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 June 30, 2020
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) 940-6000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class
Trading Symbol
on Which Registered
Common Stock, without par value
XOM
New York Stock Exchange
0.142% Notes due 2024
XOM24B
0.524% Notes due 2028
XOM28
0.835% Notes due 2032
XOM32
1.408% Notes due 2039
XOM39A
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 every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) 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 June 30, 2020
Common stock, without par value
4,228,233,288
EXXON MOBIL CORPORATION
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1.Financial Statements
Condensed Consolidated Statement of Income
Three and six months ended June 30, 2020 and 2019
3
Condensed Consolidated Statement of Comprehensive Income
4
Condensed Consolidated Balance Sheet
As of June 30, 2020 and December 31, 2019
5
Condensed Consolidated Statement of Cash Flows
Six months ended June 30, 2020 and 2019
6
Condensed Consolidated Statement of Changes in Equity
Three months ended June 30, 2020 and 2019
7
8
Notes to Condensed Consolidated Financial Statements
9
Item 2.Management's Discussion and Analysis of Financial
Condition and Results of Operations
20
Item 3.Quantitative and Qualitative Disclosures About Market Risk
29
Item 4.Controls and Procedures
PART II. OTHER INFORMATION
Item 1.Legal Proceedings
30
Item 1A.Risk Factors
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
31
Item 6.Exhibits
Index to Exhibits
32
Signature
33
2
Item 1. Financial Statements
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(millions of dollars)
Three Months Ended
Six Months Ended
June 30,
2020
2019
Revenues and other income
Sales and other operating revenue
32,277
67,491
87,411
129,137
Income from equity affiliates
103
1,359
878
3,068
Other income
225
241
474
511
Total revenues and other income
32,605
69,091
88,763
132,716
Costs and other deductions
Crude oil and product purchases
14,069
38,942
46,152
73,743
Production and manufacturing expenses
6,895
9,522
15,192
18,492
Selling, general and administrative expenses
2,409
2,827
4,988
5,597
Depreciation and depletion
4,916
4,631
10,735
9,202
Exploration expenses, including dry holes
214
333
502
613
Non-service pension and postretirement benefit expense
271
313
540
671
Interest expense
317
216
566
397
Other taxes and duties
5,154
7,675
11,986
15,080
Total costs and other deductions
34,245
64,459
90,661
123,795
Income (Loss) before income taxes
(1,640)
4,632
(1,898)
8,921
Income taxes
(471)
1,241
41
3,124
Net income (loss) including noncontrolling interests
(1,169)
3,391
(1,939)
5,797
Net income (loss) attributable to noncontrolling interests
(89)
261
(249)
Net income (loss) attributable to ExxonMobil
(1,080)
3,130
(1,690)
5,480
Earnings (Loss) per common share (dollars)
(0.26)
0.73
(0.40)
1.28
Earnings (Loss) per common share - assuming dilution (dollars)
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 (loss) (net of income taxes)
Foreign exchange translation adjustment
2,875
600
(2,774)
1,349
Postretirement benefits reserves adjustment
(excluding amortization)
(136)
(34)
(49)
(60)
Amortization and settlement of postretirement benefits reserves
adjustment included in net periodic benefit costs
203
141
407
326
Total other comprehensive income (loss)
2,942
707
(2,416)
1,615
Comprehensive income (loss) including noncontrolling interests
1,773
4,098
(4,355)
7,412
Comprehensive income (loss) attributable to
noncontrolling interests
131
391
(541)
573
Comprehensive income (loss) attributable to ExxonMobil
1,642
3,707
(3,814)
6,839
CONDENSED CONSOLIDATED BALANCE SHEET
Dec. 31,
Assets
Current assets
Cash and cash equivalents
12,576
3,089
Notes and accounts receivable – net
19,036
26,966
Inventories
Crude oil, products and merchandise
15,028
14,010
Materials and supplies
4,629
4,518
Other current assets
1,747
1,469
Total current assets
53,016
50,052
Investments, advances and long-term receivables
43,192
43,164
Property, plant and equipment – net
250,524
253,018
Other assets, including intangibles – net
14,763
16,363
Total assets
361,495
362,597
Liabilities
Current liabilities
Notes and loans payable
22,952
20,578
Accounts payable and accrued liabilities
33,216
41,831
Income taxes payable
1,102
1,580
Total current liabilities
57,270
63,989
Long-term debt
46,563
26,342
Postretirement benefits reserves
22,341
22,304
Deferred income tax liabilities
24,725
25,620
Long-term obligations to equity companies
3,831
3,988
Other long-term obligations
19,612
21,416
Total liabilities
174,342
163,659
Commitments and contingencies (Note 3)
-
Equity
Common stock without par value
(9,000 million shares authorized, 8,019 million shares issued)
15,812
15,637
Earnings reinvested
412,124
421,341
Accumulated other comprehensive income
(21,617)
(19,493)
Common stock held in treasury
(3,791 million shares at June 30, 2020 and
3,785 million shares at December 31, 2019)
(226,136)
(225,835)
ExxonMobil share of equity
180,183
191,650
Noncontrolling interests
6,970
7,288
Total equity
187,153
198,938
Total liabilities and equity
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Cash flows from operating activities
Noncash inventory adjustment - lower of cost or market
176
Changes in operational working capital, excluding cash and debt
(2,402)
1,014
All other items – net
(296)
(1,728)
Net cash provided by operating activities
6,274
14,285
Cash flows from investing activities
Additions to property, plant and equipment
(10,362)
(11,372)
Proceeds associated with sales of subsidiaries, property, plant and
equipment, and sales and returns of investments
129
140
Additional investments and advances
(1,524)
(1,730)
Other investing activities including collection of advances
309
292
Net cash used in investing activities
(11,448)
(12,670)
Cash flows from financing activities
Additions to long-term debt
23,186
43
Reductions in long-term debt
(3)
Reductions in short-term debt
(1,618)
(3,805)
Additions/(reductions) in commercial paper, and debt with three
months or less maturity (1)
1,033
11,126
Contingent consideration payments
(21)
Cash dividends to ExxonMobil shareholders
(7,434)
(7,220)
Cash dividends to noncontrolling interests
(93)
(100)
Changes in noncontrolling interests
(119)
Common stock acquired
(305)
(421)
Net cash used in financing activities
15,062
(496)
Effects of exchange rate changes on cash
(401)
52
Increase/(decrease) in cash and cash equivalents
9,487
1,171
Cash and cash equivalents at beginning of period
3,042
Cash and cash equivalents at end of period
4,213
Supplemental Disclosures
Income taxes paid
1,768
3,884
Cash interest paid
Included in cash flows from operating activities
290
277
Capitalized, included in cash flows from investing activities
335
355
Total cash interest paid
625
632
(1) Includes a net addition of commercial paper with a maturity of over three months of $7.0 billion in 2020 and $6.5 billion in 2019. The gross amount of commercial paper with a maturity of over three months issued was $20.5 billion in 2020 and $12.3 billion in 2019, while the gross amount repaid was $13.5 billion in 2020 and $5.8 billion in 2019.
