Exxon Mobil Corporation (XOM) Earnings Call Transcript & Summary

Good morning. My name is Bob Brackett. I'm Bernstein's North American oil analyst. Welcome to the second day of the 39th Annual Strategic Decisions Conference. We are not expecting a fire drill. So if the fire alarm goes off, please take it seriously. The primary path out is straight from the back door to the right through the breakfast area, down the escalators with a muster point on Sixth Avenue at 54. If for any reason that path is blocked, you will turn left. You'll find a stairwell just to the left. You'll go down the stairwell and again, muster directly on the Sixth Avenue. It is my great pleasure to have Darren Woods, the CEO and Chairman of ExxonMobil here. I was given a bit of a script by IR, and I will quickly go off of it because I spent 8 years at ExxonMobil. My father spent more than 30. When I was at ExxonMobil, I would go to the library, and I would read the history of ExxonMobil. So I'm very much a historian of ExxonMobil. And there are some radically interesting things happening at ExxonMobil at time scales measured in hundreds of years, right? So if you think about changes at Exxon, one, they're here at SDC. I would not mark that as historic. But it is evidence of the change. So if you think we have Jen Driscoll, Head of IR, saying in front of us, an outsider we have within ExxonMobil for the first time that I'm aware of, an outsider as CFO. Kathryn Mikells joined at the end of last year. So there is a change here. That change is correlated with the change, I believe, and we're going to investigate, that the planet is undertaking, which is an energy transition. And ExxonMobil has sort of a dual challenge. One is safely reliably delivering the energy today, and the other is preparing for this transition. So very interesting time. There is a bit of a sea change here that we will explore. This is your conversation. You have QR codes in front of you. Those QR codes will send questions up to my iPad, and I will ask those, of course. As those questions come in, I will start the conversation like a pyramid. So we'll start with sort of the very big macro questions. We'll walk down and start to talk about strategic questions, and then we'll work our way through the portfolio. So that's kind of where we're going. But again, please drive the conversation. It will be more valuable to you. And with that, I will ask you to thank Darren Woods for joining us, and we'll begin our fireside chat.

Well, certainly, thank you, Darren. We'll start with macro. And as someone whose job it is to forecast oil price, there are 2 possibilities for me. Both are frightening. One is that ExxonMobil can't forecast the price of oil, in which case, why am I bothering? The other is somewhere within the bowels of the cube, ExxonMobil can forecast the price of oil, in which case, why should I bother? What is the price of oil going to be short term and long term? And how should we think about that?

Yes, I'm -- hate to disappoint you, but ExxonMobil cannot forecast the price of oil.

I'm in good company.

We tend to look at the fundamentals, and we've got a really good understanding of the supply curve and what's going to set kind of the marginal cost and the marginal barrel. But as you know, there's a lot of variables out there that are influencing the price of oil. And so our strategy has been, frankly, to make sure that we're building a business that's robust to any price environment. And specifically, that's robust to the down cycles. And so as we look at our business and plan for it, we're looking to take -- to leverage our competitive advantages, bring on projects that are competitively positioned versus the rest of industry and then robust to any price cycle that we find ourselves in.

So no and some conservatism, no absolute price tag. That's the short term. Long term, how do you think about the long-term price of oil? And how do you think about -- so for example, you have a group that annually forecast, does a long-term look at the future of hydrocarbons energy in general. There are lots of agencies out there. Some are trying to get the right answer. Some are seemingly not but trying to get a desired outcome. Where does ExxonMobil's forecasting fit into that mix?

So we do a very, I'd say, grassroots approach to understanding where we expect supply and demand balances to go because ultimately, that's what's going to set the price of oil in the marketplace. And we do a lot of look backs. We've been doing that for as long as I've been with the company, plus, and we've done a lot of look-backs to understand where do we see variations from what we thought was going to happen with what actually happened. And if you look at the economic forecast that we do, probably no surprise that we generally are pretty close to the economic growth, the forecast for demand that we project going out into the future. And there are so many organizations doing that. It's probably not a surprise. There's a diversity of views, and we bring all that together, synthesize it and projected demand. And then the other challenge, obviously, is what the supply is going to look like, and then that supply and demand balance will dictate the price that we see out in the future. The area where we have historically, I think, as a company gotten wrong, and I think also for the industry generally, is we miss oftentimes in the supply side of the equation. That is the hardest to predict who's going to find the oil? When is it going to get brought on? And so that tends to be what drives that. But ultimately, we've got a good view about the marginal barrel. It's not inconsistent with what -- where most people see long-term prices. Roughly $60 a barrel probably is the right level of incentive to continue to explore and bring production on for the long term. But obviously, never in the long term. There's always a short-term perturbations, and we're moving up and down pretty frequently, as you know.

And if you had to think about natural gas and particularly LNG in that same light, what would you say?

