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Executives

David Rosenthal - Vice President Investor Relations and Secretary

Analysts

Neil McMahon - Sanford Bernstein

Michael LaMotte - JPMorgan

Paul Sankey - Deutsche Bank

Doug Leggate - Howard Weil

Paul Cheng - Barclays Capital

Mark Gilman - The Benchmark Company

Pavel Molchanov - Raymond James

Arjun Murti - Goldman Sachs

Robert Kessler - Simmons and Company

Exxon Mobil Corp. (XOM) Q2 2009 Earnings Call July 30, 2009 ET

Operator

Good day and welcome and to the Exxon Mobil Corporation Second Quarter 2009 Earnings Conference Call. Today's call is being recorded. At this time for opening remarks I would like to turn the call over to Vice President of Investor Relations and Secretary Mr. David Rosenthal. Please go ahead sir.

David Rosenthal

Good morning and welcome to ExxonMobil's teleconference and webcast on our second quarter 2009 financial and operating result. As you aware from this morning's press release, ExxonMobil's second quarter earnings performance was solid. The financial results reflect the impacts of global economic weakness, reduced demand for products and volatile commodity prices.

However, our operating performance was strong and as a result of our long-term focus and financial strength, we remain committed to investing in our portfolio of advantage projects through the business cycle.

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 outcomes could differ materially due to factors I discussed and factors noted in our SEC filings. Please see factors affecting future results and the Form 8-K refurnished this morning, which are available through the Investors Section of our website. Please also see the frequently used terms that supplements to this mornings press release and a 2008 financial and operating review on our website. This material defines key terms I will use today shows ExxonMobil's net interest and specific projects and includes our SEC Regulation G disclosure.

Now, I am pleased to turn your attention to the second quarter results. ExxonMobil's second quarter 2009 earnings were $4 billion a reduction of 7.7 billion from the second quarter of 2008 reflecting a sharp reduction in commodity prices and weaker demand.

Second quarter 2009 earnings included a special charge of $140 million for interest related to the Valdez punitive damages award. Second quarter 2008 earnings also included a charge of $290 million related to the Valdez punitive damages award. Earnings excluding special items were $4.1 billion down 7.9 billion from 2008. Earnings per share excluding special items were $0.84, down $1.43 from a year ago.

During the second quarter of 2009, ExxonMobil distributed a total of $7 billion to shareholders, including dividends of 2 billion and share purchases to reduce shares outstanding of $5 billion, again demonstrating our commitment to return cash to shareholders.

I would now like to share our business line results and some of the milestones we achieved, since the last earnings call. First, the Upstream; ExxonMobil and our joint venture partner Qatar Petroleum achieved significant progress on our Qatargas 2 and RasGas' Ras Laffan III liquefied natural gas projects during the second quarter. Combined, these projects will result in an increase in gross LNG capacity of over 30 million tones per year.

Through the application of new large train and large ship technology gas from the world's largest natural gas field in Qatar can now be delivered at a highly competitive unit cost to markets around the world. Qatargas 2 Train 4 the first of two LNG trains associated with this project commenced full scale production during the second quarter. With an annual output of 7.8 million tons per year it is the largest LNG productions train in service any where in the world. The second train Qatargas 2 Train 5 is mechanically complete and commissioning work is underway, with first LNG expected in the third quarter.

In May the Qatargas 2 project also inaugurated the South Hook LNG receiving terminal located in Milford Haven, Wales. The terminal is the largest in Europe and will have the capacity to deliver up to 2 billion cubic feet of natural gas daily into the UK market.

Turning to the RasGas; Ras Laffan III Train 6 also 7.8 million tons per year in size was mechanically completed during the second quarter. Gas is flowing into the unit and first LNG production is imminent. Train 7 is expected to start up by year end. Together, these projects mark a significant step change in our global LNG supply capacity and demonstrate ExxonMobil's exceptional project management capabilities, the integration of innovative technology and our ability to deliver significant value to our partners, resource owners and shareholders.

During the quarter ExxonMobil also started up the Piceance Phase 1 in Colorado. The new facilities have the capacity to produce 200 million cubic feet per day of natural gas. Using our proprietary fast drill process multi-zone stimulation technology, the Piceance wells are significantly more productive in conventionally drilled and fractured wells. We are evaluating additional phases of development of this world class resource, which has a recoverable potential of 45 trillion cubic feet of gas.

In early July, start up was achieved at the Tyrihans field located in the Norwegian North Sea. At it's peak this development is expected to deliver gross production of 80,000 barrels of oil and 335 million cubic feet of natural gas per day, including Qatargas 2 Train 4 in Qatar South Hook LNG receiving terminal in the UK, Piceance Phase 1 in the U.S. and Tyrihans in Norway we have completed four major project start ups to-date in 2009.

