Exxon Mobil Corp 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview During the first quarter of 2023 the price of crude oil decreased as the global oil market saw higher inventory levels; however prices remained above the 10-year average (2010-2019). The increase in inventory levels was followed by an early April announcement from OPEC+ oil producers to further reduce oil output. Natural gas prices remained above the 10-year range, despite declining significantly in the quarter as milder weather eased demand for natural gas heating, allowing storage levels to increase above historical averages in the United States and Europe. While moderating slightly from the fourth quarter of 2022, refining margins remained above the 10-year range due to low inventory levels of petroleum products. While chemical margins remained below the 10-year range due to continued bottom-of-cycle conditions in Asia Pacific, margins in North America improved on lower energy and feed costs. The Corporation’s first quarter results include after-tax charges of $0.2 billion related to additional European taxes imposed on the energy sector, mainly reflected in the line “Income tax expense (benefit).” The enactment of regulations in late 2022 by European Member States and other countries imposed mandatory taxes on certain companies active in the crude petroleum, coal, natural gas, and refinery sectors. FUNCTIONAL EARNINGS SUMMARY Earnings (loss) excluding Identified Items (non-GAAP) are earnings (loss) excluding individually significant non-operational events with, typically, an absolute corporate total earnings impact of at least $250 million in a given quarter. The earnings (loss) impact of an identified item for an individual segment may be less than $250 million when the item impacts several periods or several segments. Earnings (loss) excluding Identified Items does include non-operational earnings events or impacts that are generally below the $250 million threshold utilized for Identified Items. Management uses these figures to improve comparability of the underlying business across multiple periods by isolating and removing significant non-operational events from business results. The Corporation believes this view provides investors increased transparency into business results and trends and provides investors with a view of the business as seen through the eyes of management. Earnings (loss) excluding Identified Items is not meant to be viewed in isolation or as a substitute for net income (loss) attributable to ExxonMobil as prepared in accordance with U.S. GAAP. Three Months Ended March 31, 2023 Upstream Energy Products Chemical Products Specialty Products Corporate and Financing Total (millions of dollars) U.S. Non-U.S. U.S. Non-U.S. U.S. Non-U.S. U.S. Non-U.S. Earnings (loss) (U.S. GAAP) 1,632 4,825 1,910 2,273 324 47 451 323 (355) 11,430 Identified Items Tax-related items — (158) — (30) — — — — — (188) Earnings (loss) excluding Identified Items (Non-GAAP) 1,632 4,983 1,910 2,303 324 47 451 323 (355) 11,618 Three Months Ended March 31, 2022 Upstream Energy Products Chemical Products Specialty Products Corporate and Financing Total (millions of dollars) U.S. Non-U.S. U.S. Non-U.S. U.S. Non-U.S. U.S. Non-U.S. Earnings (loss) (U.S. GAAP) 2,376 2,112 489 (684) 770 636 246 230 (694) 5,480 Identified Items Impairments — (2,877) — — — — — — (98) (2,975) Other — (378) — — — — — — — (378) Earnings (loss) excluding Identified Items (Non-GAAP) 2,376 5,367 489 (684) 770 636 246 230 (596) 8,833 References in this discussion to Corporate earnings (loss) mean net income (loss) attributable to ExxonMobil (U.S. GAAP) from the Condensed Consolidated Statement of Income. Unless otherwise indicated, references to earnings (loss); Upstream, Energy Products, Chemical Products, Specialty Products, and Corporate and Financing earnings (loss); and earnings (loss) per share are ExxonMobil's share after excluding amounts attributable to noncontrolling interests. Due to rounding, numbers presented may not add up precisely to the totals indicated. 17 REVIEW OF FIRST QUARTER 2023 RESULTS ExxonMobil’s first quarter 2023 earnings were $11.4 billion, or $2.79 per share assuming dilution, compared with earnings of $5.5 billion a year earlier. The increase in earnings was driven by higher Energy Products and Specialty Products margins as well as increased volume and improved mix. Capital and exploration expenditures were $6.4 billion, up $1.5 billion from first quarter 2022. UPSTREAM Upstream Financial Results (millions of dollars) Three Months Ended March 31, 2023 2022 Earnings (loss) (U.S. GAAP) United States 1,632 2,376 Non-U.S. 4,825 2,112 Total 6,457 4,488 Identified Items (1) United States — — Non-U.S. (158) (3,255) Total (158) (3,255) Earnings (loss) excluding Identified Items (1) (Non-GAAP) United States 1,632 2,376 Non-U.S. 4,983 5,367 Total 6,615 7,743 Upstream First Quarter Earnings Factor Analysis (millions of dollars) Price – Price impacts, driven by a 23% decrease in average crude realizations, decreased earnings by $1,750 million. Volume/Mix – Higher production volumes increased earnings by $620 million. Advantaged projects growth in Guyana and Permian more than offset the impact from divestments and the Russia expropriation. Identified Items (1) – 1Q 2022 $(3,255) million loss as a result of the Russia expropriation. 