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ExxonMobil Corporation (NYSE:XOM)

Q3 2006 Earnings Call

October 26, 2006 11:00 am ET

Executives

Henry Hubble - Vice President of Investor Relations

Analysts

Doug Terreson - Morgan Stanley

Mark Flannery - Credit Suisse

Jennifer Rowland - JP Morgan

Paul Sankey - Deutsche Bank

Doug Leggate – Citigroup

Neil McMahon – Bernstein

Nikki Decker - Bear Stearns

John Herrlin - Merrill Lynch

Paul Cheng - Lehman Brothers

Mark Gilman - Benchmark Company

Daniel Barcelo - Banc of America Securities

Paul Sankey - Deutsche Bank

Presentation

Operator

Good day and welcome to the ExxonMobile Corporation Third Quarter 2006 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. Henry Hubble. Please go ahead, sir.

Henry Hubble - Vice President of Investor Relations

Thank you. Good morning and welcome to ExxonMobile's teleconference and Webcast on our third quarter 2006 financial and operating results. As you are aware from this mornings press release, we had another strong quarter as our long standing commitments to the integrity of our operations, disciplined investment approach, and our integrated business model continued to position the Company to benefit from robust industry conditions.

At this time I'd like to draw your attention to our cautionary statement. Please note the estimates, plans, and projections are forward-looking statements. Actual results including resource recoveries, volume growth, and project plans and outcomes could differ materially due to factors I'll discuss and factors noted in our SEC files. Please see factors affecting future results and the Form 8-K we furnished this morning which are available through the investor information section of our website. Please also see the frequently used terms. The supplement to this morning’s 8-K and the 2005 financial and operating review on our website. This material defines certain financial and operating terms I'll use today, shows ExxonMobile's net interest in specific projects, and includes information required by SEC Regulation G.

Now I'm pleased to turn your attention to the specific results. ExxonMobile's third quarter net income and normalized earnings were $10.5 billion, or $1.77 per share. This was a record quarter for normalized earnings, and represents an increase of $2.2 billion over the third quarter 2005 on the same basis. Normalized earnings per share increased by 34% over the third quarter last year reflecting the strong earnings performance and also the benefits of the share repurchase program. Before I discuss the specific business results, I'd like to highlight some of the significant milestones we achieved since our last earnings call. Many of which are helping to bring new supply to the market.

In the upstream we commissioned the export system and completed loading of first oil from the multi phase Sakhalin-1 project at the newly constructed De-Kastri terminal. Oil production should ramp up to an estimated peek rate of approximately 250,000 barrels a day around the end of the year following line out of the onshore processing facility and additional well tie-ins. We continue to be pleased with the phase one project performance and are pursuing future phases.

In another recent milestone, we started production at Erha North, a deepwater development located offshore Nigeria. This is a satellite to the Erha development which came online earlier this year. Erha North started production within 30 months of discovery, setting a Nigeria deepwater record. Both Erha and Erha North facilities were constructed within budget and further demonstrate ExxonMobile's operational excellence, project execution, and deepwater expertise. Current production from the combined facilities is above expectations at 220,000 barrels a day.

Also during this quarter, Golden Pass LNG LLC awarded a contract to begin engineering procurement and construction of the facilities near Sabine Pass, Texas. These facilities have capacity to process 15.6 million tons per year of LNG and are part of the multibillion dollar supply chain necessary to deliver LNG from Qatar to the United States. It's expected that the Ras Laffan 3 and Qatargas III projects which will produce and process natural gas from Qatar's offshore North field will provide the primary supply for the terminal. Construction of the Golden Pass terminal is another important step in supplying natural gas to customers along the Gulf Coast and other U.S. Markets.

During the quarter, drilling began in one of our Orphan basin exploration blocks. The well is located about 250 miles off the coast of St. John's new found land in 8,000 feet of water. This is the first well to be drilled in the basin and carries significant risk and reward potential. Operations are expected to carry through until year-end.

In the downstream, we successfully completed the transition of our facilities to meet new, U.S, Ultra low sulfur diesel requirement which reduce on road diesel sulfur by 97%. In addition to near term benefits, this ultra low sulfur fuel allows for the use of advanced emissions reduction technologies, which will lead to a significant reduction in diesel vehicle emissions as the fleet turns over. ExxonMobile's worldwide effort to reduce sulfur content of diesel and gasoline fuels represents a total investment of $3.5 billion and is an important part of our continuing efforts to reduce vehicle emissions.

