Exxon Mobil Corporation (XOM) Earnings Call Transcript & Summary

Okay. Thank you all for joining us here today and over the last few days at our annual Morgan Stanley Energy Conference, and for those tuning in via webcast, thanks for joining us as well. We are very happy to have with us here today, Neil Chapman, Senior Vice President at ExxonMobil for the fireside chat and keynote lunch. And for those of you that do not know me, my name is Devin McDermott and I head North American Energy Research here at Morgan Stanley. Before we do kick-off, please take a look at the Morgan Stanley Research website, morganstanley.com/disclosures for a list of typical disclosures. And with that, we can dive right in, and Neil, there is so much exciting that we can talk about across the ExxonMobil portfolio and the great execution that we've seen over the last several years since you laid out the growth strategy back in 2018, and I want to hit on a lot of that. But before we do, let's address the elephant in the room and the big topic that I know my phone has been ringing off the hook over the last week about and I'm sure yours has as well, and that is Guyana and the Chevron, Hess transaction and the preemption right there on the asset.

To kick it off, what I wanted to do is just ask at a high level, Chevron and Hess have said, that the preemption right does not apply to a corporate transaction that includes the Guyana asset, you and Exxon have a different view. Can you explain your view to me and why you differ with Chevron and Hess?

Yes. Well, first, let's just put a perspective on this thing. The joint operating agreement actually is a confidential contract. It's a confidential contract between the participants in the block, which in this case, is ExxonMobil, CNOOC and Hess. So Devin what that really means is I can't get into the specific contract language because I have to have agreement from the other partners to be able to do that. However, there are a few points I can make and make very, very clearly. First of all, we wrote this joint operating agreement. ExxonMobil authored the agreement, and we -- actually, we co-authored it with Shell prior to entering the Stabroek block. That joint operating agreement was based on an industry-standard-joint-operating agreement. I can't get into the specifics of this JOA, but it was based on an industry standard JOA, which provides rights, preemption rights for the other partners if any parties want to sell. And either through an asset transaction, and what that means that this case, Hess would just want to sell their participation in the Stabroek block. And also comprehends if there's a parental transaction where part of that transaction is the Stabroek block. That's what a model JOA does. The JOA contract in this case was developed based on that model JOA. We understand the detailed language we wrote it. We understand the intent of this language of the whole contract because we wrote it. I think most observers in this industry would understand our reputation for rigor, attention to detail in contract language. I mean, it's a brand we have as a company. And what that means is we're extremely confident in our position, the preemption rights exist in this contract. And we fully intend on ensuring that we preserve those preemption rights. And actually, as of this morning, we filed for arbitration. We filed for arbitration to protect those preemption rights. And we think that's very important for the company. We think it's very important for the industry. We think it's a precedent setting and sanctity of contracts in this industry is a really, really important component, and we take that responsibility very seriously.

Okay. Makes a lot of sense. And just given the arbitration filing this morning, maybe we can walk through just, typically in the industry, how that process works. The core system it goes through, expectations on time line, if you can't comment, I understand, but I feel I have to ask.

Yes. Well, I mean, the arbitration takes place through the ICC. The ICC sits in Paris, the court takes place under English law. In terms of the timing, I'm not sure it depends on the court, obviously. My understanding, typically these kind of disputes take 5 to 6 months. I think what's really important here, Devin, if I can just continue for a moment. The Chevron-Hess transaction, what it really did is it attempted to circumvent the commercial purpose of this specific JOA. What I mean by that is, we, as a participant, have the rights to match a reasonable allocation of the value of the Hess transaction associated with their stake, their position in the Stabroek block. That is the purpose of the preemption rights. That's what they've tried to circumvent. And the reason this is important is we, along with the partners, took tremendous exploration risk, financial risk, commercial risk when we went into this joint venture, it looks great now. It's created great, great value for the country of Guyana and for the partners. But there was a risk associated. So we want to ensure that we realize the value that we've created. I don't know if the Chevron-Hess transaction is going to proceed or not. I mean that's in their hands. But we believe, there is opportunity value here. There's option value here. If that transaction does not proceed, there is potential value down the road for ExxonMobil. That option value is really, really important. And I'll just take one step back. If you think about this, Chevron and Hess have determined they don't believe preemption rights exist in this situation. We are very, very confident they do. Chevron and Hess in their 10-K and their S-4, which they recently issued said that they believe the preemption rights exist. They actually listed in there that ExxonMobil and the other partner, CNOOC, do not believe those preemption rights exist. If preemption rights exist, what Chevron and Hess has said in their S-4 and their 10-K, then their transaction will not take place. I don't control -- we don't control whether that transaction takes place. What we are saying, if there is a transaction, we plan to exert our preemption rights. And the preemption rights is to give us the opportunity to look at the value which we can then match should we choose to do so. It would be incomprehensible for us to say, well, we're not going to look at that value. We're just going to let the transaction proceed. It will be incomprehensible. You have a responsibility to the shareholders when the value is there to assess the value to see if it's accretive to your portfolio. Actually, I think it's a fiduciary responsibility to your shareholders. That's why this is so, so important is we're absolutely confident that within this contract, we have preemption rights, and we have filed for arbitration to make sure that we can secure those preemption rights.