1Q 2023 $(158) million loss from additional European taxes. (1) Refer to Functional Earnings Summary for definition of Identified Items and earnings (loss) excluding Identified Items. 18 Upstream Operational Results Three Months Ended March 31, 2023 2022 Net production of crude oil, natural gas liquids, bitumen and synthetic oil (thousands of barrels daily) United States 820 753 Canada/Other Americas 670 474 Europe 4 4 Africa 220 257 Asia 749 738 Australia/Oceania 32 40 Worldwide 2,495 2,266 Net natural gas production available for sale (millions of cubic feet daily) United States 2,367 2,777 Canada/Other Americas 94 182 Europe 548 770 Africa 134 58 Asia 3,597 3,340 Australia/Oceania 1,276 1,325 Worldwide 8,016 8,452 Oil-equivalent production (1) (thousands of oil-equivalent barrels daily) 3,831 3,675 (1) Natural gas is converted to an oil-equivalent basis at six million cubic feet per one thousand barrels. 19 Upstream Additional Information (thousands of barrels daily) Three Months Ended March 31, 2023 Volumes reconciliation (Oil-equivalent production) (1) 2022 3,675 Entitlements - Net Interest (65) Entitlements - Price / Spend / Other 55 Government Mandates 4 Divestments (133) Growth / Other 295 2023 3,831 (1) Natural gas is converted to an oil-equivalent basis at six million cubic feet per one thousand barrels. 1Q 2023 versus 1Q 2022 3.8 million oil-equivalent barrels per day in 1Q 2023 increased 156 thousand oil-equivalent barrels per day from 1Q 2022. Growth in Guyana and the Permian more than offset the impacts from divestments and the Russia expropriation. 1Q 2023 production also benefited from lower downtime and higher entitlements due to lower prices. Listed below are descriptions of ExxonMobil’s volumes reconciliation factors which are provided to facilitate understanding of the terms. Entitlements - Net Interest are changes to ExxonMobil’s share of production volumes caused by non-operational changes to volume-determining factors. These factors consist of net interest changes specified in Production Sharing Contracts (PSCs) which typically occur when cumulative investment returns or production volumes achieve defined thresholds, changes in equity upon achieving pay-out in partner investment carry situations, equity redeterminations as specified in venture agreements, or as a result of the termination or expiry of a concession. Once a net interest change has occurred, it typically will not be reversed by subsequent events, such as lower crude oil prices. Entitlements - Price, Spend and Other are changes to ExxonMobil’s share of production volumes resulting from temporary changes to non-operational volume-determining factors. These factors include changes in oil and gas prices or spending levels from one period to another. According to the terms of contractual arrangements or government royalty regimes, price or spending variability can increase or decrease royalty burdens and/or volumes attributable to ExxonMobil. For example, at higher prices, fewer barrels are required for ExxonMobil to recover its costs. These effects generally vary from period to period with field spending patterns or market prices for oil and natural gas. Such factors can also include other temporary changes in net interest as dictated by specific provisions in production agreements. Government Mandates are changes to ExxonMobil's sustainable production levels as a result of temporary non-operational production limits or sanctions imposed by governments, generally upon a country, sector, type or method of production. Divestments are reductions in ExxonMobil’s production arising from commercial arrangements to fully or partially reduce equity in a field or asset in exchange for financial or other economic consideration. Growth and Other comprise all other operational and non-operational factors not covered by the above definitions that may affect volumes attributable to ExxonMobil. Such factors include, but are not limited to, production enhancements from project and work program activities, acquisitions including additions from asset exchanges, downtime, market demand, natural field decline, and any fiscal or commercial terms that do not affect entitlements. 20 ENERGY PRODUCTS Energy Products Financial Results (millions of dollars) Three Months Ended March 31, 2023 2022 Earnings (loss) (U.S. GAAP) United States 1,910 489 Non-U.S. 2,273 (684) Total 4,183 (196) Identified Items (1) United States — — Non-U.S. (30) — Total (30) — Earnings (loss) excluding Identified Items (1) (Non-GAAP) United States 1,910 489 Non-U.S. 2,303 (684) Total 4,213 (196) Due to rounding, numbers presented may not add up precisely to the totals indicated. Energy Products First Quarter Earnings Factor Analysis (millions of dollars) Margins – Higher margins increased earnings by $4,520 million due to stronger industry refining margins, as well as marketing and trading contributions. Volume/Mix – Favorable volume and mix impacts partly offset by increased scheduled maintenance increased earnings by $150 million. Other – All other items, including higher maintenance costs, decreased earnings by $260 million. Identified Items (1) – 1Q 2023 $(30) million loss from additional European taxes. (1) Refer to Functional Earnings Summary for definition of Identified Items and earnings (loss) excluding Identified Items. 