We were pleased to announce in August that our high performing synthetic oil, Mobil 1, was elected as the factory and service fuel motor oil for the new 2007 Acura RDX Luxury SUV. Mobil 1 received the highest rating of all oils tested, including other synthetics, and was selected on it's ability to meet the demands of a high performance turbo charge engine. Mobil 1 continues to lead the industry with over 30 automotive manufacture endorsements. Our advanced technology allows us to consistently meet customer requirements for high quality products and provides a competitive advantage.

In keeping with our process of continuously and rigorously assessing our global portfolio of businesses, we recently announced the sale of a number of our fuels and lubes business in Africa. These transactions include a network of about 300 service stations and the associated supply and distribution facilities. These transactions are subject to the approval of relevant authorities in multiple countries, therefore completion time will vary from one country to another.

I'd now like to comment on two significant chemical milestones. Earlier this month, we announced the signing of a heads of agreement with Qatar Petroleum to progress feasibility studies for a proposed $3 billion world scale petrochemical complex in Ras Laffan industrial city. The project would use feedstock from gas development projects in Qatar's North field and utilize ExxonMobile proprietary steam cracking furnace and polyethylene technologies to create premier products for customers in Asia and Europe. The successful partnership between ExxonMobile and Qatar Petroleum continues with this proposed project as we further expand the use of North field gas. Start up of the proposed petrochemical complex is estimated in 2012.

In September, we announced plans to build a new chemical facility at our Baton Rouge, Louisiana complex, to produce specialty compounded products. This plant will be able to produce a broad spectrum of commercial compounded products, including ExxonMobile chemicals, performance polyolefin grades, Santoprene thermoplastic elastomers and other specialty elastomers. The new facility is expected to start up in mid 2007 and is part of a Company's global strategy and commitment to provide engineered thermoplastic materials to the automotive and consumer products industries.

Turning now to the business line results. I'd ask you to also please refer to the earnings reconciliation in the IR supplement. Upstream normalized earnings in the third quarter were $6.5 billion. This represents an increase of about $760 million versus the third quarter of 2005. Upstream earnings per barrel were also strong at $17.61 per barrel. Higher realizations and volumes accounted for the increase in earnings from the third quarter of 2005. Net other items were essentially unchanged.

Worldwide crude sales realizations were $65.14 per barrel, up $7.12 from the third quarter of 2005. Worldwide natural gas realizations were also improved. Oil equivalent volumes increased 7% with increases in Africa and the Middle East more than offsetting natural field declines in North America and Europe.

Excluding the impact of divestments and entitlement effects, production increased by about 10%. Liquids production increased nearly 200,000 barrels per day or 8% versus the same quarter last year. Excluding the impact of divestments and entitlement effects, liquids production increased by 12%. The Erha, Bonga, East Area and Kizomba B start ups as well as the addition of Upper Zakum were the bigger sources of the additional liquids volumes.

Gas volumes increased by approximately 450 million cubic feet per day or about 6% versus the third quarter of 2005. Higher production from the 2005 start ups of Ross Gas Train 4 and Al Khaleej in Qatar and the absence of 2005 hurricane impacts was partly offset by natural field decline in North America and Europe.

Turning to the sequential comparison, upstream earnings decreased by about $640 million versus the second quarter of 2006. Lower realizations, normal seasonal declines in natural gas sales, lower asset sales, and negative tax effects were the primary reasons for the decrease. Liquids production was down 2% from the second quarter of 2006, including the impact of unplanned down time at Prudhoe Bay. Natural gas production was down about 7% due to normal seasonal declines in Europe. For further data on regional volumes, please refer to the press release and IR supplement.

Now, turning to the downstream. Third Quarter downstream normalized earnings were a record $2.7 billion, up $610 million over the third quarter of 2005. The increase was driven by stronger marketing margins, partially offset by lower refining margins. The volume mix effect was a negative 240 million primarily due to higher refinery turnaround and maintenance activity partially offset by the absence of hurricane impacts.

