Event
Name: Exxon Mobil to buy XTO Energy Conference Call
Event
Date/Time: 2009-12-14/4:00PM GMT
P:
Operator
C: Rex
Tillerson; Exxon Mobil Corporation; Chairman and CEO
C: David
Rosenthal; Exxon Mobil Corporation; VP of IR and Secretary
P: Doug
Terreson; ISI Group; Analyst
P: Robert
Kessler; Simmons & Company International; Analyst
P: Doug
Leggate; Merrill Lynch; Analyst
P: Neil
McMahon; Sanford C. Bernstein & Company, Inc.; Analyst
P: Mark
Gilman; The Benchmark Company; Analyst
P: Paul
Sankey; Deutsche Bank; Analyst
P: Jason
Gammel; Macquarie Research Equities; Analyst
P: Pavel
Molchanov; Raymond James; Analyst
P:
Christina Cheng; Barclays Capital; Analyst
PRESENTATION
Operator:
Good day, and welcome to this ExxonMobil Investor Relations call. Today's call
is being recorded.
At this
time, I would like to turn the call over to Mr. Rex Tillerson. Please go ahead,
sir.
Rex
Tillerson: Good morning, and I want to thank all of you for joining us today. As
you are aware from this morning's press release and news conference, ExxonMobil
and XTO Energy Inc. have announced an all-stock transaction valued at $41
billion. This agreement between ExxonMobil and XTO brings together two
organizations with highly complementary skills and capabilities. XTO is a
leading US unconventional natural gas and oil producer, with an outstanding
resource base, strong operational expertise and highly skilled employees. XTO's
strengths, together with ExxonMobil's advanced research and development, our
operational capabilities and our global scale, along with our financial
capacity, will create significant synergies and unconventional resource
development that we believe are unmatched in the energy industry.
I now
want to turn the call over to David Rosenthal, our Vice President of Investor
Relations, and our corporate secretary, who is going to take you through today's
material. Following that, David and I will be happy to take questions that you
may have. David?
David
Rosenthal: Thank you, Rex. Before we begin, I must address some regulatory
requirements. As detailed on the cautionary statement slides 2 and 3, today's
presentation is neither an offering of securities nor a solicitation of a proxy
vote. The information discussed today is qualified in its entirety by the
registration statement and proxy statement that ExxonMobil and XTO will be
filing in the future, and XTO's shareholders in particular are urged to read
those filings carefully.
This
presentation includes forward-looking statements. Actual results could differ
materially for the reasons noted.
Finally,
please see the frequently used terms and other information on the Investors'
section of ExxonMobil's website for important definitions.
As part
of this teleconference, we do not plan to discuss forward estimates of combined
ExxonMobil and XTO operations. I now plan to cover key elements of the
announcement.
Turning
to slide 4, this morning at 8 AM Eastern time, ExxonMobil announced an agreement
with XTO in an all-share deal. The transaction is structured as a tax-free
exchange of shares. For each share of XTO stock, shareholders will receive
0.7098 shares of ExxonMobil stock. The value of the transaction is $41 billion
and includes debt of approximately $10 billion. The agreement is subject to
approval by XTO shareholders and regulatory review and clearance. We anticipate
that both of these steps would be completed in the second quarter of
2010.
Now,
let's turn to the strategic incentives for the transaction on slide
5.
This
agreement is the result of an ongoing, disciplined evaluation of timely
investment opportunities to position ExxonMobil for long-term success and is
consistent with our business model's focus on sustainable, long-term value
creation. Our evaluation of any potential opportunity begins with an assessment
of the resource base. XTO has assembled substantial high-quality US
unconventional gas and oil resources across multiple basins. They also have
extensive, unconventional technical capabilities and operating expertise and the
proven ability to grow profitable production and reserves from this resource
base. This transaction combines these strengths of XTO with ExxonMobil's
strengths, including our global unconventional gas portfolio, world-class
research and technology capabilities, industry-leading project management and
operational skills, and unmatched financial strength.
Looking
forward, the transaction creates a catalyst for significant long-term growth
potential. This includes the acceleration and development of global,
unconventional resources, as well as the ability to optimize investment
programs. These resources are attractively positioned to increase natural gas
production and to meet the growing demand for gas, which is expected to be the
single biggest contributor to the US and global energy mix over the coming
decades.
