Exxon Mobil (XOM) Q4 2015 Results - Earnings Call Transcript

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Exxon Mobil Corp. (NYSE:XOM)

Q4 2015 Earnings Call

February 02, 2016 10:30 am ET

Executives

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Analysts

Doug Leggate - Bank of America Merrill Lynch

Sam Margolin - Cowen & Co. LLC

Phil M. Gresh - JPMorgan Securities LLC

Evan Calio - Morgan Stanley & Co. LLC

Doug Terreson - Evercore ISI

Edward George Westlake - Credit Suisse Securities (NYSE:USA) LLC (Broker)

Ryan Todd - Deutsche Bank Securities, Inc.

Paul Sankey - Wolfe Research LLC

Roger D. Read - Wells Fargo Securities LLC

Neil Singhvi Mehta - Goldman Sachs & Co.

Paul Y. Cheng - Barclays Capital, Inc.

Anish Kapadia - Tudor, Pickering, Holt & Co. International LLP

Jason D. Gammel - Jefferies International Ltd.

Asit Sen - CLSA Americas LLC

Allen Good - Morningstar Research

Brad Heffern - RBC Capital Markets LLC

John P. Herrlin - SG Americas Securities LLC

Pavel S. Molchanov - Raymond James & Associates, Inc.

Guy Allen Baber - Simmons & Company International

Operator

Good day everyone and welcome to this Exxon Mobil Corporation Fourth Quarter and Full Year 2015 Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to the Vice President of Investor Relations and Secretary, Mr. Jeff Woodbury. Please go ahead.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Thank you. Ladies and gentlemen, good morning and welcome to Exxon Mobil's fourth quarter and full year 2015 earnings call. My comments this morning 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.

Now turning to slide three, let me begin by summarizing the key headlines of our performance. Exxon Mobil generated full year earnings of $16.2 billion and fourth quarter earnings of $2.8 billion. These results reflect proven strategies that we've consistently applied for decades along with a relentless focus on the business fundamentals, including project execution and effective cost management. While our Upstream financial results reflect the challenging business environment, stronger performance in our Downstream and Chemical segments highlights the resilience of our integrated businesses.

Exxon Mobil completed six major Upstream projects during the year. These new developments in Canada, Indonesia, Norway, the United States and West Africa added 300,000 oil equivalent barrels per day of working interest production capacity and contributed 3.2% volumes growth.

Strong operating performance of the base portfolio along with these project efficients delivered full year production of 4.1 million oil equivalent barrels per day, consistent with our plans. The corporation's 2015 cash flow from operations and asset sales were $32.7 billion, with positive free cash flow of $6.5 billion despite sharply lower crude oil and natural gas prices.

Moving to slide four, we provide an overview of some of the external factors affecting our results. Global economic growth continued to slow during the fourth quarter across nearly all major economies. In the US, estimates show growth softening further since the third quarter. In Asia, China continued to decelerate with significant volatility in the financial sector. And Japan experienced ongoing economic weakness, whereas Europe's economy remained stable with continued tempered growth.

Crude oil prices extended declines on global oversupply conditions and natural gas prices moved lower, reflecting unseasonably warm weather through the quarter. Furthermore, global refining and chemical margins weakened due to lower seasonal fuels demand and decreased chemical realizations.

Turning now to the financial results shown on slide five. As indicated, fourth quarter earnings were $2.8 billion or $0.67 per share. Corporation distributed $3.6 billion to shareholders in the quarter through dividends and share purchases to reduce shares outstanding. Of that total, $500 million was used to purchase shares. CapEx was $7.4 billion, down more than $3 billion from our fourth quarter of 2014. As a result of ongoing capital efficiencies, market savings, reduced activity and timely project delivery. Cash flow from operations and asset sales was $5.1 billion and at the end of the quarter, cash totaled $3.7 billion and debt was $38.7 billion.

The next slide provides more detail on sources and uses of cash. Total for the quarter cash decreased from $4.3 billion to $3.7 billion. Earnings adjusted for depreciation expense, changes in working capital and other items, and our ongoing asset management program, yielded $5.1 billion of cash flow from operations and asset sales.

The cash decrease from working capital changes includes both normal seasonality as well as the effect of the decline in crude prices on account balances and receivables and payables. Uses included net investments in the business of $6 billion and shareholder distributions of $3.6 billion. Cash flows were balanced over the quarter by increasing short-term borrowing by about $4 billion.

Moving on to slide seven for a review of our segmented results. Exxon Mobil's fourth quarter earnings decreased $3.8 billion from a year ago quarter, though our Upstream earnings were partially offset by stronger Downstream results, whereas decreased Chemical earnings were mostly offset by lower corporate and financing costs. In the sequential comparison shown on slide eight, earnings decreased $1.5 billion due to lower earnings across all business segments. On average, corporate and financing expenses are anticipated to be $500 million to $700 million per quarter over the next year to two years.

Turning now to the Upstream financial and operating results starting on slide nine. Fourth quarter Upstream earnings were $857 million, down $4.6 billion from a year ago quarter. Sharply lower commodity prices reduced earnings by more than $3.7 billion. Crude realizations declined more than $30 per barrel and gas was down $2.76 per thousand cubic feet. Favorable volume and mix effects increased earnings by $100 million.

Volume additions from new developments were partly offset by regulatory restrictions in the Netherlands. All other items decreased earnings by $960 million, reflecting the absence of prior year impacts including US deferred income tax effects and the recognition of a favorable arbitration ruling for expropriated assets in Venezuela. These were partially offset by lower operating costs.

Moving to slide 10. Oil equivalent production increased 194,000 barrels per day or 4.8% compared to a year ago quarter. Liquids production was up almost 300,000 barrels per day or nearly 14%, where ramp-up of new development projects, work programs and entitlement effects were partly offset by field decline. Natural gas production decreased about 630 million cubic feet per day due to regulatory restrictions in the Netherlands and field decline, partially offset by entitlement effects and development project volumes.

Turning now to the sequential comparison starting on slide 11. Upstream earnings decreased about $500 million from the third quarter. Lower realizations reduced earnings $840 million where crude prices were about $8 per barrel lower than the third quarter, and natural gas prices were down $0.40 per thousand cubic feet. Volume and mix effects increased earnings $250 million, reflecting new project and work program growth along with higher seasonal demand. All other items added $90 million driven by tax impacts. Upstream unit profitability for the fourth quarter was $2.26 per barrel excluding the impact of non-controlling interest volumes.

Moving to slide 12. Sequentially, volumes increased 330,000 oil equivalent barrels per day or 8.4%. Liquid production was up 150,000 barrels per day, reflecting new project growth, work programs and entitlement effects. Natural gas production was 1.1 billion cubic feet per day higher in the third quarter, driven by stronger seasonal demand in Europe, entitlement effects, and new project start-ups.

Moving now to the Downstream financial and operating results starting on slide 13. Downstream earnings for the quarter were $1.4 billion, up $854 million compared to the year ago quarter. Stronger margins and favorable volumes mix improved earnings by $610 million and $70 million respectively. All other items increased earnings $170 million, primarily driven by reduced maintenance activities and favorable foreign exchange and tax effects partly offset by unfavorable inventory impacts.

Turning to slide 14. Sequentially, Downstream earnings decreased $682 million as lower margins reduced earnings by $860 million. Volume and mix effects increased earnings by $60 million, reflecting lower US maintenance. Other items improved earnings by $120 million, primarily due to higher gains from asset sales partially offset by unfavorable inventory effects.

