UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2017
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 ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☑
Accelerated filer
☐
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
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, 2017
Common stock, without par value
4,237,265,503
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2017
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statement of Income
Three months ended March 31, 2017 and 2016
3
Condensed Consolidated Statement of Comprehensive Income
4
Condensed Consolidated Balance Sheet
As of March 31, 2017 and December 31, 2016
5
Condensed Consolidated Statement of Cash Flows
6
Condensed Consolidated Statement of Changes in Equity
7
Notes to Condensed Consolidated Financial Statements
8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
15
Item 3. Quantitative and Qualitative Disclosures About Market Risk
20
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
21
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
22
Item 6. Exhibits
Signature
23
Index to Exhibits
24
2
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(millions of dollars)
Three Months Ended
March 31,
2017
2016
Revenues and other income
Sales and other operating revenue (1)
61,090
47,105
Income from equity affiliates
1,710
1,251
Other income
487
351
Total revenues and other income
63,287
48,707
Costs and other deductions
Crude oil and product purchases
30,359
20,707
Production and manufacturing expenses
7,845
7,561
Selling, general and administrative expenses
2,599
2,593
Depreciation and depletion
4,519
4,765
Exploration expenses, including dry holes
289
355
Interest expense
146
77
Sales-based taxes (1)
5,342
4,815
Other taxes and duties
6,270
6,104
Total costs and other deductions
57,369
46,977
Income before income taxes
5,918
1,730
Income taxes
1,828
(51)
Net income including noncontrolling interests
4,090
1,781
Net income attributable to noncontrolling interests
80
(29)
Net income attributable to ExxonMobil
4,010
1,810
Earnings per common share (dollars)
0.95
0.43
Earnings per common share - assuming dilution (dollars)
Dividends per common share (dollars)
0.75
0.73
(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.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Other comprehensive income (net of income taxes)
Foreign exchange translation adjustment
1,408
3,340
Postretirement benefits reserves adjustment (excluding amortization)
(25)
(119)
Amortization and settlement of postretirement benefits reserves adjustment
included in net periodic benefit costs
256
Total other comprehensive income
1,639
3,510
Comprehensive income including noncontrolling interests
5,729
5,291
Comprehensive income attributable to noncontrolling interests
159
354
Comprehensive income attributable to ExxonMobil
5,570
4,937
CONDENSED CONSOLIDATED BALANCE SHEET
Mar. 31,
Dec. 31,
Assets
Current assets
Cash and cash equivalents
4,897
3,657
Notes and accounts receivable – net
21,842
21,394
Inventories
Crude oil, products and merchandise
10,686
10,877
Materials and supplies
4,187
4,203
Other current assets
1,519
1,285
Total current assets
43,131
41,416
Investments, advances and long-term receivables
38,268
35,102
Property, plant and equipment – net
253,147
244,224
Other assets, including intangibles – net
9,663
9,572
Total assets
344,209
330,314
Liabilities
Current liabilities
Notes and loans payable
18,483
13,830
Accounts payable and accrued liabilities
32,069
31,193
Income taxes payable
2,822
2,615
Total current liabilities
53,374
47,638
Long-term debt
25,124
28,932
Postretirement benefits reserves
20,584
20,680
Deferred income tax liabilities
34,772
34,041
Long-term obligations to equity companies
5,175
5,124
Other long-term obligations
21,409
20,069
Total liabilities
160,438
156,484
Commitments and contingencies (Note 3)
Equity
Common stock without par value
(9,000 million shares authorized, 8,019 million shares issued)
14,415
12,157
Earnings reinvested
408,707
407,831
Accumulated other comprehensive income
(20,679)
(22,239)
Common stock held in treasury
(3,782 million shares at March 31, 2017 and
3,871 million shares at December 31, 2016)
(225,292)
(230,424)
ExxonMobil share of equity
177,151
167,325
Noncontrolling interests
6,620
6,505
Total equity
183,771
173,830
Total liabilities and equity
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Cash flows from operating activities
Changes in operational working capital, excluding cash and debt
793
(399)
All other items – net
(1,229)
(1,335)
Net cash provided by operating activities
8,173
4,812
Cash flows from investing activities
Additions to property, plant and equipment
(2,890)
(4,601)
Proceeds associated with sales of subsidiaries, property, plant and
equipment, and sales and returns of investments
687
177
Additional investments and advances
(1,738)
(234)
Other investing activities – net
180
309
Net cash used in investing activities
(3,761)
(4,349)
Cash flows from financing activities
Additions to long-term debt
60
11,963
Additions to short-term debt
1,734
-
Reductions in short-term debt
(2,669)
(28)
Additions/(reductions) in commercial paper, and debt with three
months or less maturity (1)
1,308
(7,594)
Cash dividends to ExxonMobil shareholders
(3,134)
(3,054)
Cash dividends to noncontrolling interests
(44)
(42)
Common stock acquired
(501)
(726)
Common stock sold
Net cash used in financing activities
(3,246)
524
Effects of exchange rate changes on cash
74
154
Increase/(decrease) in cash and cash equivalents
1,240
1,141
Cash and cash equivalents at beginning of period
3,705
Cash and cash equivalents at end of period
4,846
Supplemental Disclosures
Income taxes paid
1,970
749
Cash interest paid
368
223
2017 Non-Cash Transactions
During the first quarter, the Corporation completed the acquisitions of InterOil Corporation and of companies that own certain oil and gas properties in the Permian Basin and other assets. These transactions included a significant non-cash component. Additional information is provided in Note 9.
