Exxon Mobil (XOM) Q2 2017 Results - Earnings Call Transcript

Jul. 28, 2017 4:25 PM ETExxon Mobil Corporation (XOM)
SA Transcripts profile picture
SA Transcripts
132.56K Followers

Exxon Mobil Corp. (NYSE:XOM) Q2 2017 Earnings Call July 28, 2017 9:30 AM ET

Executives

Jeffrey J. Woodbury - Exxon Mobil Corp.

Analysts

Neil Mehta - Goldman Sachs & Co.

Doug Leggate - Bank of America Merrill Lynch

Doug Terreson - Evercore Group LLC

Sam Margolin - Cowen & Co. LLC

Paul Sankey - Wolfe Research LLC

Evan Calio - Morgan Stanley & Co. LLC

Philip M. Gresh - JPMorgan Securities LLC

Brendan Warn - BMO Capital Markets Ltd.

Ryan Todd - Deutsche Bank Securities, Inc.

Roger D. Read - Wells Fargo Securities LLC

Blake Fernandez - Scotia Howard Weil

Paul Cheng - Barclays Capital, Inc.

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

Theepan Jothilingam - Exane Ltd.

Biraj Borkhataria - RBC Europe Ltd.

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

John P. Herrlin - Société Générale

Guy Baber - Piper Jaffray & Co.

Operator

Good day, everyone, and welcome to this ExxonMobil Corporation second quarter 2017 earnings call. Today's call is being recorded.

At this time, I'd like to turn the call over to Vice President of Investor Relations and Secretary, Mr. Jeff Woodbury. Please go ahead, sir.

Jeffrey J. Woodbury - Exxon Mobil Corp.

Thank you. Ladies and gentlemen, good morning and welcome to ExxonMobil's second quarter 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'd like to draw your attention to our cautionary statement, shown on slide 2.

Turning now to slide 3, let me begin by summarizing the key headlines of our second quarter performance. ExxonMobil earned $3.4 billion in the quarter, bringing year-to-date cumulative earnings to $7.4 billion.

First and foremost, we remain focused on business fundamentals; that is, operational integrity, costs, reliability, and disciplined investment, with the objective of growing value regardless of the commodity price environment. Cash flow from operations and asset sales exceeded dividends and net investments in the business for the third consecutive quarter.

We continued to advance key projects across the value chain for strategic growth, some of which I'll highlight later. In the Downstream and Chemical segments, we're investing to meet growing demand for higher-value specialty and differentiated commodity products across the globe.

Moving to slide 4, we provide an overview of some of the external factors affecting our results. The global economy maintained modest growth in the second quarter. In the U.S. and China, economic expansion accelerated compared to the previous quarter, while Japan and the Eurozone experienced steady growth rates.

As you know, the commodity price environment weakened in the quarter, as both crude oil and natural gas prices decreased. Nonetheless, the global rig count increased, driven primarily by higher North American activity, compounding uncertainty, and future supply/demand balances.

Refining margins improved with heavy industry maintenance and a change to summer gasoline specifications, whereas global chemical commodity margins showed signs of softening with new industry capacity coming online, as anticipated.

Turning now to the financial results, as shown on slide 5, as indicated, ExxonMobil's second quarter earnings were $3.4 billion or $0.78 per share. In the quarter, the corporation distributed $3.3 billion in dividends to our shareholders. CapEx was $3.9 billion, down 24% from the prior-year period, as the corporation remains disciplined in its investment plans while delivering investment-class execution. Cash flow from operations and asset sales was $7.1 billion. And at the end of the quarter, cash totaled $4 billion and debt was $41.9 billion, down $1.7 billion from the prior quarter.

The next slide provides additional detail on sources of uses of cash. Over the quarter, cash balances decreased from $4.9 billion to $4 billion. Earnings adjusted for depreciation expense, changes in working capital and other items, and our ongoing asset management program yielded $7.1 billion of cash flow from operations and asset sales. Uses of cash included shareholder distributions of $3.3 billion and net investments in the business of $3 billion. Debt reduction and other financing items decreased cash by $1.7 billion. Cash flow from operations and asset sales more than covered dividends and net investments, with an excess nearly $800 million.

In the second quarter, ExxonMobil did not make any share repurchases to offset dilution related to our benefit plans and programs, and we don't currently plan on making additional purchases to reduce shares outstanding in the third quarter.

Moving on to slide 7 for a review of our segmented results, ExxonMobil's second quarter earnings increased $1.7 billion from the year-ago quarter, driven by stronger Upstream and Downstream results and lower corporate charges due to one-time favorable tax items.

In the sequential quarter comparison, shown on slide 8, earnings decreased $660 million due to weaker results from the Upstream and Chemical segments. This was partly offset by lower corporate charges due to one-time favorable tax items and stronger Downstream performance. On average, we expect corporate and financing expenses will continue to be between $400 million to $600 million per quarter in the near term.

I'll note that our corporate effective tax rate for the quarter was 31%, down from 40% a year ago, reflecting changes in our segment earnings mix and other one-time items.

Turning now to the Upstream financial and operating results, starting on slide 9. Second quarter Upstream earnings were $1.2 billion, an increase of nearly $900 million from the prior-year quarter, due to higher realizations. Crude prices rose about $3.50 per barrel versus a year-ago quarter, and gas realizations increased more than $1.00 per thousand cubic feet. Volume and mix effects decreased earnings by $140 million, largely because of sales timing and lower entitlements.

Compared to the second quarter of 2016, we had a net underlift of more than 150,000 barrels per day. All other items increased earnings $140 million, driven by lower operating expenses. Upstream unit profitability for the quarter was $3.41 per barrel excluding the impact of non-controlling interest volumes.

Moving to slide 10, oil equivalent production in the quarter was 3.9 million barrels per day, a decrease of nearly 1% compared to the second quarter of 2016. Liquids production was down 61,000 barrels per day, as new project volumes and buildup from work programs were more than offset by field decline and lower entitlements. Natural gas production increased 158 million cubic feet per day, as volumes from new projects and work program more than offset field decline, lower seasonal demand, and regulatory impacts in the Netherlands.

Turning now to the sequential comparison, starting on slide 11, Upstream earnings were $1.1 billion less than in the first quarter of the year, as lower realizations for both liquids and gas reduced earnings by $390 million. Crude prices decreased more than $3.00 per barrel and natural gas fell $0.29 per thousand cubic feet. Volume and mix effects decreased earnings another $250 million. Negative sales timing effects, reduced demand, and increased downtime were partly offset by new project volumes. All other items further decreased earnings by $430 million. This is largely the result of asset management activity and higher operating expenses. Asset management impacts included our relinquishment of East Natuna, located offshore Indonesia, as we continue to high-grade our portfolio.

Moving to slide 12, sequentially volumes decreased 5.5% or 229,000 oil equivalent barrels per day. Liquids production decreased 64,000 barrels per day, driven by higher downtime. Natural gas production decreased 988 million cubic feet per day, as seasonal demand dropped significantly, but were partly offset by new project volumes and work program.

Moving now to Downstream financial and operating results, starting on slide 13, Downstream earnings for the quarter were $1.4 billion, up $560 million compared to the second quarter of 2016. Stronger margins increased earnings by $220 million. Favorable volume and mix effects improved earnings by $90 million, mainly from lower planned maintenance, which resulted in higher throughput. All other items added $250 million, mostly from ongoing asset management activities, favorable foreign exchange effects, and lower turnaround costs.

Turning to slide 14, Downstream earnings increased sequentially by $269 million. Stronger margins increased earnings by $200 million. Volume and mix effects improved earnings by $40 million, primarily driven by increased fuel sales. All other items further increased earnings by $30 million.

Moving now to Chemical financial and operating results, starting on slide 15, second quarter Chemical earnings were $985 million, down $232 million compared to the prior-year quarter. Weaker commodity margins decreased earnings by $40 million. Lower commodity volumes reduced earnings by $50 million. And all other items decreased earnings by $140 million, largely due to increased turnaround expenses and unfavorable foreign exchange effects.

Moving to slide 16, Chemical earnings decreased sequentially by $186 million. Weaker commodity margins reduced earnings by $100 million. And all other items decreased earnings $90 million, primarily from increased turnaround and project-related expenses.

