Exxon Mobil Earnings Call Insights: Production Insights and the Celtic Acquisition

On Thursday, Exxon Mobil Corporation (NYSE:XOM) reported its third quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Production Insights

Doug Leggate – Bank of America: I’ve got a couple please, one and one follow-up I should say. I understand at the Analyst Day, you gave us an indication that production will be down this year, but it seems that it is sliding a little harder than certainly we expected and at the same time the capture rate that is, as you know, the earnings against your weighted revenues has deteriorated somewhat this quarter, so I am just wondering if you still feel confident in the medium term outlook and if there was something unusual in this quarter that impacted the earnings capture and I have got a quick follow-up please.

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David S. Rosenthal – VP, IR and Secretary: Let me first address Doug the volume decline. As I mentioned in the chart in my prepared remarks, we are only slightly below what the outlook would have generated if not for again as I mentioned the price and entitlement effects of higher crude prices earlier in the year and some divestments. I will say that when you look at the slight underperformance if you will on the operations side, a piece of that factor – a big piece of that bar is the fact that we’ve been able to generate the production volumes that we were looking to get in Iraq with less capital being expended, so because we expended less capital and we’re more efficient, we didn’t get as many barrels back. We’ve also had some extended downtime, a little more than we thought particularly in the North Sea and some other areas, but other than that just some timing of some work program and some of the other things I mentioned, but other than that we’re pretty much online with what we are looking at. If you’re looking at the capture rate, in particular in the Upstream, I think the biggest driver their of course is going to be the mix of the volumes that we had and where we had some of that downtime across the quarter in Kazakhstan and some other areas that we had some downtime in North Sea et cetera. Other than that when you look at the other earnings effects, not a lot in there in terms of items other than the fact that we were about $1 billion less quarter over quarter this quarter on asset divestitures. So I think if you sort those things out, we’re pretty much as we would have expected to be.

Doug Leggate – Bank of America: My follow up David is hopefully fairly quick. There was obviously a lot of other deltas this quarter, the other items that you talked about. But again just like last quarter they’re not as big but they’re still fairly sizable, particularly in the downstream. So I guess there’s two points to my question. The first one is would you be able to quantify the absolute impacts of the major parts from disposals and the foreign exchange effects as opposed to the relative impact? And just as an observation, at what point or what is the philosophical reason for not providing the absolutes on a quarterly basis, because it would be extremely helpful if you were able to do that?

David S. Rosenthal – VP, IR and Secretary: Let me hit a couple of those. First of all, foreign exchange is one that’s impossible to give an absolute because as you know you’ve got both changes and impacts on your working capital balances, those are specific, but when you’re looking at the impacts on the earnings, it’s really just a translation of margins and OpEx using exchange rates last quarter and this quarter. So you don’t have an absolute amount on that. If we look across the corporation though, I’ll tell you that quarter to quarter the impact was very small and I’m happy to talk about the details. If we go specifically to the downstream earnings, I think, which is one you were interested in, if I’m looking at downstream earnings third quarter of ‘12 versus third quarter of ’11, again you saw the nice margin bump there of $850 million. That’s really clean. There’s no lag effects or other things in there. We were just able to have all of our operations running strong and take advantage of the strong market that we saw there. On the $780 million, if I move over to the other column, I’m happy to give you some additional color there, the biggest part in there was about just under $400 million for our divestments in the quarter, favorable forex quarter-versus-quarter was another $300 million and the balance was favorable OpEx, and that pretty much takes that out. Volume, pretty minimal, where we lost volumes in some of the divested assets, we were able to make up those earning by higher volumes in throughput in some of our other operations.

Celtic Acquisition

Evan Calio – Morgan Stanley: I just have a question related to the Celtic acquisition in the quarter, and does this deal reflect any change or evolution in Exxon’s view of potential Canadian or British Columbian specific LNG export potential with your bigger Montney position now?

David S. Rosenthal – VP, IR and Secretary: I don’t think it changes any of our views or thoughts we have going forward. The Celtic acquisition gives us an opportunity to pick up as I said about 545,000 net acres in the Montney, most of that acreage is near acreage we already have, so it’s very helpful to us and it’s just a continuation of what you’ve seen for the last couple of years where we have taken advantage of opportunities to go out and acquire large tracts of promising acreage with the high upside potential and bolt those on to the XTO acquisition and in particular I think what you’ve noticed over the last year or so as these acquisitions have tended to be more liquids-rich properties than the gas things that we added early on, so no change. I will say though that of course this gives us a tremendous opportunities across North America, all of which we are looking at as you mentioned. I think we’ve mentioned before that we are in the early stages of assessing potential export option from Alaska, from Western Canada and from the U.S. Gulf Coast, so we’re fortunate to have large resources in each of those areas and again as we develop our plans and go forward, we’ll have more to say about that, but I’d say it’s really a continuation of the strategy that we’ve had in place now for the last couple years.

Evan Calio – Morgan Stanley: Just one other follow-up if I may to Doug’s question. Relating to Upstream volumes, can you quantify or discuss the turnaround activity I guess they contributed to which you are defining lower operational performance and I guess specifically – I guess your comments that may not, but just confirm that does not. You don’t see that extending into the fourth quarter and I’ll leave at that.

David S. Rosenthal – VP, IR and Secretary: I think the best place to look at really where we’re seeing the impact of this downtime, if you look quarter-on-quarter, third quarter ’12 versus third quarter ’11 over in the net growth where we had the minus 125, about 40 of that is downtime across the number of areas, most of its scheduled that you’re well aware of. We had some downtime at Qatar, (indiscernible), Alaska and the North Sea and so that impact showed up there. You also see particularly if you are looking sequentially because as you know a lot of this downtime is seasonal, but the downtime effect between the third quarter of this year and the second quarter of this year was about 90 KBD, so significant effect. Most of that production is pretty much back up. We do have some continued downtime (and operated by others) properties in the North Sea, but other than that the rest of the production is coming up as we would have expected, heading into the fourth quarter.

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