Moving now to the Chemical financial and operating results starting on slide 15. Fourth quarter Chemical earnings were $963 million, down $264 million compared to the fourth quarter of 2014. Weaker margins decreased earnings by $210 million, while favorable volumes and mix effects added $170 million due to lower maintenance. All other items decreased earnings by $230 million, largely due to unfavorable foreign exchange, inventory and tax effects.

Moving to slide 16. Chemical earnings were down $264 million sequentially. Weaker margins reduced earnings by $190 million while favorable volumes mix added $80 million. Other items decreased earnings $160 million, primarily reflecting increased maintenance activities.

Turning now to the full year financial results starting on slide 17. Now as I mentioned, earnings were $16.2 billion or $3.85 per share. Corporation distributed over $15 billion to shareholders through dividends and share purchases to reduce shares outstanding. And of that total, $3 billion was used to purchase shares.

CapEx totaled about $31 billion for the year, a reduction of almost $7.5 billion or 19% versus 2014 and approximately $3 billion below our plans for 2015. Cash flow from operations and asset sales was $32.7 billion.

Turning to slide 18, cash decreased from $4.7 billion to $3.7 billion during the year. Earnings adjusted for depreciation expense, changes in working capital and other items, and our ongoing asset management program resulted in $32.7 billion of cash flow from operations and asset sales. Uses included net investments of $26.2 billion and shareholder distributions of $15 billion. Debt and other financing items provided $7.6 billion in the year.

Moving to slide 19, graphic illustrates the corporation's sources and uses of cash during the year and highlights our ability to meet our financial objectives. Cash flow from operations and asset sales of $32.7 billion funded shareholder distributions and most of our net investments in the business supplemented by an increase in debt financing. The investments we select have attractive financial returns and justify the moderate use of our strong balance sheet capacity. The scale and integrated nature of our cash flows along with our financial strength provide us the flexibility and confidence to invest through the commodity price cycle to meet long-term energy demand.

Corporation has continued to pay a reliable and growing dividend, directly sharing the corporation's success with our shareholders. Total dividends per share, $2.88, are up 6.7% versus 2014. As you know, we prudently tapered the share buyback program during 2015, consistent with changes in the business environment and the corporation's cash requirements. In the first quarter of 2016, Exxon Mobil will limit share purchases to amounts needed to offset dilution related to our benefit plans and programs and we do not plan on making additional purchases to reduce shares outstanding.

During 2015, Exxon Mobil generated $6.5 billion of free cash flow, reflecting our cost and capital discipline and the resilience of our integrated business model. Looking forward, we anticipate capital and exploration expenditures to be $23.2 billion in 2016, a decrease of almost $8 billion or 25% from 2015.

So to summarize this slide, the corporation finished the year with positive free cash flow. We have significantly lowered our capital spending plans and are aggressively pursuing operating efficiencies and cost savings as we continue to ramp up production from our major projects, all of which will support cash flow moving forward. We will provide further details on investment plans at our upcoming analyst meeting.

Moving now to slide 20 and a review of our full year segmented results, 2015 earnings decreased $16.4 billion as weaker Upstream results were partially offset by stronger Downstream performance and lower corporate costs.

Turning now to the full year comparison of Upstream results starting on slide 21. Upstream earnings of $7.1 billion were $20.4 billion lower than 2014. Realizations reduced earnings by $18.8 billion as crude oil prices declined more than $45 per barrel and natural gas dropped about $2.50 per thousand cubic feet. Favorable volume mix effects increased earnings $810 million where contributions from major project startups over the last couple of years as well as our work program activities were partially offset by the impact of regulatory restrictions in the Netherlands and field decline. All other items decreased earnings by $2.4 billion. Lower gains on asset sales and absence of prior year deferred income tax effects were partly offset by lower operating expenses.

Upstream unit profitability for the year was $4.89 per barrel excluding the impact of non-controlling interest volumes. This reflects significantly lower commodity prices partially offset by asset high-grading, including the startup of new development projects.

Moving to slide 22. As indicated, volumes ended the year at 4.1 million oil equivalent barrels per day, up 3.2% compared to last year. Liquids production was up 234,000 barrels per day or 11%, benefiting from major projects in several countries, work programs and entitlement impacts, which were partly offset by field decline. Natural gas production however was down 630 million cubic feet per day as regulatory restrictions in the Netherlands and field decline were partly offset by additional major project volumes in Papua New Guinea and the US along with higher entitlements.

Full year comparison for Downstream results is shown on slide 23. Earnings were $6.6 billion, an increase of $3.5 billion from 2014. Stronger refining and marketing margins increased earnings by $4.1 billion. Volume and mix effects mainly driven by increased maintenance reduced earnings by $200 million. All other items decreased earnings by $420 million, while reflecting higher maintenance activities and unfavorable inventory impacts, partly offset by favorable foreign exchange effects.

On slide 24, we show the full year comparison for Chemical results. 2015 earnings were $4.4 billion, up $103 million from 2014. Stronger margins increased earnings $590 million, while favorable volumes mix added $220 million due to lower maintenance. Other items reduced earnings $710 million, reflecting unfavorable foreign exchange, tax and inventory effects, partly offset by asset management gains.

Moving next to an update on our Upstream project activities. We continue to deliver on our investment plans, which are adding higher value production capacity to meet long-term demand growth. Fixed major project startups in 2015 added nearly 300,000 oil equivalent barrels per day of working interest capacity. We also progressed development of our high quality acreage in the Permian and Bakken at a measured pace, where drilling programs added 85,000 oil equivalent barrels per day of gross production in 2015.

In the fourth quarter, the Banyu Urip central processing facility successfully started up. Current gross production is 150,000 barrels per day and continues to ramp up towards full capacity as we optimize both well and facility performance. Looking forward, construction activities continue to progress on 10 major projects that will come online over the next two years. We expect to start up six of those in 2016, which will add more than 250,000 barrels per day of working interest production capacity.

Moving now to slide 26. We continued to execute a paced and focused exploration program to deliver accretive value to Exxon Mobil's asset portfolio, while capturing cost efficiencies in today's softer market. In offshore Guyana, the largest 3D seismic survey in the company's history is nearly complete and we will begin appraising the Liza discovery during the first quarter. We also acquired a 35% interest in operatorship of the Canje block, which is adjacent to the Stabroek Block, adding over 520,000 net acres.

In the Romanian Black Sea, Exxon Mobil has completed exploration activities in the Neptun block after successfully drilling seven consecutive wells since July 2014. Based on the results of the program, including a successful well test of the Domino prospect, we are advancing detailed development planning and economic viability studies.

And in Argentina, we are beginning a production pilot program on the La Invernada and Bajo del Choique blocks in the Neuquén province. Program consists of five wells along with construction of production facilities and a gas pipeline.

Over the past few months, we have also added high potential acreage to our diverse portfolio. Exxon Mobil acquired a 35% interest in Block 14 offshore Uruguay, capturing almost 580,000 net acres.

In Canada, we were awarded interests in three blocks offshore Newfoundland and Labrador, adding over 650,000 net acres. These blocks are in a proven oil-prone hydrocarbon basin with recent industry discoveries. And this new opportunity will build on our 18 years of success in Eastern Canada with Hibernia, Terra Nova and the ongoing development at Hebron. And in Western Canada, we acquired additional working interest in our currently producing Duvernay acreage, adding 10,000 net acres.