(1) Includes a net addition of commercial paper with a maturity of over three months of $0.1 billion in 2017 and $0.7 billion in 2016. The gross amount of commercial paper with a maturity of over three months issued was $1.1 billion in 2017 and $1.0 billion in 2016, while the gross amount repaid was $1.0 billion in 2017 and $0.3 billion in 2016.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
ExxonMobil Share of Equity
Accumulated
Other
Common
Compre-
Stock
ExxonMobil
Non-
Earnings
hensive
Held in
Share of
controlling
Total
Reinvested
Income
Treasury
Interests
Balance as of December 31, 2015
11,612
412,444
(23,511)
(229,734)
170,811
5,999
176,810
Amortization of stock-based awards
211
Tax benefits related to stock-based
awards
(2)
Net income for the period
Dividends – common shares
(3,096)
Other comprehensive income
3,127
383
Acquisitions, at cost
Dispositions
Balance as of March 31, 2016
11,825
411,200
(20,384)
(230,454)
172,187
6,311
178,498
Balance as of December 31, 2016
264
(84)
(3,178)
1,560
79
(582)
Issued for acquisitions
2,078
5,711
7,789
Balance as of March 31, 2017
Three Months Ended March 31, 2017
Three Months Ended March 31, 2016
Common Stock Share Activity
Issued
Outstanding
(millions of shares)
Balance as of December 31
8,019
(3,871)
4,148
(3,863)
4,156
Acquisitions
(7)
(9)
96
Balance as of March 31
(3,782)
4,237
(3,872)
4,147
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 2016 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. Prior data has been reclassified in certain cases to conform to the current presentation basis.
The Corporation's exploration and production activities are accounted for under the "successful efforts" method.
2. Recently Issued Accounting Standards
In May 2014, the Financial Accounting Standards Board issued a new standard, Revenue from Contracts with Customers. The standard establishes a single revenue recognition model for all contracts with customers, eliminates industry specific requirements, and expands disclosure requirements. The standard is required to be adopted beginning January 1, 2018. “Sales and Other Operating Revenue” on the Consolidated Statement of Income includes sales, excise and value-added taxes on sales transactions. When the Corporation adopts the standard, revenue will exclude sales-based taxes collected on behalf of third parties. This change in reporting will not impact earnings. The Corporation expects to adopt the standard using the Modified Retrospective method, under which prior years’ results are not restated, but supplemental information on the impact of the new standard is provided for 2018 results. The Corporation continues to evaluate other areas of the standard, which are not expected to have a material effect on the Corporation’s financial statements.
In February 2016, the Financial Accounting Standards Board issued a new standard, Leases. The standard requires all leases with an initial term greater than one year be recorded on the balance sheet as an asset and a lease liability. ExxonMobil is evaluating the standard and its effect on the Corporation’s financial statements and plans to adopt it in 2019.
In March 2017, the Financial Accounting Standards Board issued an Accounting Standards Update, Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The update requires that the service cost component of net benefit costs be reported in the same line in the income statement as other compensation costs and that the other components of net benefit costs be presented separately from the service cost component. Additionally, only the service cost component of net benefit costs will be eligible for capitalization. The update is required to be adopted beginning January 1, 2018. ExxonMobil is evaluating the standard and its effect on the Corporation’s financial statements.
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. Management has regular litigation 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 possible and which are significant, the Corporation discloses the nature of the contingency and, where feasible, an estimate of the possible loss. For purposes of our contingency disclosures, “significant” includes material matters as well as other matters which management believes should be disclosed. 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 material adverse effect upon the Corporation's operations, financial condition, or financial statements taken as a whole.
