Jeff Woodbury - VP, IR and Secretary

Phil Gresh - JPMorgan Neil Mehta - Goldman Sachs Jason Gammel - Jefferies Evan Calio - Morgan Stanley Sam Margolin - Cowen & Co Doug Leggate - Bank of America Merrill Lynch Brad Heffern - RBC Capital Markets Ed Westlake - Credit Suisse Asit Sen - CLSA Ryan Todd - Deutsche Bank Anish Kapadia - Tudor, Pickering, Holt & Co Roger Read - Wells Fargo Paul Cheng - Barclays Iain Reid - Macquarie

Good day and welcome to the ExxonMobil Corporation's Third Quarter 2016 Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to the Vice President of Investor Relations and Secretary, Mr. Jeff Woodbury. Please go ahead, sir.

Thank you. Ladies and gentlemen, good morning and welcome to ExxonMobil’s third quarter earnings call. My comments this morning will refer to the slides that are available through the Investors section of our website. Before we go further, I’d like to draw your attention to our cautionary statement, shown on Slide 2. Turning now to Slide 3, let me begin by summarizing the key headlines of our third quarter performance. ExxonMobil earned $2.7 billion in the third quarter. Corporation continues to deliver solid cash flow despite the challenging business climate. Cash flow results are underpinned by integration benefits from our Downstream and Chemical segments. ExxonMobil diverse product portfolio and flexible integrated manufacturing platforms remain a distinct competitive advantage through the business cycle. We maintain a relentless focus on business fundamentals while we continue to capture market savings in the current environment. We also remain resolute and are drive to implement long-term structural improvements across our integrated businesses. We are well positioned to create value in any operating environment. Finally, as I’ll show you today the corporation continues to deliver on its operating and investment commitments. We are effectively progressing selective strategic investments while maintaining our setback commitment to safe reliable operations. Moving to Slide 4, we provided an overview of some of the external factors affecting our results. We saw a modest global economic growth in the third quarter, while the U.S. economy improved relative to the first half of the year, growth rates slowed in China and remained soft in Europe and Japan. Crude oil prices were largely flat although volatile whereas natural gas prices strengthen on average compared to the second quarter. Global refining margins decreased as production continued to outpace demand, and Chemical commodity product margins remain strong, while specialty margins held relatively flat. Turning now to the financial results as shown on Slide 5, as indicated ExxonMobil's third quarter earnings were $2.7 billion or $0.63 per share, operation distributed $3.1 billion in dividends to our shareholders. CapEx was $4.2 billion down 45% from the third quarter last year reflecting the cooperation's capital discipline and strong project execution. Cash flow from operations and asset sales was $6.3 billion and at the end of the quarter cash totaled 5.1 billion and debt was 46.2 billion. The next slide provides additional detail on sources and uses of cash. So over quarter, cash balance is increased from $4.4 billion to $5.1 billion. Earnings adjusted for depreciation expense changes in working capital and other items, and our ongoing asset management program yielded $6.3 billion of cash from operations and asset sales. Uses of cash including shareholder distribution of 3.1 billion and net investments in the business of $4.2 billion, debt and other financing increased cash by $1.7 billion. Moving now to Slide 7 to review our segmented results, ExxonMobil's third quarter earnings decreased $1.6 billion from a year-ago quarter due to lower Upstream and Downstream results. Corporate and financing costs were approximately flat to the prior year quarter, although below our guidance which remains at $500 million to $700 million on average over the next few years. In the sequential quarter comparison, shown on Slide 8, earnings decreased by $950 million, and stronger results in both the Upstream and Downstream segments as well as lower corporate charges. Turning now to the Upstream financial and operating results, starting on Slide 9. Third quarter Upstream earnings were $620 million, down $738 million from the year-ago quarter. This result was driven primarily by lower realizations which decreased earnings by $880 million. Crude prices declined nearly $4 per barrel, and gas realizations fell by $1.13 per thousand cubic feet. Favorable sales mix effects increased earnings $80 million. And all other items added $60 million driven by lower operating expenses. Moving to Slide 10, oil equivalent production decreased almost 3% compared to the third quarter of last year totaling just over 3.8 million barrels per day. Liquids production decreased to 120,000 barrels per day as growth from projects and work programs was more than offset by impact of field decline and downtime events, most notably in Nigeria due to third party impacts. Natural gas production, however, increased 77 million cubic feet per day, as new project volumes were partly offset by divestment impacts. Turning now to the sequential comparison, starting on Slide 11, Upstream earnings were $326 million higher than the second quarter. Improved realizations increased earnings by $240 million. Crude realizations decreased by $0.30 per barrel, and gas realizations increased about $0.55 per thousand cubic feet. Unfavorable volume and mix effects reduced earnings by $40 million. All other items increased earnings by $120 million, benefitting from reduced operating expenses and favorable foreign exchange effects. Moving now to Slide 12, sequentially, volumes decreased to 146,000 oil equivalent barrels per day, or almost 4%. Liquids production dropped to 119,000 barrels per day, from downtime events, entitlement impacts and field decline. Natural gas production decreased to 161 million cubic feet per day as lower seasonal gas demand and reduced entitlements were partly offset by project growth and increased volumes from the U.S. work programs. So moving now to Downstream results, starting on Slide 13, Downstream earnings for the quarter were $1.2 billion, a decrease of $804 million compared to the third quarter of 2015. Weaker refining margins reduced earnings by $1.6 billion. Favorable volume and mix effects, mainly from lower maintenance activities, improved earnings by $170 million. Other items including the lower operating costs reduced maintenance expenses, and asset management gains increased earnings by $580 million. As announced in the first quarter, Imperial Oil is selling approximately 500 retail service stations in Canada. Today, more than 40% of these stations have been converted to the branded distributor model resulting in an earnings impact of $380 million in the quarter. Turning to Slide 14, sequentially, Downstream earnings increased $404 million. Weaker margins reduced earnings by $330 million. Favorable volume and mix effects, mainly from lower maintenance activity increased earnings by $240 million. All other items added to further 490 million, mostly from asset management gains and the lower expenses. Moving now to Chemical results, starting on Slide 15, third quarter Chemical earnings of $1.2 billion, decreased 56 million from the prior year quarter. Favorable volume and mix effects were more than offset by higher maintenance expenses. Moving to Slide 16, Chemical earnings decreased to $46 million sequentially or stronger margins partly offset increased maintenance activity. Moving now to Slide 17. Either delivering on our investment and operating commitments is our disciplined approach to investment and cost management. We continue to drive capital and operating cost down especially in the current business climate with year-to-date CapEx and operating cost lower by a further $12 billion versus the prior year period. We stride to build structural advantages into our business while minimizing total lifecycle cost. With our global procurement organization, we leverage our worldwide presence and scale of operations to effectively respond to changing market conditions. Importantly, this includes meaningful engagement for service sector on developing and implementing lower cost solutions. Across our operations and development activities, we pursue unique synergies and innovations throughout the design and execution phases that capture the structural advantages while ensuring high integrity in our operations. For example, by leveraging our fast-drill process and flat-time reduction initiatives, we realize cumulative drillings savings of $5 billion over the last decade. Today, these tools are delivering shorter drill times and improved performance in places like Angola, Guyana and Russia. By hallmark of our success has been our committed focus across the full value chain on technology development, not only to develop lower cost alternatives, but also to enhance integrity and liability, improve productivity, increase product value and minimize environmental impact. On Slide 18, we would now like to comment on the reporting basis of the proved reserves and asset impairments. Our results are in accordance with the rules and standards of SEC in the Financial Accounting Standard Board. Starting with our oil and gas proved reserves. As I indicated our reporting is consistent with SEC rules, which prescribe technical standards as well as a pricing basis for calculation of the reported reserves. This pricing basis is a historical 12 month average of the first day of the month prices in a given year. As such, the low price environment impacted our 2015 reserve replacement resulting in a 67% replacement ratio. This was the net result of natural gas preserves being reduced by 834 million oil-equivalent barrels primarily in the U.S. reflecting the change in the natural gas prices, offset by liquidations of 1.9 billion barrels. Given that year-to-date crude prices are down further from 2015 by almost 25% on the SEC pricing basis, we anticipate that certain quantities are currently booked reserves such as those associated with our Canadian oil sands will not qualify as proved reserves at year end 2016. In addition, if these price levels persist, reserves associated with inner-field like production or certain other liquids and natural gas operations in the North America also may not qualify. However, as you know amounts required to be de-booked on an SEC basis are subject to being rebooked into the future when price levels recover or when future operating or cost efficiencies are implemented. We do not expect the de-booking of reported reserves under the SEC definitions to affect operation of these assets or to alter our outlook for future production volumes. And you can find further details of our reserves reporting in our 2015 10-K. Now regarding asset impairments, we follow U.S. GAAP successful efforts and under these standard assessments were made using crude and natural gas price outlooks consistent with those that management uses to evaluate investment opportunities. This is different and as you see price basis for reserves that I just described. As detailed in our 2015 10-K, last year, we undertook an effort to assess our major long life assets, most at risk for potential impact. The price base is used in this assessment generally consisted with long-term price forecast published by third party industry and government experts. The results of this analysis indicated that future undiscounted cash flows associated with these assets exceeded their carrying value, again this is detailed in our 2015 10-K. In light of continued weakness in the Upstream industry environment and in connection with our annual planning and budgeting process, we will again perform an assessment of our major long-lived assets, similar to the exercise undertaken in 2015. We will complete this assessment in the fourth quarter and report any impacts in our yearend financial statements.

