Exxon Mobil Corporation (XOM) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to the ExxonMobil Corporate Plan Update. I'm Jennifer Driscoll, Vice President, Investor Relations. Joining me today are Darren Woods, Chairman and Chief Executive Officer; and Kathy Mikells, Senior Vice President and Chief Financial Officer. Our full presentation and prerecorded remarks are available on the Investor Relations section of our website along with the corporate plan news release. In a moment, Darren will provide brief opening remarks, and we'll reference a few slides from this presentation, that will give analysts more time to ask questions before we conclude at around 10:00 Central Time this morning. As a reminder, today's call is being recorded. In conjunction with our recent announcements regarding Pioneer Natural Resources, we've included additional information on Slide 2 related to comments or information included in today's presentation. Please be aware that this presentation is not intended to be a solicitation of any vote or approval. During the presentation, we'll make forward-looking comments. We encourage you to read our cautionary statement on Slide 3. Additional information on the risks and uncertainties that apply to these comments are listed in our most recent Form 10-Ks and 10-Qs. Last, we also provided supplemental information in the appendix of our slides. And now I'll hand it over to Darren.

Thank you, Jennifer. Kathy and I are pleased to share the highlights of this year's corporate plan recently endorsed by the Board. Hopefully, it will come as no surprise that this year's plan is very consistent with last year's plan, reflecting progress from an additional year of executing the strategy that we presented in 2018. Our experience throughout 2023 and the results we've achieved only serve to reaffirm our strategy, most notably in our new business, Low Carbon Solutions, where customers and governments around the world are recognizing the value we bring in applying our core capabilities to the challenge of reducing emissions. In fact, the most notable change in this year's plan versus last year is the growth and potential opportunities in our low carbon business. As a new business, establishing new value chains in markets, our low carbon investments have the most potential for growth with spend heavily weighted towards the back of our planning horizon, but remain less certain as it require more definitive policy and regulation. And customers that commit to reducing emissions. But it is clear, with our capabilities and competitive advantages, there's a huge potential that we are uniquely positioned to capture. This is a direct result of our strategy, which is where I'll begin this morning with our strategy and our work to implement it. ExxonMobil senior leadership is aligned. To win, we must effectively leverage our industry-leading competitive advantages, to provide innovative solutions that meet society's evolving needs, advanced broader stakeholder objectives and reward shareholders. To consistently do this over the long term, we must focus on 5 key priorities. First and foremost, we must deliver industry-leading performance in shareholder returns, earnings and cash flow growth, safety, reliability, emissions intensity and cost and capital efficiency. We must be an essential partner, creating win-win solutions for our customers, partners and broader stakeholders. We must build an advantaged portfolio by developing lower emissions assets and products that outperform competition and grow value in an uncertain world across a range of price environments. We must drive innovative solutions, new products, approaches and technologies to improve competitiveness and accelerate large-scale deployments. Like our cube development in the Permian, our new-to-the-world product, Proxima, or our cutting-edge lithium production technology. And finally, most importantly, we have to maintain an organization with world-class talent, by attracting the best people and providing unrivaled opportunities for personal and professional growth, meaningful development through meaningful work. This year's plan reflects additional progress in operations as well as successfully solving for the "and" equation, creating value for society and the compelling investment thesis for our shareholders. It starts with our first priority in capital allocation, investing in industry-advantaged, accretive growth opportunities organically and through acquisitions. We continue to shift our product portfolio to a higher value mix and further high-grade our asset portfolio through divestments of select noncore assets. We're maintaining our balance sheet strength to provide financial flexibility through the commodity cycles. Our cash balance, cash generation and debt-to-capital ratio are all robust, giving us a strong buffer against market volatility. We're delivering industry-leading returns. Our plan deploys capital to its highest and best use, focuses on excellence in execution, and continues to drive structural cost improvements. And we're making further progress in leading the industry in a thoughtful energy transition, from carbon capture and storage, to hydrogen, biofuels and lithium. We are thoughtfully growing our low carbon business. We recognize and are effectively managing the significant uncertainty in how they transition and our low carbon business will develop. Success in accelerating emissions reductions requires the development of nascent markets. We need technology neutral policy support, transparent carbon pricing and accounting and ultimately, customer commitments. We are pacing our investments with developments in each of these areas, minimizing the downside risk while establishing an advantaged position to capture and maximize the upside. At the same time, we're actively advocating for each of these areas so we can grow a profitable and ultimately large low-carbon business. One of the most important takeaways from our planned presentation today in support of our investment thesis is that our strategy is working, delivering an unrivaled opportunity for accretive growth. Let me share a few more takeaways before we move to Q&A. By any measure, our plans have and will continue to deliver exceptional value. We expect to grow earnings and cash flow by roughly $14 billion over the next 4 years, building further on the significant improvements in earnings power already delivered. Our return on capital employed is expected to reach 16% by 2027 as we continue to invest in advantaged high-return projects. Our commitment to safe and reliable operations as well as aggressive emission reductions remain with continuing progress built into our plans, consistent with our ambition to be the most responsible operator in the industry. We're continuing to deliver structural cost savings, with roughly $15 billion planned through 2027, a significant driver of our improved earnings power versus 2019. Our surplus cash potential through 2027 remains impressive at $80 billion, even if Brent falls by more than 20% from where it is today. Our commitment to disciplined investing and growing shareholder returns remains steadfast. Post the merger with Pioneer, assuming reasonable market conditions, we expect to further increase the pace of share repurchases to $20 billion a year through 2025, up from $17.5 billion currently. For 2024, we expect the amount of share repurchases to be somewhere between these 2 numbers, depending on the timing of the Pioneer close. Of course, the main driver of our financial success is continued investment in advantaged assets. Our CapEx range of $23 billion to $25 billion for 2024, and $22 billion to $27 billion per year from 2025 through 2027, reflects consistent investment in our traditional businesses and a growing set of high-return opportunities in lithium, hydrogen, biofuels and carbon capture and storage, reflecting our work to help reduce society's emissions. In summary, our strategy is delivering industry-leading results. The competitive advantages we possess, the organization we've built, the opportunities we're capturing, the performance we're delivering and the shareholder returns we're generating adds up to what we believe is the most compelling investment case in the industry. And with that, I'll hand it back to Jennifer to start our Q&A session.