We plan
to create a premier global, unconventional resource organization in our upstream
business segment, similar to our other global functional companies. The
opportunity to accelerate and capture significant value from the combined
ExxonMobil and XTO resources is compelling. However, the ultimate value of the
transaction will be measured over decades by the long-term shareholder value
that we believe will be created. A company profile for XTO is provided on slide
6. XTO Energy Inc. was founded in 1986 as Cross Timbers Oil and is headquartered
in Fort Worth, Texas. The company has approximately 3,000 employees, all located
in the US. About one-third are based in Fort Worth and the remaining two-thirds
are in field operating facilities or in district offices. XTO is predominantly a
gas company, with gas representing over 80% of production and reserves. Most of
their resources are unconventional.
Importantly,
they have strong technical expertise and operating experience in all
unconventional gas types, including tight gas, shale gas, and coalbed methane.
In addition, they have a significant position in shale oil development. Their
resource portfolio is widely distributed across the US and has material exposure
to all the major unconventional plays. XTO is one of the largest gas producers
in the US and has averaged over 20% growth in annual production since
1993.
Proved
reserves at year end 2008 are 13.9 trillion cubic feet of gas equivalent, and
total resources are approximately 45 trillion feet equivalent.
Turning
to slide 7, XTO's resource portfolio is geographically dispersed across the
United States. The map shows key areas where XTO currently has production, along
with net acreage in thousands of acres.
XTO has
an attractive position in the major shale gas plays in the US. Its
largest-producing shale gas asset is the Barnett Shale in north Texas. In east
Texas and western Louisiana is the highly prospective Haynesville
Shale.
To the
north, in Oklahoma and Arkansas are the Woodford and Fayetteville
shales.
Finally,
looking to the east, you will see the Marcellus shale. XTO is also a producer of
shale oil from the Bakken Shale in Montana and North Dakota. XTO's tight gas
production is concentrated in the Freestone trend of East Texas.
You will
also see tight gas resources in the Uintah Basin and the Rocky Mountains. Also
in the Rocky Mountains, XTO has acreage in the San Juan Raton basin that holds
both tight gas and coal bed methane. This map does not show XTO's conventional
resources, which include gas in Texas and Oklahoma, as well as oil in the
Permian basin of West Texas. They also hold a small interest in the Dutch sector
of the North Sea, but this represents less than 1% of their total
production.
Turning
to slide 8, let's now look at ExxonMobil's high potential global unconventional
natural gas portfolio, along with XTO's position. ExxonMobil's holdings are
distinguished by the red stars on the slide with XTO's highlighted in gold. In
the US, our current development focus is in the Piceance Basin in Colorado,
where earlier this year, we started up the Piceance Phase I project. Piceance is
a world-class field with a potential recoverable resource of over 45 trillion
cubic feet of tight gas. We also have an acreage position in the Marcellus Shale
in Pennsylvania.
In the
Horn River Basin in Canada, we are the largest leaseholder in this exciting new
play, with just over 300,000 net acres.
Moving to
Europe, our portfolio in Germany includes a prospective shale gas opportunity,
covering almost 900,000 net acres and a coal bed methane play covering an
additional 2 million net acres. In Hungary, we continue to evaluate our tight
gas acreage. Most recently, we established a significant onshore acreage
position in Poland with over 1 million net acres, where we believe there is
significant shale gas potential.
In South
America, we have substantial unconventional acreage in Argentina, where we are
currently producing from a tight gas play.
The next
slide shows a summary of ExxonMobil's and XTO's global unconventional acreage
segmented by resource type. As the chart illustrates, ExxonMobil and XTO each
have extensive unconventional acreage positions across a diverse portfolio of
resource types.
Together,
ExxonMobil and XTO will have nearly 8 million acres, currently the largest
unconventional acreage portfolio in the industry. Approximately 60% of the total
acreage is located outside of the US.
Turning
to the resource base on slide 10, at over 72 billion oil equivalent barrels,
ExxonMobil has the largest resource base in industry. It is geographically
diverse and includes all resource types. Over the last decade, we have grown our
unconventional gas resources to approximately 7% of the resource base.