Other factors, increased earnings by $140 million primarily due to positive tax effects. Sequentially, downstream earnings increased by approximately $250 million with increased refinery throughput and other effects more than offsetting lower refinery margins.

In total, margin impacts reduced earnings by $240 million compared to the second quarter. Refining margins were lower by $800 million; however this impact was largely offset by improved marketing margins. Volume mix effects were positive $210 million due to lower refining turnaround activity. Other factors improved earnings by $285 million with lower operating costs consistent with the reduction in refining turnaround activity combined with positive tax effects.

Turning now to the chemical results. Third quarter normalized earnings were $1.35 billion, up $880 million versus the third quarter of 2005. Strong margins across all major business lines improved earnings by $820 million with higher realizations, out pacing increased feedstock cost. Volumes were slightly lower reflecting short-term demand effects.

Year-to-date volumes are essentially flat with 2005. Earnings also benefited from positive tax effects. Sequentially, chemical earnings increased by about $510 million driven by higher margins. The impact of slightly reduced volumes following a robust second quarter was partially offset by lower operating costs. We continue to see strengthen our chemical business, as our diverse portfolio, broad geographic coverage, and integration capabilities result in strong competitive advantage and industry leading performance.

Turning now to the corporate and financing segment. Corporate and financing expenses of about $100 million were up from the third quarter of 2005, primarily due to tax impacts partially offset by higher interest income. The effective tax rate for the third quarter was 44%. Our cash balance was $37 billion and debt was $8.6 billion at the end of the third quarter. The corporation distributed a total of $8.9 billion to shareholders in the third quarter through dividends and share repurchases to reduce shares outstanding, an increase of 30% or $2.1 billion versus the third quarter of 2005.

During the third quarter, ExxonMobile purchased $7 billion of shares in excess of dilution. There by reducing the number of shares outstanding by 1.9%. Since the beginning of 2005 our quarterly share repurchase program has increased almost threefold which further demonstrates our ongoing commitment to return cash to shareholders.

CapEx in the third quarter was $5.1 billion up almost $650 million from the third quarter of 2005, primarily due to planned upstream activity. Our year-to-date CapEx was $14.8 billion, approximately $2.4 billion higher than through the third quarter of 2005. Our full year outlook for CapEx remains unchanged at approximately $28 billion.

That concludes my prepared remarks and I'd now be happy to take your questions.

Question-and-Answer Session

Operator

Thank you, Mr. Hubble. [Operator Instructions] And we'll take our first question from Doug Terreson of Morgan Stanley.

Doug Terreson - Morgan Stanley

Good morning and congratulations on your results.

Henry Hubble

Thanks, Doug.

Doug Terreson - Morgan Stanley

In the downstream, both refinery throughput and petroleum product sales seem to be flat or down in relation to the year ago period both for Q3 and the first nine months of the year, and on this point I wanted to see if there were a few specific factors that helped to explain these trends and if not, any additional color on the turnaround and maintenance items that you highlighted would be appreciated.

Henry Hubble

Yeah. I mean, if you look at just the overall volumes, the throughput in the period, we were down from -- let me just pull the number here -- yeah, we were essentially flat across the period, and then what you saw in the volume effect that's there, basically that's turnarounds and that's essentially a mix of turnarounds because what you see in the throughput numbers is basically a distillation, we were tracking distillation there. And that was primarily crude, well or crude is down in the third quarter of last year and what you're seeing now in the relative comparison is more upgrading units.

Doug Terreson - Morgan Stanley

Okay.

Henry Hubble

So that was impact there.

Doug Terreson - Morgan Stanley

Okay that makes sense, and also, in the upstream in Alaska and Indonesia on Point Thompson and Natuna, there have been a decent amount of commentary in the press regarding possible changes in your position in those areas, and so I wanted to see if there was an update on the status of those two developments?

Henry Hubble

Well, if you look at Cepu, we continue to work with, work on basically with the government there to look to accelerate the project, and so we're continuing to work with them on the development plan there, and then if you look at Natuna, we're committed to develop Natuna. Obviously, it's a challenging resource.

Doug Terreson - Morgan Stanley

Sure.

Henry Hubble

Very high CO2 contents there, but you have been hearing a lot in the press, and all I would say is we're working to meet all of our obligations and we assume and expect that the government will be doing the same thing, and frankly, we're engaged in a discussion with the government right now to resolve those issues around the PSA.

