Exxon Mobil Corporation (XOM) Q2 2022 Earnings Call Transcript

Exxon Mobil Corporation  (NYSE: XOM) Q2 2022 earnings call dated Jul. 29, 2022

Corporate Participants:

Jennifer Driscoll — Vice President of Investor Relations

Darren Woods — Chairman and Chief Executive Officer

Kathryn A. Mikells — senior Vice President and Chief Financial Officer

Analysts:

Neil Mehta — Goldman Sachs — Analyst

Doug Leggate — Bank of America — Analyst

Devin McDermott — Morgan Stanley — Analyst

Stephen Richardson — Evercore ISI — Analyst

Jeanine Wei — Barclays — Analyst

Sam Margolin — Wolfe Research — Analyst

Jason Gabelman — Cowen — Analyst

Biraj Borkhataria — Royal Bank of Canada — Analyst

Roger Read — Wells Fargo — Analyst

Neal Dingmann — Truist Securities — Analyst

Manav Gupta — Credit Suisse — Analyst

John Royall — JP Morgan — Analyst

Ryan Todd — Piper Sandler — Analyst

Presentation:

Operator

Good day everyone and welcome to this ExxonMobil Corporation’s Second Quarter 2022 Earnings Call. Today’s call is being recorded. At this time, I’d like to turn the call over to the Vice President of Investor Relations, Mrs. Jennifer Driscoll. Please go ahead ma’am.

Jennifer Driscoll — Vice President of Investor Relations

Good morning and good afternoon everyone. Thank you for joining ExxonMobil’s Second Quarter 2022 earnings call. I’m Jennifer Driscoll, Vice President, Investor Relations.

Here are with me today are Darren Woods, Chairman and Chief Executive Officer; and Kathy Mikells, Senior Vice President and Chief Financial Officer.

Our quarterly presentation with prerecorded remarks was posted earlier today on the Investor section of our website along with the second quarter earnings news release. During our live one hour conference call, Darren will provide brief opening comments and reference a few slides from the earlier presentation before we move to the question and answer period.

May I remind you that during this call, we may make forward-looking statements, which are subject to risks and uncertainties. We encourage you to read our cautionary statement on Slide 2. We also have provided supplemental information at the end of our earnings slides, including reconciliation.

Now please turn to Slide 3 and let’s turn the call over to Darren.

Darren Woods — Chairman and Chief Executive Officer

Thank you, Jennifer. Good morning and good afternoon everyone. Thanks for joining us today.

Our second quarter operational and financial results were very strong. Well, the market has clearly been a factor. Our results reflect our focus on the fundamentals, as well as plans and investments we put in motion several years ago and stuck with through the depths of the pandemic. They also reflect the outstanding work of our teams across the world, who operated our facilities safely and at high utilization levels, which drove needed production and throughput. We are proud of their commitment to supplying the energy and products the world needs and delivering on our strategic priorities.

Increased production, higher realizations and aggressive cost control generated strong earnings and cash flow. We also delivered excellent safety and operating performance. As global demand recovers, we continued to invest in our portfolio and grew our year-to-date production in the Permian by about 130,000 oil equivalent barrels per day versus the first half of 2021. For the full year in the Permian, we expect to achieve 25% production growth for the second consecutive year.

In Guyana our total capacity is now more than 340,000 oil equivalent barrels per day. Our Liza Phase 1 development is producing above design capacity with excellent performance. Liza Phase 2 started production earlier this year and has recently reached the design capacity of 220,000 barrels per day.

As demand has continued to recover, so has production from our industry-leading refining circuit. We increased throughput by 180,000 barrels per day in the first half of 2022 versus the first half of 2021.

We continued to demonstrate our value as an essential partner during the quarter. For example, ExxonMobil has recently been awarded an interest in Qatar’s North Field East expansion. We have worked closely with the Qataris for decades. This attractive agreement further leverages our experience as a global leader in LNG, giving us the opportunity to help grow Qatar’s LNG capacity by 30 million tons per annum, by 2026.

Partnerships such as these are also an important part of unlocking future opportunities in our new businesses like carbon capture and storage. We recently signed multiple MOUs to explore the development of large-scale CCS projects in China, Australia, the Netherlands and Indonesia. Lastly, we further strengthened our portfolio by advancing a significant refining capacity expansion on the U.S. Gulf Coast, discovering new resources in Guyana, progressing LNG production in Mozambique; addressing non-core assets with announced divestments totaling more than $3 billion.

We continued to invest through the pandemic with the understanding that demand would recover. With the Beaumont refinery expansion, we’re on pace to increase our refining capacity on the U.S. Gulf Coast by more than 17% or 250,000 barrels per day in the first quarter of 2023. During the quarter, we also announced two discoveries in Guyana, adding to the estimated recoverable resource base, which is nearly 11 billion barrels. Natural gas began flowing at the Coral LNG project offshore Mozambique. The project remains on track to achieve the first LNG cargo later this year.

Finally, we progressed our divestment program at an advantageous point in the cycle. Announced asset sales include XTO Energy Canada, our Romanian Upstream affiliate and our Barnett shale gas assets. The Barnett Shale divestment closed in the second quarter. The other two are anticipated to close later this year, subject to regulatory approvals.

Overall, it was a very strong quarter, in both the financial results and in progressing our strategic priorities.

The strong second-quarter results reflect a tight global market environment, where demand has recovered to near pre-pandemic levels and supply has attritted. This situation was made worse by the events in Ukraine, which have contributed to increases in prices for crude, natural gas, and refined products.

In the first quarter, average Brent crude prices rose by about $22 per barrel. In the second quarter, Brent crude prices moved up by another $12 per barrel, pushing the benchmark marginally above the 10-year range.

Natural gas prices remain well above the 10-year historical ranges, amid ongoing concerns about European supply.