ExxonMobil continues to invest in this exploration activity to growth our prospect inventory across the globe, recognizing the opportunity presented by current market conditions, we are investing counter-cyclically in large scale seismic acquisition programs. Through 2016, we have acquired over 60,000 square kilometers of 3D seismic survey covering diversity of logical basins around the world, including Eastern Canada, Mexico, Guyana, Irving, South Africa and Mozambique. These new seismic data will enable us to evaluate recently captured acreage and ultimately identify new potential drilling locations. ExxonMobil also continues to invest in proprietary research in advance seismic imaging and high performance computing to enhance our ability to extract maximum value from seismic data. In addition to our active exploration program, we continue to advance several large scale developments. The Kashagan project in Kazakhstan achieved a stable re-starter production in October. Work is ongoing safely and gradually increased production to a target level with 370,000 barrels per day over the next year. In Australia, ExxonMobil has shipped four LNG cargos from Gorgon since August, and the second LNG train has now started. In Eastern Canada, after transportation from the fabrication yard in South Korea, the Hebron utilities and process module or UPM was safely offloaded at the Bull Arm fabrication site in the Canadian province of Newfoundland and Labrador. The top sites including UPM will next be mated with the concrete gravity based structure shown in the background of the photo. Hebron remains on track to startup by year end 2017. Moving to Slide 20, this illustrates the corporation's year-to-date sources and uses of cash, and highlights our ability to fund shareholder distributions while maintaining our selective investment program; as shown, cash flow from operations and asset sales of $16.9 billion funded shareholder distributions and together with a moderate increase in debt financing supported net investments in the business. We continue to maintain our financial flexibility, a competitive advantage that allows us to selectively invest through the cycle and capitalize on unique opportunities. ExxonMobil generated $4 billion of free cash flow year-to-date reflecting capital discipline and the strength of our business. And we remain resolute in our commitment to pay a reliable and growing dividend. Quarterly dividends per share of $0.75 were up 2.7% versus the third quarter of 2015. Moving now to Slide 21, so in conclusion, ExxonMobil remains focused on creating long-term value through the cycle. Year-to-date, corporation has earned $6.2 billion and generated 16.9 billion of cash flow from operations and asset sales, benefitting from the resilience of the integrated business. Upstream volumes were 4 million oil-equivalent barrels per day, and we anticipate that full year production volumes will be within our guidance of 4 million to 4.2 million barrels per day driven by our value based choices. ExxonMobil remains dedicated to capital and cost discipline regardless of business environment. Year-to-date, capital spending is down 39% to $14.5 billion, and we remain committed to sharing the corporation success directly with shareholders through the dividend. Year-to-date dividend distributions totaled $9.3 billion. That concludes my prepared remarks, and I would now be happy to take your questions.

