Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

ExxonMobil Corporation (NYSE:XOM)

Q1 2006 Earnings Conference Call

April 27, 2006, 11:00 A.M. EST

Executives

Henry H. Hubble, Vice President of Investor Relations and Secretary

Analysts

Robert Kessler - Simmons & Company

Doug Terreson - Morgan Stanley

Neil McMahon - Bernstein

Doug Leggate - Citigroup

Arjun Murti - Goldman Sachs

Paul Sankey - Deutsche Bank

Mark Flannery - Credit Suisse

Mark Gilman - Benchmark Company

John Herrlin - Merrill Lynch

Jennifer Rowland - JP Morgan

Bruce Lanni - AG Edwards

Presentation

Operator

Good day and welcome to this ExxonMobil Corporation First Quarter 2006 Earnings Conference Call. Today’s call is being recorded. At this time, for opening remarks, I would like to turn the conference over to the Vice President of Investor Relations and Secretary, Mr. Henry Hubble. Please go ahead sir.

Henry Hubble

Good morning. Welcome to ExxonMobil’s teleconference and webcast on our first quarter 2006 financial operating results. As you’re aware from this morning’s press release, we’ve had a strong quarter. Our portfolio of businesses have performed well and we’ve captured the benefits of the strong industry conditions.

Before we go further, I would like to draw 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 differ materially due to factors I discuss and factors noted in our SEC filings. Please see Factors Affecting Future Results and the Form 8-K we furnished this morning, which are available through the investor information section of our website. Please also see the frequently used terms, the supplement to this morning’s 8-K, and the 2005 financial and operating review on our website. This material defines certain financial and operating terms I will use today, shows ExxonMobil’s net interest in specific projects, and includes information required by SEC Regulation G.

Now I’m pleased to turn your attention to the specific results. ExxonMobil’s first quarter net income and normalized earnings were $8.4 billion, or $1.37 per share. This was a record first quarter and represents an increase of $1 billion versus the first quarter of 2005 normalized earnings. Industry conditions remain robust in our three core businesses.

Before discussing the business details, I’d like to highlight some of the key milestones that occurred in the first quarter. Since our last earnings discussion, we’ve achieved a number of significant milestones in each of our business units. In late March, production started up from the world class Erha deepwater development, located approximately 60 miles offshore Nigeria, in 3900 feet of water. Erha production is expected to ramp up to 150,000 barrels of oil per day, by the third quarter.

Erha North, a satellite development is expected to begin production in third quarter 2006 and will contribute an additional 40,000 barrels per day by yearend. These developments demonstrate ExxonMobil’s global project execution capability and deep water technology expertise.

Erha is the second major facility startup for ExxonMobil affiliates in Nigeria this year. In February, Mobil Producing Nigeria started production from the full fuel facilities of the Yoho development project, following a successful early production system deployment. With estimated recoverable resources of 440 million barrels of oil, Yoho is currently producing about 160,000 barrels of oil, a day.

ExxonMobil signed agreements with the Abu Dhabi National Oil Company to acquire a 28% undivided interest in the Upper Zakum Oil Field, offshore Abu Dhabi. Upper Zakum is one of the world’s largest oil fields and has potential for substantial production growth. The joint venture plans to increase production in this field by 50% from approximately 500,000 barrels of oil per day currently to 750,000.

ExxonMobil signed a joint operating agreement with P.T. Pertamina for the Cepu Contract Area in Indonesia. The signing of the JOA enables some parties to begin the activities required to develop the discovered recourses and further explore the block during the 30-year contract period. The Banyu Urip field has that has already been discovered in the Cepu Contract Area is estimated to contain more than 250 million barrels of oil. At peak production, the field is expected to reach a rate of 165,000 barrels of oil per day.

Recently, it was announced that ExxonMobil was selected as a recipient of two awards from the US department of the Interior Minerals Management Service. We are honored to receive the 2005 the Safe Operations and Accurate Reporting Award, in recognition of the company’s outstanding safety and physical management and reporting practices. We are also pleased to have received the Mineral’s Revenues Stewardship Award, in recognition of our performance in accurately reporting production volumes and paying the royalties as well as our cooperation with compliance request. These awards reflect the high standard of care that is applied to all aspects of our business.

Exxon Mobil Pipeline Company commissioned their Canadian crude pipeline reversal project that provides access for Western Canadian crude oil to Gulf Coast refining markets, and expands sources of crude oil to the United States. This project has consistent with our refining initiatives to increase raw material flexibility and run more difficult to process crudes that our discounted in the marketplace.

Challenge crude runs to our refineries are up over 60% since 2000. Also, in the downstream we are actively progressing plans to meet ethanol blending requirements, in the US by the end of April. We are pleased with the progress to-date and do not anticipate supply disruptions associated with the transition of our facilities. Our approach to operational excellence commits our organization to operating our assets to the highest standards of safety, reliability, efficiency and integrity.

