Good day everyone and welcome to this ExxonMobil Corporation fourth quarter and full year 2016 earnings call. Today's call is being recorded. At this time, I would like to turn the call over to the Vice President of Investor Relations and Secretary, Mr. Jeff Woodbury. Please go ahead, sir.

Thank you. Ladies and gentlemen, good morning and welcome to ExxonMobil's fourth quarter and full year 216 earnings call. My comments this morning will refer to the slides that are available through the Investors section of our website. So before we go further, I would like to draw your attention to our cautionary statements shown on slide two. Turning now to slide three, let me begin by summarizing the key headlines of our performance. ExxonMobil generated full year earnings of $7.8 billion and fourth quarter earnings of $1.7 billion. Corporation continues to generate cash flow through the business cycle to meet our commitment to shareholders and support investments across the value chain. In the fourth quarter, cash flow from operations and asset sales exceeded dividends and net investments by a healthy margin. We are realizing the benefit of strengthening prices in the fourth quarter in our upstream financial results. However these results included a $2 billion impairment charge in the U.S. segment, largely related to dry gas operations with undeveloped acreage in the Rocky Mountain region. The impairment charge was the result of an asset recoverability study completed during the quarter and is consistent with the approach we took in 2015. Continued solid performance on our downstream and chemicals segments underscores the resilience of our integrated business throughout the commodity price cycle. Corporation continued to progress strategic investments across the upstream, downstream and chemical segments during the year, including execution of major projects, value accretive acquisitions and pursuit of high potential exploration opportunities. Moving to slide four, we provide an overview of some of the external factors affecting our results. Global economic growth remained modest during the fourth quarter. In the United States, the pace of economic expansion slowed relative to a stronger third quarter. We have stabilized in China…

Thank you, Mr. Woodbury. [Operator Instructions]. We will take our first question from Neil Mehta with Goldman Sachs.

Good morning Jeff.

Good morning Neil.

Jeff, I appreciate the incremental disclosure here on the Delaware transaction. That's where I want to start. As you think about that deal, is it indicative of the view that Exxon has that you see more value in, let's say, the private market than the public market? And can you just talk a bit more about the opportunity you see in U.S. unconventional to do deals?

Yes. Neil, it's a good question. I would tell you that I would not view it as being exclusive to one type of transaction. As we have talked in the past, we keep a full view on what may be out there that could be competitive with our existing resource base and accretive to overall long-term financial performance. You know, these things don't happen overnight. Several of these take many, many months to go ahead and put in place and not all of them transpire into an executed deal, but what's important is that it is a key aspect of our overall asset management program in order to high grade our portfolio with the view of our underlying mission of growing shareholder value.

I appreciate that. And then my follow-up, Jeff, is on CapEx. I imagine we are going to get a little bit more color on this at the Analyst Day in a couple of weeks, but the $22 billion that you outlined is in line with what you talked about earlier this year, but up from 2016. Can you speak high level to what's driving the growth in 2017 versus 2016 in terms of CapEx? Is that cost inflation? Or is that higher growth? And then bigger picture, can you talk about what you are seeing in terms of cost inflation across your portfolio?

Yes. Well, Neil, as you indicated, we do plan on giving a lot more detail around our investment plans in the analyst presentation that will be just a little bit more in a month from now. As you indicated, the $22 billion that I mentioned is fairly consistent with our forward-looking plan that we provided a year ago. I would tell you that it does not reflect a year-on-year increase associated with cost inflation and in fact the inverse is true is that the organization continues to look for high impact capital efficiencies to drive the cost down and it is, by and large, a function of activity level. Certainly as activity continues to build, we will all experience some market pressures, but that doesn't relieve us of our fundamental objective of maximizing the value proposition and rest assure that the organization will continue to keep focused on what new solutions are there for us to get to a lower cost outcome and the organization is very committed to make sure that we are capturing those and really leading the cost curve.

Our next question comes from Phil Gresh with JPMorgan.

Hi Jeff. Good morning.

Good morning Phil.

I wanted to start on the working capital and other headwind, $2.4 billion in the quarter, $8 billion for the year. It's a pretty big number. I guess I was just wondering if you could maybe elaborate or break that down a little more between deferred taxes and some of the other items? And moving forward how do you think about the ability to lessen that headwind in 2017.

Well, I mean obviously there's really two large components that are driving it. Obviously the changes in the working capital, by and large, adjustments in receivables and payables due to activity and changes in commodity prices and then the second part of other balance sheet items, some of that associated with deferred taxes. As I said, it also includes cash contributions that we made to the pension plan. So a lot of moving pieces, as is understandable. And I understand the interest, but that's about all the color I have for you at this point.