Turning to slide 17 and a review of our Upstream business highlights, we continued to capture new high-quality acreage with recent portfolio additions offshore Australia, Equatorial Guinea, and Suriname. ExxonMobil will be the operator of each of these new blocks, with total over 3.5 million gross acres. While appraising the Muruk discovery in Papua New Guinea, we confirmed the presence of a second gas-bearing fault block. Production testing confirmed good quality reservoir with high deliverability. Further appraisal is needed to delineate this resource, but this discovery has helped to derisk several other leads, on trend with the fields in this area.

In June, we successfully completed the tow-out and installation of the Hebron Platform, located offshore Eastern Canada. The 750,000-ton platform was towed over 350 kilometers from the Bull Arm construction site to the Hebron field in the Jeanne d'Arc Basin. The facility is capable of producing 150,000 barrels per day, with a total estimated recovery of more than 700 million barrels of oil. Commissioning work is progressing and drilling began this month. The field is expected to start up before year end.

The Odoptu Stage 2 project also remains on track for first oil by year end. A major milestone was achieved in June, when the final facility modules arrived on Sakhalin Island.

Turning now to slide 18, we continue to make strong progress in the Greater Guyana-Suriname region. We recently announced the signing of a production sharing contract for Block 59 offshore Suriname. The 2.8 million-acre block will be operated by ExxonMobil with co-venturers Hess and Statoil. Block 59 is in deep water located approximately 190 miles in the Guyana-Suriname Basin. We look forward to leveraging our regional knowledge to help evaluate the block's potential.

In Guyana, we're currently acquiring a large 3-D seismic survey over the Kaieteur block to assess resource potential. Also, the rig is currently on the Payara 2 delineation well, and initial results are encouraging. We've encountered nearly 60 feet of high-quality oil-bearing sandstone, deeper than the previous lowest known oil in the first Payara well. This brings the total Payara discovery to about 500 million oil equivalent barrels.

As a result, total gross recoverable resources on Stabroek Block are now estimated at 2.3 billion to 2.8 billion oil equivalent barrels. This higher estimate is driven by the results of Payara 2 and the previous Liza-4 well, which encountered more than 197 feet of high quality oil-bearing sandstone reservoir. The rig will next move to drill the Turbot and then Ranger prospects. These two prospects represent new play tests on the Stabroek Block.

Moving to slide 19 and still in Guyana, we reached final investment decision on Phase 1 of the Liza development. First oil is expected by 2020, less than five years after the initial discovery. Phase 1 will develop 450 million barrels of oil from a floating production, storage, and offloading vessel, with production capacity of 120,000 barrels per day. This development is expected to cost $4.4 billion, resulting in a unit development cost of less than $10 per barrel and a projected double-digit return, even in a flat $40 per barrel price environment. The combination of high resource quality and proven execution capabilities applied in today's lower-cost environment positions Liza for success.

Development planning for a second phase has also progressed following the recent success at Liza 4, which confirms significant additional resources that underpin future phases. Successful well test of Liza 4 confirmed the anticipated superior well deliverability expected from this high-quality reservoir. We are certainly excited about the tremendous potential of Liza, Payara, and the greater Guyana Basin, and we look forward to working with the government and of course the people of Guyana in the years to come to develop this world-class asset.

Moving to slide 20 for an update on our Permian development, ExxonMobil's Permian assets rank among the top-tier investment returns in our global portfolio. Strong drilling and completion execution in the Midland Basin has to date yielded unit development costs of about $7.00 per oil equivalent barrel. We've been steadily increasing our Permian drilling activity through 2017. And our current net production is more than 165,000 oil equivalent barrels per day, an increase of 20% from the prior-year quarter.

Despite growing industry activity in the Permian, we have successfully offset inflationary pressure through increased efficiencies and high recoveries per well. And this includes, amongst other factors, a continuing reduction in drilling days and cost per foot as well as further improvement in completion designs. We currently have 16 operated rigs in the Delaware and Midland Basins combined, and expect to reach 19 total rigs by the end of August.

Specifically in the Delaware Basin, we just finished drilling our first operated well on the recently acquired acreage. This well has a lateral section of 12,500 feet, well above the industry average. As we further progress development and gain additional learning curve benefits, we anticipate extending lateral lengths, including leveraging our learnings from our recent completion of Bakken horizontal wells of over 3 miles. Our superior, highly contiguous acreage position in the Delaware Basin uniquely positions us to exploit longer laterals and drive down unit development costs.

We also continue to optimize our logistics and infrastructure plans, including export capacity, gas gathering, and water handling. For example, ExxonMobil recently executed an agreement for Summit Midstream Partners to develop, own, and operate a new associated gas gathering and processing system servicing the northern Delaware Basin. I'm pleased with our progress to date, and anticipate that as activity continues to ramp up, we will continue capturing efficiencies. Our estimated unit development costs for the full northern Delaware acreage is $5 to $7 per oil equivalent barrel.

Turning to slide 21 and our Downstream and Chemical business highlights, we continue to strengthen our portfolio by increasing feedstock and logistics flexibility, upgrading the value of hydrocarbon molecules, and expanding volumes of premium products. In May, we reached mechanical completion of two new 650,000 ton per year polyethylene lines at our plant in Mont Belvieu, Texas. The company expects production to begin during the third quarter of this year.

Building on the success of our Gulf Coast initiatives, the corporation also continues to advance new opportunities to meet growing demand for ethylene and related products. We recently selected a site in South Texas for our proposed joint venture with SABIC to construct a world-scale petrochemical complex, including an ethane steam cracker and a monoethylene glycol unit and two polyethylene units. In May, the venture partner signed an agreement for the next phase of the project, which enables planning for front-end engineering and design work.

Recognizing that Asia-Pacific continues to be the largest and fastest growing lubes market globally, we recently completed the expansion of our grease and synthetic lubricants operations in Singapore. The new synthetic lubricants plant is the only facility in the region that can manufacture Mobil 1.

We're also increasing our basestock capacity in Asia, with the further expansion of our Group II production in Singapore. This value-driven investment underpins our continued leadership in basestock production.

In the quarter, ExxonMobil also announced its plans to enter the Mexican fuel market with Mobil-branded stations and its advanced Synergy gasoline and diesel fuels. Through local partnerships, we plan to open our first Mobil service station in central Mexico during the second half of 2017, with additional stations to follow by year end. We plan to invest about $300 million in fuels, logistics, product inventories, and marketing over the next 10 years to provide a reliable supply of quality products to retail, wholesale, industrial, and commercial sectors.

Finally, we continue to invest in research and development to position our long-term success. ExxonMobil and Synthetic Genomics have jointly researched biofuels for over eight years, and recently announced a breakthrough involving the modification of an algae strain that more than doubled its oil production. We are pleased to have achieved this important milestone, and we'll continue to progress the potential commercial application over the longer term.

Turning to slide 22, we are also progressing a strategic acquisition in Singapore to grow our chemical capacity to meet increasing Asian product demand. ExxonMobil signed an agreement with Jurong Aromatics Corporation to acquire its plant, located on Jurong Island in Singapore. This aromatics plant is one of the largest in the world, with an annual production capacity of 1.4 million tons and also produces 65,000 barrels per day of fuels. Integration of this plant with ExxonMobil's existing manufacturing facility will provide product, operational, and logistical synergies that will enable cost-competitive growth of the aromatics business.

As you may know, Singapore is home to ExxonMobil's largest integrated refining and petrochemical complex and has a crude oil processing capacity of almost 600,000 barrels per day, and includes two world-scale steam crackers with a capacity of 1.9 million tons per annum. Acquisition of the Jurong Aromatics plant will increase ExxonMobil's Singapore aromatics production to over 3.5 million tons per year, of which 1.8 million tons is paraxylene, used in polyester production. We're looking forward to closing this acquisition in the second half of this year.

Turning now to slide 23, a summary of the corporation's year-to-date sources and uses of cash highlights our ability to meet our financial objectives and commitment to our shareholders. As shown, year-to-date 2017 cash flow from operations and asset sales of $16 billion funded shareholder distributions, net investments in the business, and a reduction in debt.

