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Executives

David Rosenthal - Vice President of Investor Relations and Secretary

Analysts

Edward Westlake - Crédit Suisse AG

Katherine Minyard

Mark Gilman - The Benchmark Company, LLC

Paul Cheng

Pavel Molchanov - Raymond James & Associates, Inc.

Faisel Khan - Citigroup Inc

Doug Terreson - ISI Group Inc.

Douglas Leggate - BofA Merrill Lynch

Paul Sankey - Deutsche Bank AG

Iain Reid - Jefferies & Company, Inc.

Blake Fernandez - Howard Weil Incorporated

Exxon Mobil (XOM) Q1 2011 Earnings Call April 28, 2011 11:00 AM ET

Operator

Good day, and welcome to this ExxonMobil Corporation First Quarter 2011 Earnings Conference Call. Today's call is being recorded. At this time, for opening remarks, I would like to turn the call over to the Vice President of Investor Relations and Secretary, Mr. David Rosenthal. Please go ahead, sir.

David Rosenthal

Good morning, and welcome to ExxonMobil's first quarter earnings call and webcast. The focus of this call is ExxonMobil's financial and operating results for the first quarter of 2011. I will refer to the slides that are available through the Investors section of our website. But before we go further, I would like to draw your attention to our customary cautionary statement shown on Slide 2.

Moving to Slide 3. We provide an overview of some of the external factors impacting our results. The global economic recovery remains uncertain as a result of continued sovereign debt concerns, inflationary pressures in major non-OECD markets and the tragic events in Japan. Energy markets are experiencing greater uncertainty with the political unrest in North Africa and the Middle East. These events, along with the effects of the weak U.S. dollar, have resulted in significantly higher crude oil prices. Natural gas prices outside the United States also increased relative to the first quarter of 2010. In addition, refining margins in the United States and the Asia Pacific region improved relative to a weak first quarter 2010 environment for the Downstream. We also saw strong Chemical margins, especially commodity margins in the United States and Europe.

Turning now to the first quarter financial results as shown on Slide 4. ExxonMobil's first quarter 2011 earnings, excluding special items, were $10.7 billion, an increase of $4.4 billion from the first quarter of 2010. Our effective tax rate for the quarter was 47%. Earnings per share for the quarter, excluding special items, were $2.14, up $0.81 from a year ago.

The corporation distributed more than $7 billion to shareholders in the first quarter through dividends and share purchases to reduce shares outstanding. Of that total, $5 billion was distributed to purchase shares. Share purchases to reduce shares outstanding are expected to be $5 billion in the second quarter of 2011. CapEx in the first quarter was $7.8 billion, up over $900 million from the first quarter of 2010, reflecting the increase in our U.S. unconventional activities.

Across our diverse portfolio, we continue to invest in robust projects through the business cycle to help meet global demand for crude oil, natural gas and finished products. Our cash generation remains very strong with $18.2 billion in cash flow from operations and asset sales. At the end of the first quarter of 2011, our cash balance was $13.2 billion and debt was $15.9 billion.

The next slide provides additional detail on first quarter sources and uses of cash. Over the quarter, our cash balance grew from $8.5 billion to $13.2 billion. The combined impact of strong earnings, depreciation expense, lower working capital and the benefit of our ongoing asset management program yielded $18.2 billion of cash flow from operations. Uses of cash included additions to plant, property and equipment or PP&E of $7.1 billion and shareholder distributions of $7.2 billion.

We will now provide a review of segmented results starting on Slide 6. ExxonMobil's first quarter 2011 earnings of $10.7 billion increased $4.4 billion or 69% from the first quarter of 2010 with strong results across all business lines. Upstream earnings increased $2.9 billion, while Downstream earnings improved by $1.1 billion and Chemical earnings grew about $270 million. Corporate and financing expenses of $640 million during the quarter were down $160 million versus the first quarter of 2010 due mainly to the absence of the tax charge related to the U.S. healthcare legislation and remained within our continued guidance of $500 million to $700 million per quarter.

As shown on Slide 7, ExxonMobil's first quarter 2011 earnings of $10.7 billion increased $1.4 billion from the fourth quarter of 2010, mainly due to higher earnings in the Upstream and Chemical businesses.

Moving next to the Upstream results and beginning on Slide 8. ExxonMobil, along with our co-venturers, reached a major production milestone in the redevelopment of the West Qurna 1 oil field in Southern Iraq. We achieved the improved production target under the contract by increasing production 10% above the initial field production rate of 244,000 barrels per day gross. The current field production is now about 320,000 barrels per day gross. Day-to-day operations have been transferred to the West Qurna 1 Field Operating division, which is staffed by personnel from the South Oil Company and ExxonMobil. Operations include drilling new wells, working over existing wells and debottlenecking and optimizing facilities. We currently have 3 drilling rigs operating in the field and expect to add additional rigs during the year.

Turning now to our exploration and development activities on Slide 9. Beginning with our deepwater activity in the U.S. Gulf of Mexico, where ExxonMobil holds 2.1 million net acres, we are currently drilling the Hadrian-5 exploration well, which spud in March, within several days of receiving permit approval from the Bureau of Ocean Energy Management. Hadrian-5 is a further evaluation of the Hadrian North oil complex. The Hadrian South gas discovery is fully appraised. As you know, we and other members of the Marine Well Containment Company recently announced the readiness of an initial well containment response system. Work is continuing on additional enhancements to expand the system, which will be deployed next year. The Marine Well Containment Company membership continues to grow and now consists of 10 member companies.

