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Exxon Mobil Corporation (NYSE:XOM)

Q4 2013 Earnings Call

January 30, 2014 11:00 AM ET

Executives

David Rosenthal – VP, IR and Secretary

Analysts

Douglas Terreson – ISI Group Inc.

Evan Calio – Morgan Stanley

Doug Leggate – Bank of America-Merrill Lynch

Edward Westlake – Credit Suisse

Paul Cheng – Barclays

Blake Fernandez – Howard Weil

Arjun Murti – Goldman Sachs

Asit Sen – Cowen & Company

Faisal Khan – Citi

Allen Good – Morningstar

Roger Read – Wells Fargo

Robert Kessler – Tudor, Pickering, Holt & Co.

Pavel Molchanov – Raymond James & Associates, Inc.

Operator

Good day everyone and welcome to this Exxon Mobil Corporation Fourth Quarter and Full Year 2013 Earnings Conference Call. Today’s call is being recorded. And at this time 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 Rosenthal

Good morning, and welcome to Exxon Mobil’s fourth quarter earnings call and webcast. The focus of this call is Exxon Mobil’s financial and operating results for the fourth quarter and full year 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 two.

Moving to slide three, we provide an overview of some of the external factors impacting our results. Global economic growth continued at a modest pace in the fourth quarter, with mixed performance across the region. Moderate U.S. economic growth was sustained. China’s growth rate stabilized which Europe’s economic recovery remained sluggish. Energy markets delivered mixed results. WTI prices decreased more than more than $8 per barrel widening the discount to Brent as the global marker was only slightly lower in the quarter.

Henry Hub natural gas prices were essentially flat. Global industry refining margins strengthened as stronger U.S. margins were partially offset by continued market weakness in Europe and Asia Pacific. Chemical commodity product margins also declined over the quarter.

Turning now to the fourth quarter financial results as shown on slide four, ExxonMobil’s fourth quarter earnings were just under $8.4 billion or $1.91 per share. The corporation distributed $5.8 billion to shareholders in the quarter through dividends and share purchases to reduce shares outstanding. Of that total $3 billion was used to purchase shares.

CapEx was $9.9 billion in the fourth quarter. Cash flow from operations and asset sales was $12 billion. At the end of the quarter cash totaled $4.9 billion and debt was $22.7 billion.

The next slide provides additional detail on fourth quarter sources and uses of funds. Over the quarter cash decreased from $5.7 billion to $4.9 billion. Earnings, depreciation expense, changes in working capital and other items and our ongoing asset management program yielded $12 billion of cash flow from operations and asset sales. Uses included additions to property, plant and equipment of $8.4 billion and shareholder distributions of $5.8 million. Additional financing and investing activities increased cash by $1.4 billion. Share purchases to reduce shares outstanding are expected to be $3 billion in the first quarter of 2014.

Moving on to slide six and a review of our segmented results ExxonMobil’s fourth quarter earnings of just under $8.4 billion decreased by $1.6 billion from the fourth quarter of 2012. Lower earnings across all business segments were partially offset by reduced corporate and financing expenses.

In the sequential quarter comparison shown on slide seven earnings increase by $480 million as higher upstream and downstream earnings and lower corporate and financing expenses were partially offset by lower chemical earning. Guidance for corporate and financing expenses remains at $500 million to $700 million per quarter.

Turning now to the upstream financial and operating results and starting on slide eight, upstream earnings in the fourth quarter were $6.8 billion, down $976 million from the fourth quarter of 2012. Realizations increased earnings by $60 million as worldwide natural gas realizations increased by $0.41 per 1,000 cubic feet and crude oil decreased by $2.38 per barrel. Unfavorable volume and mix effects including the impact of crude under lifts of West Africa and the North Sea along with lower natural gas production decreased earnings by $550 million.

All other items decreased earnings by $490 million reflecting increased expenses driven by Kearl operating costs and higher planned exploration costs in Russia. Upstream after-tax earnings per barrel for the fourth quarter were $17.95 excluding the impact of non-controlling interest volumes.

Moving now to slide nine production decreased by 77,000 oil equivalent barrels per day or 1.8% from the fourth quarter of last year. Liquids production was up 32,000 barrels per day or 1.5%. Ramp up at the Kearl and Nigeria Satellite projects lowered downtime and continued increased production from unconventional plays in the U.S. were partly offset by field decline and price and spend impacts. Natural gas production was down 654 million cubic feet per day primarily due to expected lower U.S. production and field decline in several areas.

Turning now to the sequential comparison and starting on slide 10. Upstream earnings increased by $73 million versus the third quarter. Realizations decreased earnings by $430 million as worldwide crude prices decreased by $5.89 per barrel and natural gas realizations increased by $0.57 per thousand cubic feet. Volume and mix effects improved earnings by $90 million, reflecting increased global liquids and natural gas production. All other items had a positive impact of $410 million. Higher gains from asset sales were partially offset by higher operating expenses.

Moving to slide 11, oil equivalent volumes were up 190,000 barrels per day or 4.9% sequentially. Liquids production increased 36,000 barrels per day, mainly due to additional production from work programs in the U.S. and the North Sea, Kearl ramp-up and lower downtime, partly offset by scheduled maintenance in Nigeria and field decline. Natural gas production was up 973 million cubic feet per day mainly due to seasonal demand in Europe.

Moving now to the downstream financial and operating results and starting on slide 12. Downstream earnings for the quarter were $916 million, down $852 million from the fourth quarter of 2012 mainly due to lower non-U.S. refining margins. Volume and mix effects increased earnings by $110 million driven by refining optimization activities. All other items including higher operating expenses and unfavorable foreign exchange impacts decreased earnings by $280 million.

Turning to slide 13, sequentially fourth quarter downstream earnings increased by $324 million. Improved refining margins, mainly in North America increased earnings by $120 million. Volume and mix effects increased earnings by $330 million reflecting favorable refining optimization activity. Other items reduced earnings by a net $120 million.

Moving now to the chemical financial and operating results and starting on slide 14. Fourth quarter chemical earnings were $910 million, down $48 million versus the prior year quarter due to lower specialty product margins. Positive volume and mix effects were mostly offset by other items. Moving to slide 15, sequentially chemical earnings decreased by $115 million, primarily due to lower margins in Europe.

Moving next to the fourth quarter business highlights and beginning on slide 16. We continue to advance our global portfolio of high quality upstream projects. Construction at the PNG LNG project is now nearing completion. With the focus shifting to commissioning key facilities and equipment in preparation for first LNG delivery now targeted for the third quarter of this year. Gas has been introduced to both the gas conditioning plants at Hides and the LNG facility in order to progress commissioning activities.