So I'd now like to conclude today's comments with a summary of our 2015 performance which demonstrates the resilience of our integrated business. Exxon Mobil earned $16.2 billion, underpinned by the benefits of our integrated business model which captures value through the cycle, as demonstrated by our strong Downstream and Chemical results.

Corporation achieved its full year plan to produce 4.1 million oil equivalent barrels per day. Volume contributions from a portfolio of new developments underscore our project execution excellence and reputation as a reliable operator.

Our results also reflect a relentless focus to reduce costs. In 2015, we achieved about $11.5 billion in capital and cash operating cost reductions. Solid operating performance combined with continued investment and cost discipline generated cash flow from operations and asset sales of $32.7 billion and positive free cash flow of $6.5 billion.

Our commitment to shareholders remain strong as demonstrated by our reliable and growing dividend. So regardless of industry conditions, we remain focused on what we can control and are driven to create shareholder value through the cycle. And we will discuss our forward plans in more detail at our upcoming analyst meeting which will take place at the New York Stock Exchange on Wednesday, March 2, with the live webcast beginning at 9 a.m. Eastern Time.

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

Question-and-Answer Session

Operator

Thank you, Mr. Woodbury. And we'll go first to Doug Leggate with Bank of America Merrill Lynch.

Doug Leggate - Bank of America Merrill Lynch

Thanks. Good morning, Jeff. Good morning everybody.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Good morning, Doug.

Doug Leggate - Bank of America Merrill Lynch

Jeff, the CapEx cut is pretty material. I wonder if you could help us reconcile Exxon's view of spending through the cycle with the extent of the cut and maybe give us some idea as to maybe just to clarify two things. Where, is really a function of the slowdown in E&P spending? I mean it was already underway, and does it still include the minority affiliate contribution? And I've got a follow-up please.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Yeah, yeah. Doug, first let me start with your second question first. The CapEx guidance that we've provided for 2016 of $23.2 billion is all in. It includes consolidated and equity companies and it compares directly with the $31.1 billion that we spent in 2015.

To answer your first question, I'd first like to say that as I said in my prepared comments, we were down in the year in 2015 both from 2014 performance as well as our planned guidance in 2015. And that was primarily a continued focus on capital efficiencies, market savings and a soft business climate. There was reduced activity and then importantly timely project delivery. If you think about 2016, it's more of the same. It reflects prudent cash management and our continued investment through the cycle in attractive high-quality opportunities that we believe will generate long-term shareholder value.

The short of it is that we're going to continue to live within our means. We're going maintain financial flexibility. And we've got, as you've heard us talk in the past, we've got very diverse high-quality inventory investment opportunities that will continue to progress.

Doug Leggate - Bank of America Merrill Lynch

Thanks Jeff. So yeah, I assume that was one question with a couple of parts to it. So my follow-up is, I realize you've been fairly tight-lipped on Guyana to date. Obviously this is a big acreage that you've had. And there's my understanding is Fugro has already started the subsea survey, which suggests that there's and early production system scheme underway. Can you just give us a general update as to where things stand in Guyana, whether there is indeed an early production system target on how you see the overall scale of the opportunity to the extent you can chat about that at this point? Thanks.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Yeah thanks, Doug. I clearly understand the industry interest in the discovery. As we said at the time of discovery, we're very encouraged with the initial results, recognizing that we only have one well in a very, very large block, over 6.5 million acres. We have since the discovery moved quickly to get a drill ship contracted and onsite to appraise the discovery and we expect that to spud very shortly. As I said, the seismic acquisition is nearing completion. The results from both the well as well as the seismic are being actively assessed to assess the full block potential as well as the commercial viability of the Liza discovery.

Obviously the objective of the first well is an appraisal well in Liza and it's intended to give us important information to size the resource as well as get a test on it to assess the key variables associated with the commercial viability. So I would tell you that there are early studies underway on potential development options for the field, but I don't have anything more to share on that.

Doug Leggate - Bank of America Merrill Lynch

Thanks a lot, Jeff.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

You're welcome.

Operator

We'll go next to Sam Margolin with Cowen & Company.

Sam Margolin - Cowen & Co. LLC

Good morning.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Good morning, Sam.

Sam Margolin - Cowen & Co. LLC

In the press release you called out some of the project startups and what seemed like a net overall favorable mix effect on income. I think that maybe Western Canada is included in the startups but not maybe a contributor to mix income enhancements. Can you talk about Western Canada, kind of the heavy levels of pressure we're seeing on heavy oil out there? And maybe frame an outlook for us.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Yeah, sure. I mean no doubt profitability is compressed in this price environment. As I had said before, we remain very focused on the fundamentals. And I'd tell you that the team there in Canada have done just an exceptional job in driving the cost structure down and enhancing reliability. We are not by any means where we want to be. In fact I would tell you that we're never satisfied with the status quo. We will continue to work that, recognizing that we feel very good about the resource potential, not only in Kearl, but in Western Canada in our portfolio. We think that over the long term, the asset's going be a high value. The focus is around maintaining cash profit and maximizing long-term value in the asset.

Sam Margolin - Cowen & Co. LLC

Thank you. And it's sort of on the other end of the same spectrum I guess is LNG, which is considered by many investors to be cost prohibitive but actually has a pretty low overhead once it's operating. Can you help us understand how that contributed this quarter and through the year, specifically with PNG and some of the positive income contributions there.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Sure. I mean, Sam, it's a great question. Because LNG clearly is a key component of our portfolio and it is an important part of our margin generation. Remember, we're constructive on long-term demand. For gas, as you just saw the recent update on our energy outlook, we got gas growing about 1.6% per year. LNG is anticipated to triple between now and 2040. So we're very well poised to participate in that demand growth over the long term.

I will tell you that for, let's use PNG as a really good example. The initial design basis of PNG was about 6.9 million tons per annum. As we said in the third quarter, the organization did a exceptional job in doing what we do very well, and that is getting more out of the asset. And we were able to get it up to in excess of 7.4 million tons per annum, which has been just a phenomenal result. And we're still going. So it's a good example of how we really continue to manage the existing assets to reduce the cost structure and improve operational reliability to maximize long-term asset value.

Sam Margolin - Cowen & Co. LLC

Very helpful. Thank you so much.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

You bet, Sam.

Operator

We'll go next to Phil Gresh with JPMorgan.

Phil M. Gresh - JPMorgan Securities LLC

Hey, Jeff, good morning.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Good morning, Phil.

Phil M. Gresh - JPMorgan Securities LLC

First question is just kind of a bigger picture macro question. Obviously pricing has been tough across all end markets, oil, natural gas, LNG. And I'm just curious if you see a fundamental supply/demand improvement happening in any one particular market versus another over the next year or two. So for example, do you see oil recovering faster than natural gas or anything else along those lines?

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Yeah, so I guess I'd say that we're price takers. And we manage the business to create margin through self help. We have built this business to ensure that it's durable in a low price environment. And then any upside from that is additional return on the investment. So the organization is very focused on really managing the fundamentals. As I indicated, we're for both gas and oil. We're constructive on long-term demand growth and is the fundamental basis for the investment decisions that we've put in place. And if you look near-term, demand's been growing about 1 million barrels per day per year. And although supply has been growing at a higher rate, we certainly have, I mean the first half of this year, we're about 1.5 million barrels a day in excess of demand. We expect that to converge in the second half as seasonal demand increases.

We got to come in balance, like we have seen historically. We do have a bit of a buildup in crude storage that will have to be worked off before you see real growth in prices. But ultimately, we're going to manage wherever we are in the price cycle to create margin by focusing on the fundamentals. Same story around LNG. As I said previously, that we're very constructive on where LNG demand is going to go over from now to 2040.

