Exxon Mobil Corporation (XOM) Earnings Call Transcript & Summary

Alright. Good afternoon everyone. Welcome to the ExxonMobil Product Solutions spotlight. I'm Jennifer Driscoll, Vice President of Investor Relations. Excited to be here at our new corporate campus and headquarters. I'm joined by a number of executives today. I have with me Jack Williams. He's Senior Vice President, ExxonMobil Corporation. He oversees product solutions, also global projects and our supply chain organization, among others. We also have Karen McKee President of ExxonMobil Product Solutions. And then we have Neil Hansen, Mike Zamora and Loic Vivier, the Senior Vice President for Energy Products, Chemical products and specialty products respectively, as well as many of our other executives. All of us are here to share with you today how ExxonMobil product solutions is using its industry advantaged capabilities to nearly triple earnings potential by 2027 versus 2019. As well as grow and deliver value well into the future. I'm also pleased to see a great in-person turn out during this hybrid event. I can see many of our covering analysts and investors in the audience. We thank you for coming, and we look forward to engaging with you and answering your questions. On behalf of ExxonMobil, we appreciate your interest in the company. In fact, it's your interest in Product Solutions that encourage us to host the spotlight today. 1.5 years after we formed Product Solutions, we wanted you to be able to meet the leaders from this new business. And hear their perspectives on the many opportunities for growth that we have through 2027 and beyond that. For those of us joining via audio webcast. You can find our slides on the Investor Relations section of the ExxonMobil website. During this presentation, as usual, we'll make forward-looking statements. They are subject to risks and uncertainties and we encourage you to read our cautionary statement to learn more about those. We provide additional information about the risks and uncertainties that apply to any forward-looking statements that we might make in our Forms 10-K and 10-Qs. You can find those on our website for investors. And you also find some supplemental information at the end of our spotlight slides. So with that, let me turn it over to Jack Williams, Senior Vice President of ExxonMobil.

Thank you, Jennifer. Good afternoon. Great to be with you today. Good to see all your smiling faces. And welcome to our virtual audience as well. I'm excited today to showcase ExxonMobil's Product Solutions business and our leadership team. I'm really proud of this team. And the work that they've done and the whole organization has done to significantly improve earnings and cash flow delivery. So today, what we're going to do is report out our progress to nearly triple earnings versus 2019. Which would add $10 billion of annual earnings capacity by 2027. As you can see on the slide, the foundation of our product solutions strategy is an industry-leading portfolio of assets and businesses and we're making the most of it, by maintaining strong operating performance, including best-in-class safety, by growing our high-value products with sales of these on track to double by 2027 versus 2019. By reconfiguring our integrated assets to meet evolving customer demands. And by optimizing our value chains in real-time in response to feed and product dynamics. Our investments in the last 5 years have added significant value, and we're continuing to invest in our strategic projects to grow these businesses. We've started up 5 of these projects that are expected to contribute $1 billion of earnings this year. And we've organized the business to maximize value from our assets and ongoing investments. Product Solutions formation has allowed us to capture significant synergies and improving our performance and operating costs and it enables us to better leverage our corporate competitive strengths, which are substantial. These strengths, these advantages of scale and integration, functional excellence and of course, our people and our technology are well represented in product solutions. So what you can see here, the horizontal scale on this slide goes from least or smallest on the left to most our largest on the right. And ExxonMobil leads in most of the dimensions shown here and some by a very large margin. So first, we have significant scale. We have more than doubled the manufacturing capacity versus the next IOC, and it's highly integrated. With 85% of our refining capacity integrated with chemicals. Which allows significant optimization today and significant reconfiguration opportunities tomorrow. I would like to spend a minute or 2 on the technology advantage shown here. So -- what's shown is the number of patents and that we use that as a proxy. But the real advantage here is the impact this has on our earnings growth. Proprietary technology enabled the Rotterdam advanced hydrocracker project and the Singapore resid upgrade project that's ongoing right now. Both of these were industry first and both completely enabled by proprietary technology. And our 50-plus years of catalysis technology leadership is really the enabler for our performance chemicals, and they are the growth engine of our Chemical Products business. And then we have a new exciting sustainable product line in our specialties business that we'll talk about later, that is made possible by brand-new process technology. So in short, our technology leadership provides us the growth opportunities that simply are not available to competition. The functional excellence measures shown here is the track record of delivery by our unique global projects organization. So the example, and we'll talk more about this later, is the Corpus Christi Chemical Complex, that was delivered 25% below U.S. Gulf Coast cost by deploying an Upstream modularization strategy for the first time in the chemical industry. These competitive advantages enabled by our incredible people are generating superior financial results. Last year, Product Solutions earnings were more than double the next IOCs downstream and chemical businesses. In the first half of 2023 shows a similar trend. The deployment of these advantages is enabled by our corporate organization model. And of course, as you know, last year, we reorganized to create our Product Solutions organization, which is now the world's largest integrated fuels, lubricants and chemicals business. And we further evolved the model to the schematic that's shown on the right. There are 2 other business lines, the Upstream and Low Carbon Solutions. And all 3 of these businesses are supported by central organizations that are leveraging the full scale of the corporation to deliver industry-leading capabilities to the entire -- to each business line, the entire left-hand side. So the Product Solutions results that we discussed today will include the contributions of the entire right half of this organization block. Like our Technology and Engineering organization, like Global Projects, like our Global Trading organization that's enabling more value capture from our large global footprint. These corporate capabilities are being fully leveraged by the Product Solutions strategic priorities. Which began with a commitment to be the lowest cost supplier, which is vitally important for remaining resilient through the business cycles. Our growth will be focused on high-value products that leverage our technology advantage that I just talked about. High-value products are low emissions fuels and performance chemicals and high-quality lubricants. So they're higher value and lower emissions. And by 2027, we expect these products will be 10% of our sales and 40% of our earnings. We'll grow these products through strategic projects that we anticipate will contribute over $4 billion of earnings annually, by 2027, substantially improving the value of the portfolio. And importantly, we intend to lead in sustainability. Product Solutions is playing a material role in the corporate GHG emission reduction plans, which results in a 20% to 30% reduction in GHG intensity by 2030. We've developed emission reduction road maps for all our operated assets. We're working with Low Carbon solutions on development of a Baytown Blue Hydrogen project. We're growing production of certified circular polymers through our advanced recycling, we're building a new hydrocracker to produce lower message renewable diesel at IOL Strathcona refinery. And through our relentless focus on energy intensity, our manufacturing assets continue with first quartile GHG intensity delivery. So in short, and you've heard us say this before, we're working to solve the "and" equation, meeting the world's energy and product needs and reducing emissions. I'm confident that with these priorities, this leadership team, this organization and this new corporate structure, we will deliver the $10 billion of annual earnings growth by 2027. And we're also excited for the prospects beyond 2027. Demand for chemical products is expected to grow more rapidly than GDP. Demand for lubricants is expected to remain strong and to grow in industrial and aviation and marine sectors. We're creating new value chains enabled by technologies that upgrade low-value molecules into higher-value products. And we have a strong portfolio of lower emission fuels opportunities at our advantage integrated sites that will meet the growing demand during the energy transition. So before wrapping up, let me just say that I hope that the next 4 presentations from the Product Solutions leadership team will give you a better appreciation for why we have so much confidence in delivering this earnings growth to 2027 and beyond. In short, ExxonMobil's Product Solutions business is very unique. Our industry leadership is underpinned by corporate competitive advantages that have really been amplified with the recent organization changes. The organization is hitting its stride and there's growing momentum for an exciting future. So with that, let me hand it over to Product Solutions President, Karen McKee, to discuss our plans in more detail. Thank you.