Refining margins are even more pronounced versus the 10-year range. They remain at very high levels, reflecting the significant impact on refining capacity resulting from the pandemic. In July, we saw some relief as margins moderated with improved supply and demand balances.

Global chemical margins, in contrast, remained near the bottom of the cycle. However, we did see a slight improvement in the quarter, mainly in Asia Pacific.

Margins in North America tightened during the quarter, as product prices continued to lag the steep increases in ethane feedstock costs, consistent with higher gas prices.

Before recapping our financial results, let me touch on the market environment underpins them. As I mentioned in my pre-recorded remarks, large annual investments in oil and gas production are required to offset normal depletion even more is required to grow net production. Prior to the pandemic industry investments were below historical levels. The economy-wide shutdowns during the pandemic exacerbated the problem. We are now experiencing tight markets across most of our businesses, that supply of lags demand recovery.

We clearly see the tightness in supply and refining with the closure rate during the pandemic was three times the rate of the 2008 financial crisis. Given the long investment cycle times, growing supply will not happen overnight. At ExxonMobil, throughout this period, we stayed focused on the fundamentals and let our IOC peers in oil and gas investments. We leaned in when others leaned out, including investments in US refining capacity. Notably, with our Beaumont refinery expansion.

Our investments over the last five years are paying off today and helping to meet the needs of families everywhere with greater supply than otherwise would be the case. For progressing investments in our traditional businesses, we are also advancing our portfolio of opportunities consistent with our core capabilities and low carbon solutions. We expect that these two will pay off in the years ahead.

For our shareholders and for our environment.

With that as a backdrop let’s turn to the second quarter financial results.

Earnings totaled nearly $18 billion on increased production, higher liquids and natural gas realizations and strong refining margins.

We continue to drive efficiencies with $6 billion in structural cost savings versus 2019. We remain on track to achieve more than $9 billion in savings by 2023.

Capex was $4.6 billion in the quarter and $9.5 billion year-to-date. We remain on track for our full-year capex guidance of $21 billion to $24 billion.

Cash flow from operations was $20 billion, further strengthening our balance sheet.

Our net debt-to-capital ratio declined to about 13%, while the gross ratio is now at 20%, at the low-end of our target range.

We returned $7.6 billion to shareholders during the quarter in the form of dividends and share repurchases. The increase in distributions reflects the confidence we have in our strategy, the performance we are seeing across our businesses, and the renewed strength of our balance sheet.

As I mentioned earlier, we are now experiencing tight markets across most of our businesses, as supply lags demand recovery. Our strong performance reflects the sizeable investments we’ve been making over the past several years and our focus on the fundamentals. Those two things put us in great position to deliver increased production at a time when the world needs it most.

We’re continuing to increase production of low-cost barrels in Guyana and the Permian. We are doing all of this while maximizing output of our existing facilities, including a new daily production record set by PNG LNG in July.

Our new Corpus Christi complex was cash and earnings positive in the first half of the year, with the world-scale steam cracker demonstrating design capacity.

Our U.S. Gulf Coast refining capacity is poised to increase by about 250,000 barrels per day with the start-up of the Beaumont refinery expansion project in the first quarter of 2023.

Two new LNG projects are also advancing. Coral LNG in Mozambique is set to deliver it’s first cargo in the second half of this year. Our Golden Pass LNG project, which will provide 18 million tons per year of new LNG supplies, remains on schedule to start up in 2024. Once completed, Golden Pass will increase LNG from the Gulf Coast by 20%.

In addition, we continued to divest non-strategic assets at an opportune point in the cycle.

We delivered strong safety and reliability, while controlling costs. These moves are improving our asset mix, lowering our breakevens, and boosting our resiliency.

Our Low Carbon Solutions business continues to grow our portfolio of opportunities with the four newly announced carbon capture and storage opportunities in Australia, China, Indonesia, and the Netherlands.

I’m extremely proud of the work our people are doing. All of their efforts are consistent with our strategic priorities, which our shareholders are being rewarded for.

Today, with an even stronger balance sheet, we are well positioned to continue to invest and to drive shareholder returns throughout the cycles. Our focus on the fundamentals is unchanged.

We continue to leverage our core capabilities to advance our strategic priorities and to make the investments needed in this long cycle business. With our constancy of purpose and consistent approach, we will successfully address the dual challenge – providing energy and products modern societies need while lowering society’s greenhouse gas emissions – leading industry in the energy transition. Thank you.

Jennifer Driscoll — Vice President of Investor Relations

Thank you, Dan. Please note, we’re going to move to our Q&A session, we will continue to ask analysts on the call to limit themselves to a single question, so we can sit in questions from our people. However, please remain on the line. In case, you need to ask any clarifications. With that Jennifer, could you open up the line for questions, please.

Questions and Answers:

Operator

Thank you, Mrs. Driscoll. The question and answer session will be conducted electronically. [Operator Instructions].

We’ll take our first question from Neil Mehta with Goldman Sachs.

Neil Mehta — Goldman Sachs — Analyst

Thank you, team. One macro question, and then one micro question, Darren. I want to continue on this theme of energy security and you’re one of the largest energy providers in Europe and so would love your perspective on European energy challenges that are being faced right now. How does the continent ultimately work its way through it and what is ExxonMobil’s role in providing energy to the region?

Darren Woods — Chairman and Chief Executive Officer

Sure. Well, good morning, Neil. And I think you touched on what is a very challenging situation today. That reflects, I think the complexity associated with making a massive change to a system that so critically important to people’s lives. So I think going forward and what we’re seeing happening today is, what I’d say is a broader net being cast with respect to how we think about the transition and how that evolves, making sure that we’ve got a diversified portfolio of energy and one, and sources of energy that are not dependent on any one nation or state, which is I think it’s an important step that we’re seeing being taken.