Phil M. Gresh - JPMorgan Securities LLC

Okay. Understood. The second question is just on the capital spending guidance. Thanks for giving us the preview ahead of the Analyst Day. I guess what I was wondering was, year over year how much of that you might attribute to project roll-off or deflationary benefits versus a reduction in activity. And just in general, you came in under the 2015 budget as you said. How much flexibility is there do you think relative to the guidance number versus that being kind of the lowest you could go?

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Yeah, Phil, I don't have specific numbers to quote with you. I mean, and as I said we'll talk more about our investment plans and our thoughts on volumes next month in the analyst meeting. But a couple things to share with you. Clearly, our peak was back in 2013 at about $42.5 billion. The drop from 2013 to 2014 was primarily a result of a drop-off on this very significant major project load that we decided to take on. Obviously in every year, we are working on capital efficiency opportunities to build into our spend pattern.

As we go forward, I would tell you right now most of the drop is associated with the prudent cash management that we've got. It's not indicative of the quality of the portfolio. As I've said previously, our portfolio is very deep and diverse across the Upstream, Downstream and Chemical business. Some of the activity that we've slowed down really provides us an opportunity to rethink near-term investments and really fully capture the market benefits going forward. But short of that, I really don't have any more specifics to share as to breaking the CapEx spend down further. We'll continue to live within our means as we've shown historically, and if we need be, we'll have to tighten up if we have to further.

Phil M. Gresh - JPMorgan Securities LLC

So you see some additional flexibility even relative to this guidance?

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

We've got flexibility both ways.

Phil M. Gresh - JPMorgan Securities LLC

Okay. Thanks.

Operator

We'll go next to Evan Calio with Morgan Stanley.

Evan Calio - Morgan Stanley & Co. LLC

Hey, good day. Good morning, Jeff.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Good morning, Evan.

Evan Calio - Morgan Stanley & Co. LLC

Exxon's unique, relatively unique in its ability and dedication to counter-cyclically spend. Can you discuss the decision to cut the buyback in that context, and is that reduction any reflection on relative attractiveness of the portfolio, value of the stock or a weaker macro outlook?

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

No, I mean we've got a very, as I said a very deep and diverse portfolio. Much of that investment could be moved forward in today's environment, but as I indicated, we have a real opportunity to go ahead and rethink some of those expenditure patterns and capture more value from those investments. So the decision to cut the buyback doesn't at all reflect the quality of the inventory. Quite the contrary. I mean the inventory is very robust.

The decision on the buyback, as we've said before, our capital allocation approach is really focused on the dual priority of funding attractive investments and continuing to provide a reliable and growing dividend, and the share buybacks have always been the flexible part of our capital allocation program. As we continue to progress in a very challenging business climate, you saw us prudently taper back the buyback program. We will continue to evaluate the buyback program on a quarterly basis depending on changes in the business as well as the investment climate, and advise on a quarterly basis when we think it's, when it's appropriate.

Evan Calio - Morgan Stanley & Co. LLC

Great. Maybe if I can shift gears into the US. You're currently running I think seven rigs in the Bakken and eight rigs in the Permian. I mean maybe particularly in the Bakken, what's the driver of continued activity at current prices? I mean are those economic wells, or are you preserving efficiencies for an ultimate reacceleration? And maybe the same question for the Permian, yet that might be kind of HBP driven. Any color would be helpful.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Yeah, Evan, it's a good question because we have a very extensive well inventory in our unconventional business, particularly in the liquids plays, the Permian, Bakken and the Woodford Ardmore. Once again, it's a conscious decision to be measured in our investment program. When we saw the big ramp-up in rigs back in 2014, 2015, we were very measured in how we ramped up because we wanted to ensure that we fully developed the learning curve and captured those real cost benefits that translate into higher value as we fully developed these fields.

So the investments that we're making right now are economic. They're attractive in this business climate. We are maintaining a certain baseload of activity where we can continue to leverage some of the best service providers that we've got. We're one of the few that can continue to invest in a down cycle. We've high-graded all the services that we get in our unconventional business. In fact, I'd extend that globally. And we are continuing on those learning curves, and I think it just better positions us to maximize the value from these assets.

Evan Calio - Morgan Stanley & Co. LLC

Great. Appreciate it. Thanks.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

You bet.

Operator

We'll go next to Doug Terreson with Evercore ISI.

Doug Terreson - Evercore ISI

Good morning, Jeff.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Good morning, Doug.

Doug Terreson - Evercore ISI

So on slides 25 and 26 you talked about the project portfolio and the growth trajectory longer term. Simultaneously though, when you consider that the growth is coming at the expense of returns during the past cycle, not just for Exxon, but for the other supermajors too, it makes me wonder whether there should be more emphasis towards value creation, especially when considering that the valuation for some of the big oil companies is pretty much at its lowest level of the past two decades and in some cases three decades. My question is whether or not the issues of structure and returns and growth are being revisited internally, maybe more so than in the past. Or is that what is implied in the new spending outlook that you talked about today? And then also whether or not returns on capital, which I didn't see mentioned in the presentation, is still as relevant as it used to be. So two questions.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Yes. Doug, on the first one, I mean your point about value creation in our investment program, we couldn't agree with you more. And I would tell you that it is never – our view has never changed on the importance of making the right value choices. We saw back in the, I'd say in the early 2000s to the mid 2010 timeframe, we saw a number of major Upstream projects that got to the point of maturity that we could make a investment decision and capture unique value by progressing such a large load of major Upstream investments. There were cost synergies that we were going to capture that ultimately was going improve the long-term return of those assets. So we knew that by taking on such a large load, it was going to impact our return on capital employed because we would build up a very large load of non-productive capital employed. But we also knew that when those projects came onstream, that they were going be accretive to our overall average financial performance.

So unfortunately as these projects are coming on, the price environment has changed for us. But nonetheless we still feel very good about the long-term financial performance of these assets. Because remember, when we make the final investment decision, we're testing those investments across a wide range of economic parameters, including price. And as I said earlier, our fundamental focus has been making sure that our business is viable and durable in a low price environment. So ultimately we believe that these 30 plus major Upstream projects that had an impact, rightfully so, had an impact on our return on capital employed are going be accretive to our financial performance over the long term and we believe they were the right decision. Now to your second question on return on capital employed, it is still very much relevant to us.

Doug Terreson - Evercore ISI

Okay.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

We believe it is a fundamental measure that differentiates us, and that's why we continue to talk about it. We have never lost sight of the importance of that metric relative to the investment decisions that we're making.

Doug Terreson - Evercore ISI

Okay. Great. Maybe there will be a returns and valuation and catch-up in a more normalized environment in the future then.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

That's correct.

Doug Terreson - Evercore ISI

Okay. Thanks a lot.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Thank you, Doug.

Doug Terreson - Evercore ISI

Yeah.

Operator

We'll go next to Ed Westlake with Credit Suisse.

Edward George Westlake - Credit Suisse Securities (USA) LLC (Broker)

Yeah, good morning. Congrats on obviously $11.5 billion of capital and OpEx savings. OpEx, you haven't really spoken about as much this morning. Just maybe run through some of the actions you took to reduce OpEx over the course of last year and then the potential to cut OpEx further.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Yeah, thanks for that, Ed, because it is a very important story of our 2015 performance. First, let me just make sure everybody understands the number that we've been talking about. The numbers are fully consistent with our external reporting so that you all have good line of sight. Of the $11.5 billion I mentioned, about $8.5 billion of that is operating expenses, and it includes a number of things positive and negative. For instance, it includes the structural efficiencies that we were able to capture. It includes the market savings that we've been able to capture.