Yes. A very helpful overview. And you addressed some of my next question, which is the long-term end game here with this strategy. It sounds like adherence to the conference to the contract, making sure that you're able to utilize the preemption rights in place. To the extent we get to a point where you have the opportunity to increase stake in the Guyana asset, is that's something that Exxon would consider be open to, walk me through the potential outcomes here in your mind as we think about what might happen post this arbitration process.

Yes. And let me repeat the words I said, it's retaining the option value that we've created. It's an option value if that transaction doesn't take place down the road, there may be future opportunities. So it's important that we protect that option value. What happens going forward? I mean, what Chevron and Hess have said is if preemption rights exist, there's no transaction, it's their call. We're going to make sure we arbitrate to secure our preemption rights. So if there is preemption and we do have the opportunity then what we would do is we would look at the potential value, see if it's accretive to our portfolio, see if it's accretive to us as a company, as a shareholder, and then we would decide. I think -- again, I only was just saying what Chevron and Hess have said in what they published in their S-4 and their 10-K, was that if preemption rights exist, there's no transaction. I can't control that. That's completely their call. I mean, that's where we stand at.

Yes. One last one and we'll move off this. The dialogue between you and Chevron now that we've started arbitration. Does that continue? Is there a possible or a possibility of some type of negotiated agreement here that could come out before the arbitration process or if it goes to arbitration, that's say, we'll see what happens in 6-plus months?

Well, I would say this, in our industry, most of the industry is based on contracts with governments, contracts with partners. Disputes take place all of the time, and they get resolved. The only real difference is this is in the public domain because it was comprehended in the S-4, it's comprehended in the 10-K. So it's in the public domain. That's the thing that's really different here. Nothing else.

Okay. Makes a lot of sense and very clear. Since we're on Guyana and also checking off the [rumor mill] of events that have happened over the last few months. The other thing that's been out there is Venezuela and some of the contention on the border dispute. I was wondering if you could just talk a little bit about your view on that issue and how it all influences your commitment to investments in the country of Guyana over time.

Yes. Well, Devin, boarded disputes are -- that's an issue between countries. And there's some company coming in, taking on a license, we have a responsibility to that license to develop that resource on behalf of the country and the government of Guyana. So I can't really get involved in disputes. What I would tell you is this, is this border dispute has been around since the early 1800s. It's not like it's anything new here. Countries will resolve that. I mean you have to ask the country, what we understand is President Maduro, President Ali met fairly recently, agreed not to let this result in conflict. So there's obviously having some discussions. Our role and our responsibility is to develop the resource. The resource that we're developing right now is in the southeastern area of that block. That's not in any of the disputed area. We have the whole Stabroek block, which by the way, is equivalent to more than 1,000 Gulf of Mexico blocks. It is an enormous block. And in the north part of that block north of what's called the 70-degree line, that's been in force majeure for a long time. So we're not doing anything in that area. We're really focused on doing what we've contracted with the Guyanese government to do, which is develop that resource as effectively, as efficiently, as profitably as we can.