Doug Terreson - Morgan Stanley

Great. Thanks a lot.

Operator

Thank you. We'll go next to Mark Flannery of Credit Suisse.

Mark Flannery - Credit Suisse

Yeah, hi, Henry. I have a question on drilling rig coverage.

Henry Hubble

Yes.

Mark Flannery - Credit Suisse

We've been picking up some news in the last few days that you guys have been involved and in fact have chartered the West Polaris drilling rig for delivery in the second quarter 2008. I wondered, does this represent anything of a change in your approach to rig coverage? I noticed McGill earlier this year was talking about how you were happy to be at a relatively low level of offshore rig coverage for ‘08 and ‘09. Are you changing your mind on this?

Henry Hubble

No. We continue to, we have a mix of coverage that we line up. There's really no change in our views in the rig situation, but as we move forward, we're going to continue to cover a specific requirements. We've got adequate coverage on our projects and basically, we've got rigs for the firm prospects that we have.

Mark Flannery - Credit Suisse

And could you maybe give us an idea of what kind of percentage coverage you have in ‘08 and ‘09 already for just for offshore rigs?

Henry Hubble

No. That gets into a little more competitive information than I want to get out here.

Mark Flannery - Credit Suisse

Okay. Thank you.

Henry Hubble

Yup.

Operator

Thank you. We'll go next to Jennifer Rowland of JP Morgan.

Jennifer Rowland - JP Morgan

Thanks. I was wondering if you could break out a little bit the refining versus the marketing on a sequential and also year-over-year basis?

Henry Hubble

Yeah. If you look at the big effects there were in margins in the sequential and the year-over-year, and if you look at -- first the sequential numbers, refining margins were down about $800 million and the marketing margins partially offset that to bring us to the 240, and what that reflects, you saw a big impact on refining margins in the period or the period comparison basically as inventories built and there was softness in those refining margins and that sequential comparison.

Then if you look at the year-on-year, there was some, there we saw even larger impact or increase on the marketing margins so it was almost, in fact it was all of that increase that we saw, and there, you have again when you comparing the last quarter, we had the hurricane impacts in that period, so you saw actually decrease in the marketing margins during that timeframe and in this period with some of the lag effects that we see as crude prices and commodity prices drop, we had higher margins in this period.

Jennifer Rowland - JP Morgan

Okay, and then you mentioned there was some tax effects in both --

Henry Hubble

Yeah.

Jennifer Rowland - JP Morgan

Upstream and downstream on a sequential basis. Can you just break that out from the other bar?

Henry Hubble

Yeah. Let me just step back for just a little bit more on the margins because I'll mention, in the refining side, part of the reason we didn't see as much downturn in the third quarter margins on refining is also related to our integration with lubes. We have a lot of lubes refining capacity and that actually was positive year-on-year, so it was, so that was something else that helped improve our results there, and then on the tax side, there really, if you look at that other column, there really isn't a significant story there. There's a lot of minor changes up and down, but the ones I mentioned were the biggest effects and they are basically non-U.S. Tax items like Europe and Asia Pacific.

Jennifer Rowland - JP Morgan

Okay, great. Thank you.

Henry Hubble

Yup.

Operator

Thank you. We'll go next to Paul Sankey of Deutsche Bank.

Paul Sankey - Deutsche Bank

Hi, Henry.

Henry Hubble

Hi, Paul.

Paul Sankey - Deutsche Bank

If we could continue on the same theme, Henry, firstly on the downstream, the 800 down in refining margin and the 600 up in marketing, could you break that out regionally or at least between the U.S. and non-U.S?

Henry Hubble

Yeah. If you look at the refining margins in the U.S, They were down about 500 million overseas about 300.

Paul Sankey - Deutsche Bank

Great. That answers it. On the volume side if we revert to that now, those look a bit weak but you referenced I think some seasonal impacts on the chemical side. If I could slightly switch to my downstream chemicals but also in the oil markets you said that -- I think the disposals were a key reason for weakness in volumes on that?

Henry Hubble

Well, on the marketing margins, yeah. And we had divestments there that were the biggest impact on our product, our drop off in product sales --

Paul Sankey - Deutsche Bank

Do you have a number on that, Henry? And where? It wasn't U.S. I guess, was it?

