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Exxon Mobil Corporation (NYSE:XOM)

Q4 2008 Earnings Call Transcript

January 30, 2009 11:00 am ET

Executives

David Rosenthal – VP of IR & Secretary

Analysts

Christina Chen – Barclays Capital

Shin Kim [ph] – Merrill Lynch

Neil McMahon – Sanford Bernstein

Ryan Todd – Deutsche Bank

Doug Leggate – Howard Weil

William Ferer – W. H. Reaves & Co.

Operator

Good day, everyone and welcome to this ExxonMobil Corporation fourth quarter 2008 earnings conference call. Today's call is being recorded. At this time for opening remarks, I would like to turn the call over to your Vice President of Investor Relations and Secretary, David Rosenthal. Please go ahead, sir.

David Rosenthal

Thank you. Good morning. And welcome to ExxonMobil's teleconference and webcast on our fourth quarter and full year 2008 financial and operating results. As you are aware from this morning's press release, ExxonMobil's fourth quarter earnings performance was strong.

Our results reflect the strength of our business model during a period of global economic weakness and significant decline in commodity prices. The current environment has created challenging business conditions for many industries and has also affected millions of consumers worldwide. Despite these challenges, ExxonMobil remains well positioned for the future as a direct result of our financial strength, long-term focus, effective approach to risk management, and capital discipline.

Before we go further, I would like to draw your attention to our cautionary statement. Please note that estimates, plans and expectations are forward-looking statements. Actual results, including resource recovery, volume growth and project outcome could differ materially due to factors I discuss and factors noted in our SEC filing.

Please see factors affecting future results and the Form 8-K we furnished this morning, which are available through the investor section of our Web site. Please also see the frequently used terms, the supplements to this morning's press release and the 2007 financial and operating review on our Web site. This material defines key terms I will use today, shows ExxonMobil's net interest in specific projects and includes our SEC Regulation G disclosure.

Now, I am pleased to turn your attention to the fourth quarter results. ExxonMobil's fourth quarter 2008 normalized earnings and net income was $7.8 billion, a reduction of $3.8 billion from the fourth quarter of 2007, versus the third quarter of 2008, normalized earnings were down $5.6 billion and net income decreased $7 billion. Both comparisons reflect the recent sharp reduction in commodity prices. Normalized earnings per share were $1.55, down $0.58 from a year ago.

During the fourth quarter of 2008, ExxonMobil distributed a total of $10 billion to shareholders, including dividends of $2 billion and share purchases to reduce shares outstanding of $8 billion.

ExxonMobil's full year 2008 net income was $45.2 billion, up $4.6 billion from 2007 and a record for the Corporation, with strong results in each of our upstream, downstream, and chemical businesses. Normalized earnings for 2008 were also a record at $44.1 billion, up $3.5 billion from 2007.

I would now like to share some of the milestones we have achieved since the last earnings call. In December, the Thunder Horse Project in the Gulf of Mexico achieved a production rate of over 200,000 oil equivalent barrels per day. The project at peak is expected to produce 250,000 barrels per day of crude oil and 200 million cubic feet per day of natural gas.

Including Thunder Horse, Volve in Norway, Starling in the U.K. sector of the North Sea, Kizomba C Mondo, and Saxi Batuque in Angola, East Area and Natural Gas Liquids in Nigeria, Journey B in Malaysia and ACG Phase Three in Azerbaijan, we completed eight major project start-ups during 2008.

Also, during the fourth quarter, we started up the offshore facilities for the Qatargas II Train 4 project in Qatar. We are completing commissioning activities onshore and we anticipate first LNG from the project during the first quarter of 2009. The South Hook LNG terminal in the U.K. is also in the process of completing commissioning and we expect initial LNG receipt and processing during the fist quarter.

When full operational capacity is reached, the terminal will have the capability to supply 2 billion cubic feet of natural gas per day to the U.K. market. The fourth quarter also saw the completion of four new Q-Max class LNG carriers, the first of their kind. The Q-Max carriers are the largest LNG carriers in the world and can transport about 80% more cargo than a standard carrier.

These vessels mark a step change in LNG shipping by lowering unit transportation cost while improving energy efficiency and reducing emissions. These groundbreaking improvements were made possible by applying the latest LNG shipping technology developed by ExxonMobil and our partner Qatar Petroleum.