Following the most recent drop in commercial prices, this is the third consecutive quarter where our free cash flow has exceeded our dividends to shareholders, reflecting capital discipline and the strength of the integrated businesses. And I'll note that the cash operating surplus in the second quarter is after covering a seasonal working capital build.

Moving now to the final slide, I'll conclude today's presentation with a summary of our year-to-date performance. Simply put, we remain focused on value growth through self-help and attractive investments. Our integrated businesses continue to generate solid cash flow and earnings. Our business segments collectively earned $7.4 billion, an increase of nearly $4 billion compared to the first half of 2016.

Upstream production volumes were consistent with plans at 4 million oil equivalent barrels per day. We remain disciplined in our investment program, selectively advancing strategic opportunities across the value chain while maintaining focus on capital efficiencies.

Year-to-date CapEx was $8.1 billion, a decrease of 21% from the prior year. Our capital guidance for 2017 remains at $22 billion, as we previously shared. Cash flow from operations and asset sales totaled $16 billion and free cash flow was $8.5 billion, more than covering $6.4 billion in shareholder distributions.

Due to the strength of our integrated businesses, we remain confident in ExxonMobil's ability to continue delivering long-term value to our shareholders in ever-changing industry conditions.

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

Question-and-Answer Session

Operator

Thank you, Mr. Woodbury. And we'll go first to Neil Mehta of Goldman Sachs.

Neil Mehta - Goldman Sachs & Co.

Hi, Jeff. How are you?

Jeffrey J. Woodbury - Exxon Mobil Corp.

Good morning, Neil. I'm doing fine, thank you.

Neil Mehta - Goldman Sachs & Co.

Jeff, I asked you this question last quarter, but I always value your opinion on the oil macro. I just wanted to get ExxonMobil's perspective as a buyer of 5 million barrels a day of crude of where do you think we are in the rebalancing process and how you see the macro playing out going forward.

Jeffrey J. Woodbury - Exxon Mobil Corp.

Thanks, Neil. Let me just give you some observations. On the positive side, clearly demand continues to be relatively strong when you compare it against the 10-year average. We're likely to see demand growth about 1.5 million barrels this year. We are seeing some inventories, commercial inventories draw both on crude as well as products. Still quite a bit of inventory to go ahead and draw down.

Of course, on the opposite side, working against the balances that we are seeing a significant build in production in several places, notably in North America, right now pretty much on trend to reach about an additional 1 million barrel a day capacity growth over the last, say, 12 to 18 months by year end. That's going to work against us in some regards. And of course, how other non-OPEC producers perform over the near term will have an effect.

When you put all that together, you are seeing convergence of supply/demand in the second half of 2017. That will probably spread out again as demand drops in the first half of 2018. But I think I'd summarize by saying that we are seeing some progress towards a healthier balance. But as I indicated, there are a lot of variables in play.

Neil Mehta - Goldman Sachs & Co.

I appreciate those comments. The follow-up is on gas. You have a lot of optionality on global gas with PNG, with the InterOil acquisition, Mozambique, and there's talk about the potential for expansion in Qatar. Can you just comment on each of the three opportunities and then how Exxon is thinking about prioritizing the different options you might have here?

Jeffrey J. Woodbury - Exxon Mobil Corp.

As you said, Neil, we do have a lot of optionality here. As part of our diverse resource base, we've got a very large presence in gas. We see gas, as you may recall from our energy outlook, growing about 1.5% per year between now and 2040, so that really sets up the investment basis. We're progressing all of these opportunities forward. As you can appreciate, there are a lot of variables that will determine the pace, and some of these will likely move quicker than others.

When you think about the full spectrum of the portfolio, those that are what I would characterize as brownfield expansions of existing operations are probably going to add some of the lowest cost of supply. I'd note specifically Papua New Guinea, where we have built up a very substantial resource base, starting with the foundation project that has exceeded the original scope in terms of offtake and total resource, to the success of our exploration program. And as you know, the acquisition of the InterOil assets, that positions us very well to expand that facility, and I'd suggest that that's going to be on the left side of the cost of supply curve. To some other very large resources, like the acquisitions we're pursuing in Mozambique that are also going to be very competitive on a cost and supply, as well as our continued interest in supporting the objective of our partners in Qatar, which we take a lot of pride in supporting their ultimate plans for the North Field.

Neil Mehta - Goldman Sachs & Co.

Thanks, Jeff.

Operator

And we'll now take our next question from Doug Leggate of Bank of America.

Doug Leggate - Bank of America Merrill Lynch

Good morning, Jeff. Can you hear me okay?

Jeffrey J. Woodbury - Exxon Mobil Corp.

Yes, I can, Doug. Good morning.

Doug Leggate - Bank of America Merrill Lynch

Thanks, a couple things, maybe two questions, if I may. The first one is on volumes in the second quarter. Is there anything unusual going on in Europe? I know that production is typically seasonally weak annually, but it just looks – down about 20% year over year looks unusually low. And related, I guess Canada volumes, oil volumes were down also, and I'm guessing that's maintenance. Can you speak to some of the moving parts in the quarter? Because obviously international E&P seemed weak. And we're just trying to get a handle on whether there's something changing here which has some leaks, or if it's really just one-off seasonality? And I got a follow-up, please.

Jeffrey J. Woodbury - Exxon Mobil Corp.

Thanks for the question, Doug, and you're right. We are pretty low in the second quarter, and there are a couple of drivers for that, as I said my prepared comments. We saw pretty significant downtime in a couple of regions, one being Canada, as you highlighted. We had a turnaround in Kearl. We also, as has been pretty well publicized, Syncrude has been down. We expect Syncrude to ramp up to full capacity by August. Staying on the liquids side, we had some downtime in Nigeria and West Africa as well. The second quarter tends to have a lot more of our planned maintenance activities in the upstream.

On the gas side, one of the biggest drops was the reduction in the European gas demand. Of course, that is seasonal in nature. On top of that, as I said in my prepared comments, there are some impacts associated with the regulatory restrictions at Groningen.

On the positive side, I think it's important to highlight that we've had some really significant builds, and some of these projects have come on really good progress in places like Upper Zakum, Kashagan. We continue to ramp up some of our additional projects that started up over the last one or two years.

And then the last negative I'd highlight, which is real clear on the chart, is that there was a significant liquids decrease associated with entitlement volumes, which as you know, is really a price-driven impact.

Doug Leggate - Bank of America Merrill Lynch

Okay, I appreciate the lengthy answer, thanks. I guess my follow-up, I realize you just reiterated the spending guidance for the year, Jeff, but realistically you're running very light at the half-year level. Even with the Bakken loaded spending, the number still looks a little bit aggressive on the back end. Can you just speak to that in terms of are you just being really conservative here, or do you really expect that significant ramp up in the run rate spending in the second half of the year? And I'll leave it there, thanks.

Jeffrey J. Woodbury - Exxon Mobil Corp.

Thank you, Doug. Well I can certainly appreciate that view, and we are spending lower, if you will, on a season-wise basis. And I'd bucket them into really two categories, one being timing-related, and the second one being that the organization has continued to make significant efforts to capture new efficiencies, and we are seeing those capital efficiencies in that performance.

On the timing side, we got a couple things that I'll share with you. One obviously is we've got two acquisitions that we are working to close by the end of the year, the two being Mozambique and the Jurong Aromatics Corporation acquisition. We also, as I indicated in my prepared comments, are ramping up our Permian activity as well. Those factors lead us to the view that we want to keep the guidance flat. In some regards, you can say there's some upward pressure to that, but we've got full confidence in the organization that we'll continue to capture additional savings as we go forward.

Doug Leggate - Bank of America Merrill Lynch

Thanks, Jeff.

Jeffrey J. Woodbury - Exxon Mobil Corp.

Thank you.

Operator

And our next question will come from Doug Terreson of Evercore ISI.

Doug Terreson - Evercore Group LLC

Good morning, Jeff.

Jeffrey J. Woodbury - Exxon Mobil Corp.

Good morning, Doug.

