Exxon Mobil Corp., Q3 2008 Earnings Call, Oct-30-2008 - NYSE:XOM

NYSE:XOM

David I. Rosenthal, serving as Treasurer, Secretary, and CFO of Exxon Mobil Corporation, presented the company’s third quarter 2008 financial and operating results during the earnings call on October 30, 2008. Here is a detailed summary of his statements:

Opening Remarks

• Record Net Income: Exxon Mobil reported a record net income of $14.8 billion in the third quarter of 2008, up $5.4 billion from the same period in 2007.
• Integrated Business Model: The strong performance was attributed to the integrated business portfolio, operational excellence, and financial discipline, which allowed the company to capitalize on the favorable commodity price environment.
• Investment Levels: Despite market volatility, the company continued to invest at record levels to bring new supplies to market.

Cautionary Statement

• Forward-Looking Statements: Rosenthal highlighted that the discussed estimates, plans, and expectations are forward-looking statements subject to risks and uncertainties, which could cause actual results to differ materially.
• SEC Filings: He referred listeners to the company's SEC filings and the cautionary statement for factors that could affect future results.

Third Quarter Results

• Normalized Earnings: Normalized earnings, excluding special items, were $13.4 billion, up almost $4 billion from the third quarter of 2007.
• Earnings Per Share (EPS): Normalized EPS was $2.59, up 52% from the previous year, reflecting strong earnings and the benefits of the share repurchase program.
• Shareholder Distributions: During the quarter, Exxon Mobil distributed a total of $10.1 billion to shareholders, including $2.1 billion in dividends and $8 billion in share repurchases to reduce the number of shares outstanding.

Impact of Hurricanes

• Hurricanes Gustav and Ike: These storms significantly impacted the Gulf Coast, affecting employees, their families, and communities. Exxon Mobil prioritized the safety of its employees and the communities in which it operates.
• Response Efforts: The company worked diligently to ensure the safe shutdown of platforms, refineries, and chemical plants and to bring additional fuel supplies to customers.
• Financial Impact: The hurricanes resulted in a $50 million pre-tax increase in costs and a 24,000 oil equivalent barrels per day reduction in upstream volumes. Repair costs and lower volumes were expected to reduce earnings by about $500 million in the fourth quarter.

Business Milestones

• Major Project Startups:
  • Kizomba C FPSO startup in Block 15 offshore Angola, including the Mondo, Saxi, and Batuque fields, producing a combined 200,000 barrels per day.
  • Natural gas production commencement from the offshore Journa B platform in Malaysia, expected to produce 150 million cubic feet per day.
  • Seven major project startups completed in 2008, including Kizomba C Mondo in Angola, East Area Natural Gas Liquids II offshore Nigeria, and ACG Phase III in Azerbaijan.
  • Expansion completed at the Tengiz field in Kazakhstan, increasing production capacity by 235,000 barrels per day to nearly 540,000 barrels per day.
• Adriatic LNG Terminal: The terminal arrived in Italy and was expected to reach full operational capacity in 2009 with a regasification capacity of 8 billion cubic meters per year.
• Exploration Activities:
  • High bidder for 130 blocks in the Gulf of Mexico lease sale 207, totaling 83,000 acres.
  • Deepwater drilling in Brazil using the West Polaris rig, with plans to drill a second well following the first.
  • Progression of high-potential unconventional natural gas opportunities in Europe and North America, including drilling operations and production tests in the Lower Saxony Basin in Germany and the Mako Trough in southeast Hungary.
  • Capture of additional 21,000 acres in the Horn River Basin in Canada, bringing the total to 136,000 acres.

Downstream and Chemical Business

• Refining Activities:
  • Continued efforts to reduce raw material costs by managing crude flexibility, running 44 crudes new to individual refineries and eight new to the corporation.
  • Introduction of new aviation hydraulic fluid Hijet-5 with the highest grade approvals from Airbus and Boeing.
• Chemical Business:
  • Startup of facilities in Pensacola, Florida, to manufacture Excore DVA, a revolutionary new tire material offering 7 to 10 times better air permeability than existing materials.
  • Increase in EXOL hydrocarbon fluids production in Singapore, expanding capacity by 130,000 tons per year to over 500,000 tons per year.

Business Line Results

• Upstream Earnings:
  • Up $3.1 billion from the third quarter of 2007, driven by strong industry conditions.
  • Crude oil and natural gas realizations increased earnings by $4.4 billion.
  • Lower volumes reduced earnings by $1.3 billion.
  • Total oil equivalent volumes decreased 8% from the prior year, impacted by entitlement volume effects and hurricane impacts.
• Downstream Earnings:
  • Up $1 billion from the third quarter of 2007, driven by higher margins and volume and mix effects.
• Chemical Earnings:
  • Down $115 million from the third quarter of 2007, impacted by lower margins and volumes.

Corporate and Financing Segment

• Expenses:
  • Corporate and financing expenses were $71 million, down $21 million from the previous year, primarily due to positive tax effects.
  • Effective tax rate for the third quarter was 45%.

Cash Position

• Cash Balance: $37 billion at the end of the third quarter.
• Debt: $10 billion at the end of the third quarter.
• Share Repurchases: $8 billion during the quarter, reducing the number of shares outstanding by 2.1%.

Capital Expenditure

• CAPEX: $6.9 billion in the third quarter, up 26% from the third quarter of 2007.

Outlook

• Volume Outlook: Rosenthal addressed questions regarding volume projections and impacts from PSC effects, hurricanes, and maintenance activities.
• Growth Expectations: Growth was expected in 2009, particularly related to the startup of large LNG trains.
• Long-Term Strategy: The company's integrated business model, disciplined investment approach, and commitment to operational excellence and technology development remained key drivers for delivering industry-leading projects and growing shareholder value.

Legal and Operational Updates

• Natuna Project: Discussions with the Indonesian government were ongoing, with a willingness to seek a mutually acceptable solution.
• Point Thompson Project: Working on resolving disputes with the state over the unit and leases, with ongoing field operations and permit applications.
• Balance Sheet Strength: Rosenthal acknowledged the company's strong balance sheet and discussed the use of cash for funding the investment program, dividends, and share repurchases. He also addressed the possibility of M&A activity, stating that it is one of many opportunities constantly monitored and evaluated.

Closing Remarks

• Confidence in Delivering Value: Rosenthal closed by expressing confidence in the company's ability to deliver industry-leading projects and grow shareholder value despite the volatile commodity and credit environments.