Other Contingencies
The Corporation and certain of its consolidated subsidiaries were contingently liable at March 31, 2017, for guarantees relating to notes, loans and performance under contracts. Where guarantees for environmental remediation and other similar matters do not include a stated cap, the amounts reflect management’s estimate of the maximum potential exposure. 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.
As of March 31, 2017
Company
Third Party
Obligations(1)
Obligations
Guarantees
Debt-related
117
30
147
2,667
4,000
6,667
2,784
4,030
6,814
(1) ExxonMobil share
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 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 in February 2007, by May 1, 2007, a subsidiary of the Venezuelan National Oil Company (PdVSA) assumed the operatorship of the Cerro Negro Heavy Oil Project. This Project had been operated and owned by ExxonMobil affiliates holding a 41.67 percent ownership interest in the Project. The decree also required conversion of the Cerro Negro Project into a “mixed enterprise” and an increase in PdVSA’s or one of its affiliate’s ownership interest in the Project, with the stipulation that if ExxonMobil refused to accept the terms for the formation of the mixed enterprise within a specified period of time, the government would “directly assume the activities” carried out by the joint venture. ExxonMobil refused to accede to the terms proffered by the government, and on June 27, 2007, the government expropriated ExxonMobil’s 41.67 percent interest in the Cerro Negro Project.
On September 6, 2007, affiliates of ExxonMobil filed a Request for Arbitration with the International Centre for Settlement of Investment Disputes (ICSID). The ICSID Tribunal issued a decision on June 10, 2010, finding that it had jurisdiction to proceed on the basis of the Netherlands-Venezuela Bilateral Investment Treaty. On October 9, 2014, the ICSID Tribunal issued its final award finding in favor of the ExxonMobil affiliates and awarding $1.6 billion as of the date of expropriation, June 27, 2007, and interest from that date at 3.25% compounded annually until the date of payment in full. The Tribunal also noted that one of the Cerro Negro Project agreements provides a mechanism to prevent double recovery between the ICSID award and all or part of an earlier award of $908 million to an ExxonMobil affiliate, Mobil Cerro Negro, Ltd., against PdVSA and a PdVSA affiliate, PdVSA CN, in an arbitration under the rules of the International Chamber of Commerce.
On February 2, 2015, Venezuela filed a Request for Annulment of the ICSID award. On March 9, 2017, the ICSID Committee hearing the Request for Annulment issued a decision partially annulling the award of the Tribunal issued on October 9, 2014. The Committee affirmed the compensation due for the La Ceiba project and for export curtailments at the Cerro Negro project, but annulled the portion of the award relating to the Cerro Negro Project’s expropriation ($1.4 billion) based on its determination that the prior Tribunal failed to adequately explain why the cap on damages in the indemnity owed by PdVSA did not affect or limit the amount owed for the expropriation of the Cerro Negro project. As a result, ExxonMobil retains an award for $260 million (including accrued interest). Under the ICSID rules, ExxonMobil may seek to re-arbitrate the issue that was the basis for the annulment in a new ICSID arbitration proceeding.
9
The United States District Court for the Southern District of New York entered judgment on the ICSID award on October 10, 2014. Motions filed by Venezuela to vacate that judgment on procedural grounds and to modify the judgment by reducing the rate of interest to be paid on the ICSID award from the entry of the court’s judgment, until the date of payment, were denied on February 13, 2015, and March 4, 2015, respectively. On March 9, 2015, Venezuela filed a notice of appeal of the court’s actions on the two motions. Oral arguments on this appeal were held before the United States Court of Appeals for the Second Circuit on January 7, 2016.
A stay of the District Court’s judgment has continued pending the completion of the Second Circuit appeal. The net impact of these matters on the Corporation’s consolidated financial results cannot be reasonably estimated. Regardless, the Corporation does not expect the resolution to have a material effect upon the Corporation’s operations or financial condition.