Doug Terreson - Evercore Group LLC

You made a point a few minutes ago about growing value, and several of your peers have become much more focused on return on capital employed during the past year. And besides more disciplined spending, they've increased divestitures to try and realize greater value from their portfolios. And because returns for all companies have declined over the past couple of years and because you pulled this lever slightly less than your peers over time, not a ton less but slightly less, my question is, how do you guys think about the opportunity for value creation from this mechanism? Meaning it's not new, but are there reasons to step up or not step up your program at this time given the current environment where assets are starting to pretty freely trade hands?

Jeffrey J. Woodbury - Exxon Mobil Corp.

Yeah Doug, just a couple thoughts to share with you on that regard. First, I'd also say that we have had a continual asset management program, and we've shared the total value benefit from that in the past. But when you look at that, for us it's not a defined we're going to sell X amount of assets over a defined timeframe. It's an ongoing focus around how do you high-grade the overall portfolio. And I can share three key components of doing that.

One is clearly identifying new highly accretive assets that can compete in your portfolio through exploration activity or acquisitions. And then the second one, the last one being that this ongoing program to monetize what we see as assets that may be of greater value to others. And if you look at our annual performance on that, we're selling anywhere between $2 billion to $4 billion of assets per year. If you look at, say, over the last five years, that equates to about over $20 billion from those asset sales.

So we maintain a very active program. This is not a fire sale. This is all about the fundamental objective of this corporation is to grow value, and the decisions are value-based. If we see that we can get that value through monetizing it through a sale, then we'll go ahead and proceed with it. But we like the portfolio. We've been very successful in ensuring that there's a constant high-grading of that portfolio.

And then you think in the – I want to talk about the broader comment about return on capital employed. The fundamental objective of our investment program is to be very selective on how we can grow our value proposition, and ultimately that will evidence itself in the return on capital employed. If you think about from the Upstream through the Downstream and Chemicals, it's all about that value chain investment to provide accretive financial performance. So very strong discipline, and we've never lost our view on that.

Doug Terreson - Evercore Group LLC

Okay. And then also, Jeff, the Downstream has historically been an area of industry leadership for ExxonMobil, and needless to say, it still is. But in this area, your results seem to have lagged your peers during the past 6 to 12 months, again, not a ton but there seems to be a little leakage. And so my question was whether or not you had any insight into this outcome, not so much from a return on capital perspective, which is probably explained by changes in pre-productive capital with your new projects. But is there anything from a margin or earnings perspective or anything else that might be worth mentioning about the Downstream performance?

Jeffrey J. Woodbury - Exxon Mobil Corp.

The only thing I would share with you on that, Doug, that again I'm not sure what your reference point is, but we did have a fairly heavy maintenance period in the first half of the year.

Doug Terreson - Evercore Group LLC

Okay.

Jeffrey J. Woodbury - Exxon Mobil Corp.

I think we completed about 85% of our overall planned maintenance in the first six months of the year. I will focus also on the very strategic investments that we're making throughout the Downstream. It's a good example of how we're not necessarily growing volume but we're going value, where we're going ahead and upgrading lower-value products like marine fuel oil to higher-value products like ultra-low sulfur diesel or lube basestocks. Specific projects, Antwerp is doing that. Rotterdam is doing that using proprietary technology. Should take us to the largest Group II basestock producer in Europe. So it really demonstrates how the investment is very focused, very strategic, and all underpins that value proposition.

Doug Terreson - Evercore Group LLC

Okay, thanks a lot, Jeff.

Jeffrey J. Woodbury - Exxon Mobil Corp.

Thank you, Doug.

Operator

And we'll now move next to Sam Margolin of Cowen & Company.

Sam Margolin - Cowen & Co. LLC

Hey, Jeff. How are you?

Jeffrey J. Woodbury - Exxon Mobil Corp.

Good morning, Sam.

Sam Margolin - Cowen & Co. LLC

I guess we'll start with Liza just because it sounds like there has been some developments there. So as the recoverable resource reserve gets bigger and bigger, are there any other factors in place with the development that might be changing? Is this project getting more complicated or less complicated as you're building economies of scale? And just curious about your thoughts around development impacts of the resource increasing in ongoing discoveries.

Jeffrey J. Woodbury - Exxon Mobil Corp.

The short answer is we really like what we've got, Sam, and we've got significant scope to continue to increase the resource. As you can see, we've grown the acreage substantially to I think about 14 million gross acres now with the additional pickup of Suriname.

Yes, clearly you can see the model that we've employed here is that we're trying to get production or a revenue stream on pretty quick through this leased FPSO approach. Five years from discovery to startup is industry leading. At the same time, we'll continue to maintain the ongoing exploration and appraisal program. That, as you've seen in our recent communication, has continued to build the resource base, positioning us for subsequent phases of development.

And you can see the analogue we've got here with what we did in Angola Block 15, where we got out there early with a leased FPSO to get a revenue stream on it. We maintained our exploration program. We built mass. It allows us to get into much more of a manufacturing process. We designed one template and then we go ahead and build that template throughout the development of the resource. And that allows us ultimately to make this value proposition that I talked about with Doug previously, drive that unit development cost down, and maximize the results.

So as I indicated in my prepared comments, very excited about where we are, a lot of activity going on and a lot of scope. This is exactly what we want to be doing right now.

Sam Margolin - Cowen & Co. LLC

Okay, that's really helpful. Thanks. And then I guess moving on to Permian, since you're accelerating there currently right now too, you did mention some inflation, but you have offsets with efficiencies and application of some I guess development techniques that you've developed in other areas. Is there any critical mass? Is there any tipping point there, or do you think that you'll continue to be able to beat out these inflationary trends with production technique? Just because it does sound like you're adding rigs and laterals are getting longer. Service intensity does seem to be increasing.

Jeffrey J. Woodbury - Exxon Mobil Corp.

Yeah, well I mean clearly as I indicated previously, we are really trying to keep the organization focused on progressing various structural efficiency savings going forward. As I said in the prepared comments, it's through some of the execution, but it's also driving our unit development costs down, leveraging the global scale of our organization through our procurement business. And we've got that unique structure. We've the procurement organization that's really focused on driving the cost down over the lifecycle of the asset, and across the business have made significant gains. If I back up and talk corporate-wide, we are seeing some inflationary pressures. They're very localized on specific services, but the organization is fully offsetting those costs as we go forward.

Taking it down to Permian, we're being very strategic in terms of our forward development planning and execution. I mentioned by way of example, we're thinking about the logistical and the supply chain requirements. So we're planning on all that, and all that effort is driving that unit development cost down and offsetting those inflationary pressures.

Sam Margolin - Cowen & Co. LLC

Thanks so much.

Operator

And now we'll go to Paul Sankey of Wolfe Research.

Paul Sankey - Wolfe Research LLC

Hi, good morning, Jeff. Just a quick one, on the buyback, will you continue with the anti-dilutionary buybacks, or is it all suspended?

Jeffrey J. Woodbury - Exxon Mobil Corp.

Good morning, Paul. Yes, we will, to the extent that we are buying or need to maintain anti-dilution, but right now in the quarter we didn't have any.

Paul Sankey - Wolfe Research LLC

Okay, but it might continue in Q3?

Jeffrey J. Woodbury - Exxon Mobil Corp.

It's usually a couple – I don't remember which month it is, Paul, but it's really tied to our overall benefits plans. Typically we see in it the first quarter. But it's...

Paul Sankey - Wolfe Research LLC

Okay, thanks. That's good enough, Jeff. Go ahead.

Jeffrey J. Woodbury - Exxon Mobil Corp.

Go ahead, Paul.

Paul Sankey - Wolfe Research LLC

No, I was going to suddenly change the subject. Could you talk through Mozambique? There's been – obviously you've made a significant move there. Could you just outline what's going on there? Thank you.

Jeffrey J. Woodbury - Exxon Mobil Corp.

Sure, so Mozambique, as I indicated when Neil asked the question, is clearly another big opportunity for us to leverage our capabilities, to really go ahead and bring what we think is going to be a very competitive cost of supply to market.

As we announced earlier this year, we went ahead and executed an agreement with Eni to pick up indirect interest of about 25%. That's a cash transaction that was valued at about $2.8 billion, but it is subject to government approvals, and that's what we're working through right now. In that arrangement, ExxonMobil will take responsibility for operating the midstream, which will involve leading the construction and operation of onshore facilities.

