埃克森美孚 (XOM) 2002 Q1 法說會逐字稿

(Webcast Joined In Progress) ... better associated third train at and in Norway and Malaysia. Significant reserves were also added in , and Australia. In the first quarter we reached agreement on key terms to sell gas to Kuwait, an important step in developing a final sales agreement. We bought the Malaysian field on stream, the third Malaysian field with a satellite fields development and facilities brought on in December. Both and the satellite fields development were made economically possible through the application of ExxonMobil's technological expertise, a good example of how technology is helping improve current operations as we also work to develop the breakthroughs that will change the industry paradigm. Hopefully, this point was made clear to you at our March 5th investor meeting.

We also signed a memorandum of understanding to study the possibility of supplying the gas, Asia's largest undeveloped gas resource to Malaysia. As part of ExxonMobil's ongoing asset management activities, we announced the sale of the corporation's Colombian coal business. We also announced the purchase of share of Advanced , a manufacturer of thermal plastic , making ExxonMobil the sole owner in enhancing our broad portfolio of polymers.

Our capital expenditures were $2.97 billion and that's up 18 percent versus the first quarter of last year. This increase was driven by our upstream investments and is in line with our four year forecast which we expect to be up 10 percent versus last year.

Let me now turn to the business results for the first quarter. Upstream earnings were down significantly from the first quarter of 2001, primarily due to decreases in crude and natural gas prices. Changes in prices account for about $1.6 billion of the decrease in earnings. account for the remaining $100 million. Compared to the fourth quarter, earnings were up about $340 million. Two-thirds of the improvement resulted from higher prices. In addition, liquids volumes increased versus the fourth quarter as production from new operations more than offset OPEC quarter restrictions and natural field decline. Gas volumes were up three percent with higher production in Indonesia, in Europe.

If you look at our crude realizations attached to our press release, you can see that the decreases in ExxonMobil's crude realizations from the first quarter of last year generally narrowed the changes in and WTI during the same period. While ExxonMobil produces a wide variety of crudes. The price differentials for these crudes were fairly consistent between the comparison periods. Overall production mix was not a factor in the year on year analysis. Looking at realization sequentially, non US crude realizations, again, followed . ExxonMobil's US crude realizations, however, recovered more than WTI in part due to Alaska price lags during a period of generally rising crude prices. Our US natural gas realizations moved consistent with Gulf Coast spot prices. As you all know, there are no commonly used markers for non US natural gas prices. But these tend to lag crude prices anywhere from one to nine months, depending on the region.

With respect to volumes, let me first summarize the quarter to quarter comparisons and then I'll comment on volumes by region, for there have been significant changes between the current quarter and the comparison quarters. I'll also provide some perspective on the progress of some of our projects. To start, volume changes had a relatively small impact on ExxonMobil's first quarter earnings versus the comparison periods. As compared to the first quarter of 2001, lower volumes accounted for about $100 million out of the $1.7 billion earnings reduction. Liquids production, excluding the impact of OPEC quarter restrictions, was consistent with our plan. OPEC quarter restrictions accounted for two percent of the decline. Field declines, which were partially offset by increased production in , Malaysia and Canada account for a further one percent reduction in volume and, again, were consistent with our plans. Gas production was also down about three percent due to a much milder heating season. The increase in our Asia-Pacific natural gas volumes primarily reflects the full resumption of production which had been curtailed due to civil unrest in . After adjusting for the OPEC quarter and weather effects, volumes were consistent with our plan for the first quarter.

As compared to the fourth quarter of 2001, increased volumes improved earnings by about $100 million. This is primarily due to gas volumes from , Malaysia and Europe. The contributed an additional 12,000 barrels a day over the fourth quarter of 2001. Now moving to the regional review.

In the United States, crude volumes were about flat for the comparison periods. We were down a bit from the first quarter of 2001. As expected, natural fuel declines were not completely offset by new projects. US gas volumes were down due to expected natural field declines in the absence of the Webster affects that we saw in the first quarter of 2001. The absence of Webster production accounted for roughly one half of the gas volume decline in the United States in the first quarter to first quarter comparison. New production from several Gulf of Mexico fields helped offset this decline. Canadian crude volumes were flat versus the first quarter and down from the fourth quarter due to the cyclical nature of our production. During 2002, new liquids volumes are expected from build-up with . Canadian gas volumes were up 10 percent from the first quarter and also up compared to the fourth quarter due in part to additional Canadian gas sales that . European crude volumes were down from both the fourth quarter and the first quarter, again reflecting field decline that offset new volumes. Several projects will add European crude volumes later this year such as in the UK and and West in Norway.

European weather in the first quarter was warmer than the same period last year resulting in a drop in demand accounting for the decline in gas volumes. Compared to the fourth quarter, the weather was almost 10 percent colder, increasing demand and thus, production. In West Africa, the and J buildup are being offset by Nigerian quarter restrictions as compared to the first quarter of last year. This is the major growth area for ExxonMobil as new projects will add significant production in the coming years. Crude volumes in the Asia-Pacific region are also up with production at in the two phases of the satellite fields development in Malaysia. Additional volumes will be brought on stream this year as more phases are started up.

Natural gas volumes are up with back to full production and ramp up from the Malaysia projects just mentioned. In addition, our participation in the field in Australia, contributed to the first quarter to first quarter comparison. Crude volumes are about flat in the other regions of Latin and South America, and . OPEC quarter restrictions in were offset by higher production in Venezuela. In summary, upstream operating results were in line with expectations in our plan given the falling commodity prices, OPEC restrictions and warmer winter weather.

