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Executives

David S. Rosenthal – Vice President-Investor Relations and Secretary

Analysts

Doug Leggate – Bank of America Merrill Lynch

Douglas Terreson – ISI Group Inc.

Paul Cheng – Barclays Capital

Iain Reid – Jefferies & Company, Inc.

Pavel Molchanov – Raymond James

Scott Willis – Credit Suisse

Robert Kessler – Tudor, Pickering, Holt & Co.

Exxon Mobil Corporation (XOM) Q1 2013 Earnings Call April 25, 2013 11:00 AM ET

Operator

Good day, and welcome to this Exxon Mobil Corporation First Quarter 2013 Earnings Conference Call. Today’s call is being recorded. At this time, for opening remarks, I would like to turn the call over to the Vice President of Investor Relations and Secretary, Mr. David Rosenthal. Please go ahead, sir.

David S. Rosenthal

Good morning, and welcome to Exxon Mobil’s first quarter earnings call and webcast. The focus of this call is Exxon Mobil’s financial and operating results for the first quarter of 2013. I will refer to the slides that are available through the Investors section of our website. Before we go further, I would like to draw your attention to our cautionary statement shown on Slide 2.

Moving to Slide 3, we provide an overview of some of the external factors impacting our results. Global economic growth was mixed throughout the first quarter. U.S. growth was flat to moderate and economic indicators were mixed. China experienced slower growth and the European economies remain challenged.

Energy markets strengthened in the first quarter with higher crude oil and non-U.S. natural gas prices. U.S. natural gas prices remained relatively flat compared with the fourth quarter. Industry refining margins strengthened and we experienced improved chemical commodity product margins.

Turning now to the first quarter financial results as shown on Slide 4, Exxon Mobil’s first quarter 2013 earnings were $9.5 billion, an increase of $50 million from the first quarter of 2012. Earnings per share for the quarter were $2.12, up $0.12 or 6% from a year-ago. The corporation distributed $7.6 billion to shareholders in the first quarter through dividends and share purchases to reduce shares outstanding. Of that total, $5 billion was used to purchase shares.

Yesterday, the Board of Directors declared a cash dividend of $0.63 per share, a 10.5% increase from the last quarter. Share purchases to reduce shares outstanding are expected to be $4 billion in the second quarter of 2013.

CapEx in the first quarter was $11.8 billion, up $2.9 billion from the first quarter of 2012 primarily due to the $3.1 billion Celtic acquisition. Cash flow from operations and asset sales was $14 billion. At the end of the first quarter 2013, cash totaled $6.6 billion and debt was $13.4 billion.

The next slide provides additional detail on first quarter sources and uses of funds. Over the quarter, cash decreased from $9.9 billion to $6.6 billion. The combined impact of strong earnings, depreciation expense and the benefit of our ongoing asset management program yielded $14 billion of cash flow from operations and asset sales. Uses included additions to plant, property and equipment or PP&E up $7.5 billion and shareholder distributions of $7.6 billion. Additional financing and investing activities decreased cash by $2.2 billion primarily reflecting the Celtic acquisition.

Moving on to Slide 6 and a review of our segmented results, Exxon Mobil’s first quarter 2013 earnings of $9.5 billion increased $50 million from the first quarter of 2012. Higher chemical earnings and lower corporate and financing expenses due primarily to favorable tax items were mostly offset by lower Upstream earnings. Guidance for corporate and financing expenses remain at $500 million to $700 million per quarter.

As shown on Slide 7, Exxon Mobil’s first quarter 2013 earnings decreased by $450 million compared with the fourth quarter of 2012. Lower Upstream and Downstream earnings were partly offset by higher Chemical earnings and lower corporate and financing expenses.

Moving next to first quarter business highlights and beginning on Slide 8, we continue to advance our global portfolio of high quality Upstream projects. Extraction of bitumen froth at the Kearl plant facilities began March 31 and we are beginning to process the bitumen froth. We will be filling onsite tankers with diluted bitumen and will transport the product to market with the new pipeline.

Start-up of an operation of this size and scope is a sequential process involving multiple integrated systems. Our first priority is completing start-up activity safely which includes mitigating the impacts of abnormally cold weather of both workers and equipment. Production from the initial development is expected to reach volumes of approximately 110,000 barrels of bitumen per day later this year.

Progress also continues on the Kearl expansion project, which was 32% complete at the end of the first quarter. Fabrication and assembly of pipe rack and equipment modules in Edmonton is ahead of plan, and we have completed setting the main pipe rack modules in the froth treatment plant, also ahead of plan. The project remains on schedule for startup in 2015.