An affiliate of ExxonMobil is one of the Contractors under a Production Sharing Contract (PSC) with the Nigerian National Petroleum Corporation (NNPC) covering the Erha block located in the offshore waters of Nigeria. ExxonMobil's affiliate is the operator of the block and owns a 56.25 percent interest under the PSC. The Contractors are in dispute with NNPC regarding NNPC's lifting of crude oil in excess of its entitlement under the terms of the PSC. In accordance with the terms of the PSC, the Contractors initiated arbitration in Abuja, Nigeria, under the Nigerian Arbitration and Conciliation Act. On October 24, 2011, a three-member arbitral Tribunal issued an award upholding the Contractors' position in all material respects and awarding damages to the Contractors jointly in an amount of approximately $1.8 billion plus $234 million in accrued interest. The Contractors petitioned a Nigerian federal court for enforcement of the award, and NNPC petitioned the same court to have the award set aside. On May 22, 2012, the court set aside the award. The Contractors appealed that judgment to the Court of Appeal, Abuja Judicial Division. On July 22, 2016, the Court of Appeal upheld the decision of the lower court setting aside the award. On October 21, 2016, the Contractors appealed the decision to the Supreme Court of Nigeria. In June 2013, the Contractors filed a lawsuit against NNPC in the Nigerian federal high court in order to preserve their ability to seek enforcement of the PSC in the courts if necessary. Following dismissal by this court, the Contractors appealed to the Nigerian Court of Appeal in June 2016. In October 2014, the Contractors filed suit in the United States District Court for the Southern District of New York to enforce, if necessary, the arbitration award against NNPC assets residing within that jurisdiction. NNPC has moved to dismiss the lawsuit. The stay in the proceedings in the Southern District of New York has been lifted. At this time, the net impact of this matter on the Corporation's consolidated financial results cannot be reasonably estimated. However, regardless of the outcome of enforcement proceedings, the Corporation does not expect the proceedings to have a material effect upon the Corporation's operations or financial condition.
10
4. Other Comprehensive Income Information
Cumulative
Post-
Foreign
retirement
Exchange
Benefits
ExxonMobil Share of Accumulated Other
Translation
Reserves
Comprehensive Income
Adjustment
(14,170)
(9,341)
Current period change excluding amounts reclassified
from accumulated other comprehensive income
2,962
(116)
2,846
Amounts reclassified from accumulated other
comprehensive income
281
Total change in accumulated other comprehensive income
165
(11,208)
(9,176)
(14,501)
(7,738)
1,342
1,313
247
218
(13,159)
(7,520)
Amounts Reclassified Out of Accumulated Other
Comprehensive Income - Before-tax Income/(Expense)
Amortization and settlement of postretirement benefits reserves
adjustment included in net periodic benefit costs (1)
(359)
(414)
(1) These accumulated other comprehensive income components are included in the computation of net periodic pension cost. (See Note 6 – Pension and Other Postretirement Benefits for additional details.)
Income Tax (Expense)/Credit For
Components of Other Comprehensive Income
(18)
(11)
adjustment included in net periodic benefit costs
(103)
(125)
(56)
11
5. Earnings Per Share
Earnings per common share
Net income attributable to ExxonMobil (millions of dollars)
Weighted average number of common shares outstanding(millions of shares)
4,223
4,178
Earnings per common share (dollars)(1)
(1) The calculation of earnings per common share and earnings per common share – assuming dilution are the same in
each period shown.
6. Pension and Other Postretirement Benefits
Components of net benefit cost
Pension Benefits - U.S.
Service cost
197
202
Interest cost
199
198
Expected return on plan assets
(194)
(182)
Amortization of actuarial loss/(gain) and prior service cost
110
124
Net pension enhancement and curtailment/settlement cost
105
111
Net benefit cost
417
453
Pension Benefits - Non-U.S.
145
149
187
213
(239)
(235)
127
148
(5)
215
275
Other Postretirement Benefits
26
35
72
89
(6)
17
31
109
12
7. Financial Instruments
The fair value of financial instruments is determined by reference to observable market data and other valuation techniques as appropriate. The only category of financial instruments where the difference between fair value and recorded book value is notable is long-term debt. The estimated fair value of total long-term debt, excluding capitalized lease obligations, was $24,219 million at March 31, 2017, and $27,968 million at December 31, 2016, as compared to recorded book values of $23,907 million at March 31, 2017, and $27,707 million at December 31, 2016.
The fair value of long-term debt by hierarchy level at March 31, 2017, is: Level 1 $24,028 million; Level 2 $185 million; and Level 3 $6 million. Level 1 represents quoted prices in active markets. Level 2 includes debt whose fair value is based upon a publicly available index. Level 3 involves using internal data augmented by relevant market indicators if available.
8. Disclosures about Segments and Related Information
Earnings After Income Tax
Upstream
United States
(832)
Non-U.S.
