UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2007
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
For the transition period from __________to________
Commission File Number 1-2256
EXXON MOBIL CORPORATION
(Exact name of registrant as specified in its charter)
NEW JERSEY 13-5409005
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5959 Las Colinas Boulevard, Irving, Texas 75039-2298
(Address of principal executive offices) (Zip Code)
(972) 444-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large accelerated filer X Accelerated filer Non-accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class Outstanding as of March 31, 2007
Common stock, without par value 5,633,270,055
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2007
TABLE OF CONTENTS
Page
Number
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements
Condensed Consolidated Statement of Income
3
Three months ended March 31, 2007 and 2006
Condensed Consolidated Balance Sheet
4
As of March 31, 2007 and December 31, 2006
Condensed Consolidated Statement of Cash Flows
5
Notes to Condensed Consolidated Financial Statements
6-15
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
16-19
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
20
Item 4.
Controls and Procedures
PART II. OTHER INFORMATION
Legal Proceedings
Unregistered Sales of Equity Securities and Use of Proceeds
21
Item 6.
Exhibits
Signature
22
Index to Exhibits
23
-2-
Item 1. Financial Statements
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(millions of dollars)
Three Months Ended
March 31,
2007
2006
REVENUES AND OTHER INCOME
Sales and other operating revenue (1)
$
84,174
86,317
Income from equity affiliates
1,915
1,800
Other income
1,134
863
Total revenues and other income
87,223
88,980
COSTS AND OTHER DEDUCTIONS
Crude oil and product purchases
40,042
42,821
Production and manufacturing expenses
7,283
7,424
Selling, general and administrative expenses
3,392
3,466
Depreciation and depletion
2,942
2,644
Exploration expenses, including dry holes
272
282
Interest expense
103
165
Sales-based taxes (1)
7,284
7,664
Other taxes and duties
9,591
8,873
Income applicable to minority and preferred interests
250
182
Total costs and other deductions
71,159
73,521
INCOME BEFORE INCOME TAXES
16,064
15,459
Income taxes
6,784
7,059
NET INCOME
9,280
8,400
NET INCOME PER COMMON SHARE (dollars)
1.64
1.38
NET INCOME PER COMMON SHARE
- ASSUMING DILUTION (dollars)
1.62
1.37
DIVIDENDS PER COMMON SHARE (dollars)
0.32
(1) Sales-based taxes included in sales and other
operating revenue
The information in the Notes to Condensed Consolidated Financial Statements
is an integral part of these statements.
-3-
CONDENSED CONSOLIDATED BALANCE SHEET
Dec. 31,
ASSETS
Current assets
Cash and cash equivalents
29,994
28,244
Cash and cash equivalents - restricted (note 3)
4,604
Notes and accounts receivable - net
27,582
28,942
Inventories
Crude oil, products and merchandise
10,759
8,979
Materials and supplies
1,846
1,735
Prepaid taxes and expenses
3,280
3,273
Total current assets
78,065
75,777
Property, plant and equipment - net
114,201
113,687
Investments and other assets
31,033
29,551
TOTAL ASSETS
223,299
219,015
LIABILITIES
Current liabilities
Notes and loans payable
2,006
1,702
Accounts payable and accrued liabilities
38,923
39,082
Income taxes payable
9,661
8,033
Total current liabilities
50,590
48,817
Long-term debt
6,758
6,645
Deferred income tax liabilities
21,010
20,851
Other long-term liabilities
30,831
28,858
TOTAL LIABILITIES
109,189
105,171
Commitments and contingencies (note 3)
SHAREHOLDERS' EQUITY
Common stock, without par value:
Authorized:
9,000 million shares
Issued:
8,019 million shares
4,530
4,786
Earnings reinvested
202,984
195,207
Accumulated other nonowner changes in equity
Cumulative foreign exchange translation adjustment
4,156
3,733
Postretirement benefits reserves adjustment
(6,702
)
(6,495
Common stock held in treasury:
2,386 million shares at March 31, 2007
(90,858
2,290 million shares at December 31, 2006
(83,387
TOTAL SHAREHOLDERS' EQUITY
114,110
113,844
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
The number of shares of common stock issued and outstanding at March 31, 2007 and
December 31, 2006 were 5,633,270,055 and 5,728,702,212, respectively.