Finally, building on our strong position in Norway, ExxonMobil was awarded 3 new production licenses as part of the Norwegian continental shelf 21st licensing round. These include one operated production license and 2 nonoperated licenses.

Moving now to Slide 10. In Indonesia, ExxonMobil made another discovery on the Cepu Block in East Java Province. A Kedung Keris well was drilled to a total depth of 7,032 feet and encountered an oil column of 561 feet in the target carbonate zone. The Kedung Keris discovery is located approximately 9 miles from the Banyu Urip oil discovery, which was made in 2001. The Banyu Urip early production system continues to perform well, and activities are progressing on the future 450 million-barrel oilfield development.

We are also evaluating our coal bed methane acreage in the onshore Barito Basin, which covers approximately 290,000 net acres. Exploration drilling commenced with the first coal bed methane well in early April, and drilling operations are ongoing.

Turning now to the Upstream financial and operating results and starting on Slide 11. Upstream earnings in the first quarter were $8.7 billion, up $2.9 billion from the first quarter of 2010. Stronger crude oil and natural gas realizations increased earnings by $2.6 billion as crude oil realizations increased over $25 per barrel and gas realizations increased $0.72 per kcf. Production mix and volume effects decreased earnings by $160 million due mainly to the impact of high prices on entitlement volumes, higher downtime and decline, partly offset by the ramp-up of Qatar projects and the addition of XTO. Other items, primarily a gain on the sale of Western Canada assets and the absence of prior year dry holes, increased earnings by $470 million. Upstream after-tax earnings per barrel were $20.

Moving to Slide 12. Oil-equivalent volumes increased 10.5% from the first quarter of last year, mainly due to growth in our U.S. Unconventional Resource business and the impact of Qatar project ramp-up. Volumes were, however, negatively impacted by higher prices on entitlement volumes, higher downtime, decline and divestments.

Turning now to the sequential comparison and starting on Slide 13. Versus the fourth quarter of 2010, Upstream earnings increased by $1.2 billion with stronger realizations resulting in an additional $1.3 billion in earnings as crude oil realizations increased over $16 per barrel and global gas realizations increased to $0.79 per kcf. Production mix and volume effects decreased earnings by $520 million due mainly to the impact of higher prices on entitlement volumes, higher downtime and divestments. Other items, primarily asset management activity and lower operating expenses, increased earnings by $410 million.

Moving to Slide 14. Oil-equivalent volumes decreased 3% from the fourth quarter of 2010 due mainly to the impact of higher prices on entitlement volumes, downtime and divestments. For further data on regional volumes, please refer to the press release and the IR supplement.

Moving now to the Downstream and starting on Slide 15. During the quarter, ExxonMobil Lubricants & Specialties renewed the long-standing technology partnership with the Vodafone McLaren Mercedes Formula 1 team. The new multiyear agreement maintains the longest continuous oil company sponsorship of a Grand Prix race team. As part of the agreement, we will continue providing Vodafone McLaren Mercedes with Mobil 1 lubricant technology, expertise and support to develop next-generation lubricants for the race car engine and gearbox. ExxonMobil will continue to leverage learnings from the extreme conditions of Formula 1 racing to further enhance Mobil 1 synthetic oil formulations.

With this agreement, ExxonMobil will also supply a range of specialized lubricant products for use at the McLaren Technology Center. These products will include high-performance cutting fluids used in the manufacturing of race car components: Mobil SHC synthetic grease for the wind tunnel and Mobil Delvac 1 synthetic diesel engine oil to help reduce fuel consumption and improve emissions of the Vodafone McLaren Mercedes truck fleet.

Turning now to the Downstream financial and operating results starting on Slide 16. Downstream earnings in the first quarter were $1.1 billion, up $1.1 billion from the first quarter of 2010. Improved industry margins increased earnings by $470 million driven by higher refining margins, partly offset by lower marketing margins. Continued benefits from our refining optimization activities contributed $350 million in volume and mix effects, while other factors improved earnings by $240 million primarily due to favorable foreign exchange effects.

Moving to Slide 17. Sequentially, first quarter Downstream earnings were essentially flat. Higher industry margins, higher industry refining margins, partly offset by lower marketing margins, increased earnings by $160 million. Volume and mix effects were a negative $270 million primarily due to higher turnaround and maintenance activities. Other factors contributed $60 million.

Turning now to our Chemical business starting on Slide 18. ExxonMobil Chemical recently announced the grand opening of our world-class Shanghai Technology Center in China. Our investment in this new facility demonstrates the strategic importance of technology and its critical role in supporting the long-term value of our Chemical business. The 220,000 square foot facility is equipped with more than 200 state-of-the-art processing machines and analytical instruments. The center also has 22 development-scale and 16 commercial-scale product processing machines, allowing us to perform full-scale testing to serve our Chemical customer needs in the fast-growing China and broader Asia markets. The Shanghai Technology Center is supported by more than 300 employees from our technology, sales marketing and supply chain groups.

Today, the Chinese petrochemical market is the largest in the world. And through 2020, China will represent over 1/3 of global petrochemical demand growth. Shanghai Technology Center is well positioned to support this growth by providing our customers with product and processing solutions and add value to their businesses.

Turning now to Slide 19. During the quarter, Saudi Basic Industries Corporation or SABIC announced that work on our proposed joint venture elastomers project has moved into the front-end engineering and design phase. As previously announced, plans are to establish a domestic supply of more than 400,000 tons per year of synthetic rubber, thermoplastic specialty polymers and carbon black to serve emerging local and international markets in Asia and the Middle East.