During the quarter, we also started production from the Telok gas field located offshore Malaysia in the South China Sea. The development concept of divide one, design one, build multiple was utilized to efficiently develop the project and shorten construction and installation timeline allowing Telok to be completed on schedule and within budget. The Telok A platform is the first phase of the Telok natural gas project which when completed will consist of two four-legged gas satellite platforms. A total of 14 development wells are planned for the Telok A and B platforms.

In the Gulf of Mexico, appraisal drilling at Hadrian North has been completed and the results are being integrated into development planning for the Hadrian North project. In addition, the Erha North Phase II project in Nigeria was sanctioned during the quarter. The project is located 60 miles offshore Nigeria and consist of the Subsea tieback to the existing Erha floating, production, storage and offloading vessel. It is anticipated to recover approximately 175 million barrels of oil with the peak capacity of 60,000 barrels of oil per day. Startup is targeted for 2016.

Turning now to Slide 9 and an update on our conventional exploration activities; in Tanzania, we completed two successful wells during the quarter. The Tangawizi-1 well discovered gas and high-quality Tertiary sandstone reservoirs confirming 4 Tcf to 6 Tcf of gas in place. This new discovery is located 10 kilometers from the Zafarani and Lavani discoveries.

In addition, the Zafarani-2 well confirmed gas-bearing, high-quality reservoir in cretaceous appraisal target. We have so far completed five successful wells on Block 2. Exploration efforts continue and additional drilling is planned for later this year. In the Gulf of Mexico, the Phobos prospect encountered approximately 250 net feet of oil pay in the Lower Tertiary-aged reservoirs. As you know, we plan to drill several wells in the Gulf of Mexico this year. Our next prospect, Thorn will begin drilling in the second quarter.

Moving now to Slide 10; also during the quarter, we made several substantial additions of high-quality acreage to our exploration portfolio. We expanded the strategic co-operation agreement with Rosneft to include an additional 150 million acres from seven new blocks in the Chukchi, Laptev and Kara Sea of the Russian Arctic.

We are now working with Rosneft on 180 million acres in the Russian Arctic, including the original 31 million acres in the Kara Sea. These lots cover some of the most promising and least explored acreage in the world. In West Africa, we acquired an 80% interest in Liberia Block 13, comprising more than 625,000 acres offshore and water depths ranging from 75 meters to 3,000 meters. Block 13 is located 30 kilometers offshore Liberia’s central coast.

In the Gulf of Mexico, we added high quality acreage to our deepwater portfolio. The Bureau of Ocean Energy Management awarded Exxon Mobil, the four blocks for which we were the high bidder in the Western Gulf of Mexico OCS lease sale 229. In a recent central lease sale 227, Exxon Mobil was the high bidder for seven blocks. Additionally, we acquired a 33% working interest from BP to reform into the Maui prospect located in the Walker Ridge area. Exxon Mobil will provide a state-of-the-art deepwater drilling rig and will operate the Maui-1 exploration well expected to spud in the second half of this year.

Turning now to our unconventional activities on Slide 11, we continue to progress high-potential, liquids-rich unconventional opportunities. During the quarter, we closed the Celtic acquisition bringing 545,000 net acres of liquids-rich Montney Shale, a 104,000 net acres in the Duvernay Shale, and additional acreage in other areas of Alberta into our unconventional portfolio.

Although it’s very early days, we are rapidly integrating personnel, systems and processes leveraging both our own extensive unconventional expertise and our long operating experience in Canada. We are currently developing future drilling plans to focus on areas expected to deliver the highest liquids yield and to optimize both drilling and completion methodologies.

In the Bakken, gross operated production increased 75% year-on-year with the growth attributable to increased development and optimized completions across our core Bakken acreage. We are utilizing 10 drilling rigs in the Bakken and have fully integrated the acquired Denbury properties into our operations. In the liquids-rich, Woodford Ardmore Shale play rose operated production increased 39% year-on-year.

The Ardmore is our most active unconventional play, with 12 operated rigs delineating more than 270,000 acres in the Ardmore and Marietta Basins. We have absorbed encouraging early results from our first well in the Marietta Basin since coming online a year-ago. After the successful 2012 test of the over-lined Caney Shale in our core Ardmore area, we are progressing with further delineation across both the Ardmore and the Marietta areas.

We also continue well testing and execution of drilling plants in Argentina and Colombia. In Russia, we planned to begin operations in West Siberia later this year.

