ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
During the COVID-19 pandemic, industry investment to maintain and increase production capacity was restrained to preserve capital, resulting in underinvestment and supply tightness as demand for petroleum and petrochemical products recovered. In addition, industry rationalization of refining assets resulted in more than 3 million barrels per day of capacity being taken offline. Across late 2021 and the first half of 2022, this dynamic, along with supply chain constraints, and a continuation of demand recovery led to a steady increase in oil and natural gas prices and refining margins. In the first half of 2022, tightness in the oil and natural gas markets was further exacerbated by Russia’s invasion of Ukraine and subsequent sanctions imposed upon business and other activities in Russia. The price of Brent crude oil and certain regional natural gas indicators increased to levels not seen for several years, and both natural gas realizations and industry refining margins improved to levels well above the 10-year range. In the third quarter, crude prices moved back within the upper-end of the 10-year range as higher supply slightly exceeded demand. Natural gas prices rose to record levels in the third quarter, reflecting concerns in Europe about the withdrawal of Russian supply as well as efforts to build inventory ahead of winter. While natural gas prices recently moderated, they remain well above the 10-year historical range. In the U.S., prices increased by about 15% driven by higher summer cooling demand and inventory concerns. Refining margins remained well above the 10-year range due to inflated diesel crack spreads resulting from expensive natural gas and high demand for diesel. Higher refinery runs and flat demand for gasoline in the U.S. resulted in refining margins declining from the second quarter. In contrast, global chemical margins fell below the bottom of the 10-year range reflecting weakening global demand. Margins in North America and Europe have softened with regional pricing moving closer to global parity as demand and logistics constraints relaxed. Asia Pacific remained in bottom-of-cycle conditions as COVID-19 restrictions continue to suppress demand in China. Commodity and product prices are expected to remain volatile given the current global economic uncertainty and geopolitical events affecting supply and demand.
Russia-Ukraine Conflict
In response to Russia’s military action in Ukraine, the Corporation announced in early 2022 that it planned to discontinue operations on the Sakhalin-1 project (“Sakhalin”) and develop steps to exit the venture. The Corporation’s first quarter results included after-tax charges of $3.4 billion largely representing the impairment of its operations related to Sakhalin (see Note 2 to Condensed Consolidated Financial Statements). While the Corporation’s affiliate was in force majeure due to the unprecedented impact of global sanctions, it continued to make concerted attempts to engage in good-faith discussions with the Russian government and all Sakhalin-1 partners. The Corporation remained focused on safety of people, protection of the environment, and integrity of operations. Effective October 14, with two decrees the Russian government unilaterally terminated the Corporation’s interests in Sakhalin-1, and the project has been transferred to a Russian operator. While the recent decrees violate the Corporation’s rights in Russia established by the production sharing agreement, and interrupted the exit process the Corporation was working, it did not prevent the safe winding down of operations.
The Corporation’s exit from the venture is expected to result in no future hydrocarbon sales and minimal cash flow impacts for the Corporation’s account in the fourth quarter. For reference, excluding the impact of impairments and other charges, year-to-date after-tax earnings related to the Corporation’s interest in Sakhalin through the end of the third quarter of 2022 were approximately $0.2 billion, and combined oil and gas production was approximately 34 thousand oil-equivalent barrels per day. The Corporation's exit from the project results in quantities estimated at 150 million oil-equivalent barrels no longer qualifying as proved reserves, which represents less than one percent of the Corporation's 18.5 billion oil-equivalent barrels of proved reserves at year-end 2021. The Corporation is complying with all applicable laws and sanctions.
The Corporation holds a 25% interest in Tengizchevroil, LLP (TCO), which operates the Tengiz and Korolev oil fields in Kazakhstan, and holds a 16.8% working interest in the Kashagan field in Kazakhstan. Oil production from those operations is exported through the Caspian Pipeline Consortium (CPC), in which the Corporation holds a 7.5% interest. CPC traverses parts of Kazakhstan and Russia to tanker-loading facilities on the Russian coast of the Black Sea. In the event that Russia takes countermeasures in response to existing sanctions related to its military actions in Ukraine, it is possible that the transportation of Kazakhstan oil through the CPC pipeline could be disrupted, curtailed, temporarily suspended, or otherwise restricted. In such a case, the Corporation could experience a loss of cash flows of uncertain duration. For reference, year-to-date after-tax earnings related to the Corporation’s interests in Kazakhstan through the end of the third quarter 2022 were approximately $2.0 billion, and its share of combined oil and gas production was approximately 240 thousand oil-equivalent barrels per day.
