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ExxonMobil’s ability to invest through the pandemic enabled the supermajor to ramp up supply quickly as demand soared this year, with Permian Basin and LNG supply expanding, CEO Darren Woods said Friday.
On the back of the Permian and a flood of investments in Guyana and liquefied natural gas projects worldwide, ExxonMobil’s deep pockets have allowed it to look beyond the energy upheaval.
“We continued to invest during the pandemic with the understanding that demand would recover,” Woods said during a wide-ranging conference call to discuss second quarter results.
CFO Kathryn Mikells, who shared a microphone, said, “we tend to be an organization that prepares for the worst and hopes for the best.”
The lingering Covid-19 lockdowns, followed by Russia’s invasion of Ukraine in February, didn’t deter ExxonMobil from delivering on its “strategic priorities,” Woods said. He insisted that its peers have to do the same.
“Large annual investments in oil and gas production are required to offset normal depletion and even more is required to grow net production,” Woods said. “Prior to the pandemic, industry investments were below historical levels. The economywide shutdowns during the pandemic exacerbated the problem.
“We are now experiencing tight markets across most of our businesses…Supply lags demand recovery. We clearly see the tightness in supply and refining.”
In the past five years, though, ExxonMobil “stayed focused on the fundamentals…We leaned in when others leaned out, including investments in U.S. refining capacity,” including an expansion southeast of Houston in Beaumont.
“We’re continuing to increase production of low-cost barrels in Guyana, in the Permian. We’re doing all of this while maximizing output of our existing facilities.”
That said, the situation in Europe, where Russia may be weaponizing its natural gas pipelines to hold political power over the continent, “is a very challenging situation today,” Woods told analysts.
“That reflects, I think, the complexity associated with making a massive change to a system that so critically important to people’s lives…What we are seeing happening today is what I’d say is a broader net being cast with respect to how we think about the transition, and how that evolves,” as the world replaces fossil fuels with renewables.
“Making sure that we have got a diversified portfolio of energy and end sources of energy that are not dependent on any one nation state…is, I think, an important step that we are seeing being taken.”
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Western European nations are likely to see “a drive over time to make sure that they are leveraging the resources available to them…” Woods said one example could be the potential to use hydraulic fracturing and unconventional drilling to expand Germany’s natural gas supply.
The United States and Canada have proven the value of unconventional resources, but it’s been rarely duplicated anywhere else in the world.
“The industry has proven over the years that unconventional gas can be produced safely and you then have a secure source of supply and an economical, reliable source of supply,” Woods said.
“I think there’s an opportunity where certainly ExxonMobil could play a key role.”
ExxonMobil also has a large refining footprint in Europe, and it is working to upgrade facilities while reducing the emissions.
“And within this current crisis, we have really stepped up the efforts to reduce our consumption of natural gas. In fact, if you look at our refining circuit, we reduced the use of natural gas by 65%” at the refineries.
“That’s the equivalent gas used for powering about two million homes in Europe. So, there are some substantial steps that we can take with respect to optimizing our current operation.
“Longer term, we are opening up looking at projects to expand our LNG import facilities. And, of course, we are bringing LNG projects online.”
Two LNG projects are advancing. Coral in Mozambique is set to deliver its first cargo in the second half of this year. The Golden Pass LNG project, which would deliver 18 million tons/year of supply, remains on schedule to start up in 2024.
“Once completed, Golden Pass will increase LNG from the Gulf Coast by 20%,” Woods said of the project, which is a joint venture with Qatar. It also has snagged a stake in Qatar’s North East Field natural gas expansion, designed to boost LNG supply.
“Bringing more LNG supplies to help offset some of the Russian gas going into Europe will be another really critical step forward and diversification of supplies for Europe,” the CEO told analysts.
Natural gas demand in Western Europe appears to be leveling off. However, a “big question mark will be how the whole landscape and supply picture shapes up in Europe,” Woods said. “Obviously, a big factor in gas demand will be weather. So I think I wouldn’t take this quarter as the new norm. I think we have just got to stay attuned to how the landscape develops there and what supply looks like.”
Beyond Europe, the Permian is where it’s at in the U.S. onshore. ExxonMobil has never let up on investing in its No. 1 domestic priority, where year-to-date, output has risen by about 130,000 boe/d versus the first half of 2021. The Permian’s average production during 2Q2022 was more than 550,000 boe/d.
“For the full year in the Permian, we expect to achieve 25% production growth for the second consecutive year,” Woods said. The growth this year and in 2021 “is on top of 25% growth the year before… Versus 2017, we expect to end 2022 at three times the level of production.” The issues to grow even more in the Permian can be traced to “the tightness in the market and the availability of rigs,” he said. “There’s not a whole lot of opportunity to move there.”
While inflation has impacted the industry, ExxonMobil has kept it under control, Mikells said.
“We are obviously not immune to inflation,” she said. During the “deflationary environment” when the pandemic extended lockdowns, ExxonMboil worked with oilfield services providers to extend contracts and revise schedules, and that continues.”
In Guyana, where ExxonMobil has led the discovery of a plethora of offshore oil and gas reserves, “our total capacity is now more than 340,000 boe/d,” Woods noted. That work continues, with estimated reserves now above 11 billion boe.
Beyond oil and gas, progress continues for the new business ventures, which include a slew of carbon capture and storage (CCS) facilities in the United States and beyond. In addition to a huge CCS hub on the table for the Houston area, “multiple” memorandums of understanding are in place “to explore the development of large-scale CCS projects in China, Australia, the Netherlands and Indonesia.” Additional ventures are on the design board for hydrogen.
Global natural gas production during 2Q2022 inched up from a year ago to 8.6 Bcf/d from 8.3 Bcf/d. U.S. natural gas output declined to 2.7 Bcf/d from 2.8 Bcf/d. Canada/Other Americas gas output fell in the period from a year earlier to 180 MMcf/d from 189 MMcf/d.
Net crude and liquids output rose year/year to 2.3 million b/d from 2.2 million boe. U.S. output rose to 777,000 b/d from 687,000 b/d, with Canada/Americas rising to 556,000 b/d from 529,000 b/d.
Net profits jumped to $17.9 billion ($4.21/share) from year-ago profits of $4.7 million ($1.10). In the United States, ExxonMobil reversed year-ago losses, with profits of $2.7 billion from a 2Q2021 loss of $278 million. Total revenue reached $115.7 billion compared with a year ago when it was $67.7 billion.
Global upstream earnings were $11.4 billion, versus year-ago profits of $3.2 billion. U.S. upstream earnings reached $3.8 billion, compared with $663 million in 2Q2021. Overall cash flow from operations was almost $20 billion, versus $9.7 billion in 2Q2021. Free cash flow was nearly $17 billion from about $7 billion a year earlier.
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