I think there’ll be a drive over time to make sure that they’re leveraging the resources available to them. And I’ll just make one example would be the potential that we see for fracking an unconventional gas in Germany. I think the industry has proven over the years that unconventional gas can be produced safely and you then have a secure source of supply and economically and reliable source of supply.

And so I think there is an opportunity. We’re certainly ExxonMobil could play a key role. We also have a fairly large refining footprint in Europe. We’ve been working hard to upgrade those facilities, make sure that we’re driving their emissions footprints to zero and developing plans to do that. And within this current crisis have really stepped up the efforts to reduce our consumption of natural gas.

In fact if you look at our refining circuit, we reduced the use of natural gas by 65%, that’s the equivalent gas that used for about for powering about 2 million homes in Europe, and so there are some substantial steps that we can take with respect to optimizing our current operation.

Longer term, we’re opening up looking at projects to expand our LNG import facilities and of course, we are bringing LNG projects online. We’ve got the Golden Pass project here in the US, which will allow us to export LNG from the US into Europe and so we got Mozambique and that’s coming on the back end of this year and of course we’ve got we’re going RMP in PNG and so bringing more LNG supplies to help offset some of the Russian gas going into the year will be another really critical step forward and the diversification of supplies for Europe.

Neil Mehta — Goldman Sachs — Analyst

Thanks, Darren. And the follow-up is around capital returns. Just talk to us, just talk through how you’re thinking about the dividend where there hasn’t been a reset this year at least and whether it makes sense to return back to dividend growth and return of capital very strong buyback a number in the quarter. How are you thinking about tracking towards the $30 billion that you outlined a couple of months ago?

Kathryn A. Mikells — senior Vice President and Chief Financial Officer

Sure. I’m happy to take that. So look, as you know, our first priority is to continue to invest in the business and we talked last quarter about the fact that we expected to build our cash balance to between 20 billion to 30 billion, which gives us both a strong balance sheet and a strong cash balance, which we view as a competitive advantage that provides us flexibility through the cycle. We’re trying to strike the right balance in terms of share repurchases and dividends, as you know, we raised our quarterly dividend by $0.01 in the fourth quarter of 2021 and in last quarter we tripled the size of our share repurchase plan, which is now up to $30 billion of share repurchases this year and next.

So we’re definitely focused on being efficient as we look to return capital to shareholders and obviously, the share repurchase program has a secondary benefit of reducing the nominal size of our dividend. So I’d say we’re trying to strike the right balance. Our Board reviews this pretty regularly and we feel good about where we’re at right now.

Neil Mehta — Goldman Sachs — Analyst

Thanks Kathy.

Jennifer Driscoll — Vice President of Investor Relations

Thank you. And just a reminder, a single question per analyst please. Jennifer?

Operator

We’ll go next to Doug Leggate with Bank of America.

Doug Leggate — Bank of America — Analyst

Thank you. Good morning everyone. Thanks for taking my questions. Darren, I wonder if I could ask first about natural gas in Europe and specifically, your European gas production obviously has come down a bit over the years, but it was some, it was up sequentially in the second quarter, where normally we see seasonal down trend for you guys in the summer time. Is this how we should think about your European gas production going forward? For obvious reasons, it’s more of a flat line and I wonder if you could address any specific issues around for the Groningen could be revisited by the Dutch government after given everything that’s going on?

Darren Woods — Chairman and Chief Executive Officer

Sure. And good morning, Doug. Good to hear you again. With respect to demand, you’re right. If you go back in time under more normal circumstances, we do see a seasonal decline in the second quarter with gas demand. And that’s historically been in the numbers and we tend to foreshadow that in the first quarter typically. This year obviously circumstances in Europe are very different and we actually foreshadowed in the first quarter that we didn’t expect to see the same kind of see some of the risk because of the shortages that we were seeing, and Europe at the time. And so I think, going forward, obviously a big question mark will be how the whole landscape in supply picture shapes up in Europe and also obviously a big factor in gas demand will be weather, and so I think I wouldn’t take this quarter as the new norm.

I think we’ve just got to stay attuned to how the landscape develops there. What supply looks like, and then obviously keep an eye on the weather. With respect to your question on Groningen. I think it’s the capacities there, it’s something that the Dutch government obviously has control of and it evaluates the circumstances and make decisions in terms of the production that they request or joint venture there and them to produce, and so that will be a function of how the Dutch government ways off the demand for gas versus the supplies into the role and wants to buy into play.

But the capacity is there.

Doug Leggate — Bank of America — Analyst

Thank you for that. Kathy, I wonder, a very quick follow-up on Neil’s question. I wonder if I could just ask very specifically. When you joined I seem to recall you expressing some concern of the absolute scale of the dividend burden. And I realize there is a lot of operational cash flow growth in the future for ForEx on, but when we think about the balances of buybacks dividend policy and so on. Is your objective so it was just that absolute dividend burden to help us kind of calibrate what that might look like going forward? And I’ll leave with that. Thank you.

Kathryn A. Mikells — senior Vice President and Chief Financial Officer

So let me start with the Board and we are very focused on ensuring that we take an efficient approach in terms of how we’re returning capital to shareholders and obviously share repurchases are a very efficient way to do that. As, we look at the dividend, I’d say there is a number of things that we continue to evaluate. I mean, clearly, we think it’s pretty critical that we have a competitive dividend and today we think we do have a competitive dividend.

We do look at that nominal level of the dividend and share repurchases, do you have a secondary benefit of reducing that level, but I’d also tell you, importantly, all the actions we’re taking in the business, reduced our breakevens, right. We talked about that a lot at Investor Day, our breakeven came down to $41 a barrel from $44 kind of last year. We have a trajectory you know as we looked at the plan that we presented at Investor Day and based on that price side to kind of bring our breakevens down farther to $35 a barrel.

