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ExxonMobil Corporation (NYSE:XOM)

Q3 2007 Earnings Call

November 1, 2007 11:00 am ET

Executives

Henry Hubble - VP of IR and Secretary

Analysts

Daniel Barcelo - Banc of AmericaSecurities

Doug Terreson - Morgan Stanley

Nikki Decker - Bear Stearns

Doug Leggate - Citigroup

Neil McMahon - Sanford Bernstein

Michael LaMotte - JP Morgan

John Herrlin - Merrill Lynch

Paul Cheng - Lehmann Brothers

Mark Gilman - Benchmark Company

Paul Sankey - Deutsche Bank

Mark Flannery - Credit Suisse

Operator

Good day everyone and welcome tothis ExxonMobil Corporation Third Quarter 2007 Earnings Call. Today’s call isbeing recorded. At this time for opening remarks, I would like to turn the callover to the Vice President of Investor Relations and Secretary, Mr. HenryHubble. Please go ahead sir.

Henry Hubble

Thank you. Good morning andwelcome to ExxonMobil’s teleconference and webcast on our third quarter 2007financial and operating results.

As you are aware from thismorning’s press release we had another good quarter as the fundamentals of ourbusiness remained strong. Our integrated business model, long standingcommitment to the integrity of our operations and disciplined approach toprudently invest and meet long-term demand growth continue to position thecompany to benefit from robust industry conditions.

Before we go further, I’d like todraw your attention to our cautionary statement. Please note that estimates,plans, and projections are forward-looking statements. Actual results,including resource recoveries, volume growth, and project outcomes could differmaterially due to factors I discuss and factors noted in our SEC filings.

Please see factors affectingfuture results and the Form 8-K we furnished this morning, which are availablethrough the Investors section of our website.

Please also see the frequentlyused terms, the supplements to this morning's press release and the 2006financial and operating review on our website.

This material defines key terms Iwill use today, shows ExxonMobil’s net interest in specific projects andincludes our SEC Regulation G disclosure.

Now I’m pleased to turn yourattention to the third quarter.

ExxonMobil’s third quarter netincome and normalized earnings were $9.4 billion, down $1.1 billion from 2006record third quarter results primarily due to lower Downstream and chemicalmargins. Earnings per share were $1.70 reflecting continued strong earningsperformance and the benefits of our ongoing share purchase program.

Before I discuss specificbusiness results, I’d like to discuss some of our recently achieved milestones.

In the Upstream, the Ormen Langedeepwater natural gas project off the coast of Norway began production thisquarter. At full production, the development will produce more than 2 billioncubic feet of gas per day.

The gas will be exported throughthe world's longest sub-sea pipeline, approximately 750 miles to the UK.

First production was alsoachieved this quarter from the ExxonMobil operated Marimba North projectoffshore Angola.The project was completed ahead of schedule and within budget. This is thefirst tie-back development to the Kizomba A infrastructure to cost effectivelydevelop new capacity by utilizing existing field facilities. The project willdevelop 80 million barrels of oil and have peak production capacity of 40,000barrels per day.

On October 12, gas deliveriesfrom the Statfjord Late Life Project started up via the Tampen Link pipeline inthe Norwegian North Sea. This project will increase ultimate recovery from thefield by 360 million oil equivalent barrels and extend field life up to 2020.

Peak production is expected toreach 360 million cubic feet of gas per day and 70,000 barrels of crude andcondensate per day.

These three startups, togetherwith the projects, which began production earlier this year, RasGas Train 5 in Qatar, Waddenzee in the Netherlands, and Rosa offshore Angola bringour 2007 to date major product startups to six.

In exploration, we had severalnotable milestones this quarter. ExxonMobil was awarded two explorationlicenses, offshore of western Greenlandfurther enhancing our strong portfolio of Arctic exploration opportunities.

The West Disko Block 4 and Block6 together cover over 6 million acres and are in 150 to 1,300 feet of water.

In the recent central Gulf ofMexico lease sale, ExxonMobil was the high bidder for 13 offshore blocks in theGulf of Mexico totaling over 70,000 acres.

Also this quarter together withour partners we made a new discovery in the ultra-deep MTPS block 100 miles offthe coast of the Republic of the Congo. The Cassiopée discovery wellwas drilled to a depth of approximately 10,000 feet and tested at 5,600 barrelsof oil per day.

ExxonMobil interest in the blockis 30%. These milestones continue to reflect the geographic diversity andstrength of our industry leading Upstream portfolio.

In the Downstream, our feeddiversification activities continued this quarter. We ran 34 crudes that werenew to individual refineries and three that were new to ExxonMobil. We alsomaintained focus on our margin enhancement strategy which includes increasingthe contribution from our refining operations through reliability improvementsand effective technology deployment while incrementally adding to our crude andconversion processing capacity.