Additionally, our total proved reserves are the largest in industry and have the
longest life. XTO has built a diverse resource base in the United States with
high-quality assets in all the attractive plays. As I mentioned, this resource
base is diverse by type, including shale gas, tight gas, coal bed methane, and
shale oil. Together, our complementary, unconventional resource portfolio will
truly be world class and is positioned to support profitable, long-term
production growth.
Turning
to slide 11, XTO's proven ability to consistently and profitably grow production
complements ExxonMobil's strong natural gas position. As one of the top
producers of natural gas in the United States, XTO provides material, long-life,
natural gas volumes to ExxonMobil's portfolio. Once integrated, total natural
gas volumes are expected to represent approximately 45% of ExxonMobil's total
production, slightly higher than today's mix. The combination of XTO's strong
operational and technical expertise in unconventional resources and ExxonMobil's
advanced research capabilities, project management skills, and financial
strength, positions us well for long-term profitable production
growth.
Turning
to slide 12, the transaction provides an outstanding opportunity to establish in
our upstream business a global, unconventional resource organization located in
Fort Worth, Texas. Consistent with ExxonMobil's highly successful global
functional organization model, this premier upstream organization will manage
the development and production of unconventional resources
worldwide.
XTO's
employees, who are recognized for their technical excellence and operating
expertise, will be critical to the success of this new, global, unconventional
resource organization. They bring significant unconventional drilling capability
and expertise in well stimulation and productivity. The integration into
ExxonMobil's global functional model will allow the rapid development and
deployment of technologies and operating practices globally to maximize resource
value.
The new
organization will combine the strengths of both the XTO and ExxonMobil cultures.
XTO has grown its own highly successful culture and this has helped it to
effectively develop and expand its unconventional resources. As we move forward,
we will bring the strengths of the two organizations together to create new
value for our shareholders from our high-quality global portfolio. The
management of both companies believe that this is an excellent match of
opportunities and capabilities and will result in a premier global
unconventional resources organization.
Turning
to slide 13, on this slide, you can see some key financial and operating metrics
for ExxonMobil and XTO for the first nine months of 2009. ExxonMobil is in a
very strong financial position to successfully complete a transaction of this
size. Going forward, we do not anticipate a material impact on the key financial
ratios and expect them to remain very strong. The transaction will be accounted
for as a purchase with XTO's assets and liabilities reflected on ExxonMobil's
books at fair value. There will also be a component of goodwill.
The
transaction should be accretive to ExxonMobil's production growth and cash flow.
Depending on the market price for gas, it is not likely to be accretive to
near-term earnings per share and may be dilutive.
Turning
to the next slide, in summary, the agreement between ExxonMobil and XTO will
provide long-term benefits to shareholders in both companies. The transaction
provides an excellent opportunity for ExxonMobil to add outstanding resources at
a fair price. XTO's proven technical capabilities and operating expertise for
efficiently producing unconventional resources provide a synergistic fit with
ExxonMobil's resource portfolio and strengths.
Longer
term, the combined resource portfolio provides significant growth potential.
ExxonMobil brings scale, additional technical capabilities, and financial
strength to develop these resources efficiently. Finally, it is our shared
belief that this agreement will create long-term value for both ExxonMobil and
XTO shareholders.
Before we
take your questions, I want to clarify that we will not have any further comment
at this time in several areas. First, we are not going to speculate on any
regulatory issues. We will also not comment on any issues that are between XTO
and its shareholders. Finally, we will not be providing any additional forecasts
or pro forma information prior to filing of the registration statement and proxy
statement for the transaction. Rex and I would now be happy to take your
questions.
Q-AND-A
Operator:
(Operator Instructions). Doug Terreson, ISI Group.
Doug
Terreson: Rex, Exxon is renowned for its disciplined approach to capital
management, and that's historically resulted in the best returns in the
industry. And on this point, when just thinking about the pro forma returns, the
purchase appears likely to generate returns that are 10% to 20% of those that
Exxon has in E&P of around 40%, although you made clear that the benefits
were longer term for shareholders. And so my question regards whether or not you
can provide some specific examples as to how XTO's technical capabilities and
operating expertise accelerates global resource development, as David suggested.
That is, what do they have that you do not? And also, the timeframe over which
you think that this transaction will create value.