So that just builds more resiliency in the business, which makes I’d say the overall kind of dividend much easy for the company to both sustain and in the future to grow. So that is how we look at it and how we think about that as I said previously, we’re trying to strike the right balance in terms of growing that dividend and doing buybacks, which have the secondary benefit of reducing that nominal dividend and they also are a very efficient way for us to return capital to shareholders.

And then I’d say, importantly, we want to make sure we’re taking an approach as it relates to our cash balance and our overall balance sheet that enables us to sustain both investments and shareholder returns through the cycle. That is how we generate the highest value for shareholders and so we’re very focused on doing that.

Darren Woods — Chairman and Chief Executive Officer

Thanks, Kathy. Our breakeven point is very salient. So thank you.

Operator

We’ll go next to Devin McDermott with Morgan Stanley.

Devin McDermott — Morgan Stanley — Analyst

Great. Good morning, thanks for taking my question.

I wanted to ask about the Permian business specifically and you continue to post strong results there. And there were some comments in the post to prepared remarks on I think a bit of an acceleration or increase in activity broadly in short cycle, in the back half of the year and I think that’s referencing the Permian specifically. So I just wonder if you could comment if that reference refers to an acceleration activity versus your prior plans? And then also as you think about the outlook over the next several years. Do you talk a little bit about some of the inflationary trends that you’re seeing in the shale business and then also the ability to offset that with the efficiency gains?

Darren Woods — Chairman and Chief Executive Officer

Yeah. Well, good morning, Devin. I’ll touch on that and see if Kathy has anything to add.

With respect to Permian, what the plan that we laid out some time ago and we’re currently executing is hasn’t changed and we had a very slight ramp up as we head through the year, but nothing significantly different than we have been doing. The plans that we have in place, should deliver and our current production is in line with that 25% growth versus last year, which as you know is on top of 25% growth for the year before. And as we saw in the package, if you look at our tight oil production in the US versus 2017, we expect to end 2022 to three times the level of production.

So I would say the strategy remains in place, the plans that we’re actually getting — remain in place. We’re looking for opportunities within the construct that we defined to extend and expand the activities, but frankly, given the tightness in the market, the availability of rigs, there’s not a whole lot of opportunity to move there and maybe I’ll ask Kathy to cover the inflationary topic.

Kathryn A. Mikells — senior Vice President and Chief Financial Officer

Yeah. So, overall, I’d say we feel really good about how we’re managing inflation today. Our overall structural cost savings kind of plan and program is very much on track. As of this quarter, we’re now at 6 billion and overall savings kind of relative to 2019. So we’re feeling pretty good about that. As we look at our kind of costs on a year-over-year basis, we obviously had a kind of seasonal increase in cost. Sequentially, as we had a little bit more planned maintenance activity, but we feel very good that we’re executing consistent with our plans, and that we remain on track.

We’re obviously not immune to inflation. We did a great job, certainly during the pandemic. Especially when you think about our kind of longer projects that are global project group was executing in terms of ensuring that we were at that point in time when we were in a deflationary environment, really working hard with our service providers to extend contracts and looking to revise schedules associated with some of our projects, but still moving that engineering forward on those things so that we could pull them up as the market environment improves.

So we feel good about where we’re at with our CapEx programs overall and we feel good about the cost savings that we’re driving. I’d also say it is and always going to look exactly the same kind of quarter-to-quarter. We obviously just made some significant changes in our organizational structure that were put in place in April. Those will over time also drive additional efficiencies for us and we are working at constant, I’d say pipeline in this area to ensure that we’re both driving greater efficiency across the business, but also effectiveness which is equally important. So I’d say we feel really good about where we’re at.

Devin McDermott — Morgan Stanley — Analyst

Great, thanks. And I’ll leave it there to get back on track with the one question.

Operator

Well, the next question, Stephen Richardson with Evercore ISI.

Stephen Richardson — Evercore ISI — Analyst

Great, thank you. Good morning. Darren, I was wondering if you could talk a little bit about the refining outlook. It’s probably a more volatile environment than we’ve seen in a long time, certainly with less Asian exports are certainly out of China and what’s going on in Europe. So I wonder if you could maybe just talk about that and based on your background some insights there would be helpful.

Darren Woods — Chairman and Chief Executive Officer

Sure happy to do that, Stephen. And thanks for calling in. Yeah, you said it’s a volatile area. I think the thing that’s really changed in the refining landscape, which has impacted, we’re seeing that impacted across a lot of industries in parts of our businesses in the pandemic. And if you go back, since 2020 and as we’ve mentioned in our prepared presentation, 3 million barrels a day of refining capacity has come out of the circuit since the pandemic and what has typically happened, which is three times the rate you have historical levels and typically a historical level has been offset by new builds coming in.

And, of course, a lot of those new builds got pushed out because of the pandemic and the lack of revenue in the extremely negative and poor refining margins. And so we’ve created this whole with a lot more capacity coming offline without a whole lot of new capacity typically out in the developing and in parts of the world in Asia and the Middle East. That capacity is not coming on. So we’ve got this gap demand recovers, and we don’t have the capacity to meet that which has led to record, record high refining margins. So I think the solution there is with time for additional capacity to come on. We’re pleased that we had justified a fairly large expansion in our Beaumont refinery, essentially based on transportation differentials that generated a reasonable return with potential upsides in times of tight markets which obviously are going to be seeing, as we bring this refinery expansion. It is the biggest expansion over a decade in the US and just want to take advantage of the utilities in the units that we already have and the connection that we have with the Permian, so a very advantaged project coming into the market at a really good time.

Outside of that, I don’t see a whole lot of additional expansions here in the US and then as we mentioned in the presentation, over the next two years, probably a million barrels a day of capacity, including the 250 at our site coming on in the marketplace, which is we’re still fairly short of the capacity that came off. And so our view is we’re going to see, what I say the tighter supply and demand balance. One of the real question marks out there is what happens with demand. I would tell you, even at 2019 levels, the market is relatively tight and so expect a tighter market and maybe elevated margins versus what the historical norm is, but I would expect much lower than what we’ve experienced here in the second quarter.

