Exxon Mobil Corporation (XOM)

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Exxon Mobil (XOM)

Q2 2011 Earnings Call

July 28, 2011 11:00 am ET

Executives

David Rosenthal - Vice President of Investor Relations and Secretary

Analysts

Edward Westlake - Crédit Suisse AG

Evan Calio - Morgan Stanley

Mark Gilman - The Benchmark Company, LLC

John Herrlin - Societe Generale Cross Asset Research

Paul Cheng

Pavel Molchanov - Raymond James & Associates, Inc.

Douglas Leggate - BofA Merrill Lynch

Faisel Khan - Citigroup Inc

Doug Terreson - ISI Group Inc.

Paul Sankey - Deutsche Bank AG

Iain Reid - Jefferies & Company, Inc.

Blake Fernandez - Howard Weil Incorporated

Presentation

Operator

Good day, and welcome to this Exxon Mobil Corporation Second Quarter 2011 Earnings Conference Call. Today's call is being recorded. At this time, for opening remarks, I would like to turn the call over to the Vice President of Investor Relations and Secretary, Mr. David Rosenthal. Please go ahead, sir.

David Rosenthal

Good morning, and welcome to ExxonMobil's second quarter earnings call and webcast. The focus of this call is ExxonMobil's financial and operating results for the second quarter of 2011. I will refer to the slides that are available through the Investor section of our website.

Before we go further, I would like to draw your attention to our customary cautionary statement shown on Slide 2.

Moving to Slide 3. We provide an overview of some of the external factors impacting our results. The global economy and energy markets are being influenced by slower growth and continued uncertainty in the macro environment. A sustained economic recovery remains elusive as a result of persistent sovereign debt concerns, sluggish business investment and lower consumer spending.

Energy market continued to see strengthening in crude oil prices in the second quarter, while U.S. natural gas prices showed a modest increase. Downstream industry refining and marketing margins also improved during the quarter, while commodity Chemical margins weakened slightly.

Turning now to the second quarter financial results as shown on Slide 4. ExxonMobil's second quarter 2011 earnings, excluding special items, were $10.7 billion, an increase of $3.1 billion from the second quarter of 2010. Our effective tax rate for the quarter was 45%. Earnings per share for the quarter, excluding special items, were $2.18, up $0.58 from a year ago.

The corporation distributed more than $7 billion to shareholders in the second quarter through dividends and share purchases to reduce shares outstanding. Of that total, $5 billion was distributed to purchase shares. Share purchases to reduce shares outstanding are expected to be $5 billion in the third quarter of 2011.

CapEx from the second quarter was $10.3 billion, up $3.8 billion from the second quarter of 2010, reflecting the increase on our U.S. unconventional activities, including the recently completed acquisition of the Phillips Companies. Across our diverse portfolio, we continue to invest in robust projects through the business cycle to help meet global demand for crude oil, natural gas and finished products.

Our cash generation remains very strong with $14.4 billion in cash flow from operations and asset sales. At the end of the second quarter, cash and marketable securities totaled $10.3 billion, and debt was $16.5 billion.

The next slide provides additional detail on second quarter sources and uses of funds. Over the quarter, cash and marketable securities decreased from $13.2 billion to $10.3 billion. The combined impact of strong earnings, depreciation expense, higher working capital and the benefit of our ongoing asset management program yielded $14.4 billion of cash flow from operations.

Uses included additions to plant, property and equipment or PP&E of $7.8 billion and shareholder distributions of $7.3 billion. Additional financing and investing reduced our cash and marketable securities by $2.2 billion including the acquisition of the Phillips companies.

We will now provide a review of segmented results starting on Slide 6. ExxonMobil's second quarter 2011 earnings of $10.7 billion increased $3.1 billion or 41% from the second quarter of 2010. Upstream earnings increased $3.2 billion, while Downstream earnings improved by $136 million.

Chemical earnings were essentially flat.

Higher corporate and financing expenses decreased earnings $174 million versus the second quarter of 2010 due mainly to the absence of favorable tax items. Corporate and financing expenses remain within our continued guidance of $500 million to $700 million per quarter.

As shown on Slide 7, ExxonMobil's second quarter 2011 earnings of $10.7 billion were in line with the first quarter of 2011 mainly due to higher Downstream earnings, offset by slightly lower Chemical and Upstream earnings.

Moving next to the second quarter business highlights and beginning on Slide 8. We will begin with an update on a number of our Upstream liquids projects. During the quarter, we fully funded the Banyu Urip project on the Cepu Block in Indonesia. The full field development is expected to recover $450 billion oil equivalent barrels of reserves and deliver gross production of 165,000 barrels per day via a 60-mile pipeline to an offshore floating storage and offtake vessel in the Java Sea.

In Eastern Canada, we achieved early oil production from the first well of the Hibernia Southern Extension project. Project development will continue over the next few years, including drilling more wells and providing water injection capability with full production plateau anticipated in 2014.

We also continue to ramp up activity in Iraq and currently have 5 drilling rigs operating. Current gross production is approximately 340,000 barrels per day. We are also progressing front-end engineering and agreements for the common seawater supply project.

Read the rest of this transcript for free on seekingalpha.com