ExxonMobil and SABIC are targeting development of a globally competitive project with best-in-class industry cost and have selected Jubail Industrial City as the site for the new manufacturing units in order to expand integration opportunities within the existing KEMYA petrochemical joint venture. The Saudi elastomers project continues a long history of investment in Saudi Arabia and builds on the strong relationship with SABIC to meet the growing customer need for our products.

Turning now to the Chemical financial and operating results and starting on Slide 20. First quarter Chemical earnings were a record $1.5 billion, up $267 million from the first quarter of 2010, again demonstrating the value of a balanced portfolio of commodity and specialty businesses, world-scale facilities with strong operational performance and technology application to deliver superior feedstock advantage. Higher margins contributed $470 million in earnings, primarily driven by stronger commodity chemicals margins and our feedstock advantage. Other effects decreased earnings by $200 million due to higher plant maintenance costs, unfavorable foreign exchange effects and the absence of asset management gains.

Moving to Slide 21. Sequentially, first quarter Chemical earnings increased about $450 million. Margin effects increased earnings by $340 million primarily due to stronger global commodity chemicals margins. Other effects increased earnings by $100 million due mainly to lower turnaround and maintenance costs this quarter.

Moving to Slide 22. While we manage our Downstream and Chemical businesses separately, we continue to capture benefits from the unique integration and optimization of these businesses. Looking at our combined Downstream and Chemical results, first quarter earnings were $2.6 billion, up $1.3 billion from the first quarter of 2010.

Moving to Slide 23. ExxonMobil's first quarter financial and operating performance was strong and results -- and reflects the ability of our business model and competitive advantages to deliver superior results. We maintain a continuous focus on operational excellence and improving upon our industry-leading safety performance, while continuing with the disciplined execution of our long-term investment plan. As we continue to deploy high-impact technologies and leverage our unparalleled global integration, ExxonMobil remains well positioned to maximize long-term shareholder value.

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

Question-and-Answer Session

Operator

[Operator Instructions] We'll take our first question from Mark Gilman from The Benchmark Company.

Mark Gilman - The Benchmark Company, LLC

I wonder if you could comment on what you did in the quarter with respect to the tax rate increase in the U.K. Did you accrue at the higher rate and address that in the context of the overall increase in the effective tax rate, which one might have suspected from a higher price, but E&P earnings were actually a lower percentage than they were in the fourth quarter? I also had a follow-up.

David Rosenthal

Sure, Mark. That's a good question given some of the other results that are out there. We did not accrue any impact associated with the increase in taxes in the U.K. that were recently announced. As you probably know, for U.S. GAAP purposes, effective changes in tax laws are reflected only on the enactment date as opposed to IFRS where the effect of these changes are reflected for laws enacted or laws that are substantially enacted or are anticipated to have that kind of an effect. So we will reflect the impact of that in our earnings at the time that it's fully enacted.

Mark Gilman - The Benchmark Company, LLC

Okay. And in terms of the tax rate itself going up to 47% in the quarter despite the fact that the E&P percentage of income was lower in this quarter than in the fourth quarter?

David Rosenthal

Yes, if you're looking sequentially -- I guess if you're looking at the increase then from the fourth quarter to the first quarter, where we went from 43% to 47%, the biggest factor in the increase there was some absences of favorable tax items that we had in the fourth quarter, as well as we did see a little change in the mix that added about 1% or so. So we're down quarter-on-quarter and up sequentially.

Mark Gilman - The Benchmark Company, LLC

Okay. My follow-up relates to Iraq, David, and whether or not you included any production in the quarter from Iraq, and if you could indicate what kind of impact that, that will have in terms of the way you're reporting your financials.

David Rosenthal

Yes, sure. If we look at volumes in the first quarter, they were de minimis given the timing that we reached the production target that we were looking for. So we will see increased volumes as we head into the second quarter.

Operator

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

Paul Sankey - Deutsche Bank AG

A quick opener. And forgive me if you gave this number, but do you have a net debt number for the end of the quarter?

David Rosenthal

Oh, yes. Sure. Net debt at the end of the quarter was right at about $15.9 billion.

Paul Sankey - Deutsche Bank AG

And how much of that is cash?

David Rosenthal

No, I'm sorry, that's the actual debt.

Paul Sankey - Deutsche Bank AG

All right.

David Rosenthal

Yes, I'm sorry. The cash balance was $13.2 billion. So the difference in those then is about $2.6 billion, $2.7 billion.

Paul Sankey - Deutsche Bank AG

If I could not count as a question and ask you too from here.

David Rosenthal

Okay.

Paul Sankey - Deutsche Bank AG

Firstly, on CapEx. In the U.S. clearly you've had a big jump in U.S. CapEx year-over-year. You had just over $2 billion of spending. I was wondering, could just talk a little bit more about that number going forward? And I'm thinking just given your comments on the Gulf of Mexico about where that $2 billion breaks down to and where you expect it to go from here.

David Rosenthal

Sure. If we look at the CapEx increase quarter-on-quarter in the U.S., that's really all the addition of XTO and the fact that we didn't report CapEx in the first quarter of last year for them and we've got it this year. And that's the bulk of the U.S. increase that you see in the first quarter.

Paul Sankey - Deutsche Bank AG

But I would imagine that you had a lower level activity in the Gulf of Mexico, right? And do you expect that to ramp back up going forward?