Well, thank you, Jack, and thanks to all of you for your interest in product solutions. As Jack said, I have the honor of leading this new organization of product solutions. And I truly believe that it is a game changer for ExxonMobil. And in the next few minutes, I'm going to share with you why I believe that's the case. I'd like to start by referencing the scale of our new organization. And you can see on the top right here that our average reported earnings were $10 billion per year in the 6 years since the start of our recast period. You can also see the split into our 3 new reporting segments of that $10 billion. So there's no doubt that this is a material business for ExxonMobil. The reason I think this is a game changer is because of the way we have constructed our new organization. We've purposely organized to unlock new synergies and new value for ExxonMobil. And we've organized around 3 key aspects. The first thing is combining like activities in order to gain scale. And a simple example of that is manufacturing. Prior to the reorganization, we had 1 manufacturing team that supported our chemical business and another one that supported our Downstream business. Those were both world scale in their own right. But by combining these, we have something truly unique, something that is super scale, versus all of our competitors. So that's the first tenet of our organization. Super scale. The second one is what I would call is, deep integration. And you can see on the left-hand side of this chart, that 2 of our 3 reporting segments actually include businesses from both our heritage organizations. So we have done this very intentionally in order to identify differences, identify best practices and rapidly learn from each other and deploy those best practices across the whole of product solutions. And that is really bearing a lot of fruit, which I'll bring to life in the next few minutes. The third tenet of our organization has been really focusing on value chains. And a good example of that is that we've now brought all of our lubricant-related businesses together within our Specialty Products segment. So we now have our heritage Chemical and Synthetic Basestock business joining our other Lubricants business. And this has allowed us to identify and create new value for our customers as well as our shareholders. So as Jack said, we're 18 months in. I am delighted to tell you that we're off to a fantastic start. And we've actually captured more synergies in our first year than even my very high ambition for the new organization. And we're confident in much more to come, given the suite of ideas and opportunities we've identified. So we are confident that we are on track to deliver $0.5 billion in structural cost reductions by 2021. And an additional $0.5 billion of margin improvement and onetime savings over the same time period. So very significant opportunities to improve our businesses. So I view today as close to a halfway checkpoint on our progress between our baseline year of 2019 and our ambition for an improved business in 2027. On this slide, I'd like to set the base line. I want to show you where we've been and where we are currently. So you can see here that on an average margin basis, we started with $6 billion of earnings in 2019. By 2021, at the CM average margin basis, we were delivering $8 billion of earnings. And based on our progress here to date at the end of this year, which is actually our halfway point we could be at nearly $12 billion of earnings on an average margin basis. So this is a terrific start and agreed track record, and it gives us confidence in delivering on our goal for 2027. So let's talk about that goal. Our goal is to deliver $16 billion on an average margin basis, and that's about $10 billion more than our performance in 2019. And you can see on this slide that we are on track, with nearly $12 billion on an average margin basis this year, we are delivering about 60% of the expected earnings improvement, and we are halfway through the time line at the end of this year. So that's where we come so far. But you can see, we have broken our opportunities to improve our earnings into 3 categories over the whole time period, and I'd like to walk you through all 3 of those. Firstly, at the top of those bars is a green section, which is from our strategic projects. These are very large projects, very large investments. They're focused on improving our competitiveness and serving growing demand for our high-value products. You're going to hear much more about these today. In the light blue, sort of the lowest area of the improvement is our structural cost improvements. These are from operational efficiencies and other cost saving measures. And the good news is we expect these to be sustainable going forward. And between these 2, let me say, fairly obvious sources of value, we have this orange section, which we would describe as other performance improvement. So what is other performance improvement? Well, we are deeply focused on enhancing all aspects of our business. We embark on hundreds of smaller projects every year that don't rise to the level of our strategic projects, but they do improve our business. We're focused on improving yield, focused on improving reliability. So many opportunities to improve our manufacturing and part of our business. But we're also focused on value chain improvements outside of manufacturing with value creation in the commercial aspects of our business for example, by improving our channel to market and growing our trading activity. It's also important to note that we only adjust our historical and future reported operating earnings for margin, taking all of our performance back to a constant margin basis. So any other onetime opportunities that we capture would also be reported here. So we are going to use this format as we walk you through each of our segments, earning improvements for the balance of our time today. So I'd like to start with a very brief overview of our strategic projects. And each of our Senior Vice Presidents is going to give you much more details on what these projects mean in terms of improvements for their business. But what I would like to stress is that we are committed to profitably growing our business. And we have no shortage of opportunities to do that. We have many great ideas that we could deploy in order to improve our business. And the projects that we've selected are entirely consistent with our strategy. They're focused on extending our market-leading positions in our businesses and improving our strategic site competitiveness. And they will deliver meaningful earnings growth. All the products are listed in the year after startup. So that's the first year of full beneficial operation. So for example, the Beaumont Crude Distillation project, which we successfully started up earlier this year is highlighted here under 2025. Great news is we are on track. We are on track to deliver $1 billion in earnings improvement by the end of this year. But the best is yet to come because actually, the majority of these projects are scheduled to deliver in the back half of the period. So these projects, as you'll discover during the balance of our time together are many and varied. But there's one thing that they all have in common. They are all differentiated by our competitive advantages. Our proprietary technology that Jack spoke about. Our unique integration because we are the only one of the IOCs that has a very, very large chemical company, a leading lubricants business and a very large fuels business. Our unmatched scale our functional excellence in everything we do, including industry-leading execution of our projects. So these projects will materially move us forward, as I mentioned before, to serve the growing markets for our high-value products and enhance the competitiveness of our strategic sites. But importantly to you, they're very attractive. We project an average project return of 30% on a money-forward basis. So I mentioned earlier that there are these many varied aspects of what we're calling other performance improvement. I thought it would be useful to dive into a specific example. And the example I'm going to take on here today, is manufacturing improvement. On the top left of this chart, you can see our industry-leading performance in safety. Clearly, our safety performance is an absolute value in its own right. But it is also a great indicator of the rigor with which we approach all the operational aspects of our business. So you can imagine that our turnarounds were safer than average, and we approach them with a great degree of rigor. But as you can see on the right-hand side of this chart, they were not as competitive as we wanted them to be. In fact, we had opportunities to improve both the duration of our turnaround and also their cost effectiveness because we were benchmarking in the third quartile. But you can see, by 2022, we had improved both schedule and cost effectiveness to deliver first quartile performance, importantly, without compromising CFD. So that improved duration means last downtime, more uptime for equipment and more throughput through our facilities. So that improved performance and turnaround, together with other reliability improvements has resulted in our record refinery throughput last year, which you can see on the lower left of this chart. That extra throughput results in more product that we can sell, and that product value shows up in our other performance improvement, and we value it at our average margins. So this is just one example. As you can imagine, there are many more when we look at how we deploy various sales channels. The work that we're doing to improve our mix of products that we sell, improved utilization and cost effectiveness of raw materials and the count of smaller projects that we have across our fleet of manufacturing sites. On the bottom right of this chart, you can see our track record thus far and forward performance that we plan on structural cost reductions. It is really important to me that we have efficiencies that more than offset inflation, and we are delivering that, and we are committed to continue to deliver that going forward. One of those efficiencies is the lower cost of our turnarounds as these are material events that cost a lot of money. Of course, there are many more. So overall, structural cost reductions and these other earnings improvements will deliver more than $5 billion in incremental earnings and more than half of that is from cost efficiencies. So this is my last slide. We have made remarkable progress in very short order and Product Solutions, and I am tremendously proud of my team for delivering the progress that we've had thus far. And our progress is already helping us to drive significant out-performance relative to our peers. According to Wood Mac, Product Solutions is delivering about 2x more cash flow than our IOC competitors. That's an advantage that is expected to be sustained going forward. From a challenged position in 2019, Product Solutions has made dramatic improvements. We have greatly improved our reliability. Our structural cost discipline is already generating earnings improvements of over $2 billion a year. Our project delivery is best-in-class. The Beaumont project that I mentioned earlier, is a prime example. The single largest U.S. refinery expansion in a decade, well conceived, well executed from design through to startup coming online, on time and on budget and operating extremely well. Our streamlined organization has greatly enhanced integration, and we are intensely focused on driving improvements in every facet of our business. In fact, last year, ExxonMobil not only led the IOCs and Downstream earnings. We also led the IOCs in dollar per barrel Downstream earnings, and we led in Chemical earnings. So I really have high confidence in the track record that we've delivered so far, I'm confident that we can build on these games, on our way to delivering our ambition of $10 billion more earnings potential by the end of 2027. With that, let me turn it over to Neil Hansen, who's going to tell you more about energy products. Thank you.

