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XOM > SEC Filings for XOM > Form 10-Q on 6-Aug-2014All Recent SEC Filings

Show all filings for EXXON MOBIL CORP

Form 10-Q for EXXON MOBIL CORP


6-Aug-2014

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

FUNCTIONAL EARNINGS SUMMARY

                                                Second Quarter           First Six Months
Earnings (U.S. GAAP)                          2014        2013          2014         2013
                                                         (millions of dollars)
Upstream
    United States                             1,193       1,096         2,437        1,955
    Non-U.S.                                  6,688       5,209        13,227       11,387
Downstream
    United States                               536         248         1,159        1,287
    Non-U.S.                                    175         148           365          654
Chemical
    United States                               528         515         1,207        1,267
    Non-U.S.                                    313         241           681          626
Corporate and financing                        (653)       (597)       (1,196)        (816)
    Net Income attributable to                8,780       6,860        17,880       16,360
    ExxonMobil (U.S. GAAP)

Earnings per common share (dollars)            2.05        1.55          4.15         3.67

Earnings per common share - assuming           2.05        1.55          4.15         3.67
dilution (dollars)

References in this discussion to corporate earnings mean net income attributable to ExxonMobil (U.S. GAAP) from the consolidated income statement. Unless otherwise indicated, references to earnings, Upstream, Downstream, Chemical and Corporate and Financing segment earnings, and earnings per share are ExxonMobil's share after excluding amounts attributable to noncontrolling interests.

REVIEW OF SECOND QUARTER 2014 RESULTS

ExxonMobil's financial results for the second quarter of 2014 were achieved through strong operational performance and portfolio management. We continue to enhance shareholder value by funding capital projects and delivering robust shareholder returns through dividends and share purchases.

Upstream production for the year remains in line with plans and we continue to add volumes from our high­quality development portfolio through assets such as the Papua New Guinea LNG project, which started up ahead of schedule during the quarter.

Second quarter 2014 earnings were $8.8 billion, up 28 percent from the second quarter of 2013, reflecting strong operations and asset divestments.

Earnings in the first six months of 2014 of $17,880 million increased $1,520 million from 2013.

Earnings per share - assuming dilution for the first six months of 2014 increased 13 percent to $4.15.

Capital and exploration expenditures for the first six months of 2014 were $18.2 billion, down 17 percent from 2013.

Through the first six months of 2014, the Corporation distributed $11.7 billion to shareholders through dividends and share purchases to reduce shares outstanding.


                           Second Quarter        First Six Months
                          2014       2013        2014        2013
                                   (millions of dollars)
Upstream earnings
    United States         1,193      1,096       2,437       1,955
    Non-U.S.              6,688      5,209      13,227      11,387
        Total             7,881      6,305      15,664      13,342

Upstream earnings were $7,881 million in the second quarter of 2014, up $1,576 million from the second quarter of 2013. Higher realizations increased earnings by $580 million. Lower production volumes and sales timing impacts decreased earnings by $200 million. All other items, primarily asset management impacts in Hong Kong, increased earnings by $1.2 billion.

On an oil­equivalent basis, production decreased 5.7 percent from the second quarter of 2013. Excluding the impact of the expiry of the Abu Dhabi onshore concession, production decreased 2.3 percent.

Liquids production totaled 2,048 kbd (thousands of barrels per day), down 134 kbd from the second quarter of 2013. The Abu Dhabi onshore concession expiry reduced volumes by 142 kbd. Excluding this impact, liquids production was up slightly as project ramp­up and work programs more than offset field decline.

Second quarter natural gas production was 10,750 mcfd (millions of cubic feet per day), down 604 mcfd from 2013, primarily due to lower demand and field decline.

Earnings from U.S. Upstream operations were $1,193 million, $97 million higher than the second quarter of 2013. Non­U.S. Upstream earnings were $6,688 million, up $1,479 million from the prior year.

Upstream earnings in the first six months of 2014 were $15,664 million, up $2,322 million from 2013. Higher realizations increased earnings by $990 million. Production volume and mix effects decreased earnings by $190 million. All other items, primarily asset sales, increased earnings by $1.5 billion.

On an oil­equivalent basis, production was down 5.6 percent compared to the same period in 2013. Excluding the impact of the expiry of the Abu Dhabi onshore concession, production decreased 2.6 percent.

