埃克森美孚 (XOM) 2003 Q2 法說會逐字稿

The ExxonMobil Corporation second quarter 2003 financial and operating results conference call will commence momentarily. Please stand by, we are about to begin.

Good day, everyone and welcome to this ExxonMobil Corporation second quarter 2003 earnings conference call. Today's call is being recorded.

At this time, for our opening remarks I would like to turn the call over to the Vice President of Investor Relations, Mr. Pat Mulva.

Please go ahead, sir.

Welcome to ExxonMobil's call conference and webcast on our second quarter 2003 financial and operating results.

My remarks today may include projections, estimates, expectations, plans and other forward-looking statements on topics such as market conditions, future production, capital expenditures, expense efficiencies, U.S. pension expenses, corporate and finance expenses, project plans and schedules and recoverable resources. Actual results could differ materially due to factors I discuss, and factors noted in our SEC filings. In particular, I refer you to factors affecting future results in our item 1 of our latest 10K, and to the press release included in the Form 8 we furnished this morning. This material's also available through our website.

I also refer you to the frequently used terms posted on our website, and the material included in this morning's Form 8K. This material defines certain financial and operating measures and other terms I may use today. To the extent applicable, this material also includes GAAP reconciliations and additional information required by SEC Regulation G. Note that we assume no duty to revise, correct or update today's information as of any future time.

ExxonMobil's second quarter income was nearly $4.2 billion, or 62 cents per share. This brings our 2003 year to date total to $11.2 billion.

Second-quarter earnings improved by $1.5 billion, or 58%, compared to the same period last year. This is primarily due to higher liquids and natural gas realizations of $660 million and improved downstream and chemicals margins of about $960 million.

In a sequential comparison, excluding the impact of the transaction and the 143 accounting change in the first quarter, second quarter earnings decreased by $620 million, or 13%. Earnings in the upstream segment were impacted by about $870 million due to lower liquids and natural gas prices. In addition, lower production volumes due to seasonal declines and some operational outages reduced earnings by about $300 million. These factors were partially offset by higher margins in the downstream in chemicals business.

We've achieved several key milestones in the planning, development, and implementation of major upstream projects, and in our downstream and chemicals businesses since our last earnings teleconference. Beginning with the upstream, we participated in three additional deepwater discoveries in Angola. This brings our total number of deepwater discoveries in Angola to 32. These discoveries represent significant additions to the company's resource base in Angola, which is now estimated at more than 10.5 billion oil equivalent barrels.

Also in West Africa we initiated pipeline fill operations on the Chad Cameroon Oil Development and Pipeline Project, more than one year ahead of schedule. Initial exports are projected for late in the third quarter of 2003.

Production commenced in July from the Southern Area Expansion Project in. This project is the second deployment of early production system in offshore West Africa. This will add about 110,000 barrels per day at current production , increasing the total fuel production capacity to 300,000 barrels per day. By utilizing the early production system, we've been able to bring this project on stream in just 19 months.

Also in July we announced the awarding of major contracts for the East Area Additional Oil Recovery Project in offshore Nigeria. This $1.7 billion development is expected to increase production by approximately 110,000 barrels per day with start-up scheduled for 2006.

In we announced the front-end engineering and design contracts for onshore facilities and a receiving terminal for the Gas Two LNG Expansion Project. This is a significant milestone, in the construction of two 7.8 million ton per annum LNG trains to supply gas to the U.K .and Continental Europe. Start-up of the first train is expected in late 2007.

In Russia, we commenced drilling marking the beginning of the extended reach drilling program on the project. This program involves drilling 34 wells at and fields as part of our Phase 1 development.

In Australia, the production test on the is a maximum rate of more than 72 million cubic feet per day. Now, based on these early results, it's estimated that the could approach 20 billion cubic feet of recoverable gas sales.

In the downstream, we continued to demonstrate our leadership in technology with new licenses issued for several proprietary refining processes during the second quarter. In addition, ExxonMobil and Technologies entered into an alliance for high throughput experimentation. This effort focuses on more efficient and faster paced development of chemicals, lubricants and fuels products and processes allowing us to continue to expand markets and meet the changing needs of our customers.

We also announced plans to build a co-generation facility at our Beaumont Refinery. This is part of our plan to add nearly 900 megawatts of new capacity in North America, which will improve efficiency and reduce carbon dioxide emissions by more than two million tons per year.

In chemicals we launched a new family of specialty. This is a new product platform that combines the company's strengths in catalyst technology, product design, and process development. It will deliver new levels of performance across a broad range of customer applications.

Our functional organization structure continues to generate significant cost efficiencies. Our business lines continue to find ways to leverage our global scale. We are on track to deliver $1 billion before-tax cost efficiencies in 2003.

Now let's take a look at the specific business line results.

Second quarter upstream earnings were $2.8 billion and that's up $610 million, or 27%, from the second quarter of 2002. Primarily due to higher liquids and natural gas prices. Overall, liquids realizations were up $210 million, and gas realizations were up nearly $460 million.

Now looking sequentially upstream earnings were down nearly $1.2 billion, as both liquids and natural gas prices were below the first quarter levels. Liquids realizations were $600 million lower and gas realizations were down by about $270 million. Lower seasonal natural gas demand and operational outages in the North Sea and West Africa reduced income by about $300 million.