In December, the Sakhalin-1 project earned the excellence in project integration award from the committees and sponsoring societies of the International Petroleum Technology Conference or IPTC held in Kuala Lumpur. The award is a testament to ExxonMobil’s achievements in successfully executing the project in one of the most challenging Arctic environments in the world, in a safe and environmentally responsible manner. These major projects demonstrate our ongoing commitment to bring new supplies to market and deliver value to our shareholders.

In exploration, we added to our global portfolio of outstanding deepwater opportunities. ExxonMobil entered into an agreement with Turkish national oil company, TPAO to explore two large deepwater blocks in the Black Sea offshore Turkey. These blocks cover total area of 7 million acres. We're awaiting final government approval of this agreement.

ExxonMobil also signed an agreement with the Romanian oil and gas company Petron to cooperate on a 3D seismic acquisition and evaluation program of the Black Sea Neptune block covering approximately two million acres. This agreement helps strengthen our position in this new exploration play.

In Brazil, the deepwater drilling rig, West Polaris is currently drilling the Azula well in Block BM-S-22. Plans for additional drilling on the block are underway with a second well to follow upon completion of the first.

ExxonMobil is pleased to be participating in this new subsalt play and will leverage all of our global experience and industry-leading technologies in the exploration program. We also continue to progress our high potential unconventional natural gas opportunities around the world.

In the Lower Saxony Basin in Germany, we have drilled three exploration wells in the promising shale gas play there and are preparing to commence testing operations. In the Mako Trough in southeast Hungary, we are now drilling our second and third evaluation wells. Testing operations will begin once we have completed the first set of wells.

In the Horn River Basin, in northeastern British Columbia, Canada, we also commenced a four well winter drilling and testing program on our extensive shale gas acreage during the fourth quarter.

Moving now to the downstream, during the quarter, we announced our plans to invest more than $1 billion in our Baton Rouge, Louisiana; Baytown, Texas, and Antwerp Belgium refineries to increase the supply of cleaner burning diesel. These projects include the construction of additional process units and modifications to existing facilities, which will allow us to increase diesel production by 6 million gallons per day at these sites. This increase in production is equivalent to the diesel produced from about four average sized refineries.

Building on our commitment to technology, ExxonMobil announced in October that we are collaborating with Pratt & Whitney Rocketdyne to develop next generation gasification technology to convert coal, coke or biomass to synthesis gas. One of the potential uses of this technology would be to facilitate carbon capture and storage, reducing green house gas emissions from power generation.

The collaboration takes advantage of ExxonMobil's technology leadership in the energy sector and Pratt & Whitney Rocketdyne experienced in rocket engine development, with the goal of making significant progress in gasification technology.

Also in refining, we continued our activities to reduce raw material cost by managing our crude flexibility. This quarter, ExxonMobil ran 36 crudes that were new to individual refineries and four that were new to ExxonMobil.

Turning now to our chemical business, in October, ExxonMobil 1, the 2008 ICIS Chemical Business award for best product innovation for our new battery separator film technology.

During the fourth quarter, we also began construction on a new battery separator film manufacturing facility in Gumi, South Korea. The facility will have the capacity to produce over 30 million square meters of film per year with opportunity for future significant expansion. This ExxonMobil film technology is expected to help improve the efficiency and performance of lithium ion batteries and may lead to future applications in new, hybrid and electric vehicles. This investment will significantly enhance our capability to supply customers in this fast growing market.

Also during the fourth quarter, we signed heads of agreement with Saudi Basic Industries to progress detailed studies for a new elastomers project at our petro chemical joint ventures located in Kemya and Yanpet, Saudi Arabia.

The new facilities will supply a combined volume of over 400,000 tons per year of chemical products including synthetic rubber, thermal plastic specialty polymers and other products. This project is part of ExxonMobil's commitment to invest in advantaged, chemical growth projects in the Middle East and Asia-Pacific to meet long-term demand.

Now turning to the business line results, upstream earnings in the fourth quarter were $5.6 billion, down $2.6 billion from the fourth quarter of 2007. Upstream after-tax unit earnings in the fourth quarter of 2008 were just under $15 per barrel.

