people give us credit for. I would just point to Proxima as a great example of some time back, we recognized that the demand for gasoline would [Indecipherable] particularly in developed countries. And the question we challenged our technology organization with was, how can we use these molecules to make other products that are required to meet other needs in society?

And Proxima, I think while it's early in its development, it's going to be -- it's going to demonstrate that we can take that expertise, apply it to a feedstock that will become more and more advantaged with time and make other products that are needed for to -- for the world. And that will bring a lot of significant benefits in those applications.

The carbon ventures and the carbon materials is a very similar initiative. It's just a little earlier in its construct. If you look at the world's efforts to decarbonize, it's clear to us that carbon, over time, will become more and more advantaged feedstock. And so the challenge we've given our organization is what can we do with carbon molecules? How can we meet growing needs and large markets? And they have to be large markets, because if we're going to do something that moves the needle for the corporation, we have to do it at scale.

And so what we're looking at there is how do we use the capabilities we have in molecule transformation applied to carbon to meet -- these batteries are just one example, carbon fibers are another. There's a number of things today, we have -- there are applications for, but there's either a performance dimension that needs to be improved or a cost dimension that needs to be improved. And we think we have a line of sight for how we can do that, how we can improve the performance aspects using our technology capabilities and at the same time find ways to reduce the cost of production.

So it's early days, I would say. We put it out there in this call to make sure people are beginning to think more broadly about what this company is capable of and how our future could evolve in a very different direction than where we've come from. And the beauty of how we're positioning ourselves is we have -- we're using the same core capabilities and advantages. And so it gives us a lot of optionality and flexibility. To the extent these other new markets work out and demand picks up and we see great opportunities, we can shift more resources into that space. If it takes us longer there, or say the transition takes longer, we've got our base business and continue to invest in products that the world needs today.

And so we've got the ability to adjust depending on how things evolve and depending on what direction the world goes. So I think it's just a great example of, again, anchoring back on some very core capabilities that have very broad application. And we're excited by what we see as some potentially very high value new markets with some very high value unique products that we can supply to meet -- to meet those needs.

[Bob Brackett, Analyst at Bernstein Research]

Very clear. A question would be the materiality threshold. Should we think about runways to $1 billion businesses, or $10 billion businesses, or how is that too simplistic?

[Darren Woods, Chairman and Chief Executive Officer at Exxon Mobil]

No, I think it's a good measure to think about. It's got to be over a $1 billion if it's going to be material. And so we're looking at very large markets into the billions.

[Bob Brackett, Analyst at Bernstein Research]

Great. Very clear. Thank you.

[Operator]

The next question is from Jason Gabelman of TD Cowen.

[Jason Gabelman, Analyst at TD Cowen]

Yes, hey, morning. I had a question about uses of cash and the balance sheet. I think this quarter we're seeing Exxon's net debt to cap move down. Some of your peers are starting to move up as commodities come off a bit and that's seemingly a bit of a differentiator between you and peers. So I thought it'd just be a good opportunity if you could remind us how you think about utilizing that balance sheet capacity moving forward, given you're still operating from a position of strength, whether it'd be deploying for future M&A, increasing buybacks or other opportunities. Thanks.

[Kathryn Mikells, Senior Vice President and Chief Financial Officer at Exxon Mobil]

So I'm happy to talk about that. As you correctly referenced, our net debt to cap has come down, it's about 3% now. Our approach in terms of capital allocation has not changed. It continues to be very consistent. First and foremost, we want to make sure that we're making investments in this business that ultimately drive the long-term earnings and cash flow growth. That creates a virtual cycle of us then being able to enhance shareholder returns and return cash to shareholders via dividends as well as a more consistent share repurchase program. So that's job number one.

I would mention that capex is not ratable. I've seen many people comment on a light capex number that we had in the first quarter. We are very much on our plan. Many times our capex is influenced by milestone payments, just as an example, and so it is not ratable over the course of the year, we have guided $23 billion to $25 billion in capex and that guidance remains, we're very much on plan. When we think about investing in our business, obviously, we're very focused on the advantaged slate of investments that we have organically in front of us. But obviously, M&A is another type of investment that we make.