Thank you, Mr. Woodbury. [Operator Instruction] We’ll go first to Phil Gresh with JPMorgan.

The first question is on the capital spending. You continue to see reductions sequentially in the CapEx year-to-date and it's obviously trending well below what you had expected at the beginning of the year. So, I guess, my first question is given the degree that’s lower than your guidance, are you surprised by the degree of savings you have been able to achieve. And as we look ahead where are we in this cycle of CapEx savings?

Yes, it's a real good question, Phil, and I’d say that. First, I just want to recognize the organization for how focused they’ve been on in particularly in the lower price environment continuing to capture benefits. We as you highlighted have been below our capital guidance yield, we’ll be able to capture the many capital efficiencies, we’ve continue to effectively respond to the market and capture market benefits. Importantly, Phil we continue to deliver the projects on budget and on schedule. And as I’ve said, previously, we have adjusted the pace some of our investments in order to make sure that we’re maximizing the value proposition given where we are in business cycle. If you look at our spending pattern, I would tell you that it is trending towards an outlook of between $20 billion to $21 billion.

20 to 21 for the full year?

For the full year.

Okay. And then as you look at the M&A activity, there is been a lot of M&A activity in the U.S. shale space lately, some of which has been acreage that's been contiguous for years. Maybe if you could just comment about how you’re thinking about valuations in the U.S. shale today?

Yes. So, as we’ve talked in the past, Phil. We continue to be very alert towards there maybe some value propositions. We’re looking for opportunities that would create incremental value. These opportunities need to compete with our existing investment portfolio and provide accretive strategic long-term value to us. We have been successful in over the recent past picking on bolt-on acquisitions particularly in unconventional business where we saw some of those unique synergies that added accretive value. We continue to be very alert to where there are opportunities, but as I said they really need to be able to add incremental value versus the portfolio that we currently have.

We’ll go next to Neil Mehta at Goldman Sachs. Q – Neil Mehta: Jeff, I always appreciated your views on the near-term well micro, I know, Rex had made some comments on London, talking about a more subdued market over the next couple of years. Can you just talk about how you see the bounce is over the next couple of years both from the supply and demand perspective? And then I'll have a follow up.

So, Neil, if you think back and look at where we have been here in the recent past, I’ll start with demand. Demand has been generally reasonably strong, I mean when you think about a 10 year average demand growth of somewhere between 1 million to 1.1 million barrels per day. Since 2014, we've seen seeing demand growth in excess of that. So fairly reasonable demand growth in recent past, if you look focus now on the first part of 2016, we still continue to be in oversupply situation with production exceeding demand by about 1.1 million barrels a day in the first half. And as we anticipated, we are seeing conversions in the second half. But I’ll tell you that as you continue to progress that we will probably end up this year oversupplied by anywhere from 0.5 million to 0.8 million barrels per day of supply. Now, of course, all this is going into commercial inventories. So, as you move into 2017, you see that we continue to see conversions maybe a little bit oversupplied in the year. But I had cautioned that we got to recognize, if they're still anywhere from 500 million to 600 million barrels of commercial inventory build since the end of 2013. That’s got to come out of inventories at some point. And then of course, there is still uncertainties in the supply trend some of the OPEC countries as well as U.S. and conventional will have an influence on the supply demand balance. So, I think when you heard Rex's comment, he was reflecting on all these factors as to how that will impact price in the near-term or medium-term.

Appreciate that, Jeff. The follow-up is related to exploration, if you could provide some additional color on both Guyana where there has been some exploration success with Liza-3 and the opportunity that you see in Nigeria that will be appreciated?

So, as I said in my prepared comments on Guyana, we were very pleased with the outcome of the Liza-3 well. The well is located just north of Liza-1. It has given us confidence in terms of areal extent, the reservoir quality and thus our communication that we believe we're in excess of 1 billion barrels now. We are completing the Liza-3 well as I indicated, we will move on to an exploration well which is to the northwest of the Liza discovery. We are integrating real-time all of this well data and of course we took very expensive 3D seismic survey and all that’s being integrated into our development planning. So in short I would say, we are very encouraged by not only Liza but the prospectivity on the block, and we see this is a high quality asset for the corporation. Pivoting over to Nigeria and the Owowo development, I’ll tell that this is a continuation of initial discovery. The Owowo-3 well appraised part of that initial discovery, but also discovered new hydrocarbon columns in a deeper objective. So, again very encouraging, as I said in my prepared comments, we're thinking anywhere between 0.5 billion to a 1 billion oil discovery, and we will clearly integrate that into our development planning. I think I will also note that the Owowo-3 well is a really good indication of how the organization and its integration can able to continue to enhance the value proposition. We saw the potential to add additional resource. We drilled this deeper exploration objective and added significant more resource to the potential development here. So, I think it's a great example that about the value that bring from the general interest integration of the corporation.