Now turning to volume, second quarter production on an oil-equivalent basis was flat versus the second quarter of 2002. Liquids volumes were down 1% versus the same period last year, as operational outages in West Africa and the North Sea, along with natural field decline, more than offset the impact of new projects and work programs. Gas volumes were up nearly 1%. New project volumes and higher demand in Europe exceeded field decline. Excluding the impact of the operational problems, oil equivalent producible capacity for the second quarter was up by 2% versus the same period last year: Looking sequentially, liquids volumes were down by 1% due to operational outages, which more than offset the impact of new projects in the absence of the strike in Venezuela. Lower seasonal demand primarily in Europe contributed to the lower natural gas volume. We provided you with data on religion volumes in the press release and the IR supplement.

Let me just outline the major volume impacts for the quarter.

Starting with liquids. Unscheduled downtime in the North Sea and West Africa reduced liquid volumes by about 80,000 barrels per day versus both comparison periods. The Shearwater and outages accounted for the majority of this impact.

In West Africa, liquid volumes were up 15% in the year-on-year comparison as volumes from new projects and work programs in Nigeria, Angola and more than offset the impact of operational outages. Volumes were down sequentially as the unplanned downtime more than offset the impact of new project volumes.

In Europe liquids volumes were down versus both comparison periods, as the impact of operational outages in natural field decline more than offset new project volumes and work programs. Canadian liquid volumes were up in both comparison periods as a result of the and projects and work program investments. Reduced OPEC quarter restrictions in and Nigeria contributed about 45,000 barrels per day versus the second quarter of last year.

In the sequential comparison, the absence of the Venezuela strike added about 40,000 barrels per day, the second quarter volumes partially offsetting the impact of the operational problems. Now looking next at natural gas volumes, versus the second quarter of 2002, natural gas volumes were up nearly 1%, primarily due to higher demand in Europe and new projects and the impact of our work programs. Operational outages, primarily in Shearwater, negatively impacted European gas volumes by about 125 million cubic feet per day, versus the second quarter of 2002.

In we benefited from increased demand and new capacity, which added 70 million cubic feet per day versus the second quarter of 2002. Looking sequentially, volumes were down 23% versus the first quarter, primarily due to lower seasonal demand in Europe.

Looking at our overall volume performance for the first half of 2003, we have added production capacity equivalent to a net of 2% growth over the first half of 2002. Upstream CAPEX for the second quarter was just over $2.9 billion and that's up 14% from the second quarter of 2002. Through the first half of 2003, we've invested $5.7 billion in our upstream business and that's 18% higher than the same period last year.

Our strong year-to-date capital program reflects the timing of new projects under development and the continuation of investments in our very profitable-based business. All projects are either on or slightly ahead of, schedule, and our projection of growth in long-term production capacity is unchanged.

Now in the downstream, second quarter earnings were $1.1 billion, and that's about $750 million higher than the second quarter of 2002. Strong refining margins, particularly early in the quarter, added $540 million to earnings. Higher marketing margins added $270 million. Earnings increased about $420 million sequentially.

Stronger worldwide marketing margins of nearly $400 million were partially offset by lower refining margins of $70 million. Lower seasonal turnaround effects of around $100 million also contributed to second quarter results. In the United States, downstream earnings of $419 million were up about $185 million versus the same period last year. $200 million in stronger refining margins, and marketing margin improvement of $70 million were the major contributing factors to the higher earnings.

Higher U.S. turnaround activity and maintenance in the second quarter versus last year partially offset these results. Versus the first quarter of 2003, U.S. earnings were up $245 million. Positive effects from seasonally lower turnarounds of $110 million, and margin improvement of $160 million were the major contributing factors. Outside the United States, downstream earnings improved versus the same period last year by about $580 million.

Stronger refining margins in Europe and relative improvement in Asia added nearly $350 million. Higher quarter-on-quarter marketing margins in all regions contributed an additional $200 million. Reduced economic spearing, better yields and lower operating costs also contributed to these positive results. Sequentially, non-U.S. earnings were up about $180 million, stronger marketing margins and improved refinery operations more than offset weaker refining margins.

Our chemicals business had the most profitable quarter in the last five years, with second quarter earnings of $439 million. These results were up $170 million compared with the same period last year and up $150 million sequentially. Improved margins and favorable Forex impacts more than offset the impact of lower volumes.

In the United States, margin improvement was partially offset by volume decline versus both comparison periods. Margins versus last year increased $130 million. Sequentially, higher realizations and lower costs resulted in stronger margins adding $180 million to our earnings.

Outside the United States, favorable foreign exchange affects added $120 million in the second quarter, versus prior year, and $50 million versus the first quarter. Non-U.S. margins also increased slightly versus both comparison periods.

Corporate and financing expenses of $253 million were up versus both comparison periods. The increase is due primarily to higher pension expense versus the same period last year, and the Forex impacts in the sequential comparison.

Looking at the company's overall financials, ExxonMobil's balance sheet remains strong. At the end of the second quarter, our cash balance was $12.5 billion and debt was $10.1 billion.

During the first half of 2003, we made worldwide contributions of about $500 million to our pension plans, and we anticipate further funding of about $2 billion in the second half of the year.