Again, where we see we can make one in one equal more than two, largely by adding synergies to some type of acquisition. And obviously, getting ready to close the Pioneer acquisition would be a terrific example of that. We know a strong balance sheet is a competitive advantage, and so we have continued to really maintain and strengthen that balance sheet. This quarter, we paid down a little over a $1 billion in debt. That's part of the reason why you see our net debt to cap ratio coming down. That gives us a lot of flexibility to ensure that we're consistently investing in the business through the cycle and it just gives us optionality, understanding that we operate in a very cyclical business.

And then, clearly we're looking to reward our shareholders. I think you see that with our very consistent approach to the dividend. It needs to be sustainable, it needs to be competitive, it needs to be growing. We obviously raised the quarterly dividend in the fourth quarter by $0.05 -- $0.04 and continue to review that over time.

I would mention one thing with regard to share repurchases. We did have the Pioneer vote this quarter, and so we were out of the market for a period of time. We did about $3 billion in share repurchases. A run rate to hit the $17.5 billion which is what we've kind of guided to this year, would be more like $4.4 billion, right. So our program will naturally dial up our execution, so that we're on track to complete the $17.5 billion share repurchase program on a standalone basis. And then I would remind you that we've said we anticipate taking that program pace up to $20 billion annually after we close the Pioneer acquisition. So we feel really good about where our balance sheet is at and our consistent capital allocation strategy and that -- that will drive long-term returns for shareholders.

[Darren Woods, Chairman and Chief Executive Officer at Exxon Mobil]

And I would just add to Kathy's points that and just remind everybody, if you look at where we stand today, and Jason you made the point that we're deviating from our peers in terms of continuing to generate cash and drive down net debt, that's anchored in the strategy that we put in place in 2018, which is find advantaged projects and invest in those to grow the earnings power of the business and that's now beginning to manifest itself. And so I think you got to have a long-term view on this, having a robust balance sheet to make sure that we're positioned when opportunities come along and we see clear advantages to invest, that we have the capability to do that. Thanks for the question.

[Jason Gabelman, Analyst at TD Cowen]

Yes, got it. Thanks.

[Operator]

The next question is from Ryan Todd of Piper Sandler.

[Ryan Todd, Analyst at Piper Sandler Companies]

Thanks. Maybe one on chemicals. Let me -- your chemicals businesses, the two segments continue to show kind of modestly better-than-expected recovery along the bottom or off the bottom here. Is this more of a feedstock tailwind that we're seeing in the near term? Are you seeing any improvements that are noticeable in terms of demand and overall global supply demand? And I guess in the meantime, while things are weak, what are you managing to do with your product mixer operations to drive relative performance there in chemicals?

[Darren Woods, Chairman and Chief Executive Officer at Exxon Mobil]

Yes, sure, Ryan, I'll take that. First thing I would say is, if you look at the chemical business and kind of the margin indicators that we use to judge the health of the chemical business, we are at a historic kind of bottom of cycle number. And so I think it's a very challenging chemical markets today, as I know many of you know. But even in that very challenged market, we are continuing to deliver very good results. And I think if you compare similar markets that were even close to these bottom of cycle conditions, we were in a very different place in the past with respect to earnings than we find ourselves today, where we delivered close to $800 million of earnings this quarter, despite the very difficult market conditions.

Those market conditions are driven more by supply than demand frankly. We're continuing to see growth in demand, not as high as we've seen historically, but continued good growth and frankly, in the first quarter saw some of that pick up. The challenge has been the supply that's come on, to meet that growth. And so that is depressing overall industry margins. As you know, the investments that we make and the way we run our business is to make sure that we're advantaged versus the average chemical player.