Rex
Tillerson: Yes, Doug, that's a good question. And as David highlighted for you
in the slides, and as you all have noted we have been securing a portfolio of
unconventional opportunities globally. And he highlighted those in the slides.
And we are very -- we like the position we've got.
There are
some very large areas that now require appraisal and ultimately require an
organization to develop those the most efficiently and profitable way possible.
And obviously we could have, over time, built an organization, piece by piece,
to do that. And that would have taken us some time to do.
What this
opportunity provides us is both access of course first to what we believe to be
a very high-quality resource base that XTO currently holds within their --
within the United States; but also a ready-built, purpose-built organization
that we can now take our team of experts who have been working on the portfolio
that we have been building for some time, quietly, and moving into these areas
outside of the United States, and put those two organizations
together.
And now, do what ExxonMobil has a history of doing so well, and that is managing
assets in a certain priority; sifting through those, selecting the best;
applying our technology, applying, in some cases, some of our project management
approaches, particularly to new developing plays; and that's what really
generates the long-term shareholder value. I think your observation, and as
David has pointed out, near-term -- this is not a near-term decision, obviously.
This is about the next 10 to 20 to 30 years of what we believe has now emerged
as a very important part of the global resource portfolio that is going to be
material. It's going to be important to meeting energy supply, and that's the
real value creation that we see. And so I think, over time, as you observe what
we do in this combination, it will look very similar to what you have seen us do
in other large portfolio areas.
Doug
Terreson: Okay. Thanks a lot, Rex.
Operator:
Robert Kessler, Simmons & Company.
Robert
Kessler: Good morning, guys. Rex, could you give a little bit more color with
respect to the logic of an all-stock transaction? Just thinking Exxon, of
course, with a net cash position going into the deal, it seems that at least a
little bit of leverage could have reduced the near-term earnings dilution. And
then, somewhat related to that, does this transaction preclude the possibility
of another fairly material deal to further supplement your unconventional
portfolio, say within the next year or two?
Rex
Tillerson: Sure. Well, obviously, one of the attractions for the XTO
shareholders as well is to make this a tax-free exchange and the all-share
transaction accomplishes that. It's something that they found attractive. That
way their shareholders have the optionality of how they want to manage their
individual tax situation with respect to the transaction and they're not forced
through a cash exchange. So it really was something that XTO found attractive
and we certainly have the wherewithal with the share repurchase program that we
have had underway for many years now to do that. So, that's the reason for the
all-share transaction. Certainly, we, as you pointed out, we have cash and could
have done something different. But I think for those reasons, that's why we
agreed with the XTO people that a share exchange made good sense for their
shareholders as well.
With
respect to future opportunities, Robert, as you know, we're always looking. We
are very deliberate about the way we look. We are never in a big hurry. And so,
clearly, we still have a lot of financial capacity and wherewithal to do and
look at and consider other things that might -- that we would find
attractive.
Robert
Kessler: Okay, thanks for that. If I could squeeze in a quick clarification as a
second question, XTO obviously has a sizable hedge position in place for 2010.
Any thoughts as to whether ExxonMobil will liquidate that position or ride it
out?
Rex
Tillerson: Well, that's something we will have to evaluate once we can get
further into some of the transition planning, and -- which the progress of that
will be governed substantially by some of the regulatory obligations. So I
really can't comment on what we would do in the future with those
positions.
Robert
Kessler: Fair enough. Thank you.
Operator:
Doug Leggate, Merrill Lynch.
Doug
Leggate: XTO has I guess been a little entrepreneurial at exponential share
price appreciation over the years. And I guess that has kept a lot of the
technical knowledge and the people engaged on obviously a smaller independent
platform. What measures are you taking to make sure that that doesn't get lost
as a result of this transaction? And I have a follow-up.
Rex
Tillerson: Well, and that's a great question, Doug, because as you've heard us
allude throughout the presentation, an important element of the transaction is
the XTO organization, as I pointed out in response to an earlier question. We
have worked closely with XTO's management because that is certainly their
desire, as well, is that we want to retain that organization; let them continue
to do the things that have made them so successful, and in fact, broaden their
scope now of opportunities on which they can work. We believe that's going to be
exciting for the people at XTO. They're going to have a much larger horizon now
in which to apply their technical skills, their expertise. And we've worked
closely with their management and will be working closely in the days ahead to
ensure that we take all the steps necessary and that people understand how
important they are going to be to the future success of what we're trying to do.