I think natural gas -- The challenge there, again, is bringing on production and the timing of that production coming on with the continuing growth in demand. I mean the big thing with LNG, the basis of those developments in production are based on long-term contracts. You don't see those facilities coming online unless they've been sold out, and you've got long-term contracts. Unlike oil, where you tend to be basically moving into a commodity liquid market. So there's a different dynamic with respect to what brings the projects on. But there are still big projects. They still get -- they come on in big lumps, and they often overwhelm the demand at the time. And so you see again price volatility in the spot market for LNG. But that's a much smaller piece of the equation and the long-term contracts that we signed for LNG.

In LNG as a transition fuel, what are you -- for the?

Yes. I think if you look at LNG, first of all, backing out coal would be the first prior. I think for the planet that's looking to reduce emissions. Job #1 is to -- for the sources that you've got today, the infrastructure that you have today back out coal, coal burning. You can do that with gas and replacing it with gas. You can also make ammonia. People don't want to know you put ammonia into coal plants and reduce the emissions associated with that. You can convert natural gas into ammonia. And then ultimately, you can convert natural gas into hydrogen. And we think there's an equation longer term, you're backing out coal and burning gas. I think even longer than that, you're basically converting it into ammonia or hydrogen and ultimately burning that with no emissions. So I think that will be a transition that takes decades and decades, but there's a potential there for continued demand for gas, but the form in which it's combusted will change.

And if you think about your career. You've been at ExxonMobil 3 decades, came out of Northwestern with a business degree, you came out of A&M as an engineer before that. How does the cycle we've just gone through, the shale cycle, how does that compare? Was that a historic? Are we past that? I mean, clearly, we're not past shale or shale growth, but are we past that period of time of shale competition?

I think -- so if you look at shale, it's not unlike a lot of the cycles or evolution that the industry has gone through where technology unlocks additional resources that prior to that technology advancement, we didn't think those resources were available to the world. Deepwater is an example that came before that. So if you go back in time, there are stages in the industry where you see new resources coming on with the advent of new technologies or new techniques. Shale is just another example of that. I think we've seen the kind of the initial rush of shale and understand that proposition there. I think there's still a lot of technology to unlock, and that's still relatively immature in its development cycle. We're still only recovering about 10% of unconventional resources. And so there's a lot of oil being left in the ground based on industry's ability to tap into that and recover that oil. That's actually one of the areas we're very focused on. We think -- when we bought in to our XTO and got into the unconventional business, one of the challenges I gave the organization is this is -- I called it a short game. All these independents are playing very short-term gains in the unconventional space. We're kind of a long ball hitter. And so what does long ball look like in unconventional? And so you saw us in 2018 pivot that XTO business into a much, what I'd say, longer-term horizon, building infrastructure, developing more of a manufacturing approach and very importantly, establishing a technology program. My challenge to the organization was to double recoveries and to find technologies that could unlock that. And that's been a kind of a 5-year program, and we're beginning to see signs of some. I think, very promising new technologies to better unlock some of that resource, which I look forward to taking advantage of that technology, and applying that to the resource that we know is there.

So I'm going to have to take that bait. So there's sort of 2, if we think about conventional oil fields, we think about primary recovery and secondary recovery and tertiary or EOR. If we're going to get more recovery out of these shale wells, is it -- which of those is the leverage, just the better completions, better primary production?

Yes. I think if you look at that, the unconventional work, fracking has been along around for a really long time. but the science of fracking is not well understood. There are very few companies or organizations out there that could tell you exactly how fracks propagate, and what that looks like underground. Our view is that's just a hard science project, a problem to solve. And so we can start looking at and have been doing a lot of work to understand how we better fracs, so you get better fracs all along the lateral. So if you think about capital efficiency, the longer laterals you can drill, the less capital you have to spend to access to resource. One of the challenges with long laterals is how do you efficiently frac along the entire lateral, make sure that you're opening the rock up along that entire length. We've been doing a lot of work there and see some really good progress around improving the ability to frac along a very long lateral. And then the other big challenge in terms of recovery is once you get those fracs, how do you keep them open. So the resources will flow and doing a lot of work in that space to unlock and better keep the fracs open. And so that, in my mind, is where the first wave of technology will come into that field. And we think we've got some promising techniques to employ there that will significantly improve our recovery.

We'll come back to Permian, but we'll bring it back up the pyramid and just talk about longer-term capital allocation. How do you think about allocating to conventional upstream oil and gas, the downstream chemicals in an energy transition world versus allocating to renewables or things that are further afield to what historically ExxonMobil might have done?