In June, ExxonMobil and TransCanada Corporation announced an agreement to work together to study the Alaska Gas Pipeline project. This major project would include a 1,700 mile natural gas pipeline linking gas resources from the Norfolk of Alaska, trip market in Canada and the lower 48 states. The pipeline could be large enough to carry approximately 4.5 billion cubic feet of natural gas per day. Planning for an open season in 2010 is underway.

Turning to Canada; construction work is progressing on Phase 1 of the Kearl oil sands project. Phase 1 is expected to start up in late 2012, with production of 110,000 barrels per day. We are proceeding with Kearl in an environment where other projects have been cancelled or differed. The project is competitively advantage due to the very high quality of its 4 billion barrel resource and the application of our proprietary high temperature treatment which removes the need for onside upgrading. Development cost for Phase 1 are estimated to be approximately $3.50 per barrel.

In exploration ExxonMobil completed the Guarani 1 wildcat, the second well in the BM-S-22 block in the Santos Basin offshore Brazil. We do not file a notice of discovery on this well. We will continue to evaluate the extensive data set, gathered from both this well and Azula discovery, made earlier in the year, to help plan future activities in this very large block.

In addition to the Piceance start up, we made significant progress during the quarter on our unconventional gas exploration opportunities around the world. In June, we acquired an additional eight blocks, totaling 110,000 acres in the Horn River Basin, located in Northeastern British Columbia, Canada. This acquisition brings our total net acreage in this promising shale gas play to 305,000 acres. Building upon the successful results of our 2008-2009 programs we're actively planning the next stage of our drilling and evaluation program that will commence later this year.

In Europe we continued our drilling program in Southern Hungary to evaluate the potential type gas play in the Makó Trough and Békés Basin with testing operations now beginning. In the lower Saxony Basin in Germany we continue to evaluate our extensive acreage position in this perspective shale gas play.

Finally, in the second quarter we were awarded operatorship of a large exploration license comprising seven blocks totaling over 700,000 acres in the Raven Ridge area in the Norwegian Sea, in the country's 20 licensing round.

Turning now to the Upstream financial and operating results. Upstream earnings in the second quarter were $3.8 billion, down 6.2 billion from the second quarter of 2008. Upstream after-tax unit earnings in the second quarter of 2009 were 1138 per barrel.

Sharply lower crude oil prices and weaker natural gas realizations in all regions, reduced earnings by $6.1 billion. Worldwide crude oil realizations were down over $62 per barrel and natural gas realizations were down $4.89 per kcf from the second quarter of 2008. Volume and mix effects increased earnings by $110 million. Other effects decreased earnings by $240 million due primarily to higher activity related operating expenses, including increased exploration expenses.

In total, oil equivalent volumes decreased from the second quarter of last year. Entitlement volume effects including price and spend impacts and PSE net interest reduction increased volumes by 98,000 barrels per day, while OPEC quota effects reduced volumes by 99,000 barrels per day.

Excluding the impact of entitlement effects OPEC quotas and divestments production was down about 2.5%; about one-half of that reduction reflects the impact of lower European natural gas demand due to warmer weather and reduced economic activity.

The balance primarily reflects natural field decline which was partly offset by major project ramp ups in the U.S, West Africa, Qatar and the North Sea. Liquids production decreased 44,000 barrels per day from the second quarter of last year, excluding the impact of entitlement effects OPEC quotas and divestments, liquids production was about flat. Major project ramp ups in the U.S, West Africa and Qatar and lower maintenance activity essentially offset natural field decline.

Gas volumes decreased 476 million cubic feet per day from the second quarter of 2008 including the impact of lower demand in Europe. Natural field decline, higher maintenance activities and asset management effects were partly offset by positive entitlement effects and new project volumes in Qatar, the North Sea, the U.S and Malaysia.

Turning out to the sequential comparison versus the first quarter of 2009 Upstream earnings increased just over $300 million. Overall, realizations were higher reflecting increased crude oil prices partly offset by lower natural gas realization. Volume and mix effects were negative due to reduced liquids production and seasonally lower natural gas demand in Europe.

Liquids production decreased 129,000 barrels per day, primarily due to increased scheduled maintenance activity and negative entitlement effects. Natural gas production was down 21% driven by seasonally lower demand in Europe and increased schedule maintenance activities. Oil equivalent volumes were down 12% from the first quarter. For further data on regional volumes, please refer to the press release and IR supplement.

Turning now to the Downstream. During the quarter, our joint venture in Fujian province China, announced the start up of 160,000 barrel per day crude and vacuum distillation unit, in the new integrated refining and petrochemical complex. Other major units are expected to come online over the next several months, during the phase start up with the complex in full operation, by the end of this year.

The Fujian project will further position ExxonMobil to help meet the growing demand for fuel and chemical products in the Asia Pacific region. ExxonMobil also recently completed a project to increase the capacity of our Pegasus crude pipeline by 50% or about 30,000 barrels per day. The increased capacity will enable the transportation of additional Canadian crude volumes from the Midwest to Gulf Coast refineries and is another example of how ExxonMobil is developing projects to enhance the supply security.