Also in the third quarter Q3,ExxonMobil launched our fuels marketing joint venture in the Fujianprovince of China, with our partners, Sinopec andSaudi Aramco. This venture, which is part of our fully integrated Fujian project, coversretail and wholesale sales of gasoline, diesel, and other petroleum products.

ExxonMobil’s investments in the Fujian refining,petrochemical and fuels marketing joint ventures demonstrate our commitment toadvantage strategic downstream and chemical investments to meet growing demandaround the world.

In our chemical business,ExxonMobil announced that we will build a second world scale petrochemicalproject at our integrated refining and chemical facility in Singapore.

The new project will include a 1million ton per year ethylene steam cracker, polyethylene, polypropylene,especially elastomer and benzene units and expansions to our exiting oxoalcoholand paraxylene units.

ExxonMobil will construct a 220mega watt cogeneration unit as part of the overall investment.

This project with the expectedstartup in 2011 will be key to meeting the growing demand for ExxonMobilchemical products in Asia.

The project will employExxonMobil’s’ latest proprietary technologies enabling a broad range of feedstocks to be processed and converted into premium products.

In the quarter, we also announcedour investment to expand the paraxylene and benzene production facilities atour Rotterdam Aromatics plant by 25 and 20% respectively.

The new production unit willemploy ExxonMobil’s proprietary PxMax technology, which increased paraxyleneproduction and improves process efficiency.

ExxonMobil chemical also begancommercial production of butyl rubber at the Notre Dame de Gravenchon facilityusing proprietary breakthrough technology. This technology improves energyefficiency and enables significant capacity increases at existing facilities.

The integration of these newprojects into our existing refining and chemical operations are furtherexamples of our strategy to develop and rapidly deploy differentiatedtechnologies and selectively invest in advantage projects to capture the fullbenefits of integration across all ExxonMobil operations.

Turning now to the business lineresults. Upstream earnings in the third quarter were$ 6.3 billion, down $200million from the third quarter of 2006.

Improved crude realizations weremore than offset by reduced natural gas realizations, higher expenses,including the impact of major project startups and lower property sales.

Worldwide crude realizations were$71.46 per barrel, up $6.32 from the third quarter 2006.

Upstream after-tax unit earningsin the third quarter of 2007 at $17.47 per barrel were in line with last year.

In total, oil equivalent volumeswere down 2% from the third quarter of 2006.

As you are aware, on September6th, ExxonMobil filed a request for arbitration with the InternationalCenter for Settlement of InvestmentDisputes following the expropriation of assets in Venezuela in June.

Excluding Venezuelavolume effects, as well as entitlement divestment and quota impacts, productionwas actually up 3% in the third quarter. That increase was driven by increasedvolumes from major project ramp-ups in Russia,West Africa, and Qatar,which more than offset natural field decline.

Turning to liquids production,volumes fell by 111,000 barrels per day, or 4% from the same quarter last year,primarily due to entitlement effects in Africa and the absence of Venezuelavolumes.

Venezuela accounted for about 40%of the reduction.

Natural field decline was offsetby project related increases in Russiaand West Africa.

Gas volumes were up 163 millioncubic feet per day from last year, as higher production in Qatar primarilydue to the startup of RasGas Train 5 more than offset naturalized fuel declinein mature areas.

Now turning to the sequentialcomparison.

Versus the second quarter of2007, Upstream earnings increased by nearly $350 million, higher realizationswere partially offset by lower liquids production and seasonally lower naturalgas demand.

Liquids production decreased 5%including the impact of entitlement effects in Africa and the absence of Venezuelavolumes.

Natural gas production was down5% primarily due to lower volumes in Europereflecting seasonally lower demand, divestment effects, and scheduledmaintenance.

For further data on regionalvolumes please refer to the press release and IR supplement.

Now turning to the Downstream results.Third quarter Downstream earnings were $2 billion, down approximately $735million from record results in the third quarter of 2006. Lower margins reducedearnings by $610 million with decreases in refining and fuels marketing marginspartially offset by improved lubes marketing margins.

Volume mix effects increasedearnings by $120 million, as we benefited from our continued focus on feedstock flexibility, capacity utilization, and product optimization.

These more than offset the impactof the higher plant turn around activity.

Other items reduced earnings by$250 million reflecting increased maintenance activity and the absence ofpositive tax effects in third Quarter 2006.

Sequentially, Q3 earningsdecreased by almost $1.4 billion, due to markedly lower refining margins.Volume mix effects were positive $110 million due to lower planned maintenancein the USand refinery optimization activities.

Other factors reduced earnings by$240 million, primarily the absence of positive impact from the Inglestadtdivestment in the second quarter.

Third quarter chemical earningswere $1.2 billion. Earnings were down $150 million versus the record thirdquarter 2006 as higher feed stock costs more than offset increasedrealizations.

Positive mix effects benefitedearnings by $30 million. Other factors increased earnings by $65 million,including positive tax effects.

Sequentially, third quarterchemicals earnings increased by $190 million versus the second quarter of 2007.Improved margins benefited earnings by $110 million, while volume mix effectswere negative $35 million.

