UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
For the quarterly period ended March 31, 2012
or
For the transition period from to
Commission File Number 1-2256
EXXON MOBIL CORPORATION
(Exact name of registrant as specified in its charter)
(972) 444-1000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant 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 x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 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 x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2012
TABLE OF CONTENTS
Item 1.
Condensed Consolidated Statement of IncomeThree months ended March 31, 2012 and 2011
Condensed Consolidated Statement of Comprehensive IncomeThree months ended March 31, 2012 and 2011
Condensed Consolidated Balance SheetAs of March 31, 2012 and December 31, 2011
Condensed Consolidated Statement of Cash FlowsThree months ended March 31, 2012 and 2011
Condensed Consolidated Statement of Changes in EquityThree months ended March 31, 2012 and 2011
Notes to Condensed Consolidated Financial Statements
Item 2.
Item 3.
Item 4.
Item 6.
Signature
Index to Exhibits
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PART I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(millions of dollars)
REVENUES AND OTHER INCOME
Sales and other operating revenue (1)
Income from equity affiliates
Other income
Total revenues and other income
COSTS AND OTHER DEDUCTIONS
Crude oil and product purchases
Production and manufacturing expenses
Selling, general and administrative expenses
Depreciation and depletion
Exploration expenses, including dry holes
Interest expense
Sales-based taxes (1)
Other taxes and duties
Total costs and other deductions
Income before income taxes
Income taxes
Net income including noncontrolling interests
Net income attributable to noncontrolling interests
Net income attributable to ExxonMobil
Earnings per common share (dollars)
Earnings per common share - assuming dilution (dollars)
Dividends per common share (dollars)
(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.
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CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Other comprehensive income (net of income taxes)
Foreign exchange translation adjustment
Adjustment for foreign exchange translation loss included in net income
Postretirement benefits reserves adjustment (excluding amortization)
Amortization of postretirement benefits reserves adjustment included in net periodic benefit costs
Change in fair value of cash flow hedges
Realized (gain)/loss from settled cash flow hedges included in net income
Total other comprehensive income
Comprehensive income including noncontrolling interests
Comprehensive income attributable to noncontrolling interests
Comprehensive income attributable to ExxonMobil
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CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
Current assets
Cash and cash equivalents
Cash and cash equivalents – restricted
Notes and accounts receivable – net
Inventories
Crude oil, products and merchandise
Materials and supplies
Other current assets
Total current assets
Investments, advances and long-term receivables
Property, plant and equipment – net
Other assets, including intangibles, net
Assets held for sale
Total assets
LIABILITIES
Current liabilities
Notes and loans payable
Accounts payable and accrued liabilities
Income taxes payable
Total current liabilities
Long-term debt
Postretirement benefits reserves
Deferred income tax liabilities
Other long-term obligations
Liabilities associated with assets held for sale
Total liabilities
Commitments and contingencies (Note 2)
EQUITY
Common stock without par value:
Authorized: 9,000 million shares
Issued: 8,019 million shares
Earnings reinvested
Accumulated other comprehensive income
Common stock held in treasury:
3,343 million shares at March 31, 2012
3,285 million shares at December 31, 2011
ExxonMobil share of equity
Noncontrolling interests
Total equity
Total liabilities and equity
The number of shares of common stock issued and outstanding at March 31, 2012 and December 31, 2011 were 4,676,165,291 and 4,733,948,268, respectively.
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CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES
Changes in operational working capital, excluding cash and debt
All other items – net
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment
Proceeds associated with sales of subsidiaries, property, plant and equipment, and sales and returns of investments
Other investing activities – net
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Additions to long-term debt
Reductions in long-term debt
Additions/(reductions) in short-term debt – net
Cash dividends to ExxonMobil shareholders
Cash dividends to noncontrolling interests
Changes in noncontrolling interests
Common stock acquired
Common stock sold
Net cash used in financing activities
Effects of exchange rate changes on cash
Increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
SUPPLEMENTAL DISCLOSURES
Income taxes paid
Cash interest paid
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CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Balance as of December 31, 2010
Amortization of stock-based awards
Tax benefits related to stock-based awards
Other
Net income for the period
Dividends – common shares
Other comprehensive income
Acquisitions, at cost
Dispositions
Balance as of March 31, 2011
Balance as of December 31, 2011
Balance as of March 31, 2012
Common Stock Share Activity
Balance as of December 31
Acquisitions
Balance as of March 31
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 2011 Annual Report on Form 10-K. In the opinion of the Corporation, the information furnished herein reflects all known accruals and adjustments necessary for a fair statement of the results for the periods reported herein. All such adjustments are of a normal recurring nature. The Corporation’s exploration and production activities are accounted for under the “successful efforts” method.