European Union Solidarity Contribution
On October 6, European Union (“EU”) Member States formally adopted a European Union Council Regulation for a new tax described as an emergency intervention to address high energy prices. This regulation imposes a mandatory tax on certain companies active in the crude petroleum, coal, natural gas and refinery sectors. The regulation requires Member States to levy a minimum 33% tax on in-scope companies’ 2022 and/or 2023 “surplus profits”, defined in the regulation as taxable profits exceeding 120% of the annual average during the 2018-2021 period. EU Member States are required to implement the tax, or an equivalent national measure, by December 31, 2022. Depending on the national measures to be adopted by the EU Member States, and the financial years for which these measures would be applicable, the Corporation’s liability, based on currently available public information, could be in excess of $2 billion through the end of 2023. The actual impact and timing of recognition in the financial statements will depend on the specific provisions of the EU Member States’ measures.
ExxonMobil Product Solutions Reorganization
Effective April 1, 2022, the Corporation streamlined its business structure by combining the Chemical and Downstream businesses into a single business, Product Solutions. The new business is focused on growing high-value products, improving competitiveness and leading in sustainability. Product Solutions consists of three operating segments:
•Energy Products: Fuels, aromatics, and catalysts and licensing
•Chemical Products: Olefins, polyethylene, polypropylene, and intermediates
•Specialty Products: Finished lubricants, basestocks and waxes, synthetics, and elastomers and resins
Further information on financial performance related to the new segments is disclosed in Management's Discussion and Analysis and Note 8 to the Condensed Consolidated Financial Statements.
FUNCTIONAL EARNINGS SUMMARY
Earnings (loss) excluding Identified Items, are earnings (loss) excluding individually significant non-operational events with an absolute corporate total earnings impact of at least $250 million in a given quarter. The earnings (loss) impact of an Identified Item for an individual segment in a given quarter may be less than $250 million when the item impacts several segments or several periods. Management uses these figures to improve comparability of the underlying business across multiple periods by isolating and removing significant non-operational events from business results. The Corporation believes this view provides investors increased transparency into business results and trends and provides investors with a view of the business as seen through the eyes of management. Earnings (loss) excluding Identified Items is not meant to be viewed in isolation or as a substitute for net income (loss) attributable to ExxonMobil as prepared in accordance with U.S. GAAP.
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Three Months Ended September 30, 2022 | Upstream | | Energy Products | | Chemical Products | Specialty Products | | | Corporate and Financing | | Total |
(millions of dollars) | U.S. | Non-U.S. | | U.S. | Non-U.S. | | U.S. | Non-U.S. | U.S. | Non-U.S. | | | |
Earnings (loss) (U.S. GAAP) | 3,110 | | 9,309 | | | 3,008 | | 2,811 | | | 635 | | 177 | | 306 | | 456 | | | | (152) | | | 19,660 | |
Identified Items | | | | | | | | | | | | | | | |
Impairments | — | | (697) | | | — | | — | | | — | | — | | — | | — | | | | — | | | (697) | |
Gain/(loss) on sale of assets | — | | 587 | | | — | | — | | | — | | — | | — | | — | | | | — | | | 587 | |
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Tax-related items | — | | — | | | — | | — | | | — | | — | | — | | — | | | | 324 | | | 324 | |
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Other | — | | 688 | | | — | | — | | | — | | — | | — | | — | | | | 76 | | | 764 | |
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Earnings (loss) excluding Identified Items | 3,110 | | 8,731 | | | 3,008 | | 2,811 | | | 635 | | 177 | | 306 | | 456 | | | | (552) | | | 18,682 | |
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Three Months Ended September 30, 2021 | Upstream | | Energy Products | | Chemical Products | Specialty Products | | | Corporate and Financing | | Total |
(millions of dollars) | U.S. | Non-U.S. | | U.S. | Non-U.S. | | U.S. | Non-U.S. | U.S. | Non-U.S. | | | |
Earnings (loss) (U.S. GAAP) | 869 | | 3,082 | | | 479 | | 50 | | | 1,121 | | 907 | | 247 | | 592 | | | | (596) | | | 6,750 | |
Identified Items | | | | | | | | | | | | | | | |
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Severance charges | — | | — | | | — | | — | | | — | | — | | — | | — | | | | (5) | | | (5) | |