Thank you, Darren. Now we'll begin our Q&A session. This is going to be an interactive session featuring video for our management team as well as the analysts asking the questions. We do ask those on the call to kindly limit themselves to a single question as a courtesy to all the others waiting to pose theirs. However, please remain on the line and keep your camera on in case we need clarification. With that, we'll go to our first question. You may indicate you have a question by using the raise your hand feature with Zoom. With that, Doug Leggate, Bank of America, will kick us off. Doug?

Thank you, Jennifer. Hopefully, you can all hear me okay, if I hit the mute button or unmute button accordingly. But Darren, thanks for your remarks and the update this morning. I guess my question relates to a couple of the data points in the slide deck. You're about halfway through now your '27 plan. I guess that was originally a '25 plan, so we're halfway through the '27 post-COVID version. You've increased your CapEx slightly, but you've also acquired Denbury. So a few moving parts there. But I guess with the additional cost cutting, the cash flow number for 2027 has not changed the doubling of cash flow. And it looks like your breakeven has moved up about $5 based on the slide deck. So I just wonder if you could reconcile those moving parts to clarify no change in cash flow targets and a higher breakeven. What are the moving parts driving that?

Sure. I'm happy to start with that question and then hand it over to you, Darren, if you have anything to add. So just to talk about cash flow and start there, Doug. If you go back to 2019, which is kind of the beginning point, right, looking to double cash flows from 2019, we would have had earnings a bit under $10 billion, and we would have had D&A of about $19 billion, so call it $28-ish billion in total cash flow, excluding working capital change. We've increased earnings through 2023. And in the slide deck, what we did is we took 2023, and we annualized it to try and give you an actual data point right out in 2023. So that's an increase of earnings of about $10 billion, which flows right through to cash flow. We've then said we see another $14 billion in earnings improvement from '23 to '27. Again, that would flow right through to cash flow. And then I get a little bit more pickup in cash flow because when I annualize our third quarter D&A., I get a bit more D&A within earnings out in 2027. Part of that, Doug, would be driven by higher Upstream production out in 2027, 4.2 million oil-equivalent barrels, and that will drive more depreciation naturally. So that's how you get to kind of a doubling of the cash flows between 2019 and 2027. Then I'll take your second question, which is, hey, can you kind of tell me what's going on with your breakevens, kind of rule of thumb, about $1 billion in CapEx equates to about $2 in breakeven. And what you're seeing is that we've increased CapEx, that's largely being driven by further investment that we're anticipating in emission reductions. And within emission reductions, that's really being driven by third-party emission reduction activities. We talk in the deck about the fact that we will pace that investment consistent with how these nascent markets develop, consistent with how technology develops and in a way that ensures we're going to earn good returns. So we're definitely positioning the organization to be able to deliver upon that. But I'd say it has more uncertainty than the rest of our CapEx profile has, but that's what's driving the increase in breakeven in those outer years. It's the higher emission reduction, CapEx spending that we're anticipating.

Yes. And maybe...

Oh, go ahead. Sorry, Darren. Please go ahead.

Yes. Let me just add maybe some more color commentary around the plan that we laid out back in 2018 and the strategy. The pause that we took in COVID, as you mentioned, obviously, with the drastic impact that COVID had on the industry and cash flows. But if you look at the capital portfolio, the projects that we talked about in 2018 that we've been executing through this year and on into 2017, that portfolio of projects remains essentially the same. And I think it speaks to the quality of the projects that we came up with early on and have been effectively executing. And as those have come online, typically on or above ahead of schedule and on or below budget, they're demonstrating and providing the value. And so that foundation continues to build and strengthen. And when you couple that with the significant organizational changes that we've made, which again is going to drive effectiveness and efficiency, those are compounding as well as we continue to make the changes with the most recent ones being the introduction of the supply chain organization, the global trading organization, our global business solutions organization. So I would say, the way to think about what we've been doing is, one, delivering improvements as we go, but two, and much more importantly, building a stronger and stronger foundation to support that growth as we get into the back end of this period. And so my view is what you've seen some early returns, but we haven't finished putting all the pieces of the puzzle together to actually deliver on the ultimate objective. And we feel really, really positive about one, what we've seen to date, but more importantly, what we're seeing with these new organizations we've just formed and the ability to fully leverage this, the capabilities and the scale of the corporation. One other point I would make, which is important, the Low Carbon Solutions business, while we, back in '18, talked about the need to focus on the molecule side of the equation, biofuels, carbon capture and storage and hydrogen, it wasn't an accepted part of the narrative, and therefore, the market opportunity to progress those businesses was somewhat limited. I would say the thing that's changed most dramatically in the plans that we've laid out and we're talking about today, is the recognition of what we can bring to that space and the potential value opportunity that exists and hence, why we see the potential for capital growth in that space. But as Kathy says, there's still a lot of uncertainty in that space, a lot of regulations to be put in place. The legislation in the U.S. needs to be translated to regulations. And so all those things are coming together. But until they ultimately land, and we know what we've got, and we're convinced that we're going to generate the returns that are required to compete in the portfolio, a lot less certain going forward.