Henry Hubble

Yeah. Let me, well the biggest, we have U.S, we continue to high grade the network there and of course we have the Africa piece, but that's going on around the circuit, you've got some in Africa, you’ve got some in Europe so we're high grading around in our network continually.

Paul Sankey - Deutsche Bank

You've broken out what your volumes would have been upstream if it hadn't been for disposal. Could you give us a guess of how good volumes or what kind of demand strength you would have seen had it not been for the sales you had done in the petroleum product side?

Henry Hubble

Yeah. You would have been up a percent or so.

Paul Sankey - Deutsche Bank

Okay, great. And on the chemical side, I think you said was it seasonal effects?

Henry Hubble

Yeah, well, on the chemical side, you have some of these what we almost call mini cycles in the chemicals business and it has a lot to do, the volumes that you see there have a lot to do with peoples expectation on where prices are going, so what you see is when prices, the feedstock prices start dropping rapidly, people will V-stock and slowdown their purchases waiting for that to be reflected into product prices, and so you'll see that whenever you have a big change in the commodity price.

Paul Sankey - Deutsche Bank

Okay, great. And if I could have one more, please, on taxes, you had, sorry, upstream taxes, you had said last quarter that the North Sea impact would be around $0.01 to $0.02 I believe?

Henry Hubble

That's right.

Paul Sankey - Deutsche Bank

And is that, I mean does that actually happened dare I ask and secondly could you quantify Alaska and any other impacts globally on the upstream side that might be within these numbers?

Henry Hubble

Well you’ve got the big ones. Those were the big impacts and the UK increase, it came in about where we thought it would, about in the middle of that range, so and then Alaska was a bit less than that.

Paul Sankey - Deutsche Bank

Okay. Henry, I'll leave it there. Thank you.

Henry Hubble

Very good.

Operator

Thank you. We'll go next to Doug Leggate of Citigroup.

Doug Leggate – Citigroup

Thank you, good morning Henry. I guess this is going to be something of a theme. The tax situation, if you look at your tax rate, it looked to be a little low or something, lower than recent quarters. Was that just the mix effect because of the heavier downstream contribution?

Henry Hubble

Well, the tax rate actually was about flat. I mean it was 44%, I think it was the same thing versus second quarter and actually up some versus last year.

Doug Leggate – Citigroup

Yeah, I'm talking sequentially.

Henry Hubble

Yeah, so it was flat. It was basically flat.

Doug Leggate – Citigroup

I guess -- my question is that some of your competitors only reported included some data charges for the first half of the year both UK, Alaska and one or two other things. Are you able to quantify if you did the same thing and to what extent it was?

Henry Hubble

Well, I mean, we report the effects, and these are net effects that we're reporting here, so in the UK, that's a net effect, and it's complex and I can't really get into all of the forward and backward pieces on it but they are net effects.

Doug Leggate – Citigroup

Okay and my second question is really just on production. There's actually two parts of this if you don't mind both very simple I'm afraid.

Henry Hubble

Yeah.

Doug Leggate – Citigroup

In terms of the pricing effects I just wanted to make sure my understanding is right on this. The average oil price in Q3 last year was about $7 below what it was this year.

Henry Hubble

Yes.

Doug Leggate – Citigroup

So are you saying if we hit the (inaudible) for $63 level for talking sake that your volumes would go up by around 3%?

Henry Hubble

Well, no. I mean, what we have said when we've looked at the entitlement effects has been more like a 1% kind of a number.

Doug Leggate – Citigroup

That balances disposals?

Henry Hubble

Yeah, and then you look there's disposals in there but if you look at the overall volume, volume impacts, it's about the balance was entitlements, almost 2% there.

Doug Leggate – Citigroup

Okay and I guess the second part very simply to that question is obviously OPEC cuts, have you seen anything in terms of requests and so on just in your business?

Henry Hubble

Yeah. I mean, the OPEC effects for us will be small. Now, we do see, we do see on a production side, but you do see things in supply as crude is being cut back, we are seeing changes in mix, generally comes out of heavy grades and so we see some of that.

Doug Leggate – Citigroup

Okay, that's great. Thank you.

Operator

Thank you. We'll go next to Neil McMahon of Bernstein.