21 Energy Products Operational Results (thousands of barrels daily) Three Months Ended March 31, 2023 2022 Refinery throughput United States 1,643 1,685 Canada 417 399 Europe 1,189 1,193 Asia Pacific 565 537 Other 184 169 Worldwide 3,998 3,983 Energy Products sales (1) United States 2,459 2,262 Non-U.S. 2,818 2,849 Worldwide 5,277 5,111 Gasoline, naphthas 2,177 2,114 Heating oils, kerosene, diesel 1,770 1,722 Aviation fuels 312 289 Heavy fuels 215 249 Other energy products 803 737 (1) Data reported net of purchases/sales contracts with the same counterparty. Due to rounding, numbers presented may not add up precisely to the totals indicated. 22 CHEMICAL PRODUCTS Chemical Products Financial Results (millions of dollars) Three Months Ended March 31, 2023 2022 Earnings (loss) (U.S. GAAP) United States 324 770 Non-U.S. 47 636 Total 371 1,405 Earnings (loss) excluding Identified Items (1) (Non-GAAP) United States 324 770 Non-U.S. 47 636 Total 371 1,405 (1) Refer to Functional Earnings Summary for definition of Identified Items and earnings (loss) excluding Identified Items. Due to rounding, numbers presented may not add up precisely to the totals indicated. Chemical Products First Quarter Earnings Factor Analysis (millions of dollars) Margins – Weaker industry margins decreased earnings by $570 million. Volume/Mix – Lower sales decreased earnings by $280 million, reflecting softening market conditions. Other – All other items decreased earnings by $180 million, driven by higher scheduled maintenance expense. Chemical Products Operational Results (thousands of metric tons) Three Months Ended March 31, 2023 2022 Chemical Products sales (1) United States 1,561 2,032 Non-U.S. 3,088 2,986 Worldwide 4,649 5,018 (1) Data reported net of purchases/sales contracts with the same counterparty. 23 SPECIALTY PRODUCTS Specialty Products Financial Results (millions of dollars) Three Months Ended March 31, 2023 2022 Earnings (loss) (U.S. GAAP) United States 451 246 Non-U.S. 323 230 Total 774 476 Earnings (loss) excluding Identified Items (1) (Non-GAAP) United States 451 246 Non-U.S. 323 230 Total 774 476 (1) Refer to Functional Earnings Summary for definition of Identified Items and earnings (loss) excluding Identified Items. Specialty Products First Quarter Earnings Factor Analysis (millions of dollars) Margins – Improved margins, primarily related to basestocks, increased earnings by $390 million. Volume/Mix – Unfavorable volume mix effects decreased earnings by $10 million. Other – All other items, including negative foreign exchange impacts, decreased earnings by $80 million. Specialty Products Operational Results (thousands of metric tons) Three Months Ended March 31, 2023 2022 Specialty Products sales (1) United States 476 522 Non-U.S. 1,464 1,484 Worldwide 1,940 2,006 (1) Data reported net of purchases/sales contracts with the same counterparty. 24 CORPORATE AND FINANCING Corporate and Financing Financial Results (millions of dollars) Three Months Ended March 31, 2023 2022 Earnings (loss) (U.S. GAAP) (355) (694) Identified Items (1) — (98) Earnings (loss) excluding Identified Items (1) (Non-GAAP) (355) (596) (1) Refer to Functional Earnings Summary for definition of Identified Items and earnings (loss) excluding Identified Items. Corporate and Financing expenses were $355 million for the first quarter of 2023, $339 million lower than the first quarter of 2022, reflecting lower financing costs and the absence of an identified item associated with the expropriation of the Corporation's interest in Sakhalin-1. 25 LIQUIDITY AND CAPITAL RESOURCES (millions of dollars) Three Months Ended March 31, 2023 2022 Net cash provided by/(used in) Operating activities 16,341 14,788 Investing activities (4,925) (3,945) Financing activities (8,507) (6,713) Effect of exchange rate changes 102 142 Increase/(decrease) in cash and cash equivalents 3,011 4,272 Cash and cash equivalents (at end of period) 32,676 11,074 Cash flow from operations and asset sales Net cash provided by operating activities (U.S. GAAP) 16,341 14,788 Proceeds associated with sales of subsidiaries, property, plant & equipment, and sales and returns of investments 854 293 Cash flow from operations and asset sales (Non-GAAP) 17,195 15,081 Because of the ongoing nature of our asset management and divestment program, we believe it is useful for investors to consider proceeds associated with asset sales together with cash provided by operating activities when evaluating cash available for investment in the business and financing activities, including shareholder distributions. Cash flow from operations and asset sales in the first quarter of 