Earlier this month ExxonMobil announced an alliance was Synthetic Genomics Incorporated to research and develop next generation biofuel from photosynthetic algae. If research and development milestones are successfully met, ExxonMobil expects to spend more than $600 million under the program.

ExxonMobil's engineering and scientific expertise will be utilized throughout the program from the development of systems to increase the scale of algae production through the manufacturing of finish fuels. While significant work and years of research and development must be completed, if successful this program could help meet the world's growing demand for transportation fuel while reducing green house gas emissions.

Turning now to Downstream financial and operating results; Downstream earnings in the second quarter were $512 million down just over $1 billion from the second quarter of 2008. Lower margins decreased earnings by $960 million primarily due to weaker industry refining margins partly offset by positive price finalization effects and improved marketing margins. Volume and mix effects decreased earnings by a $100 million driven by lower demand.

Sequentially, second quarter Downstream earnings decreased by $620 million. Lower margins reduced earnings by $1.3 billion driven by lower refining margins including adverse price finalization effects. Volume in mix effects increased earnings by $260 million primarily reflecting lower plant maintenance and turnaround activity. Other factors increased earnings by 420 million including higher gains from asset sales and positive foreign exchange effects.

Turning now to our chemical business; demonstrating our continued technology leadership ExxonMobil announced the introduction of nine new premium chemical products in the second quarter of 2009. Included were ultra-low aromatic products for using drilling applications and water treatment and two, developmental grades of battery separator film with enhanced characteristics to improve lithium ion battery performance.

In Japan, we announced the project to increase the capacity of Butyl Rubber production and our joint venture plan in Kawasaki, by 18,000 tons per year, or about 23%. The additional supply is expected to help meet the increasing demand in Asia Pacific, for Butyl and Hollow Butyl Rubber. The expansion will incorporate ExxonMobil's recent advances in process technology, that'll provide significant energy and capital investment sales.

Turning now to chemical, financial and operating results. Second quarter chemical earnings were $367 million, down 320 million from the second quarter of 2008. Weaker margins reduced earnings by $80 million, reflecting lower realizations, while volume and mix effects were negative $140 million, primarily due to lower demand. Other effects reduced earnings by about $100 million, including adverse foreign exchange impact.

Sequentially second quarter chemical earnings increased by approximately $20 million. Weaker margins reduced earnings by a 110 million reflecting increases in raw material costs. Positive volume and mix effects increased earnings by a 150 million including some customer inventory rebuilding. Other affects were negative $20 million.

Turning now to our corporate and financing segment. Consistent with the guidance issued last quarter corporate and financing expenses excluding the Valdez interest charge for $601 million, an increase of 314 million from the same period a year ago. This increase is primarily due to lower interest income reflecting both reduced cash balances and lower interest rates. The effective tax rate for the second quarter was 50%. At the end of the second quarter our cash balance was $16 billion and debt was $9 billion.

The Corporation distributed $7 billion to shareholders in the second quarter through dividend and share purchases to reduce shares outstanding. Of that total, $5 billion was distributed to purchase shares in excess of dilution reducing the numbers of shares outstanding by 1.5%. Share purchases to reduce shares outstanding are expected to be $4 billion in the third quarter of 2009. Also during the second quarter, we contributed $3 billion to our pension plans to meet funding requirement.

Turning to CapEx; expenditures through the first half of the year were $12.3 billion down slightly from the first half of 2008, due to favorable foreign exchange effects. Excluding the impact of the stronger dollar, CapEx was up $400 million.

Total operating cost in the first half were down 13% from the same period last year reflecting reduced energy cost, positive foreign exchange effects and the impact of ongoing cost reduction efforts. These are partially offset by higher levels of activity.

In summary, these results reflect the strength of ExxonMobil's integrated business models. We remain confident that our long-term perspective, financial strength and disciplined investment approach will continue to deliver superior results and positions us well for the future.

I would now be happy to take your questions.

Question-and-Answer Session

Operator

Thank you, Mr. Rosenthal. (Operator Instructions) We'll go to Neil McMahon with Sanford Bernstein.

Neil McMahon - Sanford Bernstein

Hi. Just two questions, the first is really along the LNG projects you've got coming on, could you give us an update and the timing of the LNG projects from the Qatar over the end of 2009 and 2010 and basically how Train 4 is doing at the minute? And secondly maybe an exploration update on both the Horn River Basin, just wondering to find out what your acreage there as of today and anything you could add on deepwater in Indonesia?

David Rosenthal

Sure. I'll be happy to address those questions. As we look at the LNG projects across the rest of the year, as I mentioned in my remarks Qatargas 2 Train 4 is up and running in full capacity. If we look at train RasGas the Train 6 its mechanical completion has been achieved and we expect first LNG to be imminent literally any day now.

As we progress through the rest of the year, the next train up of course is Train 5. Commissioning is underway, mechanical completion has been achieved and we would expect start up during the third quarter. By the end of the year, we would expect to see Train 7 up and therefore meeting our expectation of having all four of these very large trains up and running by the end of year.