We'll go next to Jason Gammel with Jefferies.

I had two questions for you actually, the first was around the impact of the forward statement that you have in the comments you've made about the proved reserves. Just trying to understand in Canada, it looks like in 2015 you actually had some fairly signification positive reserve revisions, and so I'm just wondering, if the sort of $7 change that we've seen in WTI from year-to-year is the primary driver on why those reserves could now potentially be at risk and is crude kind of an all nothing thing, where would be the full 3.6 million barrels would be nothing, if you just comment around that?

The first point it as I mentioned we're seeing almost a 25% reduction in prices on a SEC basis year-to-date. And of course, we need to wait until we get the last two data points for that calculation. But given what we're seeing to this point, we felt it was appropriate to signal the potential impact from the SEC pricing basis on proved reserves. Yes, we did add some reserves in crude oil in 2015 and then the drop that we're potentially going to experience in 2016 is all due to the pricing basis. The second question, was, I'm sorry Jason was related to what?

Well, it was really you've referenced 3.6 billion barrels in the press release that's related Kearl, is that kind of an all or nothing thing, in another words, is it the full operation or?

Yes, for the most part it is. For Kearl, itself you remember, it's very-very long flat plateau, so it would be all or nothing.

Sure. And are you positive on cash margin there right now?

We managed all of our assets to maximize cash flow. I will tell you that the organization has done a remarkable job across. Remember, if I step back a little bit, Kearl is an advantage asset from the standpoint that we did not put an upgrader in place. We used proprietary technology in order to avoid that upfront capital investment and the subsequent operating costs associated with it. The organization has -- just what we are really planning to do is continue to improve overall reliability to mine operation as well as significantly reduce our cost structure there. And they will continue to work on it like we do everywhere, and we manage these assets in order to maximize long-term return and very confident that will happen here at Kearl as well.

We’ll take our next questions from Evan Calio at Morgan Stanley.

Maybe my first question, it’s a different slide to prior Phil's broad question. Just given the success you had adding resource at the drill bed in Guyana, Nigeria brownfield opportunity in places like PNG, pretty significant opportunities. Does that really contribute to your cautious stake so far on the asset market or the acquisition market, maybe broad next time going to ask more for U.S., but your view on the global market and kind of proceed need and or interest?

Yes. It’s a good perspective, Evan. I mean, I would tell you it’s not either all or for us. We’re looking at work and we get the greatest value, but I think you draw out a very important point as it relates to how we manage the portfolio and that is we maintain an active exploration program that is clearly define at high grading the value proposition in our portfolio, and you’ve highlighted some of the important resources. When we get to the point into assets life where we don’t think that there is much incremental value and that’s when we put it into our process of considering how else can you monetize that asset. But at the same time, we’re also very alert to where there maybe some value propositions from acquisitions. And I think, the InterOil transaction is really good example. We discovered a substantial resource base in Papua New Guinea and we continued to our exploration activity, looking towards an expansion of existing LNG facility. And in addition to that where we saw the opportunity for synergies value proposition by acquiring the InterOil and specifically the Elk-Antelope resource that we could combine with our existing resources there, and with the great success we’ve had in terms of the operating reliability and in the cost structure there, I mean just as a, it puts at right up top of the portfolio. So, think about all of our actions, Evan, as what is the best value proposition and that may become organically or inorganically.

Okay. That’s fair. And as a follow-up on Liza, maybe just more detail here on how success affects your 2017 program across your various blocks. I mean, potentially adding other rig and any preliminary thoughts on that affects development plan that you filed in July, potentially adding a second FBSO and maybe just kind of cleaned up. There just any color on Payara or what you've learned from Skipjack?

Yes. So, as I indicated in the earlier question that, we’re very encouraged with the progress that we’re making at Guyana. I think you also know that we all also are very measured in our pace in terms of exploration and development. We want to make sure that we are leaving any value on the table. We also want to make sure in the exploration program that we don’t get too ahead of ourselves. We want to make sure that we’re fully integrating in the learnings into the regional geology, so that we upgrade our potential exploration program going forward. So, it’s a pace program, it's making that those learnings being fully integrated, and then making that when we do discover additional resources or learn important information like we learned at Skipjack that we integrate that into, not only our expression program, but the scope of the full development. As it pretends to our initial phase development, it's been fairly consistent in the scope as it was conveyed in the application we filed for environmental review with the government, I’ll tell you that this is real time, the organization is looking for ways to further enhance value. And as we progress that development planning and early engineering, we will learn more which will cause us to make adjustments. But very optimistic about the future in Guyana and we think we will bring a lot value to the government and people of Guyana.

On the prospect?

On Payara.

Yes.

Yes, so I'd say it is a similar reservoir section to Liza also a stratigraphic trap. Other than that they manage it's really too early to say much more.

We will take our next question from Sam Margolin of Cowen & Co.

It's been a number of years since people had to think about an OPEC cut and filtering through partners, can you just remind us potential impact to the business and I am thinking specifically of Upper Zakum and some other progress that start up next year within number states?