Makes sense. And maybe that's a good transition to some fundamental business questions. So if you could talk a little bit, let's stick with Guyana because we're already there, but you've laid out this plan to grow capacity in the Stabroek block, 1.2 million barrels a day on a gross basis through 2027. And have a very clear line of sight in my view, on the resource needed to do that. The exploration program has been a phenomenal success. But you also, as you bring that online, have an ongoing appraisal and exploration program over the next few years. So my question is, as you look at the goals of that ongoing appraisal and exploration, what are you looking for? What are the additional things you're looking to unlock? And how does that potentially influence the longer-term development strategy on the asset?

Yes. As I said, this is an enormous block, and it's actually quite phenomenal if you go down there. We have 6 drilling ships in the basin in pretty close proximity. And these drillships are doing a combination of what I call exploration drilling, appraisal drilling and development drilling. Development drilling is drilling wells for the next production vessel. Appraisal is appraising to make sure you fully understand or comprehend the resource. And then exploration is -- you can call it wildcats, if you like. These are step-outs. So our plans for this year, and I may not have the numbers exactly right, but order of magnitude, this is correct. We are continuing to appraise that Southeast corner because it's an enormous area, and we're continuing to appraise. And so whether you call it an appraisal well or an exploration well, order of magnitude, 7% or 8% this year of what -- which I would call, 2 of them, are true what we call an Exxon anchor hunting objectives, which means they are a little bit further north, the south of Ranger, but the north of Liza and Payara. And these are looking for, I would say, new anchor discoveries, which are successful you can build off. The other -- maybe there's one more you could put in that category as well. But the other 4 or 5 are appraisal wells in the vicinity of our existing discoveries, which may lead to more discoveries. But you see that in that vicinity, and it just allows you to do the development planning for future developments. That's really what we're doing.

Got it. Makes a lot of sense. And then the other question that's been topical in my recent conversations is just the outperformance you've seen on the existing FPSOs you have and debottlenecking has been a tremendous success. The ramp time in Payara has been great. How repeatable is that as we think about the outlook over the next few years? How do you think about that opportunity set going forward?

I think the way I would look at this is twofold, is first of all, you've got the boat capacity, the production vessel. There's only so much oil, gas and water that you can put through that vessel. I mean, that you understand, we understand the size of that vessel, and you can try to debottleneck it. Of course, the other part is the subsurface and there's always uncertainty in the subsurface. So I'll just pick up on Payara because you said that reached its theoretical capacity much faster. And the reason it reached its capacity much faster was because of the outperformance of the wells, although the wells were more productive than we had originally anticipated, which was a positive news. So you've got this combination of how productive are the wells, can you get more hydrocarbons after the wells, and can you process that additional capacity through their production vessels. And it's a combination of the 2, and that's what's really important here. That first vessel, Liza-1, as we call it, was 120,000 barrels a day boat. We're continuously running 150. And that's because we found ways to get more volume through the boat. We put the second boat out there, which is close to double the size, 220, and we're consistently getting 250,000 barrels a day through the boat. Payara, we started up just at the end of last year, it reached capacity because of the productivity of the wells was so much better. That reached its design capacity, frankly, faster than even our planning basis. We haven't pushed it yet in terms of the capacity on the boat. And what I would say is, and obviously, I ask the project teams, I ask the development teams this all the time, how repeatable is this? We're good at this stuff. We do this in refining every day, which we do find ways to get more value out of assets, more volume through, get it more efficiently. That's what ExxonMobil's, I would say, a core competency is. I can't guarantee this boat will produce 250,000 barrels a day. But certainly, we put an expectation on the organization to do that. And we ask them to continuously look for value-added ways to cheaply debottleneck, obviously raise the value. And then that will be the same for the Yellowtail, Uaru and Whiptail, the next 3 boats, the ones you referenced that we have in the pipeline before '27. So a long-winded answer to say we're optimistic but we could never guarantee. That's the point.

The results have been very impressive so far to say the least. So let's shift assets. The other big driver of growth in your upstream portfolio is the Permian. You and I have talked a lot over the years about your development strategy and how it differs versus peers, but for those here in the room, or on the webcast. I think maybe just to kick things off, can you talk about Exxon's development approach, what you're doing differently and how that's driven some of the success that we've seen over the last few years?