If we turn to your question on exploration, the update on the Horn River, we currently have about 305,000 net acres that we've accumulated. We are planning a multi-well program beginning later in the year after what has been a successful program across 2008 and 2009. As we sit today, Imperial and ExxonMobil Canada are now the largest net acreage holders in the basin.

I believe your third question was on Indonesia and our update there; the West Aquarius is on site drilling the well. In the Mandor block we finished the initial well earlier in the quarter, that was the Renkong 1 well (ph) it was completed in June and it did not encounter any significant hydrocarbon resources. As we sit today, we are drilling the well in the Mandor block that's the Sulten 1 well it was spud on June 21st and its drilling ahead.

Neil McMahon - Sanford Bernstein

Thank you very much.

David Rosenthal

Thanks.

Operator

We'll take our next question from Michael LaMotte with JPMorgan.

Michael LaMotte - JPMorgan

Thank you very much. David if I look at the operating expense line excluding taxes in exploration it looks like it jumped quite a bit from the first quarter. Anything reserve production related costs going up can you comment that?

David Rosenthal

As we look across the quarter really there the biggest driver there on exploration expense on our activities in total OpEx was our exploration expense.

Michael LaMotte - JPMorgan

Exploration?

David Rosenthal

Yeah.

Michael LaMotte - JPMorgan

Okay. And then on the cash flow you mentioned 3 billion in pension funding. If I look at $600 million change in earnings versus 6, almost $7 billion change in cash flow, I assume the pension -- change in pension funding was half of that, is there big draw of working capital or for tax payment or something that also impacted the cash flow?

David Rosenthal

Michael are you're looking at the sequential quarters or --

Michael LaMotte - JPMorgan

Yes, the sequential quarter, sorry.

David Rosenthal

Sure. We're looking at sequential quarters from the first quarter to the second quarter. We had a big contribution therefore what the pension contribution that we mentioned, the net change relative to the prior quarter was about $2 billion. And the other effect we've seen in there is really the crude price impacts on receivables and payables and that was about negative $4 billion and the revenue with the income as you know.

Michael LaMotte - JPMorgan

Okay. So just timing effect and that's something that you come up and wash.

David Rosenthal

Yeah, if you look at those changes in working capital particularly given the volatile commodity prices we've seen and their interplay on the balance sheet strictly in working capital that's what you see as we look forward to the rest of the year with regard to pension. We're pretty much finished, we do have a little more that we're going to do in the second half in our overseas pension plans.

Michael LaMotte - JPMorgan

Okay great. And then last one from me real quick on the Marcellus could you just provide an update as to where you are in terms acreage activity and perhaps what the strategic thinking is with the acquisition?

David Rosenthal

Sure. As you know we are active in the Marcellus and have been acquiring some acreage in that area. We did elect to exercise our option and acquire some additional acreage. We now got about 19 or 20,000 acres in the play and that came from the resale of '08, we're active in there evaluating some new areas. But I really don't have any specific update other than that in terms of what's going on. And as you know that's just one of many of our non-conventional gas plays that we are progressing around the world and that's in the U.S. of course with the Marcellus.

Michael LaMotte - JPMorgan

Okay. Any timing of spudding or any indication or any guidance you can give us in terms of ramp up in activity?

David Rosenthal

Its really too early to discuss ramp ups in activity, we're really consolidating our holdings there and looking at options to progress forward with our acreage and what we might do in the areas to optimize our holdings.

Michael LaMotte - JPMorgan

Okay Thanks David.

David Rosenthal

Thank you.

Operator

We'll take our next question from Paul Sankey with Deutsche bank.

Paul Sankey - Deutsche Bank

Hi David.

David Rosenthal

Good morning, Paul how are you?

Paul Sankey - Deutsche Bank

Good, thanks. Just coming back to the cash flow side, I might have just missed it the follow up to Michael's question, did you say that the pension contributions are more or less down for the year?

David Rosenthal

Yeah, if you recall in our 10-K this year, we said we'd make about $4.6 billion in pension contributions. We made about a billion in the first quarter another three in the second quarter, so we would expect its all about another 600 million across the balance of the year.

Paul Sankey - Deutsche Bank

I got you. And then, you talked about timing affect, if I was just to simply I would talk about your 4 billion of net income what's your DD&A rate do you think that you're still around the 3 billion rate that we've seen for the past year or so?

David Rosenthal

Yeah I think that's a reasonable assumption.

Paul Sankey - Deutsche Bank

Okay, that's great. And then on CapEx for the year, you're way behind the run rate I think you tend to -- that you might not fulfill that 29 billion what's the update there?

David Rosenthal

Let me give you an update on the CapEx; I don't have a new number for your relative to that point estimate we gave you of the 29 billion. As I mentioned, we did see in the first half some favorable ForEx of about 500 million that's good news. We're also seeing some cost savings flowing into this year's CapEx, although we've really seen that impact as we move forward on projects.