2,270
756
Downstream
292
824
719
Chemical
529
581
642
774
All other
(529)
(375)
Corporate total
Sales and Other Operating Revenue (1)
2,324
1,450
3,593
3,019
15,365
11,513
32,617
24,937
2,783
2,385
4,394
3,799
14
(1) Includes sales-based taxes
Intersegment Revenue
1,290
806
5,899
3,453
3,646
2,390
5,214
4,070
1,770
1,404
1,190
952
56
58
13
9. InterOil Corporation and Permian Basin Properties Acquisitions
InterOil Corporation
On February 22, 2017, the Corporation completed the acquisition of InterOil Corporation (IOC) for $2.7 billion. The IOC acquisition was unproved properties in Papua New Guinea. Consideration included 28 million shares of Exxon Mobil Corporation common stock having a value on the acquisition date of $2.2 billion, a Contingent Resource Payment (CRP) with a fair value of $0.3 billion and cash of $0.2 billion. The CRP provides IOC shareholders $7.07 per share in cash for each incremental independently certified Trillion Cubic Feet Equivalent (TCFE) of resources above 6.2 TCFE, up to 11.0 TCFE. IOC’s assets include a contingent receivable related to the same resource base for volumes in excess of 3.5 TCFE at amounts ranging from $0.24 - $0.40 per thousand cubic feet equivalent. The fair value of the contingent receivable was $1.1 billion at the acquisition date. Fair values of contingent amounts were based on assumptions about the outcome of the resource certification, future business plans and appropriate discount rates. Amounts due to the Corporation related to the contingent receivable are expected to exceed those payable under the terms of the CRP.
Permian Basin Properties
On February 28, 2017, the Corporation completed the acquisition for $6.2 billion of a number of companies from the Bass family in Fort Worth, Texas, that indirectly own mostly unproved oil and gas properties in the Permian Basin and other assets. Consideration included 68 million shares of Exxon Mobil Corporation common stock having a value on the acquisition date of $5.5 billion, together with additional contingent cash payments tied to future drilling and completion activities (up to a maximum of $1.02 billion). The fair value of the contingent payment was $0.7 billion as of the acquisition date and is expected to be paid beginning in 2020 and ending no later than 2032 commensurate with the development of the resource. Fair value of the contingent payment was based on assumptions including drilling and completion activities, appropriate discount rates and tax rates.
Below is a summary of the net assets acquired for each acquisition.
IOC
Permian
(billions of dollars)
0.6
Property, plant and equipment
2.9
6.3
4.1
0.5
Long-term liabilities
0.9
0.1
1.4
Net assets acquired
2.7
6.2
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
FUNCTIONAL EARNINGS SUMMARY
First Three Months
Earnings (U.S. GAAP)
Corporate and financing
Net income attributable to ExxonMobil (U.S. GAAP)
References in this discussion to corporate earnings mean net income attributable to ExxonMobil (U.S. GAAP) from the consolidated income statement. Unless otherwise indicated, references to earnings, Upstream, Downstream, Chemical and Corporate and Financing segment earnings, and earnings per share are ExxonMobil's share after excluding amounts attributable to noncontrolling interests.
REVIEW OF FIRST QUARTER 2017 RESULTS
ExxonMobil’s first quarter 2017 earnings were $4 billion, or $0.95 per diluted share, compared with $1.8 billion a year earlier, resulting from improvements in commodity prices, cost management and refining operations.
Financial results reflect an increase in commodity prices and highlight our continued focus on controlling costs and operating efficiently. The Corporation continues to make strategic acquisitions, advance key initiatives and fund long-term growth projects across the value chain.
Upstream earnings
2,252
(76)
Upstream earnings were $2,252 million, compared to a loss of $76 million in the first quarter of 2016. Higher liquids and gas realizations increased earnings by $2.3 billion. Lower volume and mix effects decreased earnings by $150 million. All other items increased earnings by $170 million primarily as a result of lower expenses.
On an oil-equivalent basis, production decreased 4 percent from the first quarter of 2016. Liquids production of 2.3 million barrels per day decreased 205,000 barrels per day due to lower entitlements and higher maintenance activity mainly in Canada and Nigeria. Natural gas production of 10.9 billion cubic feet per day increased 184 million cubic feet per day from 2016 as project ramp‑up was partly offset by field decline.
U.S. Upstream earnings were a loss of $18 million, compared to a loss of $832 million in the first quarter of 2016. Non-U.S. Upstream earnings were $2,270 million, up $1,514 million from the prior year.
First Quarter
Upstream additional information
(thousands of barrels daily)
Volumes reconciliation (Oil-equivalent production) (1)
4,325
Entitlements - Net Interest
Entitlements - Price / Spend / Other
(114)
Quotas
Divestments
Growth / Other
(58)
4,151
(1) Gas converted to oil-equivalent at 6 million cubic feet = 1 thousand barrels.