During the quarter, two of our downstream chemical plants were recognized; downstream and chemical plants were recognized for outstanding safety performance. The Baton Rouge Polyolefins plants earn the National Petrochemical and Refiners Association distinguished safety award for the fourth consecutive year. No other company has won this award for four years in a row.

The Port Allen lubricant blend plant was awarded star status in the US Occupational Safety and Health Administrations voluntary protection program. The OSHA recognition certifies the comprehensive successful safety and health management system are implemented and the site has achieved injury and illness rates below industry national average. 16 of our facilities in the US have now received star certification and participate in OSHA’s voluntary protection program. The discipline commitment and effective day-to-day focus require to achieve highest level of safety performance are the same factors that lead to overall excellence in operations.

Improved energy efficiency remains a core focus to lowering operating cost. In April, the US environmental protection agency and the US department of energy recognized ExxonMobil’s Baytown complex with the 2006 energy star combined heat and power award for the site’s cogeneration facilities. The facilities included 160 megawatt gas turbine generator coupled with the heat recover unit that can produce 560,000 pounds-per hour of steam for use and manufacturing processes. Using the most efficient technology available today, this cogeneration unit produces both steam and electricity at an efficiency of about twice that of producing electricity and steam separately.

ExxonMobil has more than 85 cogeneration units located around the world that produce nearly 3,700 megawatts of electricity. Our cogeneration capacity is now enough to power nearly 3 million US homes. In chemical, we introduce new santoprene thermoplastic vulcanizate weatherseal grades for the automotive industry. Santoprene TPV’s have improved and effective in a wide range of automotive applications, such as weatherseals, interiors, exteriors and under the hood. These products can help reduce cost, speed up product development, improve performance and increased recycle ability. ExxonMobil is world’s leading supplier of TPVs to automotive industry. This is another example of how our ability to develop and apply leading edge technology, differentiates our performance.

Turing now to the business line results. Please refer to the earnings reconciliation in the IR supplement. Upstream normalized earnings in the first quarter were $6.4 billion. This represents an increase of $1.3 billion versus the first quarter of 2005. Higher realizations of $2.2 billion were partially offset by a number of factors which include at a less favorable volume mix and charges associated with litigation and several pack provisions. Upstream after-tax unit earnings were strong in the first quarter of 2006. Worldwide crude sales realizations were $56.95 per barrel, up more than $14.35 from first quarter 2005. Oil equivalent volumes increased 5% versus the same quarter last year, with increases in Africa and the Middle East more than offsetting natural field declines and investments in North America and Europe. Excluding the effects of entitlements and asset sales production increased 7%. Liquids production increased to 152,000 barrels per day or 6% versus the same quarter last year with Kizomba B and the recently acquired interest in Upper Zakum being the lot biggest sources of the additional liquids volumes.

Gas volumes increased 414 million cubic feet per day, or about 4% versus the first quarter of 2005. Our production in Qatar from the fourth quarter of 2005 RasGas train 4 and Al Khaleej start-ups and higher demand in Europe due to colder weather were mainly responsible for the increase.

Turning to the sequential comparison versus the fourth quarter of 2005; upstream earnings decreased about $655 million due to lower asset sales and charges related to litigation and taxes referenced earlier, realizations were essentially flat as strong oil prices were offset by lower natural gas prices. Liquids production increased 3% due to higher volumes from Middle East while natural gas production was up 14% primarily due to colder weather in Europe. For further data on regional volumes please refer to the press release and IR supplement.

Turning now to the downstream; overall first quarter downstream normalized earnings of $1.3 billion were up approximately $130 million over the first quarter of 2005. Higher industry margins accounted for $60 million as stronger US refining and marketing margins were partially offset by lower international margins. The volume mix effect was a positive $50 million. Our ongoing self help improvements to increase production of high-value products and lower raw material cost coupled with strong first quarter loop sales more than offset lower or primary throughput, primarily associated with increased turnaround activity. We set 26 new monthly unit rate or production records during the quarter and ran 4 new crudes to ExxonMobil and 34 new to individual refineries. We continue our long-term focus on improving our raw material flexibility as well as increasing our refining capacity to improve reliability and selective capital investments. Sequentially, downstream earnings decreased by about $1.1 billion due primarily to lower worldwide refining and marketing margins. The volume mix effect reduced earnings by $70 million as lower refinery throughput, primarily associated with increased turnaround activity was partially offset by the absence of hurricane impacts.

Now turning to Chemical results; our chemical business had another good quarter underpinned by strong manufacturing performance and market conditions. First quarter normalized earnings of $915 million were strong as sales volumes returned to pre-hurricane levels. When compared with the record first quarter 2005, earnings were down approximately $330 million due to lower margins, total volumes were similar quarter-on-quarter, but favorable mix effects partially offset the margin impact. Sequentially, first quarter chemical earnings increased by about $110 million, a 10% increase in sales volumes accounted for 160 million positive effects, as first quarter volumes were strong, while fourth quarter volumes were lower primarily due to the hurricanes. Lower first quarter margins partially offset the higher sales volume.