Okay. And then in terms of priorities with cash from here, to the extent you have excess free cash flow above the dividend in 2017, is the first priority, with the trending balances where they are, would it be debt paydown or do you feel like you have flexibility to do other things?

I think it's a function of the business climate and the opportunities that we have for ourselves. As you have heard us say before, if you think about our capital allocation approach, it's a commitment to provide a reliable and growing dividend to our shareholders and at the same time continue to selectively invest in our business with opportunities we believe are going to enhance the long-term return of the corporation. The excess cash, by and large, we don't want to hold large cash balances that we don't have immediate need for it. We will think about either paying down debt or buying back shares and that is done primarily on a quarterly basis. The corporation will step back and look at a number of factors like our current financial position, our potential opportunities to put capital to work as well as what we see in the near term in terms of the business outlook.

Okay. Thanks.

We will take our next question from Doug Leggate with Bank of America.

Thanks. Good morning, everybody. Good morning Jeff.

Good morning Doug.

Jeff, I wonder if I could kick off with your capital guidance. I guess it's kind of a follow-up. But ask you if could you move it on to talk a little bit about the production capacity that you see that goes along with that capital, because I am assuming the Permian is part of it? What I am really driving at is, you have got a number of projects still ramping up, so could you give us some idea as to what the remaining capacity is of those ramp-ups? In other words, what would the delta be if those projects were running full out in 2017? And then I have got a follow-up, please.

Yes. Doug, I mean first observation would be is that you are correct that we have projects that started up all the way back to early 2015 that are still well within their development drilling programs are ramping up to plateau production rate. Some of these things could take 12 to 24 months to fully reach the plateau production rate. I don't have a specific number for you as to what is that incremental capacity that's left to ramp up, but I will also highlight that a number of those projects also are exceeding design expectations due to really strong management by the organization around reliability and reservoir performance. We talked about Papa New Guinea in the past, a design at about 6.9, it's now produced above eight million tons per annum. You have heard in the news about Banyu Urip which the development basis was about 165,000 barrels a day. We have been producing about a 185,000 and it is now under review to take it all the way up to 200,000 barrels a day. Again very, very strong operational reliability and very good reservoir performance. So the point I am making is above the additional ramp up that's anticipated from the major project startups, there is also another layer of capacity that we are building on based on the organization's focus on the operational capabilities of our assets.

Okay. Just to be clear, Jeff, on the Permian piece of that, I think at the time of the acquisition you talked about moving to a 15-rig program. What's the starting point for that? What are you running right now?

So you are talking about the recent acquisition, I believe?

Right.

So let me back up and first I say that if you look at the overall development of the new acreage, we see that over the long term it would support a multi-decade production plateau of about 350,000 oil equivalent barrels per day. So a very substantial addition to liquids production as well and in fact if I can put it in scale for you, if you remember, in my prepared comments, I said that our current liquids production from XTO represents about 12% of the corporation's global liquids production. If you were just to add on the expectation from the Delaware acreage, that would take us up somewhere between 20% to 25% of our global liquids production. So the point being is, it's a very material part of the portfolio. As I indicated, we have got 10 rigs running right now. We are planning on ramping up that activity over the near future. But what we would do is, commensurate with the leasehold development requirements, we are very, very positive about this obviously given the acquisition and we want to get to it right away.

Jeff, I appreciate the answer. My follow-up is a very quick one. Payara, I think in Guyana, the limited disclosure you have given us so far, I guess, has raised some questions about potential scale. Is there anything you can tell us about relative scale or absolute scale of both the Liza and Payara reserve expectations ultimately but also like the development plan on both and the outlook of production system? And I will live it there. Thanks.

Yes, Doug. So, as we indicated in the third quarter, given the Liza-3 appraisal well, that really built confidence in a view that we have got at least a billion barrels of recoverable reserve. Since then, we have drilled a deeper zone that added additional volume, as I indicated in the prepared comments. Payara, we are very pleased with the outcome. We moved very quickly two drill additional sidetracks in order to better define the reservoir. And as I said, I think the next critical piece of information will be this well test we are starting right now. And that will allow us to size Payara. Now obviously, as we move along in each operational activity, that data is feeding our real time development planning effort to assess the full development scope of the block. And remember, we have got two other blocks that we will have to integrate as well. But right now, we are moving forward with the initial phase development. As we have said previously, it's 100,000 barrel a day FPSO. We do feel like that's a prudent step, very good strong returns and right now, we view that as just the initial phase.

Okay. I will wait till the Analyst Day. Thanks, Jeff.

Thank you, Doug.

We will go next to John Herrlin with Societe Generale.