Our capital projects are progressing on plan with our upstream cap ex for the first quarter at $2.3 billion, a 28 percent increase versus the same period last year. As we move into the second quarter, the industry pricing environment is looking more favorable with crude and US natural gas prices up roughly 15 percent and 25 percent, respectively.

Turning to the downstream. Our first quarter downstream earnings reflect extremely weak industry refining and marketing margins. In fact, the decline in refining and marketing margins during the first quarter of 2001 lowered earnings by over $1 billion versus the first quarter of last year. Weak industry demand, driven by lower economic activity and generally warmer weather, kept margins at levels well below historic norms. Compounding this, late in the quarter, the rapid run up of crude prices resulted in a further squeeze on downstream margins. In total, this collapse in margins reflects the worse conditions that we have experienced since the mid-80's. Industry margins for refining and marketing were down substantially in every major region for both the year on year and sequential comparisons. The downstream refining and marketing business cycles have often times experienced periods where weakness in one was offset by strength in the other. In the first quarter of 2002, we were impacted by historic lows in both of these businesses. Total petroleum product sales during the first quarter were down 4 percent compared to the same period last year, driven largely by warmer weather and decreased demand for heavy fuel oil. Sales of jet fuel were also lower.

On a more positive note, our global and petroleum specialties business continued to perform strongly, consistent with previous quarters.

Now, turning to the regions. Looking first at the United States, the downstream earnings were $14 million. Decreased industry refining and marketing margins across all regions in the US were responsible for this steep decline in our US downstream earnings. Compared to the first quarter last year, lower refinery margins reduced earnings by over $400 million. US Gulf Coast margins contributed to the majority of this decline as over 75 percent of ExxonMobil's US refining capacity is concentrated in the Gulf Coast region. Lower industry gross marketing margins reduced earnings by roughly $100 million, as rising supply costs and intense price competition squeezed retail margins to their lowest levels in a decade. These margin driven declines which impacted US downstream earnings by over $500 million in total were partially offset by improved refinery operations and fewer turnarounds. Compared to the fourth quarter of 2001, lower refining and marketing margins account for essentially all of the reduction in earnings.

The foreign downstream lost $42 million as European and Asian refining and marketing margins both dropped substantially. Versus the first quarter of 2001, depressed refining margins impacted earnings by almost $500 million in the foreign downstream, as historically low margins persisted for much of the quarter in Europe and across Asia. In Japan, where we have approximately 20 percent of our overseas refining capacity, refining margins were particularly weak. More than $3 a barrel lower than the first quarter of last year. Lower European and Asian marketing margins also contributed to the decrease in earnings, with the majority of the decrease coming from Asia-Pacific. The currency devaluation in Argentina further reduced foreign downstream earnings by about $80 million when compared to the first quarter of last year. Versus the fourth quarter, the story is very similar. Lower refining margins negatively impacted earnings by approximately $300 million, due primarily to declines in Europe and Asia. Similar to the year on year comparison, Japan was particularly weak, accouting for the majority of the decline.

Marketing margins fell significantly throughout Europe and Asia-Pacific with a negative earnings impact of over $200 million. The benefits of reduced inventory levels realized across last year as part of our ongoing efforts to improve efficiency, impacted fourth quarter earnings. As disclosed in the10K, this increased earnings by $238 million. A substantial portion of this benefitted the non US downstream business. The current quarter does not include any earnings.

In summary, industry fundamentals in both refining and marketing yielded the weakest quarterly results we have experienced in quite some time. All the industry conditions were disappointing. We were encouraged by the solid performance of our operations. By going back to prior periods, we were able to verify that without the efficiency improvements made in our base business since the merger, downstream earnings would be down even further due to the decline in industry conditions. We are also encouraged by the improvements we are currently seeing in industry conditions. Global refining margins, month to date, are up versus the first quarter by approximately 40 percent. Marketing margins are also showing favorable trends as we move towards the summer driving season.

Turning now to chemical. First quarter 2002 earnings of $132 million were down $68 million versus the first quarter of 2001, reflecting the continued pressure on commodity product margin in all of our operating regions. Despite significant reductions in feedstock prices from the first quarter of last year, global commodity margins, on average, declined. Gains in the US were offset by substantial margin erosion overseas. Compared to the fourth quarter, commodity feedstock cost remained relatively stable in the US while European cost increased. Overall, commodity product margins fell across all of our markets reflecting continued price pressure associated with weak demand.

Looking at our specialty business, lower feedstock costs helped to partially offset the declines from the first quarter of 2001 in our commodity businesses. Compared to the fourth quarter, specialty product margins declined but to a lesser extent than commodities. Record first quarter sales volumes helped offset some of the revenue decline associated with weaker margins. Increased sales and capacity additions outside the US offset reduced US volumes.

Looking next at our other operations. The power segment continues to be a strong and steady earnings contributor with sales of power to Hong Kong and mainland China. The remainder of the other earnings is mainly from our coal and minerals businesses. As previously announced, we entered into an agreement early this quarter to sell our Colombian coal operations to our joint venture partner, a sale that closed on February 21st. As a result, the first quarter results include earnings from that operation through the closing date. Coal earnings include a relatively small gain realized on that sale, along with the impact of higher coal realizations. Our minerals earnings from our Chilean copper operations were down this quarter, with lower copper production due to planned maintenance and lower copper prices.