We are monitoring the pace of some of our OBO projects which could put some downward pressure on the $29 billion. As we look out over the rest of the year, there's probably a little more downside pressure than upside pressure given the factors that I mentioned, but I'll tell you we are very focused on delivering the investments plan not only of course, the projects that we operate, but actively engaged in monitoring that the projects that are managed by others.

Paul Sankey - Deutsche Bank

Could you quantify the dollar effect on because I know there has been a big shift there, how much of that has been off CapEx, but give us a date again for what you would have thought coming into these?

David Rosenthal

Well the biggest impact there again would be the $500 million of ForEx and everything else there has some put and takes but that would be...

Paul Sankey - Deutsche Bank

I'm sorry, I got confused, I thought that the 500 million was cost savings, so you didn't quantify the cost savings?

David Rosenthal

No, I didn't quantify and we're seeing that and that is certainly not as big as the ForEx effect.

Paul Sankey - Deutsche Bank

I got you. And then just going on about the dollar, the price finalization effects was a big part of I think the biggest parties you said are the Downstream shift we had sequentially where you were 1.3 billion lower, how much of that was price finalization can you quantify?

David Rosenthal

Sure, Paul if you're looking sequentially from the first quarter to the second quarter, we got just under $300 million in total for price finalization.

Paul Sankey - Deutsche Bank

300 million?

David Rosenthal

Yes.

Paul Sankey - Deutsche Bank

Thanks a lot. And then lastly from David the volumes have stepped down year-over-year. You have said that you believe that you'll grow 3% a year. I guess I think on a five year basis you've said that from 2009, I guess with the Qatar project all seemingly on the same schedule that you had outlined when you put the 3% volume aspiration in place. We would still be looking at that is the five years how you'll grow the company's volumes?

David Rosenthal

Yeah I, yes. If you look at the -- what we're looking at over the next five years, we still look at this 2 to 3% growth across that time period. The investment plan is that underpins that outlook is solid and progressing as we expected. Certainly, we can't predict the absolute timing in any one year, but as we look over, over the next several years, yeah we would still expect to deliver that 2 to 3% that we had talked about. And of course as we look at 2009 in particular, obviously the growth in volumes would be back and loaded as we ramp up the Qatar project.

Paul Sankey - Deutsche Bank

Yeah and but just within that very, very finally for me the Qatar LNG you mentioned, what's the stage of Al Khaleej right now?

David Rosenthal

Al Khaleej too is on track and progressing and we would expect to start that up sometime in the second half probably closer to the fourth quarter.

Paul Sankey - Deutsche Bank

Thank you, David.

David Rosenthal

Thank you.

Operator

We'll go next to Doug Leggate with Howard Weil.

Doug Leggate - Howard Weil

Thanks, good morning David.

David Rosenthal

Good morning, how are you?

Doug Leggate - Howard Weil

Good, thank you. David the one of the things that we track is the profitability trends on a unit basis is something that has come up over the years. This quarter it kind of fell out of bad, and I'm trying to understand why that may have been. Any color you can offer there and I've got a couple of follow-ups that might dig into that a little more detail?

David Rosenthal

Well I'd be happy to address that. If we look at our unit profitability it really came in broadly inline with our expectations. We do see a number of things going on, so far this year, volatile commodity prices. We've got some of course expenses associated with our active exploration program; we got new project start ups that are in the early phases of commissioning and start up and that sort of things. But if we look at our, particularly our first half year-to-date, profitability per barrel it's pretty much inline, with what we would've expect it.

Doug Leggate - Howard Weil

Okay. I guess you've talked about sequential and year-over-year deltas on long haul grid finalization, foreign exchange and certain things like that. Could you maybe quantify the absolute, the major part of the absolute parts in the quarter, by divisions this was maybe, I'm thinking maybe that, foreign exchange was part of the reason why it looked so low relative to the historical trends. I'm talking about the options specifically, but, if you could be in real terms David that'll be real help?

David Rosenthal

Sure. If we're looking at foreign exchange in the Upstream, I'll tell you that both sequentially, as well as quarter versus quarter last year, it is not a big impact less than a $100 million.

Doug Leggate - Howard Weil

Okay.

David Rosenthal

In each of those quarters.

Doug Leggate - Howard Weil

So not a huge deal. Okay, and finally, you did alluded to there the projects start ups obviously Qatar is the major fighter here, what's happening to the -- how -- what distortion is up bringing to things like depreciation charges on a unit basis and obviously operating cost at this level sort of really are ramp up effect that's going to play over the medium term or is it something you expect a step change in your unit profitability or unit DD&A as we move forward?

David Rosenthal

Yeah, we would not expect any major changes, most of those assets are of course are on UOP basis and the absolute level of D&D expense charged in any quarter would reflect the production, but I don't think you're going to see any anomaly outside of what you would expect as those volumes ramp up and of course you know the advantage that the entire kind of project has if you look at it through the whole value chain is the ability to put product into the market at a very competitive unit cost.