Well, that's, I think, a really big differentiator between the approach that we've taken here and a lot of our peers in the industry, and frankly been one of the issues that led to a lot of, I'd say, controversy early in my tenure is we looked at, frankly, what are we good at, what is our core capabilities and our competitive advantages and how do we apply that to meet society's needs. And that's today, certainly with energy products and mobility fuels and power generation. But we also have one of the largest chemical businesses in the world. People often forget that. We're not an energy company. And so the question is, look, our core capabilities, the science and the technologies that we do. And frankly, if you think -- step back and think about our company as a whole, we are not an energy company. We're certainly not an electron company. What we specialize in is we start with fundamental technology. We have always had a strong technology program. We've always spent about $1 billion a year on research and development of technology. We've recently consolidated all of our technology and research into one core corporate organization to focus that effort. But at the heart of what we do is technology, and it's in managing and manipulating and transforming molecules, and they happen to be hydrogen and carbon molecules. That's -- if you look at fundamentally every one of our businesses and the synergies between those businesses, it has to do with manipulating those molecules. So when you think about that capability and that skill set, how does it apply to solving the growing challenge of emissions and the impact on climate. And there are very advantaged approaches and relying on those same core capabilities. And so we started working several years ago on advancing technologies in carbon capture and storage, which takes advantage of our -- the aboveground facilities that we have expertise in as well as the subsurface biofuels play right into our core capabilities. We have proprietary catalyst that works very well on bio feeds. And then hydrogen is a core area for us. They all rely on the same core capabilities that we have. They all are integrated with our existing businesses. So one of the advantages that we have is we don't have to choose starting up a brand-new business and trying to develop brand-new capabilities, we can leverage our existing businesses, our existing people and skill sets and apply them to this new opportunity. And so the question in terms of how much we put in the transition is what does the opportunity set look like? And as you know today, there is no real market for carbon reduction. And if the world is going to achieve its net zero ambitions, eventually, there's going to have to be a market for carbon, something that incentivizes the needed investment to reduce CO2 emissions. In lieu of that or maybe preliminary to that is you need some policy that incentivize it, which we saw with the IRA. And so I think in the short term, policy will help stimulate potentially catalyze the growth in that market, but then eventually market forces have to come into play. But fundamentally, if society is going to achieve that is going to require advances in technology. So we're watching all that. We have signposts we've established to know exactly what rate and pace we're on and importantly, what path we're on because I would tell you today, the world still doesn't know exactly how we get from where we're at to where we want to be. And so we are paying really close attention to that and continuing to look for and develop opportunities in that space and frankly, have been pretty successful. We've already got commercial, the largest commercial contracts in the world to capture and store third-party CO2. And so I see that business growing. We're investing in very large facilities to make biofuels. So we've got a very large project that we're developing in Houston for blue hydrogen. So I think there are opportunities there, but -- and we will allocate the capital as we find those opportunities that are competitively positioned, generate returns, that are competitive in the portfolio.

We'll talk about the CCS. It's a good time. So I also cover metals and mining. And if you want a world class, ExxonMobil used to have some mines. If you want a world-class mine, you want high grade. You want byproducts. If it's a copper mine, get some gold. And you want it big, right? If you flip that and think about CO2. So one -- clearly, byproducts for CO2 would be enhanced oil recovery. If I can capture that CO2, put it through the res work, capture some more oil. The challenge with that, and I'm thinking about direct air capture, is in the atmosphere above us, 420 parts per million of CO2. So if I'm going anywhere on Earth and doing direct air capture, I'm having to pick a whole bunch of small marbles out of a big bag of differently colored marbles. That's low-grade resource. Your approach perhaps talk to your approach on the Gulf Coast and how it's important by the grade of the resource?

Yes. Well, I think it comes back to the point I made before that. Ultimately, if society is going to achieve its objectives, you're going to have to have advances in technology. And that -- and I include carbon capture as one of those technologies that have to advance in terms of the costs associated with the capture. And today, it's economic with the current government incentives, it was economic before the IRA has become more economic with the IRA or I should say, it's opened up the aperture in terms of the emissions concentration that you can actually capture. And that's the secret. It's the concentration of CO2 and the emission streams that you're working on with carbon capture. So you start off, the industry starts off with very concentrated sources of CO2. The production of hydrogen is one example of that LNG plant is another example of that. Ethanol plants is an example of highly concentrated CO2 streams, which the current economic -- government policies incentivize investments for. As you move down that spectrum of emissions, you get more and more dilute streams. We've become more and more expensive to capture. And then eventually, you get out of the money, and there's no incentive. You don't have the necessary incentives to invest the capital to capture that. So the challenge here and we get started on the more concentrated streams and you get on the learning curve, you start down the technology development road with the intent ultimately to improve the technology and bring the price point down so that with time, it becomes less and less expensive and you can capture more and more diluted streams. Ultimately, I referred to direct air capture as kind of the Holy Grail. If we can, society, the industry as a whole, develop a technology that makes direct air capture economic, you've solved the huge problem the society is facing in that you do not have to replace all the existing infrastructure the world has built, both in power generation and manufacturing. I think people forget that enormous challenges associated with not only replacing today's energy system, but replacing the industrial complexes that have been built around the world, the power generation systems that have been built around the world. That is an enormous and expensive undertaking. If direct air capture, if you can get the cost of that done, you don't have to take all that and replace it. You can basically just deal with the emissions. I think that's actually been one of the issues in this whole space, is that there are groups that have translated the problem statement from one of eliminating emissions to eliminating oil and gas. And we've gotten a lot of people focused on that ladder, eliminating oil and gas, and they've lost sight of the true problem statement, which is eliminating emissions. If you can eliminate emissions and keep the same systems that you have in place, that's a much better answer for society. The question is, can we develop the technology? My guess is it will be a mix of things. You'll have to stop combusting oil and gas in some circumstances. In other circumstances, you'll continue to do that, but you'll use technology to capture the emissions associated with it. Ultimately, though, you get rid of the emissions.