Remember, I've talked in the past about having a unique organization or global procurement organization that is really focused on achieving the lowest life cycle cost. The number includes benefits in energy costs, includes benefits from our asset management program as well as ForEx. There are increases in that number. Obviously we've been talking about all these new projects coming onstream. With them comes an increase in operating costs. And we'll continue to manage those assets like we do with our mature inventory. There was also a higher Downstream load on unplanned maintenance that added cost during the year.

So simply put, the $8.5 billion is a year on year comparison. The rest, $3 billion, is in CapEx and includes a lot of the same actions I just talked about as well as decisions to slow down some activity to capture opportunities in this business climate. I will note that that $3 billion only reflects the reduction from our planned guidance. As I said in the prepared comments, our year on year reduction in CapEx was $7.5 billion. So we didn't really include the $4.5 billion in the $11.5 billion that I talked about in the prepared comments. So in total, year on year our total reduction is really $16 billion if you include the $4.5 billion.

Edward George Westlake - Credit Suisse Securities (USA) LLC (Broker)

Yeah, and then in terms of the ability to drive further OpEx, I mean another 10%, another 15%, I mean how low do you think you can get that OpEx saving?

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

It's a great question, Ed. It really is, because it really talks to the strength of the organization. In this low price environment, it presents opportunities too. And the organization is never satisfied with the status quo. The organization is very focused on leading that cost curve. And while we may have some internal stewardship objectives, rest assured that we continue to look for new unique ways to capture structural improvements which are most important, because remember, those are the ones that will be permanent going forward. So there's a lot more to work on. But I don't have any specific numbers at this point.

Edward George Westlake - Credit Suisse Securities (USA) LLC (Broker)

Okay. I look forward to the Analyst Day. Thank you.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Okay.

Operator

We'll go next to Ryan Todd with Deutsche Bank.

Ryan Todd - Deutsche Bank Securities, Inc.

Great, thanks. Good morning, Jeff. Maybe if I could follow-up on the comment that you've made a couple of times now. You've talked about how you guys are rethinking near term investments and the way you deploy capital. I mean how much does this refer to an evolution of your views on relative attractiveness amongst various components of the portfolio in terms of, does this represent at all a shift in attractiveness of onshore versus deepwater versus oil sands or LNG, et cetera? Or how much is just referring to rethinking the cost structure in the near term environment in an effort to continue to push down prices?

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

It's really both. It's every investment dollar is competing. So it's all about how do we get the most value out of those investment dollars that are being deployed throughout the business. The organization, as I indicated, really views the down cycle as a real opportunity to go back and retest development concepts, retest the cost structures, retest the commercial terms. And whether it's short cycle or long cycle, we're going to maintain that competitive focus and make the right value choices coupled with our prudent cash management.

Ryan Todd - Deutsche Bank Securities, Inc.

Great, thanks. And then maybe just as a follow-up on that, I mean during the most recent downturn in 2008, 2009, you took advantage of the environment by pushing through more counter-cyclical investment in places like the Canadian oil sands. And I think we all realize that this downturn is different, but do you see similar opportunities to leverage your strength in this environment, either on the cost and project development side or maybe even on the research acquisition side? Or is your outlook different enough at this point that you feel that more prudence is necessary in the short to medium term?

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Well I mean clearly, given the uncertainty in prices, we're going to maintain prudency. But at the same time, as I've said a couple times, Ryan, we really do see that this is an opportunity to capture further value in the bottom of the cycle, and across all the areas I've already mentioned. But there are plenty of opportunities that the organization's focused on to really make that value proposition. And I'd also add that because of our ability to invest through this cycle, our service providers understand that if they can provide lower-cost, higher-value solutions to us, then we'll continue to invest if it makes good business sense. So having not only the organization focused on it, but also our service providers focused on it has provided some unique opportunities for us.

Ryan Todd - Deutsche Bank Securities, Inc.

Great. Thanks, Jeff.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Thank you.

Operator

And we'll go next to Paul Sankey with Wolfe Research.

Paul Sankey - Wolfe Research LLC

Good morning, Jeff.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Good morning, Paul.

Paul Sankey - Wolfe Research LLC

Jeff, I'm looking forward to seeing you all at the analyst meeting. I know that Mr. Tillerson's been in New York a couple of times – I should say in New York and in Miami making some statements. I haven't personally spoken to him since last March. The general message that you had then was certainly that we would be lower for longer. I assume he's still making that argument. I think that he was saying that you guys would be typically keen to make acquisitions at the bottom of the cycle, but the bid/ask spreads were too wide. He was saying less interest in buying a balance sheet that was bad. He would prefer to buy a balance sheet that was good, and I think you've said that consolidation in the Permian would be an area of interest. Is that the latest message that we've got, for example, at the Miami conference? I'm sorry, I wasn't present. I was wondering if the message has changed. Thanks.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Yeah, well I mean from a supply/demand perspective, I shared some of our thoughts around expectations. Clearly the oversupply currently and the overhang from storage is going to have a dampening effect on prices in the near term. But Paul, as we've talked in the past, we continue to be focused on the fundamentals and through our self-help creating margin, and that's what's most important for this business. We invest to ensure that the business is durable at low prices. We continue to manage the business based on our focus on the fundamentals to create margin. From a acquisition perspective, clearly I'm sure there's a tremendous amount of interest. We remain very patient. We keep alert to the value propositions. But it's as I've said before, anything that we see out there has got be competitive with our current investment inventory.

Paul Sankey - Wolfe Research LLC

Sure. I mean the bid/ask spread element, is that, must – I mean by just looking at the share price charts, that has to be narrowing now between what you guys would see as value and what sellers would.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Yeah. Well I mean clearly, bid/asks could be a function of a number of factors including the business climate, unique capabilities and assessments of individual investors. And certainly, the longer the commodity prices are in this area code, the more pressure it will put on the bid/ask. But I think also, Paul, as you're probably well aware, I mean the absence of any major deals absent a few couple one-offs really talks that there's still a gap to valuations. We'll be thoughtful. We'll make sure that anything that looks of interest is going to be value adding.

Paul Sankey - Wolfe Research LLC

Indeed. And then a bit of a technical question. Does Mr. Tillerson retire on his 65th birthday, or at the beginning of 2017 typically? I mean, what would be the model? I guess what I'm driving at is, is this going to be his last analyst meeting?

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Yeah, well I mean I'm not going to provide any specifics. That's really at the function of the board's decision.

Paul Sankey - Wolfe Research LLC

Right. Okay. Thank you.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

All right. Thank you, Paul.

Operator

And we'll go next to Roger Read with Wells Fargo.

Roger D. Read - Wells Fargo Securities LLC

Thanks. Good morning, Jeff.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Good morning, Roger.

Roger D. Read - Wells Fargo Securities LLC

I guess I'd like to follow-up a little more on your Lower 48. You talked earlier about the rig count and trying to maintain spending within a reasonable level of returns, but balancing that against the maintaining the right amount of service sector capability and all. But as you look at Lower 48 volume growth, which was certainly reasonable in the past year, does it grow in 2016 at these levels? And I know you wouldn't necessarily start with the idea of growth, but does it grow at these levels?