I will tell you that when we get to that point once we've gotten the necessary approvals and we are able to close the transaction, we'll get involved certainly with all the co-ventures, the government, and even Area 1 to look at how further synergies can be captured, recognizing the potential growth and development in that specific area. But I'd say a very large resource. Area 4 contains more 85 trillion cubic feet in place. And we think it's going to compete very well on the left side of that cost of supply curve.

Paul Sankey - Wolfe Research LLC

Understood. And just forgive me for asking three, but the situation in Qatar and the announcement from Qatar on expansion, firstly, how have the sanctions in any way impacted you? And secondly, how would that fit going forward in terms of the massive expansion that they've announced?

Jeffrey J. Woodbury - Exxon Mobil Corp.

So there are no sanctions with Qatar, but I think what you're referring to is the diplomatic issues amongst the Middle Eastern countries.

Paul Sankey - Wolfe Research LLC

Right. Yes, obviously not the U.S. sanctions, yes.

Jeffrey J. Woodbury - Exxon Mobil Corp.

Yes. Simply put, we've not experienced any impacts to LNG production or exports.

With respect to the aspirations of Qatar to further expand their LNG capacity, I'd put it this way, Paul, that as you know, Qatar is a very important partnership for us. We are very proud of the contributions that we made in supporting Qatar's evolution as what we believe is the world's largest LNG supplier of LNG. As you look forward, we'll continue to support Qatar. We're very interested in future investments, and we're very interested in supporting their stated objectives. It's a very strong relationship, and I think we're very well positioned.

Paul Sankey - Wolfe Research LLC

Thank you, Jeff.

Jeffrey J. Woodbury - Exxon Mobil Corp.

Thank you, Paul.

Operator

And we'll now move to Evan Calio of Morgan Stanley.

Evan Calio - Morgan Stanley & Co. LLC

Hey. Good morning, Jeff.

Jeffrey J. Woodbury - Exxon Mobil Corp.

Good morning, Evan

Evan Calio - Morgan Stanley & Co. LLC

I had a quick question on Guyana, where you've had great success. Given the returns, better returns I presume, at the top of your gating process, how do you think about accelerating subsequent developments to maximize the value of this resource base? Meaning with several phases underpinned past Liza, is there a scope for a faster pace of development than Kizomba or faster than an FPSO every two to three years? What are the thoughts there?

Jeffrey J. Woodbury - Exxon Mobil Corp.

It's a great question, and I think it really talks to the development planning process that we go through. We're doing a lot of this activity in parallel. We took our largest 3D seismic acquisition. We're analyzing that. We're integrating real-time the drill well data that we're collecting, and we're building that into the process. One of the ways to get that faster pace is being able to put in place a standard template as we go forward and develop these assets.

As I indicated in my prepared comments, we're already looking at the subsequent phases in Guyana. And to the extent that we can standardize that template, I think it's going to allow us to move quicker. But it goes right back to the fundamental objective that we're looking for, and that is how do we maximize the value for this investment. And we'll certainly keep a very close watch on where we can capture through learning curve benefits additional capital efficiencies.

Evan Calio - Morgan Stanley & Co. LLC

But it sounds like Kizomba is a good model for now. Is that fair?

Jeffrey J. Woodbury - Exxon Mobil Corp.

Yes, it was a very successful outcome for the corporation, and it certainly demonstrated its value proposition, and it's a good model going forward. Now of course, our desire is to just continue to see additional success in our exploration program.

Evan Calio - Morgan Stanley & Co. LLC

Great. The second, in the Permian, there's a chart on slide 20. It's the chart at the bottom right. It seems to indicate the potential for up to a 20,000-foot lateral. That's clearly a function of your contiguous position, and I also know you guys hold the record in lateral drilling in Sakhalin conventional. Can you talk about plans to test at that length or discuss – is it too early or could you discuss any technical challenges you see from either completion or equipment perspective? And that's it, a pretty long lateral.

Jeffrey J. Woodbury - Exxon Mobil Corp.

Thanks for your question, Evan. This is in our wheelhouse. It's all about leveraging our technology to achieve these types of aspirational objectives. A couple data points I'd give you. One is, as you indicated, we've got very strong success with our drilling execution. We've got a number of execution processes that allows us to fully analyze the physics associated with drilling that allows us to overcome some of the impediments to be able to achieve those type of outcomes.

The second point I'd make, as I said in my comments, we just finished drilling over 3-mile long Bakken wells. That's allowed us to really inform ourselves, and that's all being integrated real-time into our ongoing – let me say our ongoing unconventional drilling program, but notably in the Permian. So it's a very strong focus on thinking about what are those limiting factors and how do we push it out even further.

Evan Calio - Morgan Stanley & Co. LLC

I look forward to hear.

Jeffrey J. Woodbury - Exxon Mobil Corp.

Okay.

Operator

We will now go to Phil Gresh of JPMorgan.

Philip M. Gresh - JPMorgan Securities LLC

Hey, good morning, Jeff. Sorry about that. First question is around the capital spending and the acquisition, the two acquisitions you're talking about. Could you quantify those for me? I know what Jurong and Mozambique is. But if you put the two together, how much of an impact is that on the full-year guidance?

Jeffrey J. Woodbury - Exxon Mobil Corp.

Hey. Good morning, Phil. The Mozambique acquisition, as I said, was $2.8 billion. The Jurong Aromatics acquisition, the actual acquisition price has been confidential. It's not been disclosed.

Philip M. Gresh - JPMorgan Securities LLC

Okay. So I guess as I think about – I guess I'm asking a similar question again here. But as I think about your comments about including those numbers in the full-year guidance of $22 billion, and you talk about some upward pressure from inflation, is there also a significant increase in activity level you're expecting in the second half of the year? I'm just trying to tie out why we'd have such a big increase in the back half.

Jeffrey J. Woodbury - Exxon Mobil Corp.

Yes, sure, a couple points that I'll just reiterate. One is we are seeing some very good progress beyond what we had in our business plan in terms of some additional efficiency benefits that we're capturing. But there is a lot of timing implications associated with not only the acquisitions in the second half, but we've got, as I said, the ramp up in our Permian activity. But also there's a number of big projects that just the spend profile ends up being a little bit more skewed to the second half of the year, particularly in our development company and our Chemical business.

Philip M. Gresh - JPMorgan Securities LLC

Okay. And I guess as we think about the longer-term guidance that you gave at the Analyst Day of $25 billion annualized 2018 through 2020, I guess is what you're implying here that the second half ramp is the reason we get to the run rate of about $25 billion for the next couple years, up from $22 billion this year?

Jeffrey J. Woodbury - Exxon Mobil Corp.

Yes, it's a good question, Phil. I understand where you're going with it. I wouldn't try to anchor the second half 2017 spend on the projection that we provided in the analyst meeting for 2018 forward. Ballpark, we're going to see anywhere between $20 billion to $25 billion going forward. We're pretty comfortable with the range that we had provided earlier this year as an outlook out to 2020. It's going to moderate based on progress on certain projects and some new opportunities that have been brought into the portfolio. So as a rule going forward, if you think that we stick with around $22 billion in 2017, slowly ramping up through the end of the decade is the way I think about it.

Philip M. Gresh - JPMorgan Securities LLC

Sure, that makes sense. Thanks a lot.

Jeffrey J. Woodbury - Exxon Mobil Corp.

Okay. Thank you, Phil.

Operator

Our next question will come from Brendan Warn of BMO Capital Markets.

Brendan Warn - BMO Capital Markets Ltd.

Thanks, Jeff. Thanks for the opportunity to ask a question. Just back on Liza or Guyana, I just want to ask a question about Turbot and Ranger. You talk about them as being, call it, new play tests. Are they different, call it, horizons, different prospect types? Can you just probably expand on that comment in terms of what are the additional risks related to the step-outs on that block?

Jeffrey J. Woodbury - Exxon Mobil Corp.

Thanks for raising that, Brendan, because it is an important point to make because any type of ranked well-cap exploration has got a fairly material risk to it. Turbot is still in the upper cretaceous. It's still a stratigraphic trap, but it is in a different fairway or depositional environment than Liza, Snoek, and Payara. The Ranger prospect, the analysis that we've done really suggests a large carbonate buildup. So higher risk and uncertainty, but obviously we see the potential as being material to justify that risk profile.