-4-
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Changes in operational working capital, excluding cash and debt
1,843
3,257
All other items - net
221
330
Net cash provided by operating activities
14,286
14,631
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment
(3,106
(3,730
Sales of subsidiaries, investments, and property, plant and equipment
538
394
Other investing activities - net
(670
(167
Net cash used in investing activities
(3,238
(3,503
CASH FLOWS FROM FINANCING ACTIVITIES
Additions to long-term debt
93
13
Reductions in long-term debt
(36
(7
Additions/(reductions) in short-term debt - net
274
(61
Cash dividends to ExxonMobil shareholders
(1,825
(1,957
Cash dividends to minority interests
(74
(81
Changes in minority interests and sales/(purchases)
of affiliate stock
(149
(145
Net ExxonMobil shares acquired
(7,788
(5,764
Net cash used in financing activities
(9,505
(8,002
Effects of exchange rate changes on cash
207
148
Increase/(decrease) in cash and cash equivalents
1,750
3,274
Cash and cash equivalents at beginning of period
28,671
CASH AND CASH EQUIVALENTS AT END OF PERIOD
31,945
SUPPLEMENTAL DISCLOSURES
Income taxes paid
3,998
4,088
Cash interest paid
137
108
-5-
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
Basis of Financial Statement Preparation
These unaudited condensed consolidated financial statements should be read in the context of the consolidated financial statements and notes thereto filed with the Securities and Exchange Commission in the Corporation's 2006 Annual Report on Form 10-K. In the opinion of the Corporation, the information furnished herein reflects all known accruals and adjustments necessary for a fair statement of the results for the periods reported herein. All such adjustments are of a normal recurring nature. The Corporation's exploration and production activities are accounted for under the "successful efforts" method. A reclassification on the first quarter 2006 income statement was made in the second quarter 2006 of $1.3 billion from "Other taxes and duties" to "Crude oil and product purchases" related to the reporting of purchases and sales of inventory with the same counterparty.
2.
Accounting Change for Uncertainty in Income Taxes
Effective January 1, 2007, the Corporation adopted the Financial Accounting Standards Board’s (FASB) Interpretation No. 48 (FIN 48), "Accounting for Uncertainty in Income Taxes". FIN 48 is an interpretation of FASB Statement No. 109, "Accounting for Income Taxes", and prescribes a comprehensive model for recognizing, measuring, presenting and disclosing in the financial statements uncertain tax positions that the Corporation has taken or expects to take in its income tax returns. Upon the adoption of FIN 48, the Corporation recognized a transition gain of $267 million in shareholders’ equity. The gain reflected the recognition of several refund claims, partly offset by increased liability reserves.
The Corporation is subject to income taxation in many jurisdictions around the world. The total amount of unrecognized income tax benefits in these jurisdictions at January 1, 2007, was $3.7 billion, almost all of which is classified as long term. Resolution of the related tax positions through negotiations with the relevant tax authorities or through litigation will take many years to complete. Accordingly, it is difficult to predict the timing of resolution for individual tax positions. However, the Corporation does not anticipate that the total amount of unrecognized tax benefits will significantly increase or decrease in the next 12 months. Given the long time periods involved in resolving individual tax positions, the Corporation does not expect that the recognition of unrecognized tax benefits will have a material impact on the Corporation’s effective income tax rate in any given year.
The following table summarizes the tax years that remain subject to examination by major tax jurisdiction:
Country of Operation
Open Tax Years
Abu Dhabi
2000-2006
Angola
2002-2006
Australia
Canada
1990-2006
Equatorial Guinea
1996-2006
Germany
1998-2006
Japan
Malaysia
1983-2006
Nigeria
Norway
1993-2006
United Kingdom
United States
1989-2006
The Corporation classifies interest on income tax related balances as interest expense or interest income and classifies tax related penalties as operating expense.
At January 1, 2007, the Corporation had accrued interest payable of $0.5 billion related to income tax reserve balances.
-6-
3.
Litigation and Other Contingencies
Litigation
A variety of claims have been made against ExxonMobil and certain of its consolidated subsidiaries in a number of pending lawsuits and tax disputes. Management has regular litigation and tax reviews, including updates from corporate and outside counsel, to assess the need for accounting recognition or disclosure of these contingencies. The Corporation accrues an undiscounted liability for those contingencies where the incurrence of a loss is probable and the amount can be reasonably estimated. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued. The Corporation does not record liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated or when the liability is believed to be only reasonably possible or remote. For contingencies where an unfavorable outcome is reasonably p ossible and which are significant, the Corporation discloses the nature of the contingency and, where feasible, an estimate of the possible loss. ExxonMobil will continue to defend itself vigorously in these matters. Based on a consideration of all relevant facts and circumstances, the Corporation does not believe the ultimate outcome of any currently pending lawsuit against ExxonMobil will have a materially adverse effect upon the Corporation’s operations or financial condition.