Other impacts increased earningsby $115 million, including positive tax effects.

Turning now to our corporate andfinancing segment. The corporation recorded third quarter expenses of $92million in the corporate and financing segment, unchanged from the thirdquarter of 2006.

The effective tax rate for thethird quarter was 46%. The corporation distributed almost $9 billion toshareholders in the third quarter, through dividends and share purchases toreduce shares outstanding.

During the quarter, ExxonMobilpurchased $7 billion in shares, in excess of dilution, reducing the number ofshares outstanding by 1.5% and further demonstrating our ongoing commitment toreturn cash to our shareholders.

CapEx in the third quarter was$5.4 billion, an increase of 7.5% from the third quarter 2006.

At the end of the third quarterour cash balance was $36 billion and debt was $9 billion.

In summary, these resultshighlight the fundamental strength of our business; our ability to deliversuperior operational performance and continue to grow our integratedcapabilities while continuing to position ourselves for future demand growthand create value for our shareholders.

That concludes my preparedremarks and I would now be happy to take your questions.

Question-and-Answer Session

Operator

Thank you Mr. Hubble. Thequestion and answer session will be conducted electronically. (OperatorInstructions).

We will take our first questionfrom Dan Barcelo with Banc of America. Please go ahead.

Dan Barcelo - Banc of America

Yes, good morning Henry.Regarding one of your comments about the redistribution of cash toshareholders, you mentioned the $7 billion rate in the third quarter. Are youable to provide any color into the fourth quarter and into ‘08 at this point?And then the second question, I’ll just lay them out now, it was on theproduction side; could you just run through, you gave good detail on theentitlement effects, could you just reiterate the effects? In particular, I’mlooking at oil in West Africa, just for thisquarter; what was that impact specifically over there?

Henry Hubble

Well as you know unless we aremaking a change, we don’t provide forward guidance on our share repurchases.We’ve been at the $7 billion here, last quarter, and for the -- for about thelast year.

On the other question on thevolume side and the specific entitlement effects associated in Africa. You see the African volumes were down, basicallydue to entitlement effects. There the new project volumes there have beenperforming well and they have more than offset natural field decline, butthat’s really what you are seeing and that’s really, as you look at theentitlement effects, as you know, some of that production comes from productionsharing contracts, and in some of the PSCs, the net entitlement is reduced withcumulative production or profitability thresholds are reached.

And you know, as you think aboutthis, the impacts are larger with the strong crude prices that we’ve seen. Butfrankly when you step back from it, I mean the, earnings are better and theoverall financial performance of these projects are better with the higher[project]. All of the projects in the area are performing well, so that reallyis the impact, its entitlement effects.

Dan Barcelo - Banc of America

Okay, Thank you

Operator

We will take our next questionwith Doug Terreson from Morgan Stanley please go ahead

Doug Terreson - Morgan Stanley

Good morning Henry.

Henry Hubble

Hi Doug.

Doug Terreson - Morgan Stanley

Okay, so I want to ask theentitlement question too.

Henry Hubble

Alright.

Doug Terreson - Morgan Stanley

And this is really kind of aclarification. When you said, at least I think you said that production roseabout 3% before considering entitlement effects. Were you referring to theglobal base of production rather than specific geographical region or did youeven say that? Could you kind of…?

Henry Hubble

That was a global comment.

Doug Terreson - Morgan Stanley

Okay.

Henry Hubble

If you look at on an OEB basis wewere down 2% on the -- this year versus last year third quarter. About 1% ofthat effect was associated with Venezuela

Doug Terreson - Morgan Stanley

Okay.

Henry Hubble

And then there is about 3.5 thatare associated with entitlements and then you also have some other the smallereffects in quotas and divestments. But when you take those effects out, that isthe 3%. When you look at -- basically, that is coming from the projects andprojects that are coming on faster than rates of decline. So, that is what yousee there

Doug Terreson - Morgan Stanley

Okay. And while we are on thesubject of Africa, could you provide an update on the profile in Chad, investment profile in Chad and anyupdate that you might have there?

Henry Hubble

I don’t have anything specific,on Chad.There is, we are continuing with our project. Our 2007 drilling program isbasically complete at this point. There is nothing really specific to highlightthere.

Doug Terreson - Morgan Stanley

Okay. Great, thanks a lot

Henry Hubble

Okay.

Operator

We will take our next questionwith Nikki Decker with Bear Stearns. Please go ahead

Nikki Decker - Bear Stearns

Good morning Henry

Henry Hubble

Hi Nikki

Nikki Decker - Bear Stearns

Just getting back to the Africavolumes, taking entitlement effects into account, is it reasonable to expectthought from this phase that Africa volumes might rise due to new production onblock 15 and 17 in Angolaand also in Nigeria?