Yes. So I have to go back a little bit in the history here. There's 2 basins in the Permian. There's the Midland, which I would call more mature, more mature, meaning it has more infrastructure, surface infrastructure in play. And then there's a Delaware, which is more greenfield. We purchased a company called Bass back in, I think it was 2017 -- 2016, 2017. And the interesting thing about Bass is they have the largest contiguous acreage. If you think about the Permian, it's sort of checkerboard blocks of acreage, which are owned by different companies. In the Delaware, the Bass is a large contiguous. Now why is that important? Well, it means you can develop it in a different way. Think about this. If you only have a block that's 2 miles wide, you can maximum drill a well, 2 miles. If you have a block that's 25 miles wide, you can drill much, much further. So a 1-mile well, this is a 2-mile well, 2 wells versus 1 well is a great capital efficiency. Great capital efficiency. If you've got these checkerboard blocks and you put a drilling rig and a frac crew on here, then once you finish that, you've got to pick it up, move it across country to your other acreage, sit it down and put a drilling rig and frac crew down there, it takes money to do that. What we can do and what we elected to do in this large contiguous acreage is stick to drilling rigs and literally, mow down the acreage. We didn't have to move them. We just moved them to mow down the acreage, didn't have to get them on the road, mow down the acreage. That gives you tremendous capital efficiency, tremendous capital efficiency. It meant that we could put the surface infrastructure in place. So when you produce in the Permian, you get oil and gas, you got water, you get NGLs, you've got to put facilities on the surface to separate it. If you have a 2-mile block, you have to put those facilities in place. And then once you finish drilling that, they are redundant. They don't -- they're not -- it's not an efficient use of capital because they sit there and they're idle. If you have this contiguous acreage, you can build large-scale surface infrastructure. And as you mow down these inventory, you can tie in all the time to the same infrastructure, it's about leveraging scale. That's the fundamental difference, and that's what we've been doing. We have been applying a technology set to this versus the typical industry practice, which has been highly successful to learn as you go along. And Devin, you and I talked about this, in the early days, many of the players in the Permian were drilling the most productive benches. So in other words, those horizontal benches that contain hydrocarbons, the highest concentration, you drill first. So you get great productivity. The problem is when you go back and drill the 2 benches below or the 2 benches above, you have damaged those reservoirs because that becomes what you call interference. The best way of describing that is when you frac and you break up the rock, that pressure you put in the rock finds the path of least resistance. And so when you come back to these benches below the one you've developed, the frac finds the frac above, and it goes there so you don't get the same productivity. So we, back in 2019, came up with this concept, the wrong way to do it, did you want to get the maximum value out of the resource, you need to drill these benches all up at the same time called the Cube development. You'll recall, I got a lot of criticism, at the investor days for even suggesting this was the right approach. And I don't mean to be -- it's not meaning to say we're always right. But of course, now what you find in the industry is everybody is drilling cubes, because you find now that the productivity of wells that are being produced in the Permian today, it's deteriorated. Well, that's because folks drilled up the best benches. So it's drilling at scale. It's developing at scale. That gives you a capital efficiency. It's using your technology to make sure you get the maximum recovery, the highest net present value out of that resource. That's the differentiator. Devin, I would tell you, that was how we created a value gap with the Pioneer acquisition. Because Pioneer, what's interesting about Pioneer, we now go to the Midland Basin, they have an equally large contiguous acreage, the largest contiguous acreage, the highest quality inventory, the largest undeveloped inventory in the industry. What Scott Sheffield and Rich Dealy from Pioneer and ourselves could conclude, if we apply that same philosophy and technology that we developed in the Delaware, apply it to their position in the Midland we can produce that resource, get more resource recovery and do it more capital efficiently. That was the -- that was how we created deal space to do the Pioneer acquisition, and that's the basis of the synergies that we've talked about. And just if I can, just to talk on Pioneer for a second, of course, we're in that process right now. We're going through FTC approval. We have a shareholder vote, and that's been approved. There is what they call a clean team. We can't have a full transition because it hasn't been approved by the government yet. But what we're learning from the clean team is Pioneer is an exceptionally good operator. Exceptionally. I would tell you what I've learned is it exceeded my expectations. You know my expectations were really high. I was really enthused by this deal. And I think it's part of -- they have one asset, one company, and they've been able to find ways to optimize it as good as anybody in the industry. So the combination of applying that model, my long-winded answer, definitely, I apologies, applying that model from the Delaware to the Midland Basin and the Pioneer acquisition is -- it's industry beauty and we are very pleased.