A number of lawsuits, including class actions, were brought in various courts against Exxon Mobil Corporation and certain of its subsidiaries relating to the accidental release of crude oil from the tanker Exxon Valdez in 1989. All the compensatory claims have been resolved and paid. All of the punitive damage claims were consolidated in the civil trial that began in 1994. The first judgment from the United States District Court for the District of Alaska in the amount of $5 billion was vacated by the United States Court of Appeals for the Ninth Circuit as being excessive under the Constitution. The second judgment in the amount of $4 billion was vacated by the Ninth Circuit panel without argument and sent back for the District Court to reconsider in light of the recent U.S. Supreme Court decision in Campbell v. State Farm. The most recent District Court judgment for punitive damages was for $4.5 billion plus interest and was entered in Janua ry 2004. The Corporation posted a $5.4 billion letter of credit. ExxonMobil and the plaintiffs appealed this decision to the Ninth Circuit, which ruled on December 22, 2006, that the award be reduced to $2.5 billion. On January 12, 2007, ExxonMobil petitioned the Ninth Circuit Court of Appeals for a rehearing en banc of its appeal. While it is reasonably possible that a liability for punitive damages may have been incurred from the Exxon Valdez grounding, it is not possible to predict the ultimate outcome or to reasonably estimate any such potential liability.
In December 2000, a jury in the 15th Judicial Circuit Court of Montgomery County, Alabama, returned a verdict against the Corporation in a dispute over royalties in the amount of $88 million in compensatory damages and $3.4 billion in punitive damages in the case of Exxon Corporation v. State of Alabama, et al. The verdict was upheld by the trial court in May 2001. In December 2002, the Alabama Supreme Court vacated the $3.5 billion jury verdict. The case was retried and in November 2003, a state district court jury in Montgomery, Alabama, returned a verdict against Exxon Mobil Corporation. The verdict included $63.5 million in compensatory damages and $11.8 billion in punitive damages. In March 2004, the district court judge reduced the amount of punitive damages to $3.5 billion. ExxonMobil believes the judgment is not justified by the evidence, that any punitive damage award is not justified by either the facts or the law, and that the amou nt of the award is grossly excessive and unconstitutional. ExxonMobil has appealed the decision to the Alabama Supreme Court. The Alabama Supreme Court heard oral arguments on February 6, 2007. Management believes that the likelihood of the judgment being upheld is remote. While it is reasonably possible that a liability may have been incurred by ExxonMobil from this dispute over royalties, it is not possible to predict the ultimate outcome or to reasonably estimate any such potential liability. In May 2004, the Corporation posted a $4.5 billion supersedeas bond as required by Alabama law to stay execution of the judgment pending appeal. The Corporation has pledged to the issuer of the bond collateral consisting of cash and short-term, high-quality securities with an aggregate value of approximately $4.6 billion. This collateral is reported as restricted cash and cash equivalents on the Consolidated Balance Sheet. Under the terms of the pledge agreement, the Corporation is entitled to receive the income generated from the cash and securities and to make investment decisions, but is restricted from using the pledged cash and securities for any other purpose until such time the bond is canceled.
-7-
In 2001, a Louisiana state court jury awarded compensatory damages of $56 million and punitive damages of $1 billion to a landowner for damage caused by a third party that leased the property from the landowner. The third party provided pipe cleaning and storage services for the Corporation and other entities. The Louisiana Fourth Circuit Court of Appeals reduced the punitive damage award to $112 million in 2005. The Corporation appealed this decision to the Louisiana Supreme Court which, in March 2006, refused to hear the appeal. ExxonMobil has fully accrued and paid the compensatory and punitive damage awards. The Corporation appealed the punitive damage award to the U.S. Supreme Court, which on February 26, 2007, vacated the judgment and remanded the case to the Louisiana Fourth Circuit Court of Appeals for reconsideration in light of the recent U.S. Supreme Court decision in Williams v. Phillip Morris USA.
Tax issues for 1989 to 1993 remain pending before the U.S. Tax Court. The ultimate resolution of these issues is not expected to have a materially adverse effect upon the Corporation’s operations or financial condition.