Henry Hubble

Well, as we bring on newprojects, they do of course add to that capacity, but as you go forward, andthat’s really the effect that we are seeing here is that at these higherprices, the prices that we are seeing today -- I don’t know what those future effectsare going to be. What happens is you -- as you have these higher prices, ofcourse, you are recovering your costs faster you are recovering -- you havemore profit barrels to share but you are doing that with less barrels.

And so overall we are verypleased with the projects and they are performing very well but we do see lessvolumes associated with them. Our focus is, though on the returns associatedwith those projects. Of course, it means better performance not just for us,but for our host governments as well. And we’ve got a good slate of projects,and a good pipeline of projects coming along. So we feel confident about thefuture but that’s the impact that we are seeing in the quarter.

Nikki Decker - Bear Stearns

Okay thanks. And for my secondquestion I’d like to switch to the Downstream. Your competitors have beentalking about the difficulty in capturing margins relative to properties. Your Downstreamresults were somewhat consistent with the industry. Maybe, if you could, Henry,quantify the benefit of your feed stock flexibility and perhaps comment onyear-over-year marketing results?

Henry Hubble

If you look at the margin impactsthat we had in the quarter, we are down over $600 billion off of what were verystrong third quarter ’06 performance. The bulk of that is in refining, I guessif you look at that it's about two-thirds or a little better. And then thebalance was in marketing. If I think about our overall capability in this areathough, we have strong margins capture. The programs that we have with, inparticular, the molecule management technology that we have to help capturethe, investments that we’ve made over many years in high conversion refiningcapacity, allow us to continue to take advantage of the high clean/dirty spreadsthat are out there and the process crude processing flexibility that we have.

So we are constantly going afternew crudes that are either advantaged for our processing capabilities and themolecule management technology, both on the planning standpoint as well as realtime operations. That really help us manage both on a molecular basis how tomaximize profitability in the refining units as well as our chemical plantswhen we have those integrated facilities. It's really, we think, a uniqueadvantage in the industry

Nikki Decker - Bear Stearns

Okay, that’s great. Thanks Henry.

Henry Hubble

Thanks

Operator

We will take our next questionfrom Doug Leggate with Citigroup. Please go ahead.

Doug Leggate - Citigroup

Thank you. Good morning Henry.

Henry Hubble

Hi Doug

Doug Leggate - Citigroup

Henry I’m going to flog this Africa horse a little bit more I’m afraid

Henry Hubble

Okay

Doug Leggate - Citigroup

When we look at the actualvolumes obviously we are down about 120 million barrels per day year over year,a little less than that. Oil prices on average were only up $5. Have we movedout of cost recovery, in any significant way, year-over-year in that region?

Henry Hubble

Yeah, as you know, they are madeup of individual of both components, cost recovery as well as profit sharing,and because we have number of different projects, they all have differentarrangements, they have different points of recovery. That effect is going onand you also have just the impacts from the higher prices. So yes, there areimpacts that are associated with those entitlements and cost recovery is apiece of that. And again, I think the real key here though, is there is noquestion that these projects are performing better than, certainly, when weapproved them. It worked better for us and better for the host governmentsbecause of: one, the projects are performing well. They were delivered at lowercosts than we originally anticipated, they came in on schedule, and they’vebasically been performing well. But one of the consequences of the higherprices is there are less barrels

Doug Leggate - Citigroup

I guess I’ll follow one relatedto that, so if oil prices stayed let's assume at Q3 average level, new projectscoming on, we would expect these volumes to remain at that kind of level inAfrica. Third quarter you are going to have continuing impacts,

Henry Hubble

I mean, you are going to havecontinuing impacts, but I’m not going to get into forward projection on whatthat will be. We will give… We will go through and give an update at ourAnalysts Meeting and that will reflect another year of higher prices and theimpacts associated with that in the projections that we have going forward.

Doug Leggate - Citigroup

Okay, I guess a final one fromme. And I guess this classifies as my second question. If we look at yourcapture in the Upstream you always show this chart of realized prices versusyour net income per barrel. It did appear to move off of the line quite a bitthis time, suggesting that something else is going on. You mentioned higherexpenses in the press release, can you maybe just try and quantify if it wasthat or maybe the lack of property sales, if that was a meaningful issue thisquarter. So help us understand a little bit why that capture rate appears tohave deteriorated this quarter

Henry Hubble

Yeah, if you look at the otherearnings effects and that’s really what really what can impact that or alsocontributes to it, there where. The biggest single factor is higher expenses;which is over half of the total. A lot of that higher is both cash and non-cashbut a big piece associated with non-cash associated with the new projects thatwe started up.; so you are seeing higher depreciations associated with those.

In terms of the balance we didsee some positive earnings impacts from asset sales in 2006 that were higherthan what we had in this quarter so the absence of those on a relative basiscaused some of that decline. And we also had some negative Forex effects inthere, there is about $80 million associated with that. So those were the bigfactors. But again, as you point out, if you look at the absolute level of netincome per barrel, it is strong and I think that really is the best reflectionof the overall performance of the portfolio. When you think about all of thethings that go into, the quality, projects, the quality of the projectmanagement, the performance of those projects, cost control. All of thatbasically ends up being reflected in that very strong net income per barrelnumber that we have in the industry

Doug Leggate - Citigroup

Great thanks a lot, Henry

Operator

We will take out next questionwith Neil McMahon with Sanford Bernstein

Neil McMahon - SanfordBernstein

Good morning guys.