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 March 31, 2019
15,476
420,498
(18,782)
(225,970)
191,222
6,799
198,021
Amortization of stock-based awards
166
38
35
Net income (loss) for the period
Dividends - common shares
(3,715)
(57)
(3,772)
Other comprehensive income (loss)
577
130
Acquisitions, at cost
(83)
Balance as of June 30, 2019
15,639
419,913
(18,205)
191,377
7,088
198,465
Balance as of March 31, 2020
15,636
416,919
(24,339)
(226,137)
182,079
6,664
188,743
177
(1)
223
222
(48)
(3,763)
2,722
220
Dispositions
1
Balance as of June 30, 2020
Three Months Ended June 30, 2020
Three Months Ended June 30, 2019
Common Stock Share Activity
Issued
Outstanding
(millions of shares)
Balance as of March 31
8,019
(3,791)
4,228
(3,788)
4,231
Acquisitions
Balance as of June 30
Balance as of December 31, 2018
15,258
421,653
(19,564)
(225,553)
191,794
6,734
198,528
389
(8)
47
39
(7,320)
256
(166)
(587)
Balance as of December 31, 2019
358
(183)
380
197
(7,527)
Cumulative effect of accounting
change
(94)
(2,124)
(292)
(63)
(368)
Six Months Ended June 30, 2020
Six Months Ended June 30, 2019
Balance as of December 31
(3,785)
4,234
(3,782)
4,237
(6)
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 2019 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. Miscellaneous Financial Information
During the first quarter of 2020, the balance of supply and demand for petroleum and petrochemical products experienced two significant disruptive effects. On the demand side, the COVID-19 pandemic spread rapidly through most areas of the world resulting in substantial reductions in consumer and business activity and significantly reduced demand for crude oil, natural gas, and petroleum products. This reduction in demand coincided with announcements of increased production in certain key oil producing countries which led to sharp declines in prices for crude oil and other petrochemical products, and considerable volatility in financial markets during the first half of 2020.
Crude oil, products and merchandise inventories are carried at the lower of current market value or cost, generally determined under the last-in first-out method (LIFO). The Corporation’s results for the second quarter of 2020 included a before-tax credit of $2,624 million, included in “Crude oil and product purchases” on the Statement of Income, as rising commodity prices reduced the charge against the book value of inventories from $2,777 million in the first quarter to $153 million in the second quarter. This adjustment, together with a similar adjustment for equity companies included in “Income from equity affiliates,” resulted in a $1,922 million after-tax credit to earnings (excluding noncontrolling interests) in the second quarter and will be re-evaluated at the end of each quarter in 2020. The earnings impact may be adjusted upward or downward this year based on prevailing market prices at the time of future evaluations. At year-end, any required adjustment is considered permanent and is incorporated into the LIFO carrying value of the inventory.
As a result of sharp declines in prices for crude oil and other petrochemical products in the first half of 2020 and a significant decline in its market capitalization at the end of the first quarter, the Corporation recognized after-tax impairment charges of $836 million in the first half of 2020. These charges included goodwill impairments of $562 million in Upstream, Downstream, and Chemical reporting units and other impairment charges of $274 million, mainly in the Upstream segment. Fair value of the goodwill reporting units primarily reflected market-based estimates of historical EBITDA multiples at the end of the first quarter. Other impairment charges, mainly related to the Corporation’s investment in an Upstream equity company, were written down to estimated fair value based on recent third party price outlooks, internal estimates of future volumes and costs, and estimates of discount rates for similar properties. The charges related to goodwill impairment are included in “Depreciation and depletion” on the Statement of Income while the charges related to other impairments are largely included in “Income from equity affiliates.”
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 June 30, 2020, 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 June 30, 2020
Company
Third Party
Obligations (1)
Obligations
Guarantees
Debt-related
904
113
1,017
692
4,663
5,355
1,596
4,776
6,372
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 Venezuelan nationalization decree issued in February 2007, a subsidiary of the Venezuelan National Oil Company (PdVSA) assumed the operatorship of the Cerro Negro Heavy Oil 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. 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.
ExxonMobil collected awards of $908 million in an arbitration against PdVSA under the rules of the International Chamber of Commerce in respect of an indemnity related to the Cerro Negro Project and $260 million in an arbitration for compensation due for the La Ceiba Project and for export curtailments at the Cerro Negro Project under rules of International Centre for Settlement of Investment Disputes (ICSID). An ICSID arbitration award relating to the Cerro Negro Project’s expropriation ($1.4 billion) was annulled based on a determination that a 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. ExxonMobil filed a new claim seeking to restore the original award of damages for the Cerro Negro Project with ICSID on September 26, 2018.