All right. Thank you, Karen. Good afternoon to all. My name is Neil Hansen. I'm the Senior Vice President for Energy Products. It is great to be here with you today. And it's great to see some familiar friendly faces from my days in Investor Relations. I have the privilege today to talk about the steps that we're taking in energy products to further strengthen our competitiveness our resiliency to thrive in the energy transition and our capacity to grow earnings. But let me first start with a brief introduction to the organization. So energy products includes 2 value chains, transportation fuels and aromatics. Now aromatics or chemicals that are used as starting materials for really a wide range of consumer products, including the synthetic fibers that are found in many of the clothes that we all wear. We're also responsible for licensing our innovative technologies and supporting catalysts to other companies. We run our businesses end to end. So we try to maximize the value of the crude and feeds that enter into our manufacturing facilities, increasing the competitiveness of those operations and optimizing the different channels through which we sell our products. Now our transportation fuels are sold through a global network of more than 25,000 retail stations in 34 countries under the ExxonMobil and Esso brands. And we also sell to commercial customers, including in the airline, marine and commercial transport sectors. Our fuels value chain includes efforts to lower GHG emissions from our products and with our global scale and our technology, we're well positioned to lead in biofuels. We're also leveraging our expanding trading capabilities in crude and finished products to maximize the value that we gained from our world-scale asset portfolio, our equity production and our industry knowledge. And when we combine that with the advantaged investments that we're making, the efforts that we're undertaking to high-grade our portfolio, we are growing our earnings capacity and energy products. In fact, we've demonstrated significant earnings growth since 2019, importantly, on a margin-neutral basis. If you annualize our first half 2023 earnings. There are several billion dollars better than 2019. That improvement is driven by structural cost savings, again, shown here in the light blue on the chart. So we pulled cost out of the business by capturing efficiency in organization, in process, in our operations and in our logistics. And this has greatly improved our resiliency to market cycles and increased our earnings capacity. In orange, you can see the impact of other performance improvements like operational excellence. We've delivered strong reliability. We had our best ever turnaround performance in the first half of this year. And as a result, we had our highest throughput in the second quarter in the last 15 years. We're also focused on maximizing the margin, we realize in trading and through our sales channels. And as shown here in green, we're delivering projects that meet market demand signals. Now we've seen that recently, certainly with a very successful start-up of the Beaumont expansion. That will help satisfy resilient diesel demand. So we're building on that formula for success. And energy products is contributing $5 billion of earnings growth potential. That's about half the Product Solutions earnings power improvement from 2019 to 2027. And importantly, we're on track to deliver it. Our strategic projects will deliver about 40% of that earnings growth potential. And then we'll see help from other performance improvements. It will also contribute to our earnings capacity. For example, the earnings contribution from Downstream trading activities are expected to grow with the formation of the global trading organization earlier this year. And we're continually focused on improving our operations through smaller projects and optimizations that help drive margin improvement. And lastly, we're pursuing multiple projects in biofuels that will further increase our earnings capacity. Let me talk a little bit more about the portfolio of advantaged investments. Now these will, again, increase margins at our strategic sites through proprietary technology and feed advantage. And importantly, these projects are consistently executed with excellence by our industry-leading project organization. Now while all of our strategic projects that were shown on the previous pages are advantaged, I'm going to touch on 3 examples here. The before mentioned crude expansion project in Beaumont, which added 250,000 barrels a day to our U.S. Gulf Coast portfolio. It leverages integration by taking light crude from our upstream assets in the Permian, again, to produce demand resilient diesel. Our Singapore project, we'll upgrade bottom of the barrel molecules to the benefit of all 3 product solutions value chains. It's leveraging proprietary first-in-industry technology to strengthen our fuels, lubes and chemical businesses. The project at Fawley in the United Kingdom will expand hydroprocessing capability. This will enable us to process challenged molecules into higher-value finished diesel. As you can see on this chart, these projects shift net cash margin competitiveness toward the first quartile for each of these strategic sites. We're also high-grading our portfolio through selective divestments and terminal conversions of noncore, less competitive assets. These have been difficult but critical decisions because they've improved the overall competitiveness, the resiliency and the profitability of our portfolio. We expect our footprint to be 13 operated refineries by the end of this year, including recently completed or announced divestments. Now again, importantly, this has strengthened our asset base and gets us close to our desired manufacturing footprint for fuels and aromatics. The resulting portfolio will have a greater percentage of integration with chemicals and lubes, providing us with a robust foundation for earnings delivery across all of our value chains. Now with our competitive advantages, including our strategic assets, we're well positioned to produce biofuels. And that is supported by strong market fundamentals. We expect industry biofuels demand to grow 50% by 2030 to more than 3 million barrels a day, again, driven by the need for energy dense, lower emission fuels for trucking marine and aviation. And we could see approximately 400% growth to 9 million barrels a day by 2050. And that's going to be dependent on supportive well-designed policies. Reconfiguration of existing hydrotreating capacity, using vegetable oils or waste oils as feed is an advantaged path to produce biofuels at scale. And ExxonMobil has the largest hydrotreating capacity available to reconfigure. And we can do it at an advantaged return relative to a greenfield project. This enables us to use existing infrastructure to convert locally sourced biofeed into renewable diesel or renewable jet. And we're pursuing 12 projects globally, including coprocessing, bio blending and again, asset reconfigurations. We're also progressing a number of technology programs that we think will unlock future potential pathways to produce lower emission fuels, including things like alcohol, the distillate and e-fuels. Now overall, our portfolio of biofuel opportunities yield potential returns greater than 20%. But again, they'll require the supportive stable policies that we need. Now our scale and integration provide us with an advantage versus competition. It allows us to capitalize on the optionality to shift product yields over time as the rate and pace of the energy transition evolves. We're unique in this ability. We are unique in our ability to grow not only in biofuels, as I highlighted, but also in distillates, in chemicals and in lubes as we see the demand for other products like fuel oil and to gas decline over time. We're unique. We're unique because of the sheer scale and competitiveness of our integrated fuels, lubes and chemicals businesses. This bar on the right shows the future yield potential of our portfolio. It demonstrates an unmatched ability to cost-effectively shift to higher-value products as markets evolve. So reconfiguration of our existing assets to ship yields to these higher-value products is cost and return advantage versus a greenfield investment, and you can see that here in the table on the right. Importantly, this ability to reconfigure our facilities demonstrates the enduring competitiveness of our asset portfolio and the resiliency and the flexibility that we have to respond to evolving demand fundamentals. It also critically highlights the potential longevity of the underlying value of our strategic assets. Finally, as you can see here, we expect the combination of strategic investments of these performance improvements that we've talked about, cost reductions, and rationalizations of our portfolio result in a winning formula. It's a winning formula that will further strengthen our portfolio competitiveness and expand our earnings capacity. By 2027, ExxonMobil's portfolio. As you can see on this chart, is expected to be solidly in the first quartile on a net cash margin competitiveness. In fact, net cash margin is expected to improve by $2 a barrel. That $2 a barrel equates to more than $2 billion of net cash margin potential per year. So to sum up, we're high-grading our portfolio based on market signals, and we're building on our history of competitively doing so. We view our large asset base as a strength. As we pursue cost advantaged reconfigurations, including advantage to biofuels investments. Energy Products has delivered and will deliver strong earnings growth potential as we position our portfolio to succeed through the energy transition. Now let me invite my colleague, Mike Zamora, to talk about Chemical products.

Thanks, Neil. I'm Mike Zamora, Senior Vice President of Chemical Products. Within this business, we produce products that will grow in demand for years to come. Customers demand our products because they improve the quality of life and they meet society's evolving needs. I'll give you a few examples to start. Our products can be used to create films that are used by farmers in their greenhouses with the right permeability to increase crop yields and extend growing seasons. Many of our products are used in packaging that extends food shelf life, helping to decrease food waste. We make raw materials for medical applications, like hand sanitizer, masks, gowns. Some of our high-tech polymers reduced the weight of conventional and electric vehicles, making them even more energy efficient. Others can be blended specifically and targeted into our customers' formulations to increase our customers' ability to use more recycled material. Overall, we produce a wide range of products that address society -- societal challenges and help manufacturers reduce their energy use, their greenhouse gas emissions and their waste. In terms of business performance, we expect Chemical Products to contribute more than $3 billion of earnings growth by 2027, and we are already delivering now. By year end of this year, we will have improved earnings by over $1 billion. About half of that comes from cost reductions as shown in the light blue and half comes from strategic projects shown in green. With respect to our strategic projects, both our Corpus Christi Chemical Complex and our Baton Rouge polypropylene project started up on schedule and quickly demonstrated design rates. And I'm really proud of our Corpus Christi team based on ways to grow additional capacity without any additional investment and have demonstrated rates that are 6% above nameplate capacity. This was done well cost -- well below competitive benchmarks. Chemical Products delivered record earnings of $7 billion in 2021. We made the most of what was a very conducive market. Supply chains were disrupted post COVID, where ExxonMobil is well positioned to meet that demand and the high-margin environment incentivized high utilizations. Those factors and others showed up as performance improvements seen in orange on the chart. And they contributed to those record earnings in 2021. The orange performance improvement bar is smaller in '23, reflecting an absence of these factors as current margins are at bottom of the cycle. Looking out to 2027, there is a clear path to growth, and it's driven by the strategic projects. Just yesterday, we announced a startup of our $2 billion Baytown chemical expansion project. This facility is really 2 separate plants. The first is a 400,000 ton per year solution process unit, making high-performance propylene and ethylene plastomers, branded Vistamaxx and Exact. These materials can be used to make better automotive parts, construction materials, personal care products and now even solar panels. The second is a 350,000 ton per year linear alpha olefins unit. This is a new market entry for ExxonMobil. With this facility, we make a full range of alpha olefin products with a critical competitive advantage that much of the product will be consumed internally in our existing specialty and Chemical Products businesses. As we look out to 2027, in addition to the Singapore project that Neil mentioned, the last bar includes our world-scale China chemical complex, focused on producing our unique, high-performance polyethylene and polypropylene products that are for the China market. We are also excited about our suite of advanced recycling projects, which I'll cover in more detail in a few slides. There are 2 themes that I wanted to remember common to these strategic projects. One, they're all underpinned by advantaged technology. Second, they're all focused on growing high-performance products. But keep in mind, our path to 2027 is not only an investment story. Cost discipline is key to maintaining resilience in what we all know is a cyclical business. And we have and we will continue to deliver significant structural cost reductions totaling nearly $1 billion over the period. Examples of some of the smaller improvements include mix upgrading from commodities, low-cost de-bottlenecks optimizations with our refineries and structural reliability improvements. Now let's take a look at how these strategic projects build upon our unique competitive advantages. Chemical Products has a global footprint. And operate some of the largest units in the industry. Our scale and our customer reach is a competitive advantage. We have feed and energy advantaged assets and superior refinery integration versus competition. Another unique competitive advantage in the Chemical business is our project capability that you've heard so much about. We are in a very capital-intensive business. The Chemical business, the oil business at large is extremely capital intensive. And to win, you need to develop and deliver the lowest cost projects. As Jack mentioned, we have a global project organization with tremendous capability, tremendous experience, executing multibillion-dollar projects, simultaneously all over the world. Leveraging that capability in the Chemical business, bringing that capability to bear from the Upstream from the broader corporation to the Chemical business is something that none of our Chemical competitors have. And that is a critical differentiator that could help us be more efficient with our capital dollars and deliver industry-leading performance. The 3 pictures at the bottom of the slide highlights a few examples of this. As I said earlier, the Corpus Christi project and the Baton Rouge polypropylene project were constructed and started up on schedule. And as Jack highlighted, the cost of our Corpus project was 25% lower the similar scale U.S. Gulf Coast projects. This was largely due to that modularization strategy, but it's really the expertise that's used on large Upstream projects that was brought to bear on the Chemical business for the first time. And again, that delivered on time and above nameplate capacity. We expect our world-scale China Chemical complex to continue this trend of industry-leading project delivery. And that team is doing a fantastic job, they're consistently delivering on their milestones. Construction is progressing per plan, even through a very difficult COVID environment. Earlier this year, we achieved a major milestone when we lifted the major towers into place. And we've become market leaders in our businesses by leveraging these competitive advantages. The chart on the right shows our polyethylene market position. We are #1 in the polyethylene industry, and all of our IOC competitors are well behind. These competitive advantages that I've spoken about, scale, integration, technology, combined with project delivery, provide us a strong foundation to continue to profitably grow this business. And as we grow, our focus will be on Performance Products. While margins are currently at bottom of cycle, long-term Chemical demand is expected to grow at 20% above GDP. Making chemical products resilient to a wide range of energy transition scenarios. Furthermore, our Performance Chemicals, which today represent about 1/3 of our portfolio, are expected to grow at a rate twice of that of commodities, so about 7% per year. This growth rate is due to the superior performance of these products versus their commodity counterparts. And this performance is underpinned by proprietary technology. The best example in my business of the technology advantage is our metallocene catalyst technology. This technology enables us to specifically design materials that create more value for our customers and end consumers. They can use our materials to make products that are stronger, that are lighter, that use less material that are more recyclable and that are easier to process. In the right-hand chart shows how this translates to earnings. Our technology and know-how, combined with our strategic investments, results in a 2.5x increase in the earnings potential of our high-value Chemical products. And those performance products are a key profitability driver for the Chemicals segment. Now I'd like to tell you about some of the really exciting work we have that we're doing on Plastic sustainability. Our new advanced recycling facility in Baytown, just miles away from here, leveraging proprietary ExxonMobil technology is fully operational and delivering positive results, and it's helping our customers achieve their circularity goals. There is a market for certified circular polymers that we make out of the Baytown facility that come from plastic waste. And our technology significantly widens the range of plastic that can be recycled. It allows us to process mixed plastic waste and harder to recycle plastics like potato chip bags like [ Aster turf ]. And it turns it into raw materials that can then be used to make valuable products with the same properties as virgin materials. The facility in Baytown is North America's largest, with capacity to process up to 80 million pounds per year of waste plastic that would otherwise go to a landfill. And it leverages our existing facilities to scale up quickly. We have plans underway to scale this technology at other sites across the world to up to 1 billion pounds per year of waste plastic processing capability. And that's by year-end 2026. All of this assumes supportive policy. We need regulatory support all along the value chain. And at ExxonMobil, we're working together with policymakers, the rest of the industry with our customers in the value chain, waste management operators to address [ society's ] plastic waste challenge. So in summary, I feel really good about the long-term fundamentals of the chemical products business based on 3 factors: First, the demand is growing because our products improve the standard of living, and they enable a lower emission economy. Second, we have a large integrated industry-leading business that's underpinned by competitive advantages in scale and technology, and we have a robust strategic project portfolio. And then finally, we are leading in profitable circularity solutions. Through our own technology and by designing products that allow our customers and everyday consumers to help meet their own sustainability goals. Now Loic will tell you about our specialty products.