Yes Sam, I am not really good at speculate on what OPEC might ultimately decide to do. I think what's important for you all to think about is that rest assured that, we are working to create incremental margin in the business. So, directionally, it could impact you on several ways. One, it could -- there could be retractions, but we're going to continue to make the value proposition. But at this point it's just too early to speculate on what we may or may not see from the agreement from the OPEC parties.

Understood, thanks very much. And then I am curious about this evaluation you mentioned in the press release about another chemical complex in the U.S. gulf. Does that reflect -- I recall at the Analyst Day, there were plans to ramp U.S. unconventional activity that were unveiled and -- is that -- so, is this new chemical complex potentially a reflection of a view associated with that at all and maybe some view on continued at least localized length in liquids and other associated some just coming out of your oil fields in the U.S., or is just a separate economic decision?

Yes, I mean, it's, like most everything in ExxonMobil, that all start with our view on the long-term energy quite demand picture. And when you think about chemicals, the chemical demand growth based on our latest outlook as from an overall perspective, chemical growing about 1% above GDP. And from an ethylene perspective, we are expecting that chemical demand will grow just like you add -- need to add about 5 million tons per annum of new capacity per year. And to put that into hardware that would be three to four world-scale crackers per year. So, that really is assets of the value proposition. First as you know, we are expanding the Baytown complex to add another 1.5 tons per annum of ethylene capacity, a corresponding investment at Mont Belvieu, adding the derivative units to produce ExxonMobil's high value metallocene polyethylene. And then we announced to your question, we announced a potential joint venture with SABIC to jointly own and operate a complex in the U.S. Gulf Coast that would notionally be another ethylene steam cracker -- ethylene steam cracker produce ethylene of about 1.8 million tons per annum. And a corresponding derivative units that would be built alongside that, but I think the value proposition is there, I think we're headed the game in terms of making some world-scale investments in this and a very strong component of our chemical business.

We'll move next to Doug Leggate, Bank of America Merrill Lynch.

So, Jeff, the new CapEx guidance seems to be following a trend that indicated goes lower again next year, but you've also said that in the recovering environment you could quickly pivot back to unconventionals in the lower 40. And I think the number I have in my head is an incremental 200,000 barrels a day net to Exxon by the end of '18. Can you just walk us through where do you stand on making that decision and whether I'm characterizing it correctly?

So, if you recall back in the March, Analyst Meeting, we provided an outlook through the end of the decade for our capital investment program. And if you remember, we had 2017 flat to down. And of course, the experience that we've realized during 2016 will be integrated into that and we'll update that outlook going into the next Analyst Meeting in March of next year. As you reflect on our ability to pivot, remember there's two components to our investment program, there's a very large component of being our long cycle investments, nothing has really slowed down in that regard and how we're working through the maximizing the value proposition for those investments. And as I said earlier we're trying to take full advantage of the cycle benefits. On the short cycle side you may recall and I think remember you're picking up with as in our unconventional program we shared in March that, we've got the ability to move fairly quick in order to capture higher price environment in our unconventional program to the order magnitude of about 200,000 barrels a day by 2018. So, we've got a lot of flexibility in our short cycle program and when you think about what really sets the balance between short and long cycle investment. The way I think about it from a short cycle perspective, Doug, it's really maintaining a program in a low price environment that allows us to continue to build on our learning curve benefits. You don’t want to go much beyond that. I think as you try and also maximize value. So, I think we're very positioned if you recall in the second quarter of last year, our last earnings call, we shared with you some statistics around our unconventional program where we continue to drop the costs and we have a pretty sizeable ready inventory to go ahead and move on.

My follow-up if I may on Guyana again, I wonder if I could just pull a little bit to try and clear up some comments that your partner made. So, really about next steps on timing, my understanding is that you’re still on location on Liza-3 looking for deeper objectives. So my question is, have you -- are you done there -- have you found lost [indiscernible] water contract and maybe comment on your partners suggestions that the range of Liza is now at the top end of your prior disclosed range?

Yes. I’ll start with the second half of the question and that is, right now, our guidance is that we’re likely above a billion barrels and really no more detail beyond that at this point, Doug. On the Liza-3 well, we did go ahead and deepen oil, we were targeting a higher risk deeper interval that had not previously have been penetrated on the block. What I would share with you is that the results were positive, and it does support the presence of oil bearing sands deeper in the section. But it is still very early this is real time evaluation that still ongoing and that information will be used integrate not only in the Liza but also in the rest of our exploration.

So, did you find your water contact or is it another appraisal well block?

Did we find in oil or contacting the deeper interval?

No, no, in the original session?

We were targeting, it goes back to injective of Liza-3 well, we were targeting water in the lower most sands, and we did encounter that water in the sand that we’re still evaluating the results from the well, Doug. But it’s suffice to say, we’re pleased with the results and are consistent with our perjure expectations.

We’ll go next Brad Heffern at RBC Capital Markets.

Just continue the probing on the deeper interval, is that included in the 1 billion plus barrel resource range?

Well, to the extent that I'd say in excess of a billion barrels, yes.

Okay. And I was wondering if you could just give a little more detail around Skipjack. Can you describe it all what happen there geologically and why it was ultimately a dry whole? And how did it inform the future drilling plan were prospects eliminated based on the results, was the drilling schedule changed?