Other Contingencies
As of March 31, 2007
Equity
Other
Company
Third Party
Obligations
Total
Total guarantees
4,354
756
5,110
The Corporation and certain of its consolidated subsidiaries were contingently liable at March 31, 2007, for $5,110 million, primarily relating to guarantees for notes, loans and performance under contracts. Included in this amount were guarantees by consolidated affiliates of $4,354 million, representing ExxonMobil’s share of obligations of certain equity companies. These guarantees are not reasonably likely to have a material effect on the Corporation’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Additionally, the Corporation and its affiliates have numerous long-term sales and purchase commitments in their various business activities, all of which are expected to be fulfilled with no adverse consequences material to the Corporation’s operations or financial condition. The Corporation's outstanding unconditional purchase obligations at March 31, 2007, were similar to those at the prior year-end period. Unconditional purchase obligations as defined by accounting standards are those long-term commitments that are noncancelable or cancelable only under certain conditions, and that third parties have used to secure financing for the facilities that will provide the contracted goods or services.
The operations and earnings of the Corporation and its affiliates throughout the world have been, and may in the future be, affected from time to time in varying degree by political developments and laws and regulations, such as forced divestiture of assets; restrictions on production, imports and exports; price controls; tax increases and retroactive tax claims; expropriation of property; cancellation of contract rights and environmental regulations. Both the likelihood of such occurrences and their overall effect upon the Corporation vary greatly from country to country and are not predictable.
In accordance with a nationalization decree issued by Venezuela's President Chavez in February, the Venezuelan National Oil Company (PdVSA) on May 1, 2007 assumed the operatorship of the Cerro Negro heavy oil development, which had been operated by an ExxonMobil affiliate that holds a 41.67 percent ownership interest in the project. The decree also requires conversion of the Cerro Negro project into a "mixed enterprise" structure and an increase in PdVSA's ownership interest in the project. Discussions with Venezuelan authorities are continuing over proposed changes to the joint venture relating to the nationalization decree. The Corporation does not expect the resolution of these issues to have a material effect upon the Corporation’s operations or financial condition.
-8-
4.
Nonowner Changes in Shareholders' Equity
Changes in other nonowner changes in equity
(net of income taxes)
Foreign exchange translation adjustment
423
414
Postretirement benefits reserve adjustment
(excluding amortization)
(408
0
Amortization of postretirement benefits reserve
adjustment included in net periodic benefit costs
201
Minimum pension liability adjustment
(before December 31, 2006, adoption of FAS 158)
(17
Total nonowner changes in shareholders' equity
9,496
8,797
5.
Earnings Per Share
Net income (millions of dollars)
Weighted average number of common shares
outstanding (millions of shares)
5,650
6,068
Net income per common share (dollars)
- ASSUMING DILUTION
Effect of employee stock-based awards
64
58
outstanding - assuming dilution
5,714
6,126
Net income per common share
- assuming dilution (dollars)
-9-
6.
Pension and Other Postretirement Benefits
Pension Benefits - U.S.
Components of net benefit cost
Service cost
97
85
Interest cost
172
159
Expected return on plan assets
(210
(157
Amortization of actuarial loss/(gain)
and prior service cost
67
69
Net pension enhancement and
curtailment/settlement cost
47
39
Net benefit cost
173
195
Pension Benefits - Non-U.S.
109
237
215
(263
(237
112
126
1
208
Other Postretirement Benefits
27
18
77
(15
(10
78
53
202
138
-10-
7.
Disclosures about Segments and Related Information
EARNINGS AFTER INCOME TAX
Upstream
1,177
1,280
Non-U.S.
4,864
5,103
Downstream
839
679
1,073
592
Chemical
346
329
890
620
All other
91
(203
Corporate total
SALES AND OTHER OPERATING REVENUE (1)
1,362
1,777
5,493
7,539
21,260
21,128
47,641
47,704
3,189
3,225
5,224
4,940
(1) Includes sales-based taxes
INTERSEGMENT REVENUE
1,563
1,854
10,595
8,874
2,782
10,941
10,983
1,697
1,823
1,522
1,582
79
68
-11-
8.
Condensed Consolidating Financial Information Related to Guaranteed Securities Issued by Subsidiaries
Exxon Mobil Corporation has fully and unconditionally guaranteed the deferred interest debentures due 2012 ($1,595 million long-term at March 31, 2007) and the debt securities due 2007-2011 ($52 million long-term and $13 million short-term) of SeaRiver Maritime Financial Holdings, Inc., a 100 percent owned subsidiary of Exxon Mobil Corporation.