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 materially adverse effect upon the Corporation’s operations, financial condition, or financial statements taken as a whole.
On June 30, 2011, a state district court jury in Baltimore County, Maryland returned a verdict against Exxon Mobil Corporation in Allison, et al v. Exxon Mobil Corporation, a case involving an accidental 26,000 gallon gasoline leak at a suburban Baltimore service station. The verdict included approximately $497 million in compensatory damages and approximately $1.0 billion in punitive damages in a finding that ExxonMobil fraudulently misled the plaintiff-residents about the events leading up to the leak, the leak’s discovery, and the nature and extent of any groundwater contamination. ExxonMobil believes the verdict is not justified by the evidence and that the amount of the compensatory award is grossly excessive and the imposition of punitive damages is improper and unconstitutional. The trial court denied a post-trial motion that ExxonMobil filed to overturn the punitive damages verdict. Following the entry of a final judgment, ExxonMobil will appeal the verdict and judgment. In an earlier trial involving the same leak and different plaintiffs, the jury awarded compensatory damages but rejected the plaintiffs’ punitive damages claims. Those plaintiffs did not appeal the jury’s denial of punitive damages. On February 9, 2012, the Maryland Court of Special Appeals reversed in part and affirmed in part the trial court’s decision on compensatory damages in that case. Both the plaintiffs and ExxonMobil have filed petitions for writs of certiorari with the Maryland Court of Appeals seeking reversals of portions of the Court of Special Appeals’ decision. The ultimate outcome of all of this litigation is not expected to 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, 2012 for guarantees relating to notes, loans and performance under contracts. 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.
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Guarantees
Debt-related
Total
Additionally, the Corporation and its affiliates have numerous long-term sales and purchase commitments in their various business activities, all of which are expected to be fulfilled with no adverse consequences material to the Corporation’s operations or financial condition. The Corporation’s outstanding unconditional purchase obligations at March 31, 2012, were similar to those at the prior year-end period. Unconditional purchase obligations as defined by accounting standards are those long-term commitments that are noncancelable or cancelable only under certain conditions, and that third parties have used to secure financing for the facilities that will provide the contracted goods or services.
The operations and earnings of the Corporation and its affiliates throughout the world have been, and may in the future be, affected from time to time in varying degree by political developments and laws and regulations, such as forced divestiture of assets; restrictions on production, imports and exports; price controls; tax increases and retroactive tax claims; expropriation of property; cancellation of contract rights and environmental regulations. Both the likelihood of such occurrences and their overall effect upon the Corporation vary greatly from country to country and are not predictable.
In accordance with a nationalization decree issued by Venezuela’s president 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. ExxonMobil’s remaining net book investment in Cerro Negro producing assets is about $750 million.
On September 6, 2007, affiliates of ExxonMobil filed a Request for Arbitration with the International Centre for Settlement of Investment Disputes (ICSID) invoking ICSID jurisdiction under Venezuela’s Investment Law and the Netherlands-Venezuela Bilateral Investment Treaty. 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. The ICSID arbitration proceeding is continuing and a hearing on the merits was held in February 2012. At this time, 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 have petitioned a Nigerian federal court for enforcement of the award, and NNPC has petitioned the same court to have the award set aside. Those proceedings are pending. 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.
