ExxonMobil Holdings Corporation (XOM) Earnings Call Transcript & Summary

Good morning. I'm going to kick off a minute or 2 early. I'm delighted to welcome you to day 2 of the 40th Barclays Energy and Power Conference. We have a jammed pack day of conversations fireside. So really looking forward to the conversations ahead. I wanted to kick it off because first, delighted to bring Neil Hansen, the CFO of ExxonMobil to kick us off on this day 2. And we also have some audience polling questions that we wanted to ask you to participate in with the clickers that's right in front of you. So Neil, why don't you join me on stage? And let's start with the audience polling questions. You can just correspond to the numbers that you think you believe corresponds to your views. First question, when do you expect the Straight of Hormuz crisis normalize? So either before midterm, by year-end, first half of next year or now might be the new normal? It won't be interesting to see.

You might be surprised, but this is very similar to how we develop our company plan, just through polling.

Well, it's consensus to you as well. Yes, that's the longer this drag down, it's not surprising. The next one, please. So given that view, how do you think about where Brent price is going to average next year, the strip this is as of last Friday 79. So 70, 70 to 80, 80 to 90 above 90? All right. We're still pretty close to strip with a bush toll. The last one, please. So over the next 12 months, which subsector of energy do you think has the most upside? Integrated E&P services, refining, midstream and utilities? All right. It's actually pretty similar to what we were seeing yesterday as well. Well, thank you so much for participating and Neil, thank you for being here and kicking us off. So I know you have some prepared remarks, why don't we kick that off to start.

Excellent. Thank you, Betty. And it's great to be back at the Barclays Energy and Power Conference. Last time I was here was in 2019 when I was the Vice President of Investor Relations. So it's great to be back. And before we get to the Q&A, I just had a couple of slides that I wanted to share with the audience around a few things that we think. At ExxonMobil, we do really well and that are fundamental to how we create long-term shareholder value. This is our cautionary statement, brief cautionary statement. I won't go through it, but I will be making some forward statements, and we have more information on our Investor Relations website. So these are three foundational pillars at ExxonMobil that underpin a lot of what we do and underpin our ability to create long-term shareholder value. We also think these are three things that transcend markets. They transcend commodity price cycles. They will enable transition to different energy systems. They allow us to identify new products, and they differentiate us from competition. And importantly, they help us to create long-term shareholder value. So if you look at each of these three, technology, again, we think this is fundamental to the ability to continue to improve, to continue to identify products that society demands and I'm sure we'll talk about it today. But one of the things we've referenced often is the focus on technology in the Permian. We've got 40 complementary technologies that we're progressing with the focus on improving recovery and capital efficiency. Project execution this is a capital-intensive business. And the ability to execute projects well is core. It's a core capability and it is one we think that differentiates ExxonMobil. We are, on average, executing double the number of major projects relative to competition, and we're doing it at 20% lower cost and 20% faster than everybody else. And then, of course, operations, the ability to maximize the assets that we have and to do that safely and reliably. And we recently centralized a lot of these organizations across the enterprise to capture best practices. And more importantly, really to redefine what we consider to be industry defining performance. Operations is a good example. When we look at turnarounds compared to the last cycle that we went through turnarounds at our sites. We're at 30% lower cost and we're doing those turnarounds at 50%, shorter duration than we did previously. And again, those three pillars underpin what we're trying to do, which is to grow long-term shareholder value. And that starts with investing in advantaged low-cost, high-return opportunities. And we feel we're advantaged in that area in terms of the portfolio that we have, and we're capitalizing on that. And then, of course, once you invest in those projects or as you invest in those projects, the importance of having financial strength, we talk about our strong balance sheet, AA minus rated. Our net debt to capital, I think, is 11%. This last quarter, we reduced that by another $7 billion. That balance sheet allows us to continue to invest through cycles, through different markets when others have to pull back or they have to cut distributions, we're able to lean in as opportunities arise. And then, of course, we want to share our success with our shareholders. When you look at the dividend, the dividend for us needs to be sustainable, growing and competitive. And all three of those elements are important. We've been able to grow the dividend for 43 consecutive years now, and that is, I think, 95% better than most of the S&P 500. And then, of course, share repurchases, we view as flexible tax efficient ways to return cash to our shareholders. So I just want to end with that. Again, I think we're well positioned given the capabilities that we have in technology and project execution and operations. And as a company, we want to be defined by what we do well. not necessarily by the products that we produce. So with that, I'll turn it over to you to Betty.

Thank you. And these three foundational pillars are really differentiated Exxon long term. But I want to start the conversation on the macro front as we are still sitting through the largest supply disruption ever in modern energy market. As you have -- Exxon has a front load seat to seeing what's going on across the board. So could you tell us in your view on where you're seeing the most resilience in the system? Where do you see the most distressed? What has the price to the moat so far?

Yes. I think a couple of high-level things that we've seen given what's happening in the Middle East. One is it's a stark reminder of the importance of providing affordable and reliable energy and products to the world. And you can see how single that is to economic progress, how central that is to living standards, our day-to-day lives. And I think this has been a stark reminder of that. The other thing we'd tell you is the market fundamentals for the most part are working. And when you see a supply shock like we've seen in the oil markets, one of the things you're going to witness is a rush to try to increase supply. And we've seen unprecedented levels of release of inventory, both strategic commercial reserves but also strategic petroleum reserves. You've seen the supply side. You've seen countries like the U.S. and Brazil increased their supply and at the same time, to help offset that, you've seen price play the role of demand destruction. You've seen demand destruction in chemical and refining. And so for the most part, the oil markets have settled into a fairly range-bound price scenario. We were a little surprised, I think, by the amount of inventory that was available to be released. On the refining side, we would tell you that's where the pinch point is today. And that is somewhat driven by what's happening in the Middle East, products not coming out, but also the crude that's needed in Asia to run refineries there. But it's also what's happening between Ukraine and Russia. And then we're also seeing the Chinese are not exporting products. And so you're seeing a significantly higher margin in refining. So when we look at the entire energy system, today, we would tell you that the supply shock and the pinch point really is around refining. And so what lessons that we learned? I think, again, back to the fact that what we do is really important to society. And then I think you're also seeing the market behave relative to long-term fundamentals terms of supply and demand and how they respond to these types of situations.