Henry Hubble

Hi Neil.

Neil McMahon - SanfordBernstein

Just two questions as you allow?The first question, really, just an update on your wildcat exploration that hasbeen going on this year, maybe first on the Columbiawell you are drilling in the Caribbean? Andsecond anything further on the Orphan Basin offshore, north of Newfoundland. And then for the secondquestion, if you look at your USoil and liquids production, year-over-year it hasn’t gone down very much atall. And I’m wondering if that is due to a reduction in any land sales there,or are you actually doing something more dramatic in terms of investing onshoreUS?

Henry Hubble

Let me just first hit -- in Colombia theTayrona block, we are drilling our first well, the Araza I and really I’d wantto refer any other questions to Petrobras who is the operator of that.

The other piece, I guess, wasassociated with the Orphan. We are still progressing the technical work. We arelooking to drill the next well next year. We have drilled the Great Baraswaywell there and we are evaluating that data and we will decide what the nextprospect will be. Then, if you look at the volumes associated with the US, onthe year-on-year, basically, the net impact there has been essentially improvedreliability, a piece of that, no big story. Some of that was associated withthe Alaskaoperations, as you may recall. But basically, we have a good continuing workprogram there and that’s the net effect of it all.

Neil McMahon - SanfordBernstein

Okay, so that’s mainly an Alaska effect that’s[something like]...

Henry Hubble

That’s a piece of it, yes.

Neil McMahon - SanfordBernstein

Okay thanks.

Henry Hubble

Yes

Operator

We will take our next questionfrom Michael LaMotte with JP Morgan. Please go ahead

Michael LaMotte - JP Morgan

Thanks. Good morning Henry.

Henry Hubble

Hi

Michael LaMotte - JP Morgan

I was hoping you could shed alittle light on heavy oil and EOR opportunities in the Middle East, inparticular the chatter about your involvement in Kuwait on the heavy oil side.

Henry Hubble

Yes. You know, I can’t say a lotthere. They have a number of heavy oil prospects in Kuwait. There are studies going on,we are very interested in participating in that. We are participating instudies there at this point. But I really, you know, but if you are looking formore specific on that, I think KOC is probably the right people to talk to onthat one.

Michael LaMotte - JP Morgan

Okay, maybe I can ask thequestion a little differently then. If I understand the talk around them atthis point, there are TSA agreements that would not allow you or an operator toactually book reserves. In the past, you tended to shy away from that kind ofcontract. I am curious as to sort of maybe a change in the way of strategicthinking.

Henry Hubble

There is nothing you know. Yes, Ihave no comment on that. The studies are still underway. There has been nodecisions made. It is way premature to decide how this is going to be worked.So, I just really can’t add anything to that. Again if you want to get somespecifics on how KOC is thinking about it then I think that is the right placeto start.

Michael LaMotte - JP Morgan

Okay. And then second question,getting back to this entitlement issue, I know it is early coming into yearend. But any thought on impact on reserves associated with entitlement changes?

Henry Hubble

Well, we will go through andupdate that again with our early or first quarter release on that. So I reallycan’t give you anything at this point. All of the impacts will be reflected inthose outlooks.

Michael LaMotte - JP Morgan

Okay. Thanks Henry

Henry Hubble

Yes.

Operator

We will take our next questionfrom John Herrlin with Merrill Lynch. Please go ahead.

John Herrlin - Merrill Lynch

Yes, thanks.

Henry Hubble

Hi John.

John Herrlin - Merrill Lynch

In Europe,your gas sales were kind of low and you mentioned earlier that it was seasonaland also asset sales.

Henry Hubble

Yes

John Herrlin - Merrill Lynch

Was it mainly seasonal? Can yougive us a kind of a split?

Henry Hubble

In Europethe biggest piece was associated with, if you look at the sequential piece, thecombined effect was effect of some net based client. The higher maintenance,divestments were the next biggest piece, and then was a lower seasonal demand.So if you take a look at the demand piece, it is about fifty of that.

John Herrlin - Merrill Lynch

Okay, taking that to oil sincethose volumes were down a bunch too, was that also maintenance related ordecline?

Henry Hubble

Well, if you look at, looking onyear on year or sequentially?

John Herrlin - Merrill Lynch

Sequentially in Europe.

Henry Hubble

Okay let me look at that. Yes,it’s basically the bulk of it is field decline there in the period. Then youhave some that’s a big effect. It’s a mature area, and that’s the effect youare seeing.

John Herrlin - Merrill Lynch

Okay that’s fine. Getting back toKuwait,I will try the question a different way or a different question.