Turning now to the corporate and financing segment; corporate and financing expenses of approximately $200 million were up about $120 million from the first quarter of 2005, primarily due to several tax items. The effective tax rate for the first quarter was 47%, our guidance for the long-term tax rate remains unchanged in the 40% to 45% range, although it may trend for the upper end of this range.

Our cash balance was $36.5 billion and debt was $8 billion at the end of the first quarter. The corporation distributed a total of $7 billion to shareholders in the first quarter through dividends and share repurchases to reduce shares outstanding, an increase of 67% or $2.8 billion versus the first quarter 2005. During the first quarter, ExxonMobil purchased $5 billion of shares to reduce shares outstanding. As a result of our ongoing financial strength purchases the shares to reduce shares outstanding will be increased to $6 billion in the second quarter. Within the last year alone, the quarterly share repurchase program has nearly doubled, which further demonstrates our ongoing commitment to return cash to shareholders. CapEx in the first quarter was $4.8 billion, up $1.4 billion from the first quarter of 2005, primarily due to planned upstream activity. Our full year outlook is approximately $119 billion, consistent with the outlook presented at our March analyst meeting.

Before we move to the Q&A, I would like this take a moment to summarize the key messages from this morning’s call. Our strong first quarter results reflects the strong commodity prices and our fundamental business model that is disciplined, straight forward and focused on generating value while managing risk. We are extremely pleased to have the opportunity to participate in the Upper Zakum Field. We look forward to assisting the already strong Zakum development company in increasing production and cooperating closely with the Abu Dhabi National Oil Company. Our selection by ADNOC is an honor and demonstrates the strength of our technical capabilities. Our superior project management skill continues to be displayed by delivery of our operated startups, on time and on budget. Our broad and diverse portfolio projects create ongoing opportunities to continue to bring new resources online and helps supply the world’s growing need for energy. That concludes my prepared remarks and I would now be happy to take your questions.

Question and Answer Session

Operator

Thank you Mr. Hubble. The question and answer session will be conducted electronically. (Operator Instructions).

And our first question comes from Robert Kessler with Simmons & Company.

Robert Kessler - Simmons & Company

Good morning Henry. How are you?

Henry Hubble

Hi Robert, how are you?

Robert Kessler - Simmons & Company

Doing well, thank you.

Henry Hubble

Good.

Robert Kessler - Simmons & Company

I’d like to see, if you might take in a little bit deeper into the tax rate change over the course of the quarter and in particular what might be happening in the UK as so whether or not you’ve going ahead and booked the expected change in the tax rate there?

Henry Hubble

Just in, in answer to the UK question now, we have in at this point but, if you just step back from, kind of our broader perspective and look at what went on in the first quarter, these results obviously are a record and we’re particularly strong in that, they accrued over $450 million, or about $0.07 per share in charges associated with litigation and several tax items that you just mentioned.

Robert Kessler - Simmons & Company

Okay.

Henry Hubble

Items, items that are one-time items, that won’t be a recurring during the year. The tax items, overall, totaled about $300 million. They’re comprised of several different items including charges for both, US and state, the US state and federal income taxes and also the absence of some positive impacts in prior period. And they, they really are affecting all of the segments of the business but primarily the US upstream.

Robert Kessler - Simmons & Company

If we look at the other variance and upstream sequentially the $605 million, how much of that relates specifically to these tax items?

Henry Hubble

On the, you’re looking at the sequential?

Robert Kessler - Simmons & Company

Right, I look at the $605 million variance drops $0.10 a share, pretty significant, just wondering how much of that is related to these tax items?

Henry Hubble

Well, you also, yeah, the state, the tax items are about $100 million to $115 million or something in that range and that in the upstream.

Robert Kessler - Simmons & Company

Okay.

Henry Hubble

But if you look at, the litigation items that are also in that 605, which about 160 and then there was some asset management effects about 200 million.

Robert Kessler - Simmons & Company

Just to think more conceptually here for a second. You historically have gotten a pretty good correlation between your earnings per barrel and oil prices. And, clearly oil prices increased a bit sequentially and yet earnings per barrel declined. Any general thoughts on whether or not higher government take is beginning to eat into your ability to out capture the incremental profits there?

Henry Hubble

Well, if you look, what we’ve done in course, we’ve provided data on the net income per barrel in the upstream. In the quarter its $15.55 per barrel for the first quarter here, but that’s up from $12.94 in the first quarter of 2005. And really just reflecting the higher commodity prices and of course, the ongoing focus we have on cost control and maximizing the recovery for the fields. But if you plot that on those, on that graph that we have, provided in the past the net income per barrel versus the markers, it’s pretty much on the line. So it’s a not a model as we vision it.

Robert Kessler - Simmons & Company

Okay.