And then, with time will see that capacity to come back on out in Asia and the Middle East and the world market is very efficient and those barrels will flow to the demand centers and balance things off and so I think this will be a few year price environment and we’ll get back to what I think is a more typical refining industry structure.

Stephen Richardson — Evercore ISI — Analyst

Thanks so much. Appreciate it.

Darren Woods — Chairman and Chief Executive Officer

Thanks.

Operator

Well, the next que, Jeanine Wei with Barclays.

Jeanine Wei — Barclays — Analyst

Morning. Thanks for taking our question.

Darren Woods — Chairman and Chief Executive Officer

Good morning, Jeanine.

Jeanine Wei — Barclays — Analyst

Good morning, Darren. A question, maybe just moving to the asset side of things on Guyana. Exxon has had really tremendous success there and not only just from a resource perspective. Are we at the point where we should may be adjusting our thinking on what timelines are? Just given the really good execution that you’ve had so far. I guess where we’re going out is each phase has come on faster, capacity is creeping up in the meantime, an infill opportunities, they continue to look really promising. So, at what point should we kind of be compressing timelines? Thank you.

Darren Woods — Chairman and Chief Executive Officer

Thank you, Jeanine. Well, you’re right. We have seen really good progress in what’s happening on Guyana and I think it illustrates one of the advantages of a consistency of approach and just moving from one development to the other, we started off with Liza-1 with a smaller concept to get started and recognized that we would build on that and extend on the design that we had. We had a concept of design one build many. Obviously, as our discoveries mature and we get a better understanding of the reservoir in the development opportunities there, we will adjust those designs.

I think it’s a function of really the development plans that we put in place and the right project to most efficiently deliver to develop those resources and that will change as we move around that block and with the different structures and resources. So I wouldn’t say, I think stay tuned as our plans mature and we get a better line of sight too, we’ll give you updates and let you know how we see that coming. I think with Payara, we did bring that one forward and announced that recently given the progress we are making and as we continue to progress the other ones we’ll update you in the rest of the market on how we see those things coming together. But I’m very encouraged and feel good about the progress we’re making and hope to see continued advancement and bringing in those projects forward faster.

Jeanine Wei — Barclays — Analyst

Thank you.

Darren Woods — Chairman and Chief Executive Officer

Thank you.

Operator

Well, the next to Sam Margolin with Wolfe Research.

Sam Margolin — Wolfe Research — Analyst

Good morning. Thank you. My question is on the low carbon side. The earnings release had a nice reminder of the list of projects you’ve announced and what you’re involved in. Earlier this week, we had a bill drafted in Senate that addressed the key categories in low carbon fear which are carbon capture hydrogen and biofuels and so, I know that you’ve said as you scope the low carbon business, you’re not interested in sort of reacting to policy. You want to be ahead of things and you want to try to anticipate some of the incentives that come down. So I wonder if this bill is aligned with what you had anticipated. If assuming it passes, if you think we’re in the zone where your efforts here are really going to be supported or if you think there is more work to do or other regions where there might be better opportunities in the US. Thank you.

Darren Woods — Chairman and Chief Executive Officer

Sure. And thanks for your question. I think it’s very timely and relevant. What I would say is and what we’ve been talking about is, we’re pleased with broader recognition that a more comprehensive set of solutions are going to be needed to address the challenges of an energy transition and so the discussion evolving from just wind and solar pv [Phonetic] to carbon capture and storage and biofuels and hydrogen is really important and the recognition globally and with governments, particularly our government that those are important technologies that need to be developed and importantly the markets need to be a catalyzed in early investments incentivized. We think those are really important development. And so while we have not, I’m not real familiar with what’s the legislation, since it’s just come out.

I think it is encouraging to see the recognition and the desire to try to catalyze investments in this space, because as we’ve said, we think they’re going to be absolutely critical for society to achieve its longer term ambitions and to make significant reductions, emissions and so it’s a step in the right direction.

Our portfolio, we’re trying to develop a diversified approach. We’ve got many of the projects within the portfolio and that reduce our own emissions and do it economically. The total returns about 10% on that portfolio and of course, Dan running low carbon solution is working hard to improve upon that. And then we’ve got other large projects that where we anticipate incentives coming in either through the market or through policy that we started the planning and development on so that as that policy develops we will have a project ready and moving into execution.

Blue hydrogen is one where that will be beneficial if those incentives come to pass given the concept that we have there. So I’d say generally a step in the right direction. I would also tell you moving beyond the US, and more broadly looking around the world, a much more significant and serious effort in terms of looking for opportunities in the carbon capture, hydrogen, ammonia, space and the biofuel space and I’ve been pleased at the interest for governments all around the world and partners all around the world to engage with ExxonMobil. And to leverage the capabilities that we can bring to this space to help develop large-scale projects that make significant reductions in emissions.

So I’d say really positive vectors in this space and we feel good about how we’re positioned.

Sam Margolin — Wolfe Research — Analyst

Thank you.

Operator

We’ll go next to Jason Gabelman with Cowen.

Jason Gabelman — Cowen — Analyst

Morning. Thanks for taking my question. I wanted to ask about the current investment environment given what’s going on geopolitically in Russia and I think there’s two schools of thought out there, one, that this is kind of accelerating a push to invest in new lower carbon energy because of the current energy system has all these geopolitical risks and another one that in fact we need to invest in more hydrocarbons because the world is clearly short that. So, I’m just hoping you could kind of frame broadly where you think the industry, government, how the conversations have gone. And if you think the crisis that we’re currently in is accelerating the push towards greener energy or hydrocarbons? Thanks.