And so even in these markets that are set by other capacity, the work that we've done to position ourselves more advantaged -- in a more advantaged position than competition continues to deliver a value. You can see that with the growth not only in the high-value products which are coming on with our projects, and frankly, that growth is in line with what we had expected. So we're continuing to see the demand for the high-value products that we've invested in, but we're also seeing in our base volume value in those with respect to how we positioned ourselves.

And so it's -- and we're seeing advantages in the structural cost reduction. So I would tell you every part of what we've been doing to improve the earnings power of the organization is manifesting itself in our chemical business and showing up in differentiating earnings and feed -- to your point, feed advantages play an important role in that. So that's, yet again, another advantage that we have versus the typical industry player, but that is reflective of the broader strategy that we have.

So I think we feel good about where we're at in a very difficult market. Our view is that market -- those market conditions are going to be with us for a little while here going forward, but we also feel like we're well positioned to be successful there. And as that shakes out and some of the less able competitors have no success in this space, we'll see growth continue to move. And eventually we'll see margins pick back up and we'll be very well positioned.

[Kathryn Mikells, Senior Vice President and Chief Financial Officer at Exxon Mobil]

And just the other thing I'd add to that is, I think if you look at our chemical businesses performance and compare that to peers and other players, you see the differentiation and the excellent execution really coming through. We're in clearly bottom of cycle conditions right now, and yet we're still generating pretty good earnings and cash flow in our chemical business. And then I would just mention that, as Darren noted, our footprint tends to be North American weighted. And so if you just look at our PE and PPE footprint, we're heavily North American weighted and relatively lightly weighted to Asia compared to rest of industry. And Asia is especially at very, very bottom of cycle conditions.

[Ryan Todd, Analyst at Piper Sandler Companies]

Great. Thanks both of you.

[Operator]

The next question is from Stephen Richardson of Evercore ISI.

[Stephen Richardson, Analyst at Evercore ISI]

Good morning. Darren, I was wondering if you could talk a little bit about the Baytown project, and maybe just if you could give us a little bit more on what your view of adequate incentives there would be. If the PTC on green hydrogen was extended to blue, would that be sufficient to sanction the project?

And then, sorry, just as a follow on to that, as you talk about a level playing field across and technology neutrality, is your view that a new grey hydrogen ATR should get some sort of incentive? Maybe you could just give us the context of how you're thinking about that project and what it needs to move forward. Thank you.

[Darren Woods, Chairman and Chief Executive Officer at Exxon Mobil]

Yes, sure. I'm happy to do that, Steve. What I would say is, it's a -- that work we're doing to develop it is, I think, demonstrating the difficulty of starting brand new businesses and value chains where none exists, in that, we're kind of simultaneously trying to build demand, trying to build supply and then trying to, in the early days of this market, establish financial incentives to do that. And so three core key variables to a successful business, all kind of basically being generated for the first time in this space along this value chain.

So I just put that out there is, it's a challenging construct, but frankly, one that plays to our strengths and the ability to look along the entire value chain and we are uniquely situated to manage each piece of that. There are very few, if any, companies out there that have a portfolio and capabilities that extend end to end along this value chain. So I feel good about what we're doing there and the work that we put in place.

And frankly, it looks to me like a very viable project. We are continuing to progress that, but it will require that the necessary incentives are in place. And with respect to what's required with incentives, I would say the IRA and the incentives that were developed as part of the IRA are enough to do that. The challenge is taking the IRA, which I believe rightly focused on carbon intensity and incentivizing carbon intensity, translating that legislation into regulation. And if the regulation reflects the intent of that legislation and writes the rules focused on carbon intensity, that will be enough to justify and to incentivize and give us a return on this investment.

That's -- we don't focus so much on the green, the blue, and color schemes, we instead focus on how can we meet -- what is ultimately the objective here, which is to reduce the CO2 associated with production of these products. And we think all the work we've been doing in our facilities, in our feedstock and decarbonizing those contributes to that. So we feel like we're well positioned with the existing set of incentives, as long as those incentives are fairly reflected in the regulations, in a level playing field, what I mean by that is staying focused on carbon intensity and ignoring colors.