The following condensed consolidating financial information is provided for Exxon Mobil Corporation, as guarantor, and for SeaRiver Maritime Financial Holdings, Inc., as issuer, as an alternative to providing separate financial statements for the issuer. The accounts of Exxon Mobil Corporation and SeaRiver Maritime Financial Holdings, Inc. are presented utilizing the equity method of accounting for investments in subsidiaries.
SeaRiver
Exxon Mobil
Maritime
Consolidating
Corporation
Financial
and
Parent
Holdings
All Other
Eliminating
Guarantor
Inc.
Subsidiaries
Adjustments
Consolidated
Condensed consolidated statement of income for three months ended March 31, 2007
Revenues and other income
Sales and other operating revenue,
including sales-based taxes
3,857
-
80,317
9,167
7
1,904
(9,163
222
912
Intercompany revenue
8,281
26
77,889
(86,196
21,527
33
161,022
(95,359
Costs and other deductions
7,880
112,246
(80,084
Production and manufacturing
expenses
1,714
6,792
(1,223
Selling, general and administrative
591
2,986
(185
388
2,554
Exploration expenses, including dry
holes
100
1,446
50
3,488
(4,881
Sales-based taxes
9,578
Income applicable to minority and
preferred interests
12,132
145,350
(86,373
Income before income taxes
9,395
15,672
(8,986
115
(8
6,677
(9
8,995
-12-
Condensed consolidated statement of income for three months ended March 31, 2006
4,221
82,096
8,443
9
1,797
(8,449
191
672
8,769
77,803
(86,592
21,624
29
162,368
(95,041
8,454
116,199
(81,832
2,037
6,616
(1,229
686
2,920
(140
311
2,333
106
176
993
45
2,521
(3,394
6
8,867
12,593
147,478
(86,595
9,031
(16
14,890
(8,446
631
6,437
8,453
-13-
Condensed consolidated balance sheet as of March 31,2007
2,913
27,081
Cash and cash equivalents - restricted
2,029
25,553
1,276
11,329
12,605
1,169
2,108
7,387
70,675
16,523
97,678
214,751
430
414,212
(598,360
Intercompany receivables
12,585
1,899
437,295
(451,779
Total assets
251,246
2,332
1,019,860
(1,050,139
Notes and loan payables
260
1,733
2,786
36,136
3,046
14
47,530
273
1,647
4,838
1,568
232
19,210
11,444
19,387
Intercompany payables
120,805
384
330,590
Total liabilities
137,136
2,277
421,555
(414
153,489
(153,075
Other shareholders' equity
(88,874
469
444,816
(445,285
Total shareholders' equity
55
598,305
Total liabilities and
shareholders' equity
Condensed consolidated balance sheet as of December 31, 2006
6,355
21,889
2,057
26,885
1,213
9,501
10,714
357
2,916
9,982
65,795
16,730
96,957
201,257
415,910
(588,039
16,501
1,883
435,221
(453,605
244,470
2,306
1,013,883
(1,041,644
90
1,599
3,025
36,056
548
7,484
3,663
15
45,139
1,602
4,769
1,975
18,639
8,044
20,814
116,670
387
336,548
130,626
2,241
425,909
(404
144,607
(144,203
(81,363
443,367
(443,836
65
587,974
-14-
Condensed consolidated statement of cash flows for three months ended March 31, 2007
Cash provided by/(used in) operating
activities
1,017
19
13,413
(163
Cash flows from investing activities
Additions to property, plant and
equipment
(301
(2,805
Sales of long-term assets
441
Net intercompany investing
5,190
(5,202
28
All other investing, net
Net cash provided by/(used in)
investing activities
4,986
(8,236
Cash flows from financing activities
Additions/(reductions) in short-term
debt - net
168
Cash dividends
163
Net ExxonMobil shares sold/(acquired)
Net intercompany financing activity
(3
31
(28
All other financing, net
(223
financing activities
(9,445
(192
135
Effects of exchange rate changes
on cash
Increase/(decrease) in cash and cash
equivalents
(3,442
5,192
Condensed consolidated statement of cash flows for three months ended March 31, 2006
2,387
12,997
(768
(340
(3,390
376
2,847
(2,874
43
2,525
(6,055
102
768
42
(43
(226
(7,884
(844
725
(2,972
6,246
-15-
Management's Discussion and Analysis of Financial Condition
and Results of Operations
FUNCTIONAL EARNINGS SUMMARY
First Three Months
Net Income (U.S. GAAP)
Corporate and financing
REVIEW OF FIRST QUARTER 2007 RESULTS
Exxon Mobil Corporation reported first quarter 2007 net income of $9,280 million, an increase of 10 percent or $880 million from the first quarter of 2006. Higher refining, marketing and chemical margins were partly offset by a decrease in crude oil and natural gas realizations. Earnings per share were $1.62, an increase of 18 percent, reflecting strong earnings and the benefits of the share repurchase program. Share purchases of $7.0 billion during the first quarter of 2007 reduced shares outstanding by 1.7 percent. Average shares outstanding were 7 percent lower relative to the first quarter of 2006.