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Current period change excluding amounts reclassified from accumulated other comprehensive income
Amounts reclassified from accumulated other comprehensive income
Total change in accumulated other comprehensive income
INCOME TAX (EXPENSE)/CREDIT FORCOMPONENTS OF OTHER COMPREHENSIVE INCOME
Postretirement benefits reserves adjustment
Unrealized change in fair value on cash flow hedges
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Earnings per common share
Net income attributable to ExxonMobil (millions of dollars)
Weighted average number of common shares outstanding (millions of shares)
Earnings per common share - assuming dilution
Effect of employee stock-based awards
Weighted average number of common shares outstanding - assuming dilution
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Pension Benefits - U.S.
Components of net benefit cost
Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial loss/(gain) and prior service cost
Net pension enhancement and curtailment/settlement cost
Net benefit cost
Pension Benefits - Non-U.S.
Other Postretirement Benefits
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, including capitalized lease obligations, was $9.7 billion at March 31, 2012, and $9.8 billion at December 31, 2011, as compared to recorded book values of $9.2 billion at March 31, 2012, and $9.3 billion at December 31, 2011. The fair value of long-term debt by hierarchy level at March 31, 2012 is shown below:
Long-term debt fair value
The fair value hierarchy for long-term debt is primarily Level 1 and represents quoted prices in active markets. Level 2 includes debt whose fair value is based upon a publicly available index. The Level 3 amount is primarily capitalized leases whose value is typically determined through the use of present value and specific contract terms.
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EARNINGS AFTER INCOME TAX
Upstream
United States
Non-U.S.
Downstream
Chemical
All other
Corporate total
SALES AND OTHER OPERATING REVENUE (1)
(1) Includes sales-based taxes
INTERSEGMENT REVENUE
For the category of exploratory well costs at year-end 2011 that were suspended more than one year, a total of $88 million was expensed in the first three months of 2012.
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Exxon Mobil Corporation has fully and unconditionally guaranteed the deferred interest debentures due 2012 ($2,735 million) of SeaRiver Maritime Financial Holdings, Inc., a 100-percent-owned subsidiary of Exxon Mobil Corporation.
The following condensed consolidating financial information is provided for Exxon Mobil Corporation, as guarantor, and for SeaRiver Maritime Financial Holdings, Inc., as issuer, as an alternative to providing separate financial statements for the issuer. The accounts of Exxon Mobil Corporation and SeaRiver Maritime Financial Holdings, Inc. are presented utilizing the equity method of accounting for investments in subsidiaries.
Condensed consolidated statement of comprehensive income for three months ended March 31, 2012
Revenues and other income
Sales and other operating revenue,including sales-based taxes
Intercompany revenue
Costs and other deductions
Sales-based taxes
Net income attributable tononcontrolling interests
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Condensed consolidated statement of comprehensive income for three months ended March 31, 2011
Sales and other operating revenue, including sales-based taxes
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Condensed consolidated balance sheet as of March 31, 2012
Cash and cash equivalents - restricted
Notes and accounts receivable - net
Property, plant and equipment - net
Investments and other assets
Intercompany receivables
Other long-term liabilities
Intercompany payables
Other ExxonMobil equity
Condensed consolidated balance sheet as of December 31, 2011
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Condensed consolidated statement of cash flows for three months ended March 31, 2012
Cash provided by/(used in) operating activities
Cash flows from investing activities
Proceeds Associated with sales of long-term assets
Net intercompany investing
All other investing, net
Net cash provided by/(used in) investing activities
Cash flows from financing activities
Additions/(reductions) in short-term debt - net
Cash dividends
Net ExxonMobil shares sold/(acquired)
Net intercompany financing activity
All other financing, net
Net cash provided by/(used in) financing activities
Condensed consolidated statement of cash flows for three months ended March 31, 2011
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On January 29, 2012, the Corporation announced that it had entered into an agreement which will result in the restructuring of its Downstream and Chemical holdings in Japan. Under the agreement, TonenGeneral Sekiyu K. K. (TG), a consolidated subsidiary owned 50 percent by the Corporation, will purchase for approximately $3.9 billion the Corporation’s shares of a wholly-owned affiliate in Japan, ExxonMobil Yugen Kaisha, which will result in TG acquiring approximately 200 million of its shares currently owned by the Corporation along with other assets. As a result of the restructuring the Corporation’s effective ownership of TG will be reduced to approximately 22 percent. The purchase price is subject to adjustments including changes in working capital. Closing is anticipated in mid-2012.