Henry Hubble

Okay.

John Herrlin - Merrill Lynch

You had success obviously with Upper Zakum, I am not familiar with the geology for whatyou are looking at. Are these carbonates?

Henry Hubble

They are heavy oil deposits. I amnot familiar with the specifics of the field there.

John Herrlin - Merrill Lynch

Okay. And then revisiting WestAfrica again, you probably won’t want to do this, but could you perhaps breakdown the entitlement effects by EG, Angolaand Nigeria,or not possible?

Henry Hubble

I don’t think it’s appropriate tobreak those down.

John Herrlin - Merrill Lynch

All right. That's fine. Iappreciate it, thank you.

Operator

We will take our next questionfrom Paul Cheng with Lehmann Brothers. Please go ahead.

Paul Cheng - Lehmann Brothers

Hey Henry, good morning. I haveto apologize first because I came in late so you may have already covered inyour prepared remarks. Did you break down what is the FX tax on inventory orasset sales gains or loss on those items in the third quarter versus the secondquarter?

Henry Hubble

No I haven’t. But the Foreximpact. If you look at the net impact for the third quarter they were prettysmall. Like $14 million something in that range, quite small. We are kind ofnaturally hedged. We see some negative impacts in the Upstream. We see positiveimpacts in Downstream in chemicals that basically offset that.

Paul Cheng - Lehmann Brothers

All right. Can you break down bydivision and force?

Henry Hubble

Upstream is about, as I mentionedabout 80 negative and then the bulk of the offsetting was in chemicals.

Paul Cheng - Lehmann Brothers

Right. I am talking aboutsequentially from the second quarter level. Is the 80 still a good number? Ithought

Henry Hubble

Yes, that's pretty close. And thesame, the net effect for total there, when you look at it sequentially therewas less offset. Not much offset from the Downstream chemicals part ofbusiness. So that kind of carried through to the bottom line.

Paul Cheng - Lehmann Brothers

So, it’s about 80 million that'ssequentially? Right?

Henry Hubble

That’s correct in total.

Paul Cheng - Lehmann Brothers

In total?

Henry Hubble

Right.

Paul Cheng - Lehmann Brothers

How about any tax adjustment? Orinventory gain or loss? Market sales?

Henry Hubble

We are in a LIFO basis, and wedon't take any, have any inventory effects during the year.

Paul Cheng - Lehmann Brothers

How about price finalization?

Henry Hubble

Price finalization, if you lookat an absolute basis we had about 50 million. Now you look, again? Talkingsequential?

Paul Cheng - Lehmann Brothers

Yes.

Henry Hubble

Yes, so about 50 million in the US onan absolute basis, 65 total and then if you look at the Delta it was like 30 intotal.

Paul Cheng - Lehmann Brothers

I presume that, that is apositive, right?

Henry Hubble

Excuse me, I’m sorry. In thethird quarter of '07 the absolute level is all negative. So, it is about 65million negative. If you look at the change it was positive relative to theprior, to the second quarter, but quite small.

Paul Cheng - Lehmann Brothers

Right. And do you indicate thatone of the reason about your perhaps a little but lower unit profitability interms of the capture rate comparing to the third quarter of last year, is thatyou have lesser after-sales gain. So, how big is the asset sales gain and on anabsolute level?

Henry Hubble

I don’t have a breakdown. The twobig factors we had in the absence of sales was associated with the Carson Creekin Canada and then we hadsome sales in Francelast year that were, but I don't have a total for you there. Those were the twothat were kind of the absence of those two. And basically mature areas.

Paul Cheng - Lehmann Brothers

I understand about last year I amtalking about in this year third quarter?

Henry Hubble

Right. In this third quarter, wedidn’t have a whole lot in there that was a little bit we had in the south North Sea sale, associated with gas. And that was it.

Paul Cheng - Lehmann Brothers

And the second question would bethe Piceance basis?

Henry Hubble

Paul, well maybe you ought tocome back at the end I think that is more than two.

Operator

(Operator Instructions). And wewill take our next question from Mark Gilman with The Benchmark Company.

Mark Gilman - Benchmark Company

Hi, Henry good morning.

Henry Hubble

Hi Mark, how are you?

Mark Gilman - Benchmark Company

Good thank you I hope you are aswell. I wanted to ask about the Statfjord Late Life and the Offshore project.My assumption on these projects, Henry, is that we will not see volumesactually rising as a result of these projects. But rather in both cases theyrepresent the ability to forego what would otherwise be declines. Marimbavis-à-vis Kizomba A and Statfjord obviously facilities and fields currently inproduction, is that an accurate assumption in both cases?

Henry Hubble

Pretty much. You're basicallytrying to maintain the capacity of full utilization of the facilities that youhave there so that's what you see from those developments for the most part.

Mark Gilman - Benchmark Company

Okay and one other one, if I could,just, one more whack at this entitlement issue from a different angle.

Henry Hubble

Yes.