Upstream earnings
6,041
6,383
Upstream earnings were $6,041 million, down $342 million from the first quarter of 2006 primarily reflecting lower realizations and decreased natural gas volumes driven by lower European demand. On an oil-equivalent basis, production decreased by 3 percent from the first quarter of 2006. Excluding the cumulative impact of entitlements and divestments, as well as OPEC quota effects, production was up almost 1 percent.
Liquids production of 2,747 kbd (thousands of barrels per day) was 49 kbd higher. Increased production from projects in West Africa, Russia and the Middle East were partly offset by mature field decline and the cumulative impact of entitlements and divestments. Excluding cumulative entitlement and divestment effects, as well as OPEC quota impacts, liquids production increased by 7 percent.
First quarter natural gas production was 10,131 mcfd (millions of cubic feet per day) compared with 11,175 mcfd last year. The impact of mature field decline and the reduction of European demand by about 1,400 mcfd due to weather were partly offset by higher volumes from projects in Qatar.
Earnings from U.S. Upstream operations were $1,177 million, $103 million lower than the first quarter of 2006. Non-U.S. Upstream earnings were $4,864 million, down $239 million from 2006.
-16-
Downstream earnings
1,912
1,271
Downstream earnings were $1,912 million, up $641 million from the first quarter 2006, driven by higher refining and marketing margins and improved refinery throughput. Petroleum product sales were 7,198 kbd, 21 kbd higher than last year's first quarter.
U.S. Downstream earnings were $839 million, up $160 million from the first quarter of 2006. Non-U.S. Downstream earnings of $1,073 million were $481 million higher.
Chemical earnings
1,236
949
Chemical earnings were $1,236 million, up $287 million from the first quarter of 2006 due to improved margins. Prime product sales of 6,805 kt (thousands of metric tons) in the first quarter of 2007 were down 111 kt from the prior year.
Corporate and financing earnings
Corporate and financing earnings were $91 million, up $294 million, mainly due to tax items.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes
Total cash and cash equivalents (at end of period)
34,598
36,549
Cash flow from operations and asset sales
Net cash provided by operating activities (U.S. GAAP)
Sales of subsidiaries, investments and property,
plant and equipment
14,824
15,025
Because of the ongoing nature of our asset management and divestment program, we believe
it is useful for investors to consider asset sales proceeds together with cash provided by operating
activities when evaluating cash available for investment in the business and financing activities.
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Total cash and cash equivalents, including the $4.6 billion of restricted cash, was $34.6 billion at the end of the first quarter of 2007.
Cash provided by operating activities totaled $14,286 million for the first three months of 2007, similar to 2006. The major source of funds was net income of $9,280 million, adjusted for the noncash provision of $2,942 million for depreciation and depletion, both of which increased. The net timing effects of changes in operational working capital provided an offset. For additional details, see the Condensed Consolidated Statement of Cash Flows on page 5.
Investing activities for the first three months of 2007 used net cash of $3,238 million compared to $3,503 million in the prior year. Spending for additions to property, plant and equipment decreased $624 million to $3,106 million. Proceeds from asset divestments of $538 million in 2007 were higher.
Cash flow from operations and asset sales in the first three months of 2007 of $14.8 billion, including asset sales of $0.5 billion, was comparable to the prior year period.
Net cash used in financing activities of $9,505 million in the first three months of 2007 increased $1,503 million reflecting a higher level of purchases of shares of ExxonMobil stock.