David Rosenthal

Yes, I don't have an exact number, but I would assume the activity in the Gulf was a little bit less. And certainly, we'll see that increasing in this quarter as we're drilling the Hadrian well. And that well, as I mentioned, has spudded and is going down. And so yes, we'll see that. So we'll see a little pickup there in the second quarter.

Paul Sankey - Deutsche Bank AG

And what about for the XTO stuff? Do you -- I mean, I know you've reached the level of rigs that you've kind of held flat. Is that the expectation, let's say, for the remainder of 2011?

David Rosenthal

Yes, that's pretty much. I think you'll see us probably be somewhere in that 65 to 70 rigs quarter-on-quarter rate, which is about flat where we've been. Obviously, as we look at that portfolio, we are optimizing the use of those rigs and making sure that we're obviously hitting the liquids-rich areas to the extent possible and as well as prioritizing our gas rigs and utilization and, of course, utilization of frac-ing crews and other support services and equipment to make sure that we're maximizing the value of that program. But we're very pleased with how things are going in the first quarter. I'm looking forward to a good year.

Paul Sankey - Deutsche Bank AG

And then if we just roll that through the combination of the 2 things. You've got the rigs at around the same level. Would do you expect the CapEx for those rigs to remain at around the same level or are you seeing cost increases?

David Rosenthal

No, I think that's a reasonable expectation as we're looking across the year. That's consistent with the guidance that we had in the March Analyst Meeting. But as we look across the year, we would expect cost to be generally flat. And that's kind of what we're seeing now here in the first quarter.

Paul Sankey - Deutsche Bank AG

Great. And then just -- I hope it's not too long a question, but when I look at your financial and operating information, your refining capacity after 2010 has given that 6.25 million barrels a day. And if I look at your utilization rate in Q1, assuming that's the right number for Q1, 5.18 million of throughput. That's about an 82% utilization rate. If I remember rightly, 2010 was a, well, I can see from the history, was a low year for utilization at 84% with quite a lot of turnarounds. My question is, how come utilization is so low? Is it a Japan effect? Is there some other issue there? And would we expect that to bounce higher for the rest of the year? And I'll leave it there.

David Rosenthal

Yes, sure, Paul. That's a good question. We had a couple of factors going on. We did see in the first quarter, particularly relative to the first quarter of last year, some higher turnaround activity in Europe and across Asia. And of course, we did see some impact in Japan related to the tragic events there. I can tell you that all of our facilities in Japan are up and running full bore. We obviously brought those up as quickly as possible in order to help relieve the product supply disruption effects in Japan, and we're very pleased with how that effort is going. Utilization in the U.S. is doing well. So again, other than the planned maintenance and turnaround activities outside of the U.S., things were doing pretty well.

Operator

We'll go next to Doug Leggate with Bank of America Merrill Lynch.

Douglas Leggate - BofA Merrill Lynch

Yes. So David, a couple of questions. I'm trying to understand the production movements in the quarter. Obviously, there's a lot of moving parts here. So maybe, we'll just highlight some of the ones that had jumped out to us. Asia Pacific gas seems to be down a fair bit, and I'm guessing production sharing contracts impacted African oil. But if you could confirm those 2 things and maybe talk a bit about them. But if you could also explain what's going on with liquids in Europe. And then I have a follow-up please.

David Rosenthal

If you look broadly across our volumes, we did see some impacts, as I mentioned in my prepared remarks, from downtime. And we did see that in the Asia Pacific Gas business. We had some -- we did have some downtime in Qatar, and that affected our gas business there. Liquids, of course you're seeing a big decline relative to the impact of the high prices on entitlements. And as we mentioned in the chart there, you are seeing some impact of divestments, the 2 divestments that we announced, the Gulf of Mexico and Canada, on both liquids and gas. But across the board, large impacts, of course, some PSC entitlement effects, and then the downtime that we had in a number of places. I'll also mention, while we're talking about overall volumes, we did have some downtime across West Africa that lowered our volumes there. And as you know, there was downtime up on the North Slope that affected the Prudhoe Bay volumes. So while we did see that downtime effect in the first quarter, and that's both relative to last year and the fourth quarter this year in particular, all of that production is back online. So we would expect to get those impacts back as well as the earnings in the second quarter.

Douglas Leggate - BofA Merrill Lynch

Broadly, David, can you quantify the absolute impact of what has come back on stream? Or do you want me to take that offline?

David Rosenthal

I don't have that number off the top of my head. So yes, you can -- we'll take that offline.

Douglas Leggate - BofA Merrill Lynch

Okay. My follow-up is fairly quick. I think the exploration charges were quite light, it appears, relative to the run rate from last year. Can you -- is that basically a reflection of the success that you've had? Is spending down? Is it seasonal? Or can you give us some idea of what the trend is there please? And I'll leave it there.

David Rosenthal

Sure. That one is pretty straightforward. It's just the absence of the dry hole costs that we had last year, in particular Libya and some of the other places that you're aware of. And then the rest is just timing. We have a very large exploration program getting under the way this year. We got the Hadrian well going down now. Turkey will be spudding in the second quarter. So some timing, of course, across the quarters. But the main quarter-on-quarter impact that you see on exploration expense is the absence of the dry hole costs that we booked last year.

Operator

We'll go next to Doug Terreson with ISI.

Doug Terreson - ISI Group Inc.

So in chemicals, you guys have historically invested when competitive advantages were present rather when you really have cyclical returns, and it's obviously served you well over time. But at the same time, the returns in U.S. Chemicals business are about the highest in the Global portfolio, which suggests that opportunities for value-added investment might be present. So while I don't think that the guys said too much on U.S. Chemical at the Analyst Meeting, I want to see if you'd comment on the level of interest and investment in this business, that is there is any. And if so, in what product areas, given the kind of the surprising strength in this area?