2023 was $17.2 billion, an increase of $2.1 billion from the comparable 2022 period primarily reflecting higher earnings. Cash provided by operating activities totaled $16.3 billion for the first three months of 2023, $1.6 billion higher than 2022. Net income including noncontrolling interests was $11.8 billion, an increase of $6.1 billion from the prior year period. The adjustment for the noncash provision of $4.2 billion for depreciation and depletion was down $4.6 billion from 2022. Changes in operational working capital were a reduction of $0.3 billion, compared to a contribution of $1.1 billion in the prior year period. All other items net increased cash flows by $0.6 billion in 2023 versus a reduction of $0.9 billion in 2022. See the Condensed Consolidated Statement of Cash Flows for additional details. Investing activities for the first three months of 2023 used net cash of $4.9 billion, an increase of $1.0 billion compared to the prior year. Spending for additions to property, plant and equipment of $5.4 billion was $1.5 billion higher than 2022. Proceeds from asset sales were $0.9 billion. Net investments and advances increased $0.1 billion to $0.4 billion. Net cash used in financing activities was $8.5 billion in the first three months of 2023, including $4.3 billion for the purchase of 39.3 million shares of ExxonMobil stock, as part of the previously announced buyback program. This compares to net cash used in financing activities of $6.7 billion in the prior year. Total debt at the end of the first quarter of 2023 was $41.4 billion compared to $41.2 billion at year-end 2022. The Corporation's debt to total capital ratio was 16.7 percent at the end of the first quarter of 2023 compared to 16.9 percent at year-end 2022. The net debt to capital ratio was 4.1 percent at the end of the first quarter, a decrease of 1.3 percentage points from year-end 2022. The Corporation's capital allocation priorities are investing in competitively advantaged, high-return projects, maintaining a strong balance sheet, and sharing our success with our shareholders through more consistent share repurchases and a growing dividend. The Corporation distributed a total of $3.7 billion to shareholders in the first three months of 2023 through dividends. The Corporation has access to significant capacity of long-term and short-term liquidity. Internally generated funds are expected to cover the majority of financial requirements, supplemented by long-term and short-term debt. The Corporation had undrawn short-term committed lines of credit of $0.4 billion and undrawn long-term committed lines of credit of $1.3 billion as of first quarter 2023. The Corporation, as part of its ongoing asset management program, continues to evaluate its mix of assets for potential upgrade. Because of the ongoing nature of this program, dispositions will continue to be made from time to time which will result in either gains or losses. Additionally, the Corporation continues to evaluate opportunities to enhance its business portfolio through acquisitions of assets or companies, and enters into such transactions from time to time. Key criteria for evaluating acquisitions include strategic fit, potential for future growth and attractive current valuations. Acquisitions may be made with cash, shares of the Corporation’s common stock, or both. Litigation, other contingencies, and contractual obligations are discussed in Note 3 to the unaudited condensed consolidated financial statements. 26 TAXES (millions of dollars) Three Months Ended March 31, 2023 2022 Income taxes 4,960 2,806 Effective income tax rate 34 % 40 % Total other taxes and duties (1) 8,095 8,449 Total 13,055 11,255 (1) Includes “Other taxes and duties” plus taxes that are included in “Production and manufacturing expenses” and “Selli ng, general and administrative expenses”. Total taxes were $13.1 billion for the first quarter of 2023, an increase of $1.8 billion from 2022. Income tax expense was $5.0 billion compared to $2.8 billion in the prior year reflecting higher commodity prices. The effective income tax rate of 34 percent declined from the 40 percent rate in the prior year period due primarily to a change in mix of results in jurisdictions with varying tax rates and one-time impacts in the prior period. Total other taxes and duties decreased by $0.4 billion to $8.1 billion. CAPITAL AND EXPLORATION EXPENDITURES (millions of dollars) Three Months Ended March 31, 2023 2022 Upstream (including exploration expenses) 4,581 3,879 Energy Products 685 566 Chemical Products 831 436 Specialty Products 91 23 Other 192 — Total 6,380 4,904 Capital and exploration expenditures in the first quarter of 2023 were $6.4 billion, up $1.5 billion from the first quarter of 2022. The Corporation plans to invest in the range of $23 billion to $25 billion in 2023. Actual spending could vary depending on the progress of individual projects and property acquisitions. 