During the first quarter of 2007, Exxon Mobil Corporation purchased 108 million shares of its common stock for the treasury at a gross cost of $8.0 billion. These purchases included $7.0 billion to reduce the number of shares outstanding and the balance to offset shares issued in conjunction with the company's benefit plans and programs. Shares outstanding were reduced from 5,729 million at the end of the fourth quarter to 5,633 million at the end of the first quarter. Purchases may be made in both the open market and through negotiated transactions, and may be increased, decreased or discontinued at any time without prior notice.
In the first quarter of 2007 the Corporation distributed a total of $8.8 billion to shareholders, an increase of 26 percent versus the first quarter of 2006, including dividends of $1.8 billion and share purchases to reduce shares outstanding of $7.0 billion.
Total debt of $8.8 billion at March 31, 2007, increased from $8.3 billion at year-end 2006. The Corporation's debt to total capital ratio was 6.9 percent at the end of the first quarter of 2007 compared to 6.6 percent at year-end 2006.
Although the Corporation issues long-term debt from time to time and maintains a revolving commercial paper program, internally generated funds cover the majority of its financial requirements.
In accordance with a nationalization decree issued by Venezuela's President Chavez in February, the Venezuelan National Oil Company (PdVSA) on May 1, 2007 assumed the operatorship of the Cerro Negro heavy oil development, which had been operated by an ExxonMobil affiliate that holds a 41.67 percent ownership interest in the project. The decree also requires conversion of the Cerro Negro project into a "mixed enterprise" structure and an increase in PdVSA's ownership interest in the project. Discussions with Venezuelan authorities are continuing over proposed changes to the joint venture relating to the nationalization decree. The Corporation does not expect the resolution of these issues to have a material effect upon the Corporation’s operations or financial condition. Litigation items and other contingencies are discussed in note 3 to the unaudited condensed consolidated financial statements.
The Corporation, as part of its ongoing asset management program, continues to evaluate its mix of assets for potential upgrade. Because of the ongoing nature of this program, dispositions will continue to be made from time to time which will result in either gains or losses.
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TAXES
Taxes
All other taxes and duties
10,408
9,747
24,476
24,470
Effective income tax rate
44
%
Income, sales-based and all other taxes for the first quarter of 2007 of $24,476 million were similar to 2006. In the first quarter of 2007 income tax expense was $6,784 million and the effective income tax rate was 44 percent, compared to $7,059 million and 47 percent, respectively, in the prior year period. Resolution of income tax related issues resulted in charges in the first quarter of 2006.
CAPITAL AND EXPLORATION EXPENDITURES
Capital and exploration expenditures
Upstream (including exploration expenses)
3,469
4,087
531
581
219
144
12
4,222
4,824
In the first quarter, ExxonMobil continued to actively invest, bringing additional crude oil, finished products and natural gas to market. Spending on capital and exploration projects totaled $4.2 billion in the first quarter.
Capital and exploration expenditures for full year 2006 were $19.9 billion and are expected to continue in this range for the next several years. Actual spending could vary depending on the progress of individual projects.
FORWARD-LOOKING STATEMENTS
Statements in this report relating to future plans, projections, events or conditions are forward-looking statements. Actual results, including project plans and related expenditures, resource recoveries, timing and capacities, could differ materially due to changes in long-term oil or gas prices or other market conditions affecting the oil and gas industry; political events or disturbances; reservoir performance; the outcome of commercial negotiations; potential liability resulting from pending or future litigation; wars and acts of terrorism or sabotage; changes in technical or operating conditions; and other factors discussed under the heading "Factors Affecting Future Results" on our website and in Item 1A of ExxonMobil's 2006 Form 10-K. We assume no duty to update these statements as of any future date.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information about market risks for the three months ended March 31, 2007, does not differ materially from that discussed under Item 7A of the registrant's Annual Report on Form 10-K for 2006.
Item 4. Controls and Procedures
As indicated in the certifications in Exhibit 31 of this report, the Corporation’s chief executive officer, principal financial officer and principal accounting officer have evaluated the Corporation’s disclosure controls and procedures as of March 31, 2007. Based on that evaluation, these officers have concluded that the Corporation’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Corporation in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to them in a manner that allows for timely decisions regarding required disclosures and are effective in ensuring that such information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. There were no changes during the Corporation's last fiscal quar ter that materially affected, or are reasonably likely to materially affect, the Corporation's internal control over financial reporting.