During the second quarter, ExxonMobil purchased 33 million shares of its common stock for the Treasury at a gross cost of nearly $1.2 billion. Through the first half of the year, we purchased 68 million shares at a gross cost of nearly $2.4 million. These purchases were to reduce the common stock outstanding and offset the dilution associated with benefit plans. As we've pointed out in the press release, due to the strong earnings through the first half of the year and the resulting cash flow, we have increased our rate of share buybacks in July. During the month, we purchased 14 million shares at a gross cost of $513 million.

We continue to progress our profitable portfolio of investment opportunities with our CAPEX for the year now projected at about $15 billion. The effect of tax rate for the quarter was approximately 40%.

In summary, our businesses continue to generate strong returns and significant cash flow. We have what we believe is an unparalleled opportunity set and we will continue to advance additional ways to profitably grow our business. Our disciplined approach to investing in profitable growth opportunities is unchanged, we'll continue to focus on maintaining industry-leading returns, and we will balance returning cash to our shareholders with building future value through our investment programs.

And I'll be glad to take any of your questions.

Thank you sir.

Today's question and answer session will be conducted electronically. At this time, if you do have a question, you may signal by pressing the Star key followed by the digit 1 on your touch tone phone. We ask that if you're using the speaker phone to please disengage your mute function to allow your signal to reach our equipment.

So once again, if you do have a question at this time please press Star 1 on your touch tone phone and we'll take our first question from Paul Ting at UBS.

Good morning. How are you guys?

Good morning, Paul.

Question on the share repurchasing and dividend policies.

Your July rate of $500 million, is that going to be ratable for the balance of the year, or looking forward into next year? And, secondarily, if you can just talk within the context of many companies have suspended share repurchasing and increased dividends, fairly sharply, is that something that -- that Exxon would also consider doing?

Hello? Paul. Yes. Can you hear me okay? I'm sorry, we must have had -- had a -- phone line. The question was on the -- could I ask you just to repeat the question? I apologize.

Yes, of course.

I apologize for the technical difficulties, but the question is related to dividend and share repurchasing, the share repurchasing rate of July of about a half a billion dollars, is that considered to be ratable looking forward? And, secondarily, many big oil companies have suspended share repurchasing and shifted more emphasis on dividend. I just wonder if you can make some comments about the -- the -- your view about the dividend versus share repurchasing?

Okay, Paul. Thanks.

First off, with ExxonMobil, I think the simple answer is we're doing both. Last quarter we increased the dividend by some 9% and -- and we talked already about our share repurchase program in the first half of the year and the increase in July on the ratable purchase. So because of our extremely strong financial position, ExxonMobil's view, as it always has been, is that dividends and share repurchase are -- are a combination of a very strong way to return value to our shareholders. So, again, I can't really speak about what the rest of the competition's doing, but with ExxonMobil you get both, and that's our approach.

With regard to the purchases of shares in July, as you well known and we've commented many times, we take the purchase program and take a longer term view of that and so we don't like to make changes in it unless we -- we see it as something we want to continue. So very difficult for me to comment about what we may be doing in 2004, but I would say that you can see the impact of our results in the first half and the decision that we made in July and the sustainability around that. Of course, we always reserve the right with the share repurchase program to alter it, but, as you know, with our history, we -- we see this as an important part of the financial management and we take a pretty consistent view of what we do with that program over a longer period of time.

If I can clarify. Are you saying that for the balance of the year, the July rate is considered to be ratable, then, but not extended into 2004?

Well, I think we'd like to just take -- continue to monitor the program as we go through the balance of 2003 to see what we do with that program, but obviously in this time period we've increased the ratable purchases. So, like I said, we'd like to reserve the right to change, if necessary, but you also know we like to be pretty consistent in the approach we take.

Appreciate it. Thank you very much.

And we'll take our next question from Bruce Lanny with HG Edwards.

Hi Patrick. How are you doing today?

Good morning, Bruce.

I just want to try to clarify a couple things.

I was trying to work through the return on capital and I come up with a number somewhere around 18% or maybe a little bit higher, but I notice your capital employed increased about 6 billion year-over-year, and I come -- I can come up with about a $4 billion increase. So I wonder if you can kind of walk me through that because your debt and cash balance seem to be pretty much in line and your -- and correct me on this one, too, if I'm wrong, but the $15 billion CAPEX that you're outlining is in line with what you've said before, too. So could you kind of address that issue a little bit?

Sure. I'd be glad to, Bruce.

If you look at our capital, obviously the major impact on the increase in capital employed is our strong investment program. And the other piece, if you look into the balance sheet, you'll see that we're having the impact of foreign exchange on our, and our is up in -- in the vicinity of about $2 billion, as you've commented. Not a significant increase when you look at our overall capital employed at -- you know, on an average basis of around $92-$93 billion dollars, but I think that probably closes the gap -- gap for you.

Okay. Great.

And so do you come -- you didn't really comment on -- maybe I missed on this, but your return on capital employed for the quarter, was it around 18% or so, then?

Well, you know, we tend to look at the capital employed on an average basis over the year. Clearly the strong results are increasing our return on capital employed, but we don't typically quote a quarterly number on that -- on that basis.

Okay. Fair enough. Thanks a lot for your clarification.

Sure, Bruce.

And we'll go next to Stephen Pfeifer with Merrill Lynch.