27 FORWARD-LOOKING STATEMENTS Statements related to outlooks; projections; descriptions of strategic, operating, and financial plans and objectives; statements of future ambitions and plans; and other statements of future events or conditions in this report, are forward-looking statements. Similarly, discussion of future carbon capture, transportation and storage, as well as biofuel, hydrogen, and other plans to reduce emissions are dependent on future market factors, such as continued technological progress, policy support and timely rule-making and permitting, and represent forward-looking statements. Actual future results, including financial and operating performance; total capital expenditures and mix, including allocations of capital to low carbon solutions; structural earnings improvement and structural cost reductions and efficiency gains, including the ability to offset inflationary pressure; plans to reduce future emissions and emissions intensity; ambitions to reach Scope 1 and Scope 2 net zero from operated assets by 2050, plans to reach net zero Scope 1 and 2 emissions in Upstream Permian Basin unconventional operated assets by 2030, eliminating routine flaring in-line with World Bank Zero Routine Flaring, reaching near-zero methane emissions from its operations, meeting ExxonMobil’s emission reduction goals and plans, divestment and start-up plans, and associated project plans as well as technology efforts, timing and outcome of projects related to the capture, transportation and storage of CO2, and produced biofuels; changes in law, taxes, or regulation including environmental regulations, trade sanctions, and timely granting of governmental permits and certifications; timing and outcome of hydrogen projects; cash flow, dividends and shareholder returns, including the timing and amounts of share repurchases; future debt levels and credit ratings; business and project plans, timing, costs, capacities and returns; and resource recoveries and production rates could differ materially due to a number of factors. These include global or regional changes in the supply and demand for oil, natural gas, petrochemicals, and feedstocks and other market factors, economic conditions, and seasonal fluctuations that impact prices and differentials for our products; government policies supporting lower carbon investment opportunities such as the U.S. Inflation Reduction Act or policies limiting the attractiveness of future investment such as the additional European tax on the energy sector; variable impacts of trading activities on our margins and results each quarter; actions of competitors and commercial counterparties; the outcome of commercial negotiations, including final agreed terms and conditions; the ability to access debt markets; the ultimate impacts of COVID-19 or other public health crises, including the effects of government responses on people and economies; reservoir performance, including variability and timing factors applicable to unconventional resources; the level and outcome of exploration projects and decisions to invest in future reserves; timely completion of development and other construction projects; final management approval of future projects and any changes in the scope, terms, or costs of such projects as approved; changes in law, taxes, or regulation including environmental regulations, trade sanctions, and timely granting of governmental permits and certifications; government policies and support and market demand for low carbon technologies; war, civil unrest, attacks against the company or industry, and other political or security disturbances; expropriations, seizure, or capacity, insurance or shipping limitations by foreign governments or laws; opportunities for potential investments or divestments and satisfaction of applicable conditions to closing, including regulatory approvals; the capture of efficiencies within and between business lines and the ability to maintain near-term cost reductions as ongoing efficiencies; unforeseen technical or operating difficulties and unplanned maintenance; the development and competitiveness of alternative energy and emission reduction technologies; the results of research programs and the ability to bring new technologies to commercial scale on a cost-competitive basis; and other factors discussed under Item 1A. Risk Factors of ExxonMobil’s 2022 Form 10-K. Forward-looking and other statements regarding our environmental, social and other sustainability efforts and aspirations are not an indication that these statements are necessarily material to investors or requiring disclosure in our filing with the SEC. In addition, historical, current, and forward-looking environmental, social and sustainability-related statements may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future, including future rule-making. The term “project” as used in this report can refer to a variety of different activities and does not necessarily have the same meaning as in any government payment transparency reports. 28 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information about market risks for the three months ended March 31, 2023, does not differ materially from that discussed under Item 7A of the registrant's Annual Report on Form 10-K for 2022.