Up next is Neil Mehta from Goldman Sachs.

Yes. And thanks, as always, for doing this. I want to spend some time on Guyana and maybe, Darren, you can step back and talk about how you're tracking on that trajectory. And as you think about getting to 1.2 million barrels a day, is there upside to it? And what are the gating items? And then as it relates to that, can you spend some time talking about aboveground issues or challenges in Guyana and a lot of headlines lately, and how we as an investment community should it be interpreting these headlines?

Thanks, Neil. What I'd say is if you look at the progress we've been making in Guyana, we're basically tracking frankly, ahead of the plans that we've established. So we put together fairly aggressive plans to deliver world-class projects that develop that resource cost competitively, lead industry and emissions intensity, and frankly, we've been doing better than our own plans. And so I think a real credit to the organization and the project organization that we've put in place to kind of bring the best of ExxonMobil to bear on one of our most important opportunities. And so feel really good about that. The plans that we've executed to date, including Payara, that we recently brought on ahead of schedule, continue to have an aggressive schedule and a lot of confidence that we'll deliver on that. So we feel good about the capacity objective that we've laid out there. And with respect to performance, once those assets come online, as we've talked about, we're actually exceeding the investment basis for each of those projects as they brought them on. The operating team have done a great job of really squeezing out productivity on the kit that we put in place there. And frankly, I have every expectation that as we bring on each new project, the organization will deliver the same kind of improvement opportunities that we've seen with the 2 that have been on for a while and what we expect to get with Payara. So I'd say, generally speaking, my view is we will deliver above what we had anticipated simply because of the performance of the organization that we've already demonstrated on the first 3 projects, with 3 more to go and under work. With respect to the aboveground thing, and I presume that you're thinking about the border dispute, that's something that's been around, as you know, for quite some time. It's being arbitrated in the International Court of Justice. Our expectation is that process will continue and that both nations will respect that process and respect the outcome of the arbitration. I think, if you look around the world, certainly in the U.S., in Europe, the other Caribbean countries, all very supportive of the process that those 2 nations have been going through to resolve that dispute. My expectation is that will continue to work its way through that justice system, and we'll get a result there that I expect and certainly hope that both countries will respect the outcome of the arbitration, but that's a couple of years probably into the future.

Our next question is going to come from Devin McDermott of Morgan Stanley.

Great. And for the helpful update today. So I wanted to hone in a bit on the cost-cutting opportunity. And I was wondering if you could spend some time talking in a bit more detail on the drivers of the $6 billion of incremental cost reductions that you're announcing today and just the confidence in achieving these goals. And if we just kind of step back, the $15 billion over the duration of the plan of cost cutting is a large number. Can you just talk about how you balance streamlining the business further while also ensuring that you retain your peer leading operations and project execution?

Sure. I'll start with that and then let Kathy kind of build on it. I think if you look at what we've delivered today, I think when we first put our target of $9 billion out there, the plan for $9 billion, there was some skepticism as to whether we could achieve that. And frankly, we delivered it a quarter ahead of what we had anticipated. And it reflects the opportunity set that we're seeing that comes from our ability to leverage for the first time, frankly, in the corporation's history, the full scale of our organization. And so what you've seen us doing and establishing 3 end-to-end value chains or businesses with the Product Solutions business, Low Carbon Solutions and Upstream, we've taken out a lot of overhead, a lot of, frankly, organizational barriers to efficiencies and effectiveness and really allow the organization to take advantage of the best thinking and capabilities that we have in the corporation to bring the full weight of the corporation's advantages to bear, with respect to conducting our business. And so I would say there's an efficiency place certainly by getting rid of a lot of the organizational constructs and frankly, better leveraging our scale and the purchasing power that comes with that, our ability to harmonize and do things in a standard way and eliminate duplication across the organization. So a lot of that efficiency standpoint, but also I would say by taking it's unlocked the ability for us to bring the best thinking that was developed in each of our businesses over the last couple of decades, bring them together and really drive collaboration and innovation and take the best thinking across the corporation and applying it to the similar problems or opportunity sets that we have across each of our businesses, that's delivered the $9 billion, and there's a number of examples, I'm sure Kathy can touch on. But I would say going forward is what we see continuing is one, building on that framework that we've already established. And I'd just point to one that stands out in my mind is the work we've been doing around improving maintenance efficiency and effectiveness. So one of the challenges, as you referenced, as we cut costs, making sure that we don't sacrifice performance and our ability to execute. And as you've seen, we're managing to do that. Not only are we reducing our cost of maintenance, our cost of our turnaround, the time it takes us to do our turnarounds. We're improving our reliability. We're improving our safety. We're improving our environmental performance. And so contrary to what many would think, not only are we reducing our cost, we're improving our performance. And then going forward, the new organizations that we've built have the same set of opportunities ahead of them. So we'll continue to deliver on the things we've already established and then we've got a whole new opportunity set, with the supply chain organization, the business services, Global Business Solutions organization. So I'm very optimistic that the numbers that we've laid out based on the success we've already had and the line of sight we have to the opportunities, that we'll deliver on the additional $6 billion going forward. I don't know, anything to add to that, Kathy?