The Kearl expansion project is on budget, is now more than 70% complete and remains on target for 2015 startup. We continue to develop attractive logistic solutions to provide market access for our growing oil sands production from this future additional capacity.

At Upper Zakum we are progressing with our partners the field redevelopment to raise production capacity to 750,000 barrels a day over the coming years. The increase is enabled through the use of four artificial islands of which two are now complete and the extended reach drilling using proprietary Exxon Mobil technology. Similar works and facility additions will continue through 2015. In 2013 the Upper Zakum joint venture was granted a 15 year license extension through 2041. The extension includes enhanced fiscal terms allowing the expansion project to meet our investment criteria and contribute towards Abu Dhabi’s plans to boost production.

In Iraq we reached a production capacity of 500,000 barrels per day at the West Qurna 1 development in 2013. We continue to progress additional capacity expansion through facility debottlenecking, workovers, new drilled wells and well tie-ins. We have also completed 3-D seismic acquisition over the West Qurna 1 field.

In the fourth quarter we executed agreements to sell a combined 35% interest to PetroChina and Pertamina reducing our participation interest from 60% to 25%. We will remain as the lead operator for the project and are committed to maximize value for all parties involved in redeveloping this world class resource.

Turning now to slide 17 for an update on our exploration activities. In Tanzania, the Mronge 1 well discovered an additional two to three TCF of natural gas in place from two separate intervals. The main accumulation is at the same stratographic level is the proven Zafrani 1 well. The secondary accumulation was encountered in a separate gas bearing reservoir in a play previously untested in Block 2. Mronge 1 is the fifth discovery on Block 2 and brings the total of the gas in place up to 17 to 20 TCF. Further exploration drilling is planned for 2014.

In Russia, Exxon Mobil and Rosneft completed joint venture agreements to implement a pilot project for tight oil development in Western Siberia. Operations for the pilot program are under way. We are evaluating data from the 2013 activity which included a mix of workovers and new well drilling. The year 2014 we will focus on drilling and testing new horizontal wells with operations to commence by the third quarter. We are currently finalizing locations to test this high potential resource.

In Argentina we drilled our first operated well and are currently drilling the second operated well in Vaca Muerta shale formation. Previously, we have drilled a total of six Vaca Muerta wells with our co-venturers to progress the evaluation of approximately 900,000 net acres. We have ongoing well operations to gather their production testing data required to validate expected recovery and to support potential development planning.

Turning now to slide 18 and an update on our downstream investments, which continue to strengthen our global portfolio. During the quarter we achieved several investment milestones. We commissioned a new diesel hydrotreater at our Singapore refinery increasing ultra-low diesel production capacity by 62,000 barrels per day. The new unit along with the recently completed petrochemical expansion project at our Singapore complex positions Exxon Mobil to competitively deliver high value products to the growing Asia Pacific region. We continue to extend our operating cost advantage by improving energy efficiency at our facilities.

Worldwide cash operating costs for our portfolio of refineries are well below the industry average and consistently outperform the competition. In November, we commissioned our latest cogeneration facility at our Augusta Refinery in Italy, increasing energy efficiency by 6%.

To support market access for our growing Canadian oil sands production we announced plans to build a crude oil railroad loading facility next to the Strathcona refinery in Edmonton. The terminal will have a capacity of up to 250,000 barrels per day, of which we plan to use a 100,000 barrels per day to supply our refining network. Connections to both Canadian National and Canadian Pacific mainlines will enable efficient, cost effective transportation of heavy crude. Construction is underway and startup is expected in early 2015.

Now I would like to provide a summary of our full year results shown on slide 19. 2013 earnings were $32.6 billion or $7.37 per share. The corporation distributed $25.9 billion to shareholders in 2013 through dividends and share purchases to reduce shares outstanding. Of that total, $15 billion was utilized to purchase shares. CapEx in 2013 was $42.5 billion and includes $4.3 billion for acquisitions. Base full year CapEx of $38.2 billion was in line with our spending plans. Cash flows from operations and asset sales remains robust at $47.6 billion, which included $2.7 billion from asset sales.

Moving now to the full year cash flow statement as shown on slide 20. During the year cash decreased from $9.9 billion to $4.9 billion. The combined impact of earnings, depreciation expense, changes in working capital and other items and our ongoing asset management program yielded $47.6 billion of cash flow from operations and asset sales. Uses included additions to property, plant and equipment of $33.7 billion and shareholder distributions of $25.9 billion. Additional financing and investing activities increased cash by $7 billion.

Moving on to slide 21 and a review of our fiscal year segmented results. 2013 earnings decreased by $12.3 billion. Lower net gains from divestments account for 70% or $8.6 billion of the reduced earnings. Lower earnings across all business segments were partially offset by reduced corporate and financing expenses.

Turning now to the full year comparison of upstream results and starting on slide 22. Upstream earnings were $26.8 billion, down $3.1 billion for 2012. Improved natural gas realizations partially offset by lower crude oil realizations increased earnings by $390 million. Unfavorable volume and mix effects including the impact of crude under-lifts in West Africa and lower natural gas production decreased earnings by $910 million. All other items including lower gains from asset sales, higher expenses driven by Kearl start-up and operating cost and higher planned exploration cost in Russia reduced earnings by $2.5 billion. Upstream after-tax earnings per barrel for the year were $18.03 excluding the impact of non-controlling interest volumes.

Moving to slide 23, volumes decreased by 1.5% or 64,000 oil equivalent barrels per day compared to 2012. Excluding the impacts of lower entitlement volumes, quotas and divestments production was essentially flat. Liquids production was up 17,000 barrels per day. Ramp-up at the Kearl and Nigeria projects, lower downtime and increased U.S production were partly offset by fuel decline and divestment impacts. Natural gas production was down 486 million cubic feet per day. As expected lower U.S. production, field decline in several areas and full year AKG entitlement impacts in Qatar were partly offset by increased weather related demand in Europe and project ramp-ups.

On slide 24, we show actual 2013 production volumes compared to the outlook we provided at the Analyst meeting last March. Overall total production volumes were in-line with our target of 4.2 million oil equivalent barrels per day, with liquids production slightly below target and gas production slightly higher. Several positive factors contributed to this result, including strong uptime performance, increased North America unconventional liquids production and higher European gas demand for the year.

These factors mostly offset the lower than expected volume contribution from Kearl and the loss of Kashagan volumes due to the pipeline issue currently being investigated. During the fourth quarter we continue to ramp up Kearl production, including making several upgrades to the steam system and filtration units to improve overall reliability. Average Kearl production for the fourth quarter and full year was 47,000 and 21,000 barrels per day respectively and production rates of 100,000 barrels per day were reached by the end of the year.