Turning now to the Upstream financial and operating results, starting on Side 12, Upstream earnings in the first quarter were just over $7 billion, down $765 million from the first quarter of 2012. Lower crude oil realizations partly offset by improved natural gas realizations, negatively impacted earnings by $230 million. As crude oil realizations declined $8.66 per barrel, while gas realizations increased $0.97 per 1000 cubic feet.

Production volume and mix effects negatively impacted earnings by $280 million. All other items including higher expenses related to new project activity, decreased earnings by $250 million. Upstream after-tax earnings per barrel for the first quarter of 2013 were $17.79.

Moving to Side 13, our first quarter volume performance is in line with the projection presented at the Analyst Meeting in March. Oil equivalent volumes decreased by 3.5% from the first quarter of last year; excluding the impacts of entitlement volumes, OPEC quota effects and divestments production was down about 1%.

Liquids production was down 21,000 barrels per day or just below 1% from the first quarter of 2012 as field decline was mostly offset by project ramp up in West Africa and increased production from liquids rich plays in the United States. Natural gas production was down 823 million cubic feet per day or just under 6% quarter-on-quarter as lower entitlement volumes primarily reflecting [cutter] AKG becoming cost current in 2012 and field decline are partially offset by lower downtime and higher seasonal demand in Europe.

Turning out to the sequential comparison and starting on Slide 14, Upstream earnings decreased by $725 million versus the fourth quarter of 2012. Realizations positively impacted earnings by $340 million as crude oil and natural gas realizations increased by $1.68 per barrel and $0.94 per thousand cubic feet respectively. Volume and mix effects decreased earnings by $80 million as the unfavorable timing of lifting and two fewer days in the quarter were mostly offset by higher natural gas volumes in Europe and Asia.

Other items including the absence of gains from asset sales and favorable tax items realized in the fourth quarter decreased earnings by $980 million. Moving to Slide 15, oil equivalent volumes were up 2.4% from the fourth quarter of 2012. Excluding the impacts of entitlement volumes, OPEC quota effects and divestments, production was up more than 4%.

Liquids production was down 10,000 barrels per day from the fourth quarter as unfavorable entitlement volumes were mostly offset by lower downtime. Natural gas production was up 672 million cubic feet per day versus last quarter, primarily reflecting higher seasonal demand in Europe.

Moving now to the Downstream, financial and operating results and starting on Slide 16, Downstream earnings for the quarter were $1.5 billion, down $41 million from the first quarter of 2012.

Improved margins mainly in refining increased earnings by $780 million. Volume and mix effects decreased earnings by $290 million mainly due to increased refinery maintenance activity. All other items decreased earnings by $530 million including lower gains on asset sales outside of the United States, the increased operating expenses associated with refinery maintenance activity and unfavorable foreign exchange effects.

Turning to Slide 17, sequentially first quarter Downstream earnings declined by $223 million, improved margins mainly in refining increased earnings by $470 million, volume and mix effects decreased earnings by $430 million mainly driven by increased refinery maintenance activity. Other items reduced earnings by $260 million due primarily to the absence of a fourth quarter LIFO gain.

Moving now to the Chemical financial and operating results starting on Slide 18; first quarter Chemical earnings were $1.1 billion, up $436 million versus the first quarter of 2012. Stronger commodity margins increased earnings by $320 million, reflecting improved U.S. steam cracking margins on lower ethylene feed cost. All other items increased earnings by $120 million mainly due to increased gains on asset sales.

Moving to Slide 19, sequentially first quarter Chemical earnings increased by $179 million, stronger margins mainly in U.S. commodities increased earnings by $80 million. Lower operating expenses and higher gains from asset sales partly offset by the absence of a prior year quarter LIFO gain increased earnings by a net $90 million.

In conclusion, Exxon Mobil’s first quarter financial and operating performance reflects the value of our strong integrated business model. In the first quarter, we earned $9.5 billion, generated $14 billion in cash flow, invested $11.8 billion in the business and distributed $7.6 billion to our shareholders. As we continue to focus on operational excellence, deploying high impact technologies and leverage our unmatched global integration, Exxon Mobil remains well positioned to maximize long-term shareholder value.

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

Question-and-Answer Session

Operator

Thank you, Mr. Rosenthal. (Operator Instructions) And we will take our first question from Doug Leggate with Bank of America Merrill Lynch.

Doug Leggate – Bank of America Merrill Lynch

Hi. Good morning, David. How are you?

David S. Rosenthal

Good morning, Doug. How are you?