I can't remember my King Arthur mythology. Did they ever find the Holy Grail?

I don't know.

It's Holy Grail maybe moon shot is at least we got to the moon. I'm not sure.

Well, we have a technology program on direct air capture. And today, if you look at the cost of that, it's anywhere between, say, $600 to $1,000 a tonne of CO2 removed. It's pretty expensive. If you look at what the electric vehicle subsidy is today, the U.S. government's paying, works out to be about $400 per tonne of CO2 removed, just to give you a sense for where it sits in the [indiscernible] of cost to remove carbon. In California, the low carbon fuel standards, roughly $250 a tonne of CO2 removed. So those are kind of the prices that are out there. If you look at the IRA, they're providing an incentive to capture CO2 of $85 a tonne for CO2. So we see carbon capture sequestration today without EOR is the lowest cost CO2 abatement option that's out there today, at least the lowest incentive. And so getting direct air capture from 60 to 100, down to something that competes in that range is what the challenge is. We've got a technology program in place that looks to start by cutting that cost in half. Still too expensive. But if we can make progress in that space, then we'll look to kind of continue advancing that. But I would also say with respect to direct air capture and carbon capture in general, we're still early in the technology curve. So I'm optimistic that society as a whole, our industry more specifically and even more specifically, our company, we'll find improvements and advances in the unknown, obviously, is how far can we go and how quickly.

Typical barrel of oil I combusted. I get about half a tonne of CO2, big round numbers. So when you start to talk about $800, $400 a tonne divided by 2, that's the equivalent of $200 a barrel. If that's the price of carbon, that's your most valuable molecule like outside of some specialty molecules, right? If that's a tax put on consumers, right, when we put dimes and quarters of taxes on European consumers, they take to the streets. So the challenge is, that's a huge challenge.

That is a challenge. And I think that's fundamentally one of the issues why society hasn't made greater advances in this space because it is expensive. And the ability to stop using today's energy system and replace it with brand-new electric systems, wind and solar renewable systems. So that works in some places. But if you think about wind and solar, the analogy you can look it's like farming. You got to be where the wind and the sun is. And unfortunately, a lot of demand centers are not aligned with those sources, the concentration that you need to make those economics. So then you get into transmission issues, distribution issues. And so there are a lot of challenges in that space, not to mention the intermittency. So our view is, look, wind and solar play really important role. Electric vehicles will play an important role. They're necessary, but they're not sufficient. And what we need as a society to focus on is not only the things that we know are working today and have application, but on the things that aren't working today where we don't have viable solutions. What are we going to do about that? And I think that's where, frankly, we ought to be as a society, more focused is trying to solve the problems that we don't know how to solve today, not focusing on getting everybody to do the things that we already know how to do. Bill Gates referred to that in his book, How to Avoid a Climate Disaster, as we've done the easy things. Now we've got to do the hard stuff. And it is hard stuff. But I feel really encouraged by what I would say is the evolving understanding of that and the IRA in the U.S., that policy, actually, I thought was an important step that recognized the need for a much broader spectrum of solutions beyond wind and solar and then to get the cost of that down. Today, if you look at how governments around the world, very few are putting in penalties or actually letting consumers see the ultimate price required to decarbonize because of the issues, the cost of that, and I think the political ramifications of that. But ultimately, we're going to have to -- society is going to have to understand what they're paying to help address this.

In fact, you have to feel that price if you're going to change behaviors.

Yes. And so our job is to get that price down.

If we think about ExxonMobil, in general, when I think about strategy, to me, strategy is not what you do, it's what you don't do. So what will ExxonMobil not do...