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Earnings (loss) excluding Identified Items | 869 | | 3,082 | | | 479 | | 50 | | | 1,121 | | 907 | | 247 | | 592 | | | | (591) | | | 6,755 | |
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Nine Months Ended September 30, 2022 | Upstream | | Energy Products | | Chemical Products | Specialty Products | | | Corporate and Financing | | Total |
(millions of dollars) | U.S. | Non-U.S. | | U.S. | Non-U.S. | | U.S. | Non-U.S. | U.S. | Non-U.S. | | | |
Earnings (loss) (U.S. GAAP) | 9,235 | | 19,043 | | | 6,152 | | 4,744 | | | 2,030 | | 1,263 | | 784 | | 871 | | | | (1,132) | | | 42,990 | |
Identified Items | | | | | | | | | | | | | | | |
Impairments | — | | (3,574) | | | — | | — | | | — | | — | | — | | — | | | | (98) | | | (3,672) | |
Gain/(loss) on sale of assets | 299 | | 587 | | | — | | — | | | — | | — | | — | | — | | | | — | | | 886 | |
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Tax-related items | — | | — | | | — | | — | | | — | | — | | — | | — | | | | 324 | | | 324 | |
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Other | — | | 310 | | | — | | — | | | — | | — | | — | | — | | | | 76 | | | 386 | |
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Earnings (loss) excluding Identified Items | 8,936 | | 21,720 | | | 6,152 | | 4,744 | | | 2,030 | | 1,263 | | 784 | | 871 | | | | (1,434) | | | 45,066 | |
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Nine Months Ended September 30, 2021 | Upstream | | Energy Products | | Chemical Products | Specialty Products | | | Corporate and Financing | | Total |
(millions of dollars) | U.S. | Non-U.S. | | U.S. | Non-U.S. | | U.S. | Non-U.S. | U.S. | Non-U.S. | | | |
Earnings (loss) (U.S. GAAP) | 1,895 | | 7,795 | | | (31) | | (1,217) | | | 2,923 | | 2,695 | | 689 | | 1,454 | | | | (2,033) | | | 14,170 | |
Identified Items | | | | | | | | | | | | | | | |
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Severance charges | — | | — | | | — | | — | | | — | | — | | — | | — | | | | (48) | | | (48) | |
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Earnings (loss) excluding Identified Items | 1,895 | | 7,795 | | | (31) | | (1,217) | | | 2,923 | | 2,695 | | 689 | | 1,454 | | | | (1,985) | | | 14,218 | |
References in this discussion to Corporate earnings (loss) mean net income (loss) attributable to ExxonMobil (U.S. GAAP) from the Condensed Consolidated Statement of Income. Unless otherwise indicated, references to earnings (loss); Upstream, Energy Products, Chemical Products, Specialty Products, and Corporate and Financing segment earnings (loss); and earnings (loss) per share are ExxonMobil's share after excluding amounts attributable to noncontrolling interests.
Due to rounding, numbers presented may not add up precisely to the totals indicated.
REVIEW OF THIRD QUARTER 2022 RESULTS
ExxonMobil’s third quarter 2022 earnings were $19.7 billion, or $4.68 per diluted share, compared with earnings of $6.8 billion a year earlier. The increase in earnings was driven by higher Upstream realizations and Energy Products margins as well as increased volume and improved mix. Capital and exploration expenditures were $5.7 billion, up $1.9 billion from third quarter 2021.
Earnings for the first nine months of 2022 were $43.0 billion, or $10.17 per diluted share, compared with $14.2 billion a year earlier. Capital and exploration expenditures were $15.2 billion, up $4.5 billion from 2021. The Corporation distributed $11.2 billion in dividends to shareholders and repurchased $10.5 billion of common stock.
UPSTREAM
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Upstream Financial Results | | | | | | |
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(millions of dollars) | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | 2021 | | 2022 | 2021 |
Earnings (loss) (U.S. GAAP) | | | | | | |
United States | | 3,110 | | 869 | | | 9,235 | | 1,895 | |
Non-U.S. | | 9,309 | | 3,082 | | | 19,043 | | 7,795 | |
Total | | 12,419 | | 3,951 | | | 28,278 | | 9,690 | |
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Identified Items (1) | | | | | | |
United States | | — | | — | | | 299 | | — | |
Non-U.S. | | 578 | | — | | | (2,677) | | — | |
Total | | 578 | | — | | | (2,378) | | — | |
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Earnings (loss) excluding Identified Items (1) | | | | | | |
United States | | 3,110 | | 869 | | | 8,936 | | 1,895 | |
Non-U.S. | | 8,731 | | 3,082 | | | 21,720 | | 7,795 | |
Total | | 11,841 | | 3,951 | | | 30,656 | | 9,690 | |
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Upstream Third Quarter Earnings Factor Analysis | | |
(millions of dollars) | | | | |
Price – Higher realizations increased earnings by $7,330 million as average natural gas realizations increased 172%, while realizations for crude oil increased 39%.