[Stephen Richardson, Analyst at Evercore ISI]

Very clear. Thank you.

[Darren Woods, Chairman and Chief Executive Officer at Exxon Mobil]

Okay.

[Operator]

The next question is from John Royall of JPMorgan.

[John Royall, Analyst at JPMorgan Chase & Co.]

Hi, good morning. Thanks for taking my question. So I just had a question about the refinery sale in France. I know you have a very ambitious program for growth in the downstream business, but you have been trimming and high grading a bit with some asset sales. Other majors are also reducing their European footprint in refining. Can you just speak to how strategic the remaining European portfolio is? And could we see some more assets shake out in European downstream?

[Darren Woods, Chairman and Chief Executive Officer at Exxon Mobil]

Yes, sure. I would tell you what you're seeing with the sale in France is really the latest in what's been a fairly long trend with us focused on high grading refineries to refineries that are -- that have the capability to be -- to address a broad suite of products and high-value products. And so integrated facilities that make not only petroleum products, but also make chemicals, lubricants and basically a broad array of high-value products. And so we've been, over time, focused on that. They need to be advantaged sites. They need to be -- we have a cost of supply curve.

I think you all have heard me talk about this many times across all of our businesses, but we -- we look around the world and make sure that our facilities are on the low cost of supply, so that as the margins move up and down that we never become the marginal supplier. And having an integrated facility helps with that. But it also acts as a hedge to make sure that we're not dependent on any one sector for the success of one of our manufacturing facilities.

The reorganizations that we put in place have helped greatly with this. And if you think about these integrated facilities, we used to have them split up amongst different parts of the organizations, different businesses running them, and in fact, even different manufacturing organizations running them. Today, that's not the case. Today, they're being run by a single business with a single leadership team. And so I feel like -- I feel very good about that.

But it is this continuing high grade. We were doing it all the way back when I was President of the refining company. So it's been a long-term strategy. We're not in a hurry. We're taking our term to make sure that we find the right buyer that has the right value proposition, one that exceeds our own internal values. And if we can find that, we will then transact. If we can, we'll continue to optimize and improve those refineries to the best of our abilities.

But I would say, we've worked our way down the portfolio until we feel pretty good about the position that we're in today that -- the refineries that we have in the portfolio are advantaged, have a mix of either feed advantages, or product advantages, or both. And frankly, our focus has been on making sure they're running reliably, running safely, running efficiently. And these centralized organizations in our global operations and sustainability organization have been a huge enabler to help in each of these facilities. And our chemical plants, our refineries, lubricant facilities, all improve their performance, run better, run more profitably, run safer, run more reliably. So feel really good about the position that we're in.

And we'll continue to look at our portfolio. It's always been the case that we're looking to make sure that the value we see in those facilities exceed the values that others might and feel good about how we're positioned there.

[Kathryn Mikells, Senior Vice President and Chief Financial Officer at Exxon Mobil]

And just the other thing I'd add to that is that investment environment is certainly a bit more difficult in Europe. If you go back and look at, at the end of 2022, the additional taxes that were levied onto the energy sector, if you look at expanded disclosure requirements that Europe is looking for, or if you look at regulation around reducing carbon footprint and not necessarily implementing regulation, that's technology agnostic and focused on just reducing carbon intensity, that all makes Europe a much tougher investment proposition. So that's certainly one of the things that we look at in any place across the globe, as we look to make future investment decisions.

[John Royall, Analyst at JPMorgan Chase & Co.]

Thank you.

[Darren Woods, Chairman and Chief Executive Officer at Exxon Mobil]

Thank you.

[Operator]

Next question is from Biraj Borkhataria of RBC.

[Biraj Borkhataria, Analyst at RBC Capital Markets]

Quite fitting to take the next question from an analyst sitting in London. But I just have one question. You have a lot of LNG coming into your portfolio in the coming years, Golden Pass, Qatar, etc. You have quite a high oil weighting in the current sales mix. Are you looking to diversify over time or would you like to maintain that kind of 80% to 90% oil linked exposure in your contract base over time? Thank you.