Yes. Hi. Two quick ones for me, Jeff. Regarding your CapEx, is that just strictly E&D or you are including the acquisition costs for Bass?

Well, John, on the Permian acquisition, remember we are purchasing that via shares. So it excludes that share purchase.

Okay. Well, it would still be part of the costs incurred at the end of the day, but that's fine. Next on Payara, is that age correlative with the upper Liza pay or the lower Liza pay or can you not say anything on that?

Yes. I really don't have anything to share on that at this point.

Okay. That's it. Thank you.

Thank you.

We will go next to Doug Terreson with Evercore ISI.

Good morning Jeff.

Good morning Doug.

Just for clarification, is it correct that the $2.1 billion in asset sale gains were after tax and included in the $1.7 billion earnings figure and either way, could you provide some guidance as to which operating segments that these gains came from?

So the proceeds of $2.1 billion are -- you are asking about the proceeds that we had in the press release?

Correct.

Yes. Those are before tax proceeds.

Okay.

And then those proceeds are primarily within our downstream portfolio. I would say about over 80% of it, it's in the downstream.

Okay.

And the largest part of that is in the Canada retail sales.

Can you give guidance on after-tax?

On the proceeds?

Yes.

Now I don't have any numbers to share with you on that.

Okay. And then also, three of your competitors have taken steps to enhance their pay for performance linkage by changing the metrics that they are using for their business units to ones which tie to intrinsic value in the stock market and probably CEO pay too. And while your stock has outperformed some of these companies in the equity market over the years, my question is, how is the company thinking about P-for-P this year and specifically where there is a need for change given its rising profile as a corporate governance issue with investors?

Well, if you remember -- you are talking about our executive compensation program?

I am.

Yes. As you and I have talked in the past, remember that a large part of our compensation program is based on a long-term payment schedule and it is intended in order to make sure that our executives are being held to the decisions that we are making over the long term. And our long-term incentive is paid over a 10-year period, 50% about 5 years. The remaining 50% after 10 years, really it's the later of 10 years or retirement. So some of us go even beyond 10 years, but it's really designed to ensure that our executives feel the same performance that our investors feel because when it does payout, it's paid out at the current stock price. Now I will tell you that the compensation committee does step back and look at the program periodically to make sure that it's ensuring, it's encouraging the right type of behaviors and it's recognizing the success of the corporation. For those that are listening about it, we have got, what we call an executive compensation overview disclosure that we send out annually that provide a lot of good detail about the structure of the program.

Okay. Thanks a lot, Jeff.

Doug, just a follow-up on your question regarding the Canadian retail. As I said in my prepared comments, it was $522 million after tax.

Great. Thanks a lot.

We will go next to Sam Margolin with Cowen and Company.

Good morning Jeff. How are you?

Good morning Sam.

So late in the quarter, you finally got FERC approval for Golden Pass. I guess I would add that to the bucket in one of the later slides about de-lengthening your U.S. nat-gas position, maybe. So I was wondering, I am sure you have made comments on this before, but how do you think now in the new environment or how things have played out currently, how U.S. LNG competes with some of your other world-scale LNG potential assets around the world? And how do you think about that moving forward as you want to develop additional U.S. gas assets in the context of that?

It's a good question, Sam. The best place to start is really thinking about it from our overall energy outlook and our supply and demand balances. Over the long term, we expect that LNG capacity or demand will continue to grow. In fact, almost it's up to like 250% of today's LNG net capacity. A large part of that growth is primarily driven by Asia. Now like most commodities, you are going to have periods in which there is oversupply and periods where there is insufficient supply. And we do expect that with the number of projects coming on that there are some projects where there is period in which they will see LNG over supply. Now if I step back from that that's, if you will, the value proposition and I step back, we have got a very extensive portfolio and I would tell you that brownfield developments that is incremental investments to existing operations like Papa New Guinea or even Golden Pass provide us economic advantage by lowering the cost by leveraging the installed investment. At Golden Pass, as you noted, we did get FERC approval. The one key step that we are still waiting for after many years is final Department of Energy approval of non-FTA export authorization. And we are hopeful that that will come shortly. But each one of these projects will be evaluated on their own merit. As you have heard us say previously, as it relates to LNG projects, we want to lock in a large part of that capacity on long-term contracts. And Golden Pass, within the whole portfolio of investment opportunities that we have, we are pursuing long-term sales contracts. But they all will be evaluated on their own merits.