Lower realizations reduced earnings by $2.7 billion, driven by lower crude oil prices which were down $34 per barrel to just under $51 per barrel in the quarter. Natural gas realizations were up $1.46 per kcf from the fourth quarter of 2007, reflecting higher prices in Europe and the Middle East, partly offset by lower realizations in North America.

Lower volumes reduced earnings by $240 million. Other effects increased earnings by $320 million due primarily to positive foreign exchange effects, higher gains from asset sales and lower taxes, partly offset by increased operating expenses.

In total, oil equivalent volumes decreased to 3% from the fourth quarter of last year. Entitlement volume effects including price and spend impacts and PSC net interest reductions, reduced volumes by 47,000 barrels per day. Excluding the impact of lower entitlement volumes, quotas and divestments, production was down 1%, driven by lower European natural gas demand.

Natural fuel decline was largely offset by a major project ramp ups in West Africa, the North Sea and Kazakhstan. Liquids production decreased 45,000 barrels per day or 2% from the fourth quarter of last year. Excluding impacts related to lower entitlement volumes, quotas and divestments, production was up just over 1%. Major project ramp ups in West Africa, Kazakhstan and the North Sea and lower maintenance activity more than offset natural fuel decline.

Gas volumes decreased 565 million cubic feet per day from the fourth quarter of 2007. New project volumes in the North Sea, Qatar and Malaysia were more than offset by natural decline and lower demand in Europe.

Turning now to the sequential comparison versus the third quarter of 2008, upstream earnings decreased $3.7 billion, primarily due to lower crude oil realizations, which were down $60 per barrel in the quarter. Higher crude oil and natural gas volumes increased earnings by $850 million. Other effects benefited earnings by $350 million primarily from higher gains on asset sales.

Liquids production increased 8% reflecting the impact of new project volumes and the completion of maintenance programs. Natural gas production was up nearly 26% driven by seasonally higher demand in Europe. Oil equivalent volumes were up 14% from the third quarter.

Looking now at the full year results, 2008 upstream earnings excluding special items were a record $33.8 billion, an increase of $7.3 billion over 2007. Improved realizations increased earnings by $11.8 billion. Crude oil prices were up, over $24 per barrel and natural gas realization increased in all major producing regions.

Lower crude oil and natural gas volumes reduced earnings by $3.7 billion. Other factors reduced earnings by $800 million with higher expenses, including the impact of new project start-ups and negative tax effects partly offset by positive foreign exchange impacts and higher gains on asset sales.

Full year oil equivalent volumes were down 6% versus 2007. Liquids volumes were down 8% while natural gas volumes were down 3%. Excluding entitlement volume effects, the Venezuela expropriation and divestments, production was down just under 3%. About half of that reduction was due to higher maintenance activity and the effects of the hurricanes in the U.S., with the balance reflecting natural fuel decline, offset by new project volumes in West Africa, the North Sea, Kazakhstan and Malaysia. For further detail on regional volumes, please refer to the press release and IR supplement.

Turning now to the downstream results, earnings in the fourth quarter were $2.4 billion, up $150 million from the fourth quarter of 2007. Higher margins increased earnings by $890 million, with stronger marketing and industry refining margins and positive price finalization effects partly offset by impacts due to temporary inventory changes.

Volume and mix effects reduced earnings by $230 million, driven primarily by lower sales volume. Other effects reduced earnings by $510 million, reflecting adverse foreign exchange impacts and higher operating expenses including hurricane related repair costs.

Sequentially, fourth quarter earnings decreased by $600 million. Lower margins reduced earnings by $980 million, driven by weaker refining margins including negative impacts due to temporary inventory changes partly offset by improved marketing margins. Volume and mix effects increased earnings by $40 million with margin improvement activities more than offsetting lower sales volumes. Other factors increased earnings by $340 million including $190 million of positive LIFO effects and higher earnings from asset sales.

Full year 2008 downstream earnings were $8.2 billion, down $1.4 billion from record earnings in 2007. Lower margins reduced earnings by $910 million due to weaker refining margins which more than offset improved marketing margins. Volume and mix effects increased earnings by $560 million, primarily due to positive margin improvement activities. Other factors reduced earnings by $1.1 billion reflecting higher operating expenses and negative foreign exchange effects.