Liquids production of 2,098 kbd decreased 90 kbd compared to 2013. The Abu Dhabi onshore concession expiry reduced volumes by 130 kbd. Excluding this impact, liquids production was up 1.8 percent, driven by project ramp­up, work programs, and lower downtime.

Natural gas production of 11,380 mcfd decreased 898 mcfd from 2013, as field decline and lower demand in Europe were partially offset by project ramp­up, work programs, and lower downtime.

Earnings in the first six months of 2014 from U.S. Upstream operations were $2,437 million, up $482 million from 2013. Earnings outside the U.S. were $13,227 million, up $1,840 million from the prior year.


                                                   Second Quarter              First Six Months
Upstream additional information                          (thousands of barrels daily)
Volumes reconciliation (Oil-equivalent
production)(1)
2013                                                      4,074                     4,234
     Entitlements - Net Interest                             (5)                       (4)
     Entitlements - Price / Spend                           (43)                      (47)
     Quotas                                                   -                         -
     Divestments                                            (27)                      (24)
     United Arab Emirates Onshore
     Concession Expiry                                     (142)                     (130)
     Net Growth                                             (17)                      (34)

2014 3,840 3,995

(1) Gas converted to oil-equivalent at 6 million cubic feet = 1 thousand barrels.

Listed below are descriptions of ExxonMobil's entitlement volume effects. These descriptions are provided to facilitate understanding of the terms.

Production Sharing Contract (PSC) Net Interest Reductionsare contractual reductions in ExxonMobil's share of production volumes covered by PSCs. These reductions typically occur when cumulative investment returns or production volumes achieve thresholds as specified in the PSCs. Once a net interest reduction has occurred, it typically will not be reversed by subsequent events, such as lower crude oil prices.

Price and Spend Impacts on Volumes are fluctuations in ExxonMobil's share of production volumes caused by changes in oil and gas prices or spending levels from one period to another. For example, at higher prices, fewer barrels are required for ExxonMobil to recover its costs. According to the terms of contractual arrangements or government royalty regimes, price or spending variability can increase or decrease royalty burdens and/or volumes attributable to ExxonMobil. These effects generally vary from period to period with field spending patterns or market prices for crude oil or natural gas.

                            Second Quarter        First Six Months
                           2014        2013       2014        2013
                                    (millions of dollars)
Downstream earnings
    United States            536        248       1,159       1,287
    Non-U.S.                 175        148         365         654
        Total                711        396       1,524       1,941

Second quarter 2014 Downstream earnings were $711 million, up $315 million from the second quarter of 2013. Weaker refining margins decreased earnings by $330 million. Volume and mix effects increased earnings by $280 million. All other items, including asset management impacts and lower operating expenses, increased earnings by $370 million. Petroleum product sales of 5,841 kbd were 76 kbd higher than last year's second quarter.

Earnings from the U.S. Downstream were $536 million, up $288 million from the second quarter of 2013. Non­U.S. Downstream earnings of $175 million were $27 million higher than last year.

Downstream earnings in the first six months of 2014 of $1,524 million decreased $417 million from 2013. Lower margins, mainly refining, decreased earnings by $1.1 billion. Volume and mix effects increased earnings by $370 million. All other items, including lower operating expenses, increased earnings by $300 million. Petroleum product sales of 5,829 kbd increased 69 kbd from 2013.

U.S. Downstream earnings in the first six months of 2014 were $1,159 million, down $128 million from 2013. Non­U.S. Downstream earnings were $365 million, a decrease of $289 million from the prior year.


                           Second Quarter        First Six Months
                          2014        2013       2014        2013
                                   (millions of dollars)
Chemical earnings
    United States           528        515       1,207       1,267
    Non-U.S.                313        241         681         626
        Total               841        756       1,888       1,893

Second quarter 2014 Chemical earnings of $841 million were $85 million higher than the second quarter of 2013. Margins were flat as improved commodities were offset by weaker specialties. Volume and mix effects increased earnings by $60 million. Second quarter prime product sales of 6,139 kt (thousands of metric tons) were 308 kt higher than last year's second quarter, driven by increased Singapore production.

Chemical earnings in the first six months of 2014 of $1,888 million were $5 million lower than 2013. Lower margins decreased earnings by $160 million, while volume and mix effects increased earnings by $150 million. Prime product sales of 12,267 kt were up 526 kt from 2013, driven by increased Singapore production.

