Exxon Mobil Corporation (NYSE:XOM) Q1 2024 Earnings Call Transcript

Jason Gabelman: Yep, got it. Thanks.

Operator: The next question is from Ryan Todd of Piper Sandler.

Ryan Todd : Thanks. Maybe one on chemicals. I mean, your chemicals businesses, the two segments, continue to show kind of modestly better than expected recovery along the bottom or off the bottom here. Is this more of a feedstock tailwind that we’re seeing in the near term? Are you seeing any improvements that are noticeable in terms of demand and overall global supply demand? And I guess in the meantime, while things are weak, what are you managing to do with your product mixer operations to drive relative performance there in chemicals?

Darren Woods: Yeah, sure Ryan. I’ll take that. First thing I would say is, if you look at the chemical business and kind of the margin indicators that we use to judge the health of the chemical businesses, we are at a historic kind of bottom of cycle number. And so I think, it’s a very challenging chemical markets today, as I know many of you know. But even in that very challenged market, we are continuing to deliver very good results. I think if you compare similar markets that were even close to these bottom of cycle conditions, we were in a very different place in the past with respect to earnings than we find ourselves today, where we delivered close to $800 million of earnings this quarter, despite the very difficult market conditions.

Those market conditions are driven more by supply than demand. Frankly, we’re continuing to see growth in demand, not as high as we’ve seen historically, but continued good growth and frankly in the first quarter saw some of that pick up. The challenge has been the supply that’s come on to meet that growth and so that is depressing overall industry margins. As you know, the investments that we make and the way we run our business, is to make sure that we’re advantaged versus the average chemical player. So even in these markets that are set by other capacity, the work that we’ve done to position ourselves, more advantaged – in a more advantaged position in competition continues to deliver a value. You can see that with the growth, not only in the high value products, which are coming on with our projects, and frankly, that growth is in line with what we had expected.

So we’re continuing to see the demand for the high value products that we’ve invested in, but we’re also seeing in our base volume, value in those with respect to how we positioned ourselves, and so it’s – and we’re seeing advantages in the structural, structural cost reduction. So I would tell you, every part of what we’ve been doing to improve the earnings power of the organization is manifesting itself in our chemical business and showing up in differentiating earnings. And feed to your point, feed advantages play an important role in that. So that’s yet again another advantage that we have versus the typical industry player, but that is reflective of the broader strategy that we have. So I think we feel good about where we’re at in a very difficult market.

Our view is that those market conditions are going to be with us for a little while here going forward, but we also feel like we’re well positioned to be successful there. And as that shakes out and some of the less able competitors have no success in this space, we’ll see growth continue to move and eventually we’ll see margins pick back up and we’ll be very well positioned.

A – Kathy Mikells: And just the other thing I’d add to that is, I think if you look at our chemical businesses performance and compare that to peers and other players, you see the differentiation and the excellent execution really coming through. We’re in clearly bottom of cycle conditions right now, and yet we’re still generating pretty good earnings and cash flow in our chemical business. And then I would just mention that as Darren noted, our footprint tends to be North American weighted. So if you just look at our PE and PP footprint, we’re heavily North American weighted and relatively lightly weighted to Asia compared to the rest of industry, and Asia is especially at very, very bottom of cycle conditions.

Ryan Todd : Great. Thanks, both of you.

Operator: The next question is from Stephen Richardson of Evercore ISI.

Stephen Richardson: Good morning. Darren, I was wondering if you could talk a little bit about the Baytown project and maybe just if you could give us a little bit more on what your view of adequate incentives there would be. If the PTC on green hydrogen was extended to blue, would that be sufficient to sanction the project? And then, sorry, just as a follow on to that, as you talk about a level playing field across technology neutrality, is your view that a new gray hydrogen ATR should get some sort of incentive? Maybe you could just give us the context of how you are thinking about that project and what it needs to move forward. Thank you.

Darren Woods: Yeah, sure. I’m happy to do that, Steve. What I would say is it’s a – that work we’re doing to develop it is I think demonstrating the difficulty of starting brand new businesses and value chains where none exists, and that we’re kind of simultaneously trying to build demand, trying to build supply, and then trying to in the early days of this market establish financial incentives to do that. So three core key variables to a successful business, all kind of basically being generated for the first time in this space along this value chain. So I just put that out there as it’s a challenging construct, but frankly, one that plays to our strengths and the ability to look along the entire value chain, and we are uniquely situated to manage each piece of that.

There are very few, if any, companies out there that have a portfolio and capabilities that extend end-to-end along this value chain. So I feel good about what we’re doing there and the work that we’ve put in place. And frankly, it looks to me like a very viable project. We are continuing to progress that, but it will require that the necessary incentives are in place. With respect to what’s required with, with incentives, I would say the IRA and the incentives that were developed as part of the IRA are enough to do that. The challenge is taking the IRA, which I believe rightly focused on carbon intensity and incentivizing carbon intensity, translating that legislation into regulation, and if the regulation reflects the intent of that legislation and writes the rules focused on carbon intensity, that will be enough to justify and to incentivize and give us a return on this investment.

We don’t focus so much on the green, the blue and color schemes. We instead focus on how can we meet what is ultimately the objective here, which is to reduce the CO2 associated with production of these products. And we think all the work we’ve been doing in our facilities and our feedstock and decarbonizing those contributes to that. And so we feel like we’re well positioned with the existing set of incentives, as long as those incentives are fairly reflected in the regulations and a level playing field. What I mean by that is, staying focused on carbon intensity and ignoring colors.

Stephen Richardson: Very clear. Thank you.

A – Darren Woods:

Operator: The next question is from John Royall of JP Morgan.