Listed below are descriptions of ExxonMobil’s volumes reconciliation factors which are provided to facilitate understanding of the terms.
Entitlements - Net Interest are changes to ExxonMobil’s share of production volumes caused by non-operational changes to volume-determining factors. These factors consist of net interest changes specified in Production Sharing Contracts (PSCs) which typically occur when cumulative investment returns or production volumes achieve defined thresholds, changes in equity upon achieving pay-out in partner investment carry situations, equity redeterminations as specified in venture agreements, or as a result of the termination or expiry of a concession. Once a net interest change has occurred, it typically will not be reversed by subsequent events, such as lower crude oil prices.
Entitlements - Price, Spend and Other are changes to ExxonMobil’s share of production volumes resulting from temporary changes to non-operational volume-determining factors. These factors include changes in oil and gas prices or spending levels from one period to another. According to the terms of contractual arrangements or government royalty regimes, price or spending variability can increase or decrease royalty burdens and/or volumes attributable to ExxonMobil. For example, at higher prices, fewer barrels are required for ExxonMobil to recover its costs. These effects generally vary from period to period with field spending patterns or market prices for oil and natural gas. Such factors can also include other temporary changes in net interest as dictated by specific provisions in production agreements.
Quotas are changes in ExxonMobil’s allowable production arising from production constraints imposed by countries which are members of the Organization of the Petroleum Exporting Countries (OPEC). Volumes reported in this category would have been readily producible in the absence of the quota.
Divestments are reductions in ExxonMobil’s production arising from commercial arrangements to fully or partially reduce equity in a field or asset in exchange for financial or other economic consideration.
Growth and Other factors comprise all other operational and non-operational factors not covered by the above definitions that may affect volumes attributable to ExxonMobil. Such factors include, but are not limited to, production enhancements from project and work program activities, acquisitions including additions from asset exchanges, downtime, market demand, natural field decline, and any fiscal or commercial terms that do not affect entitlements.
16
Downstream earnings
1,116
906
Downstream earnings were $1,116 million, up $210 million from the first quarter of 2016. Higher margins increased earnings by $10 million. Volume and mix effects increased earnings by $160 million. All other items increased earnings by $40 million. Petroleum product sales of 5.4 million barrels per day were 61,000 barrels per day higher than last year’s first quarter.
Earnings from the U.S. Downstream were $292 million, up $105 million from the first quarter of 2016. Non-U.S. Downstream earnings of $824 million were $105 million higher than last year.
Chemical earnings
1,171
1,355
Chemical earnings of $1,171 million were $184 million lower than the first quarter of 2016. Weaker margins decreased earnings by $70 million. All other items, primarily increased turnaround expenses and unfavorable foreign exchange effects, decreased earnings by $110 million. First quarter prime product sales of 6.1 million metric tons were 101,000 metric tons lower than last year's first quarter.
U.S. Chemical earnings of $529 million were $52 million lower than the first quarter of 2016. Non-U.S. Chemical earnings of $642 million were $132 million lower than last year.
Corporate and financing earnings
Corporate and financing expenses were $529 million for the first quarter of 2017, up $154 million from the first quarter of 2016 due to the absence of favorable tax items.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by/(used in)
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes
Cash and cash equivalents (at end of period)
Cash flow from operations and asset sales
Net cash provided by operating activities (U.S. GAAP)
Proceeds associated with sales of subsidiaries, property, plant & equipment,
and sales and returns of investments
8,860
4,989
Because of the ongoing nature of our asset management and divestment program, we believe it is useful for investors to consider proceeds associated with asset sales together with cash provided by operating activities when evaluating cash available for investment in the business and financing activities, including shareholder distributions.
Cash flow from operations and asset sales in the first quarter of 2017 was $8.9 billion, including asset sales of $0.7 billion, an increase of $3.9 billion from the comparable 2016 period primarily due to higher earnings.
Cash provided by operating activities totaled $8.2 billion for the first quarter of 2017, $3.4 billion higher than 2016. The major source of funds was net income including noncontrolling interests of $4.1 billion, an increase of $2.3 billion from the prior year period. The adjustment for the non-cash provision of $4.5 billion for depreciation and depletion decreased by $0.2 billion. Changes in operational working capital increased cash flows by $0.8 billion in 2017 versus a reduction of $0.4 billion in 2016. All other items net decreased cash flows by $1.2 billion in 2017 compared to a reduction of $1.3 billion in 2016. For additional details, see the Condensed Consolidated Statement of Cash Flows on page 6.