Mark Gilman - Benchmark Company

Henry, there are basically twokinds of entitlement issues, that impact on reported production. One is just asimple and rather straightforward cost recovery issue. The other is a morepermanent, in terms of life of field. Change in splits associated either withcumulative returns or cumulative production thresholds and/or cost recoveryfactors. I’m assuming that what we are dealing with here is primarily thelatter. And is therefore not something that in a difference price environmentis likely to change as we go forward. Is that assumption accurate?

Henry Hubble

Well, I’m not going to break outthe split for you here. You have both effects, but they are both in acontinuing basis. And again it’s going to depend on how crude prices evolvefrom here.

Mark Gilman - Benchmark Company

Okay. Thank you, Henry.

Operator

And we’ll take our next questionfrom Paul Sankey with Deutsche Bank. Please go ahead.

Paul Sankey - Deutsche Bank

Hi, Henry. I had a three part Middle East question, but I’m not going to go there onQA. So, let’s move on to Upper Zakum. You’vegot pretty significant downtime I believe right now. Could you just quantifyhow long that’s going to be out for, and what sort of impact that will have onQ4?

Henry Hubble

I don’t have anything right atthe tips of my fingers. Let’s see if I can get you something on that. I reallydon’t have any specific data on that at this point.

Paul Sankey - Deutsche Bank

But you didn’t turn around there?

Henry Hubble

You probably ought to ask Zadcoon that.

Paul Sankey - Deutsche Bank

Okay. I’ll leave it on that onethen, obviously. The second part was about start-ups in Qatar nextyear. Can you just update us on when do you expect those two major projects tobe delivering?

Henry Hubble

As we had laid out in our earlierplans. We’re expecting those, the start-up of the Qatargas II Train 4 in 2008,and the RasGas Train 6 also scheduled for start-up in 2008, expecting one aboutmid-year, and the other closer to the end of the year; the end of the year.It’s the same as the F&O.

Paul Sankey - Deutsche Bank

Okay, that answers that one. Wehad a couple of slightly non-answers there upfront. What final one, I’ll throwin one final one. Can you quantify the extent to which disposable impacted yourDownstream numbers. It’s noticeable particularly in Europe, but also to anextent in Asia, you had lower throughputs andsales in both those regions. Thanks.

Henry Hubble

Yeah. The big impact in Europe is Inglestadt, and both on a year-on-yearcomparisons that you have there. And then, there’s ongoing on the part sales.We have ongoing high grating that we’ve got going on pretty much around theworld. Big piece of that happened in Africa, some of South America, but there’s also high grating that’s going on in theother portfolios, as well. And then, Can, you also have impacts that areassociated with turnarounds that are also impacting some of the numbers.

Paul Sankey - Deutsche Bank

Any barrel numbers you can giveme on that?

Henry Hubble

If you look at, let me just lookif I have something here. If you look at the totals, or the Downstream, we’redown on the petroleum product sales as you know, about 1%, and that basically,if you look at, you’ve got, well, I don’t have a breakdown. Basically, US, ifyou look on a third quarter '06 versus third quarter '07, throughput wise,which we were up. And basically that’s improved reliability, and that wasalmost all that.

Then if you look at theturnaround impact in Asia Pacific, that was Singapore,and Japan,the total of that was about the level you see, the 116 that’s in the numbers.So those were the two impacts there.

Paul Sankey - Deutsche Bank

That’s on the throughput, then wejust take Inglestadt out of the Europe number.

Henry Hubble

That’s right.

Paul Sankey - Deutsche Bank

And on the product sales?

Henry Hubble

And on the product sales, thatagain, is I was talking about the divestments, that’s the big piece of, I amjust trying to look, we have I think that's bullet said it is the basically thebest months, the bulk of it is the best men in chief of those investments ineach of these areas, the same story. You kind of see it reflected in thenumbers in the US,basically down the same direction, and the overall total sales down about thesame direction from the throughput. It’s about down equally.

Paul Sankey - Deutsche Bank

So, the underlying market wasflat, is what you’re telling me?

Henry Hubble

Yeah, I mean, if you’re trying toget back to what was the product demand, what we’re seeing on a worldwidebasis, is that we continue to see growth overall, about, not much down at allfrom what we have historically seen, on a total global demand basis, most ofthat growth occurring, though, in the Asia Pac area. US is near flat, up alittle bit. And we’re seeing, there’s nothing there that we can really point toas a global demand response.

Again, you don’t know how high itwould be if crude prices weren’t this high, but we’re not seeing big declines.We’re still seeing year on year growth, and we’re not seeing big declines inthat rate of growth on a worldwide basis.

Paul Sankey - Deutsche Bank

Sounds like you’re predicting$100 oil then, Henry?

Henry Hubble

I don’t know. I can’t tell youwhy it’s ninety-something today.

Paul Sankey - Deutsche Bank

Okay, thanks.

Operator

We’ll take our next question fromMark Flannery with Credit Suisse.