The net impact of this matter 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.
10
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 (SDNY) to enforce, if necessary, the arbitration award against NNPC assets residing within that jurisdiction. NNPC moved to dismiss the lawsuit. On September 4, 2019, the SDNY dismissed the Contractors’ petition to recognize and enforce the Erha arbitration award. The Contractors filed a notice of appeal in the Second Circuit on October 2, 2019. 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.
11
4.Other Comprehensive Income Information
Cumulative
Post-
Foreign
retirement
Exchange
Benefits
ExxonMobil Share of Accumulated Other
Translation
Reserves
Comprehensive Income
Adjustment
(13,881)
(5,683)
Current period change excluding amounts reclassified
from accumulated other comprehensive income
1,096
1,047
Amounts reclassified from accumulated other
comprehensive income
312
Total change in accumulated other comprehensive income
263
(12,785)
(5,420)
(12,446)
(7,047)
from accumulated other comprehensive income (1)
(2,469)
(45)
(2,514)
390
345
(14,915)
(6,702)
(1) Cumulative Foreign Exchange Translation Adjustment includes net investment hedge gain/(loss) of $5 million, net of taxes.
Amounts Reclassified Out of Accumulated Other
Comprehensive Income - Before-tax Income/(Expense)
(Statement of Income line: Non-service pension and
postretirement benefit expense)
(260)
(191)
(522)
(428)
Income Tax (Expense)/Credit For
Components of Other Comprehensive Income
15
(10)
(50)
(115)
(102)
(40)
(110)
(82)
12
5.Earnings Per Share
Earnings per common share
Net income (loss) attributable to ExxonMobil (millions of dollars)
Weighted average number of common shares
outstanding (millions of shares)
4,271
4,270
Earnings (Loss) per common share (dollars) (1)
Dividends paid per common share (dollars)
0.87
1.74
1.69
(1) The calculation of earnings (loss) per common share and earnings (loss) 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
232
180
467
Interest cost
189
354
382
Expected return on plan assets
(175)
(142)
(350)
(284)
Amortization of actuarial loss/(gain) and prior
service cost
79
158
156
Net pension enhancement and
curtailment/settlement cost
53
104
107
Net benefit cost
365
359
733
716
Pension Benefits - Non-U.S.
171
138
346
162
192
323
384
(216)
(192)
(438)
(389)
115
55
234
193
465
430
Other Postretirement Benefits
44
89
66
68
(5)
(4)
(9)
14
26
121
112
244
13
7.Financial Instruments and Derivatives
Financial Instruments. The estimated fair value of financial instruments at June 30, 2020, and December 31, 2019, and the related hierarchy level for the fair value measurement is as follows:
At June 30, 2020
Fair Value
Difference
Total Gross
Effect of
in Carrying
Net
Counterparty
Collateral
Value and
Carrying
Level 1
Level 2
Level 3
& Liabilities
Netting
Value
Derivative assets (1)
1,488
165
1,653
(1,423)
(65)
Advances to/receivables
from equity companies (2)(7)
1,916
6,795
8,711
48
8,759
Other long-term
financial assets (3)
1,157
889
2,046
137
2,183
Derivative liabilities (4)
1,748
88
1,836
(325)
Long-term debt (5)
49,106
49,276
(3,962)
45,314
Long-term obligations
to equity companies (7)
3,766
65
financial liabilities (6)
1,066
1,072
At December 31, 2019
533
102
635
(463)
(70)
1,941
6,729
8,670
(128)
8,542
1,145
974
2,119
2,163
568
70
638
(105)
25,652
134
25,789
(1,117)
24,672
4,245
(257)
1,042
16
1,058
Included in the Balance Sheet lines: Notes and accounts receivable - net and Other assets, including intangibles, net
(2)
Included in the Balance Sheet line: Investments, advances and long-term receivables
Included in the Balance Sheet lines: Investments, advances and long-term receivables and Other assets, including intangibles, net
Included in the Balance Sheet lines: Accounts payable and accrued liabilities and Other long-term obligations
Excluding finance lease obligations
Included in the Balance Sheet line: Other long-term obligations
(7)
Advances to/receivables from equity companies and long-term obligations to equity companies are mainly designated as hierarchy level 3 inputs. The fair value is calculated by discounting the remaining obligations by a rate consistent with the credit quality and industry of the company.
At June 30, 2020, the Corporation had $496 million of collateral under master netting arrangements not offset against the derivatives on the Consolidated Balance Sheet, primarily related to initial margin requirements.
Long-term debt. The increase in the estimated fair value and book value of long-term debt reflects the Corporation’s issuance of new debt securities during 2020. The carrying value of these debt securities as of June 30, 2020, is below:
Issuance Date
Description of Notes
March 2020
2.992% notes due 2025
1,500
3.294% notes due 2027
1,000
3.482% notes due 2030
2,000
4.227% notes due 2040
1,250
4.327% notes due 2050
2,750
April 2020
1.571% notes due 2023
2.992% notes due 2025 (1)
1,314
2.610% notes due 2030
4.227% notes due 2040 (1)
842
3.452% notes due 2051
June 2020 (2)
0.142% notes due 2024
1,680
0.524% notes due 2028
1,120
0.835% notes due 2032
1.408% notes due 2039
23,196
(1) Includes premiums of $156 million.
(2) Euro-denominated.