Doug Leggate – Bank of America Merrill Lynch

I love the short name I get on these calls. Anyway two quick questions please. The unit profitability David on the Upstream continues to like the historical capture rate. Can you comment as to whether or something that materially has changed there and if I guess a couple of years ago we talked about start of the LNG trends, is there anything specific you can point to that is back on track to where we’ve been historically?

David S. Rosenthal

I think if you look at what’s happened over the last couple of years as you’ve noted, the change in the mix in particular the addition of the U.S. gas volumes particularly over the period when prices were down in the $2 and some range, you saw the mix impacting the unit profitability relative to the historical trend.

As we go forward, when you look at the longer term and you look at the liquids increases that we have coming on and the higher gas prices that we have seen, you could reasonably expect the profitability to reflect those increases in the both the production as well as the margins. I think one of the other things to keep in mind is we crank up these new projects again is going to be the addition of long-term plateau volumes and the lower decline rate.

So as the decline rate levels out and you are not chasing the decline that we had in prior years you won’t be investing as much money to keep the production levels where they are. I think the other thing that’s positive as we look down the road again in addition to the liquids increase that we’ve talked about in the Analyst Meeting and the increase we’re projecting this year and going forward.

The LNG project that we have coming on stream in the next few years are all sold with the gas linked under long-term contracts to crude oil prices. So if again it gets back to the longer-term looking at the projects that we have coming on this year, and in the next few years and the relative profitability of those projects and again over the long-term, I’m very confident in the robustness of those projects and our ability to bring them on stream and get those barrels to market.

Doug Leggate – Bank of America Merrill Lynch

Okay, thank you. My follow-up hopefully a quick one; somebody is go to ask you, David the share buybacks $14 billion of cash flow; you’re not covering the cash outflow. Can you just talk about what you’re signaling to I mean is this oil spill over $100 and you’re cutting the buyback program, my recollection is you’re not using the planning assumptions, any color you can give us would be appreciated?

David S. Rosenthal

Doug, let me hit from a couple of perspectives. First, when you look at the cash flow in the quarter as you saw from the sources and uses of funds, we had basically a zero impact on working capital in any prior quarters, we have positive impacts there. We did close and pay the $3 billion for the Celtic acquisition; we also had some timing of tax payments and that sort of thing. So but the cash flow again is just an outcome of the earnings give or take these timing effects.

As we said in terms of the buyback, I have to tell you there is no change in our approach to capital allocation and the use of our cash flow as you saw, we once again raise the dividend here and Board announced that yesterday 10.5% this year following on the 21% increase last year, so we continue to raise the dividend on a consistent basis. And then the share buyback is strictly a function of cash flows in the quarter and expectations going forward in the quarters, but no change in terms of signal or the way that we approach the allocation of the fund.

Doug Leggate – Bank of America Merrill Lynch

All right, thanks a lot, David.

Operator

We’ll take our next question from Doug Terreson with ISI.

Douglas Terreson – ISI Group Inc.

Dave, can you hear me?

David S. Rosenthal

Sure, I can. Hi.

Douglas Terreson – ISI Group Inc.

Hi, how are you? So my question is also on Upstream profitability and I’m just going to ask a little bit of a different way and specifically on the international side meaning your point is taken on U.S. natural gas and the benefits of some of these large LNG projects over longer term, but internationally between flat realizations versus last year plus or minus in Rex’s comments on declining drilling and completion cost in March, I just want to say if you could maybe provide a little bit more color on some of the volume and mix effects components on the international side that you highlighted in Exhibit 12 and maybe also whether or not there is a geographical aspect of the mix effect to work here.

David S. Rosenthal

If you look at the – on the international side and you take a look at the profitability, one of the things that we’re seeing there is a mixed impact with some of the losses, some of the higher margin barrels from the production sharing contracts that we’ve seen over the last couple of years and then the mix certainly when you get into – in this part of the year of European gas sales.

So nothing structural, nothing really to point out other than some mix effect, but again if you look over a longer period of time at the projects, we have coming online and the earnings contribution that those will make, I don’t think you will see any major change to talk about relative to prior history.

Douglas Terreson – ISI Group Inc.

Okay. Thanks for the clarification.

Operator

We will take our next question from Paul Cheng with Barclays.

Paul Cheng – Barclays Capital

Hi, Dave. Good morning.

David S. Rosenthal

Good morning, Paul. How are you?

Paul Cheng – Barclays Capital

Very good. Two questions, one can you give us – what is your 2013 CapEx on the North American share volume pay and versus that if not absolute but versus 2012 and what’s the expectation for 2014?