Mark Flannery - Credit Suisse

Hi, Henry. I have more of a localquestion, about ethanol blending in the US; specifically, in the Southeast.Are you guys getting ready to blend more ethanol into product in the Southeast,I’m thinking in Floridaparticularly; from next year? Are you making the necessary infrastructure andterminal end sort of investments right now, or are you holding back a littlebit?

Henry Hubble

Well, as you know, we are a majorblender of ethanol. There are incentives to blend ethanol currently. We are maximizingthat, but I’m not going to get into specific regional thoughts that we mighthave. But we’re basically meeting the Federal requirements. We’ve blendedbefore it was required because we saw economic opportunities there, and wecontinue to do that. So, we’ll take advantage of the incentives that are thereto blend ethanol. But again, I’m not going to get into specific investmentplans.

Mark Flannery - Credit Suisse

Right. Just a quick follow-up onthe refining side; when you think about ethanol blending and how it might go inthis country, just for the sake of it say, the donation goes to E-10 at someunspecified time in the future. Does that impact the way you think aboutinvestments in the domestic refining base?

Henry Hubble

Well, if you look at ourlong-term outlook for demand in the US, and actually in OECD ingeneral, our longer term outlook is that it is basically flat. And what you seethere is ongoing efficiencies that continue to come in, basically offsettingwhatever modest growth there may be in miles driven and vehicle use.

So as we go forward, we are notseeing a lot of growth in our outlook, so we continue to focus on economicallycreeping our capacities, de-bottlenecking, low cost conversions ads. That’sbeen part of our base improvement, continuous improvement of our refiningfacilities. So, we’re constantly adding capacity through those kinds ofmechanisms, but we’re not seeing a lot of need for grass roots kinds ofinvestments in these mature markets.

Now, on contrast, though, whenyou move out to Asia Pacific, China,some of these other areas. Our Fujianproject is a prime example there, where we’re investing to meet that growingdemand, which is substantially about what you can meet throughde-bottlenecking. And of course, in the base where we’re running our conversioncapacity full in all of the regions and there is incentive to continue tode-bottleneck that.

Mark Flannery - Credit Suisse

Great, thank you very much.

Operator

And we’re taking follow-upquestion from Mark Gilman with the Benchmark Company. Please go ahead.

Mark Gilman - Benchmark Company

Henry, I noticed that the volumemix bar in your Upstream year-over-year earning experience is essentially zero,like the fact that the production is down. Was the lifting position in thisrecently completed quarter more favorable than production, and that explainsthe bar in the chart, or was there an adverse lifting position in the year-agoperiod. Can you shed some light on that?

Henry Hubble

Basically, what you are seeingthere is a mix effect, as you point out. There is a positive effect associatedwith the Sakhalin project, where we have theexport facilities now. And so you have higher realizations associated withthat.

Mark Gilman - Benchmark Company

Okay. One other if I could.Marimba on offshore Angola,is that ringed fence with [Kiz-A] in the same PSC, or is it a separate PSC?

Henry Hubble

It’s ring fence.

Mark Gilman - Benchmark Company

Thank you.

Operator

We’ll take a follow-up questionfrom Paul Cheng with Lehman Brothers. Please go ahead.

Paul Cheng - Lehman Brothers

Hey Henry, Nigeria,the government, as a contact, you guys about change in the region or there isjust noise?

Henry Hubble

No. We have not had any contactswith them at this point.

Paul Cheng - Lehman Brothers

Final one, Piceance basin, whereare you in terms of production at this point? And what kind of rate program doyou have?

Henry Hubble

The latest numbers I have about50 million cubic feet per day. And of course, we have our phase one projectthat we’re working for. We’ve gotten the finding of no significant impactassociated with that, so we’re basically moving ahead with our developmentplans there. And expecting, that’s out in our ‘08/’09 time frame, basically.

Paul Cheng - Lehman Brothers

Are we still looking at 400million cubic feet per day kind of production by the 2010/2011, even undertoday’s gas price?

Henry Hubble

Well, when you look at the total,we have multiple phases that give out, it’s in the '06 F&O. But basically,those future phases take us out to 2011 or so, something in that, beyond,basically get us to up to that full potential.

Paul Cheng - Lehman Brothers

So the current price structure inthe natural gas did not alter your view or your program?

Henry Hubble

Well, there’s infrastructurethat’s being added there to get the gas out of the region, so that is ashort-term phenomenon that you’re seeing there.

Paul Cheng - Lehman Brothers

Okay very good. Thank you.

Operator

This will conclude today'squestion-and-answer session. Mr. Hubble, I will turn the conference back overto you for closing comments.

Henry Hubble

Well, I just want to say thanksto everybody for your questions, and for listening in. I look forward to seeingit on the road.

Operator

Ladies and Gentlemen, this willconclude ExxonMobil Corporation’s 2007 conference call. We thank you for yourparticipation, and you may disconnect at this time.

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Source: ExxonMobil Q3 2007 Earnings Call Transcript

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