The Corporation may use non-derivative financial instruments, such as its foreign currency-denominated debt, as hedges of its net investments in certain foreign subsidiaries. Under this method, the change in the carrying value of the financial instruments due to foreign exchange fluctuations is reported in accumulated other comprehensive income. As of June 30, 2020, the Corporation has designated $1.9 billion of its Euro-denominated long-term debt as a net investment hedge of its European business. The net investment hedge is deemed to be perfectly effective.
The Corporation had undrawn short-term committed lines of credit of $15.4 billion and an undrawn long-term committed line of credit of $0.2 billion as of second quarter 2020.
Derivative Instruments. The Corporation’s size, strong capital structure, geographic diversity and the complementary nature of the Upstream, Downstream and Chemical businesses reduce the Corporation’s enterprise-wide risk from changes in commodity prices, currency rates and interest rates. In addition, the Corporation uses commodity-based contracts, including derivatives, to manage commodity price risk and for trading purposes. Commodity contracts held for trading purposes are presented in the Consolidated Statement of Income on a net basis in the line “Sales and other operating revenue.” The Corporation’s commodity derivatives are not accounted for under hedge accounting. At times, the Corporation also enters into currency and interest rate derivatives, none of which are material to the Corporation’s financial position as of June 30, 2020, and December 31, 2019, or results of operations for the periods ended June 30, 2020, and 2019.
Credit risk associated with the Corporation’s derivative position is mitigated by several factors, including the use of derivative clearing exchanges and the quality of and financial limits placed on derivative counterparties. The Corporation maintains a system of controls that includes the authorization, reporting and monitoring of derivative activity.
The net notional long/(short) position of derivative instruments at June 30, 2020, and December 31, 2019, was as follows:
Crude oil (millions of barrels)
(32)
57
Petroleum products (millions of barrels)
(53)
(38)
Natural Gas (MMBTUs)
(351)
(165)
Realized and unrealized gains/(losses) on derivative instruments that were recognized in the Consolidated Statement of Income are included in the following lines on a before-tax basis:
(251)
985
(242)
(178)
(530)
(429)
455
(227)
8.Disclosures about Segments and Related Information
Earnings (Loss) After Income Tax
Upstream
United States
(1,197)
(1,901)
431
Non-U.S.
(454)
2,926
786
5,706
Downstream
(101)
310
(202)
149
1,077
567
46
Chemical
459
155
296
194
152
551
Corporate and financing
(872)
(770)
(1,551)
(1,558)
Corporate total
Sales and Other Operating Revenue
1,081
2,594
2,858
5,287
2,022
3,709
4,589
7,513
8,203
18,721
23,587
34,363
16,302
35,306
45,606
67,603
1,570
2,504
3,866
5,009
3,090
4,647
6,890
9,342
Intersegment Revenue
1,378
2,641
3,651
4,952
2,852
8,376
9,239
15,505
2,056
6,742
6,008
11,503
2,752
6,568
7,876
12,737
1,220
2,569
2,986
4,458
708
1,583
1,971
56
111
108
17
Geographic
10,854
23,819
30,311
44,659
21,423
43,672
57,100
84,478
Significant Non-U.S. revenue sources include: (1)
Canada
2,148
5,346
5,971
10,196
United Kingdom
1,906
4,781
Singapore
1,867
3,135
4,483
6,255
France
3,258
4,172
6,332
Italy
1,228
2,494
3,186
5,139
Belgium
1,247
3,245
3,136
6,773
(1) Revenue is determined by primary country of operations. Excludes certain sales and other operating revenues in Non-U.S. operations where attribution to a specific country is not practicable.
9.Leases
A previously recorded operating lease was renegotiated in the first quarter of 2020 and the new agreement no longer meets the definition of a lease. At year-end 2019, this agreement had been reported as a right of use asset of $1.3 billion and a lease liability of $1.3 billion in the “Other” operating lease category. The new agreement will be reported as a take-or-pay obligation.
18
10.Allowance for Current Expected Credit Loss (CECL)
Effective January 1, 2020, the Corporation adopted the Financial Accounting Standards Board’s update, Financial Instruments – Credit Losses (Topic 326), as amended. The standard requires a valuation allowance for credit losses be recognized for certain financial assets that reflects the current expected credit loss over the asset’s contractual life. The valuation allowance considers the risk of loss, even if remote, and considers past events, current conditions and reasonable and supportable forecasts. The standard requires this expected loss methodology for trade receivables, certain other financial assets and off-balance sheet credit exposures. The cumulative effect adjustment related to the adoption of this standard reduced equity by $93 million.
The Corporation is exposed to credit losses primarily through sales of petroleum products, crude oil, NGLs and natural gas, as well as loans to equity companies and joint venture receivables. A counterparty’s ability to pay is assessed through a credit review process that considers payment terms, the counterparty’s established credit rating or the Corporation’s assessment of the counterparty’s credit worthiness, contract terms, country of operation, and other risks. The Corporation can require prepayment or collateral to mitigate certain credit risks.
The Corporation groups financial assets into portfolios that share similar risk characteristics for purposes of determining the allowance for credit losses. Each reporting period, the Corporation assesses whether a significant change in the risk of credit loss has occurred. Among the quantitative and qualitative factors considered are historical financial data, current conditions, industry and country risk, current credit ratings and the quality of third-party guarantees secured from the counterparty. Financial assets are written off in whole, or in part, when practical recovery efforts have been exhausted and no reasonable expectation of recovery exists. Subsequent recoveries of amounts previously written off are recognized in earnings. The Corporation manages receivable portfolios using past due balances as a key credit quality indicator.
The Corporation recognizes a credit allowance for off-balance sheet credit exposures as a liability on the balance sheet, separate from the allowance for credit losses related to recognized financial assets. Among these exposures are unfunded loans to equity companies and financial guarantees that cannot be cancelled unilaterally by the Corporation.