And the other thing that we've talked about in the past that might be worth telling, just to the audience here, some of the benchmarking work that you've done on like-for-like acreage under the Exxon development strategy versus the Pioneer strategy and the type of uplift that you realize there. One of the questions that we get is the confidence level in achieving some of the synergy and resource uplift target. So walk us through what makes you so confident on the benchmarking you have?

And it's a very, very fair question. I've said this many times, the Permian is not homogeneous. By geography and by bench, the resource and the rock differs, different concentrations of NGLs, different concentrations of gas, different concentrations of water. The rock doesn't fracture the same way everywhere. So when many observers talk about or compare different companies in the Permian, what they fail to realize is that rock is different all the time. It's not an accurate representation. I mentioned if you drill the best bench quickly, you can get great productivity. 2 years later, you drill the rest, it will look horrible. So I think you have to be far more sophisticated. And I would say then that the typical observer on this industry on the Permian really is. When you compare like-for-like, the same geography the same bench. And that's what we did because we could do that with Pioneer. We see this big uplift in recovery. We see the capital efficiency based on what we've talked about. So we can truly benchmark but you have to do like for like. If you compare, let's take ExxonMobil's, Poker Lake in the Delaware to Martin County in the Midland, it's all Permian. It's completely different. Much better recovery in the Delaware Basin, hydrocarbon recovery than there is in the Midland Basin because it's in simple term, it's deeper, it's higher pressure. It forces the hydrocarbons out of the rock. So there are big differences. When you compare like-for-like, we're supremely confident in our numbers. And that's why I said, we are very, very confident in $2 billion per year of synergies in ExxonMobil and Pioneer transaction as a result. And I've been really quite specific saying that 2/3 of those synergies is an increased resource recovery. In other words, we'll get more hydrocarbons out of the rock than Pioneer would have done. 1/3 in capital efficiency. You won't get that $2 billion in the first year because the plans are already in place for Pioneer for the next 6 to 9 months. And then you've got to drill and put your own new development philosophy, and you don't get the results for another 9 months. So I think you'll see these ramp up. But we're confident maybe in the third year, we'll be at that kind of rate. That's what we're targeting. That $2 billion efficiency -- synergy rate. And Devin, I think we've said we plan when we close this transaction to do a spotlight on the Permian and on the upstream business. And we'll provide more details on how we plan to, my words now, steward those synergies to the investment community.

Yes. Great. We'll definitely look forward to that. And you mentioned the FTC review. I just wanted to ask any comment on how that process is going. I think you reiterated the 2Q close time on the last call, but anything you can elaborate on, if not, that's fine, but I wanted to ask.

I really mean very quickly, and the FTC requested a second review, which means we have to do -- we have to answer their questions, and there's a lot. I mean there's -- there's millions of pages, millions of pages of information that we have to sort through to comply with the request from the FTC, which we're working through, and we're working through it diligently. Once we've completed that and we can certify compliance, which means certify that we've met the obligations or the request of the FTC, then the way the process works is 30 days for the FTC to either object or not. And if not, in the net of 30 days, we can close the transaction. We still think second quarter is a good estimate for when we can close the transaction.

Okay. Great. Let's shift higher level and zoom out. Again, you mentioned the pushback in some of the prior Analyst Days on the Exxon Cube development. I remember sitting there in 2018 at the New York Stock Exchange when you guys rolled out the longer-term growth strategy, increased capital investment across the business. And at the time, I think it was hard to see the longer-term earnings growth as an outsider, but then looking back at the execution that's been tremendously positive. And you've had -- you highlighted in the last call or the corporate update late last year, $30 billion of major capital projects over the last few years on time or ahead of schedule, on budget or under budget, extremely good project development acumen relative to the peer group. And then looking at normalized earnings, commodity normalized earnings last year, it was double the 2019 level, which I think puts you a little ahead of schedule. My question, though, is you look back at the execution so far because we're only part of the way through the longer-term plan, what are some of the things that have gone better than expected? What are some of the things where there's opportunities for improvement? And how does that influence the strategy looking ahead over the next few years?