Hi, Pat.

Hi, Steve.

A couple questions on the -- just E and P and CAPEX as you said you're $5.7 billion in the first half and I guess rough guidance would be -- had been that you'd average sort of $10 billion per year. Could you just update us on the outlook for E and P CAPEX for the year?

And then, secondly, if you could maybe talk a bit about unit cost tends on the E and P upcost and DNA.

And then lastly on the R and M, could you just comment if there are any LIFO or you know price finalization effects that might have impacted the numbers? Thanks.

Sure, Steve.

Let me talk about our overall CAPEX and we commented on our guidances is about $15 billion for -- for the year. In round numbers, our upstream is -- is now at about $11 billion and the balance refining -- or downstream in chemicals. The impact that you're -- that we're seeing in the -- in the CAPEX in the upstream is really advancing some profitable projects that we want to -- we see the opportunity to do that. As well as some impact on foreign exchange. So the increase, if you will, versus the -- the $10 or the $14 billion we've been talking about in the past is all -- all fundamentally in the upstream in the Forex effects.

I think the next question you have was on our operating expenses in the upstream. And if you look at the operating expenses for the company and then as well as in the upstream specifically, we're being impacted by Forex and higher energy prices. Of course we don't object to the higher energy prices but it does have an impact on our overall operating expenses. If you step back and look at our total unit operating expenses, uh, in the upstream, uh, and you -- if I may exclude the impact of Forex in energy, our unit costs are about flat versus the first half and I kind of look at it on a little broader basis, half to half, they are about flat versus last year.

We are seeing the impact of increasing DD and A, which I don't think is unexpected, but of course, what we have been able to do to a great extent is offset the increase in DDA with our cash cost with some efficiencies and the rest.

I think your third question was in the downstream talking about LIFO impacts and refining and marketing lag price finalization. Let me make a couple of comments. If you look at our price finalization in total and compare it between, say, the second quarter of 2002 and the second quarter 2003, price finalization was a positive impact of just over $110 million on the prior-year quarters.

That's great. Pat, just one last one.

On the CAPEX for E and T next year. Do you expect it to sort of throttle back to 10 or is 11 sort of a new run rate, or how do you see that sort of playing out?

Well, I think that the -- the real issue, Steve, is going to be timing on the profile, whether it's $10 or $11 billion, in that range, it's just like I commented, that -- that the increase that we're seeing this year is because we're advancing some of our projects. So for -- at this point, , I'd still say it's in that range that we talked about. When we look at it over the decade, as you know we've talked about our upstream CAPEX of $10 million but it he depends where we are on project schedules. I wouldn't see it falling below that, though, just because of the number of projects we've got cued up and we're working on.

Great. Thanks a lot.

Okay, Steve.

We'll go next to David Wheeler with J.P. Morgan.

Just a quick one. Any effects and international R and M?

Relatively small foreign -- foreign exchange effects, about -- in the downstream I think -- with what comparison period are you looking at in particular?

I was actually looking at the first quarter to second quarter.

Well, first quarter to second quarter, you know, like about $20 million favorable.

Okay.

And on that LIFO, you mentioned the year-over-year, do you have the quarter over -- the first quarter, second quarter number?

Uh, no comment on LIFO.

I'm sorry, on the price finalization?

Oh. Price finalization, yeah. What time period were you looking at?

Again, 1Q to 2Q.

1Q to 2Q, the price finalization -- um, it was in the range of about $150 million, is my -- my recollection.

Okay. Thanks.

Yeah.

We'll go next to Fred Leuffer with Bear Stearns.

Hi, Pat. How are you doing?

Hi, Fred.

A couple of quick questions.

One, the chemical product sales sequentially in year-over-year by a pretty good amount, what's the reason for that? You know, when you reported the first quarter it looked like the sales why unusually robust to mean the first quarter so I don't know if there's -- there was an aberration in the first quarter or if there's just some other explanation for the drop here in the second quarter.

Sure, Fred. Let me comment.

I think I may have mentioned in the first quarter teleconference that we saw some increased volumes in the first quarter in our chemicals business with what we -- looked like inventory from our customers and that is in part probably the biggest impact on the first quarter volumes, whether you looked at it sequentially or looked at the prior period. So then when we moved into the second quarter, the absence of, if you will, of that inventory fill, was probably impacting the volumes and some minor impact, we believe, from -- from the overall economic situation. But I would say it's largely inventory fill.

And where was that inventory fill, was it in Asia or -- you know, some specific geographic location?

You know, if you look at our volumes, they're pretty much across the board on the product side and from our geographic standpoint the drop was mostly in -- in the Americas, in North America.

Okay. Just maybe a real short question and one that maybe involves a little more.

The increase -- you've increased your -- the pace for your share repurchases in July. Is there an increase in the shares coming out of employee options and other benefit programs here in the second half?

Uh, no, not really any difference. I mean, if you look -- let me just use by way of example. If you look at our share repurchase in July, we spent about $513 million and about $13 million of that $513 million were for and there's no change in our benefits programs or option programs or anything. It would be normal course of business. That -- that is not driving the number higher.

Right. Okay. I understand.

Lastly, maybe if you can just talk a little bit about the pace of development in Angola with all these discoveries, you know, how much -- how much will you spend, how fast can you get the -- the developments onstream and is the government slowing in the pace of development as we've seen in the past?