In the first half of 2020, the COVID-19 pandemic spread through most areas of the world resulting in economic uncertainty, global financial market volatility, and negative effects in the credit markets. The Corporation has considered these effects, along with the significantly lower balances of trade receivables at the end of the quarter, in its estimate of credit losses and concluded no material adjustment to credit allowances in the quarter was required. At June 30, 2020, the Corporation’s evaluation of financial assets under Financial Instruments – Credit Losses (Topic 326), as amended, included $15,519 million of notes and accounts receivable, net of allowances of $153 million, and $9,434 million of loans and long-term receivables, net of allowances of $443 million, and certain other financial assets where there is immaterial risk of loss.
Reserve for
Liabilities for
Notes and Other
Off-Balance
Receivables and Loans
Sheet Assets
Trade
Balance at December 31, 2019
34
469
503
Cumulative effect of accounting change
45
109
Current period provision
Write-offs charged against the allowance
(12)
Balance at June 30, 2020
93
608
19
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
FUNCTIONAL EARNINGS SUMMARY
Second Quarter
First Six Months
Earnings (Loss) (U.S. GAAP)
Net income (Loss) attributable to ExxonMobil (U.S. GAAP)
References in this discussion to Corporate earnings (loss) mean net income (loss) attributable to ExxonMobil (U.S. GAAP) from the consolidated income statement. Unless otherwise indicated, references to earnings (loss), Upstream, Downstream, Chemical and Corporate and financing segment earnings (loss), and earnings (loss) per share are ExxonMobil's share after excluding amounts attributable to noncontrolling interests.
CURRENT ECONOMIC CONDITIONS
During the first quarter of 2020, the balance of supply and demand for petroleum and petrochemical products experienced two significant disruptive effects. On the demand side, the COVID-19 pandemic spread rapidly through most areas of the world resulting in substantial reductions in consumer and business activity and significantly reduced demand for crude oil, natural gas, and petroleum products. This reduction in demand coincided with announcements of increased production in certain key oil- producing countries which led to sharp declines in prices for crude oil and other petrochemical products. During the second quarter, the effects of COVID-19 continued to affect the world’s major economies, and market conditions reflected considerable uncertainty. Consumer and business activity exhibited some early signs of recovery, but relative to prior periods continues to be negatively affected by the pandemic. Key oil-producing countries have taken steps to reduce oversupply, and credit markets appear to have stabilized, providing sufficient liquidity to credit-worthy companies.
In response to these conditions, the Corporation announced significant reductions in 2020 capital spending and operating expenses. Capital and exploration expenditures for 2020 are now expected to be $23 billion, down from the previously announced $33 billion. The Corporation’s near-term reduction in capital expenditures resulted in a downward revision to estimates of proved reserves reported in the 2019 Form 10-K of approximately 1 billion oil-equivalent barrels, mainly related to unconventional drilling in the United States. Consequently, unit-of-production depreciation and depletion rates for Upstream assets increased beginning in the first quarter.
The Corporation also took actions to strengthen its liquidity including issuing $8.5 billion of long-term U.S. debt securities in the first quarter of 2020 and issuing a further $9.5 billion of long-term U.S. debt securities and $5.0 billion of long-term Euro-denominated debt securities in the second quarter of 2020. The Corporation had undrawn short-term committed lines of credit of $15.4 billion and an undrawn long-term committed line of credit of $0.2 billion as of second quarter 2020. The Corporation plans to increase its 364-day facility from $7.5 billion to $10 billion in the third quarter and terminate the supplemental $7.0 billion facility that was established in the first quarter of 2020.
Unless industry conditions seen thus far in 2020 improve significantly in the latter half of the year, the Corporation expects lower realized prices for its products to result in substantially lower earnings and operating cash flow than in 2019. Amid such conditions, project deferrals and idling of capacity may increase, and project cancellations could occur, resulting in lower volumes across one or more business segments. The capital spending reductions will result in lower near-term production volumes in the Upstream and delays in previously anticipated volume increases in future years.
The Corporation has reviewed its near-term spending reductions and resulting near-term production impacts to determine whether they put its long-lived assets at risk for impairment. During the first half of 2020, and in large part due to expectations for lower prices in the near term, the Corporation recorded impairments for certain assets that were, in aggregate, insignificant. Despite the challenging environment, the Corporation’s view of long-term supply and demand fundamentals has not changed significantly. However, the Corporation continues to assess its strategic plans and longer-term price views, taking into account current and developing industry and economic conditions, as part of its annual planning process. Depending on the outcome of that process, including in particular any significant future changes in the Corporation’s strategic plans or longer-term price views, a significant portion of the Corporation’s long-lived assets could be at risk for impairment. Due to interdependencies among the many elements critical to that planning process that are still unresolved or uncertain, it is not practicable to reasonably estimate the existence or range of any potential future impairment charges. In addition, in light of the current low commodity price environment, and depending on the extent and pace of recovery, the Corporation’s planned divestment program could be adversely affected by fewer financially suitable buyers. This could result in a slowing of the pace of divestments, certain assets being sold at a price below current book value, or impairment charges if the likelihood of divesting certain assets increases.
As disclosed in ExxonMobil’s 2019 Form 10-K, low crude oil and natural gas prices can impact the Corporation’s estimates of proved reserves as reported under Securities and Exchange Commission (SEC) rules. Average year-to-date crude oil and natural gas prices have been significantly affected by the low prices experienced since the end of the first quarter. If average prices seen thus far in 2020 persist for the remainder of the year, under the SEC definition of proved reserves, certain quantities of crude oil, bitumen and natural gas will not qualify as proved reserves at year-end 2020. Proved reserves estimates are affected by a number of factors including the level of capital spending, timing and completion of development projects, reservoir performance, market prices and differentials, costs, fiscal and commercial terms, government policies, regulatory approvals and partner considerations. Based on available price information for 2020 and the effects of expected reductions in capital spending mentioned above, it is possible that reductions to proved reserves could amount to approximately 20 percent of the Corporation’s 22.4 billion oil-equivalent barrels reported at year-end 2019.