Volume/Mix – Higher volumes increased earnings by $610 million, reflecting growth in Guyana and Permian and eased curtailments, partly offset by planned and unplanned downtime and divestments.
Other – All other items decreased earnings by $50 million.
Identified Items (1) – 3Q 2022 $580 million gain on the sale of Romania and XTO Energy Canada assets and one-time benefits from tax and other reserve adjustments, partly offset by impairments.
(1) Refer to Functional Earnings Summary for definition of Identified Items and earnings (loss) excluding Identified Items.
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Upstream Year-to-Date Earnings Factor Analysis | | |
(millions of dollars) | | | | |
Price – Higher realizations increased earnings by $21,470 million as average realizations for crude oil increased 58% and natural gas realizations increased 167%.
Volume/Mix – Unfavorable volume and mix effects decreased earnings by $90 million, as growth in Guyana and Permian and eased curtailments nearly offset the impacts from the reduced Groningen gas production limit in Netherlands, Russia curtailments, higher downtime including the effects of weather in the first quarter, and lower entitlements due to higher prices.
Other – All other items decreased earnings by $410 million largely due to divestment-related impairments and the absence of prior year one-time tax impacts.
Identified Items (1) – 2022 $(2,380) million loss mainly driven by the first quarter impairment of the Russia Sakhalin-1 project, partly offset by gains on the sale of the U.S. Barnett Shale, Romania, and XTO Energy Canada assets and one-time benefits from tax and other reserve adjustments.
(1) Refer to Functional Earnings Summary for definition of Identified Items and earnings (loss) excluding Identified Items.
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Upstream Operational Results | | | | | | |
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(thousands of barrels daily) | | | Three Months Ended September 30, 2022 | | | Nine Months Ended September 30, 2022 |
Volumes reconciliation (Oil-equivalent production) (1) | | | | | | |
2021 | | | 3,665 | | | 3,677 |
Entitlements - Net Interest | | | (27) | | | (28) |
Entitlements - Price / Spend / Other | | | (52) | | | (53) |
Government Mandates | | | 85 | | | 97 |
Divestments | | | (75) | | | (58) |
Growth / Demand / Other | | | 120 | | | 73 |
2022 | | | 3,716 | | | 3,708 |
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(1)Natural gas is converted to an oil-equivalent basis at six million cubic feet per one thousand barrels. |
3Q 2022 versus 3Q 2021 - 3.7 million oil-equivalent barrels per day in 3Q 2022 increased 51 thousand oil-equivalent barrels per day from 3Q 2021 reflecting growth in Guyana and Permian, and easing government-mandated curtailments, partly offset by divestments and lower entitlements due to higher prices.
YTD 2022 versus YTD 2021 - 2022 year-to-date production of 3.7 million oil-equivalent barrels per day increased 31 thousand oil-equivalent barrels per day from year-to-date 2021 reflecting growth in Permian and Guyana and easing government-mandated curtailments, partly offset by divestments, lower entitlements due to higher prices, and higher downtime including the effects of weather in the first quarter of 2022.
Definitions
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 as a result of temporary non-operational production limits or sanctions imposed by governments, generally upon a country, 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, Demand and Other 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.
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| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Net production of crude oil, natural gas liquids, bitumen and synthetic oil (thousands of barrels daily) | | | | | | | | |
United States | | 783 | | | 758 | | | 771 | | | 704 | |
Canada/Other Americas | | 641 | | | 569 | | | 558 | | | 557 | |
Europe | | 4 | | | 21 | | | 4 | | | 24 | |
Africa | | 249 | | | 248 | | | 243 | | | 252 | |
Asia | | 666 | | | 668 | | | 698 | | | 676 | |
Australia/Oceania | | 46 | | | 49 | | | 44 | | | 44 | |
Worldwide | | 2,389 | | | 2,313 | | | 2,318 | | | 2,257 | |
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Net natural gas production available for sale (millions of cubic feet daily) | | | | | | | | |
United States | | 2,351 | | | 2,701 | | | 2,607 | | | 2,757 | |
Canada/Other Americas | | 158 | | | 184 | | | 175 | | | 197 | |
Europe | | 541 | | | 343 | | | 711 | | | 796 | |
Africa | | 70 | | | 53 | | | 65 | | | 41 | |
Asia | | 3,304 | | | 3,365 | | | 3,321 | | | 3,465 | |
Australia/Oceania | | 1,539 | | | 1,464 | | | 1,460 | | | 1,266 | |
Worldwide | | 7,963 | | | 8,110 | | | 8,339 | | | 8,522 | |
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Oil-equivalent production (1) (thousands of oil-equivalent barrels daily) | | 3,716 | | | 3,665 | | | 3,708 | | | 3,677 | |
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(1) Natural gas is converted to an oil-equivalent basis at six million cubic feet per one thousand barrels. |
ENERGY PRODUCTS
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Energy Products Financial Results | | | | | | | | |
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(millions of dollars) | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Earnings (loss) (U.S. GAAP) | | | | | | | | |
United States | | 3,008 | | | 479 | | | 6,152 | | | (31) | |
Non-U.S. | | 2,811 | | | 50 | | | 4,744 | | | (1,217) | |
Total | | 5,819 | | | 529 | | | 10,896 | | | (1,248) | |
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Earnings (loss) excluding Identified Items (1) | | | | | | | | |
United States | | 3,008 | | | 479 | | | 6,152 | | | (31) | |
Non-U.S. | | 2,811 | | | 50 | | | 4,744 | | | (1,217) | |
Total | | 5,819 | | | 529 | | | 10,896 | | | (1,248) | |
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(1) Refer to Functional Earnings Summary for definition of Identified Items and earnings (loss) excluding Identified Items. |
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Energy Products Third Quarter Earnings Factor Analysis | | |
(millions of dollars) | | | | |
Margins – Higher margins increased earnings by $5,050 million due to improved industry refining margins and positive derivative mark-to-market effects.