Neil McMahon – Bernstein

Two questions. One is when you look at the sort of basic data you've given us for cash flow and your earnings press release, you've got $800 million for sales of subsidiaries investments and plant property and equipment. I wonder if you could break that down into how much of that was actual divestments and where they were in terms of upstream, downstream chemicals, other?

Henry Hubble

Yeah. I mean the biggest piece was Carson Creek, you know, we did have some upstream sales but we’re really -- I can't get into the break down of each of these things. I can tell you though, if you look at the quarter-on-quarter comparison though and for the upstream earnings, I mean, they netted out. We didn't really have any other effects and that was basically the impacts that I described on the tax side with UK and Alaska tax offsetting some higher asset sales in the biggest piece of that was Carson Creek.

Neil McMahon – Bernstein

But you would say that $800 million in your cash flow statement would be divestments?

Henry Hubble

Different divestments, yes. I mean, it's upstream and downstream mix.

Neil McMahon – Bernstein

Great. Just a second question on U.S. gas, you had a decline in volumes sequentially. Two parts: One, just wondering if that was due to divestments alone and secondly, are you seeing any changes in activity in the Piceance basin in terms of rig availability or indeed are you taking any actions yourself to change activities given where the natural gas price has been this year?

Henry Hubble

Yeah. As you're looking at the year-on-year gas production for the upstream?

Neil McMahon – Bernstein

I believe so.

Henry Hubble

Yeah, okay, so I mean one of the big impacts there is just the absence of the hurricanes, so that probably the biggest single impact to decrease that number and of course we're continuing to move Piceance forward and it's moving ahead according to plans there, but in terms of actual volume contribution at this point it's relatively small.

Neil McMahon – Bernstein

Okay, but you're not changing any of your activities going forward?

Henry Hubble

In terms of from a price outlook?

Neil McMahon – Bernstein

Yup.

Henry Hubble

No, our plans are based on long term outlooks and the competitiveness of the projects that we have and so it's not impacted by near term price.

Neil McMahon – Bernstein

Okay. Thanks.

Operator

Thank you. We'll go next to Nikki Decker of Bear Stearns.

Nikki Decker - Bear Stearns

Good morning, Henry.

Henry Hubble

Hi, Nikki.

Nikki Decker - Bear Stearns

Two questions on Saco if I could. First of all, I think you were due to start an inspection process by the natural resources ministry. Just wondering what we might expect and if there was anything potentially significant that could come out of that and secondly, we seen some press reports that you've reached a preliminary agreement on gas sales. Maybe you could comment on that.

Henry Hubble

Yeah, I guess first on the Saco in piece, the inspection hasn't started but there's been ongoing interactions with government officials all the way through this, so it's not like there's a lot of things, or still it's going to be more closing things out and we're not expecting any real issues and as you see, we started up the facilities and have made the first exports and in fact I think the next vessel is due to arrive either today or tomorrow. So, that continues to move ahead. And we're pleased with the progress.

Nikki Decker - Bear Stearns

And on gas sales agreement?

Henry Hubble

Yeah. Well, we basically signed an HOA with CNPC and that basically, you know, our intent is to work forward to an agreement there and there are also discussions as you might guess with gas prom about how to export that.

Nikki Decker - Bear Stearns

Okay, can you give us any color on the term size, anything?

Henry Hubble

No. We haven't -- all of that is to be defined yet in terms of the specific agreement.

Nikki Decker - Bear Stearns

Thank you, Henry.

Henry Hubble

Yup.

Operator

Thank you. We'll go next to John Herrlin of Merrill Lynch.

John Herrlin - Merrill Lynch

Yeah, hi Henry. Last quarter, Erha was running above boiler plate and now you put it in the satellite facility. Is this going to be constrained, is it going to be flowing at pretty high rates for a long time?

Henry Hubble

Well, as I said, it's up at the 220,000 barrels a day now and that's above what we were originally expecting, and so we'll see, but these do decline overtime and most of these fields have, they will maintain a peak for a certain period and then you'll see declines, but we feel real good about that project. It's done very, very well.

John Herrlin - Merrill Lynch

Understood. I was just trying to get a sense of how the satellite was.

Henry Hubble

I really can't give you anything right now. It's performing consistent and above our expectations.

John Herrlin - Merrill Lynch

Super. Next one for me with golden pass, when do you expect to receive LNG?