Yes, I just gave you a couple of examples. We're not going to go into wind and solar. We're not going to go into electrons. We don't see the opportunity set there. What we're going to focus in on is solutions and things that leverage our core capabilities that we've developed over 140 years. And we're very -- I think if you look at the industry and all those in this, we remain -- we are today unique in what we offer, and that we have a technology organization concentrated on driving and understanding the fundamentals required in all of our businesses, and I'd call them the molecule management businesses of not only low carbon solutions, which is the transition business that we have, but also our upstream business and our Product Solutions business, which is our Refining and Chemical businesses. That technology organization is serving those 3 businesses, leveraging what I'd say, the core technology capabilities that underpin all of those. So we're going to stay very focused on doing that. We are going to continue to stay in all those businesses because this will be a transition, and you will need a mix and a balance as you move forward. And we think our company is uniquely positioned leveraging the same capabilities, we have a lot of optionality and flexibility. So we will evolve as the society's needs and the solution sets evolve. And so we've got, I think, a lot more flexibility to evolve as needed and therefore, generate higher returns. But we're going to -- and we'll continue to grow our chemicals business, high-performance products in that space. We're continuing to invest in refineries, but the shift in our refining footprint is getting to more integrated sites that make a variety of products, of high-value products, lubricants, chemicals. And we're growing -- going to be growing our biofuels into those businesses. And so you'll see that shift in that business, and then continuing to get low cost of supply barrels in the upstream. There's no credible scenario out there today that says in 2050, oil is not going to be needed. So the question people can debate, how much? I don't want to get into that debate because I don't know the answer to that. What I do know, though, is the barrels that will be successful are the ones that have the lowest cost in the supply curve. That's where our job is to find low-cost barrels. That's what we're looking to do by leveraging our advantages.

We've got a number of questions on a very similar theme, gives you a chance to throw some shade. Compare yourselves to your peers, the other large U.S., which is interesting, the U.S. oil majors, the ConocoPhillips and the Chevrons of the world. What is your distinct advantage?

So I think ConocoPhillips has gotten focused in one part of that, I'll call it hydrocarbon value chain. Chevron, I think maybe the closest to us in terms of the integrated mix in their portfolio, but they've taken a very different approach. Do we have their chemical businesses outsourced. They've got a JV, so it's somewhat independent of what they're doing. They haven't invested in their projects organization. We have a project organization that we established in 2019 that took all of our project capabilities from each of our businesses and consolidated those together with a drive and a recognition that ultimately success in this business is going to come from being able to drive capital efficiency. And so take the best thinking we have in the corporation and make sure we're applying it to the hardest projects that we've got out there. We've had huge success with our project organization. I don't think there's a company out there today that -- in our industry that can compete with the project organization that we have. Most of the peers, including Chevron, have walked away from the emphasis on technology and don't have the same core capabilities that we've built. And again, what we've done. We just did last year has taken our technology organization from our chemical business, from our downstream business, our corporate research organization and our upstream and brought all that together and organized around capabilities. Some of the advances that I talked to you about in unconventional actually are coming out of our downstream and chemical technologists. So there is, again, by focusing in on what I would say the core capabilities in the areas of science rather than the businesses they support, we're unlocking value. And it's enabled us to really focus in on the toughest problems in allocating our best resources to that. I think that's a huge differentiator. And then our -- the way we're running our businesses are all integrated. We are centralizing all of our -- these core capabilities that support each of the 3 businesses and driving huge cost reductions. We've taken since 2019, $7 billion of cost out of our business. By the end of this year, we'll have $9 billion of cost out. And our performance, our operations performance has improved over that timeframe. We centralized all of our maintenance across our upstream, downstream and chemical companies. Nobody else has done that. Huge efficiencies in doing that. So I think just the ability to take advantage of our scale of each of our businesses and the integration of those businesses, the technology and then the work that we've done around functional excellence or call it, execution excellence, all differentiate ourselves and we think are key competitive advantages.

In that approach, where does ESG -- how is ESG added, incorporated, integrated into that approach?

Yes. So I have -- the challenge for us is funny because your question is how do you bring ESG into your business. Our challenge has been how do you get it out and to talk about it. Because for us, I don't think any company has been around, particularly one that has the exposure that we do with respect to the impacts on environments and communities that we operate in. I don't think you can survive for 140 years and not have ESG elements or the focus of ESG embedded in your organization. That's been, I think, a really critical component of our success in how we've managed the business is our expectation for all of our businesses. They own every aspect of this business, including their impact on the environment, the social impact that Exxon have on the communities and making sure, particularly in the number of governments that we work with around the world, governance is a huge and critical issue. And so our businesses have owned that forever, for as long as I've been with the company. One of our challenges, frankly, has been how do you consolidate that activity and talk about it as a corporation. So as the profile of ESG has raised and more people have focused on that, frankly, up until the last several years, what we struggled with is how do we pull and synthesize that out of our operations out there and talk about it in a way that people understand what we're doing as a corporation. In fact, just as an aside, when we had the proxy fight, we brought in outside advisers and kind of opened all the drawers and said, help us understand how best to engage in this process. And their reaction was you guys are doing more than any other company we've seen, but you're not talking about it. Why not? And I think if there's one thing you've seen since our proxy fight is we're much -- we're doing a lot better job of talking about what we're doing. And we've done a lot to pull that stuff out of our businesses and try to explain to the outside world how we think about this approach. So for us, for me personally, it's always been an incredibly important part of the business. We just did a really poor job of explaining it to how we think about it. I think we've still got a ways to go, but I think we're doing much better today.