Volume/Mix – Favorable volume and mix effects increased earnings by $390 million, driven by increased throughput on strong reliability, improved product yields and lower turnaround activity.
Other – All other items decreased earnings by $150 million.
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Energy Products Year-to-Date Earnings Factor Analysis | | |
(millions of dollars) | | | | |
Margins – Higher margins increased earnings by $10,870 million, driven by stronger industry refining margins and favorable derivative mark-to-market effects.
Volume/Mix – Favorable volume and mix effects increased earnings by $1,090 million, mainly as a result of strong reliability and lower scheduled maintenance.
Other – All other items increased earnings by $180 million, primarily due to the absence of terminal conversion impacts in the prior year.
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Energy Products Operational Results | | | | | | |
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(thousands of barrels daily) | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | 2021 | | 2022 | 2021 |
Refinery throughput | | | | | | |
United States | | 1,742 | | 1,684 | | | 1,705 | | 1,583 | |
Canada | | 426 | | 404 | | | 413 | | 367 | |
Europe | | 1,253 | | 1,215 | | | 1,204 | | 1,197 | |
Asia Pacific | | 557 | | 585 | | | 542 | | 579 | |
Other | | 187 | | 163 | | | 182 | | 162 | |
Worldwide | | 4,165 | | 4,051 | | | 4,046 | | 3,888 | |
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Energy Products sales (1) | | | | | | |
United States | | 2,479 | | 2,361 | | | 2,399 | | 2,223 | |
Non-U.S. | | 3,058 | | 2,941 | | | 2,922 | | 2,825 | |
Worldwide | | 5,537 | | 5,302 | | | 5,321 | | 5,049 | |
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Gasoline, naphthas | | 2,335 | | 2,191 | | | 2,220 | | 2,102 | |
Heating oils, kerosene, diesel | | 1,818 | | 1,796 | | | 1,766 | | 1,731 | |
Aviation fuels | | 365 | | 228 | | | 335 | | 204 | |
Heavy fuels | | 252 | | 276 | | | 243 | | 269 | |
Other energy products | | 767 | | 811 | | | 758 | | 742 | |
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(1) Data reported net of purchases/sales contracts with the same counterparty. | |
CHEMICAL PRODUCTS
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Chemical Products Financial Results | | | | | | | | |
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(millions of dollars) | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Earnings (loss) (U.S. GAAP) | | | | | | | | |
United States | | 635 | | | 1,121 | | | 2,030 | | | 2,923 | |
Non-U.S. | | 177 | | | 907 | | | 1,263 | | | 2,695 | |
Total | | 812 | | | 2,027 | | | 3,293 | | | 5,618 | |
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Earnings (loss) excluding Identified Items (1) | | | | | | | | |
United States | | 635 | | | 1,121 | | | 2,030 | | | 2,923 | |
Non-U.S. | | 177 | | | 907 | | | 1,263 | | | 2,695 | |
Total | | 812 | | | 2,027 | | | 3,293 | | | 5,618 | |
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(1) Refer to Functional Earnings Summary for definition of Identified Items and earnings (loss) excluding Identified Items. |
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Chemical Products Third Quarter Earnings Factor Analysis | | |
(millions of dollars) | | | | |
Margins – Lower margins decreased earnings by $1,090 million, reflecting lower prices and higher feed and energy costs.
Volume/Mix – Lower volumes decreased earnings by $190 million, reflecting softening market conditions.