Thank you, Mike. My name is Loic Vivier, Senior Vice President of Specialty Products, and I would like to welcome you in my world of the specialty product [ an era ], we will explain what it is in very, very short. You can see here the specialty product is a portfolio of businesses that tend to hold very strong product differentiation, underpinned by technology, marketing and very strong brands. Actually, in the specialty product, 70% of our sales are high-value products, as earlier defined by Jack. We tend to have businesses with very high market positions. And financially, Specialty product typically has a more ratable cash flow than other businesses, less subject to market cycles. It's pretty steady. To define the portfolio, you can see on the pictures here. On the left, you have the vertical of what we call the lubes value chain. You are likely most familiar with the overall finished lube business through our Mobil 1 brand. The world's leading synthetic motor oil. Our based upon work is, authentic are actually the raw materials that goes to blending to make finished lubes and we use it also internally for our own finished lubes. Elastomers on the resins creates high-end products, like butyl rubber that you have in your tires where we hold a 50% market position. I will spend a bit more time on the back end of this presentation on new market development, but in essence, to describe the portfolio, new market development is a business for hub of innovation -- disruptive innovation, poised to deliver changes in the marketplace, and I will share much more with 1 specific example of the back end of this plantation. Let's dive in on the specialty product, similar format to what you heard from Karen McKee earlier. And we have our commitment to grow our earnings by $1.5 billion per year in growth to up '27. Today, similar to the point I made earlier, if you take the first half '23, halfway through the time line of this commitment, we are actually ahead of more than half of this earnings improvement, mainly because of 2 things. Number one, what you can see into the green strategic projects with the Rotterdam Hydrocracker project startup and also a continued focused relentless cost management throughout the overall portfolio. This -- and you will see that it continues. So key point here, we are already ahead, actually close to 60% of the overall earnings improvement in '23 annualized. In green, we expect more contribution from strategic projects, the new one you can see here, to Singapore for the basestock business, I will cover that in more detail later. In light blue, continued focus on structural cost reduction. And in orange, you'll see other performance improvement. So for my businesses, the other performance improvements are what, think marketing initiatives, leveraging the strong brands we have worldwide and digital investment, a lot of value coming from our data. Optimization of the base business from raw material, supply chain, pretty complex supply chain in the specialty businesses, high-grading our portfolio. All this will drive to the $1.5 billion improvement by 2027. Let's look at the [ collective ] power of the integration of the lube value chain as a performance improvement. The Product Solutions manages the largest integrated lube value chain amongst our IOC competitors. You can see on the graph on the left. So y-axis is volumes basestocks, the x-axis is the finished lubes, the blenders, finished lubes. And you can see our map versus our key competitors. And you can see that no competitors matches our integration between basestocks, synthetic, PAO business, polyalphaolefin, the additives on the finished lubes. We are the clear leader across the entire lube value chain in terms of scale, technology and brands worldwide. As a result, we delivered the highest earnings among our IOC peers. On the right, you can see the synthetic lubricant sales growth trend where you can see that we are projected to continue to grow strongly way above GDP because of the superior attributes of the synthetic lubricants.. So 1 way to grow that fast, I would say, how do we do that without compromising the premium. It's all about the strength of our brands. Today, Mobil1, continues to be the world's leading synthetic motor oil with #1 brand equity position in the U.S.. In China, which are 2 strategic markets for us. Number one, brand equity, U.S. and China. Let me move to the next slide around the strategic investment that we talked a bit earlier around Rotterdam and Singapore, but I'd like to zoom in, what it means for the lube value chain And it's all about technology in play. ExxonMobil technology, the differentiation with proprietary technology in order to monetize superior product performance. Our Rotterdam project is at the core of the basestocks strategy. We started up in 2019, first full year of operation in 2020. And this project in a nutshell, is leveraging our catalyst strategy on catalyst, I would say, technology on hydrocracking, delivered improved quality basestocks, better quality performance, better yields. When you hear better yield, you should think lower cost of production and then lower energy intensity, which is so important for the production cost of our basestocks. Overall, the project is already paid off. $1 billion of contribution through 2022, only 3 years after start-up. That's very important to remember. After 3 years, we have already paid for this project. In Rotterdam, which was the first time to introduce the Lubes value chain into our refinery in Rotterdam. Next to come, actually, even more exciting, is Singapore, Singapore resid upgrade, which is expected to transform the whole site competitiveness. First, application, I think Neil mentioned it earlier, first application in the industry, leveraging our technology to upgrade resid molecules to high-value basestocks. You take the bottom of the barrel, the resins, you upgrade with your technology, you have best off materials, it's going to finish loops. All this is a spread of about $60, 6-0, a barrel on the resin to the best stocks. And that's the value of our technology here on our project excellence. Both projects, you can see on the curve on the right, this is an industry net cash margin curve. And you can see that both projects are on the far left of the industry net cash margin, indicating their long-term profitability potential, but also the weight for the overall portfolio. If you look at the blue dots, ExxonMobil '19, ExxonMobil 2027, the overall portfolio has improved by $10 a barrel. This is significant. Changing gears, I'd like to take you to -- back to new market development. I'd like to tell you something exciting that we are promoting. So new market development. What is that? That's a very weird name for a new group. New market development is essentially a hub for innovation, disruptive innovation and incubation of emerging businesses. Here, we are building new specialty businesses that transform, the framing is very important, transform low-value fuel product coming from our refinery systems into high-value, high-growth materials through technology. These materials provide performance and sustainability benefits in EVs, electrical vehicles, infrastructure applications. So think material like composites, think high-performance carbon-based materials, that overall framing of this new market development. Let me dive in, in one example, which I have on this slide. In 2021, we have acquired a company called Materia based in California. This company pioneered the development of a Nobel prize winning technology, catalyst, for manufacturing of a new class of structural materials. After applying ExxonMobil technology in addition to the Materia technology, combined with our marketing strength on our scale, we have been able to take this Materia to the next level, I would say, of performance and potential. We call this product, the brand of the name is Proxxima. You will hear about the Proxxima brand. These are thermoset resins and in a nutshell, the chill faster, they are stronger, more durable and lighter than existing products in the marketplace. I strongly believe that no other companies has the ability to scale these technology breakthroughs into product society needs. In addition to that, Proxxima has less than half the greenhouse gases emissions of traditional [indiscernible] life cycle basis. So we are currently assessing the Proxxima as an addressable market of about 4 million to 5 million tonnes per annum, growing faster than GDP. And I'd like to just explain our 4 target segments that you can see on these slides. First one is rebar, steel rebar replacement. Steel replacement or Proxxima solution is 4x lighter, waste reduction, corrosion resistance and twice stronger than steel. Try to think what it means in the workplace and the work site with having this rebar so much lighter on better properties, better attributes, that could be a significant game changer for this. Coating for corrosion production, Proxxima formulation cure within minutes versus hours for traditional epoxy systems. It's a time saving, cost savings, and we are also using 25% less materials with the Proxxima solutions. So let me give you a live example here. You have some pipeline coating, let's see your pipeline coating on the bottom left here, not the one we use for a project, by the way. And in pipeline coating, customer can use a single coat of Proxxima that dry in 5 minutes instead of needing 2 or 3 coats of epoxy where we need to have 8 hours between each of the coats, assuming it doesn't rain. If it rains, we start again. Automotive. New light weighting and steel replacement opportunities critical for fuel economy and also improving EV ranges. We are working with many of the OEMs on this solution and using the Proxxima solution essentially driven by the lightweighting, the same theme of lightweighting on fast hearing. Wind turbine blades or Proxxima resins had maxed stronger, lighter wind turbine blades enabling more power generation. And that's 4 target segments we are focusing here. We may have 1 or 2 others. So if you step back, this Proxxima venture is transforming lower-value gasoline molecules into high-value end products with superior properties to address a growing million tons kind of size market growing faster than GDP worldwide. We have already FIDs, our first project in order to meet the emerging demand. And our aspiration is to steadily grow Proxxima venture to $1 billion of annual earnings by 2040, with an average return on all investments on the asset of 15, 1-5, 15% plus on return on investment. So key numbers, disruptive innovation, $1 billion of earnings potential 2040 at an average return of 15% plus. This is just one example of the new market development venture we have in the making. So to conclude our presentation, our Specialty Products segment is one that we are very excited about. I hope you share my excitement here, with our current and future portfolio. We expect Specialty Products to continue to deliver strong market position, solid earnings growth and innovative solutions to address sustainability trends. It's a differentiator for ExxonMobil versus our competitors through our technology, our scale, our marketing capabilities and the brands we have worldwide. With this, let me conclude on [indiscernible] to Karen to wrap up this presentation. Thank you.