Second Quarter First Six Months 2014 2013 2014 2013

(millions of dollars)

Corporate and financing earnings (653) (597) (1,196) (816)

Corporate and financing expenses were $653 million for the second quarter of 2014, up $56 million from the second quarter of 2013.

Corporate and financing expenses were $1,196 million for the first six months of 2014, up $380 million from 2013, primarily due to unfavorable tax impacts.


LIQUIDITY AND CAPITAL RESOURCES

                                                   Second Quarter              First Six Months
                                                2014           2013          2014           2013
                                                             (millions of dollars)
Net cash provided by/(used in)
   Operating activities                                                      25,305         21,275
   Investing activities                                                     (10,483)       (18,547)
   Financing activities                                                     (13,412)        (7,409)
Effect of exchange rate changes                                                  29           (292)
Increase/(decrease) in cash and cash                                          1,439         (4,973)
equivalents

Cash and cash equivalents (at end of                                          6,083          4,609
period)
Cash and cash equivalents - restricted                                          198            403
(at end of period)
Total cash and cash equivalents (at end                                       6,281          5,012
of period)

Cash flow from operations and asset
sales
   Net cash provided by operating               10,202         7,683         25,305         21,275
   activities (U.S. GAAP)
   Proceeds associated with sales of
   subsidiaries, property,
      plant & equipment, and sales and           2,556           305          3,667            665
      returns of investments
   Cash flow from operations and asset          12,758         7,988         28,972         21,940
   sales

Because of the ongoing nature of our asset management and divestment program, we believe it is useful for investors to consider proceeds associated with asset sales together with cash provided by operating activities when evaluating cash available for investment in the business and financing activities, including shareholder distributions.

Cash flow from operations and asset sales in the second quarter of 2014 was $12.8 billion, including asset sales of $2.6 billion, and increased $4.8 billion from the comparable 2013 period primarily due to favorable working capital changes and higher proceeds from asset sales.

Cash provided by operating activities totaled $25.3 billion for the first six months of 2014, $4.0 billion higher than 2013. The major source of funds was net income including noncontrolling interests of $18.5 billion, an increase of $1.8 billion from the prior year period. The adjustment for the noncash provision of $8.5 billion for depreciation and depletion was flat with 2013. While the net change in operational working capital was flat in 2014, it decreased cash flows by $3.0 billion in 2013, primarily due to an increase in inventory. All other items net decreased cash by $1.7 billion in 2014 and by $1.0 billion in 2013. For additional details, see the Condensed Consolidated Statement of Cash Flows on page 6.

Investing activities for the first six months of 2014 used net cash of $10.5 billion, a decrease of $8.1 billion compared to the prior year. Spending for additions to property, plant and equipment of $15.9 billion was $0.3 billion lower than 2013. Proceeds from asset sales of $3.7 billion increased $3.0 billion. Additional investment and advances decreased $2.8 billion to $0.7 billion reflecting the absence of the 2013 acquisition of Celtic Exploration Ltd. Other investing activities - net increased $2.0 billion to $2.4 billion primarily reflecting the collection of an advance.

Cash flow from operations and asset sales for the first six months of 2014 was $29.0 billion, including asset sales of $3.7 billion, and increased $7.0 billion from the comparable 2013 period due to the absence of unfavorable 2013 working capital impacts and higher proceeds from asset sales.

During the first quarter of 2014, the Corporation issued $5.5 billion of long-term debt and used the proceeds to reduce short-term debt. Net cash used in financing activities of $13.4 billion in the first six months of 2014 was $6.0 billion higher than 2013 reflecting total debt reduction in 2014 and short-term debt issuance in 2013, partially offset by a lower level of purchases of shares of ExxonMobil stock in 2014.

During the second quarter of 2014, Exxon Mobil Corporation purchased 30 million shares of its common stock for the treasury at a gross cost of $3.0 billion. These purchases were to reduce the number of shares outstanding. Shares outstanding decreased from 4,294 million at the end of the first quarter to 4,265 at the end of the second quarter 2014. Purchases may be made in both the open market and through negotiated transactions, and may be increased, decreased or discontinued at any time without prior notice.


The Corporation distributed to shareholders a total of $6.0 billion in the second quarter of 2014 through dividends and share purchases to reduce shares outstanding.

Total cash and cash equivalents of $6.3 billion at the end of the second quarter of 2014 compared to $5.0 billion at the end of the second quarter of 2013.