Well, first let me answer the question in reverse order. We're not seeing any slowing in the developments in our projects in Angola with regard to the government of Angola, that is all moving along. I would say if you look at each of the individual projects as we've commented and look at our schedule that we've outlined in the F & O. We're pretty much on track -- in fact a little bit ahead depending on which project you look at. So no change from our overall plans. From a cost standpoint or investment standpoint, again they look about as we've planned.

Okay. Thank you very much.

You bet.

Take our next question from Mark Flannary, Credit Suisse First Boston.

Hi Pat. I have a couple questions.

I don't wish to beat this subject to death, but in the upstream CAPEX increment that you're talking about, is wholly related to advancing projects which were planned, or are you doing some incremental work, some additional stuff on the side? And my second question is on the corporate charge, should we take this quarter's charge as ratable going forward, is this a new level we should settle on versus what we were running with perhaps before?

Let me address the first one on the upstream CAPEX, and I -- and Mark we can go into whether you're asking about the U.S. or non-U.S. Let me talk about it overall.

If you look at our CAPEX for the first six months of 2003, it's like $5.7 billion. And -- and if you do a comparison versus, say, the first half of 2002, um, about $800 to $900 million increase. Only about $250 million of that is due to Forex and essentially all of the rest of it are ramp ups in our projects in West Africa, the Caspian and the rest. Our overall work programs, both in the United States and the rest of the world, are about where they've been in the past. They're probably some incremental drilling in particular areas that -- to take advantage of some of the higher gas prices that we've seen, but, you know, we're talking fairly small. So the message is pretty much on target with the big projects.

Great. Thanks.

And on the corporate charge?

Yeah, I think -- well, I'll tell you. The guidance remains unchanged at the $175 to $225 million level for corporate as we go forward. Obviously we've been at a little bit of the higher range of that guidance the last couple months and that's been impacted a bit by Forex.

Okay. Thanks.

We'll go next to Neil McMann, Sanford T. Bernstein.

Hi, Pat.

Hi, Neil.

Just two questions really. First on looking at U.S. gas volumes, what was the impact on the U.S. gas volumes of the NGLs?

Uh, you mean the switching from -- from liquids into gas?

Yeah. Just keeping the -- the liquids in the stream, if that benefited at all the volumes, they look flat on second -- on first quarter?

Ah, yeah, if you look at a comparison of second quarter '03 to second quarter '02, we probably added about 70 million cubic feet a day of gas with that economic decision, liquids versus gas.

Okay.

And just secondly on the strong downstream numbers, especially in the U.S. How much did you benefit from your integration with your chemical plants and potentially running how your chemical plants harder to benefit your refineries and maybe even selling some gas the refineries maybe would have needed back into the market?

Really, we don't look at it that way from that standpoint. I think the downstream -- the downstream results stand on their own as far as just stronger refinery margins. So, you know, we always enjoy the integration of our refineries with our chemical plants but no specific issues that would, you know, make those results any different. I mean, I think you can see from the standpoint that our chemicals results are very strong and our downstream results are -- are strong.

And just a comment on marketing margins. How are they looking into the third quarter going forward, are they looking like they're holding up, or are they falling again?

Well, I think the whole industry is seeing some compression on marketing margins. We're not any different than anybody else.

Great, Pat. Thanks a lot.

You bet.

We'll go next to Mark Gilman with First Albany.

Pat, good morning.

Good morning, Mark.

I wonder if you can shed any light on the difference which -- you know, I guess I calculate as being about $1.7 billion in the second quarter, billion dollars, between your funds-flow figure, which you provide in the supplement and earnings plus an estimate of DD and A?

Uh, I can't really reconcile your number, but I can tell you that --

Get cash provided by operations of $7.3 billion, earnings of, you know, 4.1?

Right.

You've got a 3.2 billion dollar gap there. Can you help me fill in the blank?

I didn't hear what you said about DD and A.

Well,, you know, DD & A runs a couple billion dollars a quarter, doesn't it?

Yeah.

So I'm trying to fill the gap. Is it working capital, is it other things?

Well, I mean, take a look at -- step back, I guess I'd look at it -- we'd kind of look on it on a first-half basis, if you look at our overall cash flow from operations it's like $15, $16 billion.

Right.

And, you know, if I looked at that number, I'd say we've got about $11 billion of earnings, and we've got about $3 to 4 billion of DD & A and we've got --

Hold it, hold it. The earnings in the first half are about $9 billion.

No, they're $11.

Oh, you're including?

Well, we had cash flow from that. So, again, if you look at the all-in number, Mark, call it $16 billion -- $15, $16 billion, my math is $11 billion for earnings, $4 billion for DD and A, and then the assets -- asset sales of about a billion, a billion and a half. So that kind of closes it for me.

Okay. Let me -- let me try something else.

I wonder if you could clarify just a little bit some confusion that at least exists in my mind regarding the Quatar gas effort with respect to U.S. destination projects. I'm confused as to whether -- you know, whether you have a real project taking shape here, does it have relationship with. or compete with. the comparable Congo Phillips project? Is this oriented as opposed to? Can you spend a minute on this subject?

Sure, I'd be glad to.