The details of that will be available in future, so I don't want to get ahead of
other communications.
Doug
Leggate: Oh, okay. Thanks, Rex, for that. My follow-up is really on the pace of
growth. Even at a 10% growth XTO, which I think has kind of been their plan for
the next couple of years, is translates to about 1% on the new company. So it
does actually have -- it's moving the needle a little bit.
What are
your plans in terms of the pace of developing these resources as you move
forward? Obviously, there's a lot of free cash flow been spun out of this
company as well.
Rex
Tillerson: As we indicated, we're not going to give a lot of forward guidance on
anything, Doug. But again, our approach will be similar to the way we deploy
capital today. We will be looking at where are the most profitable
opportunities. As you've heard us say many, many times, we are not volumes
growth driven. We are profitability driven. And so we will be looking at, over a
long period of time, what is going to provide the most profitable growth from
this transaction to the extent that yields volume growth, then so be it. But as
you know, we start with the profitability side and then the volumes are somewhat
of an outcome.
Doug
Leggate: Great. I appreciate you answering my questions. Thanks,
Rex.
Operator:
Neil McMahon, Sanford Bernstein.
Neil
McMahon: Just a few questions on the deal and then maybe a larger question. I
was wondering if you could give us any idea what percentage the goodwill will be
of the total transaction, and also what you expect in terms of the reserve
increase next year based on the new reserve legislation that's in for 2009
reporting. Any guidance there would be great, just to work out the DD&A
impact. Then I've got a follow-up.
Rex
Tillerson: Neil, I really can't provide you any guidance on the goodwill because
that obviously is a detailed exercise that we will have to undertake from an
accounting standpoint, in terms of how all of those valuations are done. So I
don't want to wander off into something that, at this point, wouldn't be
appropriate to do.
Similarly,
on what the new reserve reporting rules, the impacts will be, again, we are not
prepared to comment or give any forward guidance on that, so I'm going to have
to leave you to try to make your best estimate on your own there.
Neil
McMahon: Okay, thanks, Rex. Maybe something a bit broader then as a follow-up.
Given your global reach in terms of gas, not just on conventional gas, I'm
presuming that when you look at the amount of LNG you are coming out with in
Qatar, you've got new LNG coming on in Papua New Guinea and Australia. Your
basic outlook which you have shown in your outlook manual for 2009 seems to
suggest that you feel natural gas prices, or at least the growth rate in
unconventional gas in the US, isn't potentially going to be as strong; and you
feel very comfortable, it seems, in this transaction, going out and buying a US
natural gas company, wherein the price of gas is at this level. Is it fair to
say that you are getting more and more bullish about the gas environment going
forward?
Rex
Tillerson: Well, Neil, as you have rightly noted, in our most recent energy
outlook, we have illustrated the very strong growth in natural gas demand that
we anticipate to occur over the next several decades, certainly at a much higher
rate of demand growth than oil or coal. And as you obviously looked at the
outlook, you know that that's driven largely by a significant growth in demand
for power generation. Natural gas is really well-suited to meet that growing
power generation demand, both from the standpoint of its lower environmental
impact, but also its capital efficiency and its flexibility. As various parts of
the world are trying to meet that demand, gas gives them a lot of flexibility in
terms of the increments they can add and the way they can handle varying load
demands; gas is really a well-suited fuel choice. And that's what underlies that
outlook for a very strong growth in gas demand all over the world.
So as a
result, yes, we have a large portfolio of LNG. We have a large portfolio of
conventional gas resources and pipe gas delivery systems. And now we're adding
in what is an emerging new important piece of the resource base in the
unconventionals because we think all of it is going to be required to meet that
demand. And relative to all of the major consuming areas in the developed world,
whether it's here in the US or Europe, as well as the developing world; so yes,
you could read that, that consistent with our outlook, we think there's going to
be significant demand for natural gas in the future.
It's not
a price play, obviously because we never do that. It's an efficiency play. And
as you know, we believe you get a lot of efficiency benefits out of scale, out
of leveraging best practices and delivering them rapidly into the global
portfolio. And that's, really -- that's the important element. That's the
opportunity for us -- now our people and we have to go out and capture it. And
that's where the value creation will occur.