Total debt of $21.8 billion compared to $22.7 billion at year-end 2013. The Corporation's debt to total capital ratio was 10.4 percent at the end of the second quarter of 2014 compared to 11.2 percent at year-end 2013.

While the Corporation issues long-term debt from time to time, the Corporation currently expects to cover its near-term financial requirements predominantly with internally generated funds, supplemented by its revolving commercial paper program.

The Corporation, as part of its ongoing asset management program, continues to evaluate its mix of assets for potential upgrade. Because of the ongoing nature of this program, dispositions will continue to be made from time to time which will result in either gains or losses. Additionally, the Corporation continues to evaluate opportunities to enhance its business portfolio through acquisitions of assets or companies, and enters into such transactions from time to time. Key criteria for evaluating acquisitions include potential for future growth and attractive current valuations. Acquisitions may be made with cash, shares of the Corporation's common stock, or both.

Litigation and other contingencies are discussed in Note 2 to the unaudited condensed consolidated financial statements.

TAXES

                                     Second Quarter         First Six Months
                                    2014        2013        2014        2013
                                             (millions of dollars)

Income taxes                        5,034       5,793      10,891      12,070
   Effective income tax rate           41  %       51  %       43  %       48  %
Sales-based taxes                   7,871       7,552      15,287      15,044
All other taxes and duties          9,306       8,986      18,163      17,767
         Total                     22,211      22,331      44,341      44,881

Income, sales-based and all other taxes and duties totaled $22.2 billion for the second quarter of 2014, a decrease of $0.1 billion from 2013. Income tax expense decreased by $0.8 billion to $5.0 billion with the impact of higher earnings more than offset by the lower effective tax rate. The effective income tax rate was 41 percent compared to 51 percent in the prior year period due primarily to impacts related to the Corporation's asset management program. Sales-based taxes and all other taxes and duties increased by $0.6 billion to $17.2 billion.

Income, sales-based and all other taxes and duties totaled $44.3 billion for the first six months of 2014, a decrease of $0.5 billion from 2013. Income tax expense decreased by $1.2 billion to $10.9 billion with the impact of higher earnings more than offset by the lower effective tax rate. The effective income tax rate was 43 percent compared to 48 percent in the prior year due primarily to impacts related to the Corporation's asset management program. Sales-based and all other taxes increased by $0.6 billion to $33.5 billion.


CAPITAL AND EXPLORATION EXPENDITURES

                                                  Second Quarter        First Six Months
                                                2014        2013        2014        2013
                                                         (millions of dollars)

Upstream (including exploration expenses)       8,394       9,277      15,658      20,124
Downstream                                        682         575       1,222       1,184
Chemical                                          714         390       1,344         706
Other                                              10           2          12           5
        Total                                   9,800      10,244      18,236      22,019

Capital and exploration expenditures in the second quarter of 2014 were $9.8 billion, down 4 percent from second quarter of 2013.

Capital and exploration expenditures in the first six months of 2014 were $18.2 billion, down 17 percent from the first six months of 2013 due primarily to the absence of the $3.1 billion Celtic Exploration Ltd. acquisition. The Corporation anticipates an average investment profile of about $37 billion per year for the next several years. Actual spending could vary depending on the progress of individual projects and property acquisitions.


RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS

In May 2014, the Financial Accounting Standards Board issued a new standard, Revenue from Contracts with Customers. The standard establishes a single revenue recognition model for all contracts with customers, eliminates industry specific requirements and expands disclosure requirements. The standard is required to be adopted beginning January 1, 2017. ExxonMobil is evaluating the standard and its effect on the Corporation's financial statements.

FORWARD-LOOKING STATEMENTS

Statements relating to future plans, projections, events or conditions are forward-looking statements. Actual results, including project plans, costs, timing, and capacities; capital and exploration expenditures; resource recoveries; and share purchase levels, could differ materially due to factors including: changes in oil or gas prices or other market or economic conditions affecting the oil and gas industry, including the scope and duration of economic recessions; the outcome of exploration and development efforts; changes in law or government regulation, including tax and environmental requirements; the outcome of commercial negotiations; changes in technical or operating conditions; and other factors discussed under the heading "Factors Affecting Future Results" in the "Investors" section of our website and in Item 1A of ExxonMobil's 2013 Form 10-K. We assume no duty to update these statements as of any future date.

The term "project" as used in this report can refer to a variety of different activities and does not necessarily have the same meaning as in any government payment transparency reports.

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