Arguably, if there's a floor in your building that say this is our ESG floor, you've almost failed, right?

The way we think about it is a lot like how we manage safety. When you grow up in our company, you are responsible for safety. If anybody gets hurt in your operation, you own that. And I'd tell you, it is a tough thing to carry with you, but -- and that's the same issue with your environment performance and all the rest of that. So our safety organization, we talk about them as being process owners. They help us rather than have everybody figure out the best way to manage safety and personnel safety, process safety. We have a centralized organization that worked with the entire corporate in all of our businesses that work with outside companies and they figure out what is the best way to manage this aspect of safety, come up with that recipe, and then help the businesses go implement that. So they become the technical experts in that space. And then the business owns the implementation and the results that we get. That's kind of how we approach that in safety. That's the same thing that we're doing kind of in the ESG space, is Have a group that acts as a technical straight edge, that defines what the best that we can come up with, the best thinking there is and then help the organization go implement that and then very importantly, make sure you're keeping an eye on the organization and auditing them and judging how well they're doing at implementing that and helping them improve. And that's the process that we've been using. We've seen really, really good results across the areas that we have applied that, and ESG is just another one of those.

Somewhat related, but somewhat capital focused from the audience. Why are U.S. majors putting less CapEx into the transition than their EU peers?

I think it's a function of where they choose to invest. I think if you look at our EU peers, which frankly have recently changed course, they've been looking at going into electrons, power generation. And I think big and going downstream in power generation. And frankly, my view is one of the reasons why they -- that can be attractive or advantage for EU peers is because of their trading. If you have a big trading organization and you start trading in electrons, given what's happening, you think about what's happened in Europe and the volatility that's being introduced in the marketplaces. Think about the policy that's required to drive the transition. By policymakers who don't fully understand the implications of some of the policies that they're putting in place and certainly don't understand the broader energy markets and energy systems is there are going to be discontinuities and disconnects. In my view of the world going forward in this system is as policymakers try to blunt force this and put policies in place to don't reflect the true understanding of what's happening, we're going to have very volatile markets, much more volatility. And so if I'm in the power generation business and I have a big trading organization, I can trade on that discontinuity, in that volatility. I actually don't think -- that's not our core business. We use trading to supplement our core business in those core capabilities that we've talked about. I'm not interested in going into that business and creating a trading organization around what I think will be a volatile market and one that basically forces people and their families to pay high prices. And so I think we're trying to address it more fundamentally, but I think that's a big difference. And maybe one of the reasons why we see some of those changes.

The ability to balance this. Because arguably, volatility in price is an opportunity or a threat depending on how you look at it.

Yes, absolutely.

If we think -- pivoting into financial strategy. In terms of your financial metrics, I noticed you've hit your debt targets. You're building cash. What's the long-term view on the right balance sheet for ExxonMobil?

Well, we try to provide a perspective of where we think, what feels like the right place for us to be. I wouldn't call them a target per se that once you hit it, now what are you going to do? It's just an indication of saying, this is where we'd like to see this get to. I think you've got to think about this and where we stand with respect to our capital structure balance sheet in the context of where we're at in the cycle. We're very cognizant of the fact that when you're in the high end of the cycle, you build a lot in your balance sheet, you generate a lot of cash. But then typically, every high is followed by a low at some point. So we know we're going to be back down in the bottom of that cycle. And we need to make sure that we've built enough of a reserve and we've got enough of a balance sheet to support what is a long-term capital investment program. If you think about our capital allocation strategy, I mean, job #1 is to invest in competitively advantaged projects, particularly in the upstream where you see depletion is a huge factor. And so we've got to keep running and finding new opportunities to offset the depletion. And we insist on those opportunities be an advantage versus the rest of the industry and on the low end of the cost of supply curve. And so that's a tough challenge to me. And you need to take those when you can get them and continue to invest and no matter where you're at in the cycle, so you need a balance sheet to support that. We're in a chemical business that continues to grow. The cycles in the chemical business in terms of the margin swings that you see isn't usually driven by demand. It's driven by these big chunks of supply coming on. And so we -- that industry has historically grown out of the supply chunks pretty quickly. And so we need to continue to invest in the chemical business, but focus in on the high performance products areas where we have a technology edge and an application edge. So that requires sustained investment. And then on the refining side of the equation, the work that we're doing there is really around converting product yields, and moving into higher value products as the demand shifts occur on society. So all that requires capital. And we insisted everything that we bring on is on the left-hand side of the cost of supply curve and advantage versus the rest of the industry. So that's job #1. Then job #2 is to make sure you got a balance sheet that allows you to continue to do that no matter where you're at in the cycle. And then job #3 is when you've got those 2 foundational elements secure, is share your success with your shareholders through the dividends, and then we are driving to a more ratable share buyback program. And so I would -- I'm a big fan right now of trying to build cash on the balance sheet to support more ratable share buybacks over time. And as we come off that cycle and getting down to the bottom, I'd like us to see us continue doing that and draw on the balance sheet.