Darren Woods — Chairman and Chief Executive Officer

Yeah, you bet. Jason, I think the short answer is yes. It’s incentivizing I think both of those and I think that’s appropriate to look where there is an opportunity to take advantage of what I’ll call it the natural endowments in terms of the sun and wind to deploy those technologies, and renewable technology to generate power. But at the same time, I think there is a recognition that there are deficiencies in those technologies and while they offer an important solution in our necessary. They’re not sufficient. And so I think same time a recognition that we need to do more, particularly with gas given its cleaner footprint. And I think a recognition as it was just speaking with Sam about that. The challenge here is emissions. Not oil and gas itself, it’s the combustion of oil and gas and the emissions associated with that and so dealing with emissions through carbon capture and storage is another opportunity to address the problem at a much lower cost and in a much quicker timeframe. And so my sense in the conversations I’m having with governments around the world is a recognition of this broader approach, a basket of technologies are going to be needed and emphasis should be put on all of the ones for the right reasons at the right time. And consciously and explicitly recognizing the deficiencies and making sure that we’re mitigating those deficiencies.

I was just in Europe and having a conversation with some of the government leaders there and clearly recognize the challenge associated with renewables, wind and solar in the intermittency issue. And recognition that gas and gas powered fired power gen will be an important backstop to address that intermittency. So I think there is a much more holistic approach being taken in a more thoughtful one and I think that’s encouraging.

Jason Gabelman — Cowen — Analyst

Thanks.

Darren Woods — Chairman and Chief Executive Officer

Gabel, thank you.

Operator

We’ll take our next question from Biraj Borkhataria with Royal Bank of Canada.

Biraj Borkhataria — Royal Bank of Canada — Analyst

Hi, thanks for taking my questions. I have just one quick follow-up and then one question. So the follow-up is on Groningen again. Understand it’s a government decision but you talked about the technical capacity to increase volumes there. Are you able to quantify what is the capacity? Because in the past I feel those produced so up to 50 bcm historically, many, many years ago.

And then the question I had is on your comments on Liza. You mentioned the first phase was producing above design capacity. I asked a few quarters ago about up in Guinea, which is also producing above capacity. It’s quite a good track record there of increasing the nameplate capacity more than once. So could you talk about the opportunity at Liza and potentially quantify how far above capacity you could go for the additional units because presumably your targets are based on design capacity early. Maybe I get to get some color on that. Thank you.

Darren Woods — Chairman and Chief Executive Officer

Yeah, you bet for us. What I would say is on Groningen there is significant capacity there. Obviously, there is a balance there has to be struck, and I know the Dutch government is very focused on responsible production there as are we. And so I think it won’t be a limit of the capacity or more be a limit as to what the government thinks is necessary to produce given the circumstances there. So I don’t know that there is a, I wouldn’t think of it as a capacity limit with respect to the facilities that we have there, but more of what do we want to do to try to balance the risks and the rewards associated with production out of that field.

On the expansion and going above design capacity, I would tell you, I’ve been very, very pleased and frankly proud of the organization, the work they’ve done. A really across the entire portfolio, you mentioned Liza and PNG which are both really good examples and ones that we’ve highlighted. But I would tell you, almost all the new projects that we’re bringing on as we align those out and get them up and running, the teams get very quickly focused on debottlenecking and optimizing and taking it above production capacity. And so I think we’ve got a long history of that and I think the way we have organized our technology and engineering organization now where we can leverage the learnings and capabilities and competencies every part of the organization on to any one particular asset is a huge, huge competitive leverage. And in fact that’s part of the improvements that we’re seeing.

In fact that PNG, we brought downstream, historical downstream, optimization technology into that upstream, traditionally upstream facility and that’s making a big difference. And we’re seeing that across a number of different platforms. So I don’t have a new number to give you in terms of how to think about these. I would just tell you that you should feel comfortable that the organization is to continue to push and strive for getting the most of the kit that we build in the projects that we’ve bring online.

And we’ll give you updates as we’re moving through here and the organization successful with that. We’ll let you know how we’re doing and growing that production.

Biraj Borkhataria — Royal Bank of Canada — Analyst

Could you say how far does [Indecipherable] capacity of Liza 1 is producing?

Kathryn A. Mikells — senior Vice President and Chief Financial Officer

10% above.

Biraj Borkhataria — Royal Bank of Canada — Analyst

Thank you.

Operator

The next que, Roger Read with Wells Fargo.

Roger Read — Wells Fargo — Analyst

Yeah, thanks, good morning.

Darren Woods — Chairman and Chief Executive Officer

Good morning.

Roger Read — Wells Fargo — Analyst

Maybe coming back to a couple of the policy questions have been asked. You have Slide 5 in the presentation right shows investment maybe where it should be versus where it is and where it’s projected. And then I’m just curious as we think about some of the policy you talked about maybe checking the box of all of the above as you’re meeting with various governments. Would that allow the global investment to get back on the track necessary as we look out over several years and if not, wouldn’t that indicate that we’re going to be looking at multiple years of above normal or above, let’s call it mid cycle commodity prices because when I think about a $41 breakeven, maybe 60,65 mid cycle put under investment situation that says oil prices are likely to exceed that.

Doesn’t that set up Exxon very well to think one of the questions asked earlier, be more aggressive on the cash returns for just curious what you think about that slight indicator?

Darren Woods — Chairman and Chief Executive Officer

Yeah, well, I think, Roger. It’s a complicated space you’re asking about but a good one. I do think if over time policymakers focus on what I think the real challenge with the energy transition is which is dealing with emissions and the broader door opens for say carbon capture and storage or hydrogen and specifically blue hydrogen that opens up the door for additional oil and gas and the receptiveness of oil and gas coming on the marketplace, which I think frankly is important, just given the cost associated with the transition. If you can find ways to use existing infrastructure and don’t have to rewire your entire industrial processes and power generation systems that’s going to be a win for society as we bring down emissions.