Operator

Thank you. We’ll move to our next question from Doug Terreson with Morgan Stanley.

Doug Terreson - Morgan Stanley

Congratulations Henry on these results.

Henry Hubble

Thanks.

Doug Terreson - Morgan Stanley

Okay, so just back to the previous question, the $200 million asset management, not to make that clear but, what it does really refer to? From the $605 million sequential comparison that you guys are talking about?

Henry Hubble

Yeah, when we go back and look at the specific items in asset management, I mean most of that was associated with, some Canadian properties as number properties but Canadian properties were a piece of that. And then, that was the biggest single piece.

Doug Terreson - Morgan Stanley

Okay thanks. Okay, and also on Upper Zakum, I wanted to see…

Henry Hubble

Oh yeah, and there, just a look back up. There is the absence of some fourth quarter effects as well.

Doug Terreson - Morgan Stanley

Okay, okay.

Henry Hubble

Possible fourth quarter effects.

Doug Terreson - Morgan Stanley

Good point. Okay, also in Abu Dhabi, I want to see if you could provide some color on the format of the agreement that you guys have reached meaning, those are traditionally, fixed margin arrangement and in this case, is it something else and if you can provide any details, I would appreciate it.

Henry Hubble

Well, the specific commercial terms are confidential.

Doug Terreson - Morgan Stanley

Okay.

Henry Hubble

But, it’s, as I mentioned in the remarks, I mean, its, its one of the world’s largest oil fields, in our vision, like we’re very, very pleased to be involved in it.

Doug Terreson - Morgan Stanley

Sure.

Henry Hubble

And of course, we valued all these things on the same kind of basis that we do our other investments.

Doug Terreson - Morgan Stanley

I understand, thanks a lot.

Henry Hubble

Yep, thanks.

Operator

Thank you. We’ll move to next to Neil McMahon with Bernstein.

Neil McMahon - Bernstein

Hi good morning.

Henry Hubble

Hi Neil.

Neil McMahon - Bernstein

Hi got two questions. First of all, just going for the, your US Gas production, just looking at it sequentially, its looking pretty strong again, I’m just wondering how much of that is coming out of the Pions base and what you’re doing there and what we should be projecting in terms of our growth rate for your US Gas production. And then maybe if you’d just comment on some of your project timings for the rest of this year and in terms of startups in West Africa? Thanks.

Henry Hubble

Yeah, if you look at the Gas trade affect, that it would, I tend to look at it on the North America basis but it was down about 8% but their impacts and they’re associated with, divestments and hurricanes, which end up about, would ahead us of down, about 5% without that, The Peons is 55 KBD right now and then they were going to be base, I mean, excuse me, 1 million cubic feet per day and we’ll be ramping that up, steady over the next 3 to 7 years, so, we’re going to expect kind of ratable increase there.

Neil McMahon - Bernstein

And there is, like they’re really to get a sense of that, the difference over fourth quarter ’05, was that the Pions that was providing that? Or was there any of that area, was there return of hurricane affects or…

Henry Hubble

Yeah, when you look at, when you look at, it’s really a return of the hurricane that’s, that’s largest single factor and it actually was, when you look at our quarter-to-quarter basis that was up, sequentially up 5%. And then if you look at the, if you look at the delta versus, versus fourth quarter, on hurricanes we were up about 142 Mcf per day.

Neil McMahon - Bernstein

Okay and then, then the second question was really looking at your West African project timings coming on this year, really out there, like just wonder if you give a look three all the ones or one we should be expecting towards the end of the year and where they are versus schedule?

Henry Hubble

The projects that we have, basically have been coming on as schedule and what we are seeing in the effects after this point is largely the carry on of, of, of the projects that we have, that we brought on, some of them on late fourth quarter, so we are seeing, we are seeing the full year OpEx as we bring those projects on, of course, we have seen, we’ve seen the affects such as the RasGas, Train-4 and Al Khaleej, the Bonga project, Yoho and then the Erha and then if we look ahead, the, the East Area its, its schedule for third quarter, its on schedule, we’re also looking at the Erha North, they are becoming up in, and also in third quarter, by ramping up by yearend and then Dalia is still on schedule for fourth quarter, those with me and I was in and, we have further detail in the, in the FNL but at this point no, no real changes to that outlook.

Neil McMahon - Bernstein

Great thank you very much.

Henry Hubble

Very good.

Operator

Thank you we will move next to Doug Leggate with Citigroup.

Doug Leggate - Citigroup

Nice, good morning Henry.

Henry Hubble

Hi, Doug.

Doug Leggate - Citigroup

Couple of things Henry, package impacts the tax rate very quickly if I heard you like $300 million was the, the tax impacts of the visible one of items, is that the right number?

Henry Hubble

Yeah that’s right.

Doug Leggate - Citigroup

So first of that, your underlying tax rate would be running around 45% might be top end of your, of your range?

Henry Hubble

We have saved 40%, 44%, 45%, yeah.