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Yeah. Well I don't have any specifics to share with you right now. But I would tell you, think about this, is that the choices that we are making are all based on value propositions. The outcome of those will be volumes. And as I indicated earlier, Roger, we've got a very deep portfolio of investment opportunities in the Lower 48, particularly in the unconventional business. And we'll maintain an appropriate balance of short-cycle investments. And when we feel like that the business climate supports it, we'll probably increase the amount of activity. I think what's important to note is that we are very well poised to flex the program up or down depending on the business climate.

Roger D. Read - Wells Fargo Securities LLC

Appreciate that. The other question I had was on the share repo program, understand taking it off the table for now. If you were to get a surprise influx of cash flow, just say higher commodity prices, is the decision in the near term that it would likely go towards shareholder returns or that CapEx would go up? I know Exxon is not a quick trigger place like some other businesses, but you do have opportunities as you've said in the Lower 48. What's sort of the internal thinking on that front?

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Well, I mean if it was an influx of cash flow, I would tell you that it's going to be a function of the board's decision on a quarterly basis. I mean, if we see supply and demand continuing to balance out, that may be a signal for us to modify our investment plans going forward. But as I've indicated previously, Roger, the board makes the decision on a quarterly basis on what level of buybacks we want to maintain, and consider a whole range of factors including the business climate in making that decision.

Roger D. Read - Wells Fargo Securities LLC

All right. So Powerball lottery by itself doesn't do it. You have to have some other fundamental things helping you out.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Yeah really.

Roger D. Read - Wells Fargo Securities LLC

All right. Thank you.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Thank you, Roger.

Operator

We'll go next to Neil Mehta with Goldman Sachs.

Neil Singhvi Mehta - Goldman Sachs & Co.

Hey good morning, Jeff.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Good morning, Neil.

Neil Singhvi Mehta - Goldman Sachs & Co.

So Jeff, you've had a great year here of production. This is something where I'm sure we'll get more clarity in March. But can you just talk about at $23 billion, how you think about the level of production relative to the 4.2 million barrels a day that you outlined last year for 2016, and then which, broadly speaking, which regions where you would see potential changes?

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Yeah well, Neil, let me first just take an opportunity to acknowledge a very strong operational year in 2015. Achieving the 4.1 million oil equivalent barrels per day which I'll just want to emphasize for the group. It's really an outcome of our value choices that we've made. The organization has really delivered on the timely startup of our major projects, which are a very key and significant contribution to our volumes this year.

I'll say looking forward, as I alluded to in the prepared comments, we have 10 more large-scale long-life projects starting up over the next couple of years. The first, the next tranche of that will be six of the 10 starting up in 2016. We maintained a very strong focus on the high-value work program as well as operational reliability. Looking forward, we will be sharing more on our near term investment plans and some thoughts on our volumes in the upcoming analyst meeting. But I really don't have any more specifics to share with you at this point.

Neil Singhvi Mehta - Goldman Sachs & Co.

I appreciate that, Jeff. And then obviously one of Exxon's key advantages here is your balance sheet. In light of some of the comments from the ratings agencies, can you just talk about your commitment to your AAA rating here? And then any perspective that you can provide around how that could change as ratings agencies think about their market outlook.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Yeah it's a good question, Neil, and clearly it's topical for many in the energy sector. I mean first and foremost, let me just be clear. We get value from the AAA credit rating in our business, whether it be access to financial markets or access to resources. I mean there is a benefit that we get from it, and we see it as being important. But it is really an outcome of our longstanding effective management of the business, including things like our strong balance sheet, the way we have prudently managed our cash, our disciplined investment and our leading financial and operating results, all of which has allowed us the financial flexibility to invest through the cycle as we've been discussing. I'd tell you that the current environment is clearly tough. But we've managed the business to be durable on the low end of commodity prices. We're very well positioned to continue the same level with superior performance in the future and we think that all underpins the strong credit rating that we have.

Neil Singhvi Mehta - Goldman Sachs & Co.

Thanks, Jeff.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

You're welcome.

Operator

And we'll go next to Paul Cheng with Barclays.

Paul Y. Cheng - Barclays Capital, Inc.

Hey, Jeff, good morning.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Good morning, Paul.

Paul Y. Cheng - Barclays Capital, Inc.

Two really quick questions. The $23.2 billion, how much is related to the (1:03:59) and also that within that number, how much is for the major project spending?

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

You're talking about our 2016?

Paul Y. Cheng - Barclays Capital, Inc.

Yes, sir.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

CapEx guidance.

Paul Y. Cheng - Barclays Capital, Inc.

Yes.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

We'll provide, Paul, we'll provide you more information on our spending plans in the analyst meeting. I really don't have anything more to share at this point.

Paul Y. Cheng - Barclays Capital, Inc.

I see, okay. The second one then real quick. It looked like you have $800 million on the asset sales proceed. What is the asset sales gain in the quarter? And that also do you have, it seems like that you may have some tax adjustment benefit in the quarter, and that you have also mentioned I think some FX impact and also inventory impact. Can you quantify those items in the quarter and if possible, by segment also?

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Yes, so Paul, on the proceeds from asset sales which was about $800 million in the fourth quarter, the equivalent earnings impact is about $350 million, primarily in the Downstream. Could you talk a little bit more about the second question, just make sure I?

Paul Y. Cheng - Barclays Capital, Inc.

Yeah, it looked like that the effective tax rate is 13% in the quarter. We understand the mix of the earning, oftentimes the impact, the absolute level of the tax, but it does look like it's low enough that you may have some tax benefit or adjustment, year-end adjustment on that. Just curious if that's the case. And if it is, can you quantify it? What is the tax adjustment benefit and also that which segment is being impact? And also that I think in your prepared remark, you have comment that some impact on the earnings on the FX and also inventory. So just want to see if you can quantify those.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Sure, sure, okay. Let me walk through them for you. On ForEx, the quarter on quarter impact is essentially nil. I mean it's a slight negative to earnings, less than $5 million.

Paul Y. Cheng - Barclays Capital, Inc.

How about sequentially?

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

I'm sorry, say that again.

Paul Y. Cheng - Barclays Capital, Inc.

Sequentially you're talking about right, this one closest to?

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

That was quarter on quarter.

Paul Y. Cheng - Barclays Capital, Inc.

Okay.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Fourth quarter 2015 to fourth quarter 2014. The full year had a negative impact on our earnings of about $125 million. That's ForEx, okay. On tax, so yes, our effective tax rate was 13% in the fourth quarter, and that was down about 19% quarter on quarter. A fair bit of that had to do with one-time tax items. The rest, about 5%, was due to portfolio mix of income across the business segments and the geographies. And that's really spread across our corporate and finance as well as some of the segments.

Paul Y. Cheng - Barclays Capital, Inc.

Jeff, when you say that one-time tax item, 14%, seems like you're talking about 14% because you say 19% overall reduction, 5% is due to the mix of the asset, and so the one-time item is 14%. Is that 14% spread across different segment or it is primarily in Upstream?

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

It's in corporate and finance and several of the other segments. I don't have a breakdown for you.

Paul Y. Cheng - Barclays Capital, Inc.

Okay. And how about inventory impact?

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Yeah, before I leave tax, I just want to be clear for everybody that assuming our current commodity prices and our existing portfolio mix, we still would anticipate that the effective tax rate is between 35% to 40%. If you look at the full year of tax in 2015, it was just under 34% and that included obviously some one-time tax effects. Okay? On inventory, Paul, quarter on quarter, it had a negative earnings impact of about $375 million.