Well, thank you, Loic. I just got one slide to wrap up this section of this afternoon. I hope you share my extremely high confidence that we can meet our objective to nearly triple earnings potential by 2027. The good news is we are ahead of a ratable schedule with close to 60% of our improvements by year-end this year, and we're going to build on that momentum. Going forward, we're really focused on building on our unique competitive advantages that the team have brought to life here this afternoon and to deliver those competitive advantages in our growing markets to expand upon what is already our market-leading positions, and Proxxima is just a sneak peak of our confidence of our business beyond 2027. Given the diversity of our business, we are confident that we can continue to deliver growth and strong returns for the long term right through the energy transition. So I started out this afternoon by saying that I believe product solutions is a game changer for ExxonMobil. We really have something unique here. We are much more capable of leveraging ExxonMobil scale and integration in the new construct, and we're uniquely advantaged to help deliver on society's current and future evolving needs. So let me leave you with that thought. I think we've all earned a short break. We will take a 10-minute break and come back very promptly for a Q&A session. Thank you for your attention. [Break]

Okay. Welcome back. Thanks, everyone. We've got our speakers back on stage for our question-and-answer session. [Operator Instructions] And with that, let's get started. Raise your hand if you have a question. We are bringing mics, and we'd like you to provide your name and firm for the webcast audience. We've got 1 here in the front row, Katrina. Doug Leggate, Bank of America.

All the projects are in the back half of the period. That sounds like you're ahead of schedule. It sounds like the target has upside risk to it. So I just wonder if you could clarify, it looks like Beaumont's done, Baytown is partly done. Should we be looking at upside risk to your current expectations?

I would say we're on track, but we have really good confidence in delivery. So you are quite right that we are just approaching the 50% through the time line, and we are approaching 60% of the benefit at an average margin basis. The mix of our benefits varies throughout time. So you're right that a minority of the project benefits has manifested thus far, but we have made a very big step for example, in our structural cost reduction already. So we have more structural cost reduction to go, but we are ahead of track on that. So it's a little bit of a mixed bag. But I'm really pleased with the progress we've made. As I said, we were very focused on improving all aspects of our business. And you heard from the 3 SVPs here that we're improving across each of our business cycles, I'm really pleased with the progress.

Doug, when we first came up with this deal, and we added everything up and it looked very ratable across the whole period, and we all looked at it so that looks -- that's too ratable. So there's no way we're going to get it just right. And so -- but I think we found it is indeed fairly available, and we're pretty close to 50%, maybe a little bit above. I'd rather be on that side of it as we get to the halfway point. So we feel pretty good.

Next question is Neil Mehta, Goldman Sachs.

A question about where we are in the refining cycle? We're obviously in a very strong margin environment right now. How do you think about the sustainability of that as we weigh capacity rationalization versus new adds versus an uncertain demand environment. And in addition to talking about product, could you also talk about the crude markets, where there's a lot of volatility there, and it's an important part of sustaining your profitability.

Yes, thanks. Look, in terms of refining first, obviously, things are pretty tight right now. Inventories are low. And when inventories are low, obviously, any bubbles kind of have a ripple through the market and you can feel them. And the reason why inventories are low, you have to go way back to COVID really. I mean when you had COVID, we had a very difficult time for the refining industry, as I'm sure you are well aware. And we had 3 million barrels a day of rationalization of refining. And unlike previous periods of rationalization, a good bit of that was actually in the U.S. And so coming out of that COVID, we had a surge in demand. And so inventory started coming off very, very quickly. And then a little later on, Russia invaded Ukraine. And then with that, we had a lot of trade flows moving and a lot of disoptimization in the market. So we had I would say the capacity that we had available feels like a little less because you had ships on the water longer and so forth. And so as long as demand has been good and strong, we've been unable to claw back on that inventory. And so inventories remain low, well below the 5-year average -- below the 5-year band. And as long as that's the case, I think things are going to remain a little tight. Seasonally, things should come off a little bit later on, but I don't see anything on the horizon that would say anything near term is going to change things other than some event one way or the other. Now what's driving that growth? You mentioned the crude markets. And as you think about 2023, the growth estimates for liquids demand is somewhere 2 million to 2.5 million barrels a day, and despite what you hear a lot about the Chinese resurgence after COVID being a bit disappointing, most of that growth is China. And you look at the -- what's coming online from a crew perspective that's meeting that demand, there has been actually some pretty good non-OPEC growth coming out of the U.S. and Canada, Guyana. But of course, OPEC has reduced volumes. So on balance, the liquid supply is not meeting that growth. And that growth last year was over 2 million barrels a day as well, this year it is 2 million barrels a day. Next year should be something more moderate, more in line with historical norms of 1 to 1.5, but I mean that's going to keep things -- should keep things relatively tight, absent some different views on OPEC and what they decide to do.

And Jack, maybe just to add to that. It has been a very unusual refining margin environment for the last 18 months. And when we think about that, we're really pleased with how the organization has responded to that to take advantage of that market environment. You think about when the Russia, Ukraine conflict occurred and the impact that had on trade flows, on crude and feed and products, and our ability to react to that, using our knowledge of the energy system, our knowledge of the physical flows and to keep our refineries running to continue to supply products, and again, take advantage of those margins was exceptional for the organization. And we talked about it in the presentation, we had our highest throughput last year in 2022. Again, to respond to that market, I think we had our highest distillate yield ever last year. Again, recognizing where distillate cracks were last year, our ability to take advantage of those margins in that market, we're really pleased with how the organization responded.

And in terms of the organization, also let me just add -- and Neil had said this earlier in his presentation, but the other thing we did is, obviously, we brought on 250,000 barrels a day of refining capacity with our Beaumont project, which the market needed. And it was a nice time to run on a project. And the other thing is we have made the difficult decision to divest of 3 refineries, 2 of which are done and one of which is still working, should get closed before year-end, which are less strategic and upgrade the whole portfolio. So I think I feel good about not only what we did you talk about the reactor market, but also from a macro perspective, how we responded and we're able to come out of this with a higher-graded portfolio.

Next question is from Devin McDermott, Morgan Stanley.