Investing activities for the first quarter of 2017 used net cash of $3.8 billion, a decrease of $0.6 billion compared to the prior year. Spending for additions to property, plant and equipment of $2.9 billion was $1.7 billion lower than 2016. Proceeds from asset sales of $0.7 billion increased $0.5 billion. Additional investments and advances were $1.7 billion, an increase of $1.5 billion, and reflect the deposit into escrow of the maximum potential contingent consideration payable as a result of the acquisition of InterOil Corporation.
Net cash used by financing activities was $3.2 billion in the first quarter of 2017, compared to net cash provided of $0.5 billion in 2016. The net addition to short and long term debt was $0.4 billion in 2017 compared to $4.3 billion in 2016.
During the first quarter of 2017, Exxon Mobil Corporation purchased 6 million shares of its common stock for the treasury at a gross cost of $0.5 billion. These purchases were made to offset shares or units settled in shares issued in conjunction with the company’s benefit plans and programs. Shares outstanding increased from 4,148 million at year-end to 4,237 million at the end of the first quarter of 2017, mainly due to shares issued for the acquisitions of InterOil Corporation and of companies that hold acreage in the Permian basin. Purchases may be made both in the open market and through negotiated transactions, and may be increased, decreased or discontinued at any time without prior notice.
The Corporation distributed a total of $3.1 billion to shareholders in the first quarter of 2017 through dividends.
Total cash and cash equivalents of $4.9 billion at the end of the first quarter of 2017 compared to $4.8 billion at the end of the first quarter of 2016.
Total debt at the end of the first quarter of 2017 was $43.6 billion compared to $42.8 billion at year-end 2016. The Corporation's debt to total capital ratio was 19.2 percent at the end of the first quarter of 2017 compared to 19.7 percent at year-end 2016.
18
The Corporation has access to significant capacity of long-term and short-term liquidity. Internally generated funds are expected to cover the majority of financial requirements, supplemented by long-term and short-term debt.
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. Additionally, the Corporation continues to evaluate opportunities to enhance its business portfolio through acquisitions of assets or companies, and enters into such transactions from time to time. Key criteria for evaluating acquisitions include potential for future growth and attractive current valuations. Acquisitions may be made with cash, shares of the Corporation’s common stock, or both.
Litigation and other contingencies are discussed in Note 3 to the unaudited condensed consolidated financial statements.
TAXES
Effective income tax rate
38
%
19
Sales-based taxes
All other taxes and duties
6,903
6,731
14,073
11,495
Income, sales-based and all other taxes and duties totaled $14.1 billion for the first quarter of 2017, an increase of $2.6 billion from 2016. Income tax expense increased by $1.9 billion to $1.8 billion reflecting higher pre-tax income. The effective income tax rate was 38 percent compared to 19 percent in the prior year period due to a higher share of earnings in higher tax jurisdictions. Sales-based taxes and all other taxes and duties increased by $0.7 billion to $12.2 billion as a result of higher sales realizations.
In the United States, the Corporation has various ongoing U.S. federal income tax positions at issue with the Internal Revenue Service (IRS) for tax years beginning in 2006. The IRS has asserted penalties associated with several of those positions. The Corporation has not recognized the penalties as an expense because the Corporation does not expect the penalties to be sustained under applicable law. The Corporation has filed a refund suit for tax years 2006-2009 in a U.S. federal district court with respect to the positions at issue for those years. Unfavorable resolution of all positions at issue with the IRS would not have a materially adverse effect on the Corporation’s net income or liquidity.
CAPITAL AND EXPLORATION EXPENDITURES
Upstream (including exploration expenses)
3,119
3,979
545
528
497
611
4,169
5,127
Capital and exploration expenditures in the first quarter of 2017 were $4.2 billion, down 19 percent from the first quarter of 2016. The Corporation anticipates an investment level of $22 billion in 2017. Actual spending could vary depending on the progress of individual projects and property acquisitions.
In 2014, the European Union and United States imposed sanctions relating to the Russian energy sector. ExxonMobil continues to comply with all sanctions and regulatory licenses applicable to its affiliates’ investments in the Russian Federation.