The major classes of assets and liabilities classified as held for sale at March 31, 2012, were as follows:
Assets
Current Assets
Cash
Notes and accounts receivable, net (1)
Inventories (2)
Net property, plant and equipment
Other assets
Liabilities
Current Liabilities
Notes and loans payable (3)
Accounts payable and accrued liabilities (1)
Equity
ExxonMobil share of equity (4)
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FUNCTIONAL EARNINGS SUMMARY
Earnings (U.S. GAAP)
Corporate and financing
Net Income attributable to ExxonMobil (U.S. GAAP)
References in this discussion to total corporate earnings mean net income attributable to ExxonMobil (U.S. GAAP) from the income statement. Unless otherwise indicated, references to earnings, special items, 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 2012 RESULTS
ExxonMobil results for the first quarter 2012 reflect our ongoing focus on developing and delivering energy needed to support job creation and economic growth. Despite continuing economic uncertainty, we are progressing our robust investment plans to meet the energy demands of the future.
In the first quarter, capital and exploration expenditures were $8.8 billion.
We continued to generate strong cash flow from operations and asset sales with $21.8 billion in the quarter.
First quarter earnings of $9,450 million were down 11 percent from the first quarter of 2011.
The Corporation distributed more than $7 billion to shareholders in the first quarter through dividends and share purchases to reduce shares outstanding.
Upstream earnings
Upstream earnings for the first three months were $7,802 million, down $873 million from the first quarter of 2011. Higher liquids and natural gas realizations increased earnings by $980 million. Lower sales volumes decreased earnings by $850 million. All other items, primarily higher operating expenses and the absence of gains on asset sales, decreased earnings by $1.0 billion.
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On an oil-equivalent basis, production decreased over 5 percent from the first quarter of 2011. Excluding the impact of higher prices on entitlement volumes, OPEC quota effects and divestments, production was down 1 percent.
Liquids production totaled 2,214 kbd (thousands of barrels per day), down 185 kbd from the first quarter of 2011. Excluding the impact of higher prices on entitlement volumes, OPEC quota effects and divestments, liquids production was down less than 1 percent, as field decline was mostly offset by ramp-up of Angola and Iraq projects, and lower downtime.
First quarter natural gas production was 14,036 mcfd (millions of cubic feet per day), down 489 mcfd from 2011, mainly due to field decline and divestments.
Earnings from U.S. Upstream operations were $1,010 million, $269 million lower than the first quarter of 2011. Non-U.S. Upstream earnings were $6,792 million, down $604 million from the prior year.
Downstream earnings
First quarter Downstream earnings of $1,586 million were up $487 million from the first quarter of 2011. Lower margins decreased earnings $40 million. Volume and mix effects increased earnings by $210 million, while all other items, mainly gains on asset sales, increased earnings by $320 million. Petroleum product sales of 6,316 kbd were 49 kbd higher than last year’s first quarter.
Earnings from the U.S. Downstream were $603 million, down $91 million from the first quarter of 2011. Non-U.S. Downstream earnings of $983 million were $578 million higher than last year.
Chemical earnings
Chemical earnings of $701 million for the first three months were $815 million lower than the first quarter of 2011. Weaker margins decreased earnings by $520 million. Other items, including higher planned maintenance and the absence of favorable tax items, decreased earnings by $300 million. First quarter prime product sales of 6,337 kt (thousands of metric tons) were 15 kt higher than last year’s first quarter.
Corporate and financing earnings
Corporate and financing expenses were $639 million for the first quarter of 2012, consistent with the prior year.
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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 and cash equivalents – restricted (at end of period)
Total cash and cash equivalents (at end of period)
Cash flow from operations and asset sales
Net cash provided by operating activities (U.S. GAAP)
Because of the ongoing nature of our asset management and divestment program, we believe it is useful for investors to consider asset sales proceeds together with cash provided by operating activities when evaluating cash available for investment in the business and financing activities.