Full year comparison for the downstream is shown on slide 25. 2013 earnings were $3.4 billion, down $9.7 billion from 2012. Lower refining margins across all regions reduced earnings by $2.9 billion. Volume and mix effects decreased earnings by $310 million as higher planned maintenance activities in the U.S. and Europe was partly offset by refining optimization activities. Other items, including the absence of gains from the Japan restructuring and other divestments reduced earnings a total of $6.6 billion.

On slide 26 we show the full year comparison for chemical results. 2013 earnings were $3.8 billion. Higher commodity margins, partly offset by lower specialty margins increased earnings by $480 million. Volume and mix effects also increased earnings by $80 million, mainly due to strong U.S. commodity demand. Other effects reduced earnings by $630 million, mainly due to the absence of gains from the Japan restructuring.

Moving to slide 27, in conclusion in 2013 we earned $32.6 billion, generated $47.6 billion in cash flow from operations and asset sales, invested $42.5 billion in the business and distributed $25.9 billion to our shareholders. ExxonMobil’s strong financial and operating performance reflects the benefit of our integrated business model and other sustainable competitive advantages that create long-term shareholder value.

We achieved total production in line with our target and continue to progress attractive opportunities across our unique and balanced portfolio. Base full year CapEx spending was also in-line with our plans. Our cash flow remains strong and enables robust shareholder distributions.

Finally I would like to mention two upcoming events. First in mid-February we will be releasing our 2013 reserves replacement data. Second, as many of you will already have seen our upcoming analyst meeting will take place at the New York Stock Exchange on Wednesday March 5th. We will include a live webcast beginning at 9 AM Eastern, 8 AM Central Time. Presentation will be led by Exxon Mobil’s Chairman and CEO Rex Tillerson.

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

Question-and-Answer Session

Operator

Thank you Mr. Rosenthal. (Operator Instructions). Our first question comes from Doug Terreson with ISI Group.

Douglas Terreson – ISI Group Inc.

Good morning David.

David Rosenthal

Good morning how are you?

Douglas Terreson – ISI Group Inc.

I am doing fine. My question is about European E&P and specifically whether or not we could get clarification on the supply restriction at Groningen meaning it seems like 20% reduction in output is going to be required from the partners during the next three years which I think equates to about 60,000 BOE per day of heavy duty net Exxon Mobil. So is it the correct way to think about the supply effect and the duration of the restriction and just any color on that situation will be appreciated.

David Rosenthal

Yeah Doug I’ll be happy to give you a little perspective on the Groningen situation. Let me start by saying that the government’s draft decision does include a production decrease for the next three years of about 7% compared to average production over the average of the last few years. If this indicated – this off take limit is final it would have an impact of approximately, on ExxonMobil 100 MCF a day net production in 2014 versus the average of the last several years.

Now compared to 2013 which as I mentioned was a year of very high production due to weather-related demand, there would be a decrease of about 20% and that’s consistent with what was communicated by the Dutch government. The proposed curtailment is not final, it will take a little bit of time to finalize it. But if implemented again the impact on us relative to a normal year is about 100 MCF a day.

Douglas Terreson – ISI Group Inc.

Okay. Sorry go ahead.

David Rosenthal

I am sorry. Let me just make one of the comment to keep it in perspective and add a little color, in terms of the financial impact on the company while Groningen is of course very attractive asset in our upstream, the unit profitability is in the bottom half of our portfolio. And so the earnings impact is not as great as I think some people might have expected.

Douglas Terreson – ISI Group Inc.

Okay, good point. And then just second in U.S. downstream, obviously you guys have a several leading position in the mid-continent naturally benefited from wide differential to the last couple of years. But wondered if we could get an update on the program to secure advantage [inaudible] or what have you for the refineries outside of mid-conn. So any elaboration on this is appreciated. I think you guys talked about a little bit on the Gulf Coast, at the analysts meetings, so just an update there would be appreciated.

David Rosenthal

Yeah, sure, in general if you look at our mid-conn footprint which as we talked about before is one of the largest in the industry. And our Gulf Coast refining footprint is also one of the largest. So we got a lot going on in terms of making sure that we can get the Western Canadian crudes down into the circuit and also take advantage of the light sweet crude. And we are, pipelines, rail, barge, we are using all of the logistics opportunities available to us to optimize those barrels getting to refineries, and that’s a big piece of what you see in these positive, volume mix effects on our earnings both quarter-to-quarter, sequentially and that sort of thing.

Particularly if you look at that sequential comparison where we’ve really been able to optimize the sea slate we’re running and of course, take advantage of butane pricing as we switch over to winter grade fuels, and so that’s been helpful to us as well. But we are actively progressing that and the fourth quarter was a good one for us. And I might just mention one other thing that makes that important in the earnings comparison, we did have in the fourth quarter alone about $ 250 million of negative price timing effects. So that hurt on the margin side, gets somewhat offset by some of these refining optimization efforts that we talked about.

So we continue to work on that. One of the things that helps is being fully integrated across the downstream and upstream and chemical and having a worldwide supply department to help us on this. But you can rest assured from Canada all the way down to the Gulf Coast we are fully optimizing and taking advantage of our integration opportunities.

Douglas Terreson – ISI Group Inc.

Great thanks a lot.

Operator

Our next question comes from Evan Calio with Morgan Stanley.

Evan Calio – Morgan Stanley

Hey, good morning, David.

David Rosenthal

Good morning, Evan.

Evan Calio – Morgan Stanley

Yeah, first question on the production lines, I guess, from your comments I can disaggregate the impact from Kearl and Kashagan in the 4th quarter. Can you provide any outlook into 2014 on Kearl, what’s the ramp and more color there? And on Kashagan which you mentioned is there any prognosis for the production return, the state of the gas leak repairs and I have a follow-up, thanks.

David Rosenthal

Sure, let me start with Kearl. I can’t give you an exact time when we would expect to reach our full production capabilities. I will say although the Kearl volumes did come in over the course of years, I mentioned less than our expectation going in, and certainly part of the volume outlook we shared with you last March, we did achieve a number of milestones in cranking that project up. We have been able to run each of the three froth treatment trains at their maximum capacity on a combined basis. We’ve been able to reach rates at a 100,000 barrels per day.

What we are working on now is how do we improve the reliability so that we can run at those rates on a consistent basis. So we continue to make progress there. And again as I think I have mentioned in prior calls the good news for us is all the technology is working, the trains work, the equipment works. It’s simply then just a matter of start-up and this complex kit we got on the ground and working some of these reliability issues that I mentioned. But they are all fixable. We’re working on it. We are making progress. But I wouldn’t want to give you an exact date in terms of full capacity but we’ll give you an update at the Analyst meeting in March and probably be in a better position to help you with some outlook on that.