David S. Rosenthal

Paul, I couldn’t hear you. Could you just repeat the question on the U.S. CapEx?

Paul Cheng – Barclays Capital

Right. Yes, two questions. First for North American share volume, can you share with us what is the actual CapEx for this year related to those basin and you cannot give us an actual that can you tell us what is that comparing to 2012 and also if you can give us an idea that what is the expectation for 2014 if that is going to be higher or is going to be staying at that level? Second, do you want to answer that and then I go for the second question.

David S. Rosenthal

Yeah, how about I answer that one and then we will go to your second question. As you look at our, I don’t have a specific actual CapEx outlook number for you, but as we’ve talked about, as you see our focus in drilling in the unconventional plays and in particular the liquids rich plays in the Bakken in the Woodford Ardmore, we are allocating an additional amount of CapEx to those areas relative to what we would be allocating to dry gas.

And clearly as we integrate the Denbury acquisition that we did, the Celtic acquisition that we did; it is reasonable to expect that on a relative basis year-to-year over time, we will be spending more money on those liquids rich plays and you’re starting to see some of that bear out.

If you look at the improved performance in the Bakken and in the Woodford Ardmore, not only in the production that’s coming up, but the efficiency that we’re getting improved completions, improved performance, that strategy and that approach is starting to play-out and you’re starting to see the dividend.

In terms of going forward, 2014, again I don’t have a specific outlook for you but it would be reasonable to assume that as we continue to progress these liquids based opportunities and continue to drill the wells and have the activity that we’re having and leveraging the ability we’re getting now with these additional properties, certainly as we ramp that up, you could expect on a relative basis over time for the CapEx to go up, but I don’t have a specific actual amount for you.

Paul Cheng – Barclays Capital

Dave just curious I guess see $3 billion or $4 billion currently you’re spending. Is that a ballpark, it is reasonable estimate of SME or that you’re not going to be able to come in even on that?

David S. Rosenthal

Yeah, I wouldn’t, again I wouldn’t want to give an actual number allocated to one particular resource types and one particular geography other than again to call to reiterate that clearly we have increased the focus on the liquids rich plays and we continue to ramp-up that activity and in particular as we move from the delineation and appraisal phase into the development phase and start bringing wealth online and getting them to sales.

Paul Cheng – Barclays Capital

Okay, (inaudible) hopefully that really at the tail end of the Phase 1 start up phase. Just I want to see that you learn a lot since that you guys have never done the mining project, and so what steps that you have taken or what experience that you have learned? Now you have tied to Phase II, so that you can ensure that you’re just going to $1 million budget and the start up schedule?

David S. Rosenthal

Paul, let me first comment on the Kearl start up. Literally the actual production is eminent and so we’ll be looking forward to that here shortly as I mentioned in my remarks. In terms of lessons learned and applying those to the Kearl expansion project, the one thing you need to recall is we are partners in the Syncrude project and therefore have a lot of experience in that operation and are actually quite familiar with bitumen mining.

I think the real carryover that you get as you move from the Kearl initial project development to the Kearl expansion project is the ability to carryover all the engineering work from the first section. I think we mentioned before about 90% of the engineering carries over. The new trains are being build adjacent to the existing ones. And so it’s really the efficiency that you get in building a second train – second set of trains right behind the original project and I think that’s what you’ll see there.

And in fact if you look at where we are today and the progress that we made, we are actually ahead of schedule right now on the expansion project. So I think that’s what you will see in the real efficiency. Now clearly having said that, as we progress with the mine development, it will be natural for us to find improvement opportunities as we go along and learn some things and continue to develop the mine plan and heading into the expansion.

But in terms of starting from ground zero or low starting point, I don’t think, I’d characterize it that way, but again as you know us, we’ll be continuously improving everything we’re doing as we start-up and ramp up the current project and then head into the next phase.

Paul Cheng – Barclays Capital

Okay. Thank you. Dave, can I just stick in with a short question for clarification, in your earlier comments for 2013 production guidance that given the March for 1% to 2%, is that already factored in the potential PSC impact based on $110 brand or that is not included?

David S. Rosenthal

Yes, the impact of PSC effects at the $112 price that we used is in that estimates that we showed you. So to be very specific, if you look at the 2% increase in liquids that we had, we had the PSC effects in there at the assume price.

Paul Cheng – Barclays Capital

Thank you.

Operator

We’ll take our next question from Iain Reid with Jefferies.