Yes. I'd say if you look at all the changes that the company has made in the organization, that has been a huge driver of how we're getting incremental efficiency. So if you go back to the formation of EMPS, we said we think that, that was going to drive about $0.5 billion of OpEx efficiencies. They've delivered some of that. Some of that is to go. We've put together a global business solutions organization. We expect that to drive $1 billion of cost efficiencies going forward. Even more important, I'd say, is it will drive a higher level of effectiveness across the organization. Supply chain, only recently kind of pulled together as a centralized organization, is going to be a huge driver of savings. We've gotten a lot of benefit out of centralizing maintenance. We have a lot more kind of still to go in this 2024 through 2027 period. And then we have some ancillary benefits from continuing to get more efficient in what we do with our IT infrastructure and starting to modernize that. That will come kind of later in the period, but we're certainly counting on benefits there. So those are some of the big drivers of how we get, I'll call it, the next $6 billion. And then this is just a reminder. We have always said, 2023 was kind of an artificial time frame that we had put out for this first $9 billion, which we've obviously already achieved as of the end of the third quarter. We had always embedded further structural cost savings in the corporate plan. We've just looked to be more transparent about what you can expect over the next 4 years.

And our next question comes from Bob Brackett of Bernstein.

In thinking about the Low Carbon Solutions, the big change has been this raise of CapEx by $3 billion, and the big announcement has been DLE. Is it fair to think about that $3 billion going towards DLE? And if I think about a 100,000 ton target, it's about $30,000 a ton of CapEx, which seems appropriate. Where I struggle a little is to think about the planning price you embed when you think about that 15% return. So can we get some maybe color on those big simple numbers to help guide us.

Yes, sure. Good to see you, Bob. I would tell you that you're right, that's where the opportunity set is. And the way to think about the increase, I would say, you can put it down to 2 things. One is the lithium, which we announced going into a new business that, frankly, we had been working on for some time. We recognize the opportunity to handle brine water. We saw it in our own established productions. Frankly, the concentration wasn't high enough to support the economics that we felt like we needed. We've got more higher concentrated water now in the Smackover, and so that gives us an opportunity set there. So it's something that we've been working on for some time, and now have launched as a full business. Think about that as about half of the kind of the -- what we're adding. And then think about Denbury and the opportunities that, that unlocks to more cost effectively capture, transport and then store CO2 with the pipeline infrastructure that Denbury brought to ExxonMobil and importantly, the acreage to store, the sequestration space that we're going to have. And so those 2 things kind of open up the opportunity for us to continue to grow those businesses. As I said, we've still got the IRA, which, frankly, for the carbon capture side of the business is still the primary fiscal driver of that. And we're assuming that, that's all that happens, that over the time frame of the IRA that it eventually transitions to market forces. We're advocating fairly strongly for that because our view is the IRA is a good way to stimulate and catalyze the growth of these businesses. But long term, we've got to move to market forces. That's what we're planning on. And so all the decisions that we're making in this space are premised on making sure that we are coming in with a -- in the carbon capture side of the equation, the lowest cost of abatement that the industry can bring to bear and that we are competitively advantaged in that space. And then on the lithium side of the equation, making sure that we are low cost of supply. Lithium is an established market and it's got established price, recognizing fairly volatile one. We've looked at that, our opportunity set there and made sure we were competitive across a wide range of price environments, and that we're positioned on the left-hand side of the cost of supply curve. So that as we go through this, what we expect to be a highly volatile price market that our investments in that space are advantaged. And that advantage, frankly, is being built by -- on the capabilities that we already have and have developed in our core businesses, which, frankly, is the strategy we have across all of our Low Carbon Solutions business. We are not pursuing opportunities in low carbon that require us to develop brand-new capabilities. Instead, we're looking for opportunities where our existing capabilities, our existing competitive advantages can be leveraged into an advantaged business there. And certainly, with lithium, we see that with our reservoir abilities, our drilling ability, our ability to handle produced water and of course, our Chemical and Downstream processing capabilities that we've got in our refining and chemical plants with the lithium extraction. So all those things, we feel like play to our strengths, play to our technology organization's capabilities and give us an advantage in that space. And then with carbon capture, the ability to piece together this value chain and the advantage of logistics that we have and the technology we bring to bear there also gives us an advantage. So I think short recap of that is the advantages that we bring, whatever the marginal incentive in the market is to incentivize the average player, we have an advantage versus that player, and therefore, can generate a higher return. That's where the 15% is coming from.

And our next question will come from John Royall from JPMorgan.

Can you hear me?

Yes.

Yes, we can.

Great. So I just wanted to speak to the growth guide in the Permian. It suggests about an 8% year-over-year pace ex PXD. If I maintain that pace, I'm not getting to $1 million until, well after your target timing of '27. So that suggests there's a ramp beyond next year. Could you walk us through how you expect that growth pacing to evolve in '25, '26, '27? And what drives that growth rate to ramp up from the high single-digit pace in '24?