Paul Y. Cheng - Barclays Capital, Inc.

Thank you.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Okay. You're welcome, Paul.

Operator

And we'll go next to Anish Kapadia with TPH.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Good morning, Anish.

Anish Kapadia - Tudor, Pickering, Holt & Co. International LLP

Hi. Good morning. Just had a question looking at production and declines. If we look at 2015, it seems like underlying production was flat. So we saw new projects that were offset by production declines. I wanted to try and understand in terms of 2016 how much of your CapEx is going into the base business and to mitigate declines. And so what do you see the underlying decline rate to be with the current spend? Thank you.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Anish, we have an underlying decline, as we included in our 10-K, of about 3%. On top of that, we add major project activity. Again, I don't break it out by use, and we'll talk more about investment plans in the analyst meeting next month.

Anish Kapadia - Tudor, Pickering, Holt & Co. International LLP

Okay. And just to clarify on that, so given the CapEx cuts that we've seen, you wouldn't expect that decline rate to accelerate on the back of the CapEx cuts?

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

No. Remember, it's a base decline rate ex-major project activity.

Anish Kapadia - Tudor, Pickering, Holt & Co. International LLP

Okay. The second question was on plans for space for new major projects. Given that cutback in the CapEx, do you have any potential FIDs for this year that you're looking to sanction?

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Yeah, on FIDs, we just don't forecast FIDs in advance of the investment decision made by the corporation. When we make that decision, when the investments get to a level of maturity and we make that decision, then we communicate. I'll remind you that we have 10 major projects that will start up in the next two years, as I indicated before, and they will certainly...

Anish Kapadia - Tudor, Pickering, Holt & Co. International LLP

Can I just?

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

And they will certainly contribute to our base performance.

Anish Kapadia - Tudor, Pickering, Holt & Co. International LLP

I just wanted to clarify, I think I might have missed it from earlier. I mean there was a question on the impact of production from the cutback in your rigs. What would you expect your exit to exit US onshore production to be this year?

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Well as I indicated, we'll share more about our investment plans as well as our thoughts on volumes in next month's analyst meeting. We've got a very deep, robust inventory of development projects in the Upstream, and we'll talk more about that next month, or I guess, yeah, next month.

Anish Kapadia - Tudor, Pickering, Holt & Co. International LLP

Sure. Okay. Thanks very much.

Operator

And we'll go next to Jason Gammel with Jefferies.

Jason D. Gammel - Jefferies International Ltd.

Oh yes, hi. Thanks, Jeff.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Morning, Jason.

Jason D. Gammel - Jefferies International Ltd.

I was hoping you might be able to just give us a little bit of the detail on those project startups that you're expecting in 2016 and 2017, just to make sure my list is correct. And if you want to share the contribution that the 2016 startups are making towards that 250 kpd capacity, that would be helpful as well.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Yeah, on the startups in 2016, of course we've got Gorgon, Jansz. We have late in the year Kashagan. We've got Julia in the Gulf of Mexico, Heidelberg in the Gulf of Mexico, Point Thomson in Alaska and Barzan in Qatar. And Jason, we provide the peak level of capacity in our F&O.

Jason D. Gammel - Jefferies International Ltd.

Great. So that probably hasn't changed too much since that was published then.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

No, and we'll provide an update to that list next month as well.

Jason D. Gammel - Jefferies International Ltd.

Got it. And if I could just ask one more, Jeff, on the Downstream. You've put in place a couple of projects in Europe to potentially take advantage of heavier feedstocks over time, let's see, Antwerp being the primary one. I was hoping you'd talk about what you're seeing just in terms of those heavier feedstocks within Europe and how the profitability's evolving on that.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Yeah, thanks for the question on the Downstream, because the organization has really performed tremendously in the year. Our investments in the Downstream, particularly in Europe, are really focused on the following items, one, to increase feedstock flexibility, The second is to increase logistics flexibility. The third one is to increase higher value product yields. And I'll come back to that. And then the last and important one is fully capturing the integration value of our manufacturing facilities and reducing our cost structure.

On the higher value product yields, when we talk about Antwerp or Rotterdam, both are achieving the same objective. On Antwerp, we're converting bunker fuel oil into ultra-low sulfur diesel, again constructive on longer-term supply/demand. And in Rotterdam we're converting VGO into premium Group II basestocks and as well ultra-low sulfur diesel.

Jason D. Gammel - Jefferies International Ltd.

That's great. Appreciate that, Jeff.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Great. You're welcome.

Operator

And we'll go next to Asit Sen with CLSA.

Asit Sen - CLSA Americas LLC

Thanks. Hi, Jeff.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Hi, Asit.

Asit Sen - CLSA Americas LLC

Two questions. One very quick one on Banyu Urip. Nice ramp-up there. When do you get to peak and any update on the size of recoverable resource? I think that's 450 million barrels and cost I thought you guys mentioned, $3 billion.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Yeah, so the size of the resource, let me just confirm your number. It's about 450 million barrels gross. The ramp-up, we should be up at full rates somewhere in the first half of this year.

Asit Sen - CLSA Americas LLC

Okay and the cost, I think $3 billion?

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

You know, Asit, I don't think we've shared the cost publicly.

Asit Sen - CLSA Americas LLC

Okay. Okay. All right. And then moving on to LNG. Thanks for your color on the long-term LNG market. Just wondering if you could share any read into emerging near-term trend, LNG particularly response in China to a lower pricing environment? Given your comment on China deceleration, I thought that was a overall comment. And also on LNG, any update on Golden Pass?

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Yeah, I guess two points. On the near-term expectation of LNG, there's a number of projects, some of which are already coming online that are probably going to take us above demand for a period of time, say into 2020 to 2023 when the supply and demand will start coming to converge again. So clearly, I mean it's going have a pressure on those volumes that are trading on the spot market.

Just to remind everybody, when we make a investment decision on these projects, we lock in our investment decisions on long-term contracts. Golden Pass, we have submitted our formal application with FERC to construct and operate the project. We're working closely with the federal and state agencies for completing the review process in 2016. The final investment decision will be made once we've gone through the government and regulatory approvals.

Asit Sen - CLSA Americas LLC

Thanks, Jeff.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

You're welcome.

Operator

We'll go next to Allen Good with Morningstar.

Allen Good - Morningstar Research

Good morning.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Good morning, Allen.

Allen Good - Morningstar Research

I wonder if given all the changes that we've seen in the oil markets over the last call it 18 months, has Exxon revised the range of prices that it uses to evaluate investment decisions?

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Well I'd say, Allen, that we continue to see that the range is applicable, given our constructive review on supply and demand. We won't speculate on specific prices or differentials. We certainly expect the weakness until supply and demand comes back into balance and the storage overhang is worked off. As I've said a few times, Allen, regardless of what the price is doing, we're going to keep on focused on those things that we control, which really translates into self-help margin.

Allen Good - Morningstar Research

Thanks, that helps. And then deepwater offshore, a very big part of Exxon's portfolio, getting bigger from what you've shared today. Can you give any indication as to what Exxon's seeing with respect to either cost savings via equipment or services or maybe even cost savings on the redesign of certain projects that will ultimately lower the breakevens and make them more competitive within your portfolio?