The Corporation has taken steps, in line with government guidelines and restrictions, to limit the spread of COVID-19 among employees, contractors and the broader community, while also maintaining operations to ensure reliable supply of products to customers. The Corporation maintains robust business continuity plans, but should these efforts not be successful the Corporation could experience declines in workforce productivity that exacerbate some of the adverse operating and financial effects noted above.
REVIEW OF SECOND QUARTER 2020 RESULTS
ExxonMobil’s second quarter 2020 results were a loss of $1.1 billion, or $0.26 per diluted share, compared with earnings of $3.1 billion a year earlier. The decrease in earnings was primarily the result of lower Upstream realizations, reduced Downstream margins, and decreased volumes across all business segments. These impacts were partly offset by favorable non-operational impacts, reduced maintenance activity mainly in the Downstream and Chemical, and lower expenses across all business segments. Non-operational impacts were mainly driven by an inventory adjustment, with further information provided in Note 2 to the unaudited condensed consolidated financial statements.
Results for the first six months of 2020 were a loss of $1.7 billion, or $0.40 per diluted share, compared with earnings of $5.5 billion a year earlier.
Capital and exploration expenditures were $12.5 billion, down $2.5 billion from 2019.
Oil-equivalent production was 3.8 million barrels per day, down 3 percent from the prior year. Excluding entitlement effects, divestments, and government mandates, oil-equivalent production was up 1 percent.
The Corporation distributed $7.4 billion in dividends to shareholders.
21
Upstream results
(1,651)
3,261
(1,115)
6,137
Upstream results were a loss of $1,651 million in the second quarter of 2020, compared with earnings of $3,261 million in the second quarter of 2019.
·
Realizations reduced earnings by $4,520 million, with lower liquids realizations of $3,910 million and lower gas realizations of $610 million.
Volume and mix effects reduced earnings by $370 million due to lower liquids volumes of $320 million and lower gas volumes of $50 million.
All other items decreased earnings by $20 million, including unfavorable non-operational impacts of $270 million, mainly from a prior year non-U.S. tax item, and other unfavorable earnings impacts of $120 million, partly offset by lower expenses of $370 million.
U.S. Upstream results were a loss of $1,197 million, down $1,532 million from the prior year quarter.
Non-U.S. Upstream results were a loss of $454 million, down $3,380 million from the prior year quarter.
On an oil-equivalent basis, production decreased 7 percent from the second quarter of 2019.
Liquids production totaled 2.3 million barrels per day, down 83,000 barrels per day, with higher entitlements, growth, and lower downtime more than offset by lower demand, government mandates, and divestments.
Natural gas production was 8.0 billion cubic feet per day, down 1,130 million cubic feet per day, as growth was more than offset by divestments, lower demand, and reduced entitlements.
Upstream results were a loss of $1,115 million in the first six months of 2020, compared with earnings of $6,137 million in the first six months of 2019.
Realizations reduced earnings by $6,400 million, with lower liquids realizations of $5,140 million and lower gas realizations of $1,260 million.
Volume and mix effects reduced earnings by $280 million, including $160 million for liquids and $120 million for gas.
All other items decreased earnings by $570 million, as unfavorable non-operational impacts of $890 million, reflecting impairments of $360 million and a prior year non-U.S. tax item of $490 million, were partly offset by lower expenses of $140 million and favorable foreign exchange effects of $210 million.
U.S. Upstream results were a loss of $1,901 million, compared with earnings of $431 million in the prior year.
Non-U.S. Upstream earnings were $786 million, down $4,920 million from the prior year.
On an oil-equivalent basis, production decreased 3 percent from the first six months of 2019.
Liquids production totaled 2.4 million barrels per day, up 35,000 barrels per day, with growth, lower downtime, and higher entitlements partly offset by lower demand, divestments, and government mandates.
Natural gas production was 8.7 billion cubic feet per day, down 827 million cubic feet per day, as growth was more than offset by divestments and lower demand.
22
Upstream additional information
(thousands of barrels daily)
Volumes reconciliation (Oil-equivalent production)(1)
3,909
3,945
Entitlements - Net Interest
Entitlements - Price / Spend / Other
122
81
Government Mandates
(121)
Divestments
(158)
(168)
Growth / Other
(104)
51
3,638
3,842
(1) Natural gas is converted to an oil-equivalent basis at six million cubic feet per one 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.
Government Mandates are changes to ExxonMobil’s sustainable production levels due to temporary non-operational production limits imposed by governments, generally upon a sector, type or method of production.
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.
23
Downstream results
976
451
195
Downstream results were $976 million in the second quarter of 2020, up $525 million from the second quarter of 2019.
Margins decreased earnings by $1,680 million, mainly reflecting lower industry refining margins.
Volume and mix effects reduced earnings by $10 million.
All other items increased earnings by $2,220 million, mainly due to favorable non-operational impacts associated with an inventory adjustment of $1,590 million and lower expenses of $470 million.
U.S. Downstream results were a loss of $101 million, compared with earnings of $310 million in the prior year quarter.
Non-U.S. Downstream results were $1,077 million, up $936 million from the prior year quarter.
Petroleum product sales of 4.4 million barrels per day were 971,000 barrels per day lower than the prior year quarter.
Downstream results were $365 million in the first six months of 2020, up $170 million from the first six months of 2019.
Margins decreased earnings by $360 million, as weaker industry refining margins were partly offset by favorable mark-to-market derivatives.
Volume and mix effects increased earnings by $300 million.