David Rosenthal

Doug, as you point out, we do have a long history of investing through the price cycle in the Chemicals business, and that has served us well. And it's, of course, serving us well now, and we would expect it to do the same in the future as we bring the Singapore plant up. When we look in the U.S., we are currently enjoying a terrific feedstock advantage. Basically, as you know, everybody is running, everything, to the extent that they can into their crackers, and we're taking advantage of that. As we look longer term in the U.S. Chemical business, the first place you got to start is demand and demand growth for the product. And we don't see the demand in the U.S. being near as strong as opportunities that we have elsewhere, particularly the Asia Pacific region and, in particular, serving the markets there and, of course, in the Middle East. So I think the growth prospects for demand pull is definitely outside of the U.S. And then if we look at where we are today, we're happy with our portfolio and the integration that we have with our other refineries. And that, that we've talked about in the past. So while times are real good now and we're taking advantage of them, we're really focusing the bulk of our investment plan and our growth prospects outside of the U.S.

Doug Terreson - ISI Group Inc.

Okay, simple enough. And also given the geographical scope of your operations, your information on oil demand trends are usually as good or better than anybody's. And on this point, while most of the rise in oil prices unfolded in the latter part of the first quarter and there are lag effects in many countries, meaning it may be too early to know. I wanted to see if you'd comment on trends in OECD and non-OECD demand that is if you have updated information from these regions.

David Rosenthal

I don't have any really updated demand relative to the broad things that we talked about in our energy outlook. I think things are pretty consistent with that. As I mentioned, of course we are seeing some inflationary pressures in the developing countries, and the impact that, that might have near term on demand relative to economic growth remains to be seen. But as we look out long term, we expect to see growth consistent with our energy outlook. But no real change.

Operator

We'll take the next question from Edward Westlake with Credit Suisse.

Edward Westlake - Crédit Suisse AG

And thanks for the cash flow statements in the presentation. Very, very helpful.

David Rosenthal

You're welcome, Ed.

Edward Westlake - Crédit Suisse AG

Just a quick question on Chemicals in the international markets. I mean, obviously, there are meant to be start-ups coming on this year and, obviously, oil prices have pushed up and then that may impact demand. What is happening, David, because that was a lot of the surprise, the Chemical margins as you start into this quarter or your outlook for the rest of the year?

David Rosenthal

Yes, as we're looking -- let's start with what we saw in the first quarter, which was very strong margins kind of across the board in particular in commodities in the U.S. and Europe. And, of course, those were levered up by our feedstock flexibility and the advantages we have there. So we had a real strong quarter. Specialties as well given the increase in economic activity in industrial man. so kind of hit on all cylinders there in the first quarter. So as we look into the future, it'll be very difficult for me to predict or speculate on margins going forward. A lot of that is driven by economic activity and what's going on. Margins are firm as we look around what's going on today. But again, given the impact that the economy and changes can have on growth and fairly quickly on prices, I wouldn't want to speculate. But I would say that one of the important things about taking advantage of what you get is to have your operations that are up and running, and we're focusing on that. We have very good high utilizations, and so margins remain strong. But we'll certainly take advantage of it and maximize feed flexibility. But overall prices and demand, so that would be tough for me to look out the window and speculate on that.

Edward Westlake - Crédit Suisse AG

And then my follow-up is on this sort of volume-mix shift as we go quarter-to-quarter. Obviously, in Q4, you had $870 million gain versus Q3. And then this quarter, you lost $520 million. And you mentioned PSCs and downtime. Is it right for us to assume that most of that is downtime in terms of that vol. mix kind of impact?

David Rosenthal

Yes, if you're looking quarter-on-quarter, one of the biggest impacts there is entitlements had a big impact. And again, as I mentioned, downtime was the other. And so what -- and that really hit our liquids. So what you see quarter-on-quarter sequentially is liquid volumes went down because of those effects and gas volumes went up. And we don't -- at current prices, we're not making the same money on the U.S. Gas business as we are on our liquids. So as I mentioned earlier, all of the downtime is back up and running, and we're pleased to have those volumes back. Crude oil prices remain strong. So to the extent that, that continues to have impacts on entitlements, we'll see those going forward. But I think when you look at what we control, it's good to have the downtime behind us and the volumes back online.

Edward Westlake - Crédit Suisse AG

And a follow-on from Mark's question. Do you have a number for the U.K. tax charge at this point in terms of the charge you might take in Q3?

David Rosenthal

Yes, I don't have that number yet. So we'll have that -- obviously, and if that goes through, we'll have that in the second quarter.

Operator

Our next question comes from Faisel Khan with Citi.

Faisel Khan - Citigroup Inc

I'm wondering if you could elaborate a little bit more on the -- so you talked about the asset management effects of I think about $410 million or so in that same business sequentially. What exactly is -- when you talked about asset management, what does that exactly mean?

David Rosenthal

Sure. We've got -- and asset management is only one factor in that $410 million. And you're basically seeing in there the impact of the Western Canada sale that we had in the first quarter of this year. But that was mostly offset by the gain on the sale of the Eastern Gulf of Mexico last quarter. So if we look at that $410 million quarter-to-quarter sequentially, the biggest impact in there is on lower operating expenses. So you have a combination of lower field expense and then, as the question was mentioned earlier, lower exploration expense quarter-on-quarter because of the effects I mentioned. So the big impact in that $410 million sequentially is really lower operating expense.