Sure. I'll take that, John. Thanks for the question. I think we've said for quite some time now that we don't expect the growth in the Permian to be linear. In fact, we do expect it to vary from year to year, and of course, you're seeing that with next year's projection. But I would tell you that's on the low end of the growth as we look at the profile going forward. Part of our strategy here is not to focus on volume growth but to focus on value recovery and making sure that we are balancing production and production growth with efficiency and ultimately, the most recovery. And so the organization is doing what it needs to do to make sure that we can balance those objectives. Part of the thing that we talked about early this year was we want to make sure that we maintain a DUC inventory that allows us to efficiently execute the drilling and production program that the team has put together. We're doing a lot of that this year and going into next year. And then as we get that to the level that we feel like is optimum, more will go into the production. So my expectation is you'll see variability year-on-year. And next year, as I said, we'll be on the low end of that improvement. On average, as you look across -- going back to last year, we said we'd have about a 13% per year compounded annual growth rate. We still anticipate that. Anything to add on that, Kathy?

No, I think it's pretty clear.

And our next question will come from Jason Gabelman from TD Cowen.

I wanted to go back to low carbon energy since that seems to be the biggest change to the plan from last year. And you've laid out about $10 billion of spend on reducing third-party emissions. I'm wondering what type of earnings and our cash flow you would expect to generate from that one in 2027. And then as you think about the plan beyond 2027 and developing this platform for earnings growth, where do you see this business going into the 2030s?

Sure. I'll start with answering that. And so we don't yet see in 2027, I would say, really material earnings coming from this third-party spend because it takes a while to actually ramp up the execution. And I've started to look at some of the third-party expectations for this. And I think we just have to be realistic about what the time it takes from the moment, if you think about just CCS as an example, that we actually commit with a third party to when we can get that put in place. So understanding that, if you're talking about CCS, we're going to have to lay additional pipelines in order to get emissions from that third party into our network to be sequestered and just what that takes in terms of the time frame to execute once we get to FID. So I'd say as you look out to 2027, yes, we have some customer contracts that will be coming online in CCS. We will start to get a bit of lithium production in 2027, but much more of the earnings and cash flow from the investments that we're making in this plan period actually start to come in the period beyond 2027. So I'd say when we get to our corporate planning in this next year, we'll be extending it out, and we can create more transparency in what we're assuming. We'll also see over the course of the next year what we actually get in terms of incremental customer contracts in the CCS area, that will then help us to be able to lay out a bit more clarity in terms of when those things will come online in the future. So that's how I would think about it within this planning period.

Yes. And I would add 2 things, Jason, to think about. First of all, the work we're doing here is to build this business at scale. We recognize there is a need to reduce emissions and reduce emissions at scale. And so the work that we're doing is to lay the foundation for a business that's meaningful in the portfolio of ExxonMobil, and frankly, a business of a size that's required by society to start making progress on some of the ambitions. The second thing I would say because of that and that need, and what I would say is the challenge associated with starting a brand-new business from scratch and the capital commitments required and the time frame it will take to establish, you need -- the world needs companies like ExxonMobil, with our size and capabilities to actually make progress in this space to make meaningful progress. The idea that this transition can happen with a number of small startups, I think doesn't fully comprehend just the size of the challenge here, and the complexity associated with starting some of these brand-new businesses from scratch. And so I think plays to our strengths. As I said in some of my prepared remarks, we are very focused on making sure that we position ourselves that minimize the downside. So our CapEx profile actually ramps up with time as we get more certainty around the regulatory environment and customer contracts and what have you. So it is a growing profile and make sure that we are positioned for the upside, while at the same time, minimizing the downside. So we feel really good about how we position ourselves in that space. And hence, the wide range in CapEx as you go out into those years. Given that some of that has yet to come, we recognize the timing of that will be less certain. And so we've given ourselves what I'd say is the scope to adjust to whatever the developments in this space are as we move forward.

And our next question comes from Biraj Borkhataria from RBC Capital Markets.

I wanted to ask just sticking with the Carbon Solutions, a specific question on hydrogen and related to your comments, Darren, on technology neutral policy. So yesterday, there were some reports that the U.S. tax credits for green hydrogen would require hourly matching on electricity. And this is something that's kind of been pushed forward in Europe as well. But actually, it effectively hurts the economics for green hydrogen quite significantly. And you have pushed forward on your blue hydrogen projects, which makes sense given your footprint. But I was wondering how you think about the relative economics between green and blue here, and also the growth potential? And also, how comfortable you are with the policy on the blue hydrogen front, specifically in the U.S., based on the rule set that you see in front of you today?