Item 1. Legal Proceedings
The State of New York Attorney General (AG) sued a number of parties, including ExxonMobil, in New York state court, Albany County, relating to an alleged discharge of petroleum in Baldwin, New York at a former Mobil-branded service station and a service station owned/operated by an unrelated party. The suit (captioned "State of New York v. Task Oil Corp., Exxon Mobil Corp., et al.") alleges that discharges from each service station have commingled and contaminated the soil and groundwater in the vicinity of the service stations. Although the AG filed the complaint under the New York State Navigation Law against ExxonMobil and the other parties in September 2000, no specific penalty demand was made at that time. In discovery proceedings, the AG indicated it will seek a civil penalty against ExxonMobil for an amount above $100,000. The AG is also seeking compensatory damages for the costs of investigation and remed iation in excess of $1,500,000.
The Texas Commission on Environmental Quality (TCEQ) alleges that the Company's Beaumont refinery has violated provisions of the Texas Health and Safety Code and the Texas Water Code. Specific allegations include that the refinery failed to properly surface coat and timely inspect certain aboveground storage tanks, failed to comply with tank throughput representations in its permit, and violated certain permit limitation and reporting requirements. The TCEQ issued a Notice of Enforcement and Proposed Agreed Order on November 22, 2006. The Company disagrees with certain allegations, including that the throughput information raises a permit representation issue. The TCEQ enforcement personnel referred the matter to its litigation group in December, 2006. The TCEQ has proposed a penalty of $136,200 for this matter.
On March 22, 2007, ExxonMobil experienced a failure in the sulfur recovery unit (SRU) at the Torrance refinery, which subsequently caused the cascading shutdown or idling of numerous other pieces of equipment and process units. The incident led to emissions of oxides of nitrogen (NOx), carbon dioxide (CO2), particulate matter (PM), oxides of sulfur (SOx), and volatile organic compounds (VOCs). In addition, similar emissions were expected to occur during the subsequent re-start process. The South Coast Air Quality Management District (AQMD) alleged that these emissions violated permit conditions and applicable AQMD rules. ExxonMobil agreed to pay a civil penalty of $250,000 and to spend a maximum of $2,000,000 for the development, implementation and completion of one or more Supplemental Environmental Project(s) intended to mitigate excess CO2, VOC and/or PM emissions resulting from operations associated with the SRU inciden t.
The Company also settled with the AQMD 23 Notices of Violation covering a number of alleged violations of air permit and air quality regulatory matters at the Torrance refinery occurring from October 12, 2005 to October 17, 2006. The settlement included the payment of a $150,000 civil penalty.
Refer to the relevant portions of note 3 on pages 7 and 8 of this Quarterly Report on Form 10-Q for further information on legal proceedings.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchase of Equity Securities for Quarter Ended March 31, 2007
Total Number of
Maximum Number
Shares Purchased
Of Shares that May
Total Number
Average
as Part of Publicly
Yet Be Purchased
Of Shares
Price Paid
Announced Plans
Under the Plans or
Period
Purchased
per Share
or Programs
Programs
January, 2007
36,881,268
$73.03
February, 2007
33,038,726
$74.94
March, 2007
38,543,775
$72.40
108,463,769
$73.39
(See Note 1)
Note 1 -- On August 1, 2000, the Corporation announced its intention to resume purchases of shares of its common stock for the treasury both to offset shares issued in conjunction with company benefit plans and programs and to gradually reduce the number of shares outstanding. The announcement did not specify an amount or expiration date. The Corporation has continued to purchase shares since this announcement and to report purchased volumes in its quarterly earnings releases. Purchases may be made in both the open market and through negotiated transactions, and purchases may be increased, decreased or discontinued at any time without prior notice.
Item 6. Exhibits
Exhibit
Description
31.1
Certification (pursuant to Securities Exchange Act Rule 13a-14(a)) by Chief
Executive Officer.
31.2
Certification (pursuant to Securities Exchange Act Rule 13a-14(a)) by Principal
Financial Officer.
31.3
Accounting Officer.
32.1
Section 1350 Certification (pursuant to Sarbanes-Oxley Section 906) by Chief
32.2
Section 1350 Certification (pursuant to Sarbanes-Oxley Section 906) by
Principal Financial Officer.
32.3
Principal Accounting Officer.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 8, 2007
By: /s/ Patrick T. Mulva
Name: Patrick T. Mulva
Title: Vice President, Controller and
Principal Accounting Officer
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INDEX TO EXHIBITS
Certification (pursuant to Securities Exchange Act Rule 13a-14(a)) by
Chief Executive Officer.
Section 1350 Certification (pursuant to Sarbanes-Oxley Section 906) by Principal
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