And so that may, that may open the door. I think that’ll just a time will tell. And if that does, obviously the demand changes and maybe that incentivizes more investment and get you back into the range that’s shown on the chart. From our perspective, what will change our investment is finding these advantaged opportunities. I think our view has been and continues to be that we’re going to look for the opportunities where we can leverage the capabilities and competitive advantage of the corporation and generate above industry average returns. The portfolio that we’ve been advancing does that. We’ve got others that we’re working the potential opportunities in the pipeline that we think we’ll do that. And so as we are successful in securing those opportunities are developing them, you’ll see those come into the portfolio.

And frankly, the size of that investment will be a function of and how big those are the number of those projects that we find that our advantaged to our. So that’s kind of them I would summarize it.

Roger Read — Wells Fargo — Analyst

Can I just ask one kind of clarification on that. If you think about, and I understand you’re doing a lot of things and a lot of different places but if you think about your investment relative to those various lines, right. What’s projected? What’s necessary? And where Exxon is today, where do you feel Exxon fits on that curve?

Darren Woods — Chairman and Chief Executive Officer

Well, I would say, Roger, you’ve got to put what we’re doing today. And what we’ve got planned going forward in the context of what we’ve been doing over the last five years. You will recall back in 2018, we talked about aggressively investing in these opportunities in doing it counter cyclically others were pulling back, we were planning in and that meant that we spent. And you will recall this I got a lot of pressure on this and criticism is, you’re spending that money upfront out of the cycle, which I think it’s paying off today. I think that was the right strategy. It’s not to ramp up spending in the heat of the moment or the heat of the market and so that strategy is paying off. You’ve got to look across that time cycle, and I would say aggregate the investments that we’ve been making.

My expectation is, we’ll see, we’ll continue to see cycles in this industry, and we’re going to continue to look for the opportunities, particularly in the down cycle to bring advantaged investments forward and that’s the way we’re going to be thinking about looking at it.

Roger Read — Wells Fargo — Analyst

Thank you.

Operator

Next que, Neal Dingmann with Truist.

Neal Dingmann — Truist Securities — Analyst

Good morning. Thanks for the time. Darren, my question is again on shareholder return, specifically, given the massive amount of cash, we don’t have a book post the like quarterly cash flow. Would you all consider externally ramping up, it’s more of the shorter cycle return assets like your Permian position given based on our number of what looks like to be notable discounts that you be independent producers. I’d say that within the stress.

Darren Woods — Chairman and Chief Executive Officer

Yeah, so in terms of our organic opportunities in the Permian, we’re not going to step outside of the strategy that we developed in terms of driving capital efficient production in the Permian. You’ll recall, we’ve talked about the the corridor approach that we’re pursuing in the Delaware. The fact that we’ve pre invested in facilities there. We’ve got a very aggressive technology program that we’ve been working on for some time now, and that’s being built and brought into our production and drilling there. And one of the reasons why we’re seeing some of the advances and cost inefficiency is driven by a lot of that work we’ve been doing in the technology space.

We’ve got more technology that we are looking to bring into that. And so that’s helping the development and the productivity of that develop. We don’t want to get too far ahead of that. So there are a lot of, a lot of parameters that we’re keeping an eye on to make sure that we deliver on our commitments to produce there at very low cost, have very low breakevens and high cash flow. That’s the way we’re thinking about it.

Neal Dingmann — Truist Securities — Analyst

But, no sites and like we did in [Indecipherable] buying externally buying other assets deployment outside of that large position you already have.

Darren Woods — Chairman and Chief Executive Officer

I think you know, we are always looking for acquisition opportunities that has been, that’s always on the radar. And as you know the key secret or the key advantage there, you’ve got to find is assets that fit with your advantages that you can bring additional value and accrue value through an acquisition. So absolutely that remains on the radar. I think as we work these technologies as we advanced our processes and techniques that opens up additional advantage, which we can then look at and apply to other potential opportunities. So that’s, that’s kind of the formula that we have there and we’re keeping our eyes open.

Neal Dingmann — Truist Securities — Analyst

Well, thank you.

Darren Woods — Chairman and Chief Executive Officer

Dingmann, thank you.

Operator

Well, the next que, Manav Gupta with Credit Suisse.

Manav Gupta — Credit Suisse — Analyst

Hi guys. My quick question here is, we are hearing some worries on where we have a debate if US is in a recession or not in a recession globally. Also same debate, I’m just trying to understand whether it’s your refining business or your chemicals business. Are you seeing any early signs of recessionary demand kicking in or demand destruction, whether it relates to the refining business or maybe your commodity chemical business? If you could help us understand how demand is trending in somewhat of a challenging GDP global economic data. Thank you.

Darren Woods — Chairman and Chief Executive Officer

Sure, Manav. I’ll take a crack at that and then see if Kathy has anything to add. I think certainly the dialog that I’ve heard externally in this space is it’s a complex picture to try to dissect, to understand and of course to debate, are we in a recession. Our recession I think is in part a factor of this complicated landscape that we’re looking at. I would say within our industry is no less complicated when you think about a lot of the supply constraints some logistics challenges that we’re facing. So it’s difficult to get a real clear read on what’s driving variation demand quarter-on-quarter, month-on-month given some of those logistics challenges that we’re seeing, inventory withdrawals and builds and so. A complicated space, I think bottom line is I wouldn’t, I wouldn’t tell you that we’re seeing something that would say we are in a recession or near recession. But I would also say that it’s a complex picture frankly.

The demand destruction question that, yes. I wouldn’t tie and what we have seen is obviously earlier this year, as prices really spiked up. There is a level of discretionary demand and we saw some of that demand come off with very high prices as prices have come back down again, you’re seeing some of that recover. And so I would say that’s just the normal price response that you see with respect to demand and not tied to, say, a more macro economic picture. Kathy, you have anything to add?