Henry Hubble

Well, in the completion date, I don't know if I have that right at my finger tips here. It's 2008.

John Herrlin - Merrill Lynch

Okay, and then lastly for me, with the Orphan basin you said you'll TD this one at the end of the year. Does that then mean a pause, should we expect an announcement, or what will you do?

Henry Hubble

Let me just back up on the completion of that looking around the 2009 is for the -- is when we'll have the first receipts there.

John Herrlin - Merrill Lynch

End of 2009 or middle?

Henry Hubble

No. I don't have anything more specific than that. And then Orphan, it's a tight hole so I don't have any data. I can share it's drilling and then obviously, it's one that's high risk and potentially high reward but we have a number of those kinds of prospects that we're working on.

John Herrlin - Merrill Lynch

Thanks, Henry.

Operator

Thank you. We'll go next to Paul Cheng of Lehman Brothers.

Paul Cheng - Lehman Brothers

Hi, Henry.

Henry Hubble

Hi, Paul. How are you?

Paul Cheng - Lehman Brothers

Very good. Sorry to have to bug you on this one. On the tax and office sales, let me try to understand a little bit better. In your supplemental presentation, you indicated that other sequentially that lead to 190 million lower earnings. If I recall correctly, in the second quarter, you have asset sales gain of about $340 million and the benefit from the Canadian tax law change of $200 million. So that's about $540 million and that the higher UK tax in Alaska based on what you just mentioned is roughly about 170 to 180 million, so that means that if this item, the $190 million lower earnings is assumed that mainly related to asset sales and tax changes, so does that mean that on the absolute dollar term, your third quarter, you have a benefit on those two items to the tune of about $5 to $600 million?

Henry Hubble

I'm not following. I think we're going to have to take that one off line because I'm not sure, I can't follow all of the numbers you were going through there, Paul.

Paul Cheng - Lehman Brothers

Okay.

Henry Hubble

I think we would be better off to take that offline.

Paul Cheng - Lehman Brothers

I will do so. Second question, wondering if you have been informed or by order by either your suppliers such as Saudi Arabia to have a lower location or that the shipment to you for November or by Nigeria that saying that you need to trim your production already?

Henry Hubble

Well, Saudi Arabia, that's a supply, my comments there were on a supply side and so and then for anything else, it's basically a dialogue with those countries on what they are going to actually do and that's ongoing, so there's nothing I have to report there at this point. Like I said on the supply side, we have contracts and they will ship the great mix and that kind of stuff.

Paul Cheng - Lehman Brothers

I understand, but Henry, I guess my question is that did they officially inform you guys of trimming your location?

Henry Hubble

Yeah. I mean, right now, there's plenty of crude supply out there. I'm not sure what you're going at in terms of we don't really have any, as I mentioned, there's no indication on limitation on the amount of oil. There's plenty of oil out there so we've got all of our, we're a big buyer of crude. We don't have any trouble covering that, and so – and then as I said before, in terms of our production side of it, it's very small, if anything.

Paul Cheng - Lehman Brothers

Okay. That's fine. Can I have just one final quick question? I think clearly, several weeks ago, the news come out saying that (inaudible) indicated that 2007 kept your spending would be roughly flat at $20 billion. Wondering if you can confirm whether he has said that or not.

Henry Hubble

Well, yeah. I mean and I think those are round figures and we'll be updating specifically the outlook at the Analyst meeting as we always do and you'll get more detail there, but I would take that as a round figure.

Paul Cheng - Lehman Brothers

Okay very good. Thank you.

Operator

Thank you. We'll go next to Mark Gilman with the Benchmark Company.

Mark Gilman - Benchmark Company

Hi, Henry, how are you?

Henry Hubble

Very good, Mark.

Mark Gilman - Benchmark Company

Two questions. Exploratory expenses are running considerably higher this year both in the quarter you reported today as well as the first half and I was wondering if you could shed a little light on the factors contributing to that and in particular, the extent to which it is an activity induced increase as opposed to any changes in success rates.

Henry Hubble

No. I mean, it does, we do have higher levels of activity and it reflects, but it does reflect and you'll see it as different prospects, there are some dry holes in here too because we do have activity in that but it also covers of course all of our seismic and other work that's in that category, and we did have well costs that are in there in this time frame.