With regard to Kashagan n, as you know oil and gas production does remain shut in. We are investigating. We’ve got the best experts in the world looking at this. We’re investigating the root cause of the pipeline leaks and the seeps. That’s going to take a little more time. We do know that the immediate cause of the leaks has been sulphide stress cracking but we’re still investigating to establish what’s the cause of the sulphide stress cracking. And that is ongoing. There’s a lot of work going on, a lot of analysis underway, but I just couldn’t give you an outlook, I know there is some speculation out there at various times but I will be hesitant to try to give you an outlook until we know more about both the cause and extent of the leaks and therefore what it’s going to take to repair and get that equipment back in service.

Evan Calio – Morgan Stanley

Okay this is helpful. And my second question is on – it also relates to the production, and 2014 production. Thank you for the color on Groningen. I guess there, is there any ability to offset volumes from other European fields as it’s largely a demand driven market. And secondly another area which has been which profitable and a marquee investment for Exxon in Kearl LNG, I mean any color there on the relative contribution as you move through various contract thresholds in those contracts would be helpful. Thanks.

David Rosenthal

Yeah let me start off with Groningen. As you know it is the swing field in Europe and tends to take the balance of what’s needed, depending on weather typically unless there are some supply disruption and so that’s really what drives the production there year-to-year more so than capacity. In terms of ability to offset you know we’re already working everything we got, as you know our continental Europe conventional gas is on decline, North Sea gas is on decline so we do feed LNG into that circuit out of the Middle-East. But it has to compete with prices that you can get in Asia Pacific.

So we’ll be looking to optimize that but again under normal circumstances loss were about 100 MCF but we’ll be looking optimize around that to the best we can.

If talking about Qatar I think the one thing to keep in mind is other than the AKG project, all the rest of the trains are joint ventures, they are not PSEs. So they don’t react the same way that PSEs do. They do all have unique fiscal terms associated with them. But I can tell you as time goes on we don’t see any significant impact on the earnings contribution, anything that would be material. So we continue to remain focused keeping that equipment up and running. We had a terrific year on uptime and reliability and that enabled us to take advantage of some very strong margins at available prices through particularly in the Asia-Pac. So it continues to be a terrific investment for us.

Evan Calio – Morgan Stanley

Great, David. Thanks for taking my questions.

Operator

Our next question comes from Doug Leggate with Bank of America-Merrill Lynch.

Doug Leggate – Bank of America-Merrill Lynch

Thanks. Good morning, David.

David Rosenthal

Hey good morning Doug.

Doug Leggate – Bank of America-Merrill Lynch

Hi, I have a couple of questions also, if I may. The first one is on the long life nature of some of your assets. It just kind of occurs to me obviously you haven’t given a reserve replacement number for the year yet but as your portfolio shifts towards the likes of Qatar and the likes of Kashagan and so on Kearl all these are very long life asset. What is the determination internally about the need for reserve replacement to be at or above 100% when you have such huge piece of your portfolio that doesn’t decline on a multi decade basis? And I have got a follow-up, [as I think of] really the capital intensity of the overall portfolio.

David Rosenthal

Yeah let me hit the capital intensity first and I will use that to back into your original question. We have been in a very capital intensive mode in the upstream over the last few years as we recapitalized and invest in a number of these big projects. Some of you mentioned coming out of Qatar and into Kearl, Papua New Guinea LNG, Groningen LNG, the Kashagan of course, you have seen a ramp up in CapEx on these long life projects but as we talked about in the March analyst meeting last year we do have an expectation of rolling that upstream CapEx over a little bit as we go forward and we’ll give you an update on that in March. But we continue to progress that.

In terms of having a target of 100% reserve replacement we don’t really have a target. In other words we’re not going to go out and do things that are not optimal just to achieve 100% replacement target. We basically you know the company and the organization well. We span the world looking for good opportunities, good resources to get access to. And if they are commercial we’ll put the investment capital and human capital in there to development.

We have been fortune over the last many years that the summation of all this effort has achieved 100% or greater than 100% reserves replacement. But I am glad you asked the question because I do want everyone to know that we do not go and spend the shareholders’ money to reach any kind of target like reserves replacement. It’s the outcome of our very disciplined analytical process and again making sure that the CapEx is being spent in those areas, that have the best opportunity to generate long-term value for the shareholder.

And I think last thing I mentioned Doug as we look around the world and you look at our exploration portfolio one of the things that’s really nice today is our ability to be selective amongst that portfolio and pick and choose those opportunities that we want to go after and do the most attractive ones and the reserve adds will be the fall out of that. But thanks for asking question.

Doug Leggate – Bank of America-Merrill Lynch

So my follow up there is very quickly is on the Middle East again, as specific to the ADCO concession. I know its fixed margin and relatively low in the grand scheme of things but can you just explain for us what the situation is with that contract. I believe that expired in January 1 and whether or not you have any chance of re-tripping that at some point and I will leave it there, thanks.

David Rosenthal

Yeah the Abu Dhabi onshore concession expired on January 10th of this year. We did have a 9.5% interest in that. That worked out to about 140,000 barrels a day in production. We are no longer in that concession. I will tell you, you mentioned fixed margin contracts, while it was 140,000 barrels of production the unit profitability of that was down at the lower end of our profitable barrels. So that’s the status on the onshore. I really couldn’t comment on any discussions, opportunities forward-looking thoughts other than to kind of give you a status of where we are today.

Doug Leggate – Bank of America-Merrill Lynch

All right thanks, David.

David Rosenthal

Thank you.

Operator

Our next question comes from Ed Westlake with Credit Suisse.

Edward Westlake – Credit Suisse

Hey good morning David.

David Rosenthal

Good morning Ed.

Edward Westlake – Credit Suisse

Seems real fishing for your slides in March on the production volumes, so why not fish again, just very quickly, the reduction in the West Qurna stake how much did you include longer term in the slide that you put up each year in terms of the new projects for West Qurna?

David Rosenthal

Yeah what I can tell us is we put up that slide in March of every year, and it’s important to know this, we do it on an apples-to-apples basis. So we assume the status quo and the same as prior year prices. So it allows you folks to get a look at what we would be status quo, so no assessments every March in terms of acquisitions, divestments, contract, expiries and all those sort of things.

So last year we would have had an assumption of the status quo in the outlook. Now I can tell you that the way the contracts work we don’t book a lot of barrels in that area. And so the reduction will not be significant I don’t have a specific number for you other than to tell you it won’t be significant in the overall context of our production.

Edward Westlake – Credit Suisse

Okay. And then just trying to shift the conversation on can you talk a little bit about where you are in terms of oily rig count again in North America, some of your plans obviously the industry has announced some success in the Duvernay, you’ve got some good acreage in Woodford and the core of the Bakken and the Permian, just a quick sort of update on where you are in the oily drilling in North America? Thanks.