Faisel Khan - Citigroup Inc

Okay, got you. And then one last question. On the Chemical business, if I'm looking at U.S. Chemical prime product sales, and if I go back and look at those volumes kind of over the last few quarters, it looks like you've peaked out at about 2.6 million tons in the third quarter of last year, and you're still kind of operating around this 2.2 million-ton range. Is there something going on with some of the assets that you're selling less product than you did in the third quarter of last year?

David Rosenthal

No, there's really nothing going on from an asset perspective. We had a little higher turnaround activity in the fourth quarter. One, in the effects that you see, for example, when you compare our first quarter volumes in '11 compared to the first quarter volumes of last year, we did have an opportunity -- you might recall this time last year I mentioned that a number of our competitors' units were down for various reasons, and we had an opportunity to really pick up some spot sales particularly in the U.S. in the Commodity business and took advantage of that. And so that was being pretty opportunistic. As we look across the quarters kind of balancing things out and taking into account maintenance, timing and that sort of thing, no real change. In fact, I'll tell you, from a utilization standpoint, we're running our facilities at a rate that's above the industry averages that have been announced. Uptime has been great. And I think I said a minute ago, that business is kind of hitting on all cylinders right now, and we're very pleased with the financial results.

Faisel Khan - Citigroup Inc

Thanks for the time.

David Rosenthal

Sure thing.

Operator

Our next question comes from Blake Fernandez with Howard Weil.

Blake Fernandez - Howard Weil Incorporated

Question for you. I know you addressed the asset sales in Western Canada and the Gulf of Mexico. But when you look just in general, the asset divestitures have kind of ticked higher here in the last couple of quarters compared to where we where trending previously. And I'm just curious, is that a sign of increased divestiture activity to come?

David Rosenthal

No, I wouldn't read anything into that particularly. As you know, we have a long-standing practice and a long-standing program. I think we mentioned at the March Analyst Meeting that if you go back to the merger, we've divested about $40 billion worth of assets. That's a pretty big program. It's opportunistic. It's ongoing. Obviously, you'll have the timing of certain things. But nothing major, nothing out of the ordinary. Always evaluating opportunities, always talking to folks that are interested in our assets. And as we've said before, someone comes along and places a higher value for whatever reason on an asset than we do, we're certainly going to talk to them about that opportunity. But I wouldn't look at the recent trends as any sign or indicator of increased or lower activity levels to come.

Blake Fernandez - Howard Weil Incorporated

And then one follow-up, if I could, just on the share repurchases. It may not get very far on this, but I'll give it a stab anyway. I guess I was thinking maybe there's a chance that repurchase program would have bumped up a bit heading into 2Q just given the elevated commodity environment and the fact that the cash balance is back up to $13 billion. Would you say there is maybe an upward bias should commodity prices stay where they are here?

David Rosenthal

I wouldn't necessarily say there's any bias with respect to the share purchases. We did have very strong cash flows in the first quarter for the reasons I mentioned. That did enable us to really follow the cash strategy that we've talked about many times. We have a very large investment program this year. I hope everybody noticed the announcement yesterday of our fairly sizable dividend increase, So we are pleased to be able to fund that and then have the ability to fund another $5 billion of share repurchases, while at the same time maintaining our strong balance sheet and, most importantly, maintaining financial flexibility. And of course, as we talk about a lot, maintaining discipline in investments and uses of cash throughout the cycle is one of our key objectives, and we continue to manage the business along those lines.

Blake Fernandez - Howard Weil Incorporated

I appreciate it.

Operator

We'll go next to Iain Reid with Jefferies.

Iain Reid - Jefferies & Company, Inc.

I'd like to echo the thanks for the cash flow statements, I'm looking forward to the balance sheet next quarter.

David Rosenthal

It will be out shortly.

Iain Reid - Jefferies & Company, Inc.

Yes, yes, I know. Just a couple of questions. Going back to Iraq. The industry gossip is that things are tougher than people expected in Iraq in terms of production buildup. There's a fair amount of infrastructure to be -- and so I think you're responsible for the water injection system. Can you talk about what you think these volumes might rise to over the balance of this year and going into next couple of years? And also, how we should think about what your -- how your booked production is going to look like out of that?

David Rosenthal

Sure. Let me kind of hit the second question first and then move back to the first one. If we look at our production and the increases that we've got and are achieving, they're right on schedule, they're right on plan. We're not seeing any real constraints moving up to 320,000 barrels a day. And so from that standpoint, we're pleased and look forward to continuing our progress. As I mentioned from a production booking standpoint, very low in the first quarter because of the timing of hitting that target. And you'll see that ramp-up here a bit over the second quarter. We've got 3 rigs running now. We've got more rigs coming, workovers, facilities optimizations. So all of that stuff is up and running. Now as we go down the road, not only ourselves but the rest of industry, there are infrastructure needs to be addressed, one of which on the water injection side, ExxonMobil is leading that study, and that progresses. There are also needs for additional export capacity and facilities to move the oil out of the country, and those are being addressed as well. But both of those are large-scale efforts. They need to be undertaken. But it's too early for me to predict either the timing or the ultimate potential because it'll be -- there'll a number of factors that affect that. But I think your observation is spot on. Things are going very well right now, and we've got some infrastructure issues to address in the coming months and years.

Iain Reid - Jefferies & Company, Inc.