Now turning to our chemical results, fourth quarter chemical earnings were $155 million, down $960 million from the fourth quarter of 2007. Weaker margins reduced earnings by $270 million reflecting lower realizations while volume effects reduced earnings by $360 million due to lower demand and the impact of the hurricanes in the U.S. Other effects reduced earnings by $330 million, including hurricane related repair costs and negative foreign exchange effects, partially offset by positive LIFO impacts.

Sequentially, fourth quarter chemical earnings decreased by $930 million. Weaker margins reduced earnings by $240 million and lower volumes decreased earnings by $370 million, both reflecting impacts of the economic slowdown. Other effects were negative, $320 million with adverse foreign exchange effects and hurricane related repair cost partly offset by positive LIFO effects.

Full year 2008 chemical earnings were just under $3 billion, down 1.6 billion from record earnings in 2007. Weaker margins reduced earnings by $1.2 billion while lower volumes decreased earnings by $530 million.

Turning now to our corporate and financing segment, corporate and financing expenses during the quarter were $383 million versus earnings of $77 million in the fourth quarter last year. The increase reflects the absence of positive tax effects and reduced interest income due to lower interest rates. Full year 2008 expenses were $830 million, up from $23 million in 2007, reflecting negative tax effect and lower interest income.

The effective tax rate for the fourth quarter was 46%. And for the full year 2008, the effective tax rate was 47%. At the end of the fourth quarter, our cash balance was $31 billion and debt was $9 billion. The corporation distributed $10 billion to shareholders in the fourth quarter through dividends and share purchases to reduce shares outstanding. Of that total, $8 billion was distributed to purchase shares in excess of dilution, reducing the number of shares outstanding by 2.2%.

For the full year 2008, we distributed a total of $40 billion to shareholders including $32 billion to purchase shares in excess of dilution, which reduced shares outstanding by 7.5% further demonstrating our commitment to return cash to our shareholders.

Share purchases to reduce shares outstanding are expected to be $7 billion in the first quarter of 2009. CapEx in the fourth quarter was $6.8 billion, an increase of 11% from fourth quarter 2007 and brings 2008 full year CapEx to $26.1 billion. This is in line with our previous guidance and it increased a $5 billion from 2007. We continue to invest at record level in robust projects to help meet global demand for crude oil, natural gas and finished products.

In summary, these results reflect the strength of ExxonMobil's business model. The volatile business conditions in 2008 demonstrate that our long-term commitment to the integrity of our operations, disciplined investment approach and integrated business model continue to deliver superior results.

Finally, I would like to mention two upcoming events. First, in mid-February, we will be releasing our 2008 reserves performance data. And second, as many of you who already have seen, our analyst meeting this year will take place on Thursday, March 5th. This will include a live audio webcast beginning at 9:00 a.m. Eastern, 8:00 a.m. Central Time. ExxonMobil's presenters will be led by Chairman and CEO Rex Tillerson.

That concludes my prepared remarks. I would now be happy to take your questions.

Question-and-Answer Session

Operator

Thank you, Mr. Rosenthal. (Operator instructions). We'll take our first question from Christina Chen with Barclays Capital.

Christina Chen - Barclays Capital

Hi, good morning. I just had a quick question. Were there any asset sales gains in the quarter and can you break down the effects in the inventory gains?

David Rosenthal

Yes. Good morning, Christina.

Christina Chen - Barclays Capital

Good morning.

David Rosenthal

Yes. In the other bar, we do have some asset sales. In total, fourth quarter of '08 reflects a positive earnings of impacts from Brazil, Spain and Portugal affiliate sales. And in the downstream, we had a number of minor asset sales as well. Christina, did you have another question?

Christina Chen - Barclays Capital

Actually, is it possible to give out the actual number for that?

David Rosenthal

No. We don't typically disclose the actual earnings effects from our asset sales.

Christina Chen - Barclays Capital

Okay. And then were there any other effects in inventory effects?

David Rosenthal

We did have some LIFO effects in the quarter in the downstream. They were fairly minor if you're looking fourth quarter versus the fourth quarter '08 that is, versus the fourth quarter of '07. It was just under $100 million of negative LIFO effects.

Christina Chen - Barclays Capital

Okay. Thank you.