Doug Leggate - Citigroup

So, I guess my question is that, if fuel prices remain like say in the, I mean, they’re obviously, fairly inflated levels, but…

Henry Hubble

Yes.

Doug Leggate - Citigroup

If all the prices that could prove by, would you expect that tax rate just would watch in terms of the impact of the international new, new dollars coming on to so on?

Henry Hubble

Well I, I don’t think so, I mean what you got is, you got some, you got the impacts of the mix basically, and some of the higher, its reflecting the higher production fields or the higher production coming on from the overseas fields.

Doug Leggate - Citigroup

Okay.

Henry Hubble

But we would look; we would look, for guidance going forward, this and during the period, towards the upper end of that range.

Doug Leggate - Citigroup

Okay. When, when the enact of UK tax charge comes through, that numbers, is it going to move higher or do you expect it to stay in that range?

Henry Hubble

It’s going to be consistent with that guidance its, it’s a smaller fact for us.

Doug Leggate - Citigroup

Okay. And then related question, I guess, jump into the retention very quickly.

Henry Hubble

Yes.

Doug Leggate - Citigroup

Could you give an indication of the, the delta on the marketing earnings, between a quarter sequentially and year-over-year?

Henry Hubble

For the, for the marketing piece that was, if you look at the, when your are looking at total, with total delta and marketing earnings.

Doug Leggate - Citigroup

Yeah.

Henry Hubble

So, if I, if I look across, its up, margins were up about, about 60 million in the quarter-to-quarter on a comparison and about 15 million in, in mix, I mean in volume mix affects.

Doug Leggate - Citigroup

Okay so that’s, that’s Q4 to Q1?

Henry Hubble

Excuse me no that was one year, first quarter of ’05 versus first quarter ’06. If you look at, if you look at the fourth quarter versus first quarter marketing margins were down about 400 million and we’re almost and then the volume affect were negligible.

Doug Leggate - Citigroup

Okay that’s the number I was looking for. Thanks Henry.

Henry Hubble

Sorry, yeah.

Operator

We will move now to Arjun Murti with Goldman Sachs.

Arjun Murti - Goldman Sachs

Well, can you hear me?

Henry Hubble

Yes, got you.

Arjun Murti - Goldman Sachs

Okay fine. How much did the Upper Zakum field contribute to 1Q and, really was it in for the full quarter or will there be another kind of volume uplift effect in the second quarter?

Henry Hubble

From the volume metrics standpoint they are in.

Arjun Murti - Goldman Sachs

Yeah, from the new Abu Dhabi field.

Henry Hubble

Yeah, and they are in about a 140 KBD.

Arjun Murti - Goldman Sachs

For the first quarter?

Henry Hubble

That’s correct.

Arjun Murti - Goldman Sachs

And would the impact be similar in the second quarter or would it be a higher number?

Henry Hubble

No it would be about the same.

Arjun Murti - Goldman Sachs

About the same, terrific, I just don’t understand the volume mix graph correctly from 1Q'06 versus 1Q'05?

Henry Hubble

Yes.

Arjun Murti - Goldman Sachs

I mean, you are not saying that you would have been better off not producing the 5 extra percent are you?

Henry Hubble

No, no, I mean what you are seeing there, I mean, it’s mix effects that are associated with changes in the volumes from, if you look at the additional volumes that are coming on in Africa, Middle East demand in Europe and then we are, we are seeing natural field decline and the divestments that is still affecting our North America and Europe volumes. And so it’s really in that total mix that you are seeing the impact.

Arjun Murti - Goldman Sachs

Yeah, okay, that’s great thank you very much.

Henry Hubble

Yep.

Operator

Thank you. We’ll go next to Paul Sankey with Deutsche Bank.

Paul Sankey - Deutsche Bank

Good afternoon guys.

Henry Hubble

Hi, Paul.

Paul Sankey - Deutsche Bank

We’ll go with what we should say. The, out, just back to your Upper Zakum and Cepu….

Henry Hubble

Yeah.

Paul Sankey - Deutsche Bank

Your outlook for 5 million barrels based production by 2010, do I assume those 2 projects are included within that outlook that you gave at the analyst meeting?

Henry Hubble

Yes they were.

Paul Sankey - Deutsche Bank

Great thanks, and on the refining side you spoken about, if we, adding the equivalents of the refinery over the past, I think 3 years.

Henry Hubble

Yes, yes.

Paul Sankey - Deutsche Bank

As far as efficiency gains, the throughput numbers you’ve got, kind of show the opposite that is to say it stepped down by about the size of the refinery in the past year. Should we be looking if you can bounce back to a higher level of refinery throughput than what we see here?

Henry Hubble

Yes.

Paul Sankey - Deutsche Bank

At that space, I guess they got some very, very high level to downtime in Q1?