RECENTLY ISSUED ACCOUNTING STANDARDS
FORWARD-LOOKING STATEMENTS
Statements relating to future plans, projections, events or conditions are forward-looking statements. Actual financial and operating results, including project plans, costs, timing, and capacities; capital and exploration expenditures; asset carrying values; reported reserves; resource recoveries; and share purchase levels, could differ materially due to factors including: changes in oil or gas prices or other market or economic conditions affecting the oil and gas industry, including the scope and duration of economic recessions; the outcome of exploration and development efforts; changes in law or government regulation, including tax and environmental requirements; the impact of fiscal and commercial terms; changes in technical or operating conditions; and other factors discussed under the heading "Factors Affecting Future Results" in the “Investors” section of our website and in Item 1A of ExxonMobil's 2016 Form 10-K. Closing of pending acquisitions is also subject to satisfaction of the conditions precedent provided in the applicable agreement. We assume no duty to update these statements as of any future date.
The term “project” as used in this report can refer to a variety of different activities and does not necessarily have the same meaning as in any government payment transparency reports.
Information about market risks for the three months ended March 31, 2017, does not differ materially from that discussed under Item 7A of the registrant's Annual Report on Form 10-K for 2016.
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, 2017. 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 quarter that materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.
On February 1, 2017, the U.S. Department of Justice (DOJ) issued a notification concerning potential enforcement and possible settlement to ExxonMobil Oil Corporation (EMOC) regarding potential violations of the Clean Air Act and various sections of the Environmental Protection Agency’s (EPA) Chemical Accident Prevention provisions at EMOC’s Beaumont, Texas, Refinery. The DOJ and EPA contend that EMOC failed to identify hazards, failed to design and maintain a safe facility, and failed to mitigate the consequences of a claimed accidental release related to a flash fire that occurred on April 17, 2013. Additionally, based on an on-site inspection in 2013, the DOJ and EPA claim that EMOC failed to include all covered processes in its risk management program and failed to inspect certain process equipment in a timely fashion. The DOJ and EPA are seeking in excess of $100,000 in penalties and corrective actions to resolve the matter. ExxonMobil is in settlement discussions with the DOJ and EPA, and the parties have entered into a tolling agreement to facilitate settlement discussions.
Refer to the relevant portions of Note 3 of this Quarterly Report on Form 10-Q for further information on legal proceedings.
Recent Sales of Unregistered Securities
As previously reported in the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, and Annual Report on Form 10-K for the year ended December 31, 2016, the Corporation agreed to acquire all of the issued and outstanding common stock of InterOil Corporation (IOC) in exchange for consideration including shares of Exxon Mobil Corporation common stock. This acquisition closed on February 22, 2017. In accordance with the pricing formula under the applicable Arrangement Agreement, the number of Exxon Mobil Corporation common shares issued at closing was 27,729,974. With respect to this issuance the Corporation relied on the exemption from registration provided by Section 3(a)(10) of the Securities Act of 1933 in light of court approval of the transaction in Yukon, Canada.
As previously reported in the Corporation’s Current Report on Form 8-K filed January 17, 2017, and Annual Report on Form 10‑K for the year ended December 31, 2016, the Corporation agreed to acquire companies owned by the Bass family of Fort Worth, Texas, that indirectly own certain oil and gas properties in the Permian Basin and certain additional properties and related assets in exchange for issuance to the sellers of shares of Exxon Mobil Corporation common stock. This acquisition closed on February 28, 2017. In accordance with the pricing formula under the applicable Purchase and Sale Agreement, the number of Exxon Mobil Corporation common shares issued at closing was 68,191,228. The transaction was structured as a private placement solely to accredited investors and therefore with respect to this issuance the Corporation relied on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933.
Issuer Purchase of Equity Securities for Quarter Ended March 31, 2017
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 2017
1,913,661
$86.49
February 2017
1,844,386
$82.26
March 2017
2,180,453
$81.98
5,938,500
$83.52
(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. In its earnings release dated February 2, 2016, the Corporation stated it will continue to acquire shares to offset dilution in conjunction with benefit plans and programs, but had suspended making purchases to reduce shares outstanding effective beginning the first quarter of 2016.
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
Certification (pursuant to Securities Exchange Act Rule 13a-14(a)) by Principal Accounting Officer.
32.1
Section 1350 Certification (pursuant to Sarbanes-Oxley Section 906) by Chief Executive Officer.
32.2
Section 1350 Certification (pursuant to Sarbanes-Oxley Section 906) by Principal Financial Officer.
32.3
Section 1350 Certification (pursuant to Sarbanes-Oxley Section 906) by Principal Accounting Officer.
101
Interactive Data Files.
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 3, 2017
By:
/s/ DAVID S. ROSENTHAL
David S. Rosenthal
Vice President, Controller and
Principal Accounting Officer
INDEX TO EXHIBITS