David Rosenthal

Alright. Thank you.

Operator

(Operator instructions). We'll take our next question from Shin Kim [ph] with Merrill Lynch.

Shin Kim - Merrill Lynch

Hi, actually I think the question was answered. Thank you.

David Rosenthal

Okay. Thank you.

Operator

We'll take our next question from Neil McMahon with Sanford Bernstein.

Neil McMahon - Sanford Bernstein

Hi, I was wondering if you could go through some of the new projects both in Brazil and in Hungary. I know its sort of early days, but you did go through or at least fit through to the Brazilian authorities that you had discovered oil in block 22. I was wondering if you could give us some more details there and indeed the quality of the oil or oil traces that were discovered?

David Rosenthal

Yes, of course. We are drilling the Azula well in the ExxonMobil operated BMS-22 block. We continue to drill ahead in that block. We did file a discovery notice on January 16th with the Brazilian authorities. But this is a notice just that we had encountered hydrocarbons, but that is the extent of the notice.

Neil McMahon - Sanford Bernstein

Okay. So you're not going any further than that?

David Rosenthal

No, at this time, we really don't have any other comments to make on Brazil other than we are drilling ahead and progressing with that well. Neil, I think you also asked a question about Hungary.

Neil McMahon - Sanford Bernstein

Yes.

David Rosenthal

As you recall, last year, we did announce that we had signed an agreement to begin phase work program in the Mako Trough in Hungary on about 184,000 acres. The first two of those wells have spud last year and the second well spud in December and we continue to explore and work on that prospect.

Neil McMahon - Sanford Bernstein

And just a very final one, maybe it's a quick one. In terms of the LNG coming to South Hook, are you planning to take it from Qatar with some of the new boats or could it be any sort of boat just to start up the regas facility?

David Rosenthal

No. We would be using our new Q-Max ships for that purpose, and the Q-Max and the Q flag ships.

Neil McMahon - Sanford Bernstein

Great. And then just a very final one to squeeze it in, in terms of your buyback, the run rate is dropping going to 7 billion, which is still pretty impressive. Are we to presume that over the course of the year that you're going to manage the buyback rate as you’ve said over time and still maintain your dividend group of policy?

David Rosenthal

Well, without providing any specific guidance on the buyback as we've talked about in the past, they are flexible. They are the fly wheel for the use of our cash after funding our robust investment program and our dividend. I really don't have any guidance to give today going forward other than what I stated. We do expect to spend $7 billion in the first quarter of this year.

Neil McMahon - Sanford Bernstein

Great. Thank you.

David Rosenthal

Thank you.

Operator

(Operator instructions). We'll go next to Ryan Todd with Deutsche Bank.

Ryan Todd - Deutsche Bank

Hi, good morning.

David Rosenthal

Good morning. How are you?

Ryan Todd - Deutsche Bank

Good. Thanks. I have a quick question on, if you can help me out at all on U.S. refining or just refining numbers in general. There is tremendous volatility. I’m bit surprised that you lost money in the U.S. downstream and made so much money in the international downstream. Can you -- especially given the performance of some of your peers throughout this week, can you help us out at all to understand kind of the refining dynamics that are going on and maybe a little bit of guidance for what we should expect going forward?

David Rosenthal

I'd like to certainly talk about the fourth quarter. If we look at the fourth quarter '08 versus the fourth quarter '07, in total, the margin effect as I mentioned was a positive about $890 million. And this was driven by stronger non-U.S. margins with improvements both in non-U.S. refining and marketing margins. Overall, U.S. margins were actually down and that was driven by weaker refining margins across the quarter. And that was the primary driver. If you look at the earnings particularly in the U.S., note at the bottom of our chart, that change in earnings across the quarter again was driven by significantly lower refining margins.

Ryan Todd - Deutsche Bank

Okay. So there is nothing from a quarter-on-quarter basis that in terms of just volatility in the numbers from rapid price movements, is there anything else that we should be aware of?

David Rosenthal

Well, yes, there are some effects included in there as you know. Changes in prices over time can have some price finalization impacts as well as impacts due to temporary changes in inventory across the year. But it is driven by overall again lower refining margins. Going forward, we really don't have any guidance going forward. A lot of factors are weighing on both demand and margins on downstream products and we'll be monitoring those as the next several months progress.