Iain Reid – Jefferies & Company, Inc.

Hi, David.

David S. Rosenthal

Good morning Iain, how are you?

Iain Reid – Jefferies & Company, Inc.

Yeah, I’m doing very well. Couple of questions, well first question on the Downstream if I could. You had a very strong performance in U.S. Downstream relative to where the margins seem to go. And also probably a weaker performance in our non-US Downstream, do you want to talk about the kind of drivers there like were you accessing more advantage crude in the U.S. perhaps and we estimated and some international Downstream was relatively driving that one, which kind of offset what the benefits you got in the U.S.?

David S. Rosenthal

Yeah, if you’re looking at the Downstream, in particular if you’re looking, I’m not sure if you’re actually referring to our quarter-over-quarter or sequential.

Iain Reid – Jefferies & Company, Inc.

Well both really.

David S. Rosenthal

If you look at both, yes, we saw a very strong refining margins in particular in the U.S. and that really does reflect the advantage feeds that we’re doing, that we’re running into those, plus the fact that we had good uptime, and reliability and good performance in the operations.

So that has come along as we talked about in the Analyst Meeting in March and we’re seeing those benefits. I will say if you are looking at the sequential quarter-to-quarter delta there was helped by the absence of some unfavorable price timing that we had in the fourth quarter. So if you’re looking sequentially, and you look at that nice bump, in U.S. earnings, a good bit of it is actual margin improvement and the other is in absence of prior quarter’s unfavorable price timing that I mentioned.

If you’re looking overseas, and if you’re looking at the Downstream business, the biggest impact you see there is the significant increase in maintenance activity, in our refineries particularly in Europe and in Canada and that’s the bulk of what you’re seeing in both sequentially and quarter-over-quarter.

Driving those results we did have a little negative 4X impact, as well. And then again the absence, if you’re looking sequentially the absence of the LIFO gain that we had in the non-US from the fourth quarter.

So I think if you step back and look at all of this and just take out the LIFO gains and asset sales that we had talked about in the fourth quarter as well, the operations are running great, we’re taking advantage of the feeds that are available particularly here in the U.S. and continuing to benefit from the integration that we have across our refining and chemicals businesses. I think you’re seeing all that really come to fruition particularly in the margin area.

Iain Reid – Jefferies & Company, Inc.

Okay. Thanks for that. And second one, you’re obviously building up now significant further volumes in Canadian bitumen. And we’ve seen the differential there widened even further in the first quarter. Can you talk about how Exxon is impacted by market differentials there? I think you said at the Analyst Meeting that you thought you could take advantage if you like of your own pipeline systems to get around some of that. Do you just want to flush that out a bit?

David S. Rosenthal

Sure. If you look at our refining footprints and what we call an extended mid time if you will, so if you look at our refineries in the Midwest, in the Rockies and in Canada, we can process about 600,000 barrels a day of that advantage crude that you see in that part of the business. Now, when you come back specifically to the Kearl project as we have said before, we are capable of sending all of the output from the initial development project into our existing refining circuit. So to the extent that differentials continue, we will be able to capture those in our own refining circuit.

Iain Reid – Jefferies & Company, Inc.

Okay. So obviously into the second phase, which you’re going to have some problems with that?

David S. Rosenthal

No, when you look at the second phase, we will be looking at both the opportunity to run more of that crude into our existing refineries as well as obvious into third party. So we are working those logistics now looking at our various options and opportunities we got till 2015, but we are pretty confident when we look across our broad logistics capability in our refining circuit that we’ll be able to place those barrels in an optimum manner and extract the maximum value from those products.

Iain Reid – Jefferies & Company, Inc.

Okay. So we should be expecting maybe lower E&P earnings from Kearl, but Downstream earnings for the whole mix comes out in the ore.

David S. Rosenthal

Well, I think that it will all depend on the absolute level of crude prices and margins and then the differentials as well. I can’t predict what either of those will be at a given time. I think the real message though is that whatever the absolute prices and margins are at the time, we are going to get a benefit from being fully integrated both across the refining chemicals business and in that integration into Kearl and the ability to process other crudes including disadvantage imports like crudes in the U.S. and that sort of thing.

So it is really optimizing across the entire circuit as well as geographic optimizations but we feel pretty good about where we are and how our assets match up and how we are managing those and look forward to benefiting more as we go forward with this integration.

Iain Reid – Jefferies & Company, Inc.

Okay. And just one very quick one, if you don’t mind, you talked about asset guiding chemicals, is that – are we talking on an absolute basis hundreds of millions of dollars there, like how much is that in terms of improving chemical earnings?