David Rosenthal

Sure. As you can tell by the sequential quarter-to-quarter sustained increase in U.S. liquids volumes we have been really orienting our rigs towards the more liquid areas. Biggest places for us, the Bakken, the Permian and the Woodford Ardmore, most all of our rigs are running in those areas. We continue to ramp up.

We’re adding rigs in the Permian for example, both for conventional liquids as well testing some of the unconventional. We are drilling in the Montney and the Duvernay, as you suggested, an increase in the activity there as well as in the Bakken. So if you look at the rigs we’re running today it’s not 100% but it’s probably 85% or so all of our rigs are working in liquids focused plays. And thus you have seen that significant increase in production. We are bringing a lot of wells onto sales every quarter and continue to ramp that up.

We are testing new areas, new zones and in these plays, the Maynard and the Ardmore for example looks very promising to us, we will be getting more wells down there, the Wolfcamp out in the Permian and a number of those plays. So we are very pleased with the acreage we’ve been able to acquire and get into and ramping up pretty dramatically.

And if you look at a number of these things that are occurring over the years, over this year a lot of it gets back to the commentary we made at the Analyst Meeting about working on improving unit profitability. And you do that by limiting or reducing your exposure to low profit barrels, working on fiscal terms where you can and putting your human and financial capabilities in those areas that generate above average incremental profitability and we’ve been executing those efforts this year and we will give you a better update at the March Analyst meeting on the extent of that program.

Edward Westlake – Credit Suisse

Thank you.

Operator

Our next question comes from to Paul Cheng with Barclays.

Paul Cheng – Barclays

Hey, David. Good morning.

David Rosenthal

Good morning, Paul. How are you?

Paul Cheng – Barclays

Very good. Sorry, not to beat a dead horse too much. If I look at your last year presentation in the Analyst Meeting on the production profile, can you tell us that for 2014, 2015 roughly how much is building into that particular profile you share from the Kashagan, from the Abu Dhabi, also [onshore] and also on Groningen?

David Rosenthal

Yeah. I don’t have a specific number for Kashagan. Abu Dhabi would have been something in the neighborhood of the 140,000 barrels a day I mentioned and Groningen would have been, whatever the equivalent would have been again for an average year. So I think the important thing to think about is the difference would be kind of what we have mentioned today for both Groningen and the onshore. And again we will be giving you a full update on our outlook that will incorporate those changes and many others that we have heading into 2014 when we get together in March.

Paul Cheng – Barclays

Okay. Second question. When I am looking at the Imperial in the fourth quarter they report downstream earning of $625 million Canadian dollar. So if you adjust for your working interest and the foreign currency, it would suggest that your share of their downstream earning is above $417 million, meanwhile that your U.S. downstream only report $319 million. Does that mean that outside Canada the rest of your global downstream operation actually loss of a $100 million or that is some different other accounting adjustment that we didn’t avail?

David Rosenthal

Yeah, let me give you a little perspective on that. First of all as I mentioned a few minutes ago, one of the issues we did see in the quarter was price timing affects about $250 million negative in the U.S. and that impacted those earnings. We do see weakness in our European and Asia Pacific businesses out there, margins are weak, the economy is a bit sluggish.

So both on the refining and the chemical side you are not seeing an earnings contribution there that you would see in an up cycle because we are at – we are kind of – as I’ve said before we are at the bottom of the cycle margins. We also had in the fourth quarter a higher turnaround and maintenance load in Europe. Our Antwerp refinery for example had a major turnaround. So you are looking at some volume impacts there. But clearly we are optimizing the European and Asia Pacific footprint as best as we can with the integration between refining, chemicals and lubes. But those are weak markets compared to the U.S and Canada without question.

Paul Cheng – Barclays

And I just sneak in one real quick one.

David Rosenthal

Sure.

Paul Cheng – Barclays

For the quarter do you have a cash proceed from asset sales of $1.8 billion. Can you tell us what is the after sales gain in the quarter and breakdown by segment?

David Rosenthal

Sure. If you look at the, first of all the proceeds from asset sales, we had a number of asset sales in the quarter. I mentioned our partial sell down in Iraq and we had a number of sales in the U.S. and in Canada, additional service stations as we continue to progress that effort. We booked a films divestment on the chemicals side. So a number of things contributed to that $1.8 billion.

In terms of an earnings contribution in the fourth quarter that total was about $1 billion all-in, in the quarter across all the businesses. And that compared to about $400 million in the fourth quarter of last year.

Paul Cheng – Barclays

Dave do you have a breakdown by segment on that $1 billion?

David Rosenthal

Sure. If you look in the upstream right about $775 million in the downstream at about $225 million order of magnitude.

Paul Cheng – Barclays

Thank you.

David Rosenthal

Those are absolute numbers.

Operator

Our next question comes from Blake Fernandez with Howard Weil.

Blake Fernandez – Howard Weil

Hi, David good morning. Thanks for taking the question. I couldn’t help but ask a question on natural gas here given the recent spike that we have seen. I know the volumes for Exxon have been progressively in decline due to the activity but I am just curious is there a certain pricing level where you may get interested in reengaging in activity and I guess tied in with that I know historically the company doesn’t hedge but with the recent move we’ve seen is that an opportunity to may be lock in some economics and get more active?

David Rosenthal

I will hit the last one first and then back up. No, we don’t hedge oil and gas prices and I wouldn’t expect that to change here. So in terms of natural gas pricing you have seen some firming here in the last several weeks. We had a very cold winter in the U.S. and the demand for gas in the power gen and heating has been very strong. And so we’ve seen a fluctuation on the upside for that. But we don’t change our activity levels and investment plans to any significant extent on short term price movements in the commodities. We do have tremendous flexibility in our operations.

I think our drill well inventory here in the U.S. is about 50,000 wells. So we certainly have the capability to move our activity around. But again we don’t typically move dramatically one way or another on a short term price spike or decline. But do acknowledge that we have seen some price uptick here recently.

Blake Fernandez – Howard Weil

Okay, fair enough. And second question is on Tanzania obviously you had some really good success there and from what I gathered it looks like sufficient resources to probably move forward with the development. So I am curious can you give us an idea of may be timing on potential FID and may be what additional resources you may need to kind of move forward?

David Rosenthal

Sure, first of all it all starts with that resource and we have found a very high quality gas resource out there with the wells that we drilled so far. Like I mentioned earlier 17 to 20 TCF gas in place. I think one of the things that’s encouraging is we still have several more prospects on that block that haven’t been drilled yet. And so we are continuing to drill, we’ll drill some more this year. We’ll be doing some appraisal drilling and some more Wild Cat exploration activity. So that continues to go very well.