Looking at the overall financials, ExxonMobil's balance sheet remains healthy, if the company continues to stay the course despite the extremely challenging industry conditions we have faced this quarter. Our cash balance is $6.6 billion and $10.5 billion at the end of the quarter. This results in a debt-to-capital ratio of 12.3 percent and a net debt-to-capital ratio of 4.9 percent. Cash of $1.5 billion was returned to ExxonMobil share holders through our purchases. Share purchases of 35.4 million shares resulted in the retirement of 26.5 million shares.

The effective tax rate is 41.7 percent, about the same as the first quarter last year and within our previous guidance of 40 to 45 percent. Corporate and finance charges for the first quarter were about flat from the fourth quarter of 2001, in line with our guidance of $100 million to $150 million. As we discussed in the fourth quarter teleconference, US pension expenses are up versus 2001, due to a lower discount rate and lower asset returns.

In closing, I'll quickly summarize the quarter. Without question, this was an extremely tough quarter with significant erosion in commodity prices across all of our businesses when compared with the record first quarter in 2001. While it was a difficult environment, it was not completely unexpected. The industry indicators were pointing to a convergence of low prices and low margins in each of our businesses. I don't think that any of us relish these experiences but they are an inherent part of our very cyclical industry. The first quarter is a good example of why a steadfast commitment to a sound business model and solid principles are important. As we said to you on March 5th, we are staying the course. As we enter the second quarter, things are looking better. While industry refining and marketing margins are still low by historical standards, they appear to be improving. Crude prices are also up and we are beginning to see some signs of an economic recovery. We are looking forward to an improvement in second quarter industry conditions.

Finally, I'd like to remind everyone that the ExxonMobil 2001 financial and operating review is now available on our Web site. We will begin distribution tomorrow.

I will now take your questions.

Thank you.

Today's question and answer session will be conducted electronically. In order to pose a question, please press the star key followed by the digit 1 on your touch tone telephone.

Once again, if you would like to ask a question, please press the star key followed by the digit 1. We will begin with of Bank of America Securities.

Hi, Pat. How are you?

Fine, Tyler.

Sorry for the voice. I was on about 15 plane flights in Europe last week. The first question is, I think you went through most of this but I just wanted to make sure I have clear the sequential movement in R&M and specifically related to the absence of gains which were booked in the fourth quarter. In terms of that $238 million is that correct?

$238, right.

OK and then, could you detail please, if possible, again on a sequential basis, the marketing margin affect, Europe versus Asia Pacific?

OK sure. I'll be glad to do that. If you look at the performance in the industry fundamentals quarter on quarter and you're asking fourth quarter to first quarter?

correct.

If we look at the, in particular the gas margins, first let me comment about the whole world. I'll say that if you look at our gas margins in the United States, third quarter to first quarter, they're down like about $6 a barrel. And that gas margin is kind of a rack to retail Tyler. If we look outside the United States and we look at, for example, Northwestern Europe and we look at some of the fundamentals there, we can see the weak refining margins but your question was mainly marketing. And if you look at our marketing margins on the European basis and again on a rack to retail type of basis, we saw margins drop by about $3 a barrel.

OK. And dollar-wise?

On a ...

Just simplify it for me. As a simple caveman so to speak.

Well, if we look at the marketing gross margins in Europe, it's around sequential quarter about $125 million quarter on quarter. And if we look at that same kind of indicator for Asia Pacific, which I think was the second part of your question, it's around $100 million from fourth to first quarter.

OK. Great. No, that's exactly what I was looking for there. And, brief commentary please, if you would, on the core venture projects. Specifically, there's been a good deal of press about this recently. So just what the take is on the various stages of the negotiations of the various projects that you're involved with there in Saudi.

Well Tyler, I want to be consistent. You know we really can't comment on that.

All right. I thought I'd try. Thanks very much, Pat.

Good try Tyler. Thank you.

We'll go next to of Salomon Smith Barney.

Hi Pat, how you doing?

Hi, Paul.

Two questions. One on the and sales figure on in Asia-Pacific products. 13 percent, if I did my numbers correctly, 13 percent decline year over year seems to be a little steeper than some of the other industry metrics as published by year and some of the other industry metrics. Can you explain to us what happened there? Do you have an unusual level of ? Why are you so much lower than some of the industry metrics?

I would say a couple of things. First off, we see our volume decline in Asia-Pacific about consistent with the rest of the world. We, like, I think the rest of the industry, were doing some sparing of capacity because of the extremely low refining margins in Asia Pacific. Nothing other than reflecting the weak fundamentals in the market there.

ting So, it's more the effect of one basically?

We're sparing that capacity in Asia-Pacific in the first quarter. Yes.

ting OK. Where do you stand on that right now? Are you bringing it back up a little bit? Also, can you comment about that in Europe as well? Do you have any in Europe by bringing it back up a little bit now or where do you stand on that?

Well, we're continuing to watch the business fundamentals. We've seen some improvement in the second quarter in the fundamentals but nothing specific.

ting OK. Falling gas prices. $2.91 looks pretty low compared to, especially, it's almost flat compared to 4Q, you show your gas price would increase up in the first quarter. Is this strictly a function of price of the lag effect of all prices or is it, what else is going on?

Paul, you're exactly right. Gas realizations in Europe are reflecting the lag. As you know, the gas prices are marked to a number of different things depending upon what country you're in and we can see a lag from anywhere from one to nine months depending upon the country. So, that's exactly what we're seeing in the first quarter of the lag effect on gas prices.

ting OK. Thanks Pat.

OK Paul. Thank you.

We'll go next to of Bear Sterns.

Hi, Pat. How you doing'?

Hi Fred.

Can you quantify for us whether there was an impact of crude on the water in your downstream earnings?

Help me out there a little bit. Question.