Neil
McMahon: Great. Thank you.
Operator:
Mark Gilman, Benchmark.
Mark
Gilman: Rex and David, good morning. Was wondering if we could clarify the 45
Tcf resource number a little bit. XTO breaks that up into three components.
Obviously, the proven, then a significant low-risk geological and then a 17 Tcf
equivalent additional potential. I wonder if you could just spend a minute
clarifying what that additional potential relates to? And specifically are the
14.2 T low risk, as well as the additional potential, are they risked estimates
in any particular way? I also have a follow-up question.
Rex
Tillerson: Well, the answer is, and again, these are XTO's publicly-disclosed
figures, so Mark, I want to be careful about representing what's behind their
assessment anymore than would be appropriate to do. But as you know, those are
their publicly-disclosed numbers. As you probably know, they use an independent
source to review their reserve bookings. They make that available in their
public disclosure.
The only
comment I guess I would make, Mark, about it is that as we look at that
assessment of theirs, it would be consistent with the way we would judge
resources that qualify to be added to our resource base. And so as you saw on
that slide that David showed you, they are of the same quality, character and
risk assessment that we would use to put -- to add resources to our discovered
resource base.
Mark
Gilman: And do you assign a risk factor, Rex, when you do that?
Rex
Tillerson: Well, yes. What we do, as you know is, we book resources that we have
discovered, which we have the rights to develop, and they are booked on a risk
basis. And, oftentimes, the reason the resource base grows is some of that is
due to de-risking and what we call growth to known. So there's an element of
both in that resource base.
Mark
Gilman: Okay. My follow-up relates to one of their specific place, namely the
Freestone, which is a play that I guess I'm not terribly familiar with. Wonder
if you could comment, just briefly, given the importance of this splay, in terms
of what kind of decline rate characteristics it has going forward,
Rex?
Rex
Tillerson: Well, that's a detail, Mark, I'm not sure I'm prepared to get into,
other than I can tell you the Freestone play is a tight gas play in central
Texas. And it is in -- I don't want to say a very early stage of development --
but it is under active development by a number of participants down there. And
beyond that, I really wouldn't want to comment further.
Mark
Gilman: Okay. Final one. Do you have any sense as to whether your spending on
the XTO properties will exceed the $3.6 billion kind of number that XTO had
suggested for 2010?
Rex
Tillerson: No; as I indicated earlier, in response to another question, I don't
think we're going to comment on any of the -- what the future plans would be,
and that's something we'll have to get to later.
Mark
Gilman: Okay. Thanks, Rex.
Operator:
Paul Sankey, Deutsche Bank.
Paul
Sankey: Good morning, Rex and David. You've talked a lot in the past about your
global functional management system. And at the same time you have also
mentioned how your history of acquisitions has been one where you go after
synergies and cost savings. What you are effectively doing here I guess, Rex, is
you are adding a new arm, as you said, to your global functional management. But
I guess at the same time, you are adding costs effectively by having that new
division. And therefore, the cost savings and synergies that you are talking
about are much longer-term and to do with production costs. Is that how I should
read this? Thanks.
Rex
Tillerson: Well, Paul, it's a good observation. And this deal -- the cost
synergies, if I can characterize them that way, that you typically think
about
in a
transaction like this, which deals with just eliminating redundancies and
whatnot, while there will be some level of that, it is not material to the value
of the deal. The synergies piece is all that I've been describing in terms of
having an organization that has been working in this space of the
unconventionals now for many years and has developed a capability to exploit
those resources in what we believe is an efficient process; and taking that now
and applying it globally; bringing in some of our own people, together, with
some of our technology and some of the way that we assess attractiveness of
opportunities; and having a larger portfolio now of the unconventional resources
from which to select, be selective and go out and do the best and do them in a
sequence that makes the most sense to deliver best value; and that's the
synergistic benefit. So I think as you noted in your question as you asked it,
it's really long-term synergies that are going to create this value. And that's
why we've just said right up front, this is not about the near term. And in fact
we will probably suffer a little bit in the near term as we put it together.
This is really about value creation over the next many years.