Job #4 could be finding opportunities for inorganic growth.

That's what our job #1.

So job #1 includes inorganics?

Includes -- I don't make any distinction between inorganic and organic. Frankly comes back to...

Capital is capital.

Capital is capital, but it comes back to what's the advantage. And frankly, the lens that we look at inorganic through is there has to be a compelling value proposition associated with the combination of the inorganic opportunities. So what does ExxonMobil bring to this other entity and what do we together create from a value standpoint that's unique to what either one of us could do individually. That's a pretty high hurdle to think through and find those opportunities where we bring a synergy and a value proposition that's unique with the emphasis that we've -- that I've just talked to you about in those core areas of technology and capital and the synergies that we're generating, we're actually, in my mind, creating bigger and bigger opportunities for deal space with inorganic opportunities because the higher and the faster we grow that advantage versus the rest of the industry and versus what potential acquisition opportunities would represent, the bigger the value uplift that we can bring. And so I think the strategy that we've got, which is required to drive our organic projects, are going to lend themselves to better opportunities in the inorganic portfolio.

Yes, more of a statement than a question, I suppose. But if I combine your comments around the learning curve for extracting greater and greater recoveries from shale with your sort of neutrality around inorganic versus organic growth, it could be something in that white space.

Absolutely. That's been my -- our -- one of our ambitions is if you're going to differentiate yourself, particularly in this new space where you've got a lot of players, it's not been a consolidated field yet. As you grow significant, sustained differentiating capabilities, that definitely opens up that space.

And we're down to less than 10 minutes. We haven't even started to talk about Guyana. So let's move to Guyana. I'll give you the easy one, which is let's talk about Guyana. And then I'll throw in a tougher one, where is the next Guyana. But let's start with Guyana. Where are we in the Guyana journey, perhaps for a generalist in the audience, give us update a number of vessels, timeline for the third FPSO, and then we'll talk longer term.

So Guyana, we've discovered 11 billion barrels of resources. We brought the first production vessel online within 5 years, which is pretty close to an industry record. We have been bringing those -- the second one came on ahead of schedule and under budget in a very short time frame. Both of those vessels today are operating above the investment basis that we established. So we've been able to bring those on earlier on schedule, under schedule, under budget, and they're producing at a higher level than we had made the investment decision on. Our third boat basically is offshore Guyana today, basically going through commissioning phase and getting hooked up. Our expectation is that boat will come on again ahead of schedule probably by the end of this year. And then we've got plans to continue to bring a boat every 1 to 2 years going forward...

Did we lose the mic for Darren?

Yes.

Okay. What should we do about that? I can -- perfect. Well, then I'll ask a long-winded question to give a colleague time to get up here.

Was he talking about the fourth one?

Do you want to talk about the fourth FPSO? No, your time...

We on? Okay. As the third boat comes on at the end of this year.

The 11 billion barrels of resource, how fresh is that number?

That's the latest update that we've given. So we continue to drill, and we'll update that collectively with our partners. I think we're ready to do that.

So talk about then that the other -- I can't help get a little in the weeds. You've switched from SBM to MODEC as the contractor in building the fifth FPSO. What drove that?

I think for our business and our project organization in particular, one of the things we want to make sure, generally speaking, just stepping aside from Guyana what we're doing there specifically but more generally is make sure that there's a contract committee community out there that's viable to support the businesses that we need. And so we're always looking to make sure that we're developing what I would say is a robust basis and one where we have options to engage good contractors to participate in our projects. So I think you'd find us doing that irrespective of the areas that we're in. We're looking to develop a strong, robust, very capable contractor base to support the business that we're in. We're one of the few companies that can do that because of the large project organization that we have and the portfolio of projects that, that organization is managing. If you think about most of our competitors, if they did have a project organization, they're usually focused on only one aspect of the business, say, an upstream opportunity set or a downstream refining, a chemical opportunity set. We've got the luxury of our project organization focusing on every piece of capital that we're putting in across the corporation and all the contracting community that's engaged in that. So it's a -- we have a critical mass and a purchasing power and the ability to work with contractors is fairly unique.

And if I'm going back to the questions from investors. I'll blend the 2 together. When you say you're building cash because we are near the top of the cycle, does that mean you're worried about the oil price falling? And related to that is where can you take your breakeven oil price?