And I think as you see this integrated process we have come to market with the products and the earnings that will come out of that, I think we'll demonstrate the advantages that project has. And we're certainly looking forward to getting these, excuse me these four trains up and running and getting those volumes into the market and I'm pleased to report as I mentioned that the things are going well.

Doug Leggate - Howard Weil

Alright, I'll take the rest off line David, thank you.

David Rosenthal

Thank you very much.

Operator

We'll go to Paul Cheng with Barclays Capital.

Paul Cheng - Barclays Capital

Hey guys.

David Rosenthal

Good morning Paul, how are you doing?

Paul Cheng - Barclays Capital

Good morning. Based on the -- and if we look at the first half of this year versus the first half of last year on your controllable expense excluding the FX, how's that look? And what kind of potential with that we may have in terms of further reducing?

David Rosenthal

As I mentioned in my opening remarks, when we take a look at our first half expenses, we do see an total OpEx they are down about 13% or about $5 billion as you would expect, a large part of that of course is reflects the drop in energy prices and also some favorable foreign exchange. But I would also note that within that, we've got about a $1 billion worth of efficiencies and cost management items that are really related to our ongoing very active effort in this area.

As you know, like everything else in our business, we take a long-term approach to cost management taking advantage of our global procurement organization and really actively pursuing a capture of everything the market has on offer. We don't have any special programs, just keeping on with what we always do, focusing on operations excellence and efficiency and just keep an effort this quarter-after-quarter.

Paul Cheng - Barclays Capital

Okay. Dave, as you're brining on the stream on order for Qatar LNG Train, I previously several years ago that the expectation is that at least a big chunk of them is going to come to the U.S. and given the U.S. market condition right now what is the feasibility of you guys in terms of the locations or the end-market that you're going to ship those LNG cargos?

David Rosenthal

That's an excellent question. As we look at our LNG business in total we're commenting specifically on any contract detail. As we said about two-thirds of that LNG in total is destined for markets in the Asia Pacific with the balance heading towards liquid markets in Northern Europe and the U.S.

And as I mentioned our re-gas terminals are coming up as we expected, we've got the UK one up, Adriatic will be up shortly Golden Pass in the U.S. next year. So we're very pleased frankly with the ability to take these volumes a large percentage of them, chose the market that gives us the highest net back and as we said before coming into that market in highly competitive cost terms. I think the key though if we really look at these LNG volumes isn't really where they can't go or where they're destined to go.

But really the view that we have that over the long-term we're going to see demand growth for LNG in all the regions and in particular in the Asia Pacific area. And so when you look at about two-thirds or so of this destined for the Asia Pac area and the rest going into the more mature markets. We feel like, we're pretty well positioned to take advantage of that growth and, in the meantime, we'll take what the market has on offer on price and focus on delivering the projects on time and get the products to market.

Paul Cheng - Barclays Capital

And do you market your own share of the LNG cargo in Qatar or that the Qatar National Oil Company are responsible to market the entire volume?

David Rosenthal

Well, if you look at the LNG that's coming out of the Qatar projects as you mentioned, obviously we have a piece of that, as does Qatar Petroleum. I really don't want to get into any specific commercial terms, in terms of how that LNG is marketed to the various markets. But I can tell you that as we look at this both ourselves and the Qatari's again, one of the things that makes this project so unique is the integration across the value chain.

So I really don't think how that gets marketed or by what entity really makes the difference in terms of the overall value and then either of the partners are able to get out of this project. Alignment is key, and again that's one of the things that makes this such a special project for us.

Paul Cheng - Barclays Capital

Okay. Just as a quick final one, you have earlier mentioned that the working capital versus the first quarter and up that is absorbing cash, but I thought because of your account payable enough -- account payable typically for the crude purchases now 30-40 days and account receivables from the product sale is more in the five to 10 days in the rising oil price environment should we see working capital to be a source of fund instead of the use of cash?

David Rosenthal

That's an excellent question, but it really depends that swings around a lot, the commodity prices have been volatile, we've seen some fairly significant swings in both the payables and receivables and particular the receivables here, as we ended the second quarter. So we're trying to dice that up any finer, I can just confirm that, that was in net about a $4 billion decrease in our cash Cheng.

Paul Cheng - Barclays Capital

Okay, thanks.

David Rosenthal

Thank you.

Operator

We'll go next to Evan Howir (ph) with Morgan Stanley.

Unidentified Analyst

Good afternoon David, thank you for taking my call.

David Rosenthal

Good morning how are you?

Unidentified Analyst

I'm well. I've two questions, one is on the cash position and I know this question has been pushed before in different manners only to be clear of excess CapEx dividends and buyback versus your cash flow, I mean it drove your cash balance is still enviable $15.6 billion but, given your forward guidance of 4 billion on the buyback, the flywheel just referred is still spinning. How do you approach the buyback or those levels as your relative cash balance declines and is there some any kind of targeted cash flow we can think about there?