You know, we talked about a couple projects. You know that, first off, you know, we're completing the set-up of investments that we have underway. I don't think you're talking about those where we're going to be bringing on the large expansions, the 4.7 million that we've got dedicated contracts to. I think you're talking more about the 7.5 million ton per annum projects that we have underway that are gas two.

Those volumes are largely positioned to go into the UK and into Europe. And then behind that, as well, we are -- as has been reported in -- in the press by the Quataries, we're looking at two additional investments that would be largely targeted for sale in the United States, we're progressing work on three potential sites for LNG facilities here in the United States, so those projects are -- you know, obviously really we're actively pursuing them with the Quataries. With regard to the Congo Phillips deal that you mentioned I think you've got to talk to them about that.

What I would tell you is that by any measure that we look at, the demand for gas and then L NG into the United States is such that we see a real opportunity here with those projects. So obviously from a timing standpoint, you kind of move along in the calendar there. But we see the projects for Europe, UK developing well, as I already commented on, and then the projects that we talked about with the United States moving along, both with the Quatarrys from the standpoint of -- of finalizing, and then looking at three options in the U.S. for LNG facilities.

This -- this -- destination this expansion and what you're looking at and proposing here bears no relationship to what Congo Phillips is doing.

We've got to sort through the final deal on the -- on the U.S. volumes for the United States, so whether it's we're still working that specific issue and these are unique from any other deals that I've heard about that the Quatarrys are doing with somebody else.

Just one other one, if I could. Regarding this price finalization issue.

I had price finalization being about negative $80 in the first quarter, Pat, if I take your variance versus the first quarter of positive $150, I get about an absolute of $70 in the second quarter. Is that about right and, if so, can you split that U.S. and overseas?

Well, you know, I think we probably commented in the first quarter price finalization it was a negative $80 million and when I commented earlier I think I was talking to Dave and he asked the round number, I said $150 round number. The specifics are in the second quarter price finalization was a favorable $85, so the -- you know, the exact number change quarter on quarter is a favorable $165 million for all the price finalizations. So I think your numbers are right. And then if we look specifically into the United States, the combination of the lag effects from Middle East crudes and Alaska crudes, the number is $130 million quarter sequentially, comparison quarter on quarter. On an absolute basis, about $70 million.

Thanks very much, Pat.

Good, Mark.

We'll take our next question from Paul Ching, Lehman Brothers.

Good morning, Pat.

Hi, Paul.

A quick question.

First I want to clarify. I thought all along you guys have been talking about 2003 E and P spending will be somewhere between $10 to $11 billion and probably will be closer to the upper end at the $11 billion, and when you take into consideration of the impact, so seems like that's really not really a change so I'm not sure with all the question talking about you guys are your spending, is it really a -- a fair comment on that?

Oh, I think it's fair comment. We're just probably -- probably trying to provide a little bit more detail for everybody because we have talked in terms in the upstream in the $10 billion range, $10 and a little plus. And so now when we've looked at it through the first half of the year and we look at it in more detail, the rounding number gets -- gets more to the $11 billion. So really no change.

I think you're right, it's at that upper range, and with the Forex effects it makes us talk about it in terms of $11 billion. But I would tell you that, again, when we look at our overall spending for the full year, we can see in round numbers about $400 million of project advancement that, you know, looks like real good business for us.

Okay.

But within the rounding of it when you're talking about a CAPEX of that size.

Mmm. Absolutely. Secondly, on the very strong downstream we saw, can you give us some idea that -- I mean, how much of the improvement may be contributed by the lubricant business?

Our lubricant --

On a sequential basis, I mean from the first -- quarter?

Sure. Really, Paul, when we look at our -- our downstream results, most -- you know, the lion's share of that improvement that we're seeing is in the fuel side of the business, if you will, in the refining margins and the marketing margins. So from a lubricant standpoint, you know, lubricants is always a very strong contributor to ExxonMobil's downstream results. High return, low volume but very high returns. But I would say if you want to look at a comparison period sequentially, or quarter-on-quarter versus previous year, lubricants, you know, continued strong but not driving a significant change.

Um. And then on the foreign exchange you have give us the sequential changes, $108 million on the international chemical from the year-ago basis and $50 million on the first quarter. Do you have an actual number? What is the foreign exchange gain in the second quarter for international chemical and also international R and M?

Sure. If you look at the -- and, again, if you look at a comparison period -- um,

No I'm actually looking at the actual figure. Is it $50 million ( ) gain in the second quarter for the international chemical? I mean, what's that number?

Oh, sure. If you -- if you look at just -- let's talk about the Forex effect in the second quarter. If you look at it on a transactional basis, the actual earnings impact in the second quarter for chemicals is basically flat. It's really in the translation from local currencies in the quarter-on-quarter comparison, that additional $50 million.

Okay. How about on the -- you say that R and M is pretty small, right, is only about $20 million?

In what comparison period?

Uh, on --

Versus --

Versus the first quarter. But do you have an absolute dollar for what is the impact in the second quarter?

Oh, yeah. The transactional impact for the downstream in the second quarter is around $40 to $45 million.

$40, $45 million. Um, lastly, can you give us some update? I think that you guys have -- looking at or maybe even filed some paper about the LNG terminal in the U.S., any update over there?

Well, as I commented, we're obviously looking at three sites and talking to the officials -- government officials involved and the communities involved in those sites and obviously our plans are to advance permitting for those three sites.