Henry Hubble

Yeah, that’s exactly what it is, I mean we had a, as we mentioned earlier, we were expecting a higher turnaround load this year and the timing of the turnaround is largely in the first quarter or, well, first quarter and second quarter tend to be the highest period. That’s the real effect that you are seeing there is, is turnarounds. They were, and they were kind of across to board, we had turn around to US, Europe and overseas in Singapore in our other operations.

Paul Sankey - Deutsche Bank

But we can expect to bounce back over the course of the year to more than, let say 5.8 million a day of refining throughput?

Henry Hubble

Well I mean, the numbers that we quoted, they, we are going to expect to continue to see progress in that and, that was kind of a longer term, but, as we go and increase projects from capacity creep and other things, but we expect to see that on an ongoing basis. But its not, comes in lumps and basically, generally time with the turnarounds, so you see we are adding capacity with the turnarounds and some of our capital expenditures are actually up in the first quarter reflecting some of that work.

Paul Sankey - Deutsche Bank

Right, but would the low point of downtime for the year would be Q1 then?

Henry Hubble

I would say generally yes, but I’d, I don’t, I’d have to look back at the data to say that.

Paul Sankey - Deutsche Bank

Great thanks and then finally from the…

Henry Hubble

First half is lower for sure.

Paul Sankey - Deutsche Bank

Sorry?

Henry Hubble

First half is lower for sure.

Paul Sankey - Deutsche Bank

That’s right thanks, okay great thanks. And finally from the sales, trying to plot at sales, 2 of each down…

Henry Hubble

Yes.

Paul Sankey - Deutsche Bank

US and internationally and globally for that matter, 4% year-on-year…

Henry Hubble

Yeah

Paul Sankey - Deutsche Bank

Can you talk little bit about that?

Henry Hubble

Yeah, that I mean again it reflects of the turnaround are the first biggest piece of that and, and that reflects back in, supply sales and those patrolling product sales that you see there. So that you are seeing that effect, that’s the biggest one, there are also some divestments in there and, we had the divestments in Africa that we talked about before and we’ve also had, continuing high grading in Europe and in the US, but that’s, we are not really seeing something that would point to as our overall demand issue.

Paul Sankey - Deutsche Bank

Right, so if we would say talk about a life, like that comparison and you should be thinking about demand rising 1% year-on-year something?

Henry Hubble

That, that’s our longer term projection again, it’s going to be dependent really more on how economies develop and, but it ties very closely with GDP or, has the best, that’s a best correlation we have is back to GDP and we haven’t really seen anything to let’s say that’s changed in a significant way.

Paul Sankey - Deutsche Bank

Okay I’ll leave it there, thanks.

Henry Hubble

All right very good.

Operator

Thank you we will go next to Mark Flannery with Credit Suisse.

Mark Flannery - Credit Suisse

Hi Henry.

Henry Hubble

Hi Mark.

Mark Flannery - Credit Suisse

I just back on, Upper Zakum…

Henry Hubble

Yes.

Mark Flannery - Credit Suisse

Mostly on the topic today, yeah I know you didn’t really answer Doug’s question about the terms, but I was wishing, to have any details on the commercials. So can you characterize the contract for us, I mean can you give us an idea what type of contract it is, and, for modeling purposes or?

Henry Hubble

Well, as I say, I mean we have a 28% undivided interest that was in the enhancement but I really can’t get into any of the contractual terms associated with that.

Mark Flannery - Credit Suisse

Okay, I mean one thing may be is it sensitive to oil prices in same way that the rest of the portfolio is something that?

Henry Hubble

As I said, I really can’t get into the terms.

Mark Flannery - Credit Suisse

So, I’ll stop asking that question.

Henry Hubble

All right.

Mark Flannery - Credit Suisse

Just very quickly in Asia, can you give us an update about what’s happening in China on refining on that project?

Henry Hubble

On the Fujian project?

Mark Flannery - Credit Suisse

Yeah.

Henry Hubble

Yeah I mean we are being basically working that forward on, front end engineering work progressing that and as we talked at the analyst meeting, our aim is to have that ready for decision, later this year, but its progressing as planned, and frankly it’s, as we’ve talk before, it’s the only integrated project that’s out there, I mean, with refining fuels marketing and chemicals operations. So, we are continued to move that ahead, and hope that as a decision later this year.

Mark Flannery - Credit Suisse

Great thank you very much.

Henry Hubble

Thank you.

Operator

Thank you we will move now to Mark Gilman with Benchmark Company

Mark Gilman - Benchmark Company

Henry, good morning.

Henry Hubble

Hey Mark, how are you?

Mark Gilman - Benchmark Company

Good thanks. I got a couple of other volume-related questions; I’m puzzled by the drop between 4Q and 1Q, in both African volumes as well as the newly segregated Russia and Caspian categories? Could you comment on those two and the extent towards entitlement effects were responsible there or whether it’s something else. I would just note that it seems that, one of your partners with respect to a particular West African block seems to exhibiting same king of thing. Wondering whether this a lip tick issue here?