David Rosenthal

We really don't have a targeted cash level. What I would tell you is that as we go through the year, we are maintaining our prudent disciplined approach to cash management. You have seen an orderly draw down of our cash balance, but if you really look year-to-date we're inline with kind of what we've talked about, about how we use our cash.

We fund the investment plan first, we find the dividend second and we look at other uses of cash and of course then the share buyback. And it's interesting to know if you look at the first half of the year we're pretty much in balance on the first two cash generated from the business, was able to fund the investment plan as well as the dividend. In addition to that we spend about $12 billion on shares and about $4 billion in the pension. So, if you look at it in round numbers since the year end of 08, we're down about $16 billion, twelve of that in T shares, four in pension funding and everything balanced out.

As we go forward of course we'll be monitoring cash flows and what's going on in the business, continue to meet operational needs, continue to meet the investment plans, pay the dividend and then we'll take a look about three months from now at what guidance we'll offer on continued share buybacks.

Unidentified Analyst

Great, fair enough.

David Rosenthal

Thank you.

Unidentified Analyst

My second question relates to exploration and I did listen to your comments earlier on the opportunities in European conventional gas and specifically in a lower Saxony you'll be out of broking session you scheduled to begin testing from western parts of the zone and middle of this year and I know you have a number of wells that are down and flowing in the eastern portion of the play, I mean is there any, there any other update or color in terms of either when we can expect results or how we should expect to see those results?

David Rosenthal

I wouldn't have any major update. You kind of hit the nail on the head with respect to the activities that we have underway in that very large block as we mentioned in, and as can imagine, we do have three wells that have been drilled. We have evaluations undergoing, but I really don't have anything other than offer, other than we continue to collect data and continue to evaluate it.

And as I've said before the good news on that block is its very large, very continuous and we've got a long holding period and we're going to work it with all the technology and things we can bring to the party, but no real specific update.

Unidentified Analyst

Are you guys running three rigs there?

David Rosenthal

No, we've got one rig running.

Unidentified Analyst

Okay, great, thank you.

Operator

Our next Mark Gilman with The Benchmark Company.

Mark Gilman - The Benchmark Company

David, good morning.

David Rosenthal

Good morning Mark, how are you?

Mark Gilman - The Benchmark Company

Good. Thanks, couple of things, could you comment a little bit perhaps on those thinking or rationale for establishing the relationship with TransCanada on Alaskan gas as opposed to affiliating with the Donolin, ConocoPhillips BP Group?

Mark Gilman - The Benchmark Company

Sure. As I mentioned in June, we did come together with a agreement to work with TransCanada to study the Alaska Gas Pipeline, I really wouldn't want to get into a lot of specifics other than to say that the combination, we view the combination of ExxonMobil and TransCanada really bringing together some unrivaled expertise and experience to the project if you look at the various parameters that are going to be required for a successful project and the things that each of these parties can bring to the table; we feel really good about the opportunity to work with TransCanada and see if we can bring this project forward.

Mark Gilman - The Benchmark Company

Okay, David, well if I could, is it reasonable to say that you're stated intent along with the Qatar Petroleum, would be to operate the four mega trains, barring glitches of any kind at 90% type of operating rates notwithstanding market conditions?

David Rosenthal

Yeah, we would, expect to run, and get those trains up and running, to full capacity utilization and run them flat out.

Mark Gilman - The Benchmark Company

Okay. And just one final one if I could please, on your Upstream earnings reconciliation, and I guess I am looking specifically against the year ago period, volume mix was indicated as being a $110 million positive variance, yet the production comparison for those two periods is down. Would it be fair to assume that you were meaningfully over lifted in the second quarter which accounted for that positive variance versus the production number?

Mark Gilman - The Benchmark Company

What I would say that, that's pretty close Mark, as you know production volumes were down and the positive earnings factor, that is driven by higher liquid sales volumes, but its really related to the timing of lifting for both this quarter and last quarter and not any specific over lifting or under lifting just kind of the difference between the two quarters.

Mark Gilman - The Benchmark Company

No, I understand that but were you over lifted in the second quarter is what I'm getting at?

David Rosenthal

No, we weren't over lifted again, it's just timing across the quarters.

Mark Gilman - The Benchmark Company

Okay David, thanks very much.

David Rosenthal

Thank you Mark.

Operator

We'll go next to Pavel Molchanov with Raymond James.

Pavel Molchanov - Raymond James

Thanks for taking my question. Two quick points, one follow up on Alaska, can you give us a timeline of the next steps we should be expecting as that project develops?

David Rosenthal

I think as we look at moving the project along and working with TransCanada I think the real next step is what we said is really we've got the planning underway, looking forward to possibly a 2010 open season. We do have a project team in place and they're working on the project, but it's really too early to talk about milestones and definitive timelines and that sort of thing.