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Yeah, really good question. There's a lot of different variables in this, one in terms of the quality of the resources and the certainty on overall potential from those resources. Another one being how do we get the structural capital efficiency built in so that the economics are more robust. I'll highlight a couple things. One, in 2015, you'll recall in West Africa we brought on two very capital-efficient subsea tiebacks to the existing infrastructure, one being the Kizomba Satellites Phase 2, another one being Erha North Phase 2, that allows us to leverage existing knowledge and develop the deepwater resource in a much more cost-effective way. Clearly, there's a lot of opportunity to continue to standardize the subsea kit, but the organization is looking at all the levers to improve the economics of deepwater. In the Gulf of Mexico, I should note that Hadrian South was another example of an efficient, capital-efficient subsea tieback into existing infrastructure.

Allen Good - Morningstar Research

Great. Thank you very much.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

You're welcome.

Operator

And we'll go next to Brad Heffern with RBC Capital Markets.

Brad Heffern - RBC Capital Markets LLC

Good morning, Jeff.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Good morning, Brad.

Brad Heffern - RBC Capital Markets LLC

Most of my questions have been answered, so I'll keep it short. I was just curious back on CapEx, I would assume that Downstream is relatively flat sequentially and that the vast majority of the cut is coming from the Upstream side.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Yeah, we'll provide more insight on that, Brad. But as you saw in 2015, our Downstream and Chemical spending plan increased with a number of very large projects that we saw significant value chain benefit, with the polyethylene trains in Baytown to the European investments that we've already talked about. And of course, those projects are continuing as you go into 2016 and start up into 2017. So the trend is going to continue going forward.

Brad Heffern - RBC Capital Markets LLC

Okay. I'll leave it there. Thanks.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Thank you.

Operator

And we'll go next to John Herrlin with Société Générale.

John P. Herrlin - SG Americas Securities LLC

Yeah hi, Jeff. A couple quick ones from me since so many things have been asked. For the Liza offset well, will we be talking about this in the second quarter conference or in the first quarter conference call? Or will it TD by then?

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

So, John, I don't really have the specifics. When we believe there's something that would be important to share externally, we'll go ahead and share it. I just don't know whether the first quarter will be the appropriate time or not at this point.

John P. Herrlin - SG Americas Securities LLC

Okay. That's fine. Many of your peers, Jeff, are restructuring. They're rightsizing or downsizing. Exxon hasn't had any news like that. So are there any plans in the work or do you feel that you have an adequately sized workforce given your business model?

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Yeah, it's a good question, John, and I appreciate you asking it. Let me first say for the group's benefit that one of our greatest strengths are our people. And I think those of us that went through the layoffs in the 1980s really learned some of the hard lessons about how those layoffs significantly impaired organizational effectiveness. I mean since then, we have been very diligent at managing employee head count given the cyclical nature of the business and the need by the organization to be ever more productive and at the same time grow collective competency to meet the challenges in front of us. In doing so, I'd also say that we've been unrelenting on our focus of capturing efficiencies to make sure that we rightsize the organization, again given the likelihood of business volatility.

I'd also highlight, John, that another benefit of our integrated business model is that we're able to be agile in redeploying personnel to segments of our business that are experiencing market strength or growth, such as our Downstream and Chemical businesses right now. All that said, our employee head count has been coming down consistently since the Exxon and Mobil merger. We're down about 35% through 2015. Over that time period, if you look at just the last five years, we're down about 20%. And I can rest assured that the organization's going to continue to be focused on productivity enhancements and making sure that we're getting all the efficiencies out of the business.

John P. Herrlin - SG Americas Securities LLC

Sure. But you haven't had anything that's knee jerk or reactionary as some of your peers of late? It's just been part of your normal plan, correct?

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

That's correct.

John P. Herrlin - SG Americas Securities LLC

All right, thanks.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Thank you, John.

Operator

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

Pavel S. Molchanov - Raymond James & Associates, Inc.

Hey. Thanks for taking the question. Just one from me. You talk about entering acreage in some new geographies, particularly some frontier type of geographies. Since the oil down cycle began, have you noticed fiscal terms becoming more accommodating in any areas? And if you can provide any examples that would be great.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Good morning, Pavel. I would tell you that certainly given the downturn, there are more opportunities for us to consider. There is nothing that I can share with you specifically, but it does speak to the strength of Exxon Mobil given that we've got the capability to invest through the down cycle. We bring a tremendous amount of operational, commercial and project expertise. So it allows us to be very selective as to what choices we want to pursue with a very strong focus on placing our attention on those areas that are close to existing producing infrastructure, those areas that have very high quality large resource potential.

Pavel S. Molchanov - Raymond James & Associates, Inc.

Appreciate it.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Thank you, Pavel.

Operator

And we'll go next to Guy Baber with Simmons.

Guy Allen Baber - Simmons & Company International

Good morning, Jeff, and thanks for answering all the questions.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Good morning, Guy.

Guy Allen Baber - Simmons & Company International

I know this is a tough question to answer, but I'm interested in how you think about this strategically. But given the scale of the CapEx reductions we're seeing, how do you think about the sustainability of these lower organic spending levels with respect to being sufficient to drive a modest level of production growth for the portfolio, yet also replenish the resource base? Are you spending now below what you believe is sustainable? And how do you think about the balance between spending at a sustainable level versus perhaps rationing lower to limit your out spend for a period of time?

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Yeah, I would tell you, Guy, to really think about the decisions that we're making are really value driven. The output is really the volumes, but it's really making the choices that are aligned with creating value in the portfolio, whether it be in the Upstream or the Downstream or Chemical business, recognizing that we've got this integration, this very strong integration across our portfolio that we can create value through the whole value chain. So the choices are really focused on making sure that we're creating incremental value. The volumes will be an output of that.

Guy Allen Baber - Simmons & Company International

Got it. That's helpful, Jeff. And then last one for me, and I apologize if I missed this earlier, but given your global perspective, your participation in various Downstream markets across the globe, can you give us the view on leading-edge global oil demand growth for 2016? Any color would be great as it's obviously a critical piece of the global supply/demand balance.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Yeah. Well, I mean you're talking about oil demand?

Guy Allen Baber - Simmons & Company International

Yes. Yes. Specifically oil demand.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Yeah. Well I talked a little bit earlier about underlying demand growth has been over 1 million barrels per day, so it's been a little bit higher than what we've seen over the 10-year average. You think about where we are today, we're about 1.5 million barrels a day oversupply in the first half. We do expect that to converge in the second half with seasonal demand growth. So you think about the impact on prices in the near term, it's really going be a function of how that supply/demand converges, and of course working off the storage overhang that's been built up over the last couple years. That's about all I can share at this point.

Guy Allen Baber - Simmons & Company International

Got it. Thanks, Jeff.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Thank you.

Operator

And that does conclude our question-and-answer session. I'll turn it back over to Mr. Jeff Woodbury for any closing remarks.

Jeffrey J. Woodbury - Vice President, Investor Relations & Secretary

Well, thank you. To conclude, again I'd like to thank you for your time and questions. I just want to step back for a moment and take stock of 2015 and say the organization really did a very significant, provided a very significant result when you think about it: positive free cash flow; very effective cost management, lowering our spending that had bottom line impacts, benefits to the business; our excellence in project execution and our delivering long-life, long-plateau volumes; the benefits of the integrated business model across the value chain; the financial strength of the organization, investing through the commodity price cycle; and then of course our dividend growth, continuing to share the success of the company.

And I think that just points to the strong business fundamentals based on our proven track record. We'll talk more about this in March, but we do appreciate your interest in Exxon Mobil and we certainly look forward to meeting with you next month.

Operator

And that does conclude today's conference call. We appreciate your participation.

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