Yes. The lag on Saudi pricing on long haul crude that you take in. It helped earnings in the fourth quarter. Another major all reported this morning, negative hit in the first quarter on crude on the water.

We did see some impact on price finalization in the quarter and that just further exacerbated the very weak refining margins that we experienced. So, it was part of it.

And you can't quantify that.

No.

OK.

Relatively small compared to the impact of the overall industry conditions.

From the March meeting on one of the charts showing production targets and a little bit but it kind of looked like you had growth for this year in oil and gas. It looked to us about 1 percent on oil and about 3 percent on natural gas. Given what's happened here in the first quarter, would you want to change guidance for 2002 or do you still think you're going to grow at those rates?

Well, let me make a couple of comments about our overall volumes in the first quarter Fred. I would characterize our volume performance, X the impact of OPEC restrictions and warm weather, as right on plan. The first quarter has all the of work programs and build-up and rest but when we look at our performance, we have no reason to change our outlook that we discussed with you on March 5th. We see things, as I said, right on plan.

lofer So, we should be seeing 1 percent oil growth and about 3 percent gas growth this year?

Well, if you look at the charts that we used in that review that we showed, it's kind of hard to quantify exactly the percent. We look at our programs, we look at the progress on our projects, we look at our overall work programs and the success of those programs. And, as I said, when we look at it, it says that we're performing on our plan. You know, when we talk about our percentage and our capacity growth as we talked at some length on March 5th, we said that that's a longer term 3 percent growth over the period 2002-2007. I think for us the key is, are we meeting our expectations that we built in the plan and showed you on March 5th and we are and there's no reason for us to change our guidance to you at this time.

OK. Just a follow-up to question. You did have declines in product sales, a big one in Asia but also in Europe I noticed a little bit in Canada. A -- is that because of market conditions, as you described for Asia-Pacific and B -- I also noticed that you had an increase in product sales in the US and the API and others have suggested the product demand was down pretty good in the first quarter. So, what's going on in the US versus what we're seeing here in Europe and elsewhere?

Well, let me comment on each of those specific geographies. There's no doubt that our product demand in Europe was impacted by the weather conditions. Depending upon what weather source you want to quote, it looks to us like Europe was impacted some 9 to 10 percent warmer than normal which obviously impacts our sales. So, I think that's what you're seeing in Europe. Canada likewise from a volume standpoint, were pretty heavily weighted to the side and warmer conditions there as well impacting Canadian volumes. In the United States in the first quarter, really what we're seeing is the impact of fewer turnarounds on our volumes and we are seeing some strengthening in motor gasoline demand.

All right. Good. Thanks very much.

We'll go next to of J.P. Morgan.

Pat, two questions for you. Regarding the January 1 OPEC cuts, in Norway, are you guys still being impacted by production cuts there or has that eased a bit? And have you guys had any talks about the impact of the changes in North Sea taxes and how your strategy in the North Sea may change?

First, let me comment on the question with regard to volumes in Norway and we are seeing an impact on our volumes. You're exactly right. The second question you commented on was the UK budget change. Let me make a couple of comments here. As we look at it, there still are a number of unresolved issues with regard to the UK budget proposal. It's unclear to us what exactly is going to happen on this issue associated with a 12.5 percent royalty on fields that were developed prior to 1982. We, like everyone else, really haven't seen the specific legislative language and probably really won't see it in detail to provide an analysis of its impact until the third quarter. So, we're not going to comment on any specific impact on ExxonMobil's earnings. I will say though that we must express our disappointment in the fact that there was a real lack of consultation between the UK industry, the UK government, excuse me, and the industry. And the announcement, as reported, was a bit of a surprise I think for everyone in the industry.

One more for you Pat. You mentioned the net debt-to-cap is standing at 5 percent and there's been a corporate desire to try and raise the balance sheet leverage a bit. If oil prices stay here in the mid 20's and refining and marketing margins do indeed recover, continue to recover, you guys are going to be in a position where that net debt-to-cap continues to go down instead of up if you keep buying back 1.5 billion in stock per quarter. Do you see any potential for not wanting that leverage to go any lower and maybe accelerating the buyback program?

Well, you know, we kind of look at that number as a point in time and that's where we are at the end of the first quarter. We don't really typically worry about what that exact number is. What we do know is that, a couple of things, we've got a very healthy capital investment program in front of us for the remainder of the year and it looks like we're going to stay the course on those investments. And so I think we've got plenty of opportunities to continue to invest in a business that we're very optimistic about.

OK. Thanks Pat.

Sure.

We'll go next to of Goldman Sachs.

Thanks. Pat, just a question on the North Sea oil volumes where we're kind of in it seems like a 6 to 7 percent kind of decline mode. Is that a good number going forward or is there something about the last two years that suggest going forward your going to either invest more to keep the base flat or is this just the nature of a mature province?

Well, I think that like a lot of the mature provinces, we continue to see those kind of declines in that province. So, I don't see anything unusual about those declines.

That's great. Thanks.

We'll go next to of Merrill Lynch.

Hey, Pat. Could you just clarify exactly what is the volume target for this year? I know you try to keep it somewhat open in terms of a long term target but looking at the graph, I know our is actually a little different than Fred's. We, eyeballing, it looks more like 3 percent growth on liquids and higher than 3 percent on gas. And, I know you sound very confident that you're on track but, given the volumes in the first quarter, it'd be very helpful to know what should we on the outside be gauging your performance two plan as we go through the quarters for 2002.