Other – All other items increased earnings by $60 million, driven by lower expenses and net favorable one-time items, partly offset by unfavorable foreign exchange effects.
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Chemical Products Year-to-Date Earnings Factor Analysis | | |
(millions of dollars) | | | | |
Margins – Lower margins decreased earnings by $2,050 million, reflecting higher feed and energy costs.
Volume/Mix – Flat.
Other – All other items decreased earnings by $280 million, primarily driven by higher project and planned maintenance expenses, and unfavorable foreign exchange effects.
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Chemical Products Operational Results | | | | | | | | |
| | | | | | | | |
(thousands of metric tons) | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Chemical Products sales (1) | | | | | | | | |
United States | | 1,658 | | | 1,807 | | | 5,688 | | | 5,210 | |
Non-U.S. | | 3,023 | | | 3,007 | | | 8,821 | | | 9,100 | |
Worldwide | | 4,680 | | | 4,814 | | | 14,509 | | | 14,309 | |
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(1) Data reported net of purchases/sales contracts with the same counterparty. |
SPECIALTY PRODUCTS
| | | | | | | | | | | | | | | | | | | | | | |
Specialty Products Financial Results | | | | | | | | |
| | | | | | | | |
(millions of dollars) | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Earnings (loss) (U.S. GAAP) | | | | | | | | |
United States | | 306 | | | 247 | | | 784 | | | 689 | |
Non-U.S. | | 456 | | | 592 | | | 871 | | | 1,454 | |
Total | | 762 | | | 839 | | | 1,655 | | | 2,143 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Earnings (loss) excluding Identified Items (1) | | | | | | | | |
United States | | 306 | | | 247 | | | 784 | | | 689 | |
Non-U.S. | | 456 | | | 592 | | | 871 | | | 1,454 | |
Total | | 762 | | | 839 | | | 1,655 | | | 2,143 | |
| | | | | | | | |
(1) Refer to Functional Earnings Summary for definition of Identified Items and earnings (loss) excluding Identified Items. |
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Specialty Products Third Quarter Earnings Factor Analysis | | |
(millions of dollars) | | | | |
Margins – Lower margins decreased earnings by $60 million, primarily related to higher feed and energy expenses.
Volume/Mix – Favorable volume mix effects increased earnings by $20 million, mainly from higher finished lubes sales.
Other – All other items decreased earnings by $40 million.
| | | | | | | | | | | | | | |
Specialty Products Year-to-Date Earnings Factor Analysis | | |
(millions of dollars) | | | | |
Margins – Lower margins decreased earnings by $570 million, primarily related to lower industry basestock margins as a result of increased feed costs and energy prices.
Volume/Mix – Higher volume and favorable mix effects increased earnings by $110 million.
Other – All other items decreased earnings by $30 million.
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Specialty Products Operational Results | | | | | | | | |
| | | | | | | | |
(thousands of metric tons) | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Specialty Products sales (1) | | | | | | | | |
United States | | 483 | | | 471 | | | 1,594 | | | 1,476 | |
Non-U.S. | | 1,434 | | | 1,424 | | | 4,430 | | | 4,356 | |
Worldwide | | 1,917 | | | 1,896 | | | 6,024 | | | 5,832 | |
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(1) Data reported net of purchases/sales contracts with the same counterparty. | | |
CORPORATE AND FINANCING
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Corporate and Financing Financial Results | | | | | | | | |
| | | | | | | | |
(millions of dollars) | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
Earnings (loss) (U.S. GAAP) | | (152) | | | (596) | | | (1,132) | | | (2,033) | |
Identified Items (1) | | 400 | | | (5) | | | 302 | | | (48) | |
Earnings (loss) excluding Identified Items (1) | | (552) | | | (591) | | | (1,434) | | | (1,985) | |
| | | | | | | | |
(1) Refer to Functional Earnings Summary for definition of Identified Items and earnings (loss) excluding Identified Items. |
Corporate and Financing expenses were $152 million for the third quarter of 2022, $444 million lower than the third quarter of 2021, reflecting favorable one-time tax impacts.
Corporate and Financing expenses were $1,132 million for the first nine months of 2022, $901 million lower than 2021, primarily due to favorable one-time tax impacts, lower pension-related expenses and lower financing costs.
