Exxon Mobil Corporation, Q1 2024 Pre Recorded Earnings Call, Apr 28, 2024 - NYSE:XOM

NYSE:XOM

Marina Matselinskaya [Executives] 💬

Marina Matselinskaya, the Director of Investor Relations for ExxonMobil, provided opening remarks and outlined the format of the earnings call. Here’s a detailed summary of her statements:

Welcome and Introduction
- Marina welcomed everyone to ExxonMobil's First Quarter 2024 Earnings Call.
- She thanked participants for joining the call and introduced herself as the Director of Investor Relations.
Presentation Overview
- She informed the attendees that the presentation and prerecorded remarks are available on the Investors section of ExxonMobil's website.
- Marina mentioned that these materials are intended to accompany the first quarter earnings news release, which is also posted on the website.
Forward-Looking Statements
- Marina reminded listeners that the presentation would include forward-looking comments, subject to risks and uncertainties.
- She directed attendees to read the cautionary statement on Slide 2 of the presentation.
- Marina advised that more information on the risks and uncertainties associated with forward-looking statements could be found in ExxonMobil's SEC filings, available on the company's website.
- She noted that supplemental information was provided at the end of the earnings slides, posted on the website.

Darren W. Woods [Chairman of the Board, President & CEO] 💬

Darren W. Woods, the Chairman of the Board, President, and CEO of ExxonMobil, shared several key points during the first quarter 2024 earnings call. Below is a detailed summary of his remarks:

Key Takeaways:

Q1 2024 Performance:
- Delivered $8.2 billion in earnings and $14.7 billion in cash flow.
- Structural cost savings reached $10.1 billion in the quarter versus 2019, progressing towards the $15 billion goal by 2027.
- Capital expenditure (CapEx) was $5.8 billion, invested in growth projects.
- Net debt-to-capital ratio was brought down to 3%, the lowest in over a decade.
Shareholder Distributions:
- Distributed $6.8 billion in cash, including $3.8 billion in dividends.
- ExxonMobil was the third-largest total dividend payer in the S&P 500 in 2023.
- Repurchased about $3 billion of shares.
- Buybacks were temporarily paused pending the Pioneer shareholder vote, but are expected to ramp up to $20 billion annually post-transaction close.
Business Strategy:
- The strategy is tied closely to the company’s core competitive advantages.
- Reorganization created centralized organizations to utilize synergies between businesses.
- Set ambitious plans to improve the fundamental earnings power of the company.
- Established a track record of excellence in execution.
Earnings Growth Potential:
- Expects to generate an additional $12 billion in earnings potential from 2023 to 2027 on a constant price and margin basis.
- Represents a compounded annual earnings growth rate of over 10%.
- Drivers include higher volumes from advantaged assets, mix improvements, and further structural cost reductions.
Guyana Operations:
- Achieved unprecedented success in Guyana, with the Prosperity FPSO startup ahead of schedule and below cost.
- Reached nameplate capacity of 220,000 barrels per day in January, just 2 months after startup.
- Sixth project, Whiptail, has reached Final Investment Decision (FID) with a planned startup by year-end 2027.
- Production capacity in Guyana is expected to exceed 1.3 million barrels per day within 8 years of first oil.
- Development of Guyana’s energy economy drove the highest real GDP growth in the world in 2022.
Legal and Regulatory Issues:
- Filed arbitration to defend preemption rights in the proposed Chevron-Hess transaction in Guyana.
- Initiated litigation against special interest activists who violated SEC rules by borrowing or group-funding a nominal amount of shares to resubmit a proposal with little shareholder support.
- Successfully defended the Pioneer merger against a frivolous lawsuit designed to extract value from ExxonMobil shareholders.
Upstream Business:
- Canada operations: Trans Mountain pipeline expansion to come online in May 2024, improving access to Asian and U.S. West Coast markets, expected to improve margins and drive higher earnings.
Product Solutions:
- Generated record first quarter refining throughput during peak turnaround activity.
- Maintained strong turnaround cost and schedule performance.
- Structural improvements in turnarounds were made possible by centralized organizations.
- Turnaround performance translates to structural cost savings and higher throughput.
- Methane emissions intensity is down more than 60% since 2016.
Long-Term Outlook:
- Challenges the view that the industry is declining, stating that oil and natural gas will play a significant role in meeting energy demands.
- World population expected to add nearly 2 billion people and the global economy to double by 2050.
- Scenarios predicting sharp declines in oil demand are unrealistic.
- Competitive advantages will serve as a foundation for building world-class businesses in a lower-emissions world.
New Opportunities:
- Advanced recycling projects to process plastic waste, with the first project at Baytown capable of processing 80 million pounds per year.
- Planning to develop over 1 billion pounds per year of plastic waste processing capacity by 2027.
- Proxima: Transforming lower-value gasoline molecules into high-value resin with numerous commercial applications.
- Addressable market of up to 5 million tonnes per year, growing faster than GDP, with earnings potential of $1 billion a year by 2040.
- Exploring opportunities in materials made from carbon for growing markets such as carbon fiber, polymer additives, battery materials, and electrodes for steel production.
- Direct Air Capture (DAC): Pilot project at Baytown has demonstrated feasibility with a proprietary capture process. Goal is to cut the cost in half initially.
- Low carbon hydrogen project in Baytown entering advanced stages of engineering and development. Progress in building demand for low-carbon ammonia with SK of South Korea and JERA of Japan.
Conclusion:
- ExxonMobil is uniquely positioned to play a leading role in meeting the world’s essential needs for energy and high-value materials and products, irrespective of the pace of the transition to a lower-emissions future.