Steve, we don't really comment on the specific percentages year on year and quarter on quarter because it's very difficult from a standpoint that project timing and all the rest. I think more what we like to talk about is the progress that we're making on our projects and the investments that we're making. So, those specific target we hold to our guidance that when we look over the time period between now and 2007, we're going to add capacity at 3 percent and that's what we're going to do. The rest is kind of points in time for us because of our large projects. You'll recall the chart we used when we looked at Angola and talked about the time it takes to develop these projects and all the rest and that's why we just don't see a lot of value in pegging specific number for each year. We're going to develop these projects for profitable growth of our production and sales of crude natural gas.

And then in your comments on OPEC curtailments, you said that was about a 2 percent impact which I guess is roughly 90,000 barrels a day. Could you break down a little bit more how much of that, does that include some in Norway or is that just Nigeria? Could you maybe help us understand a little bit where that number is coming from in terms of a regional breakdown?

When we look at the restrictions on OPEC, our number is in the 65,000 to 70,000 barrel a day in the comparison 1Q/1Q Steve. And, you look at it, I think the answer is yes. It's impact on all the countries in which we produce that are within OPEC and that guidance , Nigeria and Norway.

And then, could you just comment specifically on the European liquids which were down actually about 11 percent? Could you just give us some flavor for what is going on there that in looking at the volumes that was, by our expectations, is based a bit below what we had been looking for?

Yes. I think the short answer is Europe continues to be a very profitable, very important part of our ongoing portfolio but it is a mature province. And when we look at half that province, we're seeing that impact of it being a mature province, we do have some upstream projects that are queued up for this year in the UK and the Netherlands that are going to impact those volumes near the latter half of 2002. But again I think the real bottom line is, it is a mature area that we are continuing to benefit from the performance.

And then lastly, on US gas, down 11 percent year over year, and obviously the Webster blow down was part of that, but even looking from 4Q to 1Q, you were down about 3 percent. Could you just give us some sense for the level of work over activity that may have changed and again, is that the plan that we're going to see 3 percent per quarter decline or was that higher than what you'd expect for sort of a more normal rate of decline in US gas.

Well, I'd say overall, when we look at the results for the first quarter, as I commented, we're fundamentally on plan. Like anything in this business, we've got timing of our work programs and our build up in the United States. It 's a . It depends upon where we are in that program. So, when we look at the first quarter, again we would say we're doing what we planned to do. We don't see anything of any significant on the comparison of fourth quarter of 2001 to first quarter 2002 vis-à-vis what we wanted to do in our work programs.

. So you'd expect to see gas decline at 3 percent per quarter?

It depends upon where we stand on our work programs. As I said, when you look at it, quarter to quarter comparison pretty, we don't see a lot of value in those comparisons but it really depends on where we are in our work programs. It happened to be that our work programs fourth quarter of 01 to first quarter 02 had that impact on our volumes. But no, we're not suggesting that we're going to see a 3 percent decline in US gas over that time period. Probably, I just refer back to one of the charts that we showed on March 5th. If you look at our regional production, it varies and if you look at that, you can see our natural gas volumes for the United States are outlined there over that time period. Kind of flat.

OK. Thank you Pat.

Sure Steve.

We'll go next to of UBS Warburg.

Good afternoon Pat. Couple of questions on the downstream if I can. It's quite strikingly difference in utilization rates between the US operations at some 97 percent and the international at 82 percent in your refining business. I wonder if you could tell us about the difference in operating strategy? You mentioned in your comments that you'd scale back international runs because of margins. You don't see margins being weak in the US? And then secondly, you mentioned also you'd examine the impact of synergy's if you hadn't of captured them, what they would have meant to your performance? I just wondered if you could share with us how the divisional performance would have looked without that synergy capture.

Yes. Let me answer the first question around the capacity issues and our capacity utilization. The higher capacity utilization in the United States is obviously, 1 -- the margins were, while extremely weak, were better and, better than the rest of the world if you will. But we were still making money on those runs. If you look at the lower capacity utilization in the rest of the world, it was a strictly a factor of us economically sparing capacity due to the fundamentals and the economic conditions in those particular areas, whether it was Europe or Asia-Pacific. So, again, we were driving by the business fundamentals and we did have some sparing of capacity. I think overall, in the world, Europe obviously and Asia weren't the biggest pieces of that sparing capacity.

The second question that I'd answer is something that I made, I commented on in my prepared remarks and I think it warrants some discussion. NO doubt with the results that we saw in the first quarter, particularly in the downstream, it does beg the question well are you really seeing the impact of synergies and merger effects that we've been talking about. So, we went back and examined the conditions that we saw in the first quarter of 2002 versus a number of other periods. One, for example, the fourth quarter of 1999 when we saw negative results in the downstream, the last time we saw negative results in the downstream. And if you do the comparison of the industry margin, both refining and marketing and just do a good old analytical factor analysis. If you look at those numbers, it suggests that our earnings in the first quarter of 2002 would have been much lower if it weren't for the fact that we had the synergy benefits and order of magnitude some $200 million to $300 million improvement from the merger synergies. So something that we felt we really did want to take a look at and bore out that our synergies are, in fact, there. I hope that answers your question.

It does Pat. If I could perhaps follow up with one on the upstream, you mentioned the benefit of coming back in terms of what it's done for your volumes. I saw a story recently that is reallocating some of the export volumes to Korea to and away from and volume is going to the domestic market. Clearly, Mobil faced a very substantial earnings decline when the contract terms were changed a couple of years ago. Is there any likely value erosion for the volumes that you are producing as a function of this change that you are aware of?

None that we're aware of. No.

OK. That's great. Thank you very much.

Sure.