Thanks for very helpful presentation. So I wanted to ask about the other performance improvement bucket that you have across the different business units. And it seems like a bit of a catch-off for different opportunities. Some of them are very quantifiable, like the shortening of maintenance cycle times in trading kind of quantify as well? And then others like improving brand equity, I think, are a little bit harder from us sitting in our seat to understand. So I was wondering if you could break down for us maybe the few biggest from a financial standpoint, drivers of that orange bar across the business unit, like all the business units, which 2 or 3 are most significant. And also discuss just the confidence in achieving that orange bar on the uplift over the next few years?

Karen, why don't you...

Yes. So there are honestly many unvaried and mostly relatively small. There's not one thing that is a silver bullet to this. And I think it really speaks to how are we focused on really looking at every aspect of our balance sheet, every aspect of our income statement and find a way to make improvements. So I can give you many anecdotal examples of things that I can quantify, but none of them are material within our results. It's the aggregation of all of those improvements. I would say that are really driving us forward. And maybe Mike to talk about the upgrading of our product mix is a good one.

Yes, I was going to highlight 2 things. The one that Karen referenced, mix upgrading in terms of moving from within our existing facilities within the existing manufacturing capability, moving to products that have higher value, more premium in the marketplace is a significant driver of that orange for my business. And again, that's based on proprietary technology. So that's a competitive advantage. The second one, which again, it's small, but it's a lot of money in terms of how it generates value is our ability to get the most out of our assets. I mentioned our Corpus facility that's already demonstrated 6% above nameplate. I go back to our investments in the Baytown area, our North America growth investment that came up in '17 and '18. That facility is delivering almost 20% above what we appropriated that project for back in time. And that's our manufacturing expertise. It's our technology. It's also scale because we have steam crackers across the world that are similar, where you can leverage a learning in one and apply it to the other. But I want to shout out to the technology or MTech, our global technology organization, that capability, it's not just proprietary technology, it's also our people and their knowledge and their ability to get the most out of the assets that we have in my business, those are the 2 biggest.

And just to add 1 or 2 comments to your point is outside of the fence of our manufacturing assets is by taking both heritage of chemical on the F&A organization, we have now streamlined our data infrastructure, we have streamlined our processes on many of our tools, which allows us to fully leverage digital capabilities with some machine learning in order to improve some about the way we procure some of raw materials, also the supply chain to improve supply chain visibility and we have also some of the top line as well. My business, top line growth, go where the market is. So we are focusing on expanding some of our markets, either geographies like India, Indonesia. You might have seen some of our announcements here, but also in terms of new sectors. The data centers need some immersion current. This is ripe for our product. We bring technology. We bring special solution for all these emerging data centers. It's a very significant market for us, which is part of our order improvement.

And maybe I'll just mention a few for fuels. I mentioned the crude and feed and the ongoing effort to test constraints at our sites to expand the envelope of what crude and feed we can run. I think last year, we ran more than 40 new crude and feeds into our refineries. Again, the operational excellence would fall into that bucket. And then in fuels on the retail side, the brand is really important to us. That retail channel is a ratable high-value channel for us. And we've done well to continue to expand that in strategic markets that support our strategic assets. So I think the U.S. Gulf Coast and the market entry we did into Mexico about 5 years ago. We're now the second largest retailer in Mexico in terms of site count. So again, that brand is really important to us as well as we move outside of the gate and place products in the highest value channels and markets.

Next question comes from John Royall from JPMorgan.

So my question is on the M&A side. You talked about high grading on the refining side and going down to 13 refineries. Can you talk about what makes the refinery accounted for divestiture? And are there others beyond the 13%, or do you feel like you're kind of sufficiently high graded at this point? And then maybe conversely, on acquisitions, could that be a source of growth outside of the organic growth that you've laid out?

Let me start, and I'll tell you -- I'll answer the second part, the acquisition piece, and I'll let Neil talk about the divestments, and how we think about that. From an acquisition piece, we've -- that kind of comes up from time to time on the quarterly calls, and I'll just repeat the line that I think says it well that Kathy says frequently, which is we're looking for 1+1=3. We're very much looking for assets where we can bring our competitive strengths we talked about, our technology, our scale, our integration. We can bring those strengths to that set of assets, that business that we acquire and get more value-added than the current [indiscernible]. So I think material was a great example of that, where material had a really, really good technology, but we're not able to really get the marketing use out of that, whereas with combining that with our technology, we could scale it and get a lot more value than they could have gotten otherwise. Those kinds of things we're always looking for. But we are going to be picky and there's -- we're going to continue to look and available. I think the activity level, we're going to be very picky. So with that, Neil, do you want to talk about investments?

Yes. When we think about our refining portfolio and what we want to keep in our portfolio, one of the things that we've talked about certainly is the importance of integration. Side is typically very strategic to us if we have a significant scale presence of fuels, lubes and chemicals. So that is one aspect that we consider strategic, but it's not just integration. I mean we have sites that have other advantages, feed advantage, for example, access to very advantaged discounted crudes or there's an advantage in the market that we participate in. So integration certainly is a priority, but it could be more than that, right? It could be some other market element that would allow it to be strategic to us. And I think the important thing is once we consider it strategic is the opportunity we have to invest to make it more competitive, more profitable. And then as I talked about in my remarks, is the ability to reconfigure as the market evolves, right, as we get signals to produce other higher-value products. Can we do that from those sites that we have in our portfolio. I'm not going to comment on how many more sites left may not be strategic to us, but that's how we think about it. When we think about what we want in our portfolio is does it have that recipe for us? Can we take advantage of the site and continue to accrete value over time.

I would say that we're very close to our desire. -- We've met as you've heard, good progress this year in terms of executing our portfolio strategy.

I think one of the key points we need to add is when you think about it on your portfolio, there is also integration with LCS, the decarbonization of the asset for the future. This is another dimension of integration there.

Next question is from Roger Read, Wells Fargo.

It kind of follows on with the integration question. What is the right way for us on the outside to think about the value of the integration, right? Is it going to come through as a margin improvement? Is it a bottom line net income? Is it -- should we see it in return on capital employed. I mean, -- it's great to hear it. I believe that it's there. I believe that it's a distinct advantage for Exxon, but how can I in a sense, make it tangible?

Yes. That's a great question. I mean it really it really has -- by definition, has to flow down to the bottom line. You have to see in earnings in ROCE and cash flow and so on. And where we get it, though, is the, it's deep. And where we should get it is like Neil Hansen was talking about the extra $2 a barrel. You see a market, and we're getting a little bit higher margin because we're optimizing those flow streams. You look at a complex like Baytown, where you have literally over 100 streams going back and forth between, and we're nonintegrated refineries would be selling a product that we can take into our chemical plant vice versa and utilize that. So what you ought to see us a little uplift as we get that better opportunity for optimization.

Yes. I think a couple of other things. I mean, you should see it in lower cost project. I mean I cited an example today. I mean, if you think about it, we're one of the largest chemical companies in the world. But actually, even though chemicals is very capitally intense, it's a small amount of this corporation of CapEx. And so we have the opportunity to learn from all the corporation's projects and improve from those and deliver a much better capital efficiency for all of our businesses. That's an obvious one. I think the other place that it will show up in the fullness of time is longevity for our refining footprint. So if you think of our refineries where they're integrated, where we have these performance products that are associated with those facilities, and we can more naturally pivot our production and from the fuels that people need today to being the molecule managers, we need to be in the future to serve chemicals, whether it's data center cooling requirement for a lubricant type material, et cetera, any number of other things. I think that, that allows us to have a competitive advantage even as the demand for some fuel changes. So I think it's multifaceted, lower-cost projects, somewhat higher margin here, and there where we can combine the benefits of our various businesses, but also in the longevity of our business.

Yes. When you look at that chart that Neil showed around how the yield shift over time, don't mistake the fact that we haven't done it yet maybe we're not prepared to do it. But the market for the products that we're producing today is still there. The market for gasoline is still strong, so we're going to continue to produce gasoline for our customers. But we are prepared to make some significant changes as the market dictates for that yield pattern. And as Neil said, it's unique, it's unique. You only have that integrated sites, large integrated sites when you have that flexibility.

Maybe just to add really quickly. I mean we talk about the changes in long-term fundamentals and our ability to take advantage of that. I think it's underappreciated how much of that's done on a daily basis, that optimization, real time to determine is the market signaling to us to produce more diesel, more gas, more polyethylene, more lubes and the ability for those sites to respond to those market signals in real time to optimize the value that we get out of the sites, I think, is underappreciated. Neil, Mike and Loic, I don't care if we make more money in fuels, chemicals or specialty, we care about making the most money for product solutions. And we can do that every day.

I think there's one more that try to bring it to life. We talked about or somebody mentioned earlier, low-carbon solutions. If you think about what we're doing in the Baytown blue hydrogen project, the scale that the chemical plant and that integrated facility can bring to delivery of that hydrogen facility, that blue hydrogen facility, having -- if that was a stand-alone low carbon solutions business, you wouldn't have the scale. And that scale allows this business to decarbonize at a lower cost versus competition. So that's a new area with low carbon solutions that I think is a really important area of integration that we're going to take advantage of and monetize in years to come.

Yes, you can think about product solutions as like an in-built anchor tenant to give you confidence in a large low-carbon solutions investment.

Ryan Todd.