Okay. And can I ask, last quarter, you gave us a number for XTO's earnings per barrel, as distinct from the rest of the portfolio. Can you just update on that for this quarter?

David Rosenthal

I wasn't planning on giving any XTO-specific earnings numbers. We've kind of got that all wrapped up in our U.S. results that you've seen reported, and would continue to do that. I would offer, though, as we look at that unconventional business now through the end of the first quarter, we are very pleased with the progress we're making on integration. We're especially pleased with the synergistic results that we're starting to see, the fruition coming to bear of our efforts both on the addition of XTO resources to our global unconventional program. We've got folks working on planning and of our efforts there. And we have drilled some wells. We've got others planned. And we are certainly benefiting from the expertise that they bring to the table. Likewise, here in the U.S., we're really starting to see the benefit of combining some of heritage ExxonMobil's technology capabilities and research capabilities and some of the technologies that we developed in the tight gas realm being applied to the XTO business. And I don't have any numbers quote today, but I can tell you directionally, if you look at the objectives we have of improving capital efficiency, improving productivity and lowering operating costs, we are making good progress and are very pleased with how that's going. So the story there remains very positive, and we look forward to the upcoming quarters and years to again really, really get out of that resource what we had planned.

Operator

We'll go next to Paul Cheng with Barclays Capital.

Paul Cheng

Dave, when I'm looking at your entire European gas output in the first quarter, it's 4.8 Bcf versus the first quarter 2010 is 5.1. And it's a little bit surprised that you dropped that much given the first quarter of 2011 weather was pretty cold and the pricing was strong. So we would expect that you will probably max out your gas output because the demand is there. So if -- that means that year-over-year we are dropping by, say, around 8% on the -- over 7% on the underlying decline curve on your European gas capacity or that the first quarter 2010 is just maybe some one-off accounting issue that number is high.

David Rosenthal

Paul, that is an excellent question. And interestingly enough, even though European demand was high in the first quarter '11, it was actually less than first quarter of '10 and really accounted for at least half, if not a little more, of the decrease you saw quarter-on-quarter, with the balance basically being a decline. But yes, we did see an overall demand drop relative to the first quarter of last year.

Paul Cheng

Interesting. I would have thought that the demand -- so the underlying decline is more like in the 3% to 4%? It's not the 7%?

David Rosenthal

Yes, I didn't do that calculation. But yes, if you're looking overall at the decline figure, about half of that is demand and the other half is decline.

Paul Cheng

Okay. And then, you're talking about Iraq earlier. Can you tell us how the accounting works in terms of reporting the production and earnings now that you are about 10%? So does that mean that if the production in excess of the baseline, then you just report your 65% share? Or how exactly is the accounting in terms of reporting the production and the earning is going to be?

David Rosenthal

Sure, Paul. As you know, those contracts in Iraq are unique. They do have -- they do exhibit some elements that look like a PSC in terms of cost recovery. You do have, of course, then the remuneration, the fee that you get above the 10%. And then, of course, the actual volumes that you book are impacted by prices as well. So as we move forward, we'll be booking production just as the way we said those contracts work. We'll get the volumes for cost recovery, and then we'll get the volumes associated with the remuneration fee. And then we'll book the reserves accordingly as well.

Paul Cheng

So you basically will book similar like what you did in the PSC? So you have your -- let's say you have -- you'll spend $100 million in the cost and then your fee, for argument's sake, is going to be $10 million. So you will book -- your production will be equal to whatever. Let's say if it's $100 oil, then you book 11 million barrels in the production -- 1.1 million barrel in production. Is that the way that you're going to do?

David Rosenthal

Directionally, Paul, I think the math flows the way you're suggesting, and I'm sure there's a few nuances. But directionally speaking, that's how that's going to work.

Paul Cheng

Okay. If I could sneak in just a quick one.

David Rosenthal

Sure.

Paul Cheng

You're not going to talk about the XTO contribution. Can you tell us what is the XTO hours [ph] at oil and gas production for the quarter?

David Rosenthal

No, we really -- again, heading into this year, now that we've fully integrated that business into the rest of the U.S. results, we weren't planning to break out either the earnings or absolute production levels. But of course, if you look at the net growth year-over-year that we show in the volume start, the bulk of that is XTO. So again, I'll give you an indicator. We drilled, I think, 900-and-some wells in XTO last year, and we've already drilled 200 in the first quarter this year. So again, the business is doing well. But it's now going to be reported and fully integrated in with the rest of our U.S. results.

Operator

Our next question comes from Katherine Minyard with JPMorgan.

Katherine Minyard

Just a couple of quick questions on the entitlement sensitivity both quarter-over-quarter and year-over-year. In your slide where you compare year-over-year, you've got about a 65,000 barrel a day change, and I've got about a $28 change in the Brent oil price. So that's about 2,300 barrels a day per $1 change in oil. Then if I look at the quarter-over-quarter, it looks to be about a 5,000-barrel a day change per dollar per barrel oil price change. So I was curious as to what the ratable sensitivity is on a go-forward basis and whether there was any one-off impact in the most recent quarter or over the course of the last year that would be skewing that.

David Rosenthal

Sure, Katherine. That's an excellent question. And the biggest factor we have in the sequential quarter more so than in the quarter-on-quarter is really in the price and spend effect. And the thing you have to keep in mind is both price and spend impact that. And so what we saw was we had higher prices quarter-to-quarter from the fourth quarter to the first quarter and much lower spending. But you kind of got a double whammy there of lower spending and higher prices, significantly lowering the volumes that you get.

Katherine Minyard

Okay.