We'll go next to of Credit Suisse First Boston.

Hi. Good Afternoon.

Hi Mark.

Hi. Let's get back to Japan for a second. You mentioned that Japan was a particularly bad area for refining and I assume from marketing margins in the first quarter. I think you said that in the first quarter, Japanese refining margins were $3 a barrel lower quarter on, year over year. In fact, is that right or?

Yes. Let me make a couple of comments. First off, there's not quite a good, or I should say, not quite as available of industry indicates in and oil gas and the rest that we could utilize. But when we looked at our refining margins in Japan, first quarter to first quarter, we saw a erosion in margins of some $3 a barrel. If we looked, and that's first quarter to first quarter. If we look at the same comparison for Japan fourth quarter to first quarter, we saw a drop of almost $5 a barrel. So you can see the impact of Japan on our non US downstream results was fairly significant.

And the inevitable follow-up to that would be where are we now? Have we, I mean in terms of dollars per barrel, have we pulled some of that back yet or is Japan continuing to struggle would you say?

When you look at the margins that are exist in Asia Pacific and in Japan, they still are very, very weak.

So you wouldn't say there's been any real significant recovery in those Japanese results visible yet?

No, I would characterize it as too early to tell for the second quarter and a continuing weakness in Asia Pacific refining that we're seeing.

Great. Thanks very much.

Sure.

We'll go next to of Fahnestock & Company.

Good afternoon Pat. I have got two questions actually and maybe a third question. The first question, can you take us through the delta, the drop of $1 billion in the downstream and between defining marketing as well as volumes?

Sure. A couple ways to look at it, we kind of like to look at it from the US perspective and the non-US perspective but if you look at the refining margins in the United States, they reduced our earnings. And I'll speak about the first quarter of 2001 to the first quarter of 2002. If you look at in the US, the refining margins contributed some roughly $400 million to that decline. If you look at the non US refining margins, again they were in the magnitude of $400 million to $500 million quarter on quarter. The marketing gross margins were about $100 million to $150 million. If you add up the margin impacts Fidel of both refining and marketing, they more than address the reduction in earnings that we experienced in the downstream in the first quarter of 2002. Fortunately, because of some strong operations and our continuing synergy effects, we were able to, albeit not as much as we'd like, we were able to offset that some $1 billion of margin erosion.

Did you do any cuts in the in the first quarter versus first quarter of last year?

Yes. I think I commented just a little bit ago. We spared capacity in basically all regions but most being in Europe and Asia.

And the impact of that?

Relatively small financial impact to the bottom line. After all, when you look at the margin impacts of over $1 billion, everything else pretty much pales in comparison.

And then a request, since you're doing a wonderful job giving us realization, can we extend this kindness to refining and marketing margins ?

Well, as I commented, with all of twenty-some days behind us in the second quarter, we're encouraged by seeing some strengthening in refining margins. But again, you know the business Fidel. We're encouraged but we've got a long way to go and we're also coming from a very, very low base. The industry margins are weak.

No, what I'm saying, in your course of , can you add this information for us to help us understand the dynamics of your earnings?

No. We'll take a look at that.

A follow up, or a question on chemicals. Can you give us an order of magnitude rates right now in your chemicals or the average for the quarter versus a 1Q '01?

Well, if you look at our volumes in chemicals, of course we achieved another record in our sales volumes, albeit the margins were a little bit, more than a little bit, our margins were weaker. We saw, as I said, record sales volumes in the first quarter of 2002.

OK. Thank you.

We'll go next to of Lehman Brothers.

Hi, Pat.

Hi, Paul.

Hi. How are you doing?

Fine.

Several quick questions. On the gasoline and diesel sales, can you give us a rough estimate what is the brand of sales on those products in US and international?

I'm sorry Paul. I missed the question. It was the brand.

Right. The brand of sales means that how much is your exposure on a barrel per day or gallon per quarter, per year standpoint?

No, we're not going to comment on that.

Any even rough estimate? Say 30 percent, 20 percent or any rough percentage?

No. No percentages on it.

OK. Let me try another thing. The Japanese refinery volume. What's that number in the first quarter?

The specifics on the Japanese refinery volumes? Don't have them with me. We could follow-up with you on that Paul.

Is that possible? Yes. If you could have someone give a . That's great. in the past you have indicated you have from a tax settlement. I presume that's pretty small. Any rough idea?

tax settlement. In the first quarter of 2002?

I think so. That's what you put your in your press release.

I think in our press release we just talked about the effective of tax rate and there was no specific tax settlements in the quarter.

OK. I mean

I think, Paul, what you're seeing, what we typically have commented about is the ongoing impact where we're trying to address the fact that our effective tax rate will be a bit lower than the statutory tax rate in our press release.

OK.

And we continue to benefit from that. And that's why I made the comment that when you look at our effective tax rate, it's about in line with our guidance at 41.7 percent.

OK. Great. Last question. Wondering across your system, have you seen any sign of lower demand due to the recent rise in crude prices?

Well, the short answer is no. Again, we're not that far into the quarter. As I commented, we were encouraged by some strengthening of motor gasoline demands but, as you know, the second quarter in this business is pretty, one of the shoulder months or shoulder quarters. As you know, volumes typically are not that high and driving, we're kind of waiting for the driving season. So, I think the short answer is no, we haven't seen any real impact on our demands with the recent crude price increases.

Pat . On the US natural gas decline, sequentially, it's about 3 percent. You think it really depends on your work program for the remainder of the year to determine what's the decline rate we can expect. Can you give us some idea that how's your work program in terms of the intensity for the remainder of the year comparing to the first quarter? Are we going to see that getting higher or about the same lower or getting lower?