Total cash and cash equivalents of $19.1 billion at the end of the first quarter of 2012 compared to $13.2 billion at the end of the first quarter of 2011.
Cash provided by operating activities totaled $19.3 billion for the first three months of 2012, $2.4 billion higher than 2011. The major source of funds was net income including noncontrolling interests of $9.8 billion, a decrease from the prior year period. The adjustment for the noncash provision of $3.8 billion for depreciation and depletion was flat with 2011. Changes in operational working capital added to cash flows in both periods. For additional details, see the Condensed Consolidated Statement of Cash Flows on page 6.
Investing activities for the first three months of 2012 used net cash of $5.4 billion which was flat when compared to the prior year. Spending for additions to property, plant and equipment increased $0.8 billion to $7.8 billion. Proceeds from asset sales increased $1.2 billion to $2.5 billion.
Cash flow from operations and asset sales for the first three months of 2012 of $21.8 billion, including asset sales of $2.5 billion, increased $3.6 billion from the comparable 2011 period.
Net cash used in financing activities of $8.1 billion in the first three months of 2012 was $1.4 billion higher than 2011, mostly reflecting a decrease in short-term debt.
During the first quarter of 2012, Exxon Mobil Corporation purchased 66 million shares of its common stock for the treasury at a gross cost of $5.7 billion. These purchases included $5 billion to reduce the number of shares outstanding, with the balance used to acquire shares in conjunction with the company’s benefit plans and programs. Shares outstanding decreased from 4,734 million at year-end 2011 to 4,676 million at the end of the first quarter 2012. Purchases may be made in both the open market and through negotiated transactions, and may be increased, decreased or discontinued at any time without prior notice.
The Corporation distributed to shareholders a total of $7.2 billion in the first quarter of 2012 through dividends and share purchases to reduce shares outstanding.
Total debt of $15.7 billion, which excludes $0.8 billion classified as liabilities associated with assets held for sale (see Note 10), at March 31, 2012, compared to $17.0 billion at year-end 2011. The Corporation’s debt to total capital ratio was 8.7 percent at the end of the first quarter of 2012 compared to 9.6 percent at year-end 2011. The debt to capital ratio would have been 9.1 percent at the end of first quarter 2012 if the $0.8 billion of debt classified as liabilities associated with assets held for sale had been included.
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Although the Corporation issues long-term debt from time to time and maintains a revolving commercial paper program, internally generated funds are expected to cover the majority of its net near-term financial requirements.
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 2 to the unaudited condensed consolidated financial statements.
TAXES
Effective income tax rate
All other taxes and duties
Income, sales-based and all other taxes and duties totaled $27.4 billion for the first quarter of 2012, an increase of $1.2 billion from 2011. Income tax expense decreased by $0.3 billion to $7.7 billion reflecting the lower level of earnings. The effective income tax rate was 49 percent compared to 47 percent in the prior year period. Sales-based taxes and all other taxes and duties increased by $1.5 billion to $19.7 billion reflecting higher prices.
CAPITAL AND EXPLORATION EXPENDITURES
Upstream (including exploration expenses)
Capital and exploration expenditures were $8.8 billion, up 13 percent from the first quarter of 2011, as ExxonMobil continues with plans to invest about $37 billion per year over the next five years to develop new energy supplies to meet expected growth in demand. Actual spending could vary depending on the progress of individual projects.
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FORWARD-LOOKING STATEMENTS
Statements relating to future plans, projections, events or conditions are forward-looking statements. Actual results, including project plans, costs, timing, and capacities; capital and exploration expenditures; 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 outcome of commercial negotiations; 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 2011 Form 10-K. We assume no duty to update these statements as of any future date.
Information about market risks for the three months ended March 31, 2012, does not differ materially from that discussed under Item 7A of the registrant’s Annual Report on Form 10-K for 2011.
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, 2012. 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.