In terms of forward planning we are in the early stages of planning for the development of that block, working on things like site selection. You’re probably aware that us and our partner Statoil had worked with BG and Ophir to completing an evaluation of potential sites for our common onshore LNG plant. And we have made a recommendation to the government of Tanzania regarding that.

The next step as you progress would be moving into early feed to kind of see what you have there. But it’s a little too early to be talking about any potential FID date at this time. But clearly, as we always do if you have what looks to be an excellent resource you put the human capital on it and get to thinking about development and optimization and I can assure you that, that process is well underway. We’ll probably be able to get a little better update in March as well on that opportunity but for now I’ll just say we’re moving right along and very pleased with this world class discovery that we’ve made.

Blake Fernandez – Howard Weil

Thanks, David.

Operator

Our next question comes from Arjun Murti with Goldman Sachs.

Arjun Murti – Goldman Sachs

Thanks, David, just a couple of follow ups, just first on the natural gas point. I fully appreciate Exxon classically does not adjust to the short term price swings. Is it reasonable to think that kind of mid-single digit decline you have had will continue for the next several years or as you assess the XTO and your own resource base between the Marcellus and Woodford and these other areas do you see greater confidence in the class of the resources that the decline rates might be lower or different than what you have done say over the last year and a half?

David Rosenthal

Yeah that’s a multi-part question, both of those can be independent or work together. Certainly we have continued to make good progress in terms of productivity, well rates, down spacing, optimizing our completions and drilling. So we have been able to kind of make the progress we always thought we would when we acquired XTO and combined their folks with our folks and looking at some of these things. So that continues to improve.

It’s hard to give an overall decline curve because as you know that’s – a lot of time that depends on well work activity and workovers and various other things and a lot of that will be driven by the activity levels, which of course are dependent on longer term price outlooks.

So I think you know from our perspective with the resources there, the opportunities are there, we know all these plays, we know how to produce more gas and when the market needs the gas we’ll provide it. But so it’s a market-driven activity and the outcome in terms of production and reserves and decline will be based on the outcome of those activities as opposed to any target that we might set. But we can adjust quickly. I mean we do have the capability to adjust quickly if the market needs the gas.

Arjun Murti – Goldman Sachs

That’s great. And unrelated follow-up, you mentioned the partial sell-down in West Qurna in Iraq to 25%. I think a few years ago you also bought some acreage in Kurdistan. Can you provide any update in your activities there? I think there had been some questions at least at the time as to whether you could pursue activities in southern Iraq and Kurdistan. So any thoughts on what you are doing in Kurdistan would be helpful?

David Rosenthal

Sure. If you look at the Kurdistan region in northern Iraq I can tell you that we continue to progress all six of the PSE contracts we have there and meet our commitments. Specifically we do have drilling operations underway in one of our blocks. That drilling is ongoing. I don’t have any report out for you yet but those operations are underway and we continue to do seismic and other operations on our other blocks in preparation for drilling there.

So I think in summary across Iraq all of our contracts in the north and the south we continue to meet our commitments and we continue to progress our operations in all of the areas and I am pleased to say that all of them are progressing as per the plan and doing quite well.

Arjun Murti – Goldman Sachs

That’s great. Thank you so much.

Operator

Our next question comes from Asit Sen with Cowen & Company.

Asit Sen – Cowen & Company

Thank you. Good morning, David.

David Rosenthal

Hey Asit, how are you?

Asit Sen – Cowen & Company

Good, good. Two quick questions, first on asset sales. It looks like the $1.8 billion in the fourth quarter did not include the portion of Hong Kong Power. Could you update us on the Hong Kong Power sale?

David Rosenthal

Sure. You are right. That $1.8 billion did not include any proceeds from the Hong Kong Power sale. As you are aware we have reached agreements to divest our interest in those facilities. Those approval efforts are ongoing but it’s not closed and it won’t close for a little while but the process is moving along. We would expect to close that deal sometime later this year.

Asit Sen – Cowen & Company

Okay. And the second one is on PNG LNG. It’s very unusual to see a big LNG project coming on ahead of schedule. My question is what sort of volumetric contribution do we expect in Q4 in the ramp-up phase?

David Rosenthal

Yeah I might just add to your comment about how unusual it is to see one of these mega projects stay on schedule. I will also note that we’re still on budget and we’ve not increased the cost outlook on that project since the outlook we gave. So we are ahead of schedule and on budget.

I don’t have a specific volume outlook for you for the fourth quarter. It’s all going to depend on how we get this thing ramped up. But I think, as I mentioned earlier, we have been saying we have first deliveries in the second half and now we moved that up a little more concrete to the third quarter. And as we progress commissioning we will be in a better position here in March to maybe give you a little better update in terms of what to expect. But everything is working well, the drilling, all the commissioning, feeding the gas, the equipment and that’s why we are able to give a more specific target of the third quarter. But we look forward to giving you a better update here in a month or so.

Asit Sen – Cowen & Company

Thanks.

Operator

Our next question comes from Faisal Khan with Citi.

Faisal Khan – Citi

Thank you and good morning David.

David Rosenthal

Good morning Faisal.

Faisal Khan – Citi

Just want to clarify the gain on the asset sale of $1 billion. Is that for the year or for the quarter?

David Rosenthal

Thanks for that follow-up, so that we can be clear. The absolute gain in the fourth quarter was $1 billion and that compares with a gain of about $600 million in the fourth quarter of last year. So we had a change of a positive $400 million.

Faisal Khan – Citi

Okay, understood. And just on exploration expense, it’s sort of been elevated for last three quarters and I understand some of that is coming out of Russia. But can you give us an idea of how these numbers were to trend because you’ve gone from roughly 450 to over 700 a quarter and it seemed to have an outsize effect on some of your expenses? Any sort of clarification or sort of guidance in terms of where that should be would be helpful.

David Rosenthal

Well, the biggest driver of the exploration expense as you note has been our pick-up in activity in Russia and it’s in all areas. So we are talking about all the work that we did this summer in the Kara Sea, the seismic we have been running, the efforts we have in West Siberia as well as across the Black Sea, Northern Black Sea and then over in Russia.

So we have had a lot of exploration activity in support of what is going to be a very robust drilling program this year and next year in a number of these areas. So that is ongoing. It’s nothing that we haven’t planned or expected as we came into this year, and look forward to this year. But I don’t have an outlook in terms of a forward look.

Again that’s one of those areas we will talk a little more about in March. But dry hole expense has been kind of low this past year. So hadn’t been a big contributor to that. So it’s been just a lot of work identifying those drillable prospects and preparing for again an active drilling campaign.

Faisal Khan – Citi

Thank you, David. Appreciate the time.

Operator

Our next question comes from Allen Good with Morningstar.

Allen Good – Morningstar

Good morning David.

David Rosenthal

Good morning Allen.