Ryan Todd of Piper Sandler. Maybe a question on the biofuel side. You have some -- you've had some fairly large targets either a couple of years ago at the Analyst Day or last year at the Analyst Day presentation and some here in terms of the potential contributions either volumetrically or earnings-wise of the biofuels business. You haven't given us much detail to project level outside of Strathcona. So you mentioned there are 12 other projects, I think, going on, around the world and the hydro treating capacity that you have. Any more granularity in terms of what types of projects are we looking more at conversions? Are you thinking of co-processing? Any detail on maybe some other things outside of Strathcona that you may be doing? And then you also talked about the flexibility your system provides. So how much flexible -- how much does the environment that we see over the next couple of years dictate the pace at what you perceive on the biofuel side, if refining is stronger for longer, does that push back the pace at which you may convert or adapt facilities?

Yes. I think you're probably referencing the ambitions that we've stated around producing 40,000 barrels a day of lower emission fuels by 2025 and then 200,000 by 2030, I think it was the ambition that we stated. And you're absolutely right. Strathcona is the one that's clear and front and center. That project is progressing. It is a world-scale renewable diesel facility at 20,000 barrels a day. So that project is well underway. There are at least 2 or 3 others that are progressing through the gated process that we have here. Again, very similar in terms of being able to reconfigure an existing asset taking locally sourced biofuel to produce either renewable diesel or renewable jet. So those significant reconfigurations are underway. But you mentioned the other ones. We are actively today, bioblending. We're also coprocessing in the countries and regions where it's supported by policy, so France is a good example. Canada is a good example, and so the policy supports co-processing, that's another very capitally efficient way to produce lower emission fuels, right, because you can use your existing assets. So it's really all the above. Now in terms of rate and pace, that will be greatly dictated by whether or not the policy exists to support the investment to produce lower emission fuels. And for us, that is making sure you have a well-designed policy, right. A policy that's focused on lowering the life cycle emissions, right, making sure that you're putting a price or a cost on that carbon and making sure that it's technology neutral. And when you have that recipe in place, if you're focused on life cycle emissions, if you're technology neutral, if there's a cost of carbon, that will drive innovation, move to a market-driven approach to lower emission fuel. So the one thing we do recognize is policy and the right policy will greatly dictate the pace at which we bring on renewable diesel, renewable jet other low emission fuels. I think I got all your questions.

I would just add that there's a reason why our first project -- large project is in Canada. The clean fuels regulation that Canada put in place is carbon intensity based, technology neutral, meets the criteria as Neil just pointed out, and is a good, sound policy for us to invest in. And so we're continuing to advocate for other countries where we have operations that has something similar. And in contrast, although the IRA has many good parts of the policy, it does preclude the coprocessing at existing sites.

Our next question is from Biraj from RBC.

Neil, you mentioned, or you name tech trading a few times. So I was wondering if you could talk about the progress in the journey there and building the trading business. There's been some press reports around some of the challenges there. But I'm just interested to know how that's going. And maybe if you could provide some kind of reference to the contribution to the $5 billion earnings or energy products by 2027.

Before you talk, let me frame the trading a little bit, and then I'll turn it over to Neil, let him provide some -- maybe some color and some examples. But we started trading in early back in 2018. And so we didn't exactly rush into this and we've had some time to get comfortable with the impact that's having on our business. And what I would say is that a couple of things that observations I'd make is, one, we do see value there. We clearly see value in our trading activities. And the risk is manageable. With appropriate risk management steps, we think the risk is very manageable. And the other thing I would say, other observations, we've discovered something that some might say is rather obvious. Our large global footprint is a huge advantage. It's a huge advantage in the space, number one, for optimization opportunities to be able to -- those small optimizations that you do hundreds and thousands of those and combined, they make a difference. And then also some market insights. And so this large global footprint, we think that it makes sense for us to be in this area. And so setting up this global trading organization, like we did earlier in the year, we're optimistic about the contribution it's going to make. And clearly, there are synergies between taking your crude and your products and your power and your gas and kind of putting them together, lots of synergies there. So we're optimistic about how that's going to go going forward. Any color or commentary?

I wouldn't believe everything you read in the press, Biraj. I mean there has been tremendous progress in trading, as Jack mentioned, their first job, and they do it really well is to make sure that we're optimizing the large base that we have. But beyond that, really what we're after, for the most part, is capturing arbitrage opportunities, whether those are time, geographic or quality. One of the things that we've done since '18, that's been a significant benefit to us is establishing a network of blend hubs. So these are an extension of our manufacturing base. What allows us to do is to take, for example, low-cost components and then blend them up into finished products where there's higher value. Last year is a great example where Naphtha was trading at a significant discount to finished gasoline. Our ability to go and get that Naphtha either from our side or from the industry and blend it into a finished product and get it to a high-value market, that's a significant arbitrage. Another one would be a gasoline spec, for example. We know there's a market that we want to access and our refinery doesn't produce that spec of gasoline, does not prevent us from accessing that market. We can go and get the components that are needed, again, to blend to get to that finished product into that market. That's really, for the most part, what we're trying to do, and we're doing it really well with trading. The other one on the system side, I kind of referenced earlier is with the Russia-Ukraine conflict, our ability to keep our refineries running in full by responding to those trade flows and still getting access to the crude and feed that we needed, was an outcome of that trading organization. I think we're excited about the new organization, bringing all that together, centralized, leveraging the expertise across the corporation and continuing to grow. And certainly, a part of that ability to achieve the growth potential that we see.

Jeff Zekauskas, JPMorgan.

I have a question about your hydrogen strategy. Not your ammonia strategy, your hydrogen strategy. So you're going to make 1 billion standard cubic feet a day of hydrogen, and you're going to get benefits from the Inflation Reduction Act. Now Exxon is a net buyer of hydrogen in the United States, you source from third parties. Over a longer period of time, do you expect that shortness to diminish? That is because of your hydrogen activities, you can better vertically integrate, and is it the case that because of the tax credits you might be able to get, it makes sense to sell merchant hydrogen in some size or to build a hydrogen business?

Yes. Look, I think the way we think about it is where do we have good opportunities to invest in blue hydrogen to leverage our advantages and where that can supply our operations like in Baytown. So as Karen said earlier, we're kind of the anchor tenant for that project. So we have some hydrogen we use for ourselves. We're going to be decarbonizing part of the Baytown complex and then we have some third-party hydrogen for others. But where if it was a remote small operation and someone else had a scaled blue hydrogen opportunity, we might still be a buyer of hydrogen. But where we have the advantage, we would be in that business. And clearly, with the acquisition we made recently with CO2 infrastructure with the CCS deals we've already done, and of course, blue hydrogen is a big ATR with a big, big CCS project attached to it. We're very capable of doing the big projects, and we're very capable of doing the CCS aspect. So I think we will be big in the blue hydrogen business. But I don't think -- I think we're a little agnostic in terms of whether or not we're buying and selling depending on where the best supply options are, just like taking crudes into our refineries today. Sometimes it's equity crudes, sometimes it's other crude. We take the best crude we need to run the refineries. We'll take the lowest cost hydrogen we have, and some of that will be our own, some of that maybe somebody else's. But I think we'll definitely be in that business in the blue hydrogen business because, again, I think we're fairly uniquely equipped to do the big blue hydrogen steps that require the big projects.

Next question is from Bob Brackett, Bernstein Research.

You gave us a ratable guidance on earnings, and you gave us the contribution from strategic projects and you gave us a seriatim of those strategic projects. Should we think about those projects as being implicitly funded and those are very deterministic in driving that outlook? And how do we think about the ratability of the CapEx behind that?

Well, although others chime in in terms of their businesses. But I mean I think all these projects are very different sizes. So the CapEx is going to go on the size of the project. You have Mike talked about a $2 billion Baytown chemical project, and there's others that are hundreds of millions, if not less. So there's different sizes, the Corpus Christi project, obviously, an enormous chemical complex. So it's going to follow those projects. And I would not say it's ratable per se, but I would say it's not far off that, quite frankly, when you look at the total combination. Any other...

I would say if you talk about the projects that were specifically mentioned there that kind of delivered by 2027, they're funded. Those are projects that are under construction. So there's not a question of whether that project will come to fruition. Of course, there's lots of -- as Karen mentioned, lots of smaller projects with shorter time windows that are built into the other improvements that we have confidence in those delivering. But the big projects, those projects are real, they're developed and they're funded.

And next question comes from Jason Gabelman, Cowen.

It's Jason Gabelman from TD Cowen. I'm going to ask another question on CapEx, which is that it looks like the past few years, about 1/3 of your budget has been in the Product Solutions business, $7 billion to $8 billion. So in the near term, is that kind of what you need to execute on the plan that you've laid out? And then looking beyond the near term as some of these large projects roll off, it seems like you'll have some space in your budget, and it sounds like a lot of your future growth is dependent on these reconfiguration projects. If the market is such that the demand for your refinery products is still really high and you don't see a compelling need to reconfigure in the near term. Can you see a period where CapEx dips lower and your Product Solutions business is in somewhat of a cash harvest mode where it's throwing off an above average amount of cash that you would expect over the long term?