So to the first, I'm not worried about it. I just know that it happens. I can't tell you when it's going to happen, but I know it will. And so, I mean, if you can go back in time, you're always kind of in this, and our different businesses move at different rates. And what we tend to find historically, ex the pandemic, that when one of the businesses comes down, one of the others is coming back up again. So we've got some natural. The diversification of our portfolio helps quite a bit with respect to that. But it's just, I think, a clear-eyed view in staying grounded in the fundamentals of this industry that we are going through cycles. And we never call when we're at the top of the cycle, although I will tell you that the pandemic was definitely a bottom of the cycle moment. So we try not to get into where we're at and calling the cycle. We just anticipate that movement kind of happening. And so we're not too worried about that. If you look at our breakeven cost, again, it depends on where each of our businesses are at in their particular cycles. But on our straightforward investment basis in the upstream, we've been very public about. We're going to keep it below $35 a barrel. And then as you look at each of our projects, some of them are much lower than that. And as -- if you think about the company as a whole and what's the corporate breakeven as your refining business or your chemical business goes up, obviously, upstream -- the breakeven cost per barrel of crude, when applied to the corporation, dropped pretty significantly. But again, every project that we bring on is got to be on the left-hand cost of supply curve. And so the real challenge for me is not the absolute breakeven, but the relative breakeven. It's the old story about running from the bear in the woods, you just got to be faster than everybody else. We've got to be lower cost than everyone else.

And so to the degree that you're going to change activity levels this year based on oil price volatility this year? No, not at all?

We don't tend to -- if you think about the life cycle of the investments that we're making, we don't try to call the market and make movements. I think the one probably area of the business that's has the flexibility to do that is the unconventional where you have a lot more short-cycle investments and you can tune that up and down. We obviously will do that as we see prices move to significant lows or primarily to significant lows, but that's probably the only part of the business that we actually think constructively about adjusting our investment approach depending on where we're at in that cycle because it's got the flexibility to do that and it's not inefficient to do that. Most of the long-cycle projects that we have is very inefficient to try to pull them in and pull them out and really tough to call cycles. So we just tend to say, if you're advantaged, you're advantaged, go execute it as the most cost-effective and most competitive approach.

And you mentioned early in your tenure as CEO, a bit of friction. You were either disciplined or stubborn around investing countercyclically. We look at last year, we began the year at $80 oil. We ended the year at $80 oil. ExxonMobil was fifth, top 5 performing stocks in the S&P 500, which to some degree vindicates your counter-cyclicality or stubbornness. Yet at the same time, in my opening remarks, I talked about this change, right? This idea of bringing some fresh air into the way ExxonMobil thinks about things with outside IR, with outside CFO. Am I reading that correctly? Or are you still going to be this balanced? And how do you tie the energy transition into that? So what do you see as your mandate? And then what do you see then is the value proposition for owning ExxonMobil shares?

So I wouldn't say I don't think there's room in this business to be stubborn or emotional or anything else. I think for us, it was being very focused on the fundamentals. I mean, the big -- we don't drive our business based on the prevailing narrative. We don't drive our business based on what's politically popular. We drive the business based on what our understanding of what the world needs and what we can do to contribute to that space. And so our commitment back in 2018 to invest and to grow our investments was a recognition that we needed to high-grade our asset portfolio. We needed to get more advantaged assets. And so that was work we can only do by bringing on more investments and a recognition that the industry as a whole was under-investing primarily because many of them didn't have the opportunity set and we're not looking for because of the pressure -- the ESG pressure. We recognized that the industry was under-investing and that there was eventually going to be a demand that was going to go be unmet. We wanted to be in a position to contribute to the demand as best as possible. That fundamental doesn't change no matter how loud the criticism gets. So you can call it being stubborn. Our focus on is a disciplined approach to understanding what the business required and sticking to it because the facts didn't change. And with time, the facts were proven right. And it's not -- it wasn't that we were somehow magical in understanding it, it's basic math and understanding depletion curves and where the rest of the industry is. I'll tell you something else that's happening right now. If you look at -- people continue to forget about the depletion curve and that every barrel of crude that you produce or every tonne of LNG that you produce is that much less supply available to the world. And you have to replace that even if demand is flat. So think about a 7% depletion curve. Maintaining volumes flat means you have to grow production by 7% to offset the decline. That's huge growth. People don't appreciate that. And the bigger the demand, that 7% becomes bigger, the bigger the hole that you're digging every year. If you look at where the demand for oil and gas is today, you look at the depletion curve and then you look at the investment going into the industry, the industry as a whole is under-investing in those resources. So whatever your view of demand is, and I said before, if we go back in time, what we typically miss is supply. No matter what your view of demand and where that's going to be, that depletion curve eventually catches up to that demand equation. And if you're not investing, you will find the market gets short at some point in time. And my view is we're in that point in time today. The industry is under investing. You hear that coming out of OPEC and Saudi Arabia. They're making that point. I think many people can see that maybe thinking self-serving. But the reality is that's an issue.

Fantastic. With that, we've hit the end of our time. I certainly want to thank you, Darren, for joining. I want to thank you, investors in the crowd, for joining. And if we could give our appreciation for them.