Well, Skipjack did not find the commercial quantities of hydrocarbons, but it did find the same excellent reservoir quality sands that we see in Liza. We have -- as we have been saying we have numerous additional prospects as well as different play types on the block. So, we’re very encouraged by the success is today as well as the future exploration wells. There is really nothing more to share on Skipjack at this point. We are still doing some final evaluation and of course as I alluded to earlier, those learnings are being fully integrated into our exploration program.

Okay. Understood. And then switching to Nigeria, certainly very large apparent production impact in this quarter, can you talk about what the current status is of your production there? I know you've at least reportedly recently lifted the force there.

Yes. So, when you think about our liquid shortfall versus the third quarter of last year as well as sequentially, it was all primarily driven to the downtime in Nigeria? And there were two third party impacts, the first one I think I may have mentioned in the second quarter earnings call. The first one had to do with the third part rig that was trending that impact or export line which had an impact on our production. And that issue has been addressed and the production is back on. The second one had to do with the third party impact line, and let me just say that we are still investigating with the government, we do not believe that was accidental or due to mechanical failure.

Our next question comes from Ed Westlake of Credit Suisse.

I guess that's been press release out of Mozambique saying that you have done a deal with [NI], so I am just wondering, if there is any comments that you can make in public on that?

I know there has been fair bit of media interest in this. There is really nothing that I can comment on with respect to those media reports. You may recall also that ExxonMobil and Rosneft were given the rights to negotiate for a PSC on three offshore blocks in Mozambique, and we are actively working that opportunity that we're participating in 3D survey. Right now, they started up in January and it's still underway.

Okay. And then second question, I mean I see a lot of ways that you can't get on the offence and we've just spoken about it a lot of them on the coal, maybe we haven't spoke enough about integrating value growth in the Downstream. But there is this issue around impairments, so if I may thanks but putting that on the agenda. One of the triggers that you have in your 10-K for impairments is operating losses. And also the U.S. has been an operating loss very much of 2015 and 2016. And then oil sands may or may not be an operating loss that we didn’t get a disclosure, but let's say it is. I am just looking in your accounts, your net capitalized cost to your consolidate subsidiaries in the U.S. is 83 billion and then in Canada is $36 billion. So maybe just walk us through the approach that of how you would go through those impairments say the trigger was there? And how there would be cooperation will think about the type of impact you might have?

Yes, well, I mean, as I said in my prepared comments Ed, we did an assessment in 2015 and in that assessment as I was very clear in my comments, we saw that the cash flow fully covered the carrying cost of those assets. As I indicated Ed, we are going to do another analysis very similar to the comprehensive assessment we get in 2015, and we will report on any results. But you can see some pretty good detail of what we go through and in fact maybe go to look at given your comments in our 10-K that really defiance the process pretty clearly. But I really don’t have any more to share on the specifics of the mechanics that we go through. But rest assured, we are in full compliance with the rules and standards of both SEC and the Financial Accounting Standards Board.

I guess we could take the RP ratio as a proxy for the years of undiscounted cash flow and then we can make our own forecast of how much cash flow you make it at the strip and compare that to the carrying value would be at least a first approach to it. I guess I just worried that if you de-booked reserve then you'll less reserve life to multiply by the cash flow to then on an undiscounted basis carry against the asset value?

I don’t have anything else more to add on this, Ed. We'll continue to be transparent on this. That was the whole purpose of putting the forward statement in there. It was a -- it's part of our normal planning and budgeting process to look at profitability of our assets and that sometimes causes us to step back like we did in 2015 and do a more comprehensive assessment.

We'll go next to Asit Sen of CLSA.

So, two unrelated questions, first on global gas, could you remind us what percent of your LNG volume is not under a long-term contract and given slowdown in traditional Asian markets, particularly Japan, Korea and Taiwan. Are you seeing more new-term opportunities in other regional markets? And just wondering, if you have any incremental thoughts on European gas picture? And then I've a follow-up.

On the global gas, I mean first let me remind everybody that from our energy outlook we have gas grown about 1.6%. And LNG growth just under three times where we are in current LNG capacity. As you go forward and we said it many times, Asit, that there are LNG businesses as a very important of our portfolio. I don't have a specific breakdown of our total gas production between pipeline sales and LNG contract sales. But recognize that a large part of our Asian gas coming from Qatar and Papua New Guinea is under long-term contracts and a good part of them are liquids linked. So, that's about all I can give you on that. In terms of the markets, clearly Asia-Pacific market is an important market for LNG. We've got a very expansive marketing organization to go ahead and identify value opportunities. We're primarily interested in locking in long term contracts either point-to-point or portfolio sale. You may recall that before we take a project to -- an LNG project to final investment decision that we will lock in a majority of those volumes on a long-term contract. We've been really developed a very strong reputation credibility with the buyers through our ability to deliver these projects on schedule and our responsiveness to managing through the contract terms, we've got a new operation center that we put in place in Asia-Pacific to facilitate the transactions with our many buyers.

And my second question is on Brazil, it appears Brazil is opening up in area where Exxon is not really involved, even Guyana fraction that you have now, could you update us on your latest views on Brazil?

Brazil is a country that's really blessed with a large gamma resources and it's really high quality resource. Remember that how we approach our investment activities, just want to making sure that we get attractive returns for our shareholders. The trends in Brazil have been encouraging we continue to look for where there could be good value opportunities in Brazil and certainly if we think that we can get in engage there on resources or exploration activities that will be competitive on a global perspective to the other opportunities that we’ve got in front of us, so we certainly will consider that.

We’ll go to next to Ryan Todd at Deutsche Bank.