LIQUIDITY AND CAPITAL RESOURCES
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(millions of dollars) | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Net cash provided by/(used in) | | | | | | | | |
Operating activities | | | | | | 59,176 | | | 31,005 | |
Investing activities | | | | | | (9,387) | | | (8,125) | |
Financing activities | | | | | | (25,177) | | | (22,464) | |
Effect of exchange rate changes | | | | | | (950) | | | (12) | |
Increase/(decrease) in cash and cash equivalents | | | | | | 23,662 | | | 404 | |
| | | | | | | | |
Cash and cash equivalents (at end of period) | | | | | | 30,464 | | | 4,768 | |
| | | | | | | | |
Cash flow from operations and asset sales | | | | | | | | |
Net cash provided by operating activities (U.S. GAAP) | | 24,425 | | | 12,091 | | | 59,176 | | | 31,005 | |
Proceeds associated with sales of subsidiaries, property, plant & equipment, and sales and returns of investments | | 2,682 | | | 18 | | | 3,914 | | | 575 | |
Cash flow from operations and asset sales | | 27,107 | | | 12,109 | | | 63,090 | | | 31,580 | |
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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 third quarter of 2022 was $27.1 billion, an increase of $15.0 billion from the comparable 2021 period primarily reflecting higher earnings.
Cash provided by operating activities totaled $59.2 billion for the first nine months of 2022, $28.2 billion higher than 2021. Net income including noncontrolling interests was $44.5 billion, an increase of $30.0 billion from the prior year period. The adjustment for the noncash provision of $19.0 billion for depreciation and depletion was up $4.0 billion from 2021. Changes in operational working capital were immaterial, compared to a contribution of $2.2 billion in the prior year period. All other items net decreased cash flows by $4.3 billion in 2022 versus a reduction of $0.7 billion in 2021. See the Condensed Consolidated Statement of Cash Flows for additional details.
Investing activities for the first nine months of 2022 used net cash of $9.4 billion, an increase of $1.3 billion compared to the prior year. Spending for additions to property, plant and equipment of $12.6 billion was $4.6 billion higher than 2021. Proceeds from asset sales were $3.9 billion, which included the recent sale of our Romania Upstream affiliate as well as the sale of XTO Energy Canada. Net investments and advances were essentially flat with prior year.
Net cash used in financing activities was $25.2 billion in the first nine months of 2022, including $10.5 billion for the purchase of 120.4 million shares of ExxonMobil stock, as part of the previously announced buyback program. This compares to net cash used in financing activities of $22.5 billion in the prior year, reflecting net debt repayments of $10.8 billion during the first nine months of 2021. Total debt at the end of the third quarter of 2022 was $45.4 billion compared to $47.7 billion at year-end 2021. The Corporation's debt to total capital ratio was 19.0 percent at the end of the third quarter of 2022 compared to 21.4 percent at year-end 2021. The net debt to capital ratio was 7.2 percent at the end of the third quarter, a decrease of 11.7 percentage points from year-end 2021. The Corporation's capital allocation priorities continue to be investing in advantaged projects, strengthening the balance sheet and paying a reliable dividend.
The Corporation has access to significant capacity of long-term and short-term liquidity. In addition to cash balances, commercial paper continues to provide short-term liquidity, and is reflected in "Notes and loans payable" on the Consolidated Balance Sheet. Cash and cash equivalents was $30.5 billion at the end of the third quarter of 2022. The Corporation had undrawn short-term committed lines of credit of $0.5 billion and undrawn long-term committed lines of credit of $0.4 billion as of third quarter 2022.
The Corporation distributed a total of $11.2 billion to shareholders in the first nine months of 2022 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, other contingencies, and contractual obligations are discussed in Note 3 to the unaudited condensed consolidated financial statements.
TAXES
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| | | | | | | | |
| | | | | | | | |
(millions of dollars) | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Income taxes | | 5,224 | | | 2,664 | | | 14,389 | | | 4,986 | |
Effective income tax rate | | 29 | % | | 33 | % | | 31 | % | | 32 | % |
Total other taxes and duties (1) | | 7,473 | | | 8,572 | | | 23,701 | | | 24,296 | |
Total | | 12,697 | | | 11,236 | | | 38,090 | | | 29,282 | |
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(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 $12.7 billion for the third quarter of 2022, an increase of $1.5 billion from 2021. Income tax expense was $5.2 billion compared to $2.7 billion in the prior year reflecting higher commodity prices. The effective income tax rate of 29 percent compared to 33 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 $1.1 billion to $7.5 billion.