But, Pat, are those three sites is all for 100% of your own equity gas, or just -- you may be open that for the general public also?

Our going in is 100% for ExxonMobil.

Okay. Thank you.

You bet.

Looks like our next question is from Albert Anton, Karl H.

I have a couple questions.

One is on the whole pension situation. Your corporate finance expense in the second quarter's up $174 million, mainly due to the higher U.S. pension cost and you mentioned something like $500 million in the first half and I think you said $2 billion in the second half.

Could you give us a little bit of a picture on the pension situation, have you changed your actuarial assumption, if so, what effect did that have, and will higher contributions have to continue beyond 2003?

Well, first off let me comment on a -- on an earnings basis, the guidance that we provided and overall earnings impact is -- is unchanged for us in 2003. And that has to do with -- in the earnings standpoint. And you're absolutely right. When we talked about our corporate where you see the impact of the higher, uh, the impact of the higher pension expense, that is the primary factor contributing to the change. But our guidance for corporate at $225 million, and that's all in, that includes pension expense, is unchanged.

So from a book income standpoint, no different than anything we've been talking about. Now, when we talk about funding, as you know, uh, we take a look at our pension plans, not only in the United States but around the world, and on an annual basis assess how much needs to be funded, whether -- and from a regulatory standpoint. And through the first half of 2003, we've funded about $500 million around the world, half of that's in the United States, half is in the rest of the world.

Now, that funding obviously is a cash issue, a balance-sheet issue as opposed to an earnings issue because we continue to accrue. Now, when we look out for the remainder of the year, we see, as I said in round numbers, about $2 billion with the lion's share of additional funding with the lion's share of that coming into the U.S. pension fund.

Looking out beyond 2003, I would tell you obviously it's going to be -- it's going to depend upon how well the fund -- the funds around the world perform and of course the equity -- or equity markets, etc. We did change our rate assumption this year to 9% earnings. Assumed earnings. And that was down from what we've previously carried from 9.5%.

Okay.

Once you get all these pension managers busy and earn that. Also a question on your U.S. crude production, which was down from 700,000 to 605,000 barrels a day, second quarter to second quarter, which is a pretty steep 13.6% and almost that for the half. And I wonder if you see that being stabilized, you have some deep water stuff coming in, what's the outlook for the next year or two on that?

Well, in the United States, again a mature -- on a mature business and so we'll see continuing declines in our base business, but our work programs are -- you know, working to offset that. One of the contributing factors to that percentage decline is the fact that, you know, we took some liquids into gas and that impacted the number.

Uh-huh.

Over a quarter of that is that swap out and we also had some impacts in the quarter associated with some maintenance and a little bit warmer weather in Alaska always impacts our volumes in the -- in the United States. So it's going to be a continuing effort on our part to keep our profitable work programs up and to try to arrest some of that decline. But I think the number when you look at it, a 13% in the quarter, is being driven to, you know, maybe what looks like a higher number than you're used to seeing by our decision to swap liquids for gas and some of the maintenance activity in Alaska.

And the final question was inspired by Paul's discussion of the Quatar LNG. You're obviously relying on Quatar as the source and there's a substantial transportation disadvantage versus Trinidad or even West Africa or North Africa based on published figures we've seen. But I understand that you're talking about a substantially larger tanker and I wonder how you view the competitive situation versus the newer source of LNG?

Well, I think when we look at -- you know, there's really three factors when we look at our position in LNG. We have a superior resource base that we are able to develop with the Quataries. You look at the size of our LNG facilities that we've built in our building, so we've got an economic advantage there. They're world-class size.

And then thirdly the technology developments that we've obviously plowed into the development of the LNG plants and the technology that we're utilizing to build some very, very large ships that will provide advantages as far as we're concerned. So when we step back and look at that all-in, we see that the sourcing LNG out of Quatar is going to be very competitive all around the world.

It really is an issue of size and scale and applying the technology that will allow us to compete, we believe, at -- at that -- whatever the price range is coming into -- into the United States or Europe or the UK, we also sell gas in Korea, in India. So, again, it's a competitive issue that we think size wins as far as we're concerned.

And the ships will be, what, 50% larger than the standard LNG ships?

I'd say closer to 25%.

25%? Okay. Thank you very much, Pat.

You bet.

We'll take our next question from Fidell from Fahnestock.

Good morning, Pat. I don't have a question, just ask you a favor to include a schedule of the variances between the last quarter and last year's quarter. It would make life much easier for us.

We'll take that request under advisement, Fidell.

Thank you.

Thank you.

And we'll take our next question from Paul Sankey from Deutsche Banc.

Hi, Pat, Paul Sankey on the line.

Further to the discussions about Quatar and the Middle East and -- in more general terms. Can you make any comments about the situation and any negotiations that may be ongoing in Saudi Arabia and possibly in Kuwait and even ultimately in Iraq. Any kind of public pronouncements you have to make about those three countries right now?

Well, Paul, a couple comments.

First off, basically I would say what you've probably read, you know, in the press, ExxonMobil a tended the most recent session in London with regard to the opportunities in Saudi and we'll obviously, as I said, attend -- we attended that session.