All other items increased earnings by $230 million, as lower expenses of $490 million were partly offset by unfavorable non-operational impacts associated with impairments of $340 million.
U.S. Downstream results were a loss of $202 million, compared with earnings of $149 million in the prior year.
Non-U.S. Downstream earnings were $567 million, up $521 million from the prior year.
Petroleum product sales of 4.9 million barrels per day were 550,000 barrels per day lower than the prior year.
24
Chemical results
188
611
706
Chemical earnings were $467 million in the second quarter of 2020, up $279 million from the second quarter of 2019.
Higher margins increased earnings by $140 million.
Volume and mix effects decreased earnings by $180 million.
All other items increased earnings by $320 million, mainly due to lower expenses of $240 million and favorable non-operational impacts associated with an inventory adjustment of $110 million.
U.S. Chemical earnings were $171 million, compared with a loss of $6 million in the prior year quarter.
Non-U.S. Chemical results were $296 million, up $102 million from the prior year quarter.
Second quarter prime product sales of 5.9 million metric tons were 754,000 metric tons lower than the prior year quarter.
Chemical earnings were $611 million in the first six months of 2020, down $95 million from the first six months of 2019.
Higher margins increased earnings by $180 million.
Volume and mix effects decreased earnings by $280 million.
All other items were essentially flat, as lower expenses of $190 million were offset by unfavorable non-operational impacts associated with an inventory adjustment of $120 million and impairments of $90 million.
U.S. Chemical earnings were $459 million, up $304 million from the prior year.
Non-U.S. Chemical earnings were $152 million, down $399 million from the prior year.
First six months prime product sales of 12.2 million metric tons were 1.3 million metric tons lower than the prior year.
Corporate and financing results
Corporate and financing expenses were $872 million for the second quarter of 2020, up $102 million from the second quarter of 2019 on higher financing costs.
Corporate and financing expenses were $1,551 million for the first six months of 2020, essentially in line with 2019.
25
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)
5,947
Proceeds associated with sales of subsidiaries, property,
plant & equipment, and sales and returns of investments
5,980
6,403
14,425
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 second quarter of 2020 was $43 million, a decrease of $5.9 billion from the comparable 2019 period primarily reflecting lower earnings and unfavorable working capital impacts. Current market conditions and the ability of counterparties to secure financing may negatively affect the pace of asset sales in 2020.
Cash provided by operating activities totaled $6.3 billion for the first six months of 2020, $8.0 billion lower than 2019. Net income including noncontrolling interests was a loss of $1.9 billion, a decrease of $7.7 billion from the prior year period. The adjustments for the noncash provisions were $10.7 billion for depreciation and depletion and $0.2 billion for the lower of cost or market inventory adjustment. Changes in operational working capital were a reduction of $2.4 billion, compared to a contribution of $1.0 billion in the prior year period. All other items net decreased cash flows by $0.3 billion in 2020 versus a reduction of $1.7 billion in 2019. See the Condensed Consolidated Statement of Cash Flows for additional details.
Investing activities for the first six months of 2020 used net cash of $11.4 billion, a decrease of $1.2 billion compared to the prior year. Spending for additions to property, plant and equipment of $10.4 billion was $1.0 billion lower than 2019. Proceeds from asset sales of $0.1 billion were comparable to the prior year. Net investments and advances decreased $0.2 billion to $1.2 billion.
During the first six months of 2020, the Corporation issued $23.2 billion of long-term debt. Net cash provided by financing activities was $15.1 billion in the first six months of 2020, $15.6 billion higher than 2019 reflecting 2020 debt issuances.
Total debt at the end of the second quarter of 2020 was $69.5 billion compared to $46.9 billion at year-end 2019. The Corporation's debt to total capital ratio was 27.1 percent at the end of the second quarter of 2020 compared to 19.1 percent at year-end 2019.
During the first six months of 2020, Exxon Mobil Corporation purchased 6 million shares of its common stock for the treasury at a gross cost of $0.3 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 decreased from 4,234 million at year-end to 4,228 million at the end of the second quarter of 2020. 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 retained access to significant capacity of long-term and short-term liquidity during the period. Commercial paper continues to provide short-term liquidity and the balance of commercial paper outstanding was $19.7 billion as of June 30, 2020. To provide increased liquidity and flexibility, the Corporation increased cash and cash equivalents by $1.1 billion to $12.6 billion during the second quarter of 2020. The Corporation had undrawn short-term committed lines of credit of $15.4 billion and an undrawn long-term committed line of credit of $0.2 billion as of second quarter 2020. The Corporation plans to increase its 364-day facility from $7.5 billion to $10 billion in the third quarter and terminate the supplemental $7.0 billion facility that was established in the first quarter of 2020.
Internally generated funds are generally expected to cover financial requirements, supplemented by short-term and long-term debt as required. The Corporation has increased debt to a level management believes is appropriate to provide liquidity given market uncertainties and, based on current projections, does not plan to take on additional debt.
The Corporation distributed a total of $7.4 billion to shareholders in the first six months of 2020 through dividends.
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
%
-33
Total other taxes and duties (1)
5,683
8,366
13,180
16,453
5,212
9,607
13,221
19,577
(1) Includes “Other taxes and duties” plus taxes that are included in “Production and manufacturing expenses” and “Selling, general and administrative expenses.”
Total taxes were $5.2 billion for the second quarter of 2020, a decrease of $4.4 billion from 2019. Income taxes were a credit of $0.5 billion compared to income tax expense of $1.2 billion in the prior year reflecting operating losses driven by lower commodity prices. The effective income tax rate of 29 percent compared to 34 percent in the prior year period primarily due to a change in mix of results in jurisdictions with varying tax rates. Total other taxes and duties decreased by $2.7 billion to $5.7 billion.