Allen Good – Morningstar

I wondered if you just press you maybe for a bit more detail on the Western Siberia and Tight Oil campaign, whether it be maybe rig counts or planned wells for 2014 and maybe even what you anticipate production exit rate in 2014 might be?

David Rosenthal

Sure, I’ll be happy to give you an update. We’ve got a lot of activity going on, lot of geo technical work, seismic work. As I mentioned in the last quarter call we did have a lot of effort in terms of entering some old well bores and doing some other activity in the fourth quarter of last year. As we head into this year, now’s the time to move on to a drilling program or we would drill some horizontal wells and see how we can get various areas to produce.

One of the things that’s really important for us with the size of our acreage position is to make sure we understand where we are in the play, what are the most prospective areas and that takes a lot of analysis, so you don’t waste a lot of money drilling wells. But we’ve got a lot of expertise in this area that we acquired from XTO. We are bringing that to full bear, along with some of our own technology that we have. And we are looking forward to get some more wells down this year, testing the production capability of some of these areas.

But it would certainly be premature to give any indication or thinking about exit rates or production rates because we’re early on in this analysis. And again it’s very huge resource opportunity in front of us and it certainly behooves us to take our time and go about this in a disciplined manner so that we don’t waste a lot of money while at the same time finding out what this very exciting play is capable of doing and this will be a big year for us.

Allen Good – Morningstar

Okay, thanks for that. And then I know you don’t give guidance on asset sales or what you may see in marketing but earlier this week, I guess one of your peers came out and sort of indicated that he is going to sell a pipeline or an asset here in the U.S. And I was just wondering presumably you are sitting on a lot of mid-stream assets that may unfairly receive the value that they would in a market being incorporated within Exxon given the level of disclosure and the size of your business.

Is there any interest, and I know MLP may be out of question, but any interest in potentially trying to monetize some of these mid-stream assets you have or do you think you just have more value ultimately to operating them and then integrate in your operations as opposed to selling them.

David Rosenthal

Yeah, it’s interesting if you look back over the last couple of years, so 2011 and 2012, we actually did divest a fairly significant chunk of those mid-stream assets that we had, not only in the U.S. but elsewhere. And that was a portion of those large asset sale gains that we had and cash flows in those two years.

I can’t give any specific outlook or asset but as you would expect we are continuously looking at all of our assets, including our midstream assets, what those values are to us internally and what they might be on the market. And we test the market occasionally with some of these. So again they are not sitting there and not getting looked at and evaluated but it’s all part of our program to look at the entire logistics footprint that we have.

And so I mentioned the Edmonton rail facility we’re building so where it’s optimal for us we’ll add mid-stream facilities and where some midstream assets that we have are worth more to somebody else than they are to us we will divest them. Again no specific outlook or assets but we are continuously looking at that entire portfolio.

Allen Good – Morningstar

Okay, great, thanks.

Operator

Our next question comes from Roger Read with Wells Fargo.

Roger Read – Wells Fargo

Yeah, good morning.

David Rosenthal

Hello.

Roger Read – Wells Fargo

I guess, just to follow up a little bit on the chemicals business, and there’ve been a few questions on it already, but I just wanted to sort of understand, the changes you saw in the fourth quarter and Exxon wasn’t particularly unique. We definitely saw greater competition out there. But as we look forward in to ‘14 what’s going on in terms of new competition pricing and all that. Kind of let us know how you fall into that or how you, how you would expect ‘14 to unfold on the chemical side.

David Rosenthal

Yeah, as I have on a number of other questions I can’t give an outlook today on any kind of financial parameters for the business. But one of the things we’ve seen recently – well, first of all we’ll start here in the U.S., we continue to take advantage of a very good market there. Demand has picked up a little bit and of course, gas cracking is also very attractive business for us. And we have been fortunate in that we’ve been able to run our facilities along the Gulf Coast flat out here over the last quarter and therefore make the production we need to meet the market demand.

And so those margins in the U.S. remain healthy, demand pick up a little bit, export opportunities also very attractive, and we’re maximizing all that. On the other side of the planet margins continue to be quite weak in the Asia Pacific area. We did have some capacity come on last year. And it’s typical in our business there’s never a perfect match between capacity additions and demand growth.

Demand growth tends to be out there for a while and then people put on the facilities and they tend to come in on in chunks and for a while you’ll have supply outstripping demand. And we’ve seen that in a number of areas, a number of products particularly in the Asia-Pac area. Those have a tendency to balance themselves out over time. We are also seeing some demand pick up in China and the rest of the Asia-Pac area and that is helpful.

I mentioned the specialties business. We have seen some weakness there, particularly in Europe, again both from the economic situation there as well as additional industry capacity that’s come on. So I’d characterize it as kind of normal cyclical business for the chemical industry across many years. You have got the U.S., at kind of top of the cycle, business conditions today in Europe and Asia-Pac kind of at the bottom of the cycle.

And that’s why we’ve over time invested in each of these places where we can bring some technology or get a feed slate advantage or a logistics advantage in order to be able to supply all of those regions through the business cycle. But most importantly be able to take advantage when you get an upside and we are certainly well positioned to do that with our facilities.

Combine that with the level of integration we have and if you look overall it is kind of a tough market but we did make almost $4 billion this year in that business and that’s pretty strong performance.

Roger Read – Wells Fargo

Fully agreed, thanks. And then the unrelated question, you mentioned in the press release about LNG for Alaska. I was just curious is there anything you can do to help us understand more conventional business North Slope, Prudhoe in Alaska, you had the tax change that the government put through up there. We’ve seen some indications that the other participants in Alaska are getting a little more active.

Just wondered is, how does Exxon participate in that? Is it basically along with the others? So maybe there is a little bit of growth coming from Alaska in the near future. Or if it’s you are waiting for something larger like the more offshore drilling that looks like it continues to slip out to the future?

David Rosenthal

What we have seen across the business up there is pretty much what you would expect. Lower taxes have led to folks to take another look at their investment opportunities. And investments that were not viable under the old regime could very well be viable under the new regime. So you have seen some activity up there.

As you know we are a large participant owner in Prudhoe Bay. We are not the operator but any of the growth that you see there in some of the projects and activity increase that you have seen announced and underway in Prudhoe Bay, up on the North Slope, we would participate in. And so obviously everybody up there is looking at that and it’s still a very key resource for us. And as opportunities become attractive, of course with our partners we would be willing to invest in that. So I think that’s pretty straightforward on the North Slope.

If you look at the Alaska LNG opportunity for us, as you know, it’s one of many opportunities we are looking at across the globe for LNG. We did, as you read in the press, have heads of agreement here recently, another very positive milestone. It sets guiding principles, terms and conditions to progress the work on the project and so we are continuing to progress that.