Total taxes were $38.1 billion for the first nine months of 2022, an increase of $8.8 billion from 2021. Income tax expense increased by $9.4 billion to $14.4 billion reflecting higher commodity prices. The effective income tax rate of 31 percent compared to 32 percent in the prior year period. Total other taxes and duties decreased by $0.6 billion to $23.7 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. 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. On January 13, 2021, the District Court ruled that no penalties apply to the Corporation's positions in this suit. The Corporation and the government have appealed the District Court's rulings to the U.S. Court of Appeals for the Fifth Circuit (Fifth Circuit). On August 3, 2022, the Fifth Circuit ruled adversely to the Corporation on its positions, but confirmed that no penalties apply. On September 30, 2022, the Fifth Circuit denied the Corporation’s request that the Fifth Circuit reconsider its opinion on one position. The Corporation and the government now have the right to request that the U.S. Supreme Court review the Fifth Circuit’s decision.
On March 4, 2022, the Corporation also filed a refund suit for tax years 2010-2011 in District Court with respect to the positions at issue for those years. The Corporation has not recognized asserted penalties for 2010-2011 as an expense because the Corporation does not expect the penalties to be sustained under applicable law. Unfavorable resolution of all positions at issue with the IRS would not have a material adverse effect on the Corporation’s operations or financial condition.
CAPITAL AND EXPLORATION EXPENDITURES
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| | | | | | | | |
| | | | | | | | |
(millions of dollars) | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Upstream (including exploration expenses) | | 4,081 | | | 2,839 | | | 11,587 | | | 8,013 | |
Energy Products | | 590 | | | 434 | | | 1,662 | | | 1,312 | |
Chemical Products | | 954 | | | 534 | | | 1,809 | | | 1,345 | |
Specialty Products | | 87 | | | 43 | | | 166 | | | 115 | |
Other | | 16 | | | 1 | | | 17 | | | 2 | |
Total | | 5,728 | | | 3,851 | | | 15,241 | | | 10,787 | |
Capital and exploration expenditures in the third quarter of 2022 were $5.7 billion, up 49 percent from the third quarter of 2021.
Capital and exploration expenditures in the first nine months of 2022 were $15.2 billion, up 41 percent from the first nine months of 2021. The Corporation plans to invest in the range of $21 billion to $24 billion in 2022. Actual spending could vary depending on the progress of individual projects and property acquisitions.
FORWARD-LOOKING STATEMENTS
Statements related to outlooks; projections; descriptions of strategic, operating, and financial plans and objectives; statements of future ambitions and plans; and other statements of future events or conditions, are forward-looking statements. Similarly, discussion of future carbon capture, biofuel and hydrogen plans to drive towards net zero emissions are dependent on future market factors, such as continued technological progress and policy support, and represent forward-looking statements. Actual future results, including financial and operating performance; total capital expenditures and mix, including allocations of capital to low carbon solutions; cost reductions and efficiency gains, including the ability to offset inflationary pressure; plans to reduce future emissions and emissions intensity; timing and outcome of projects to capture and store CO2, and produced biofuels; timing and outcome of hydrogen projects; cash flow, dividends and shareholder returns, including the timing and amounts of share repurchases; the ultimate outcome of contingencies and other estimates of future costs or savings; future debt levels and credit ratings; business and project plans, timing, costs, capacities and returns; and resource recoveries and production rates 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 for our products; government policies supporting lower carbon investment opportunities such as the U.S. Inflation Reduction Act or policies limiting the attractiveness of future investment such as the European Solidarity Tax; variable impacts of trading activities on our margins and results each quarter; actions of competitors and commercial counterparties; the outcome of commercial negotiations, including final agreed terms and conditions; the ability to access debt markets; the ultimate impacts of COVID-19, including effects of government responses on people and economies; reservoir performance, including variability and timing factors applicable to unconventional resources; the outcome of exploration projects and decisions to invest in future reserves; timely completion of development and other construction projects; final management approval of future projects and any changes in the scope, terms, or costs of such projects as approved; changes in law, taxes, or regulation including environmental regulations, trade sanctions, and timely granting of governmental permits and certifications; government policies and support and market demand for low carbon technologies; war, and other political or security disturbances; expropriations, seizure, or capacity, insurance or shipping limitations by foreign governments or laws; opportunities for potential investments or divestments and satisfaction of applicable conditions to closing, including regulatory approvals; the capture of efficiencies within and between business lines and the ability to maintain near-term cost reductions as ongoing efficiencies; unforeseen technical or operating difficulties and unplanned maintenance; the development and competitiveness of alternative energy and emission reduction technologies; the results of research programs and the ability to bring new technologies to commercial scale on a cost-competitive basis; and other factors discussed under Item 1A. Risk Factors of ExxonMobil’s 2021 Form 10-K.
Forward-looking and other statements regarding our environmental, social and other sustainability efforts and aspirations are not an indication that these statements are necessarily material to investors or requiring disclosure in our filing with the SEC. In addition, historical, current, and forward-looking environmental, social and sustainability-related statements may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future, including future rule-making.
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.