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PART II. OTHER INFORMATION
The United States Environmental Protection Agency (EPA) issued three administrative orders between June 23, 2011 and February 29, 2012 for XTO Energy Inc.’s (XTO) Coastal, Boggess and Fancher well and compressor pad locations in West Virginia for alleged violations of the Clean Water Act. The orders require a delineation to determine Clean Water Act jurisdiction for each site and a restoration plan to address unauthorized impacts to regulated waters. No formal demand has been made by the EPA, but in addition to the requirements contained in the orders, it is expected that the EPA will seek penalties from XTO in excess of $100,000 to resolve the matters at all of the sites.
Following an April 2011 inspection of ExxonMobil Pipeline Company’s (EMPCo) records of its pipeline integrity management program, on November 7, 2011, the U.S. Department of Transportation Pipeline & Hazardous Material Safety Administration (PHMSA) issued a Notice of Probable Violation, Proposed Civil Penalty and Proposed Compliance Order asserting that 1) EMPCo failed to timely conduct hydro-pressure tests to establish Maximum Allowable Operating Pressures (MAOPs) for certain of its pipeline systems (proposed penalty of $109,500), 2) EMPCo inappropriately established a “Discovery” date for a pipeline condition requiring repair (proposed penalty of $20,800), and 3) EMPCo failed to evaluate and repair at least three “immediate repair conditions” in an acceptable amount of time (proposed penalty of $20,800). EMPCo has denied all of the allegations. While the federal regulations require MAOPs for new pipelines to be established via hydro-tests, the regulations set alternative criteria to establish MAOPs for pipelines constructed prior to 1970. EMPCo’s pipelines cited in the Notice were constructed prior to 1970 and their MAOPs were established in conformance with the applicable regulations. An administrative hearing before a PHMSA hearing officer was held in April 2012.
In late 2011 and early 2012, the EPA determined that two suppliers of renewable fuel credits, called Renewable Identification Numbers (RINs), had generated invalid RINs that were subsequently transferred to ExxonMobil and used by ExxonMobil in its 2010 compliance report under the U.S. Renewable Fuel Standard program. On November 7, 2011, the EPA issued a Notice of Violation (NOV) to Exxon Mobil Corporation, concerning the use of the invalid RINs generated by one of the suppliers, but did not make a demand for any penalty at that time. In December 2011, ExxonMobil replaced the invalid RINs that were the subject of the November 2011 NOV, and in anticipation that RINs generated by the second supplier would be declared invalid by the EPA, ExxonMobil also replaced RINs generated by this supplier that had been used by ExxonMobil. In February 2012, the EPA issued an NOV to one of those suppliers, charging it with generating invalid RINs. On March 14, 2012, the EPA proposed an Administrative Settlement Agreement (ASA), which includes an administrative penalty of $165,407 to resolve ExxonMobil’s alleged use of invalid RINs in its 2010 report. ExxonMobil and the EPA executed the ASA in April 2012.
Regarding a matter previously reported in the Corporation’s Form 10-Q for the second quarter of 2008, ExxonMobil Oil Corporation (EMOC) has agreed to settle allegations contained in a civil complaint filed by the Illinois Attorney General and Illinois EPA in the Circuit Court of Will County, Illinois, alleging that the Joliet Refinery violated certain air emission regulations and caused petroleum sheens at the facility wharf, in violation of federal and State of Illinois requirements. EMOC has agreed to install an Uninterrupted Power Supply system at its North Sulfur Unit and to pay a civil penalty of $300,000. An Agreed Consent Order was signed by the Illinois EPA, the Illinois Attorney General’s Office and EMOC by early May 2012.
Regarding a matter previously reported in the Corporation’s Form 10-Q for the third quarter of 2011, on February 7, 2012, EMPCo paid a civil penalty of $100,000 to PHMSA to resolve issues in a Final Order finding that EMPCo failed to establish a written procedure for the removal of a temperature probe from a gasoline storage tank at the EMPCo operated petroleum terminal in Spokane, Washington.
Refer to the relevant portions of Note 2 of this Quarterly Report on Form 10-Q for further information on legal proceedings.
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Issuer Purchase of Equity Securities for Quarter Ended March 31, 2012
Period
January, 2012
February, 2012
March, 2012
Exhibit
Description
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 3, 2012
Vice President, Controller and Principal
Accounting Officer
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INDEX TO EXHIBITS
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