Yes, sure. Thanks, Biraj, for the question. I think, frankly, the decision between blue and green is really going to be a function of what I'd say are the natural endowments in the context of the areas where you're looking at implementing that low-carbon hydrogen. I think, it changes as you move around the world. Certainly, in the U.S. Gulf Coast, our belief is that blue hydrogen makes a lot of sense. If you look at the project that we're developing, we're going to capture 98% of the CO2 associated with making that hydrogen. So it is a very low carbon hydrogen source production. And we can't forget, society can't forget the cost equation. And ultimately, everything we're doing in this space across whatever technology set you want to look at, whatever channel or value channel you want to look at, has to be economic. We've got limited resources as a country. Governments around the world have limited resources. So you have to find opportunities to maximize the reduction of emissions for the lowest cost. And so my view will be that with time and as our thinking -- society's thinking matures in this space, you're going to see a mix of solution sets that are driven by the effectiveness of the technologies to reduce emissions. But also at the cost equation and making sure that for the limited resources that the world has, that we're getting the biggest bang for the buck, so to speak, blue hydrogen in the U.S. Gulf Coast, with all this equation that we have, sequestration that we have, and the methane that we have, we think, makes a lot of sense economically and environmentally. With respect to what we're seeing with regulation today, I would say it's still in the process of being developed. And hence, one of our reasons in the comments we're making around the uncertainty is the IRA, that legislation is still going through the process of rulemaking and into regulation. And so we haven't seen the final version of that. When that comes out, they will go through a commentary process. And so we'll have to see where we get to. We're basically advocating for a technology-agnostic approach. Look, the good thing about the IRA is at least at the surface, they focused on carbon intensity and thresholds based on carbon intensity. That's the right approach. What we've got to make sure is that the regulation then doesn't get -- translate that legislation, which is focused on carbon intensity and try to artificially bias to a color or to a technology set. That would undermine, I think, the opportunity set here for the legislation and its ability to deliver carbon reduction. So we're advocating very strongly for that. Let's stay focused on what the true problem statement is, which is emissions, and then let the market and the companies figure out how to reduce their emissions intensity, their carbon intensity to meet those thresholds. That's going to give us the best answers, society the best answers and they're going to give it to us at the lowest cost. So that's what we're advocating for. Too early to judge that. We'll see how that goes. If it gets translated in a way that disadvantages the project, then we won't pursue the project. That's how we're thinking about it.

And our next question comes from Roger Read of Wells Fargo.

Maybe to come back to the CapEx and define a little bit cleaner like what's going into the range of $22 billion to $27 billion, like what would push it lower? What would push it higher? And then within that $22 billion to $27 billion, what's the right way to think about, say, the total dollar value that is devoted to lower emissions? The reason I'm asking for that clarification is you mentioned in the presentation part, the part that was published earlier that part of this is getting lower emissions, Scope 1 and Scope 2 via third party, right? So I presume electrification of frac fleets, things like that. So kind of 2-part question, what's the range? And then beyond just the low carbon, specific part of CapEx, what part of CapEx do you really think of as targeting lower emissions?

Sure. I'm happy to take that question. So Darren mentioned earlier, the reason that we have the wider range is basically because there's more uncertainty associated with the lower emission spending. More of that uncertainty is associated with the third-party emission spending. What I just want to mention, you gave an example that's actually a reduction of our internal emission. So even though something like a frac fleet, you can say a third-party services is operating for the company, we consider that a reduction to our own emissions. So when we talk about Permian operations getting to net zero by 2030, right? Electrification is obviously a huge part of that, but that's part of our own emission footprint. And so the third-party emission CapEx is really what we have seen growing. Last year, we would have said about $17 billion in lower emission CapEx. And at that point in time, we said it was split about 60% towards our own emissions, 40% towards third-party emissions, we're now saying it's about a 50-50 split, right? So that says we have about $10 billion that we're targeting towards reducing our own emissions. Outside of the blue hydrogen project, which Darren already talked about and the fact that we need regulation to be put in place, that's supportive of that, we get back to -- we need customers to sign up to the CCS activity. That's what's driving third-party CapEx spending. And then obviously, we've added the lithium project, and that is a lot of CapEx upfront, and then we'll get production over time. So that's how I would think about what sets that range, and it's really going to be that pace of execution that we see over time that's either going to drive us towards the higher end of that range or drive us a bit lower. And we'll give you updates over time so that you understand how that's progressing.

Our next question comes from Ryan Todd from Piper Sandler.

Maybe a question on the LNG time line of your developments. You have a couple of details in there in terms of the time line associated with your queue of projects. As you think of the time line associated in particular with projects like PNG and Mozambique on there, what are the key drivers to the pacing of those projects? Are there any lingering aboveground issues that still need to be resolved at that point in PNG and Mozambique? And could you comment more broadly maybe on how you would characterize the environment for marketing volumes to customers, whether that's getting incrementally harder with more new projects in the queue.

Sure. I'll take that, Ryan. Thanks for the question. It's interesting. I think since the Russians' invasion of Ukraine, we've seen a much greater recognition around the world of the importance of energy security and frankly, the role that LNG plays in many countries, energy, security. And so I'd say a very much stronger desire to lock in long-term LNG commitments, and we're using that and the work that we're doing in PNG and Mozambique and Golden Pass and Qatar, too, basically help address that need. And so still a lot of customers out there who are looking to sign long-term contracts and we're using that to back up the projects that we're developing there. If you think about how we're managing the LNG business, we're growing our equity portfolio of LNG. The expectation is that we'll have roughly 80% of that under long-term contracts and that we want to maintain a level of -- a proportion of that, roughly 20% on spot to kind of manage and balance the marketplace. And we're finding with the projects that we're developing, the ability to maintain that kind of balance in our portfolio. And so I'd say a very healthy appetite for that. We're not finding -- we're not challenged when we say, in signing up offtake agreements for the LNG that we're looking to bring on with these projects. With respect to the 2 countries that you mentioned, I would say Mozambique, obviously, still in force majeure there. And so a critical milestone to get through is the establishment of what I'd say is a security assessment and comfort and security for us to kind of go forward. That -- we're doing that jointly with Total, given the joint nature of the development in that space. And so that's kind of ongoing. And once that security issue, we feel comfortable that, that's been resolved in a substantially stable way and then we've got confidence in that, we'll begin to progress that. And the good news there in Mozambique is we've used the time associated with the force majeure to continue to develop that project and enhance it and optimize it. So we feel really good about the ability to bring on a very competitive source of LNG. And our expectation is we'll get through this force majeure, we'll get the security situation stabilized, and then we'll begin the execution of those projects here as we go into next year. That's certainly the hope. With PNG, I would say that work is just around, I'd say, finishing the development of that project. One of the key challenges here is making sure that we've got a project concept that is very competitive, cost competitive, that's competitive from a cost of supply standpoint. All the partners getting their financing setup. So I think that's going through what I would characterize as the normal project development process, and we don't see anything getting in the way of that time line. We feel pretty good about that opportunity set as well. So PNG looks pretty solid in terms of going forward at this stage. And Mozambique, our expectation is we'll see that move next year, early next year.