Kathryn A. Mikells [Senior VP & CFO] 💬

Kathryn A. Mikells, the Senior Vice President and Chief Financial Officer of ExxonMobil, presented the following details during the first quarter 2024 earnings call:

Track Record of Improving Earnings Power:
- ExxonMobil has a consistent track record of improving the earnings power of its business.
- Over the past four years, earnings growth was more than twice the pace of the closest peer.
- As of year-end 2023, incremental earnings of $14 billion were achieved on a constant price and margin basis compared to 2019.
- Over the next four years, the company plans to increase earnings potential by an additional $12 billion, representing a compound annual growth rate (CAGR) of more than 10%.
Competitive Advantages and Execution Capabilities:
- The company's ability to deliver industry-leading earnings growth is attributed to its unique competitive advantages, consistent strategy, and differentiated execution capabilities.
Earnings Growth Drivers:
- Additional structural cost savings reductions of over $5 billion versus year-end 2023.
- Higher volumes and more profitable barrels from advantaged assets like Guyana and the Permian in the upstream.
- Execution of strategic projects in Product Solutions that enhance the product mix, driving exceptional growth in high-value products.
Structural Cost Savings Progress:
- More than $10 billion in structural cost improvements as of the first quarter of 2024, split roughly 50-50 between upstream and product solutions.
- On track to deliver the incremental $5 billion by 2027.
- Cash operating expenses, excluding energy costs and production taxes, were down $4.5 billion versus 2019.
Upstream Earnings Growth:
- On track to double earnings potential by 2027 compared to 2019 on a constant price basis.
- Reshaped the portfolio by divesting non-core assets and growing production from industry-leading assets.
- Total production from advantaged assets has risen from 28% to 44%.
- Expects to grow upstream earnings by an additional 50% between 2023 and 2027.
- Production is expected to rise to about 4.2 million oil-equivalent barrels per day by 2027.
- Unit profitability is expected to increase to $13 per oil-equivalent barrel by 2027.
Product Solutions Earnings Growth:
- Focused on nearly tripling earnings from 2019 to 2027.
- Key driver of earnings growth is improving the mix through strategic projects.
- Strategic projects like the China Chemical Complex and the renewable diesel project in Strathcona will increase high-value product volumes.
- Singapore Resid Upgrade will improve the mix without increasing overall volumes.
- Clear line of sight on nearly $5 billion in earnings from strategic projects in 2027.
- High-value products are expected to deliver about 40% of Product Solutions total earnings by 2027.
Sequential Earnings Review:
- GAAP earnings for the first quarter were $8.2 billion.
- Excluding identified items, earnings were down $1.8 billion sequentially.
- Timing effects had a $1 billion unfavorable impact, mainly related to unsettled derivatives mark-to-market impacts.
- Other items, largely non-cash, were $600 million or $0.15 per share.
- Base volumes were lower due to entitlement impacts, fewer days in the quarter, and higher scheduled maintenance.
Year-on-Year Earnings Comparison:
- GAAP earnings of $8.2 billion were down more than $3 billion versus the first quarter of the previous year.
- Decline driven by lower industry gas prices, refining, and chemical margins, as well as higher maintenance and negative timing impacts.
- Good progress was made in improving the underlying earnings power of the business.
- Advantaged assets like Guyana and strategic projects contributed to strong growth.
- Added $400 million of structural cost savings, resulting in an after-tax earnings benefit of $300 million.
Business Segment Performance:
- Upstream:
  - Lower gas realizations were partly offset by slightly higher liquid realizations.
  - Excellence in execution delivered results, with higher volumes from advantaged assets.
  - Earnings benefited from about $90 million in additional structural cost savings.
  - Timing effects in the Upstream had a negative $120 million impact.
- Product Solutions:
  - Energy Products delivered roughly $1.4 billion in earnings.
  - Strategic projects helped achieve record first quarter refining throughput.
  - Chemical products earned nearly $800 million, more than double the result from the prior year period.
  - Specialty Products delivered consistently strong earnings of $760 million.
Cash Flow and Capital Allocation:
- Generated $14.7 billion in cash flow from operations and $10.1 billion of free cash flow during the first quarter.
- Cash capital expenditures (CapEx) for the quarter came in at $5.3 billion.
- Debt-to-capital ratio down to 16% and net debt-to-capital ratio down to 3%.
- Distributed $6.8 billion in the first quarter, including $3.8 billion in dividends.
- Resumed share repurchases in February and on track to complete the $17.5 billion stand-alone share repurchase program this year.
- Intends to increase the pace of the program to $20 billion per year after the Pioneer transaction closes.
Second Quarter Outlook:
- Seasonal scheduled maintenance is expected to lower upstream volumes by about 40,000 oil-equivalent barrels per day.
- Full-year production guidance remains at 3.8 million oil-equivalent barrels per day.
- Lower scheduled maintenance is expected in Product Solutions as the company exits the peak of the 2024 turnaround season.
- Corporate and financing expenses are anticipated to total $300 million to $500 million.
- An unfavorable working capital impact of about $3 billion is expected from seasonal cash tax payments.
Closing Remarks:
- The team's execution excellence, the strong balance sheet, and the extended reach to new high-value, high-growth markets uniquely position the company to grow long-term value.