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ExxonMobil Tops Forecasts in Strong 3Q; Permian Drives Volumes

Bolstered by stronger commodity prices, ExxonMobil Corp. profits topped forecasts in the third quarter, and while overall production was down, Permian Basin tight oil volumes jumped 57% from a year ago.

Overall production declined by 2% to 3.8 million boe/d, but it was up 5% sequentially, mostly on Permian gains, where 3Q2018 output averaged 170,000 boe/d net. A 4% decrease in natural gas volumes reflected the “continuing near-term shift” in U.S. unconventional development to liquids from dry gas.

The uptick in liquids output “reflects contributions from just one of our key growth areas, the Permian,” CEO Darren Woods said. “We expect to continue to increase volumes over time as we ramp up activity in the Permian and new projects start up.”

In the Permian Midland and Delaware sub-basins alone, ExxonMobil today is running 38 rigs across its 1.6 million-plus net acres.

“We brought on 58 wells in the Midland Basin and only eight in the Delaware Basin in the third quarter,” with the rig count “about equal,” but the Midland has more infrastructure in place allowing more wells to be turned to sales, said Senior Vice President Jack Williams. He offered some insight about the play during a conference call Friday.

“Over time, some of that's going to switch over to the Delaware Basin, but it's just less mature” Williams said. “It's going to be fairly lumpy coming on.”

The Permian team is doing some things simultaneously to build out development, including delineating the huge Delaware acreage package the company acquired in early 2017, which is mostly in New Mexico. The team already has increased the oil and gas reserves estimate for the acreage to an estimated 5 billion boe from 3 billion boe, “and there's further upward tailwinds on that,” Williams said.

More Delaware infrastructure also is underway.

“There's about 200,000 boe/d of well pad facilities under construction right now in addition to two major central processing facilities,” Williams said. “Because we had essentially a blank canvas on this 225,000 acres...we're building all that from scratch, which is an advantage for us because it allows us to bring other parts of our corporation’s major project expertise to bear on this.

“We’re going to wind up with an infrastructure there that's really unlike anything in the Delaware Basin or in the Midland Basin for that matter, or any other unconventional development that I've ever seen…”

ExxonMobil considers its unconventional acreage in North America to be “strategic and a strength of the corporation,” more than “just kind of a short-cycle place to go and invest,” Williams said. However, whether any additional Lower 48 deals are in the works, he would not say.

“From an organic standpoint, we have a very exciting growth plan...a lot of running room,” particularly in the Permian. “Having said that, we do maintain the financial strength to be able to capitalize on any environment we find ourselves in that might present an attractive opportunity, and we continue to scan the market for all opportunities that play to our strengths.

“We think, certainly, unconventional does that, so we're continuing to look. I would say that as we think about those kinds of opportunities, we certainly are thinking about where we can really bring our development strengths as something that would have a large, undeveloped aspect to it, but we do like our organic growth plan...But we continue to look.”

In addition to its upstream activities, the company’s integrated operations benefited during 3Q2018 from “advantaged feedstock from the Permian and Western Canada for our North American refineries,” Woods said. “The logistical network we’ve established provides reliable connectivity between upstream production and manufacturing facilities..”

Among other things, a 1.5 million metric ton/year (mmty) ethane cracker started up at the ExxonMobil chemical and refining complex in Baytown east of Houston. The new cracker, part of the $20 billion investment initiative, Growing the Gulf, provides ethylene feedstock for its Mont Belvieu, TX, plastics plant, which began production late last year. The plant is one of the largest polyethylene facilities in the world, with manufacturing capacity of about 1.3 mmty.

Crude realizations were up 41% year/year, while gas increased by 30%.

Net earnings increased year/year by 57% and were 58% higher sequentially to $6.2 billion ($1.46/share) from $4 billion (93 cents). Crude realizations rose 41% from 3Q2017, with gas price realizations popping by 30%.

Operating cash flow topped $11 billion, the highest level since 3Q2014, while free cash flow reached $2.5 billion, which when combined with asset sales, reduced sequential net debt by $3.5 billion, or 9%.

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