And our next question will come from Sam Margolin with Wolfe Research.

I appreciate the fact that the numbers today are all pretty Pioneer, but Pioneer does have an impact, which it materially changes the mix of your capital towards Permian and short cycle. And you mentioned that you already have sort of a higher-than-normal amount of flex in CapEx, built in from low carbon, theoretically, more mix towards Permian will also increase the flex. So how do you think about a post pioneer CapEx range in terms of [ WIP ] out to 2027 after the close? And then how do you think about decision-making with flex in the Permian? Because when you flex long-cycle projects, you push out schedule, but you might not have an impact on near-term declines. But in Lower 48, if you cut activity, you have to deal with the client. So how do you handle all those variables in a post-Pioneer world?

Yes, sure. I'll take a crack at that and then if Kathy wants to add anything to it. I think, frankly, at this stage, we've given, what I would say is a very high-level perspective of how to think about capital going forward with the understanding that Pioneer has got a very capable organization, I think, looks at the development of its production profile in a very consistent manner that ExxonMobil does, which is a focus first on value. And so our going-in assumption was given their focus on capturing value versus growing volumes, that their plan would be consistent with the plan that we would develop. And that's absent of the work that we plan to do as we bring the 2 organizations together and figure out what the best of both looks like. And I would say that is truly our objective set, is to bring the best thinking of the Pioneer folks and the techniques and abilities that they have, with the best thinking of our folks get together and figure out what is the optimum development program. And we just haven't done that yet, Sam, and won't do that until we get together. So it's really hard for me to tell you what we think about going forward. What I would say is that the decision variables are not going to change, which is -- comes back to making sure that we're doing it very efficiently, that we're maintaining our advantage versus the rest of the industry and in fact, growing that advantage. And that what we're doing is creating value, and there's no -- we're not destroying value or mitigating value. And so that's going to be the primary focus, is what we're doing in the value proposition and that will all get thrown into the mix, and then we'll come out with a discussion around how we see that playing out. My view is that we do have a lot more flexibility, but we're going to use the flexibility to maximize the value of the combined entity. Our intent is once we get through the close and we know there's a lot of interest in this space understandably, that we would come out with a spotlight and update this plan with the thinking that we've done collectively with the Pioneer folks and help the investment community understand exactly how we plan to go forward there. Anything to add to that, Kathy?

The only thing I'd add is when you think about flexibility, right, this is pretty low-cost supply. And so this is cost of supply kind of $35 or lower per barrel. And so, yes, it's there to be flex, but you have to get to a pretty soft environment before it necessarily makes a lot of sense to flex down much. So it does provide us with more flexibility. We've said short cycle as part of the Upstream portfolio will go up to about 40% once we close the Pioneer transaction, but that flexibility will be there, but we won't necessarily be planning in the base case for that flexibility.

I think the only thing to add on that, Sam, is Pioneer pays for itself. So it's not -- it doesn't force us to make decisions that we don't feel is the optimum. We've got, in my mind, given the cash and cash flow that comes with Pioneer, we've got the optionality to figure out what is truly optimum and then build a plan based on that optimum and not have it constrained by some factor that this optimizes what we ultimately want to do there. So we feel really good about the platform that we have there. And then the question is, what does that -- how does that translate into operating plans? And like I said, we'll share that with you once we've got it.

And then maybe I would add just because nobody has brought this up so far today. We obviously announced as part of the corporate plan that we intend to increase the pace of our share repurchase program once we close Pioneer. So as everybody knows, we've been on a pace of $17.5 billion in share repurchases, annually, we will get that done this year. But post closing Pioneer, we would expect that go-forward pace to increase to $20 billion annually.

And our next question comes from Paul Cheng with Scotiabank.

Can you guys hear me, okay?

We can.

Okay. I want to go back into the CapEx. The rates increased by, say, $2 billion a year on average between 2025 to 2027, look like half of them may be related to the low carbon because you're increasing it by $3 billion, assuming is back-end loaded, so roughly $1 billion a year, that's another $1 billion left. Maybe that -- Darren or Kathy, can you maybe help us understand that where is the $1 billion will go to, is it in the Upstream, in the Downstream or that in the Chemical or what's driving that increase?