Brendan Warn - BMO Capital Markets Ltd.

Actually the follow-up to that then, if it's carbonate, are we talking the same source from the Cenomanian-Turonian?

Jeffrey J. Woodbury - Exxon Mobil Corp.

I'm sorry, Brendan. Can you say that once again?

Brendan Warn - BMO Capital Markets Ltd.

So for Ranger, is it still the same source rock from the CT?

Jeffrey J. Woodbury - Exxon Mobil Corp.

Maybe, it's probably early to fully conclude that, but potentially. As I indicated earlier, we've got a lot of things going on in parallel right now in our analytical work.

Brendan Warn - BMO Capital Markets Ltd.

Okay. Thanks, Jeff.

Jeffrey J. Woodbury - Exxon Mobil Corp.

You're welcome.

Operator

Ryan Todd of Deutsche Bank has our next question.

Ryan Todd - Deutsche Bank Securities, Inc.

Thanks, Jeff, maybe one high-level question on your thoughts around the Gulf Coast initiatives that you have down there. Can you talk a little bit about the potential expansions that you see there? I know with some of them you talked about the potential petchem expansions. Are there likely to be refining expansions?

And how do see the Gulf Coast region? Do you see it as a strategically advantaged location for exports of everything from refined products to petchems? And how does that figure into your long-term strategic plans there?

Jeffrey J. Woodbury - Exxon Mobil Corp.

In fact, you answered where I was going to start. Strategically, it's very well positioned in terms of the feed advantage, the unconventional resource base, the infrastructure and the linkage on that infrastructure, the integration that we have throughout our facilities, the full integration of fuels, lubricants, and petrochemicals, the logistics capability. All those factors really position it very well.

As part of our Gulf Coast initiatives program, we've had a number of very successful projects that we've implemented. The ones that are in progress right now is obviously the big Baytown expansion. That adds another 1.5 million tons per annum of ethylene capacity. I referenced in my prepared comments the corresponding polyethylene trains that are starting up in the third quarter. We've got an expansion going on at Beaumont for additional polyethylene trains. And then we've got the big greenfield development down in South Texas potentially with our partner SABIC that will add that additional 1.8 million tons of additional ethylene capacity and then associated derivative units.

And now on the Upstream side, we are still moving forward with an assessment of the Golden Pass LNG export facility. You may be aware that in April of this year that the Department of Energy finally authorized Golden Pass to export LNG to countries that do not have free trade agreements with the U.S. That was really one of the last big significant authorizations we were looking for. And now we're focused more on bringing together all the remaining elements to really position the project for a potential final investment decision, specifically looking at and updating the technical and commercial details at this point. So that's a high-level summary of the benefits of what we see the Gulf Coast brings as well as the investments that we're progressing.

Ryan Todd - Deutsche Bank Securities, Inc.

Great, thanks. It's mostly I guess petchem and LNG. Are we likely to see any type of refining expansion down there?

Jeffrey J. Woodbury - Exxon Mobil Corp.

As part of this whole Gulf Coast initiative, we have made some investments to expand. For instance in Beaumont, we added something like 20,000 barrels a day of additional feedstock capacity that allow us to have the capability of bringing in more of the unconventional feedstock or production for feedstock. So we've made a lot of investments to really focus in on the following areas, either building logistics flexibility, building feedstock flexibility, but importantly, focused on the integrated benefits of the facilities and really increasing the value of the products that we make at those manufacturing sites.

Ryan Todd - Deutsche Bank Securities, Inc.

Thanks. And maybe as a quick follow-up on that, I saw the announcement of the expansion there in Mexico. How big of an opportunity could this be?

Jeffrey J. Woodbury - Exxon Mobil Corp.

We're certainly pleased with the business climate where it has moved to. It's an attractive market for, as we just were talking about, our Gulf Coast refining. We have a reliable facility, and this is a good outlet. We've had a very long history in Mexico, and I think it positions us well.

Ryan Todd - Deutsche Bank Securities, Inc.

Great, thank you.

Jeffrey J. Woodbury - Exxon Mobil Corp.

Thank you.

Operator

We will move next to Roger Read of Wells Fargo.

Roger D. Read - Wells Fargo Securities LLC

Hey. Good morning, Jeff.

Jeffrey J. Woodbury - Exxon Mobil Corp.

Good morning, Roger.

Roger D. Read - Wells Fargo Securities LLC

Maybe to just come back to CapEx real quick so I can understand some of the moving parts here, the two acquisitions, are those going to be cash-only or cash and shares? I'm just trying to think of the impact on cash flow in the second half.

Jeffrey J. Woodbury - Exxon Mobil Corp.

Those will be cash transactions.

Roger D. Read - Wells Fargo Securities LLC

Okay. And then as we think about the guidance that CapEx slowly trends higher through the end of the decade, presumably you don't build acquisitions into that CapEx assumption. So should we think about that as field development, exploration, et cetera, the CapEx spending, or should we build in an acquisition expectation in that?

Jeffrey J. Woodbury - Exxon Mobil Corp.

By and large, you're exactly right. Unless there's something that's in the works that we feel fairly confident with, we will not include it in that projection. Now I'll be clear. Mozambique was in that outlook we shared in March during that analyst meeting. We just didn't highlight it because it wasn't ready for prime time. But we'll go ahead, and depending on where we are, we'll represent it accordingly. Important to highlight is that we've got a very – and you know this, Roger, we've got a very strong balance sheet. It allows us to capitalize on the moments, regardless of where we are in the commodity price cycle. And I think you just look back over the last six to nine months, we've been able to pick up four very accretive, very high-quality assets that really meet the objective that we're trying to achieve with high-grading the portfolio.

Roger D. Read - Wells Fargo Securities LLC

No absolutely, I appreciate the longer-term view that you're able to take. And then my follow-up question, I think it was slide 20, estimated project development costs in the Delaware Basin of $5 to $7 per BOE. Multiple benches out there, so is the $5 to $7 looking at the development over the course of 10 or 15 or longer years, or is this the way to think about Phase 1?

Jeffrey J. Woodbury - Exxon Mobil Corp.

If you remember when we communicated the acquisition, we laid out a long-term development expectation, a certain level of rig activity. Total buildup I think was about 350,000-plus oil equivalent barrels per day, so it was a long-term view of the development of this northern acreage in the Delaware. That's what that represents. It's the overall assessed scope that we had built in to develop it based on, if you will, our technical assessment that underpinned our decision to go ahead and assess or acquire the asset.

Roger D. Read - Wells Fargo Securities LLC

Okay, I appreciate it. Thank you.

Jeffrey J. Woodbury - Exxon Mobil Corp.

Thank you, Roger.

Operator

And now we'll move next to Blake Fernandez of Scotia Howard Weil.

Blake Fernandez - Scotia Howard Weil

Hey, Jeff. Good morning. I was hoping to go back to the volume question, the production question. I know you already tackled the European rollover, but I'm trying to get a sense of how much is associated with just pure seasonality and how much is more regulatory Groningen effect. Is there a way you can quantify the quarter-to-quarter change that's down about 159,000 barrels a day in gas? Can you quantify how much of that is actually Groningen?

Jeffrey J. Woodbury - Exxon Mobil Corp.

Yes, so if you look on quarter to the prior quarter, my recollection is about 90 million cubic feet per day was associated with the cap impact. That was the second quarter 2017 to the second quarter of 2016.

Blake Fernandez - Scotia Howard Weil

Okay, that's helpful. Thank you. The second question is on your slide showing the free cash flow above dividend. You had mentioned your debt has definitely been working down over the past year, and I guess I'm just trying to understand the appetite for reimplementing the buyback program over and above offsetting dilution versus reinvestment into the business. Obviously, you've got a whole host of acquisitions that are underway, so it seems to me like your appetite is more geared toward acquisition opportunities rather than buying back stock. But I just didn't know if you had any commentary you could offer there.

Jeffrey J. Woodbury - Exxon Mobil Corp.

Blake, I'd pitch it this way, that if an opportunity comes along from an acquisition perspective that we think would be very competitive to our existing investment portfolio, we're certainly going to go ahead and pursue it. And as I said earlier, we have the financial capability to do that regardless of where we are in the commodity price cycle.