Paul
Sankey: Great. Thanks, Rex. And then if we look at the strip and we look at the
XTO values, it would seem that the implied price of gas here is above $7 to make
a good return. What would be -- I guess that you are saying that you're
long-term bullish physically on the natural gas market. I guess the implication
also, quite naturally, is that you are using quite a high assumption relative to
what you would have used, for example, around the Mobil deal and around LNG
[competitively] for this particular deal. It is a much higher implied natural
gas price in this deal.
Rex
Tillerson: Well, we didn't create a different price deck for this deal, if
that's what you're implying. If you just look back at the unit cost here, on a
proved reserve basis, it's under $3 a [Kcf] equivalent. If you look at that
resource base, the 45 trillion cubic feet, it's less than $1. And obviously
where we're going to extract that value is -- and as you have heard us talk many
times, Paul, we don't -- we test our things against a range of possible price
environments but what we know is we have to go out and create efficiencies. We
have to go out and create added value through technology and extraction
techniques and continue to work at that to get better and better and better, so
that we create the value. We don't wait on the market to create it.
Paul
Sankey: Right. Thanks, Rex. Thank you.
Operator:
Jason Gammel, Macquarie.
Jason
Gammel: Thank you. Obviously, this is a fairly large endorsement of
unconventional resource in the US. Could you talk about how the returns on this
type of unconventional drilling would shake out relative to your other upstream
investment opportunities?
Rex
Tillerson: Well, I'm not going to comment specifically, Jason. Obviously, we
believe attractive and satisfactory returns can be generated from these types of
activities. We are currently out, as you are well aware, we already at
ExxonMobil are developing unconventional resources. Obviously, it's meeting our
expectations in terms of the way we view the future. So, obviously, we think it
is going to create value or we wouldn't be talking about it today.
Jason
Gammel: Sure. And then maybe as a follow-up, if I could, ExxonMobil always takes
a very measured approach to this type of a transaction. Can you talk about how
long this decision was in the making? Is this a multi-year study that led to
this transaction or was this relatively quick?
Rex
Tillerson: Well, I can't comment directly on that because some of that will be
subject to some regulatory filings in terms of how the specific deal came about.
I think as we have talked over the years, we are always looking for
opportunities. And many of you have asked us many times about whether we saw
something attractive out there, and we said, we're always looking; we're always
evaluating. And when the right conditions are in place for something that we
think is material and has long-term value, then you would see us act. And that's
where we are today.
Jason
Gammel: Okay. Thank you.
Operator:
Pavel Molchanov.
Pavel
Molchanov: Thanks very much. First, just a quick housekeeping item. Will you
consider divesting any non-core assets that you will get as part of the
deal?
Rex
Tillerson: Well, Pavel, as you know, ExxonMobil has an ongoing asset management
program, and we have some level of divestments every year as we look at the
asset inventory and we find that there are people out there who, for strategic
reasons of their own or synergies of their own, place a higher value on assets
than we do. So my only comment on a going forward basis is that no change as a
result of this transaction, nothing extraordinary. Obviously, we like their
asset holdings, and our divestment activities on a go-forward basis will just be
a continuation of our business as usual approach.
Pavel
Molchanov: Understood. And as a quick follow-up to that, when you think about
the rig count currently on XTO's properties, would you attempt to maintain it,
decrease it, increase it or not sure yet?
Rex
Tillerson: Again, that's a forward-looking comment, and so I don't think it
would be appropriate for me to indicate one way or the other.
Pavel
Molchanov: Got it. Thanks.
David
Rosenthal: Thank you, Pavel. Next question.
Operator:
Christina Cheng, Barclays Capital.
Christina
Cheng: Good morning. I was wondering if Exxon is intending to export LNG from
the US?
Rex
Tillerson: We don't have any plans at this time to export LNG from the
US.
Christina
Cheng: Thank you.
Operator:
We have no further questions. At this time, I would like to turn the call back
over to Mr. Tillerson.
Rex
Tillerson: Well, let me just thank all of you for joining us for the call this
morning, and I thank you for your questions and your interest in today's
announcement. This is a very significant day for ExxonMobil. We are excited
about the new opportunities that will present themselves as we move forward and
as we have talked in this call.
The whole
objective is to build value for our shareholders and to meet the growing global
energy demands that we see in the future to support economies around the world.
We think this is a great transaction for the United States and for the consumers
of the US and addresses many of the energy security concerns they have. So,
thank you for joining us for the call, and I will turn it back to
David.