Great. Thanks Jeff. Maybe if I could follow up on an earlier question in terms of CapEx trends and activity levels. You’ve seen as it has been highlighted before I mean your CapEx here is kind of well over official guidance and even at 20 billion to 21 billion for the year is still relatively low and impressive at this point where you actually cover the CapEx and dividend here in the quarter. So, I guess first I mean I guess with your effectively breaking even in the current environment I know that this is one quarter, but how should we be think about how you manage additional cash flow in the 2017 in oil and gas as covers. How do you prioritize in increase in activity levels versus growth and distribution says reduction and leverage?

It’s a good question, Ryan. And I know we’ve talked about before, but it’s always good to update on this issue. As you know, let me just first talk about capital allocation, it's one of from our cash flow from operations. The first thing that the corporation wants to do is go ahead and pay a reliable and grow on dividend. The next thing is the remaining cash is praetors to a investment program as gotten into point where we believe that we have maximize the value proposition for investments. If we’ve got enough cash to go ahead and invest in to fund an investment program then the remaining cash will be put forward to either stock buyback or share buybacks or paying down our debt. If we don’t have enough cash as you’ve seen us doing this in the recent past as we go ahead and further leverage our very solid balance sheet and debt capacity to take on some additional debt because the service cost associated with that debt is more than benefited rather the return we get from these investments. So, it’s important to recognize that while we are very mindful of prudently managing our cash, we also believe it’s very important for us to continue to invest through to the cycle and we do that in a very measurable way that we’re not remaining value on the table. And therefore my comments I made earlier about making sure that we’re optimizing value in the bottom of the cycle.

All right. Thanks. Sorry, maybe the follow-up on that, you’ve mentioned earlier on the call how you’ve guys have done a good job I mean you’ve generally maintained a decent amount of investment level on kind of your long cycle type projects, but when you’re looking at this point that you’re pre-FIB into a projects. Can you speak to the progress that you’ve seen on large-scale and conventional projects in terms of cost deflation or evolution of fiscal terms towards enhancing in a competitiveness of this part of the portfolio? Have you seen what you needed at this point to kind of go and kick off the investment in that to continue new investment in that part of the portfolio or is that more that maybe to see at this plan?

Let's bring it up from the component showing, first I would say that we want to make sure that all the learnings that we getting from our capital efficiency afford year-to-date or being in graded into those projects, and we have talked about how we do this to reduce the upfront capital investment, like I have talked in the past about progressing projects in parallels that we can benefit from the learning convinces, subsequent project. So capturing the market response, capturing the capital efficiencies that we build in and the low price environment as you highlighted there is a time to where we may want to go back and purchase some additional resources or reducing expression like in a Owowo, they additional resource to make the investment, the project investment even more robust. The last thing I had mentioned is the application of technology has been fundamental -- absolutely fundamental to our past success and into the future. And if you think about where you are getting those benefits across the full value chain I mean from the Downstream, our Chemical business where we use the proprietary technology to provide high value metallocene to our unconventional business with fracking technology. So, the application in the growth of these technology solutions has been a key element. And sometime some of these projects are really waiting on some of the technology work is underway. So we make great progress, I think we are very well positioned, we got a solid diverse portfolio in which we ahead and selectively invest into the future.

And our next question comes from Anish Kapadia at Tudor, Pickering, Holt & Co.

Hi, Jeff. Just want to -- I had a question with regards to the way you look at your impairments versus the way that you look at acquisitions. Just want to square the fact that you haven't written down assets 2015, given you've got I suppose a fairly constructive view on the commodity prices with the kind of the opposing side that you haven't been dealt over last kind of year or so given that you haven't seen attracted enough assets from the market. Can you just talk about how those two things kind of work together?

Well, from my standpoint there are two separate processes. Our asset management activity is a function of making sure that we are capturing opportunities as I said earlier at a competitive charge for existing portfolio. The objective here is making sure that we are growing shareholder value and if we think that we can acquire in asset like in our oil transaction then we can add incremental long term value, and we will go ahead and pursue those type of opportunities. Our determination of asset impairment which we talked about is a comprehensive process that we follow. And as I said the detail in our 2015 10-K and it's a separate process, it's not informing or influencing or asset management activity.

Okay, thank you. And as a follow-up on Nigeria, you have -- you made the number of discoveries in Nigeria kind of a number of things that you highlighted just potential developments. Could we expect any of these to be functioned for development in 2017 and if so which are the ones that are more progressed?

So, Anish, as you highlight, there're a number of projects that we have in our portfolio that we've shared with you all in our S&L. And several of those have gone through various stages of development planning to capture some incremental value. I would tell you that just like any project, there're a lot of variables that we have to address and some of those variables may take some time. But we continue actively work with the co-benchers. Any government on the Nigeria portfolio, -- I think Owowo-3 well is a good example of how we've added some additional value to our portfolio and strengthened that project opportunity.

And then any of that could be sanctioned next year?

Anish, we don’t pre-communicate our FIDs, but the portfolio that we share within the S&L, we've got various stages of development planning underway in those projects, some of them are in feed; some of them are even more advanced like one of them like Tengiz has been FID. But we don't provide advance guidance on our FIDs.

We'll go next to Roger Read of Wells Fargo.

I guess maybe coming back a little bit of to sort of broader cash flow, CapEx questions here, remember people have asked the question, is CapEx, is it troughing here? Does it go up? I guess to some extent that's going to depend on oil pricing cash flow, but how do you look at it in a world where prices have increased quite a bit from the beginning of the year? And then balancing cash flow, CapEx any sort of asset disposition plans? And then can you lay out any of the parameters for when we should anticipate a recovery in the share repurchase program like what do we need to see?