Henry Hubble

Well, we do have higher entitlements in the area and that’s basically the major impact. So, isn’t really is much else to say there on that one.

Mark Gilman - Benchmark Company

Henry, in Russia and the Caspian, you got another leg of the very sure of this came on and I would assume that your Zakum project is building if the numbers were down versus?

Henry Hubble

Well, I was talking on the, on the Africa volumes. Then if you look at Russia, I mean that’s basically, associated with some on schedule downtime that was between the first quarter and fourth quarter and basically, there was some turnaround activity going on there.

Mark Gilman - Benchmark Company

But in the African piece, the primary towards of the decline is entitlements?

Henry Hubble

That’s correct.

Mark Gilman - Benchmark Company

You referenced in your milestone comments the startup of the full field facilities at Yoho, how much of a production increase that we are talking about versus the early production system that was in place?

Henry Hubble

Well, it basically replaced the early production that we have there. So it’s as a relatively small effect about 15 KBD.

Mark Gilman - Benchmark Company

Okay. Were there any mark-to-market effects with respect to US Gas contract, UK Gas contracts in the quarter?

Henry Hubble

Very small, nothing really to highlight there.

Mark Gilman - Benchmark Company

All right and just one more vis-à-vis the tax rate issue. Is this primarily and I’m speaking more I guess in terms of the change in guidance about to this 44, 45 range. We are talking about mix issues here or whether particular statutory rate changes to the response for ’04 for moving it up.

Henry Hubble

For the rates going forward, it’s really more of the mix associated with growth in, with the growth the higher portion of our profits coming from overseas locations.

Mark Gilman - Benchmark Company

Okay but no significant statutory rate increases that you might call our attention to.

Henry H. Hubble

No, no.

Mark Gilman - Benchmark Company

Okay, I want just one other thing. I am a little bit confused by the relationships between the reference in the release to these litigation in tax effects are being over $0.04 a share and your comment previously that it’s a $450 million…

Henry Hubble

Yeah.

Mark Gilman - Benchmark Company

Is that $450 a delta number?

Henry Hubble

No the $450 million is, is the, the $0.04 that’s in the press release was associated with the upstream. And as I mentioned, the tax effects really went across the entire, total business. So, $300 million associated with the tax across the entire business and $160 million associated with the litigation that was in the upstream. So, that’s the bridge.

Mark Gilman - Benchmark Company

I see, so the $450 million is not at delta at all.

Henry Hubble

No.

Mark Gilman - Benchmark Company

Absolute. Very good thanks Henry.

Henry Hubble

Yup. Very good.

Operator

We’ll move next to John Herrlin, Merrill Lynch.

John Herrlin - Merrill Lynch

I guess each of those all guys had to count Henry, adequate not to be the dead horse here, on Zakum but can you give us a sense of timing to the portal and also once you set your portal rate how long can you keep it at the target of 750 a day?

Henry Hubble

Well Upper Zakum is a very, very large field and we expect that will, it will take a several years to get to the 750 but then our expectation is, that will have a long, long, long pattern, great as very high following resources you know.

John Herrlin - Merrill Lynch

Yes great, with Indonesia with the Cepu development what’s the timing on that to hit your target there could you give us a sense of the capital you will be committing?

Henry Hubble

Well, on Cepu.

John Herrlin - Merrill Lynch

Yes.

Henry Hubble

We really are in the developing of production plant there I am working that through, so its shown in our 2009 floods category and they definitely, really have to changed that outlook, I will be getting more information as we basically move through the production planning process.

John Herrlin - Merrill Lynch

Okay last one from here on the downstream side, you said things where fine with ethanol how about on the ultra low sulfur diesel side?

Henry Hubble

Yeah, good shape there and ready for ready for brining it on later this year.

John Herrlin - Merrill Lynch

Great thanks.

Henry Hubble

Yep.

Operator

Thank you, we’ll move now to Jennifer Rowland with JP Morgan.

Jennifer Rowland - JP Morgan

Thanks, two questions, one, can you give us any color on the potential discovery at Sao Tome? And second, if you just give us an up down more things down with Nigeria?

Henry Hubble

Yeah on the Sao Tome that is really one that share rounds of evaluating the well data there and that will now set some layer points. I really can’t give you any thing further on it. And in Nigeria, if you look at if you look at our operations they continue, normal at our facilities obviously, we are concerned and are been working the safety aspects and making sure that but we really can’t get into this specific that we are taking there. But basically, at this point operations are normal and we are just on a state of a higher alert.

Jennifer Rowland - JP Morgan

Okay thank you.

Henry Hubble

Yup.

Operator

We’ll go now to Bruce Lanni, AG Edwards.

Bruce Lanni - AG Edwards

Yeah. Good morning Henry, congratulations on the quarter.

Henry Hubble

Well, thank you.