No. I think we'll continue to see our normal work activities in the and in the United States and I think you'll see some increase in our overall work program but that's pretty typical. I would refer more to our typical pattern of the business as you get into the summer months, if you will, and the drilling season more.

Oh. I see. OK. Very good. Thank you.

Paul, can I come back to you? Let me answer one question for you I should have mentioned earlier. If you want to take a look at our overall capacity in Japan, it's about 20 percent of our total refining capacity outside the United States.

And in your, you had indicated in Asia-Pacific, your refinery about 1.37 per day but you have more than just Japan so I was just curious. What's that number ?

Yes. And as I said, it's like 20 percent of our capacity outside the US.

All right then. OK. Very good. Thank you.

We'll go to of First Albany.

Pat, how are you?

Hi Mark.

I guess a couple of things. I'm curious as to why it is three years post closing of a merger, we're still making provisions for merger expenses?

Well, when you look at our programs in particular, we had outlined a very disciplined approach to evaluating our facilities and what that provision really addresses is the closing of some of those facilities. We want to do them on a very deliberate and effective basis. I think that's, well I know it's consistent with our plan. It really reflects facility closures as we restructure our downstream business.

OK. Can you comment at all on the rough balance and the reserve for such charges as it exists on the balance sheet?

No. Don't have that specific number Mark.

Could someone give me a call on it?

We can take a look at what we reported to you at the end of the year.

OK. That'd be fine. In the US upstream, just a couple things. Can you split the Alaskan and lower 48 liquid volumes?

We don't typically split those volumes out and we really look at our vibes on an overall basis from US as far as reporting.

Well, the, our analysis suggests that the costs in the US went up very substantially in this quarter and that could be OP costs, could be . I obviously can't tell. It could be tax rate effects also. Could you comment at all on whether or not you're seeing anything to that effect?

I can't reflect on what analysis you might have done but I will tell you that when we look at our operations in the United States and our volumes, both liquids and natural gas, we don't see anything unusual.

No unusual cost effects?

No.

OK. Just one more. You commented on the absence of benefits in the downstream in this quarter. Depending on your accounting practices, this could be a quarter where you had charges if you drew down physical inventory, depending upon what provision you made for the replacement of it. Was there any of that at all that burdened your downstream results, either US or overseas?

No. Not at all. Zero.

OK. Thanks a lot.

OK, Mark.

We'll go next to of .

Yes Pat. I wonder if you could give us a feel for, of the, your Asian natural gas production which was . How much of that is ? And if you give us a feel for the volumes, 1Q 2002 versus the fourth quarter and first quarter of last year and what you expect from that in the future.

A couple of comments. We like to look at our volumes on a regional basis. And so when we look at our total volumes for Southeast Asia and Australia at the $1.9 billion, that's the way we report it. As I commented, what we can discuss is that we can see the ramp up in our natural gas volumes associated with as well as some additional volumes for the projects that we talked about in Malaysia and in Australia.

OK. I'm just wondering what the natural decline looks like now at around both the gas or the L&G and the .

And again we look at that province overall and really don't discuss specific .

OK. You are strong Pat. Thank you very much.

OK.

We'll go next to of Loomis Sayles.

OK. Couple of questions. Falling back on the Japanese comments you made. I think what Paul might have been trying to find out was, was the Japanese any different than the rest of Asia?

Any different than the rest of Asia? Again, what we've done across all of our refining is we will spare capacity based on economics. So, that's really the comparison you've got to make.

Right. But I think you talked about cutting . We were just curious whether the Japanese utilization was much different than the rest of Asia.

Oh. We did spare capacity, yes, in Japan. Don't have the percentages by country. We really don't look at it that way. We look at it on a regional basis. And economics by refinery.

And how about the effect of in the North Sea?

We're continuing to see some impact on our volumes for .

Can you tell us how many days it ran in the quarter?

Don't have that specific.

And, last question. You were breaking out, I think for Fidel, the US and non US refining and marketing. You made a comment of $100 million to $150 million in marketing. Was that the US, non US or total?

That was total.

Total. OK. Thank you very much.

We'll go next to of Prudential Securities.

Good afternoon. Can you give us any commentary on the demand trends you're seeing evolving? We're all hoping that there's going to be this economic recovery in the United States that going to help the rest of the world but it doesn't seem to be evidenced in much of the statistics reported by most industrial producers, including those in the energy area. What's your sense given the breadth and scope of Exxon's worldwide operations?

Pretty hard to project what's going to happen on our volumes until we really know what's going to happen to the economy. The comment that I made was that we are encouraged by the fact that it looks like we're seeing some turnaround in the economy and to the extent the economy turns around, we'll see the impact on our volumes. But, I don't think I could project what's going to happen to the economy.

What kind of feedback, Pat, are you getting from your operating people in various regions? Because it's fairly obvious that all the costing, feedstock cost increase and companies have been unable to pass those through, although they were very violently strong in the last couple of months. So that may be hiding in underlying improvements. What's the sense of your people? I'm not asking you to forecast, just give us a sense.

I mean I would simply go back to our business model and the sense that our people have is an intense focus on operational excellence which is our, which is what we talk about doing the fundamentals, the day to day things right as best as we can. Attention to detail and disciplined focus on all parts of our operation whether it's safety, to running operating units or drilling wells. And so the sense from our operating people is really the same thing we keep saying. We're going to stay the course and we're going to do the things that made ExxonMobil as successful as it's been. And today, with those particularly weak fundamentals in the downstream, it's even more important, it's always important but very important, for us to be focused on just absolute operational excellence with sound business fundamentals.