Well, I mean, I really want to be careful not to speculate on what prices we'll do in the future. But I will tell you as we discussed a little bit earlier, that our investment -- our long cycle investment plans are progressing. When we believe those investments prior to point of maturity where we optimize on value, then we'll make an FID decision. Recall that, we're making those decisions by our long-term view on supply and demand. We're very constructive on long-term energy demand. And that's what really informing those long cycle investments, it's not what current prices are doing. Now having said that, we've balanced that with other factors that we may be able to capture some incremental value in the near term; and it causes us to paste those investments out on a longer cycle in order to make sure that we're fully capturing the value. On the short cycle investments as I alluded to earlier, and we want to keep activity levels in the down cycle commensurate with the learning curve benefits that we've been realizing since that we're enhancing value across the full portfolio. But it doesn't make sense to do much more beyond that. If you recognize, you want to optimize value. But as I responded to Doug earlier, we're very well poised to go ahead and pick up that in the short cycle investments and supported by the business climate and we’ve got flexibility to do so.

Sure. Well, the correct response on prices is always is just to say fluctuate right. But in terms of thinking about the share repo side of it, I mean is that you need to be at a point where you’re comfortable or you can let say maintain roughly flat production levels and generate free cash flow or I mean how should we think about balancing production return cash flow? And I’m think about the more normalize environment which should appears where headed to over the next year or two?

Yes. So, go back to my discussion on the capital allocation approach with the buybacks. That’s determine in each quarter considering a number of backs including these company’s current financial position, our capital requirements, our dividend requirements as well as what we see in the near-term business outlook. And it’s a all those variables that are really inform the Company as to whether we believe it’s appropriate to go ahead and distribute some of the benefits of the corporation back to the shareholder in a buyback. Remember, the corporation does not believe we should be holding large cash reserves if we don’t have an immediate use to put it to work on and we’ll go ahead and distribute it. Now, to be clear that consideration will also be mindful of the merits of going ahead and paying down debt if appropriate.

Okay. Thanks. And just unrelated follow-up, regarding the Kearl assets, is the indicator there best to use a Bachmann price or the use a WCS price and that’s just for us to do our calculations?

Well, I mean well I think the benchmark is reason the WCS benchmark is quite a reasonable.

We’ll go to next to Paul Cheng of Barclays.

Two quick one hopefully. For Liza, do you have already sufficient well data from Liza and Liza-1 and Liza-2 appraisal, if you need to meet FID on any production system? Or do you need additional appraisal wells?

On the Liza, Guyana, at this time I don’t think we believe that additional appraisal wells required prior to FID decision. But I would tell you that, as I said earlier Paul that, we will continue to integrate the data that we’ve got and there may be a point where we step back and say given the risk profile we may want to put some additional data. But right now, it’s not planned.

Okay. On Permian and Bakken, can you tell us what is your number of rig and what is the current production?

Yes. So Permian and Bakken, I think we’ve got a total of 10 rigs going in the third quarter.

And what’s there production?

And production on a gross operated basis the Permian and Bakken is about 240,000 barrels a day.

And one of your pretty large competitors that was talking about in the preparation of indeed that they’re going to add some additional weight by the vendor. Just curious that whether Exxon have any preparation of the increasing activities at this point?

Paul we are -- as I just said a moment ago, we are very well positioned to respond and we think it's appropriate but I am just not going to forecast whether we plan to add anything in the near term.

And our next question comes from Iain Reid of Macquarie.

Just a quick question, I was intrigued to see a news report that Exxon is considering setting up a trading organization, and I was listening to the answers to question on LNG and point-to-point deliveries and coverage by long term contract. Can you foresee a situation where Exxon rather like some of your competitors actually takes some of the equity volumes itself from LNG development and then kind of redistribute via kind of other mechanism? Because other thing Exxon ever done that, it's always been a kind of a point-to-point LNG player or never kind of played in the kind of trading or diversion game. So be interested in a comment on that?

Thanks Iain. I’ll tell you that by and large we're price seekers. We don’t typically speculate. We are taking positions in markets. Beyond that in terms of the inter working and how we want to manage that going forward, there is really nothing more that I can share. We continue to be very mindful from a LNG basis, very mindful what is of interest to the buyers. And I think referred to being open to the portfolio sales, but we are still very much interested in locking in those contracts on a long term.

Okay thanks. And just a follow-you, I just want ask you a question about the long-term on kashagan. Obviously, you're just ramping up the initial phase now, but what is the consortium thinking about in terms of going further on that, because the result is obviously could support a much larger level of production, and given that’s you already got the facility on-stream, must thinking about in next phase of that, so that would be interesting?

Yes, to be real transparent, I mean the joint venture company and the shareholders have been very focused. And I am sure you will appreciate this on getting the initial phase fully up on production and matching capacity. As I said in my comments that will be about 370,000 barrels a day by the end of 2017, but there is a second tranche to that subsequences to reaching 370 and that is with additional gas reinjection facility for gas that will take us to about 450. And certainly the joint venture company and the all shareholders are very focused on, given that we have restarted production and how do we move forward and really maximize value and that will include at the right time, looking at additional resource development.

And that does conclude today's question-and-answer session. At this time, I’ll turn it back over to Mr. Woodbury for any closing remarks.

Once again, I want to thank everybody for your time this morning. I thought the questions were very thoughtful and insightful. We of course appreciate your engagement. And I want to thank you again for you interest in ExxonMobil.

And that does conclude today's conference. Again, thank you for your participation.