The buyback decision really steps back, and I think I've mentioned this before. If you think about our capital allocation approach, it really is founded on being committed to a reliable and growing dividend and at the same time continuing to invest in accretive investment opportunities. With the remaining cash, then the decision is around how do you put that to additional work, how do you distribute it to your shareholders if you feel that's appropriate. And that's really viewed on a quarterly basis where we step and we consider is there some debt that's maturing that we'll go ahead and close out, or does it make sense to go ahead and purchase some shares with it.

So think about it as a separate – it's part of the overall cash management that we'll consider that on. But we like the trend we're on. And regardless of what commodity prices do, if you pick up anything from me, it's one of through our self-help and through our investment program, we are building value.

Blake Fernandez - Scotia Howard Weil

Understood, thank you.

Jeffrey J. Woodbury - Exxon Mobil Corp.

You're welcome.

Operator

We will now move to Paul Cheng of Barclays.

Paul Cheng - Barclays Capital, Inc.

Hey, guys. Good morning.

Jeffrey J. Woodbury - Exxon Mobil Corp.

Good morning, Paul.

Paul Cheng - Barclays Capital, Inc.

Jeff, on the warning, can I go back? In Africa year over year there's a 50 target in your liquid production. I think you mentioned that you have healthier than, maybe healthier turnaround activities there. But you also have a sale of I think some Nigerian operation. So I'm trying to understand that. How big is the job year over year? In the first half of the year it's related to sale, or is that more structural? And how much is really just more activity? And also you mentioned in your prepared remarks you have a underlift this quarter, 150,000 barrels per day. Do you have an earnings impact related that?

Jeffrey J. Woodbury - Exxon Mobil Corp.

Yes, so a couple points. On the first one you were talking about the decline that we've seen in our Africa volumes, and there are several things that are driving that. One has to do with natural decline in Africa. The second one has to do with there has been a reasonable amount of downtime that we've experienced. And then the third one that I mentioned earlier was the entitlement impacts due to the commodity prices. I would summarize that those are probably the three key areas that are driving the volumes in Africa right now.

The second question about the underlift and the earnings impact, it's a large part of that component. I think it's in excess of $100 million-plus earnings impact associated with it on a quarter-on-quarter basis.

Paul Cheng - Barclays Capital, Inc.

And the final one on Liza, in Phase 1 you're reinjecting the gas. I think the estimated gas resource is maybe about 20% of the total BOE, or maybe a little bit more, a little bit less. In the future phases, will you be able to still just reinject, or do you actually have to fund the infrastructure to develop it? And if that's the case, given that the a lack of infrastructure over there, what kind of cost component that we may be talking about?

Jeffrey J. Woodbury - Exxon Mobil Corp.

Yes, well Paul, as you said in the Phase 1, the plan is that we will reinject the gas into the reservoir. Going forward in subsequent phases, obviously that's a key aspect of our development planning efforts. I think it's probably too early to signal where we end up on that, but that will certainly be an area of dialogue with the resource owner and making sure that we're meeting their objectives as well.

Paul Cheng - Barclays Capital, Inc.

I see. All right, thank you.

Jeffrey J. Woodbury - Exxon Mobil Corp.

Thank you, Paul.

Operator

We will now move to Anish Kapadia of Tudor, Pickering, Holt.

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

Hi, Jeff. Just a first question on the overall LNG market. You're obviously seen (74:48) announcement, yourselves adding quite a lot of potential capacity over the next decade from Mozambique. So I was just wondering, how have your conversations been with LNG buyers? Have you signed any deals this year in terms of your future projects? Because obviously, we've see on the other side of the equation companies canceling projects such as a large project in Canada that was announced in the last week or so. I just wanted to get an idea of how those conversations with the LNG buyers are going.

Jeffrey J. Woodbury - Exxon Mobil Corp.

Yes, well I guess a couple points to share with you, Anish. First, again, our forward-looking perspective around the LNG development opportunity is really underpinned by our energy outlook, which with gas growing at 1.5% per year throughout the period out to 2040, that translates into LNG capacity growing 2.5 times.

As it relates to our interaction with potential buyers, obviously, I can't share the specifics. That's part of those confidential discussions, but I will note that there have been a number of announcements that we've released regarding heads of agreements, one of them having to be, I think was in Indonesia for an extended period sale. There were others that were announced. I just don't have them all in front of me, Anish.

But I think the message you should understand is that we have a very large program right now. We've got a very strong marketing organization, and we have continued to underpin our LNG investment decisions, our final investment decisions with long-term contract structure that helps ensure the return expectations on those investments. And rest assured, we've got active marketing programs in place.

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

Right. And just a very quick follow-up is you mentioned I think some asset sale gains in the quarter that helped the results. Could you quantify what those were on an earnings basis?

Jeffrey J. Woodbury - Exxon Mobil Corp.

Yes. On an earnings basis, Anish, in the second quarter, it was $68 million, and all of that was in the Downstream.

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

Many thanks.

Operator

We will now go to Theepan Jothilingam from Exane BNP Paribas.

Theepan Jothilingam - Exane Ltd.

Yes. Hi. Good morning, Jeff. Thanks for taking my questions. I've got just two actually, please. I think you discussed the broadening of the fuels marketing business in Mexico. But is there a broader strategy there for Exxon to invest more aggressively in fuels marketing, and where are those opportunities as you see them today?

And then secondly, we've talked about the deepwater and Liza and Guyana. But I was just wondering whether you saw opportunities for Exxon in the bidding rounds coming up in Brazil. Thank you.

Jeffrey J. Woodbury - Exxon Mobil Corp.

Well Theepan, thanks for the questions. On our fuels marketing, you may be aware that we had transitioned to a branded wholesale model, really with a focus of expanding our market share and brand, and at the same time reducing our capital and operational risk, and that's worked very well. We're seeing some really good pickup out there with these branded wholesale opportunities. And we see that as an important element of our value proposition going forward. Of course, in conjunction with that is that we're rolling out at the same time and expanding our signature line on Synergy gasoline and diesel fuels. So it's the whole package that's important in terms of our overall expansion of this branded wholesale model.

On the second question about our interest in participating in Brazil, in short, no doubt about it, Theepan, Brazil has a very nice endowment, resource endowment, high quality, great geology. We need to see what's being offered in terms of the potential blocks as well as the participation structure, and that will guide us in terms to the level of interest that we will progress.

And you think about it from a benchmark perspective, we're looking for things like Guyana with really high quality, really good, if you will, risk/reward structure on how we manage this portfolio going forward. We do have a bias towards wanting to operate these assets because we think through our long-established project management capabilities and our ability to continue to grow the value proposition, once we make the investment and all the way through the lifecycle of the asset, that we tend to get more out of it. So I'll leave it there, but you can get the sense that certainly very interested, it's just got to compete with the rest of the portfolio.

Theepan Jothilingam - Exane Ltd.

Thanks, Jeff.

Jeffrey J. Woodbury - Exxon Mobil Corp.

You're welcome.

Operator

We will now move to a question from Biraj Borkhataria of Royal Bank of Canada.

Biraj Borkhataria - RBC Europe Ltd.

Hi, Jeff. Thanks for taking my questions, I had a couple. The first one was on Guyana and back on Liza. Based on what you see now, would you be able to give us your blue-sky scenario for the resource base and how you think that can go over the next year or two?

And then the second question on LNG relating to Mozambique, so you acquired 25% of the project. One of your peers has talked about the willingness to take on more than their equity interest as an offtake volume in order to enhance the portfolio. Is that something you would be interested in for that project? Thanks.

Jeffrey J. Woodbury - Exxon Mobil Corp.

Yeah, on the first one, what I just summarized, other than what we've already communicated at this point, Biraj, around what we anticipate as a recoverable resource, as you can see from the display that we shared with you, there's a lot of potential plays there. They've got very material potential. It's really too early for us to go ahead and share what we think the ultimate resource potential is.

You may recall that it was stated back at the analyst meeting that we clearly see multiple billion-barrel potential for the blocks. In fact, we're there today, but we're very encouraged. And I think the additional seismic acquisition, the analysis that we\re doing, and the drilling that we're doing is going to help us converge on a look, on a view longer term. Can you tell me again the second question you had about what you're hearing from a competitor?