[Darren Woods, Chairman and Chief Executive Officer at Exxon Mobil]

Yes, good morning, Biraj. Thank you. I would tell you we're not as focused on an absolute mix number as much as the advantaged investment opportunities that we can find in those businesses. We see long-term demand for oil continuing, albeit with a much lower emissions footprint as we continue to find ways to decarbonize. We also see long-term demand for natural gas. And so I think as we look at both of those, both the liquids and the gas side of the equation, we see a long-term future there and an opportunity for this company to participate if we have advantaged projects that position us on a low cost of supply and so that's how we think about that.

And that advantaged position which manifests itself in cost of supply, as you know, obviously manifests itself in above industry average returns, which is the objective that we set for ourselves. And so that's how we're thinking about it. And frankly, we'll let the opportunity that we find in these advantaged investments set the proportion of the portfolio that those represent. We will not invest in a project that I'm not convinced. Doesn't one leverage our core competitive advantages, that two then results in a project which is advantaged versus other, and that three then is on the low cost of supplies.

Because as good as the market may look today out the window, we know there are cycles, we don't think the cycles are going away. And so we remain very focused on making sure that we take advantage of the upswings, but we're prepared for the downswings and we'll be very successful. And as we just talked about in the chemical business, great example of being in the very bottom of a downswing and continuing to generate cash and make good solid earnings. And that's the ambition we have for all of our businesses.

[Biraj Borkhataria, Analyst at RBC Capital Markets]

Understood. And just as a follow up to that, there's obviously been ongoing security challenges in Mozambique. And, what is your view at this point on whether you'd be interested in doing a second floating facility? Because obviously monetizing the onshore part has become very challenging.

[Darren Woods, Chairman and Chief Executive Officer at Exxon Mobil]

Yes, I think obviously, you rightly pointed out there are security challenges there. I think there's been a lot of good progress made with respect to that. I think Mozambique, the country of Mozambique, the Government of Mozambique, recognizes the importance, not only for the project, frankly, for the people of Mozambique, that -- that needs to be addressed and effectively managed. I think they've made good progress in doing that. My view is, with time we've seen this in other places around the world that will get addressed and it will result in an opportunity to invest onshore.

With respect to onshore/offshore, we frankly comes back to the point I made at the beginning of your question, which is, it depends on the returns that we can generate with respect to investment opportunities and how competitive those supply points are. If we can do that offshore, we obviously will. If it takes going onshore to do that, then we'll focus on onshore, but it will be a function of the returns of the projects. Thanks for your question.

[Biraj Borkhataria, Analyst at RBC Capital Markets]

Okay, thank you very much.

[Operator]

The next question is from Josh Silverstein of UBS.

[Josh Silverstein, Analyst at UBS Group]

Thanks. Good morning, guys. Just wanted to see if I can get an update on the timing of the gas -- the power project in Guyana and what benefits this may have to cost and operations in the country and if there are any other projects like this that you guys may be looking at over time? Thanks.

[Darren Woods, Chairman and Chief Executive Officer at Exxon Mobil]

Yes, sure. I think this is something that we've been engaged with the government on for quite some time. I think as we look at going into some of these -- some of the countries that are on a growth path, on a developing path, we look for opportunities of how our footprint and presence in those countries and markets can help the people in the community. And this is a great example of that, of getting the gas that's produced offshore/onshore so they can replace what is a relatively inefficient high emissions power generation system that's fairly unreliable, with something that's cleaner, lower emissions and much more reliable and should be much more cost effective. And so I think it's kind of a win-win proposition, particularly for the people of Guyana.

So we're working on bringing that gas to shore. Our expectation is we'll have that brought up sometime end of 2024. Obviously, the government's working on the receiving end of that gas and responsible for putting in the power station. That's an independent project that's developing, we're also working on the distribution system. And so it's really, I think the impact of that will come when we get both pieces together and get that linked up and effectively delivering power to the market.

[Operator]

The next question is from Paul Cheng of Scotiabank.