Ryan Todd - Deutsche Bank

While we're talking refining, can I actually check in as well on any potential exposure that you might have to the strike down in the Gulf Coast or that potential strike down on the Gulf Coast are you exposed?

David Rosenthal

We have a total of four refineries that have United Steel Workers and International Brotherhood of Electrical Workers Agreement. And in these four refineries, they expire at the end of the month. These refineries are Beaumont, Chalmette, Torrence and Billings. And if you look at the status of the discussions, ExxonMobil is currently engaged in active negotiations with the union. I really wouldn't consider it appropriate to discuss any specifics of the proposal other than the negotiations are ongoing.

Ryan Todd - Deutsche Bank

That's great. Thanks. And if I could just sneak in one more, Neil asked you about the gas prospects over there in Hungary and you mentioned as well drilling in Germany. Would it be possible to -- from the wells you’ve drilled so far to make any comparisons to gas assets that we see here in the U.S. in terms of reserve, flow rates or just how you view those assets versus gas assets here in the U.S.?

David Rosenthal

No. I wouldn't want to make any direct comparisons other than to say that although it's a little early, we do view the prospects that we have in Germany as potentially world class resources, but we're still evaluating and testing programs are underway, and we'll be testing the wells that we drilled and determining the extent of that resource.

Ryan Todd - Deutsche Bank

Great. Thanks. I appreciate it.

David Rosenthal

Thank you.

Operator

We'll take our next question from Doug Leggate with Howard Weil.

David Rosenthal

Good morning, Doug.

Doug Leggate - Howard Weil

Can you hear me?

David Rosenthal

Yes, good morning, Doug.

Doug Leggate - Howard Weil

Hi, how are you guys doing?

David Rosenthal

And welcome back.

Doug Leggate - Howard Weil

Thanks. I think you might have a little bit of competition this morning. So, David, I've got a couple of things. I don't know if you broke out in your prepared remarks, but it looks like you recaptured quite a bit of volume from production sharing contracts and some of your PSC centered areas. And obviously, all prices have come down a little below the average for the quarter again (inaudible) so far in Q1. Can you just give us an update on your sensitivity to volume recapture (inaudible) expression on from PSCs and I've got an unrelated follow-up?

David Rosenthal

Okay, sure. If we look at our volumes first, fourth quarter '08 versus fourth quarter '07, we did still see about 47,000 barrels a day overall negative from PSC effects. Most of that in net interest reductions and a little on the price and spend as we noted. I will say as we look at that sequential increase that we saw in volumes from the third quarter to the fourth quarter. As you would expect with prices declining, we did get a little help on the price and spend side of that equation and really didn't see any net interest reductions. But in that sequential increase we did see the impact of the lower prices on the price and spend component as you would have expected.

Doug Leggate - Howard Weil

(inaudible). Excluding the (inaudible) effects of those entitlements, is the actual price of the cost recovery element, the price sensitivity, if you like, is that largely washed through now or do you still have a little more that you'd like to see come back again in Q1?

David Rosenthal

On an ongoing basis in any quarter on the price and spend impacts, that will be determined on both the pricing at the time as well as our spend levels, but that again that will be variable. But I would expect the first quarter given if the prices stay the same would be about similar.

Doug Leggate - Howard Weil

Okay. Great. And my follow-up, David, is, is this really just an observation? I'm trying to understand the mechanics of what's going on with your costs. Because like everyone you've talked about how costs have been going up and so on. But if you look at the average oil price in the quarter, we will leave realization to decide for a second and look at the same the last time we had an average oil price all of that level was under that Q1 '07. Your net income on a per barrel basis is almost exactly the same which kind of suggests that either there has been a mixed change in improvement or that you've been able to recapture or go back some of the cost increases. Can you just talk about what's going on in the cost side and how those earnings would remain so resilient over the last couple of years?

David Rosenthal

Yes, let's talk about the cost side for just a minute. As you're well aware, the industry has seen significant upward pressure over the last couple of years in a fairly heated market for supplies and services, and we've not been immune to that, of course. But we have been able to mitigate a great deal of that through our global procurement organization, our focus on operations excellence and efficiency in our operations. So while we've seen the impact of those increases, we don't think it's been as big as it has perhaps on others. I would also offer that one of the things we're seeing here is the benefit of some of our technology advantages across some of our processes -- and the other piece of it would just simply be the mix of where the production is or isn't between any quarter. But I wouldn't have any other specific observation other than to say, they're coming in about as we expected and reflect a lot of the things that we think give us competitive advantages in the industry.