I think it's really important that you learn from -- it's a learning experience all the time. And I always go back to the fundamentals of this business and the long-term nature of this business. The business, the demand for the product doesn't change very, very quickly. This is a commodity, cyclical capital-intensive business. So the way to be most profitable and most effective is to get industry-leading development opportunities. And if it's a commodity business, that means lowest cost of production. Then you've got to execute those projects better than anyone else in the industry. And it's the combination, if you can't execute the projects really, really well or you have the wrong project, which isn't competitively advantaged, they are not going to work. Back in 2018, we had developed, we believe, the strongest inventory of development opportunities this corporation has had since the ExxonMobil merger, which was in 1999. This was in the Downstream, in the fuels business where we were upgrading the bottom of the barrel to produce higher-value products using our own proprietary technology, creating expansion for chemical products, which had an advantage of value-added advantage, which meant the customers would pay more because it was more value to them. And then if I just focus on the Upstream because it's easier to explain lowest cost developments in the industry. And we talked about too, Guyana as a result of an exploration success and the Delaware in the Permian as a result of the acquisition and the technology that we supplied. So 90% of the capital investment we are making in the Upstream all the way through 2027, and this applies since 2018, 90% has a cost of supply less than $35 a barrel. So what does that mean? These developments are typically 30-year developments. That's how long they last. It means if the price of Brent is $35 or less for all of those 30 years, that's never happened. But let's just say we would still generate a 10% return. That's the most cost-competitive portfolio in the industry. So what we said at that time, Devin, was we have this strong inventory. We're going to lean in and develop it because they're competitively advantaged. They're the lowest cost of supply projects in the industry. Now you said we've done them on time and on budget. That's absolutely true. We've executed these projects extremely efficiently, but you can have a budget, which is really sloppy. You can set a big budget and come in under budget, who cares? You can set a schedule which is a long schedule and you're going on and say, who cares? What's really important here is you benchmark, take the FPSOs and Guyana, you benchmark. These are the lowest-cost FPSOs the industry has ever seen. We benchmark first quartile in terms of costs. In terms of schedule, the fastest on this scale, the industry has ever taken exploration success to development. So we've set ourselves really aggressive schedules and a really aggressive cost and we've managed it to beat that. And so that's what's really, really important. It's the combination of competitively advantaged opportunities and the ability to execute. And we talked about back in 2018, we took all of our execution capability in ExxonMobil, which historically was dispersed regionally and dispersed between chemicals and fuels and Upstream, put it all together in one global projects organization unique in our industry. So you get the very best capability together, and we could deploy that capability based on the most attractive prospects. That's what we did in 2018. And of course, if you remember in 2018, I mean I think you were referencing it. It was countercyclical. At the time the common narrative was around, the industry is spending too much money, you need to cut back. Well, you're competitively advantaged and you're confident that you can execute. That's the perfect time to invest because the contractors don't have a lot of work, so you get much better value. Actually, that was exaggerated through COVID. Because in COVID, everybody cut back because they were trying to conserve cash, if you look, we didn't cut back in many of -- most of those development, we cut back on the short cycle in the Permian, and we didn't cut back in Guyana. So we got very attractive prices. I just feel that's the essence of this business. Competitively advantaged development opportunities, but make sure you execute in the industry-leading fashion. And I would say the Pioneer acquisition, it's just another way of filling that pipeline of competitively advantaged development opportunities. That's the philosophy.

Makes a lot of sense. And it's great to see the results come through and I also look forward to seeing what the next few years bring forward.

We'll be [indiscernible].

So sticking with your core competencies. I think what often gets missed by the broader market is how much of this is applicable to energy transition, low carbon and the opportunity set there. And if I look at the evolution of your capital program over the next few years, that becomes a bigger and bigger share of the total spend, you recently closed the Denbury transaction that have access to a world-class carbon pipeline asset. Can you just talk through the strategy there in the low-carbon businesses? How you've decided which verticals you want to focus on and how that fits into the longer-term picture for earnings growth? So a loaded question.