David Rosenthal

We didn't see that impact quarter.

Katherine Minyard

And is there a rate we should be -- thinking about on a go-forward basis?

David Rosenthal

On a go-forward basis, I really couldn't give you a number because, again, I don't know what crude oil prices are going to do. And directionally, our spend levels tend to increase across the year. Particularly, relative fourth quarter to first quarter, you tend to see higher spending in the fourth quarter and lower spending in the first quarter, and we've seen that effect. So I really wouldn't have a number going forward other than to say the biggest impact on us is going to be the level of spending and then, of course, what crude oil prices do.

Katherine Minyard

Okay, great.

Operator

We'll go next to Allen Good with Morningstar.

Allen Good

Just a quick question. Can you give an update on Golden Pass and what kind of activity you're seeing down there?

David Rosenthal

Sure, I'd be happy to give you an overall update on that project. Things are going quite well. As you know, we are commissioning that in 2 phases. We've got the first phase done. That commissioning cargo actually arrived, the first one in the fourth quarter last year. And we brought in 5 additional cargoes. We got that thing up and running, actually exported some gas into the pipeline. And all the facilities are working. As we sit here today, Phase 2 is complete and in the commissioning stage, and we brought in our cargo for that. So we continue on the full commissioning and start-up of that terminal. And as you know, that's part of a broader strategy out of Qatar to have a footprint in all the -- a regas footprint in all the major markets and have left about a third of our volumes out of Qatar to be available to the spot market. And as the strategy was unfolded, the ability to divert those cargoes to get the highest netback is exactly what we're seeing today. And so we're taking all available cargoes into Europe, where we enjoy a nice spread there, as well as demand in the Asia Pac market for spot cargoes, in addition to our term contracts, is also strong. So we're very pleased with how all these facilities are coming along and especially pleased with the performance of our balance and mix of commercial arrangements.

Allen Good

Thanks for those comments on the LNG market. Just one more follow up on the Downstream earnings for international, there was a drop-off there from 4Q to this first quarter. I just want to confirm if that was due to the turnarounds you mentioned earlier throughout Europe and Asia. And I wanted to confirm that most of those facilities are back online and producing at full capacity.

David Rosenthal

Yes, you're right, the primary impact was the turnaround and maintenance-related activities. And as we're looking today --- and that was across Europe and Asia Pacific. And where we're sitting here today, those facilities are back up and running and came out of a very successful maintenance period.

Allen Good

Okay. And any more anticipated turnarounds either in Europe or throughout the U.S. for the remainder of the year?

David Rosenthal

I don't have a turnaround schedule, but I think you'll see normal turnaround and maintenance activities in the U.S. here in the second quarter kind of consistent with what we normally do and what industry normally does.

Allen Good

Okay, appreciate very much.

Operator

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

Pavel Molchanov - Raymond James & Associates, Inc.

Kind of a broad question, if I may. It's been almost a year, of course, since XTO closed. And I'm curious, how has the company's unconventional gas plans evolved for your overseas acreage and, in particular, if any of the drilling timetables have changed?

David Rosenthal

Yes, I wouldn't say any of the drilling timetables have changed. Nonetheless, we do have a very active program underway, both coming out of 2010 as well as into 2011. For example, if you look at the Poland resources, we've been actively acquiring 3D seismic. We did get a well down in one of our licenses in the first quarter, and it finished up in February. We've got a second well that spud in February. So we're starting to do our evaluation program, our drilling program and would expect to continue to do that as the year goes on. If you look at Germany, there again, we have continued our evaluation efforts there and are drilling some additional wells. And we expect that program to continue on. But again, things are going about as we have planned, both in the shale gas in Germany as well in coal bed methane. We are getting wells down and are evaluating those results. And that'll determine the pace and extent of our program going forward. But we continue to view those opportunities very highly. I'll tell you, another area for us outside of the country is Argentina where we have also acquired a fairly large acreage position there. And we are doing evaluation and preparations to commence drilling there later on. So if I kind of step back and look at our total global unconventional portfolio, we continue to add to our acreage position. We are continuing to pursue additional acreage positions and, again, as I mentioned a little earlier, really leveraging the capabilities of ExxonMobil and XTO to both evaluate those prospects and, to the extent that any of them prove to be commercial, move into the development program. So about as planned but certainly a higher level of activity recently than a couple of years ago.

Pavel Molchanov - Raymond James & Associates, Inc.

I appreciate the color on that. And then just real quick. Any changes at PNG LNG on either start-up of -- timing start-up or CapEx estimates?

David Rosenthal

No, I don't have any updated information. That project is on plan and doing fine, and we continue to project that we're going to deliver our first LNG out of there sometime in 2014. So that project is going well.

Operator

The final question comes from Mark Gilman with The Benchmark Company.

Mark Gilman - The Benchmark Company, LLC

David, what specifically was the gain on the Western Canada asset sale in the quarter?

David Rosenthal

Mark, as I typically do or don't do, I really don't have a number specifically for any one asset sale in the quarter.

Mark Gilman - The Benchmark Company, LLC

Okay, I'm going to try just one other one in light of that. Was there any lifting variance at all in this quarter, David, that could have impacted the Upstream side sales as less than or greater than the underlying level of production?

David Rosenthal

As we look quarter-on-quarter sequentially, I don't recall there being any impact.

All right, well, I'll conclude the conversation then by thanking everyone for your time today and your questions. And we'll look forward to the second quarter earnings call in July. Thank you very much.

Operator

This does conclude today's conference. We thank you for your participation.

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