Doug Leggate - Howard Weil

Would you be prepared to give us some indication as to year-over-year what your costs look like in a percentage basis?

David Rosenthal

I don't think I have a direct comparison on a percentage basis, Doug, but I would say if you look at just our earnings impacts on a period to period earnings recs we do see some of the cost increases that we're talking about in there. But again, in terms of significance in any particular quarter, not that significant. Obviously, across the whole year, you'd see a little bigger effect on a business our size. But I really don't have a percentage increase in particular for any segment of the business or the company in whole.

Doug Leggate - Howard Weil

Great. I'll leave it there, David. Thanks again.

David Rosenthal

Okay, thank you.

Operator

We'll take our last question from William Ferer with W. H. Reaves & Co.

William Ferer - W. H. Reaves & Co.

Good morning.

David Rosenthal

Good morning.

William Ferer - W. H. Reaves & Co.

Thank you. Last is not always least. Just a couple the Imperial announced the proceeding on Kearl Lake wondering if the Exxon Corp is opposed to Imperial will participate in the program and if so, equal proportion how that might be. And I noticed in your fourth quarter exploration expense down from a year ago, and it leads to maybe two questions. Part A is were you just more successful or was it just a mix effect? And Part B, you mentioned earlier about economic factors, I'm wondering if the economic conditions perhaps in some oil producing nations would open up more opportunities for Exxon to perhaps participate more aggressively than they might have been given an opportunity where price is much higher, economy is much stronger.

David Rosenthal

Thank you. Let me see if I can take those in order. Let's start out with Kearl. As you know Kearl is a significant high quality oil sands resource. And that project continues to be progressed. Detailed design and engineering is underway. Long lead time procurement items are being advanced. Site activities are underway. And again, the project is progressing. And that is a project with ExxonMobil affiliates and NIOL.

If we take a look I believe the next question related exploration expense. It's down, but it's really timing of activities and expenditures. I don't think we draw any other conclusions related to the market. Overall, our activity is higher as reflective of the portfolio that we have and the activity that we have under way to work on that portfolio, but the absolute timing of the expenditures as they're booked really relates to the activity and nothing special there quarter-to-quarter.

If we look at the economic factors, I think, in particular, you were talking about more opportunities. Let me back up and actually take the economic factors that we're seeing in the business in two perspectives. One of which is the impact on prices of goods and services in our projects as we progress, our portfolio of investment opportunities. As you're well aware, commodity prices have dropped significantly in a number of areas and people are starting to see a little downturn perhaps in some expenses and services. And we're -- although it's a little early to tell the extent that those might provide us, we are actively pursuing for our global procurement and global project development organizations putting pressure on the system to really get the lag out and start to bring those cost reductions to the bottom-line as quickly as possible.

The other aspect of the current economic environment as you mentioned is the impact it has on resource holders and producing nations. And without being anything particular or specific --

William Ferer - W. H. Reaves & Co.

Give real specific, will you?

David Rosenthal

I can't give real specific, but I would tell you certainly we are open and always exploring and chasing new opportunities to add value in all of the economic conditions. But it's a little early to tell what impact that's going to have in various scenarios or draw any conclusions other than I can assure you that we are well positioned both from a financial strength standpoint and organization capability standpoint to take advantage of any opportunity that might present itself for whatever reason that might come along. So thanks for the question.

William Ferer - W. H. Reaves & Co.

Thank you.

Operator

With that we have no further questions left in the queue. I'll turn the call back over to Mr. Rosenthal for any additional or closing remarks.

David Rosenthal

Thank you very much. I appreciate everybody joining the call and your questions. I would like to say, in closing, that despite the challenging economic environment, we remain confident that our long-term perspective, financial strength and disciplined investment approach will continue to deliver superior differentiated results and positions us well for the future.

Operator

Ladies and gentlemen, that does conclude today's conference. Thank you for your participation. You may now disconnect your lines.

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