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Becky Quick
We’ve been talking this morning about ExxonMobil. It reported its first quarter results earlier this morning beat expectations. And if you check out the stock right now, it looks like it’s up by just over half a percent. Joining us right now is Darren W. Woods. He’s the Chairman and CEO of ExxonMobil. Darren, thank you for being with us this morning.
I think the biggest question, just in regards to the earnings is, how much does it matter as oil prices go up? How much does that add to the bottom line? What are you seeing? What are the highlights that you’d tell us to take away?
- I think the biggest question, just in regards to the earnings is, how much does it matter as oil prices go up? How much does that add to the bottom line? What are you seeing? What are the highlights that you'd tell us to take away?
- Darren, a lot of companies say that they've been impacted by the higher prices of oil and gas. Obviously, some supply issues, too, because of the closure of the Strait of Hormuz. But there are a few companies who have been directly impacted, maybe as much as Exxon has.
- I think about 20% of your oil is now blocked in, in the Strait of Hormuz. You haven't been able to get some of that out. You referred to that in today's earnings announcement, where you talked about some timing issues, I think, for some deliveries from the Middle East that couldn't offset the loss in a derivatives contract. I'm sure that will be made up for in another quarter down the road, but you've seen that.
- You've also seen one of your natural gas facilities struck in the Middle East as well. How are you handling this? How do you deal with this as a CEO, who is kind of trying to see the incoming? I'm guessing not day by day, but hour by hour?
- How do you do that very specifically? We don't know how long the Strait's going to be shut down. If it's shut down for, let's say, another month, another two months, or something, what do you do very specifically to redeploy and maybe use some of your other assets around the globe?
- I realize that the loss that was booked this quarter will be made up for, probably in the next quarter. So, you got to smooth that out over quarter-to-quarter. Darren, just in terms of where oil prices are headed, I know this is a difficult game any time to try and predict, now even trickier than normal, but what's your best case? What's your base case, best base case scenario for this, where we're headed over the next one to six months?
Darren W. Woods
Well, good morning, Becky. It’s great to see you again. I would just say you need to look at what we’ve been doing since 2018 when we rolled our strategy out. We never try to predict prices. We recognize, one, that the markets are volatile and uncertain. Two, that the products that we produce, the energy we produce, is needed all around the world to continue to grow economies and to improve people’s lifestyles. So, our strategy has been not to call the markets, but instead grow production based on the unique set of capabilities that we can bring and do it at a very low cost. So irrespective of where the market’s at, we’ve got production online to meet the needs and the growing demand there. That’s played itself out here in the first quarter and as we go into the second quarter.
If you look at what we’ve been doing since 2018 in our strategy, we’ve more than doubled production here in the US. We’ve been growing it at about over 10% compounded annual growth rate. We were one of the few, in fact, the only companies here in the US to expand refining production in 2023. That investment of a 200,000-barrel-a-day improvement and refining output has already paid for itself. So, we’ve been growing.
We just started our LNG plant in the Gulf Coast, and that increases LNG exports for the US by about 5%. So, a lot of work that we’ve been doing over time to grow production, do it at a low cost, so we’re profitable in any market and that is paying off in today’s market.
Becky Quick
Darren, a lot of companies say that they’ve been impacted by the higher prices of oil and gas. Obviously, some supply issues, too, because of the closure of the Strait of Hormuz. But there are a few companies who have been directly impacted, maybe as much as Exxon has.
I think about 20% of your oil is now blocked in, in the Strait of Hormuz. You haven’t been able to get some of that out. You referred to that in today’s earnings announcement, where you talked about some timing issues, I think, for some deliveries from the Middle East that couldn’t offset the loss in a derivatives contract. I’m sure that will be made up for in another quarter down the road, but you’ve seen that.
You’ve also seen one of your natural gas facilities struck in the Middle East as well. How are you handling this? How do you deal with this as a CEO, who is kind of trying to see the incoming? I’m guessing not day by day, but hour by hour?
Darren W. Woods
Again, it comes back to the foundation of the strategy that we put in place, and the emphasis we put on having a diversified portfolio of investments all around the world. The Middle East is an important part of our portfolio. And as you mentioned, it is 20% of our total production. About 15% of that of our production has been impacted by the closure of the Strait, but only 3% of our facilities have been impacted. So, it really is a function of moving barrels through the Strait of Hormuz. That’s the challenge there. But I would say, more importantly, what we focus on is, one, that geographical footprint, but then, two, bringing our capabilities to bear to make sure that we’re in a position to respond to what’s happening in the marketplace and continue to grow production, continue to provide the world the products that they need.
Becky Quick
How do you do that very specifically? We don’t know how long the Strait’s going to be shut down. If it’s shut down for, let’s say, another month, another two months, or something, what do you do very specifically to redeploy and maybe use some of your other assets around the globe?
Darren W. Woods
So, we’re fortunate in that the changes that we’ve been making over the last decade to really leverage the competitive advantages have put us in a great position to respond to events like this, particularly operational disruptions. When it came to the steps that we had to take to protect our people, that was critical. The work that we’re doing to meet that growing divide between demand and falling supply, with the organizational construct we put in place, we’ve been in a position to respond and divert barrels, take advantage of our big footprint to optimize, and make sure we’re meeting the most critical demand, irrespective of where it occurs around the world. We redeployed about 13 million barrels to make sure it’s getting to the markets that need it most, and you mentioned that’s one of the things that we called out in our press release with the timing.
Because we moved so many barrels, our trading organization, which we stood up several years ago, we’re in a position to manage all that and put hedges in place to lock in that profit. As you close the quarter in a volatile market, you book the hedges, the paper, but the physical barrels are in inventory until they get delivered. So, you get this deferred profit that we wanted to basically highlight and make sure our investors understood that the work that we’re actually doing to meet the demands today are resulting in a benefit, not necessarily booked in the quarter.
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Becky Quick
Yeah. I understand that.
I realize that the loss that was booked this quarter will be made up for, probably in the next quarter. So, you got to smooth that out over quarter-to-quarter. Darren, just in terms of where oil prices are headed, I know this is a difficult game any time to try and predict, now even trickier than normal, but what’s your best case? What’s your base case, best base case scenario for this, where we’re headed over the next one to six months?
Darren W. Woods
Yeah. I think, obviously very difficult to call based on what’s happening there in the region and the externalities associated with those things that are happening. What I would say is, you know, it is an unprecedented disruption of supply in the markets. And so, our expectation is over time, we’ll see prices respond to that unprecedented disruption.
Once the Strait opens up, it’ll take one to two months for the flow to reestablish itself. And then within that time, it’s going to take transit time to get the barrels out of the Persian Gulf and to the demand destinations. The customers are going to- it usually takes about a month of transit time. So, there will be a time where it takes for the market to recover. Fortunately, we haven’t seen the full impact of the strait being closed because of the oil that was on the water in transit when the Strait closed. And as that cleared, we had the Strategic Petroleum Reserve releases; we had commercial inventory draws.
So, so far the world has seen a mitigated impact to that loss of supply and the prices. But with time, as those straits remain closed, those additional sources of supply will attrit, will run out of the inventory, will get down to a point where we’re at minimum working inventories in the commercial side, and you’ll be left with Strategic Petroleum Reserves being released. And so, we’ll see an increasing impact on price.
End of the interview! Check out their earnings call transcript.
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