Total taxes were $13.2 billion for the first six months of 2020, a decrease of $6.4 billion from 2019. Income tax expense decreased by $3.1 billion to $41 million reflecting lower pre-tax income. The effective income tax rate of -33 percent compared to 44 percent in the prior year period primarily due to a change in mix of results in jurisdictions with varying tax rates. Total other taxes and duties decreased by $3.3 billion to $13.2 billion.
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 Corporation filed a refund suit for tax years 2006-2009 in U.S. federal district court (District Court) with respect to the positions at issue for those years. On February 24, 2020, the Corporation received an adverse ruling on this suit. Proceedings in the District Court are continuing. 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. 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.
27
CAPITAL AND EXPLORATION EXPENDITURES
Upstream (including exploration expenses)
3,577
6,242
8,703
11,603
1,053
1,113
2,287
1,942
695
718
1,477
1,414
5,327
8,079
12,470
14,969
Capital and exploration expenditures in the second quarter of 2020 were $5.3 billion, down 34 percent from the second quarter of 2019.
Capital and exploration expenditures in the first six months of 2020 were $12.5 billion, down 17 percent from the first six months of 2019 in response to market conditions. The Corporation anticipates an investment level of $23 billion in 2020, down from the previously announced $33 billion. Actual spending could vary depending on the progress of individual projects and property acquisitions.
FORWARD-LOOKING STATEMENTS
Statements related to outlooks, projections, goals, targets, descriptions of strategic plans and objectives, and other statements of future events or conditions are forward-looking statements. Actual future results, including financial and operating performance; the impact of the COVID-19 pandemic on results; planned capital and cash operating expense reductions and ability to meet announced reduction objectives; total capital expenditures and mix; earnings; cash flow; capital allocation and debt levels; dividend and shareholder returns; business and project plans, timing, costs and capacities; resource recoveries and production rates; accounting and financial reporting effects resulting from market developments and ExxonMobil’s responsive actions, including potential future impairment charges and proved reserve reductions; the pace and outcome of divestments; and the impact of new technologies, including to increase capital efficiency and production and to reduce greenhouse gas emissions and intensity, could differ materially due to a number of factors. These include global or regional changes in the supply and demand for oil, natural gas, petrochemicals, and feedstocks and other market conditions that impact prices and differentials; the outcome of government policies and actions, including actions taken to address COVID-19 and to maintain the functioning of national and global economies and markets; the impact of company actions to protect the health and safety of employees, vendors, customers, and communities; actions of competitors and commercial counterparties; the ability to access short- and long-term debt markets on a timely and affordable basis; the severity, length and ultimate impact of COVID-19 on people and economies including the nature and pace of economic recovery as well as the ability of ExxonMobil and its vendors and contractors to maintain operations while taking appropriate health protective measures for employees and others; reservoir performance; the outcome of exploration projects and timely completion of development and construction projects; changes in law, taxes, or regulation including environmental regulations, and timely granting of governmental permits; war, trade agreements and patterns, shipping blockades or harassment, and other political or security disturbances; opportunities for and regulatory approval of potential investments or divestments; the actions of competitors; the capture of efficiencies within and between business lines and the ability to maintain near-term cost reductions as ongoing efficiencies while maintaining future competitive positioning; unforeseen technical or operating difficulties; the development and competitiveness of alternative energy and emission reduction technologies; the results of research programs; the ability to bring new technologies to commercial scale on a cost-competitive basis, including emission reduction technologies and large-scale hydraulic fracturing projects; general economic conditions including the occurrence and duration of economic recessions; and other factors discussed under the heading Factors Affecting Future Results on the Investors page of our website at www.exxonmobil.com and in Item 1A of ExxonMobil’s 2019 Form 10-K and Forms 10-Q for the quarters ended March 31, 2020, and June 30, 2020. 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.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information about market risks for the six months ended June 30, 2020, does not differ materially from that discussed under Item 7A of the registrant's Annual Report on Form 10-K for 2019.
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 June 30, 2020. 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.
Item 1. Legal Proceedings
None.
Refer to the relevant portions of Note 3 of this Quarterly Report on Form 10-Q for further information on legal proceedings.
Item 1A. Risk Factors
The risk factors that are discussed in Item 1A of the registrant’s Annual Report on Form 10-K for 2019, including those risk factors in respect of commodity supply and demand and public health, encompass, among other things, current market conditions of production oversupply as well as demand reduction due to the COVID-19 pandemic which has led to a significant decrease in commodity prices. Our future business results, including cash flows and financing needs, will be affected by the extent and duration of these conditions and the effectiveness of responsive actions that we and others take, including our actions to reduce capital and operating expenses and government actions to address the COVID-19 pandemic, as well as any resulting impact on national and global economies and markets. At this time, it is difficult to predict the timing of any resolution of the current supply imbalances and the ultimate impact of COVID-19, and we continue to monitor market developments and evaluate the impacts of decreased demand on our production levels, as well as impacts on project development and future production.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchase of Equity Securities for Quarter Ended June 30, 2020
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
May 2020
June 2020
(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.
Item 6. Exhibits
See Index to Exhibits of this report.
INDEX TO EXHIBITS
Exhibit
Description
3(ii)
By-Laws, as amended effective March 1, 2020 (incorporated by reference to Exhibit 3(ii) to the Registrant’s Report on Form 8-K of March 3, 2020).
10(iii)(f.4)
Standing resolution for non-employee director cash fees dated March 1, 2020 (incorporated by reference to Exhibit 10(iii)(f.4) to the Registrant’s report on Form 10-Q for the quarter ended March 31, 2020).
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 (formatted as Inline XBRL).
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
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: August 5, 2020
By:
/s/ DAVID S. ROSENTHAL
David S. Rosenthal
Vice President, Controller and
Principal Accounting Officer