Yes. I think the short answer to that is yes. No. We're going to have periods of time where we're going to be a little more capital intense, intensive, where you have some projects like anytime we're doing a major steam cracker complex like the Corpus project or like the China project, you're going to have the CapEx to be a little bit higher. And then other than that, it will be smaller projects. And so I think it will be a bit cyclical and you'll have periods of time where our CapEx will be lower. From a -- we really think about that as part of the overall corporate capital allocation process. So we really think about that, think about the $20 billion to $25 billion we talked about and we look across the whole corporation, and we look at it at a minimum every year and really look into where should we be putting these precious capital dollars. And so the Product Solutions opportunities have to compete against low carbon solutions opportunities and upstream opportunities for capital. And until we FID it, we're continuing to make sure that we're putting the very best project forward for the corporation to consider funding. And it's the -- there's going to be periods of time, where there's a lot of harvesting from our business with periods of time, we'll be more capital-intensive. And -- but in general, I mean the Product Solutions business is throwing off cash, for sure.

I would say, we did spend most of our time talking about those known projects out to 2027. We feel really good about the portfolio that we have post 2027. We didn't spend a lot of time talking about those. But in my business, we're developing projects and developing kind of optionality in our portfolio for those next advantaged growth steps that are based on proprietary technology. And I know much of Loic's portfolio is about what we're doing in the future.

So if you extend your question to the new market development group we have, we know that we're going to have a lot of investment to come on this innovation on this. But we haven't talked too much about it, is focused on '27, but we are pipeline reached beyond '27, which is a wonderful opportunity to upgrade the portfolio and be very selective on the one we want to pursue.

I would just echo that comment. We're not short opportunities. We have a lot of opportunities. We're going to stay very selective and execute the very best ones.

And just to be clear, some of the projects that we talked about today have not been FID, but they are all in our plan. So they're all firmly planned.

Next question is from Will Su from Black Rock.

You guys have wrapped up the Product Solutions portion of the Growing the Gulf initiative. So I'm curious if you can share some of the positive learnings, some of the unexpected challenges. Clearly, you executed through COVID of investing such a large amount in the concentrated geography, and in the medium and long term, do you see the scope to perhaps again pursue such a large investment program within a certain geography, whether it's in the Gulf Coast or elsewhere?

Yes. Great question. Look, I'm going to hand it over to the folks talk about the projects, but I'll just make 1 comment is, we did what we said we'd do. We delivered a big, big investment program that I think there was a lot of skepticism about. We did what we said we do. We delivered those.

Yes. And I mean 1 thing I would say is we delivered them well because we have our global projects organization. As a former President of our chemical company, our chemical company could not have delivered these projects in isolation without the scale of the corporation. So the fact that we've had the global projects organization to kind of stack these projects, pass to each other and to really understand what the labor markets were going to be like and come up with the right strategies for them, is fundamental to the overarching success of the project. But I'll hand over to team and give such comments you want to make on any of the individual projects.

I mean the Corpus project is the best example that was delivered at 25% below cost -- below industry average costs, and there were a lot of significant industry projects that went well above kind of well above that average. And I think we did that during COVID. And we talked about an organization, but it's actually about the capability and experiences of the people. We had dozens of people on that project in Corpus that had done multibillion-dollar projects throughout their career. And that's just something that another chemical business, another chemical company or chemical competitors, just don't have and can't do. And I think that was, to me, that was tremendous in terms of leveraging that upstream capability, and we use a lot of methods. We use a lot of that expertise to bring that project to [indiscernible] super competitive cost.

And we've talked about the Beaumont expansion a few times already today. I mean it's started up earlier this year. And again, as you know, it started up in a very nice margin environment for diesel. And it does take again, it takes advantage of our position in the upstream. So it highlights the integration that we have across the corporation.

And maybe one last thing. Not all of these projects started up in the marvelous margin environment that our Beaumont expansion did, but they're all cash positive. And that's important to us because we want to invest in projects that are resilient through the cycle and generate cash even in an adverse part of the cycle. So I think that's a really important differentiator to all of these projects.

Okay. Our next question is from Paul Sankey, Sankey Research.

I'm a bit unclear actually, Jack, for to what you're saying on the long-term overview of the company as to whether this was a surge of CapEx and performance improvement or whether it's sort of an ongoing process where you're going to maintain these levels of CapEx? And the follow-up is, how do you now think about the cost of capital between upstream, low carbon, product solutions within the corporation. And then finally, and this is a tough one. How do you think about your competitors' cost of capital? Because, for example, we're aware that Aramco is very long upstream and investing heavily in downstream, your kind of the opposite. The competitive environment is tough and so far as some of these guys, whether they be in China or India may have a different cost of capital and a different way of looking at investment. I hope that makes some sense. But if you could give us a sense.

So I wouldn't describe our future CapEx as we think about 2027 and as Mike indicated, we've -- we're modeling out well advanced into the 2030s into the 2040s. We're assuming that CapEx is in line with where we are now. I only point earlier was there's going to be some year or 2, that's $1 billion or $2 billion lower, year 2 being too higher, but so it's not going to be exactly flat on, but it's -- we're not assuming in our plans to go to 2027 and beyond any increase in CapEx. We do see similar type opportunities. And of course, as I said before, we have to earn the right to spend the corporation's dollars with the very best projects that we can come up with. In terms of cost of capital, we really think about that in terms of the corporate-wide cost of capital. And we, of course, overlay risk of individual projects, and you could have a an upstream project that's really, really low risk, Product Solutions project is a little higher risk or clearly, you could have vice versa. So we have kind of a cost of capital that we look at for the corporation and then we apply that judgment. And of course, as we look at these individual project opportunities, we're testing them at the bottom of the cycle. We're testing them what's the upside opportunity, so we kind of put them through the paces in terms of everything we look at. But I wouldn't say we have, we get too specific on a cost of capital with different parts of the business.

And then the international competition.

Yes. So for the reasons we talked about and our competitive advantages we have, I feel really good about how we're going to be competing against others. They may look at it differently. Like we have -- we talk about from time to time on the lubricant side, all these refiners really understand what the actual margins are on the lubricants versus the fuels. So they may look at it differently, but we have very competitive assets, and we have very competitive projects because of the global projects organization we talked about earlier, because of the technology we bring, because of this global footprint that gives us a base to work off of, and I feel really good about us being able to compete against anybody out there in terms of the quality of our projects going forward.

Yes. I think we have time for one more one-part question. The last question we have comes from Paul Cheng, Scotiabank.

Jack and Karen, I think throughout the presentation that low cost is a really key for your success. If we look at Europe over the past several years, has become pretty high cost both in energy as well as cost of doing business. And their energy transition plan probably is more aggressive than most of the other regions you operate. From that standpoint, how your chemical refining and retail service station assets in Europe? I mean how should we look at that? Do you think that you need to dramatically transform that business over the next 5 or 7 years?

It's a good question, Paul. Let me -- let European take the...

Hi, I am an American. But we have to win in every market that we choose to compete in. And actually, we've got some really great assets in Europe, and it's a very good market for some of our businesses. So I would say that we continue to focus on our strength in that market. We understand the challenges of the high energy costs in Europe. And of course, during the energy crisis after the Ukraine invasion, we focused on reducing the need for natural gas consumption at our industrial facilities and our manufacturing team did a fantastic job of reducing dramatically the natural gas in order to manage what was very high energy costs there. So for me, I look at us as advantage versus our competition with some of the strongest assets that exist in Europe, and we continue to focus on winning in every market that we participate in.

And Paul, I would just add, we have found some policy elements challenging. And we've we're advocating for good sound policy where we can, and we'll do what we can in that area.

Any closing remarks, Jack?

Look, I really appreciate all the good questions and the dialogue, and I certainly appreciate you all coming out here and for those tuning in for you taking the time to spend with us today. Let me just leave with a couple of closing comments. Number one, I hope you found today that this product solutions business is advantage versus competition. With the scale we have with twice the next closest ROCE, with the technology advantages we bring, which I think we talked quite a bit about and with that tight integration of our businesses. And hopefully, you share our confidence in growing our earnings by $10 billion by 2027. I think we showed you the reasons why we feel confident that we're going to deliver that. And then finally, we're very confident beyond 2027. I've made that point a few times, but I want to drive that home that we see a lot of good growth for this business well out in the future. We're focused a lot of time on 2027 because that's where we set that target, but we're planning for well beyond that. Loic mentioned the new business that we're looking at the targeting earnings threshold by 2040. So we're planning well out there. And when you look at the chemicals future and the lubricants future and the biofuels future, all these high-value products we're focused on, we feel really good about that. So again, appreciate your time. Thanks for spending the time with us. And we really enjoyed it -- on behalf of the team, we really enjoyed spending time with you. Thank you.

Thank you. I'll echo that. Thank you, everyone, for your questions, and thank you for those listening via our audio webcast. We hope you found the spotlight to be helpful. As soon as it's available, we will post a transcript on the Investor Relations section of the IR website as well as an audio replay of this session. Before we conclude, I have one calendar announcement. Please mark your calendar for our third quarter earnings call. It will be on Friday, October 27. And Darren Woods, our Chairman and CEO, will host that call, along with Kathy Mikells, Senior Vice President and CFO for Q&A. Appreciate you joining. And as always, appreciate your interest in ExxonMobil. And with that, we conclude our call.