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ExxonMobil Profits, Production Rising as Permian-to-Gulf Coast Integration Continues

No. 1 U.S. supermajor ExxonMobil Corp. on Friday reported a solid third quarter, with earnings and production on the rise, particularly from the Permian Basin, which the company is working to integrate with expanding petrochemical and processing projects underway on the Gulf Coast.

Profits climbed by half in 3Q2017 to $4 billion (93 cents/share) from year-ago earnings of $2.7 billion (63 cents) as commodity prices improved and operational performance strengthened. Hurricane Harvey, which slammed Gulf Coast operations, reduced earnings by an estimated $160 million (4 cents/share).

Upstream earnings rose to $1.6 billion from $947 million, while downstream profits increased to $1.5 billion. Downstream earnings overall fell slightly to $1.1 billion, while U.S. chemical earnings fell by $31 million to $403 million.The U.S. upstream arm lost $238 million, less than the year-ago loss of $477 million, while domestic downstream earnings rose by $166 million to $391 million.

“A 50% increase in earnings through solid business performance and higher commodity prices is a step forward in our plan to grow profitability,” said CEO Darren Woods. “For the fourth consecutive quarter, we generated cash flow from operations and asset sales that more than covered our dividends and net investments in the business.”

Cash flow from operations and asset sales increased by one-third from a year ago to $8.4 billion, including proceeds associated with asset sales of $854 million. Capital and exploration expenditures were $6 billion, 43% higher than in 3Q2016.

Crude prices rose nearly $6.50/bbl versus the year-ago quarter, while the natural gas realizations increased about 60 cents/Mcf.

Investor relations chief Jeff Woodbury discussed the results during a conference call Friday morning.

Production rose 2% year/year to average 3.9 million boe/d, but natural gas production fell by 16 MMcf/d to 9.6 Bcf/d as field decline and lower demand partly were offset by project ramp-up, primarily in Australia liquefied natural gas (LNG) projects, and work programs. Liquids production rose to 2.3 million b/d, up 69,000 b/d.

ExxonMobil continues to train its attention and funds to the Permian Basin, where it is one of the largest landowners and biggest producers. The long-term plan is to “enhance business integration for our growing attractive resources in the Permian Basin to our Gulf Coast manufacturing hubs,” Woodbury said.

The acreage position in West Texas and southeastern New Mexico is expanding through trades and acquisitions contiguous to legacy core positions, “making it ideal for capital-efficient development using long lateral wells,” which has to date added more than 400 million boe.

ExxonMobil also is expanding its logistics access to capture value from the Permian wellhead to fuels and chemical projects. The strategy is tied to the $20 billion “Growing the Gulf” initiative launched earlier this year.

Centered around capturing Permian value and pushing it south, ExxonMobil this year formed the Permian Express Partners LLC pipeline joint venture; agreed to form with Summit Midstream Partners a natural gas gathering and processing system; and it has bought its first crude oil terminal in the basin from Genesis Energy, anchored by acreage in the Delaware sub-basin.

“These logistics investments support ongoing manufacturing investments to increase feed processing flexibility and capacity for higher-value products in our downstream and chemical businesses,” which are expanding along the Gulf Coast, Woodbury said.

Total unconventional production from the Permian’s Delaware/Midland sub-basins and the Bakken Shale “is now over 200,000 boe/d,” he said. “We are currently operating 20 rigs in the Permian and will continue to ramp-up to approximately 30 operator rigs by year-end 2018.”
In addition, wells are getting longer, with Midland wells year-to-date averaging about 10,000 lateral feet. During the second quarter, ExxonMobil drilled its first 12,500-foot lateral well in the Delaware, which recently turned to sales.

“By leveraging our learnings in the Bakken, where we recently fractured the first of several three-mile laterals, we will start drilling our first three-mile lateral in the Permian before year-end,” he said.

“We'll continue to incorporate learnings to lower unit costs as we grow our unconventional liquids at a 20% compounded annual growth rate through 2025, underpinned by near-term annual growth in the Permian at about 45%.”

Many of Woodbury’s comments focused on operations, but he also spent a few minutes discussing the aftermath of Hurricane Harvey, which came ashore in South Texas on Aug. 25. The company has extensive upstream, refinery and petrochemical operations along the Texas Gulf Coast, and most of its U.S. workforce is headquartered in the Houston area.

“Hurricane Harvey had devastating impacts for many of our employees, contractors and the communities in which we live and operate,” Woodbury said. “Nonetheless, our highly dedicated people and effective operations integrity systems permitted a safe shutdown of our refining and chemical operations in Baytown, Mont Belvieu and Beaumont.

“Because of advanced planning and preparation, we were able to protect the infrastructure of our manufacturing plants, and we're well positioned to resume operations in a timely fashion. Refining and chemical operations at these sites are now back to normal.”
The upstream arm “fortunately experienced limited impacts, with some offshore platforms temporarily shut in…” Today, he said, ExxonMobil employees continue to dedicate their time and resources “to support the communities impacted by the storm.”

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