No, no, no. I'm happy to address it. If you stand back and you look at how the world is going to decarbonize, how the world is going to net zero. And there's plenty of studies out there but all the studies are very, very similar. You can go to the IEA, the IPCC, most consultants have put their own studies out there. How the world is going to decarbonize? And absolutely, it says renewables, wind and solar will play a key part in that. But it's nowhere near sufficient. Nowhere near sufficient. Every one of those studies will point to the importance of biofuels, carbon capture and sequestration and hydrogen. And they all have different degrees, but they're all trillion dollar-type opportunities because if the world is going to decarbonize the most difficult to decarbonize sectors, so think industrial, think power generation, think heavy goods vehicles, 80% of the world's emissions comes from those 3 sectors, not like vehicles and cars. That's a relatively small. You've got to decarbonize the industrial segment. That is right, pivotal. So when we look at what the demand for those technologies is going to be, and we line up our capabilities. We don't participate in the electricity generation business. We don't bring any value to renewables. We don't deny that renewables will play a key role. But it's not a competency of ours. Now we look at carbon capture and sequestration. That's taking greenhouse gas emissions in the form of carbon dioxide, which is vented to the atmosphere, either directly or it's combusted. It's capturing them. It's putting them back exactly where they came from in the subsurface. Who can do that? Who understands the subsurface? Steel companies, cement companies that put a lot of those emissions out. Chemical companies. They don't have that technology. There's actually very few companies who have that capability in that capacity to stick carbon dioxide back where it came from in the earth and be confident that it can stay there for a long, long time. All you're doing is putting it back where it came from. So Devin, what you do is you match up your capabilities versus a market need. We have a very strong position in the subsurface. We understand that business really, really well. In hydrogen, hydrogen is going to play a key role in decarbonizing some of these industrial facilities. We consume and produce hydrogen. We have for years. When you produce hydrogen, the beauty about hydrogen is when you burn it, there's no emissions. So in principle, you can replace natural gas in these big industrial applications with hydrogen. And when you burn it, there's no emissions. But how do you make hydrogen? Typically, at scale, the most economic way to make hydrogen is to say, very same natural gas that you were originally burning. You then convert that to hydrogen and the byproduct is what? The byproduct is a concentrated stream of carbon dioxide. And so what you do with that is stick it in the ground. So you can see for us as a company, we're in the hydrogen. We're in the gas, we're in the subsurface. So that capability set applies to us. So we're absolutely confident the world is going to need it. We're absolutely confident that we can play a major role in decarbonizing the world, not just our own facilities, but I'll just illustrate. I don't know, we talked about this number before, but maybe some people in the room haven't heard it. We have contracted to take 3 streams from other companies that are vented to the atmosphere today, high concentrations of CO2. So we have contracted to take those streams, stick them in the ground. Sequester them forever. Those 3 streams, 5 million tons of carbon oxide a year. Those 3 streams alone have the same impact on reducing greenhouse gas emissions as all the electric vehicles in this country. So just think about that, the effort, the cost to build an electric car fleet with all the infrastructure that you need and the new vehicles, the impact of just taking 3 streams and putting them in the ground. That's why this, in our opinion, it's so compelling what we need to do. So carbon capture and sequestration and hydrogen are 2 key components, and biofuels is very, very similar. If you take bio-based feedstock, you use technology of your own refineries into markets that you've already participated. I mean, at a high level, Devin, that's why we're focused in these areas.

Yes. Makes a tremendous amount of sense. And then I alluded to Denbury before, but now that that's closed. Can you just remind us how you view the opportunity set in the U.S. Gulf Coast, specifically, which where these 3 streams that you mentioned exist, but there's a lot more opportunity there as well?