Biraj Borkhataria - RBC Europe Ltd.

So one of your peers has talked about their willingness to take on more than their share of the equity interest. So for example, you have of 25% interest in Mozambique. Would you be willing to take on say 50% of the offtake volumes?

Jeffrey J. Woodbury - Exxon Mobil Corp.

Again, early days. We need to get into the venture structure here hopefully within the end of the year. and then we're always open to potential opportunities, again, as long as it competes with the portfolio that we've got right now. But I'm not going to speculate on market rumors or whatnot because I'm really not familiar with the specifics that you shared.

Biraj Borkhataria - RBC Europe Ltd.

Okay, thanks. That's very helpful.

Jeffrey J. Woodbury - Exxon Mobil Corp.

Thank you.

Operator

We will now take a question from Pavel Molchanov of Raymond James.

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

Thanks for taking the question, guys. First on PNG, many of your shareholders came into the stock based on their InterOil ownership. And for their benefit, I'm wondering if you can give an update on the resource certification of the Elk-Antelope field and the contingent value rights?

Jeffrey J. Woodbury - Exxon Mobil Corp.

Yes, thanks for asking the question, Pavel. Certainly, I know there are many that are interested in how that closes out. As you know, we completed the Antelope well that we were drilling, and the resource certification process is in progress. The plan is that will be concluded in the third quarter, and then the final results will be shared as per the arrangement. So I'm hopeful that that will come to closure soon.

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

Okay, very helpful, and then one more on Europe. You talked about the year-over-year decline in Groningen, but there is an additional further cap that you guys are currently appealing. If that appeal at the Dutch court fails, do you have any other options before you have to reduce production further?

Jeffrey J. Woodbury - Exxon Mobil Corp.

I think what you're referring to is that this minister went ahead and decided to further curtail production from 24 billion to 21.6 billion cubic meters per year. That doesn't go into effect until the next gas year, which starts in September. I really don't want to get into the discussions that we're having with the government. We certainly understand the issue. There has been a lot of really good collaboration amongst the various parties to make sure that we've got a good understanding, and that will all be addressed in these discussions between the various parties. I'm not going to speculate how that turns out.

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

Okay, fair enough. I appreciate it.

Jeffrey J. Woodbury - Exxon Mobil Corp.

No problem.

Operator

We'll now go to John Herrlin of Société Générale.

John P. Herrlin - Société Générale

Just two quick ones on Guyana, Jeff. Is Ranger a structural trap or a strat trap?

Jeffrey J. Woodbury - Exxon Mobil Corp.

Good morning, John. Ranger, the carbon build, it would likely be structural.

John P. Herrlin - Société Générale

Okay. I was just wondering if you had clastics off lapping on it. Next question, for Liza Phase 1, Hess mentioned that you're only planning eight producers. Is that correct? And should we assume for comparable phases that it will be a low number of wells given relative productivity or expected productivity?

Jeffrey J. Woodbury - Exxon Mobil Corp.

Yes, as you heard, we had a really nice test on Liza, and that really sets us up for the development plan. So we do have eight production wells planned from four drill centers, and we'll see how that goes as the development progresses, but that is the current basis going forward.

John P. Herrlin - Société Générale

Great, thank you.

Jeffrey J. Woodbury - Exxon Mobil Corp.

Thank you, John.

Operator

And we'll now go to Doug Leggate of Bank of America. Doug, if you could, please check your mute function.

Doug Leggate - Bank of America Merrill Lynch

Sorry about that. Yes, indeed, sorry for lining up again, Jeff. I just wanted to close the loop on one issue. The deeper Payara tail, Hess gives some color on it, but I guess we're going to get the official version from you. Can you just give what your prognosis was there, whether there are plans to go to a Payara 3 and try that deeper section again, or are you done with that one and moving on? I'll leave it there, thank you.

Jeffrey J. Woodbury - Exxon Mobil Corp.

In terms of the plans, Doug, that's yet to be determined. But yes, we did deep in approximately 300 meters to evaluate a deeper exploration objective. And I'll just note before I share the results that this was a good low-cost opportunity to evaluate what we saw as potentially a material prospect.

In terms of what we found, we found high-quality water-bearing sands that oil shows throughout. I think we would characterize the results as being encouraging, both from a reservoir quality and hydrocarbon systems standpoint in the deeper section, and that information will clearly be integrated into our forward assessment.

Doug Leggate - Bank of America Merrill Lynch

Jeff, do you find people bite to that at a future date with another Payara appraisal and maybe another deepening? Because it sounds like you're not – I'm trying to read the tea leaves here a little bit. Are you writing the deeper section off completely, or are you saying there's further testing you want to do in that Cenomanian part of the play?

Jeffrey J. Woodbury - Exxon Mobil Corp.

I think the results would indicate that clearly we need to integrate that into our overall model of the depositional environment and the potential, and that may lead up to some additional work in those sands of a comparable geologic age. But it's just way too early to comment on specific plans at this point.

Doug Leggate - Bank of America Merrill Lynch

All right, I'll leave it there. Thank you for taking my follow-up.

Jeffrey J. Woodbury - Exxon Mobil Corp.

All right, Doug.

Operator

And we have time for one final question, and that will come from Guy Baber of Simmons.

Guy Baber - Piper Jaffray & Co.

Good morning, Jeff.

Jeffrey J. Woodbury - Exxon Mobil Corp.

Good morning, Guy.

Guy Baber - Piper Jaffray & Co.

Thanks for fitting me in here. I apologize for revisiting this, but I think it's important, and just trying to understand the messaging on the $25 billion or so medium-term capital spending framework and how sensitive that might be to the oil price environment should we find ourselves in a lower oil price world than you may have anticipated at the time you gave the guidance. And really, I'm just trying to understand that tension between investing sufficiently to sustain, replenish your portfolio, against the willingness to tolerate some cash flow outspend. And really, I just ask because on an organic basis, your spending right now is obviously well below that $25 billion future potential run rate, even allowing for some pretty material activity increases over the back half of this year.

Jeffrey J. Woodbury - Exxon Mobil Corp.

I think it's a very good question. A couple thoughts I would share with you is, one, remember our long-term investment program is really founded on our long-term constructive view of energy demand, and we are really trying. For us to compete and win, simply put, is that we have got to be the lowest cost of supply producer out there. And that's really the mindset that we use as we set up these long-cycle investments, okay? So a large part of our investment program that we shared with you all in March at the analyst meeting out through the end of the decade is really is long-cycle investments.

Now of course we've got a short-cycle component, and it represents, let's just say round numbers, about a third of our total Upstream spend. And we will look at that, particularly in a near-term low-price environment. We'll look at that to make sure that it makes good sense because one of the things you want to do in the short-cycle program, particularly in things like Permian or the Bakken, is you want to maintain a certain level of activity to continue to grow that learning curve. You don't ever want to drop back on that learning curve.

On the same hand, you don't want to over-invest. The last thing we want to do is over-capitalize in unconventional business. So we'll keep a level commensurate with that learning curve benefit. And you saw that over 2015 to 2016. As we dropped rigs, we stayed pretty high in our activity level. So those are some of the tradeoffs we've got.

Let's summarize by saying that we've got flexibility. We have always built in flexibility and we tried to share some of that at the analyst meeting with respect to our capital program. But again, I'll just emphasize that the long-cycle program is really based on our constructive view of supply and demand.

Guy Baber - Piper Jaffray & Co.

Thanks, Jeff.

Jeffrey J. Woodbury - Exxon Mobil Corp.

You're welcome.

Operator

And this does conclude our question and answer session. I'd like to turn the conference back to Mr. Woodbury for any additional or closing comments.

Jeffrey J. Woodbury - Exxon Mobil Corp.

To conclude, I just thank everybody once again for your time, very thoughtful questions this morning, a really good exchange of some of the key fundamental elements that drives our value proposition. I do appreciate the preparation. And importantly, we really do appreciate the trust that our investors place in ExxonMobil. So we'll close here, and we look forward to our future discussions. Thank you.

Operator

And with that, ladies and gentlemen, that does conclude today's call. We'd like to thank you again for your participation. You may now disconnect.

Recommended For You

Comments

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.