David
Rosenthal: Thank you, Rex. Well, that concludes this morning's teleconference.
And Rex and I thank you very much for your time and questions this morning.
Thank you.
Operator:
This concludes today's call. Thank you for your participation.
Important
Information For Investors And Stockholders
This
communication does not constitute an offer to sell or the solicitation of an
offer to buy any securities or a solicitation of any vote or
approval. ExxonMobil will file with the Securities and Exchange
Commission (“SEC”) a registration statement on Form S-4 that will include a
proxy statement of XTO that also constitutes a prospectus of
ExxonMobil. ExxonMobil and XTO also plan to file other documents with
the SEC regarding the proposed agreement. A definitive proxy
statement/prospectus will be mailed to stockholders of XTO. Investors and
security holders of XTO are urged to read the proxy statement/prospectus and
other documents that will be filed with the SEC carefully and in their entirety
when they become available because they will contain important information about
the proposed transaction. Investors and stockholders will be able to
obtain free copies of the proxy statement/prospectus and other documents
containing important information about ExxonMobil and XTO, once such documents
are filed with the SEC, through the website maintained by the SEC at
http://www.sec.gov. Copies of the documents filed with the SEC by ExxonMobil
will be available free of charge on ExxonMobil’s internet website at
www.exxonmobil.com under the tab "investors" and then under the tab "SEC
Filings" or by contacting ExxonMobil’s Investor Relations Department at
972-444-1156. Copies of the documents filed with the SEC by XTO will be
available free of charge on XTO’s internet website at www.xtoenergy.com under
the tab "Investor Relations" and then under the tab "SEC Filings" or by
contacting XTO’s Investor Relations Department at 817-870-2800.
ExxonMobil,
XTO, their respective directors and certain of their executive officers may be
deemed to be participants in the solicitation of proxies from the stockholders
of XTO in connection with the proposed transaction. Information about the
directors and executive officers of XTO is set forth in its proxy statement for
its 2009 annual meeting of stockholders, which was filed with the SEC on April
17, 2009. Information about the directors and executive officers of
ExxonMobil is set forth in its proxy statement for its 2009 annual meeting of
stockholders, which was filed with the SEC on April 13, 2009. Other
information regarding the participants in the proxy solicitation and a
description of their direct and indirect interests, by security holdings or
otherwise, will be contained in the proxy statement/prospectus and other
relevant materials to be filed with the SEC when they become
available.
Cautionary
Statement Regarding Forward-Looking Statements
Statements
in this document relating to future plans, projections, events or conditions are
forward-looking statements. Actual results could differ materially as
a result of a variety of risks and uncertainties, including: the timing to
consummate the proposed agreement; the risk that a condition to closing of the
proposed agreement may not be satisfied; the risk that a regulatory approval
that may be required for the proposed agreement is not obtained or is obtained
subject to conditions that are not anticipated; ExxonMobil’s ability to achieve
the synergies and value creation contemplated by the proposed agreement;
ExxonMobil’s ability to promptly and effectively integrate XTO’s businesses; and
the diversion of management time on agreement-related issues. Other
factors that could materially affect ExxonMobil’s and XTO’s actual results,
including project plans, costs, timing, and capacities; capital and exploration
expenditures; and share purchase levels, include: changes in
long-term oil or gas prices or other market or economic conditions affecting the
oil and gas industry; completion of repair projects as planned; unforeseen
technical difficulties; political events or disturbances; reservoir performance;
the outcome of commercial negotiations; wars and acts of terrorism or sabotage;
changes in technical or operating conditions; and other factors discussed under
the heading “Factors Affecting Future Results” available through the "investors"
section on ExxonMobil’s website, in Item 1A of ExxonMobil's 2008 Form 10-K and
in Item 1A of XTO's 2008 Form 10-K. No assurances can be given that
any of the events anticipated by the forward-looking statements will transpire
or occur, or if any of them do so, what impact they will have on the results of
operations or financial condition of ExxonMobil or XTO. Neither
ExxonMobil nor XTO assumes any duty to update these statements as of any future
date. References to quantities of oil or natural gas may include
amounts that ExxonMobil or XTO believe will ultimately be produced, but that are
not yet classified as “proved reserves” under SEC definitions.