Bruce Lanni - AG Edwards

Listen, I kind of didn’t follow up, I may have missed part of it, but in respect to, on the downstream, this is more general question, but in respect to the, the changeover from the fuel specs and ethanol…

Henry Hubble

Yeah.

Bruce Lanni - AG Edwards

About couple of things, first of all, where are you in the process specifically like on a percentage basis for both of them. And then secondly, if the regulations change as they been proposed to for the spring period, would that have any impact on your preceding forward with the new fuel specs or will that change anything in the dynamics of the market in your opinion?

Henry Hubble

Well I mean when you look at where we are in the conversion, we are out of MTBE and we baton basically converting facilities over to the ethanol blends. And basically, I have that done by the month here so, I mean we are very, very close, 90 something plus percent, so we are not anticipating promise now, there may be specific service stations that will have an issue as you are cleaning tanks in that kind of stuff but that’s going to be worn off, kinds of the impacts, not anticipating any significant problem.

Bruce Lanni - AG Edwards

Yeah but, I assume, there is discussions about the EPA is slackening the regulations going into the spring to allow that over fuel specs to be used, I mean, if that was to happen, do you see from an industry standpoint having any material impact on the markets. Or do you think?

Henry Hubble

I mean because, what you make to switchover is, you have things basically set up for in the pipelines moving into the tanks, I would be surprised that if they’re gone very much, much opportunities switched a lot at this point. Now the imports may benefit from, from that kind of a change but, but I don’t expect to see much impact in the domestic supplies.

Bruce Lanni - AG Edwards

Okay fair enough. That’s what I was looking for. Thanks.

Henry Hubble

Alright.

Operator

Thank you and our last question in the queue comes from Paul Sankey with Deutsche Bank.

Paul Sankey - Deutsche Bank

It’s the horrible one Henry, but the liquid one of the charge look quite high, given the cash balance I would have expected it somewhat lower, can you say anything about that and can you give us guidance for Pion? Thanks.

Henry Hubble

Yeah, it’s I mean where, the guidance we are still looking to 50 to 100 in that range, but what you see here is again a continuation of the tax impacts that we talked about before and that reflects into 4% as well, and that’s really is a big delta, the book of the delta.

Paul Sankey - Deutsche Bank

Okay, that’s what I had been, finally just on the tax rate side you said, I mean you’ve been over this quite a bit. But are you expecting then the tax rate for next quarter to go back down to that 45% range?

Henry Hubble

Our guidance for the period is in that upper 40% or 45%.

Paul Sankey - Deutsche Bank

Okay, you’ve stepped straight back down.

Henry Hubble

Yeah.

Paul Sankey - Deutsche Bank

Okay great thanks.

Henry Hubble

Okay.

Operator

Thank you, we’ll go now, excuse me; we’ll go now to Mark Gilman with Benchmark Company.

Mark Gilman - Benchmark

Henry just two quick ones and I will try to learn how to count a little bit.

Henry Hubble

Okay.

Mark Gilman - Benchmark

What something I haven’t done well for a longtime and longed many. Pipe finalization effect in the quarter both US and foreign downstream if you could?

Henry Hubble

Yeah, in pipe finalization, if you look on absolute basis, about $60 million in the first quarter absolute and that’s split well even between US and non US…

Mark Gilman - Benchmark

Negative.

Henry Hubble

That’s correct.

Mark Gilman - Benchmark

Okay and there is reference in the release to negative foreign exchange effects in particular in the foreign upstream?

Henry Hubble

Yeah.

Mark Gilman - Benchmark

You help us quantify it?

Henry Hubble

It’s about 100 in total and a most and in fact all of that in industry low 100 million in the upstream about negative.

Mark Gilman - Benchmark

Is that translational or transactional?

Henry Hubble

I have to look at the split; clearly both, I don’t know what the exact split is.

Mark Gilman - Benchmark

Yeah, maybe when you call it just give me a call.

Henry Hubble

Yeah we can do that.

Mark Gilman - Benchmark

Great thanks very much.

Henry Hubble

All right very good

Operator

And that’s all the time we have for questions today, I’d like to turn the conference back over to Mr. Hubble if any additional or closing remarks.

Henry H. Hubble, Vice President of Investor Relations and Secretary

Yeah, just want to say, first of all, just let me thank everybody for taking the time to join us this morning. And before I end here, I’d like to leave you with the couple of key points.

First, our technology leadership and commitment coupled with our operational excellence continuous to distinguish ExxonMobil. The upstream projects that have been completed without delays, add-in volumes that we have expected at cost on budget or below. Our results reflect the same business model and disciplined investment process that we had for years and we will continue to have and we look through the volatility of the commodity cycles, we consistently focus on delivering superior results to meet the energy challenges this quarter and beyond. And I just like to thank all you for spending the time with us. Thanks.

Operator

That concludes today’s teleconference. Thank you all for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: ExxonMobil Corporation Q1 2006 Earnings Conference Call Transcript (XOM)
This Transcript
All Transcripts