With regard to the Kuwaites, again I'll simply confirm what you've seen, that we have formed a consortium, as outlined, and look forward to the developments in Kuwait, as a good opportunity for us.

Iraq, we have here recently announced that we will be purchasing some term crude from Iraq but I think your question is probably more the development than the upstream and, again, that -- that development seems to be aways off as far as we're concerned.

Just a further question, which is I'm afraid very specific. In Angola, the previous quarter mentioned seemingly a flurry of activity there. I was wondering, is their license on Block 15 that's expiring or needs renegotiation that's caused this uptick in activity, or am I shooting down the wrong track then?

There is -- there is a licensing issue that's coming up, but of course I would say that the development that we're doing in Angola is, you know, basically the plan that we had in place, it's not necessarily driving activities, good projects are driving the activity.

I understand. Okay, Pat, thanks.

You bet.

We'll go next to George Gasbar with Robert W. Bearn.

Good morning, Pat. A question regarding new production markers for the second half.

Can you relate on Chad what your marketers are going forward on a quarter to-quarter basis into next year also and what other new production markers you might be looking at, if you could give us some net numbers?

Uh, if you're looking at our volumes for -- for Chad, and that's your question, is it, the volumes?

Initially, yes.

Yeah. Well, Chad's in the -- in the status of ramping up as the pipeline's being filled and we continue the drilling program and when we look at Chad we'll see it as we get to kind of total production there up at around 225,000 barrels a day near the end of the year. Right now we're probably more in the 50,000 barrel a day. But that's just in the question of ramping up the projects.

If you look at our overall projects, I think the second quarter is a great example of where you can see the impact of our new projects. When you look at the second quarter, our volumes include about 380,000 barrels a day of additional or new volumes that have come on from our projects.

Of course, I mean, we're experiencing a normal field decline and the rest. But just from a comparison basis, you know, when we looked at the first quarter of 2003, all these projects that we've been talking about added about 275,000 barrels a day and now in the second quarter these projects that we had plus the ones that we've added raised that number more to the 380,000 barrel a day. So what you're going to see here is the continuing increase from our new projects that we're bringing on line. And the profile of those is -- is, again, consistent with the information that we've got in our financial and operating are report. So you'll see that impact. If you look specifically at some of our geographies you'll see the increase particularly in the Africa area in the near term as we're bringing some of these volumes on and the rest.

Okay. And then a question on Chad production, because it's a major pipeline movement situation. What kind of a net price would you be looking at on a per barrel basis coming off your gross price?

Well, we really don't comment on our net prices.

Okay.

And then a question on the upcoming joint developments on sale. You people are going to be a participant because you have a -- indicated 40% interest in one -- one block, at least. My question is, how long is it going to take to really initiate an exploration well, assuming that this lease sale is completed at the end of October?

I got to -- I got to ask you to repeat the question because I didn't hear the geography that you were talking about.

Okay. I'm referring to the Nigeria, joint development zone?

Oh, sorry.

You people have -- your company has a --

Right.

-- indicated 40%, at least on one block, I believe that's pre-negotiated. My question is: If -- if the -- if we can make an assumption here that the lease sale is completed at the end of October, how long is it going to take to get an exploration well down?

I think the difficult part would be when -- when to -- when to assume that's going to be in place. You're right, we do have an option there, an exclusivity right on an option, but from a timing standpoint, you know, we've had very, very little involvement right there on the ground. We don't have people there. So it would be very -- it's honestly very difficult to speculate when we get our first exploration well done.

I would add, though, that, you know, we're very interested in the area, as obviously because of the position that we have. So I think once all the -- the -- all is sorted out around the -- the timing and -- and the participation rates and the rest, you'll see ExxonMobil be very interested in that development. But specific timing, tough to call because we really haven't had people on the ground there.

I see. Okay. Thanks, then.

You bet.

We'll take our next question from Jeff Jacoby with.

My question's been answered, thanks.

Okay, Jeff.

We have time for one final question and we'll take a follow up with Paul Chang with Lehman Brothers.

Hi, Pat. Just two really quick ones.

First on the Saudi gas, that's now just becoming a -- just a pure exploration opportunity. And if we looking at in the region, you already have a lot of gas exposure related to your Quatar and from that standpoint, if Saudi gas opportunity hear that we back up when you compare to Quatar. The second question is that any plan other than the that you may go into the Russian any time soon?

Well, let me just talk about the -- the -- into the gas opportunities in the Middle East. As I said, as far as we're concerned, we've attended the discussions with the Saudis on this next round. And I guess I'd probably pretty much leave it at that. We're, as you know, very -- we continue to be very excited with our position with Quatar.

With regard to -- to Russia, uh, you know, you know the Stockland project is developing very, very well and we're very pleased with that. And as we've said in the past, we see that area as an opportunity for us and we're interested in being involved in its development in a number of ways that -- you know, whether it's a joint -- joint venture, whatever the options are, including equity. So we'll -- we'll look at anything as far as an opportunity there because, again, it looks like an area that we would want to be involved in.

Thank you.

That does conclude today's question-and-answer session. At this time I'd like to turn the calling back to Mr. Mulva for any additional or closing comments.

I'd simply like to thank everyone for their participation and look forward to meeting again with you at the end of the next quarter. Thank you very much.

This does conclude today's conference. Thank you for your participation, you may disconnect at this time.