Well, of course, I probably trivialized saying you capture carbon dioxide and you stick it under the ground. Okay, the reality is the geology is not the same. And there's plenty of places that you can't sequester effectively carbon dioxide. If you take the Midwest, there's no oil and gas production in the Midwest, which pretty much tells you the geology doesn't allow you to sequester carbon dioxide. If you go to the Gulf Coast, where all the oil and gas development has been historically, both in the Gulf of Mexico and onshore. It gives you an indication that is good geology to sequester carbon dioxide. But even at that local level, what you find is that corridor from Mississippi, Louisiana through Texas is the most industrialized corridor in the United States. But if you're going to decarbonize, if you're going to take that carbon dioxide from any of those facilities and you got to put it in the ground, it doesn't mean to say that the geology next to that steel plant or that ammonia plant is going to allow you to sequester. You need to move it. What Denbury have is a CO2 pipeline that runs right the way through the middle from Mississippi all the way to Houston, a CO2 pipeline. And what it allows us to do is take those molecules, tie in with short tiebacks to these facilities and then low cost, move those carbon dioxide molecules to an area where the geology allows you to sequester carbon oxide. It is a terrific asset. It's right through the most industrialized area, it plays to the strength of what we're trying to achieve. And we've only just taken over that asset, of course, and that company. But we see a tremendous opportunity. And we see this as being very value accretive to the corporation based on the incentives that exist out there today.

Great. Very helpful overview. And maybe since we're running close to the end of our time here, I'll zoom back out and ask a higher-level one to wrap us up. So you talked about the importance of being on the low end of the cost structure for the upstream investments. And if I think about all of the growth projects you've executed on across the value chain, I think Exxon's ability to stress test, the return profile of those investments through historical commodity cycles are differentiated. You look at a range of outcomes and the resiliency of the return as a result of that really compare well versus the peer group. The last few years have brought nothing but extremes. Negative oil price in 2020, near record oil price in 2022. Gas has been extremely volatile and then looking across the value chain, refining and chemicals had their own peaks and troughs, and we now have more policy support for the low-carbon opportunity set, which gives you a lot to work with, especially when you think about the Exxon portfolio. My question is, What, if anything, through all of this has changed and how you evaluate where it's best to allocate capital across these businesses? Or how you stress test for extremes through projects or pace the low carbon opportunity set when you look at that and put it all together into one picture? We know the plan through 2027, as we look out to what might be next, can you just talk about the pros and cons and the scenario analysis that you do when you put everything together for us?

Yes. And really, it's not a simple answer. But first of all, it's...

You need 45 minutes for that.

I know. I probably do. It's a cyclical commodity business. We don't have the ability to predict prices and we never try. What we need to do is stress test our investments over a range of prices. That's what we do. Because I have no idea what the price of -- even the tomorrow, never mind next year. But if you know the market is there in a commodity business, having the most cost-competitive means that there's going to be a higher-cost barrels produced, whatever the price will be. And therefore, making sure that you're the lowest-cost producer is always going to be the winning proposition. So how do you allocate capital between all these opportunities? Well, of course, you look at value. Of course, you look at returns. But I would suggest you have to have a strategic overlay as well. You have to because the world is going to go through an energy transition. That's clear. What we don't know is what pace the transition is going to take place. We don't know. Everyone has a view on it, but nobody really knows. So you're going to have a strategic overlay. So we're deploying capital into low carbon solutions today because we believe it's going to be a pivotal part of the transition. We can get a mid-teens return on it today, but it's really important to make sure that what I've been talking about, we can demonstrate because this may go faster than we think. I want to be able to move capital into that. Demand for crude oil may go faster. I mean you just want to make sure that you understand the competitiveness of every opportunity you have. You need to have a strategic overlay on. And then you have to have a decision on capital, but it's not based on what gas prices is today or tomorrow. I mean I think that's a mug's game because nobody really truly knows. So that's the way we think about capital allocation. Underlying everything is the most cost competitive, the most financially competitive development opportunities in the industry. To us, that's the way to win in a commodity business. And that's always been at the core of our philosophy. I would just say one point to add, there's more uncertainty going forward than there has been in the past. So that capital allocation process, frankly, is going to become more challenging. But obviously, we're building an organization which is more flexible which has more optionality because we're not going to try and predict the rate and pace the market changes. We want to make sure that we have optionality depending on that rate and pace. We can move resources projects in oil and gas, we can move resources into low carbon solutions, depending on how these markets, the policies depending on how they evolve.

Great. Great answer. And I think it's a good place to wrap up. It's been a tremendously helpful conversation, Neil. I really do appreciate your time. And thank you all for joining us here in the room and those on the webcast, thanks for joining us. We'll wrap it there.

Thanks, Devin.

Yes. Thank you.