Kathryn A. Mikells — senior Vice President and Chief Financial Officer

The only other thing I would add to that is overall when you look at demand recovering from the lows of the pandemic, one of the laggards has been Jet A obviously and so Jet continues to lag, but it is obviously starting to pick up now as people are starting to travel and obviously international travel restrictions have reduced, which means people are also starting to travel a bit more internationally, but we continue to also see some effects of COVID. The fact that China was in lock-downs in the second quarter, certainly kind of impacted our chemical business a little bit, right, and so we saw a bit of our volumes coming off there specifically in Asia responding to that. So there is going to continue to be these impacts both ongoing recovery from the pandemic. And then obviously some COVID impacts and now kind of intersecting with a bit more uncertainty associated with just the overall macro environment.

The last thing I’d add is, we tend to be an organization that prepares for the worst and hopes for the best. So I’d tell you we’re certainly preparing for every eventuality.

Manav Gupta — Credit Suisse — Analyst

Thank you for the response and congrats on a great quarter.

Darren Woods — Chairman and Chief Executive Officer

Thank you.

Kathryn A. Mikells — senior Vice President and Chief Financial Officer

Thank you.

Operator

We’ll take our next question from John Royall with JP Morgan.

John Royall — JP Morgan — Analyst

Hey, good morning. Thanks for taking my question. My question is on the chemicals business. I know you’ve had some headwinds in 2Q from both a margin and a volume perspective. You had called out China walk down specifically in that these might be a little tough to forecast, but can you speak to your outlook there for the second half in both the US and globally in the chemicals business?

Darren Woods — Chairman and Chief Executive Officer

Sure. I’ll start off on that and then see if Kathy wants to add anything. I would tell you what we’re seeing here in the second quarter and we made reference to is, while the ethane advantage that we have in the US, North America still is an advantage versus rest of the world as gas prices go up in crude prices moderate and more naphtha is out there, that advantage weekends and we saw that with respect to the margin but still reasonably healthy demand and good demand growth year-on-year.

China obviously is an important market and so as we move in and out of lockdowns there that will have an impact on our chemicals demand. In the automotive market is an important market and with some of the challenges, they’ve had their with chips and production issues that has had in the short-term impacts and we’ll have to see how those get resolved. My expectation is, as that gets resolved in automotive production that was to pick up, we’d see that again recover within our portfolio. So that’s the landscape that we see today. And early be a function of where it is China end up going with respect to its response to COVID. That’s it. Kathy, anything to add?

Kathryn A. Mikells — senior Vice President and Chief Financial Officer

Yeah, the only thing I would add is as we look forward, there are more supply coming on in chemicals specifically. And so we can see projects, most of them are targeted in China and China is obviously long term. One of the fastest growing markets for chemicals, but we’re also seeing some additional supply that’s going to come on in North America and this is obviously part of the cyclicality in the business, supply tends to come on in large chunks and it takes a little while for overall supply and demand to then come back and balance. So that’s the only other thing that I would add.

Jennifer Driscoll — Vice President of Investor Relations

Thanks. I think we have time for one more question, Jennifer.

Operator

Looks like we have time for one more question. Our last question will be from Ryan Todd from Piper Sandler.

Ryan Todd — Piper Sandler — Analyst

Yeah, thanks. Maybe just one follow-up on some of the earlier comments on the low carbon businesses. On the carbon capture front, you call out a number of projects in the release, you’re progressing a number of those different projects around the world. As you look at these, I mean how would you describe the commonalities in this projects? What is that isn’t working on carbon capture, other technical similarities that are driving progress in these locations at a specific progress or projects political or fiscal support and what are some of the key things that you need to see either technically or regulatory wise to kind of to grow this business further. That’s it.

Darren Woods — Chairman and Chief Executive Officer

Sure. Yeah. Thanks, Ryan. I think if you look at today’s technology it has applicability, its economic for more concentrated streams of CO2 as you moved down the item of emissions, so to speak, and the CO2 concentration becomes more and more dilute. That existing technology becomes more and more expensive and I think that’s one of the key challenges and so one of the areas that we’re working with our technology organization is how is developments in technology that allow more economic capture of more dilute CO2 streams. And so I would say that’s one constraint that is going to require technical advances to make it more affordable going forward. But outside that within the streams that have the necessary concentration that make existing technology work, key variables will be storage and access to storage and access to storage that’s geographically close, logistically close because another key point will be the transportation cost.

And so kind of requires concentrated streams of CO2, good logistics systems and storage abundant storage that’s close by. You put those things together, you’ve got an equation that you can make these projects work with relatively modest incentive schemes and in fact that’s what you’re seeing with the Houston hub carbon capture projects that we’ve table to very large source of somewhat concentrated CO2 streams that’s logistically close to a good storage in the Gulf of Mexico. To all those equations come together that require additional incentives, but something that would be reasonably inexpensive compared to the cost society’s currently bearing to remove CO2.

And as you move around the world, the projects that we’re looking at have similar constructs to make that those projects viable and then obviously the governments are looking at what kind of policy would be required to help support those projects.

Ryan Todd — Piper Sandler — Analyst

Thank you.

Darren Woods — Chairman and Chief Executive Officer

Thank you, Ryan.

Jennifer Driscoll — Vice President of Investor Relations

Thank you, Ryan. Thank you, Darren. I think we’re at time. Appreciate everybody’s questions today. We will post the transcript of the Q&A session on our investor website early next week. Have a nice weekend everybody. And I’ll turn it back to our operator to conclude our call. Jennifer?

Darren Woods — Chairman and Chief Executive Officer

Thanks.

Operator

[Operator Closing Remarks]