[Paul Cheng, Analyst at Scotiabank]

Thank you. Hi, good morning. Darren, In the presentation, you talk about direct air capture. Can you give us some idea? And you're saying that you aim to reduce the cost by half and that won't be sufficient. So what will be needed in order -- how much is the actual cost reduction from the current level in order for that to be competitive or that to be a real business for you? And also that, can you talk about that, how you approach your technology is different than what currently in the market, especially one of your competitors in the U.S.? They already have a -- they said that they have a commercial operation ready and it's going to come on stream very, very soon. Thank you.

[Darren Woods, Chairman and Chief Executive Officer at Exxon Mobil]

Yes, sure. Good morning, Paul. Yes, what I would say with -- may I start with the last point of your comment, which is, yes, there are alternatives out there today versus what we're working on. The issue is the cost associated with them and we're not looking at what we can commercialize in the short-term based on what I would say is a very narrow market of limited customers who are willing to pay a very high price to demonstrate a level of decarbonization. We're focused on how we can make this technology broadly applicable at a cost that society can afford. So that's we are very focused on the long-term, not the short-term.

And our view is the available technologies today don't meet the cost requirements. And that's somewhere between the $600,000 per ton of CO2 removed. And our view is if you try to apply that across the emissions challenge the planet has, the world won't be able to pay for that. So we've got to find a reduction. Our cost, we've set an initial target of cutting the cost in half just because that is a significant step change, recognizing it won't be enough. But if we can get the technology, if we can develop the technology to a point that we're successful there, that gets us on this path and demonstrates the value of the concepts that we're developing to keep on going and drive further down.

With respect to the technology and how it compares to what's commercially available out there, I would say part of the reason why this is proprietary technology is, today it's proprietary, and so I'm going to keep it that way. I would say, it is a brand new approach. There are others out there working on new approaches as well, which, frankly, we're happy about. This is a tough challenge to break, and I'm not pretending like we're going to be the ones to solve it. But I am confident that we will give it all -- give it all applying our capabilities, others are doing that.

As I said in my prepared remarks that we posted, if there's a breakthrough, it doesn't so much matter who has the breakthrough. I think we're going to have a role to play, because once we have a technology that gets to the right cost level, you're going to need global deployment at scale. And I suspect that the technology that will be required for the future, lower cost, direct air capture, will be different than what we've got today and will require some of the technical capabilities that we have.

So I see a role for us in the future if this nut gets cracked. We feel good about what we've seen so far, but we're very early into it and we're hopeful that we'll make the progress that we're aspiring to and continue to drive the cost down.

Your last point, you asked, I think to me, if you're going to be -- if the world -- if it's going to be affordable, you've got to get into the $100-ish, a ton of CO2 to start talking about broad deployment around the world. I think that -- that's ultimately where we need to get to.

[Marina Matselinskaya, Director-Investor Relations at Exxon Mobil]

Thank you, everybody for joining the call and for your questions today. We will post the transcript of our Q&A session on our investor website next week. Additionally, we look forward to connecting again on May 29th for our Annual Shareholders' Meeting. Now let me turn it back to the operator to close the call.

[Operator]

[Operator Closing Remarks]

Participants

Corporate Executives

• Marina Matselinskaya, Director-Investor Relations
• Darren Woods, Chairman and Chief Executive Officer
• Kathryn Mikells, Senior Vice President and Chief Financial Officer

Analysts

• Devin McDermott, Morgan Stanley
• Neil Mehta, The Goldman Sachs Group, Inc.
• Roger Read, Wells Fargo & Company
• Betty Jiang, Barclays PLC
• Bob Brackett, Bernstein Research
• Jason Gabelman, TD Cowen
• Ryan Todd, Piper Sandler Companies
• Stephen Richardson, Evercore ISI
• John Royall, JPMorgan Chase & Co.
• Biraj Borkhataria, RBC Capital Markets
• Josh Silverstein, UBS Group AG
• Paul Cheng, Scotiabank