Sure. So I think you may be slicing the numbers a little bit too finally, Paul. We've increased our guidance beginning in 2025 out through 2027. And that increase in guidance is really being driven by the lower emission spending. And one of the things that we mentioned in our prepared remarks, was if you went back to our Investor Day back in 2021. At that point in time, we had project sizing about $3 billion in lower emission spending, and now we're saying it's kind of over $20 billion. So we've been increasing pretty consistently our expectation for lower emission CapEx spending. We're only now kind of increasing our CapEx guidance. And so I'd say as it relates to the base business, our CapEx, although it moves year-to-year, I would say the base business is pretty consistent in what it's drawing in -- as a proportion of that total CapEx.

Yes. And maybe I'll just add to that, Paul. I think while we tried to frame that period out with that range of $22 billion to $27 billion, I would tell you that the low carbon solutions spend is more heavily weighted towards the back end given some of the things that we've talked about and the uncertainty there. And so I wouldn't uniformly apply that range. It's just recognizing the base business, which, frankly, that portfolio is pretty consistent with what we've been talking about. So the base business, the work that we've been doing over the time frame, the things we talked about last year, none of that's really changed. So that profile remains pretty consistent. And what we see changing there is, frankly, shifts in timing. These projects given their size and complexity, it's not always easy to call the exact year and when that spend is going to show up. And so we give ourselves some room to shift things forward and back, depending on the pace of the project. And what we're seeing is we're developing those projects. But the base business, I'd say, is very consistent with what we've been talking about ex Pioneer. And then it's really just a question of how that Low Carbon Solution spends manifest itself in this time horizon, recognizing some of the things that have yet to be resolved with respect to the regulations and the customer commitments and the fact that these are very early businesses. The one point I will make on the lithium, which is kind of the new component of Low Carbon Solutions. The nice thing about that development is it's -- we can stage that development. These are not large chunks of capital that come on with lots of spare capacity, much smaller units that allow us to kind of, with time, grow capacity in line with the demand that we're seeing. And so the risk exposure on investment in lithium is really mitigated by the ability to put in discrete steps of capital that are consistent with the demand growth that we're seeing in the contracts that we're signing up with customers. And so that's got a lot of optionality and can move that forward or back, depending on how the demand grows and how the customer commitments grow with that. So we've got flexibility in that as well.

And our final question comes from Josh Silverstein of UBS.

Kathy, you went to my question on the buyback there. You said you're stepping it up to $20 billion, post the acquisition and reasonable market conditions. I'm assuming that's kind of a range with where we are right now on crude oil prices. But can you talk about the ability to support the buyback at lower prices? You do have the balance sheet not only the debt capacity, but the cash on hand to support the buyback at a lower level. Do you use the balance sheet to stay at the $20 billion? Or does that adjust lower towards, let's say, $15 billion or $10 billion as we go down towards [ $60 or $50 ]?

Sure. I'm happy to take that question. We gave you some sensitivities in terms of how we see surplus cash flow shaping up in the future. And I think that certainly suggests that at lower prices, we gave you a $50 a barrel case. We still throw off a lot of surplus cash flow based on where our balance sheet is today. If we moved up to halfway between the range of 20% to 25% debt to cap, that would add another $25 billion. And in debt capacity, we have about $28 billion as of the end of the third quarter in excess cash sitting on our balance sheet above, I'll call it, a $5 billion minimum. So I'd say even in a price environment where we see oil prices come down, we still have a fair amount of flexibility. We try to size the share repurchase program in a way that we can maintain more consistency at kind of a mid-cycle price. I think the other thing that I would just mention that's pretty critical is, we're trying to size the program in a way where we're not leaning into our balance sheet today in what is still a pretty robust price environment. That will give us the ability to lean into our balance sheet when the price environment eventually gets softer. So that's how we're thinking about it.

Yes. And I might just add to that, Josh. I think often gets lost when we think about this space. We -- the investment community focuses very much on crude price, obviously, because of the importance of that in our portfolio. But we have a very large Product Solutions business, a very large Chemical business, a very large Refining business. And so one of the things that I think underpins some stability is as we see some of the prices move on the Upstream side of the equation, we often see benefits in the Product Solutions side of the equation. That provides additional sources of revenue to help us kind of manage through the crude cycles. And so our belief is that we've not only have a very low cost of supply, and therefore, barrels that produce revenue even in lower price environments, we also have a very diversified base of revenues and earnings that allow us to mitigate potential issues associated with any one sector as they develop and we go through these cycles. That's part of our broader strategy. And frankly, one that we think gives us a lot of stability and maintaining a level of shareholder returns consistently through the cycles.

Thanks, everyone, for the good questions. Darren, would you like to make any closing comments before we conclude the call?

Sure. Thanks, Jennifer. Well, let me just say thank you for your questions. It's been a very good discussion. Let me maybe just close by summarizing a few key points. First, our strategy established back in 2018 is working. It's delivering industry-leading results. Our focus on excellence and execution is paying off. And it gives us confidence in our ability to add another $14 billion to earnings and cash flow by 2027, on top of the $10 billion already delivered since 2019. Finally, the competitive advantage is that we strengthened the organization we've built, the portfolio of investments we've developed and the shareholder returns we generate creates the most compelling investment case in the industry, an investment case, robust to a very wide range of future scenarios, from the status quo to rapid decarbonization. So thanks again for your time today. And with that, let me turn it back to Jennifer to conclude the call.

Thanks, Darren. We'll post the transcript of this session on our investor website. To access it, go to exxonmobil.com, click on Investors and then Corporate Plan Update. On behalf of all of us at ExxonMobil, have a nice holiday season, everyone. And with that, we'll conclude our call.