We have, after a long evaluation process looking at locations, we have identified an industrial site near Nikiski as a lead site for the potential plant and terminal. We are looking at other sites. But I think the message is, that’s potentially a very large, very complex project. And so all of the stakeholders are progressing, the analysis and looking at that project in due course and we of course are a big part of that.

Roger Read – Wells Fargo

Thank you.

Operator

Our next question comes from Robert Kessler with Tudor, Pickering, Holt and Company.

Robert Kessler – Tudor, Pickering, Holt & Co.

Hi, good morning. I see you have finalized the Canadian rail terminal project plans. Can you tell us what the total CapEx will be for that 230,000 railway facility? And then how you think about it more strategically? I know at least to me Exxon seems more like a vertical integration player where you see an opportunity in your downstream and you set up a midstream opportunity here, that you really integrate. But others seem to be using rail as more of an optionality.

So if the spreads get to a certain distance and other transport routes are not available you use them kind of opportunistically. So can you tell me how you are thinking about the expected utilization rates at that facility, is it more of a base run you are at 100% or you are leaving it out there as an option?

David Rosenthal

Yeah. I think, let me hit the first part of your question first. We would expect the all-in capital cost for that JV to be somewhere in the neighborhood of $200 million to $250 million and that’s a 50-50 joint venture. So we have got about half of that.

You know the terminal we will have, the max capacity could be upwards of 250,000 barrels a day. Out of that we’re looking at utilizing initially about 100,000 barrels a day to move our expanded production into the market. With the growing production of Western Canadian crudes so both heavy crudes and oil sands it’s prudent to be working at all of the logistics opportunities so that you do get a lot of optionality as you mentioned, but also the flexibility to be able to better pinpoint the destination of some of your crudes as various regional opportunities present themselves.

So we’re taking full advantage of all the pipeline opportunities that are out there and working on that. Other modes of transportation by water are also being utilized. And then again as is prudent we’re looking at the railcar option. So it’s all about optionality, flexibility and being able to take advantage of spreads and opportunities to maximize the overall value and we have been working on that for quite a while.

The other thing you have in the flexibility on the transportation piece is it really helps us on both the integration with our own refining circuit as well as have any opportunity and viability to make third-party sales. And so the more options you have the more flexibility you have, the better off you are to divert production to areas different than what you might have originally planned. So we’re taking all of that into consideration.

Robert Kessler – Tudor, Pickering, Holt & Co.

Makes sense. Thanks for the clarification.

Operator

Our next question comes from Pavel Molchanov with Raymond James.

Pavel Molchanov – Raymond James & Associates, Inc.

Hey guys. Well just one from me and this is a high level question. On the day that the Senate Energy Committee is debating crude oil export policy I know that Exxon’s perspective on this is kind of we closely watch. So any thoughts on the issue and where the company stands?

David Rosenthal

Sure. I would be happy to talk about that. It’s a topical subject. First of all our response is principal-based as you would probably guess. And as a company we fully support free markets, free trade. We oppose any barriers or restrictions to free trade and open investment across the value chain in the energy sector. And over time I think it’s pretty clear that barriers to free trade can actually lead to higher prices, dampen economic growth and prosperity and in this case could potentially harm energy security by limiting diversity of supplies.

So trade is good, free trade is the best way to maximize the economic value of any enterprise including the oil and gas enterprise, generates the most jobs, generates the most revenue to the taxing authorities. And so across the business that’s what we support and we would not advocate putting any restrictions at any point along a manufacturing value chain even if it might benefit some part of our business.

In addition to crude oil we strongly support unrestricted LNG exports, even though we are a very large petrochemical company and consume a lot of petrochemical feed stock. So the bottom line big supporters of free markets and free trade, level playing field for all competitors and then let the market do what it does best.

Pavel Molchanov – Raymond James & Associates, Inc.

I appreciate it guys.

Operator

Our next question comes from [Viraj Kataria] with RBC.

Unidentified Analyst

Hi, David thanks for taking my question, I have two, if I may. Especially on LNG you touched on it a couple of times in the call. I wondered if you could talk through your options to expanding this growth area outside of Tanzania and PNG. And secondly I wonder if you could talk a little bit about your thought process when setting dividends. You obviously have a very strong balance sheet and the highest returns in the industry and you could afford a significantly higher dividend. So I was wondering if you could talk a little bit about that.

David Rosenthal

Sure. Let me start with LNG because we’re very pleased to have a broad opportunity set in front of us. In addition to Papua New Guinea, Australia and Tanzania, as you mentioned we have a very attractive opportunity in the U.S. Gulf Coast where we already have a very large re-gas facility. So a lot of that investment is already on the ground. And we have an opportunity to add liquefaction capacity there. And one of the things that makes our project unique is we also have re-gas capacity available in Europe from some investments that we made in prior years.

So we have the opportunity to simply add liquefaction capacity on the front-end and then export that LNG, take advantage of a number of opportunities, not least of which is capacity, we have to regasify in Europe. We have received a permit for free trade agreement countries and we have had a permanent application in for some time for non-free trade agreements and that continues to be a nice opportunity.

We also are looking at the possibility of viability of LNG exports out of British Colombia and Canada. We have a very large resource base in western Canada of natural gas and we do have efforts underway and are progressing. In fact we just received a permit approval for a potential up to 30 MTA facility in western Canada and we’re working on site selection and other things there.

Then of course Alaska which we just mentioned a minute ago. Huge resource, great opportunity but again like the other projects very high capital cost, very complex. It will be extremely important to have attractive stable fiscal terms, as it is in any area but that’s also an opportunity for us.

So again it’s all about having a broad balanced portfolio of opportunities, so that you can select those that are the most attractive. But you don’t find yourself in a position where you have to do something that’s not attractive and our LNG opportunity set certainly fits that case.

In terms of dividends you know we have been pretty briskly increasingly the dividend over the last few years. We had a fairly significant dividend increase. I think it’s about 20% or so in 2012, another 11% increase this past year and it extends a very long period of time that we have been increasing dividend so I think we have been responsive in that area.

In terms of going forward I wouldn’t expect any change to our overall philosophy with regards to the dividend. We do expect to pay a consistent dividend that grows overtime and obviously we are able to do that given the strong cash flows the business generates, our strong financial capacity. So don’t have any outlook or guidance or anything other than to say that I would expect our philosophy going forward to be the same as it has been historically.

Unidentified Analyst

Perfect. Thank you.

David Rosenthal

Thank you very much.

Operator

It appears there are no further questions at this time. Mr. Rosenthal I would like to turn the conference back to you for any additional or closing remarks.

David Rosenthal

Okay I simply like to thank everybody for their participation on the call. I appreciate your questions today, very important to our business and look forward to seeing everyone here in a few weeks at the Analyst Meeting in March. So thank you very much.

Operator

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

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