I understand. Maybe if I rephrase the question somewhat. We know the winter was fairly warm and that affected your natural gas production in Europe and your heating oil sales. And we know that aviation fuel is still burdened by the lingering affects from reduced travel from 9/11. But absent those sorts of things, and not commenting on your own operating costs, which are excellent, do you see any turn in the worldwide economies that you can discern from the numbers?

Well, again, not really. It's pretty early into the second quarter. I mean our first quarter volumes kind of speak for themselves. I think the one encouragement that we have is when we look at the volumes, particularly for motor gasoline, we are seeing some strengthening there but it's too early to tell.

OK. Thank you.

Sure.

We'll go next to of McDonald Investments.

Hi, Pat.

Yes.

You mentioned something about the the performance was as good as maybe the first quarter or last year first quarter. That begs the question then, refining mark in change was well over $1 billion. Am I missing something? Maybe $100 million or $150 million that we're not accounting for and where is that?

No. The impact of our and petroleum specialties business are obviously embedded in our . Really what I was commenting about is we continued to see solid operations in lubes and specialties and they're, while a small volume, a very important part of our overall portfolio. So, nothing hidden, just a comment that it is an important part of our portfolio.

There were profitable lubes right? Or am I wrong?

Yes, they were profitable. They were profitable and they are, the results are integrated in the overall refining and marketing margins and results.

OK. Thank you.

Sure.

We'll go next to of Deutsche Bank.

Hi Pat. . Quick question on your progress in Angola. Our understanding was that there may be an this quarter. Can you update us on any progress that you've had with that? And any results? And also what your position is in Angola going forward to any results you may have had?

Well, we continue to evaluate the results of all of our drilling in that very important part of the world. And Angola is a very significant part of our go forward portfolio as it is today. No specifics on that well other than that the results will continue to be evaluated. Our plans for Angola, I'll do a little plug here for our financial and operating package that's on our Web site and being mailed out. If you take a look at that, you'll get a good opportunity to see what we've got in store ahead for Angola.

Good. I'll look into that. And Pat, on Japan, you mentioned the size of your position in Japan. Can you confirm that the business meets the returns criteria that you set yourselves going forward? And also the progress of any restructuring that you may have done in the first quarter and that you may continue to do going forward?

Well, a couple of things I'd say that the results and the downstream for the first quarter don't meet any kind of criteria as far as we're concerned, the results were so weak. But we will obviously evaluate all of our investments to make sure they're an important part of our portfolio and they are performing. So, it's quite a longer term trend that we have to look at. If you look at our March 5th analyst presentation, you'll get a good idea of some of the things that we have done in our refining sector in the downstream, particularly in Japan and in the Gulf Coast in synergizing those facilities. And I think that'll give you an opportunity to see what we're doing there. If you don't have that package, we'll be glad to provide it to you.

I appreciate that. Thanks.

OK. One more question.

We'll go to of .

OK.

Hi Pat.

Hi Stanley.

Yes. Two things. Just a follow on guidance question on the lubes. The commentary that we've had since the merger has been sort of an emerging of two very impressive positions globally on lubes and the stocks, it seems clear that your company is world leader. On the, I guess on the finished lubes, there's been a lot of restructuring and reduction of costs. And I'm just wondering, you mentioned consistent solid performance but my impression had been that profitability of the whole venture was building up gradually. Is that correct?

We continue to see the strength of the two brands and so we're encouraged by that impact both on our base stock and on our finished business. So, as I said, our dual brand strategy is continuing to serve us very, very well.

Are you finished with the biggest part of the sort of synergy or the cost reduction impact projects in reducing? And you consolidated quite a number of sites and so on. Is that largely complete now?

Yes. If you look, I would say yes but we still have a little bit ways to go. I think asked the question about will we, the impact of seeing some restructuring costs. We still have some facilities that we will rationalize as part of our plan and those are associated with the lubes business. If you take a look at our March 5th presentation, we've got some additional details there on how far, how much we have accomplished and what we have left to do in that business. But we've got the vast majority of it behind us. That's for sure.

OK. The second topic is and this is really a question I ask both to Exxon and Shell but, in terms of Exxon, it's true that you booked some reserves from at the end of the year last year?

The recognition of the project would result in some reserve ads. That's right.

Because there's a couple of questions going forward. Obviously there's a huge resource there. As I recall, the resource back five, six years ago were enormous for Exxon and the project depends partially on obviously finding gas marketing outlets that are successive and solid which, I guess, has not been done yet. And also, I understand it depends on sort of clarification of the PSA legislation where you have a a grandfathered PSA but not an updated PSA. And there has been, despite your announcement to the press, that there's some cap ex. There's been no press release, that I recall, confirming that you've done all of this. So, I'm confused to what the exact status is.

Well, of course we came out and made comments about that we were going forward with . And my comment earlier is that obviously the are part of our overall resource base that we talked about. So, again, if you take a look at our F&O, we talk about, our F&O report you can see where we stand on and we've got some additional details on that project in the F&O.

So, is it accurate to say that you're not waiting anymore on sort of guarantee physical terms?

No, we're progressing that project.

Without regard to facts and other arrangements being ?

Well, there are ongoing discussions and we're taking a very deliberate approach to that project just like we do with all of the other projects that we're involved in.

Thanks, very much.

I'd like to thank everyone for participating in the conference and look forward to meeting with you again at the end of next quarter.

Thank you.

That does conclude today's conference call. We thank you for your participation.

You may disconnect at this time.

END