David S. Rosenthal

Kind of all in just under a $100 million.

Iain Reid – Jefferies & Company, Inc.

Okay, all right. That’s great. Thank you very much indeed.

David S. Rosenthal

Thank you.

Operator

We will take our next question from Pavel Molchanov with Raymond James.

Pavel Molchanov – Raymond James

Hi guys, question on two of your exploration areas. First in Tanzania, I realized you are not the operator but you have had a lot of success there. And is there – do you envision a point maybe in the next 12 months of sanctioning a development plan?

David S. Rosenthal

I think if you step back and take a look at Tanzania, we have had significant success there with the wells that we’ve drilled so far both the exploration wells and the recent appraisal well. So far, we’re looking at gas resources somewhere in the range of 10 Tcf to 13 Tcf discovered to date. But as we look forward, we got a lot of work left to do, we’ve got a lot more seismic that we’re running and processing, lot more analysis to do, we are looking at drilling an additional well later this year. So we’ve got to take all of that into account before we can never really start thinking about development plan.

So it’s still early days, we know we’ve got a very high quality resource, we’ve had a significant amount of early success, there is more exploration work ahead and once we finish the exploration and appraisal process and know what we got and know how whether it’s how the commerciality looks, then we would do the natural progression into development planning and that sort of thing. But it’s a little early to – right now fortunately, it’s early because of all the success we’ve had to date. But we got a little more work to do and once we get all that done, we will be in a better position to talk about our go forward plans.

Pavel Molchanov – Raymond James

Appreciate that. And follow-up a little bit bigger picture question on your unconventional opportunities globally, one of your European competitors recently poured some cold water over particularly shale gas development internationally talking about all the obstacles.

And in your [FNL] review, you noted some of the issues in Germany and I mean obviously earlier in Poland. Can I actually get to your kind of latest thoughts on how international ex-North America unconventional fits into your portfolio and what the plan is?

David S. Rosenthal

Yeah, I think the most important thing to think about, when you look at our international portfolio is how diverse it is. So, if you just kind of walk around the world, we have a very active program underway in Columbia that we’ve talked about and we’re progressing activities there and testing some wells and planning to drill some more. Argentina continues to be a very active area for us. We drilled a number of wells last year that we’re testing and looking at. We have planned to drill a number of more wells in Argentina.

As I mentioned in my prepared remarks, we do still intend to get to work in West Siberia over the course of this year and get some work there. So, that’s doing very well and we continue to leverage again the expertise that we have here in North America into those plays.

Having said that, there is prospectivity in Europe and as we’ve mentioned before, we have a very large acreage position in unconventional prospectivity in Germany for both gas and liquids. We are working with the government there to try to get permits that would allow us to continue our exploration and appraisal process. We stand ready to ramp-up activity there, pending that.

So, it’s a long-term business, it’s a long-term resource development, both the oil companies and the countries that have these resources are just getting started with their evaluation programs and developing policies. So, we can pace our activity based on local requirements and regulations and again the good news for us is, we got a very large portfolio in a lot of different areas with a lot of different resource potential and we’re able to dedicate the resources both human and financial and technology to those areas with the most promise and the most availability and accessibility and we’re continuing to do that very well into this year.

Pavel Molchanov – Raymond James

All right, I appreciate the color and all that things.

Operator

(Operator Instructions) And we will take our next question from Edward Westlake with Credit Suisse.

Scott Willis – Credit Suisse

Hey, good morning, David. This is Scott Willis on for Ed.

David S. Rosenthal

Hi, Ed.

Scott Willis – Credit Suisse

I just want to focus on U.S. natural gas for a minute if I could. I noticed that your domestic volumes were down around 4% quarter-over-quarter and then when we look at natural gas prices, those have been stronger so far in this quarter should those prices go forward, I was just wondering how that would affect your decision to grow your domestic gas volumes going forward?

David S. Rosenthal

Well, I think if you step back and look at the unconventional resource in North America and particularly in the U.S. that we’re working on, as we talked about over the last few quarters we have been allocating and dedicating more resources towards the liquid-rich plays particularly the Woodford Ardmore as I mentioned as well as the Bakken and those efforts are continuing, and we are making great progress in terms of productivity, optimizing the completion, getting the initial rates and extended rates out. And so that effort continues unabated and we will continue to do that.

I think the other news that’s really good for us is the flexibility we have across our unconventional resource. We have as you well know very large positions in all of the unconventional gas plays in the U.S. and we are still maintaining activity in some of the gas plays where the returns are good and we maintain the flexibility to increase our efforts in those areas if we want to.