Pavel Molchanov - Raymond James

Got it. And then second point about Iraq obviously you're were one of the participants of the first licensing round, can you give us any just perspectives on what you thought about that process and then may be your any plans you might have for the second round?

David Rosenthal

Well as we look at, as we look at Iraq, clearly we're very interested in the opportunities in Iraq, obviously, world class resources on offer there. We continue to asses the business opportunities in Iraq. We continue to dialog with the authorities there and we certainly look forward to working on an ongoing basis with the Iraqi government and the other parties and country, to really identify projects and areas that where our expertise would provide the most benefits to the Iraqi people. So it's really about value maximization of the resources, we think we bring a lot to the party there and as I said we're not after any specifics, dialog continues and we'll see how things play out in the future.

Pavel Molchanov - Raymond James

Great, thanks guys.

David Rosenthal

Thank you.

Operator

We'll go to Arjun Murti with Goldman Sachs.

Arjun Murti - Goldman Sachs

Thank you David, another Qatari question, can you just remind me as you report the volumes on a quarterly or annual basis, is there a production sharing contract type of effect where in the volumes will moderate your net volumes based on prices and at some point is there a pay out where you switch to kind of a like its a profit gas mode if you will out of cost recovery mode? Thank you.

David Rosenthal

Yeah I really don't want to talk about the specifics, but it is a not a PSE in the traditional manner that you described there so, I wouldn't expect it to see the kind of impact that you're articulating.

Arjun Murti - Goldman Sachs

Right, so that type of there might be other volatility but that type of volatility we should not expect in the gas numbers?

David Rosenthal

Yes, you would not expect in that type of volatility.

Arjun Murti - Goldman Sachs

That is great. Thank you.

David Rosenthal

Thank you much.

Operator

We'll go next to Robert Kessler with Simmons and Company.

Robert Kessler - Simmons and Company

Good morning David.

David Rosenthal

Good morning.

Robert Kessler - Simmons and Company

You mentioned with very -- a fare amount of granularity of the expectations for the first LNG in the Qatari projects. I'm curious how you'll place the timing for the associated liquids, the condensate and NGLs, whether those would match the LNG or whether or not you could pull those out a little bit earlier as the rest of the plant goes down?

David Rosenthal

That's a good question, but no, they've come out about the same, we wouldn't expect to see any major difference in terms of the liquid coming off versus the LNG.

Robert Kessler - Simmons and Company

Okay, fair enough. And then, I was a little, I'd like to see if you could come back to this kind of two-thirds Asia Pacific commentary, I recognize when you look at the Qatari projects in aggregate about two thirds of that heads to Asia Pacific region, but I think there has been a fair amount of concern about the incremental projects, particularly, if the Qatargas 2 Train 5 and RasGas Train 6 has been by default testing for the Atlantic basin market. Do you expect it in a very short-term with those coming on line there is some incremental demand in Asia that could absorb that or should we fix back that stake in the Atlantic Basin regardless of whether it heads to Europe or the U.S.?

David Rosenthal

I got to tell you we don't really think about this business in short term use, we're really looking longer-term and optimizing where we're placing those volumes and maximizing where we can get the best value. First we'll be selling the LNG in all the regions where there are markets for but, I really wouldn't have any specific comment about something near-term, one geographic location versus the other. Again as I have mentioned the fact that this is a highly cost advantaged product, we do have the flexibility to deliver that basically around the globe.

Robert Kessler - Simmons and Company

Sure, thanks for that. And then real quick a second question from me on the Piceance nice to see you got that 200 million cubic feet a day of processing capacity available now, how quickly should we expect a ramp up towards start of the 80 you're producing today?

David Rosenthal

I think what you'll see is that single ramp up fairly linearly across the balance of the year and we would expect things to be there by year end.

Robert Kessler - Simmons and Company

Great, thanks very much.

David Rosenthal

Thank you.

Operator

We have a follow up from Mark Gilman with The Benchmark Company.

Mark Gilman - The Benchmark Company

David, with respect to the tax rate jumping to the 50% level, I am assuming is that just driven by business mix more than anything else is that correct or is there something else that I should be looking at?

David Rosenthal

No that is an excellent assumption.

Mark Gilman - The Benchmark Company

Thanks very much.

David Rosenthal

Thank you.

Operator

Thank you and that will conclude today's question and answer session. Mr. Rosenthal, I'd like to turn the conference back over to you for any additional or closing remarks.

David Rosenthal

Thank you very much. ExxonMobil's results so far this year, we've had solid financial and operating performance during the period of challenging market conditions. The first half of 2009 was marked by continued global economic weakness resulting in lower demand and volatile commodity prices and margins.

In the near term, it is difficult to predict the timing of global economic recovery. However, ExxonMobil's long-term orientation enables us to invest through the cycle, to develop new capacity to meet demand growth and maximize the shareholder value. I thank all of you for your time and your questions this morning.

Operator

Thank you everyone for your participation. This will conclude today's conference call.

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