I think the market -- everything is just showing really the value of the integrated model because the stress can move from one part of the value chain to another. And you guys talked about the value of supply chains, trading optimization and commercial optimization. Can you speak to how you find maybe the competitive advantage assessed within the integrated model that you've been able to deploy?

Yes. I think what we believe in and have seen is there are benefits to physical integration. And one of the things that we've done over the last few years is to organize ExxonMobil along the value chain. And the reason we do that, one is when you see the end to end of a value chain from feed to manufacturing to logistics to the end consumer, you can see how value is created, which is really important. And then the other thing we know is that value will shift along that value chain. When I ran the fuels business in Europe during COVID, the value in the fuels value chain was mainly outside the gate on the commercial side and the retail side. As you sit here today and during the Ukraine -- the start of the Ukraine and Russia war, the value and the fuels value chain was in manufacturing, right? And so just being in a position along that value chain allows you to capture the value as it shifts. And then to your point, supplementing that with the capability. And we've reorganized at ExxonMobil the last few years to centralize a lot of these capabilities across the enterprise. I mentioned projects and technology and operations. But the other key is leveraging supply chain and trading to optimize the assets that we have, to optimize placement of products into the highest value outlets. I mean one great example recently with what's happened with the Strait of Hormuz is in refining and chemicals in Asia, not having the crude that we typically use to run those facilities, the ability for us to respond to that quickly, using our technology company and our operations to qualify other crudes that we can run and respond in that manner. Again, leveraging and trading and supply chain to continue to run those assets and provide finished products. So it's a combination of having those end-to-end value chains and being placed there and seeing where the value is created and then having those capabilities overlaying those value chains across the entire enterprise allows us to capture the full value of integration.

Yes. And I think another differentiation that really shines through this disruption is Exxon's strategy of just investing in growth through the cycle doesn't really matter where oil prices are up and down, you are sticking to your own strategy. How do you think about that investing through the cycle has benefited Exxon relative to the broader industry? And how does that influence your you think about growth or investing in growth for the next 5 to 10 years?

Yes. I think that view -- and the importance of being able to invest through cycles and through different markets starts with the objective we have to grow shareholder value, to continue to grow earnings and cash. And it really starts being grounded in the long-term fundamentals of the energy system and just a shameful plug, our 2026 version of our outlook of supply and demand for energy products will come out later this month. . It is the basis on which we develop our plans and our strategies. We're not going to deviate based on trends that are happening in society. We're going to focus on the fundamentals. So it starts with the fundamentals. And then you need you have to have the opportunity set to continue looking at building out the portfolio, you have to have the financial capacity, and we talked about the importance of the balance sheet so that as you go through cycles, you can continue to progress those opportunities. And maybe more importantly and where I think we are seeing differentiation relative to competition is you have to have the capability. You have to be able to execute projects, you need the technology and you need to be able to operate the facilities. And what we've seen and what we are seeing is starting and stopping in some ways doesn't allow you to continue to learn to continue to improve, to continue to develop the technology you need to successfully invest. There are other benefits to this. I mean if you're leaning in, in a down cycle, you're obviously going to probably capture lower costs and improve the economics. But it comes back to long-term fundamentals, you have to have the balance sheet. You have to have the opportunities and then you need the capability. And if you pull back at different times in the cycle, it's hard to develop and maintain that capability. And I think we're seeing a lot of space between us and competition at this point in some of those areas around project execution and operations.

And those capability and the technology that you talk about really shine through in the Permian being able to deliver much better higher posted Pioneer acquisition through technology and innovation. How has that learning change your view on that asset? And how much you think Permian is to grow from here?

The Pioneer acquisition has gone extremely well, probably better than we expected. And when we did that acquisition, we anticipated achieving about $2 billion a year of synergies, and we've been able to double that. And that is a combination of bringing what we do well to the Permian, but it's also learning from Pioneer. I mean there are a lot of things that we did -- they did really well that we've learned from. And so it's really been a best of both approach. And what we see in the Permian, I mean, is an opportunity to significantly grow earnings and cash at attractive returns. And as many of you know, one of the challenges in the Permian is you're still recovering a fairly small amount of the resource that's in the ground. And so that's why our organization is focused on developing the technologies to improve primary and secondary recovery and do it more efficiently. And so we've talked about stackable or complementary technologies that were progressing. They're in different elements of that cycle. But the aim is how do we improve that recovery? How do we get more out of the ground at that initial start and then going back in and doing secondary recovery. Some of those technologies will produce the same amount of volume, but with fewer wells. So we'll see capital efficiency. But the aim is how do we increase the value to our shareholders in the Permian. And our view is the unlock will be technology. And we have, I think, a stated objective of doubling recovery in the Permian. That is the focus and the aim of the technology organization and operations in the Permian. That's the challenge. So how do we find out through technology to improve that recovery. So our ambitions and our view on the Permian is very optimistic, and our progression to some of these technologies are very optimistic to achieve that objective.

So given the value creation that you're able to extract from Pioneer and then technology and capability, as you mentioned, how does that change or influence your view on M&A opportunities going forward?