But when you’re looking at prices in any of the commodities they move around, we don’t tend to take the last two data points and draw the trend line and react in that manner, we tend to have longer term approaches to the development of all of our resources.

So I don’t know what prices are going to do going forward, and I wouldn’t want to predict exactly what we will be doing in any given time other than currently our focus is on the liquids-rich plays, and we are having great success there, but we do maintain a flexibility and optionality in the gas plays as well. So it’s pretty good position to be in, and we’ll continue to work on the long term development and react is appropriate to changes in market factors.

Scott Willis – Credit Suisse

Okay, great. And then also just on the asset sales it looks you did around $400 million this quarter, I was just wondering if that is a decent run rate, and how you think the rest of the year will go there if you look to kind of ramp up those asset sales as we go forward?

David S. Rosenthal

Yeah it would, I can’t give you any expectation of our run rate, if you look back across the last few years, the asset sales of tended to be lumpy as well as different in certain quarters than the Upstream versus the Downstream. So I wouldn’t want to give you a run rate, we are continually looking at our portfolio is that we always do, but I wouldn’t want to either say any absolute number was appropriate or to give any guidance relative to future quarters or what you’ve seen this quarter or prior quarters it will happen, when it happens.

Scott Willis – Credit Suisse

Gotcha. Okay, thanks David.

Operator

And we will take our next question from Robert Kessler with Tudor, Pickering, Holt.

Robert Kessler – Tudor, Pickering, Holt & Co.

Good morning, David.

David S. Rosenthal

Good morning Robert.

Robert Kessler – Tudor, Pickering, Holt & Co.

Couple of follow-ups to some earlier points you made. One on the buybacks, you were asked about reduction and the strategy there. But I’d like to ask you about the cash balance and flexibility. So the $6.6 billion of cash that you’ve got on the balance sheet at the end of the quarter.

How much of that I guess in theory could be used for buyback? So I know you got about $400 million marked in the footnotes as restricted. But is that to say that a full 6.2 remainder could be used again in theory for buybacks or are there any other factors to consider like taxes on repatriation of cash to the U.S. to the extent you’ve got some of broader or that kind of effect?

David S. Rosenthal

Well, earlier getting to the last part of your question and backing up. There are a number of factors that determine what our point in cash balances in any quarter, I mentioned some of those this quarter including closing the Celtic acquisition, some timing of tax payments, working capital changes et cetera.

So we don’t have a target in terms of what the cash balance is or a minimum that we have to have or an operating level. We manage the cash just to maintain our flexibility and meet all of our commitments and it does bounce around a fair amount as you’ve seen over time.

But I wouldn’t want to make any specific comment on what cash would be available for what or how it might change going forward. Other than to say as we’ve said before, the share buyback is determined on a quarterly basis, and as a reflection the cash that’s available has delivered from the business given the market conditions that we have. And as I said, our expectation is we’ll buy $4 billion in the second quarter. But other than that, I just wouldn’t have any guidance on either the uses of cash or the buyback level going forward.

Robert Kessler – Tudor, Pickering, Holt & Co.

Can you say whether the $6 billion figure roughly is fully available for general corporate purposes in any jurisdiction or do you have any sizable amount that can only be used in certain geography?

David S. Rosenthal

Yeah, I tell you, I wouldn’t have a specific comment on that. But I don’t think there is anything significant or material in any one region or another that’s restricted for us. We manage our cash globally and I wouldn’t expect there to be anything significant or material to worry about or to think about what to do with.

Robert Kessler – Tudor, Pickering, Holt & Co.

Okay. Thanks for that. And then a quick follow-up from me on the chemical asset sale gain, I mean you mentioned just under $100 million I think in aggregate, can you provide a quick split on U.S. versus non-U.S. for that gain in the first quarter?

David S. Rosenthal

Yeah, it’s about half-and-half , half in the U.S. and half overseas and I guess, I said the number was just under $100 million, its in total it’s $70 million and again half in the U.S. and half in the non-U.S.

Robert Kessler – Tudor, Pickering, Holt & Co.

Great, thanks very much.

Operator

And with no further questions, I would like to turn it back to Mr. Rosenthal for any additional or closing remarks.

David S. Rosenthal

Yeah I just like to say in closing, I appreciate your time and your questions this morning and look forward to our call in about three months. So thank you very much.

Operator

This concludes today’s conference. Thank you for your participation.

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