John Royall: Hi, good morning. Thanks for taking my question. So I just had a question about the refinery sale in France. I know you have a very ambitious program for growth in the downstream business, but you have been trimming and high grading a bit with some asset sales. Other majors are also reducing their European footprint in refining. Can you just speak to how strategic the remaining European portfolio is? And could we see some more assets shake out in European downstream?

Darren Woods: Yeah, sure. I would tell you what you are seeing with the sale and France is really the latest in what’s been a fairly long trend with us focused on high grading refineries to refineries that are – that have the capability to address a broad suite of products and high value products. And so integrated facilities that make not only petroleum products, but also make chemicals and lubricants and basically a broad array of high value products, and so we’ve been over time focused on that. They need to be advantaged sites. They need to be – we have a cost of supply curve. I think you all have heard me talk about this many times across all of our businesses, but we look around the world and make sure that our facilities are on the low cost of supply, so that as the margins move up and down, that we never become the marginal supplier and having an integrated facility helps with that.

But it also acts as a hedge to make sure that we’re not dependent on any one sector for the success of one of our manufacturing facilities. The reorganizations that we put in place have helped greatly with this, and if you think about these integrated facilities, we used to have them split up amongst different parts of the organizations, different businesses running them, and in fact, even different manufacturing organizations running them. Today, that’s not the case today. Today they are being run by a single business with a single leadership team and so I feel like – I feel very good about that. But it is this continuing high grade. We were doing it all the way back when I was President of the refining company, so it’s been a long-term strategy.

We’re not in a hurry. We’re taking our term to make sure that we find the right buyer that has the right value proposition, one that exceeds our own internal values, and if we can find that, we will then track and transact if we can. We’ll continue to optimize and improve those refineries to the best of our abilities. But I would say we’ve worked our way down the portfolio till we feel pretty good about the position that we’re in today. That the refineries that we have in the portfolio are advantaged, have a mix of either feed advantages or product advantages or both. And frankly, our focus has been on making sure they are running reliably, running safely, running efficiently, and these centralized organizations and our global operations and sustainability organization have been a huge enabler to helping each of these facilities and our chemical plants, our refineries, lubricant facilities, all improve their performance, run better, run more profitably, run safer, run more reliably.

So I feel really good about the position that we’re in and we’ll continue to look at our portfolio. It’s always been the case that we’re looking, to make sure that the value we see in those facilities exceed the values that others might and feel good about our position there.

Kathy Mikells: Just the other thing I’d add to that is the investment environment is certainly a bit more difficult in Europe. If you go back and look at the end of 2022, the additional taxes that were levied onto the energy sector. If you look at expanded disclosure requirements that Europe is looking for, or if you look at regulation around reducing carbon footprint and not necessarily implementing regulation that’s technology agnostic and focused on just reducing carbon intensity, that all makes Europe a much tougher investment proposition. So that’s certainly one of the things that we look at in any place across the globe as we look to make future investment decisions.

John Royall: Thank you.

Darren Woods: Thank you.

Operator: Next question is from Biraj Borkhataria of RBC.

Biraj Borkhataria: Quite fitting to take the next question from an analyst sitting in London, but I just have one question. You have a lot of energy coming into your portfolio in the coming years, the Golden Pass, Qatar, etcetera. You have quite a high oil weighting in the current sales mix. Are you looking to diversify over time or would you like to maintain that kind of 80% to 90% oil link exposure in your contract base over time? Thank you.

Darren Woods: Good morning, Biraj. Thank you. I would tell you, we’re not as focused on an absolute mix number, as much as the advantaged investment opportunities that we can find in those businesses. We see long-term demand for oil continuing, albeit with a much lower emissions footprint as we continue to find ways to decarbonize. We also see long-term demand for natural gas, and so I think as we look at both of those, both the liquids and the gas side of the equation, we see a long-term future there and an opportunity for this company to participate if we have advantaged projects that position us on a low cost of supply, and so that’s how we think about that. And that advantaged position, which manifests itself in cost of supply, as you know obviously manifests itself in above industry average returns, which is the objectives that we set for ourselves and so that’s how we’re thinking about it.

And frankly, we’ll let the opportunity that we find in these advantaged investments set the proportion of the portfolio that those represent. We will not invest in a project that I’m not convinced doesn’t, one, leverage our core competitive advantages, that two, then results in a project which is advantaged versus other, and that three then, is on the low cost of supplies. Because as good as the market may look today out the window, we know there are cycles. We don’t think the cycles are going away and so we remain very focused on making sure that we take advantage of the upswings, but we’re prepared for the downswings and we’ll be very successful. And as we just talked about in the chemical business, great example of being in the very bottom of a downswing and continuing to generate cash and make good solid earnings, and that’s the ambition we have for all of our businesses.

Biraj Borkhataria: Understood. And just as a follow-up to that, there’s obviously been ongoing security challenges in Mozambique. What is your view at this point on whether you’d be interested in doing a second floating facility? Because obviously monetizing the onshore part has become very challenging.

Darren Woods: Yeah, I think obviously you rightly pointed out there, security challenges there. I think there’s been a lot of good progress made with respect to that. I think Mozambique, the country of Mozambique, the government of Mozambique recognizes the importance, not only for the project, frankly for the people of Mozambique that needs to be addressed and effectively managed. I think they’ve made good progress in doing that. My view is with time, we’ve seen this in other places around the world, that will get addressed, and it will result in an opportunity to invest onshore. With respect to onshore/offshore, we frankly, it comes back to the point I made at the beginning of your question, which is it depends on the returns that we can generate with respect to investment opportunities and how competitive those supply points are.