Mark Gilman - Benchmark Company

Would you say activity increases is the primary driver?

Henry Hubble

No. I would say it's as much, I mean, it's activity on wells and then you have a certain number of them that are show up in those costs when they are non-economic, and so I guess when you say is it activity? Yeah, I mean, we do have higher activity on wells that are being drilled and some of those are showing up in this category.

Mark Gilman - Benchmark Company

Okay one other one if I could. In light of what you said about Erha and it's performance, the African liquids number in the third quarter was lower than the second. Could you perhaps shed a little light on that apparent discrepancy?

Henry Hubble

It's basically timing entitlements I guess is the biggest issue.

Mark Gilman - Benchmark Company

I'm not sure what you mean.

Henry Hubble

Well as prices rise, you have entitlement effects associated with that.

Mark Gilman - Benchmark Company

Price was flat, Henry, quarter to quarter.

Henry Hubble

Well, if I look at the Africa, that is the biggest impact is entitlement costs or entitlement effects.

Mark Gilman - Benchmark Company

Okay, thank you.

Operator

Thank you. We'll go now to Daniel Barcelo with Banc of America Securities.

Daniel Barcelo - Banc of America Securities

Hi, good morning. I wanted to know if you could just comment more conceptually about how Exxon views minority interest and certainly investments and in general, given some actions I guess with shell Canada in particular, how does Exxon view participation or ability to control capital spending or corporate government within some of it's subsidiaries there and if it has types of plans as well to look toward incorporating more of those minorities?

Henry Hubble

I'm sorry, I missed the front end of that?

Daniel Barcelo - Banc of America Securities

Regarding investments where you don't own 100% in your minority investments?

Henry Hubble

Yes.

Daniel Barcelo - Banc of America Securities

What is Exxon's strategy in order to essentially control say capital spending program, corporate governance --

Henry Hubble

Yeah, I mean, well, obviously, we're an active partner in anything where we're involved, and we go through in fact if you look at the upstream activities, we have a lot of ours are OBO arrangements there and of course we look at the risks involved and we'll offer our help in areas where the operator is seeking it, and we're active in those projects.

Daniel Barcelo - Banc of America Securities

You don't feel necessarily disadvantaged owning smaller stakes in that structure then?

Henry Hubble

No. Well, I mean, the whole reason you're in a project is because you're trying to get access to best resources and so we look at the resource quality. That's the first indicator and then we're working with them to make sure that it's as successful as possible and so we'll work with them on areas where we may have technical expertise or where we see a particular risk where we have some help to offer, we'll participate in that. But it's selective because there, the operator is the one that's running that.

Daniel Barcelo - Banc of America Securities

Okay, thank you.

Operator

Thank you. We'll go now to Paul Sankey of Deutsche Bank.

Henry Hubble

Hi, Paul.

Operator

Mr. Sankey, your line is open. Please go ahead.

Paul Sankey - Deutsche Bank

Hi, sorry, you surprised me by (inaudible). The one I had for you is the buyback. You made a forward-looking statement actually last quarter for the first time in my knowledge about the buyback levels but unless I missed it, you haven't made one about the outlook for this coming quarter and beyond, thanks.

Henry Hubble

No. Yeah, we didn't have any change there to make.

Paul Sankey - Deutsche Bank

Okay so just work on the idea that it's a $7 billion quarter with an additional amount of anti-dilution?

Henry Hubble

Well, yeah. I'm not giving any forward guidance but you know we're relatively stable.

Paul Sankey - Deutsche Bank

That's it. Thanks.

Operator

Thank you. That will conclude today's question and answer session. At this time I'd like to turn the conference back over to Mr. Hubble for any additional or closing remarks.

Henry Hubble - Vice President of Investor Relations

Thanks. Before we end the call, I'd just like to summarize a few points. Obviously, we had a very strong quarter and have been continually able to bring additional supply to the market, and ExxonMobile remains committed to managing our operations and providing high quality product to the market safely, reliably, efficiently, and responsibly, and as you can see from the results that we've announced today, we're delivering on those commitments. Thanks for listening.

Operator

Thank you for your participation. That does conclude today's conference. You may disconnect at this time.

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Source: ExxonMobil Q3 2006 Earnings Call Transcript
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