Okay. I guess my follow-up then, is on the same topic. It might be a similar answer on sort of an individual project analysis basis, but as you look within your 30-year outlook and a lot of energy demand globally is driven by gas and against the backdrop of early this year, the de-booking of some natural gas reserves domestically and an imperative to get those rebooked over time, what do you think is more preferable between uses of that gas for you? Investing in shipping it to these Asian demand centers via LNG? Or keeping it onshore and consuming it within your chemical business?

That's a good question. It really highlights and talks to the issue of optionality. We are the largest gas producer in the U.S. Where do we see that gas going in the future, again stepping back from that energy outlook, we expect gas is going to grow about 1.5% per year. That's primarily driven by two things, one, power generation and the second thing petrochemicals. As you know, we have got a very integrated value chain. The anticipation is that resource will not only meet domestic growth and power generation, but we will also look at the utilization of that into our value chain in the chemicals business as well as, well, we started this discussion around LNG export, so optionality gives us tremendous amount of flexibility to make sure that we are maximizing the value proposition.

All right. Thanks Jeff.

You bet.

We will go next to Evan Calio with Morgan Stanley.

Hi. Good morning, Jeff.

Good morning.

I have a question. Any outlook on future project returns, conventional versus your acquired Permian? And I ask the question in the context that you make a significant acquisition in one of the tighter energy asset markets in the world, the Permian. You discuss a relatively healthy future plateau level of production, while there's distress in asset markets globally in regions in which Exxon operates. So I mean just given the assets and these longer laterals you discussed, can you talk about how you think the future returns compete within your portfolio or how advantaged they may be?

Well, from a general perspective, Evan, I would tell you that clearly the recent acquisition, predominantly in the Delaware Basin, is a very competitive. It really goes back to the fundamental objective that we are trying to achieve through acquisitions or through exploration or our investment program that is to make sure that we continue to maintain a focus on value accretive performance. So we are looking for investments that are going to continue to maintain our industry-leading return on capital employed. So certainly very attractive. We have given you sense for the economics where I think back in the second quarter we showed you some of the progress we have made in unit development cost, operating cost. We gave you a sense for the portfolio then, which with the Bakken improvement together, we had over 2,000 wells that achieved greater than 10% return, money forward economics, full and fully loaded on a $40 per barrel price. You add this acquisition into this, it takes us up to about 4,500 wells. So a very robust inventory. The long-term objective, thinking about the short cycle versus long cycle is one of making sure that the pace maximizes the learnings that we are integrating and captures a technology application that we want to apply in order to achieve these outcomes like the length of the laterals. But I would say that this acquisition and the investments that we plan under it are going to be very competitive to our existing inventory of opportunities.

Can you even mention how much of your expected CapEx, $22 million CapEx, is in shorter cycle, however you define that, whether offshore or onshore? And related, how do you consider the value of capital flexibility or cycle times in your gating process, either as a plus or a minus for a longer cycle project?

Yes. On the first question, I would tell you that we are going there to provide some more color in about a month's time at the Analyst Meeting. So if I ask you to just to hold that thought, we will give you a little bit more perspective at that time. On the second one, the overall balance of short cycle versus long cycle, obviously we have got a very large resource inventory with over 90 billion barrels. We are trying to move that resource inventory at the same time maintaining a robust level of short cycle investments. Now, of course, that short cycle inventory continues to grow with all these acquisitions that we have been picking up. So that's done through our annual planning process. We look at the execution capability of the organization, the service sector and then we look at the fundamental cash management objective is to make sure that we have got that flexibility and a key element of when we share a CapEx objective, we have built in flexibility to the upside as well as flexibility to the downside. We know how to flex that program depending on what commodity prices do.

I appreciate it.

We will go next to Jason Gammel with Jefferies.

Thanks. Hi Jeff. Jeff, I note that in the third quarter press release, you talked about the potential for needing to take some negative revisions to proved reserves in the oil sands and clearly, at least in the quarter, you haven't taken any financial impairments to those assets. Can you talk about whether you would still view those proved reserves as potentially needing to be written down? Or whether the price recovery into the end of the year was sufficient to allow those to remain on the books?

Yes. It's a good question. Again, I want to make sure that everybody's very clear that there is a separation between proved reserves reporting under the SEC rules and then the whole issue of asset impairments. And really what you are asking, Jason, is I think clearly the question about proved reserves. In the third quarter we indicated, because we thought it was prudent at the time given where crude prices were that we indicated that we were likely going to take as much 4.6 billion barrels out of proved and put them in our resource base. And I will remind you that I emphasized at that time that even though we make that transfer, there is no change to our operations or how we manage the business, those assets going forward. We will be announcing our final year-end reserves here in the next couple of weeks as we typically do. In short, we do expect to reflect most of the SEC pricing impact that we discussed in the third quarter, but I will also note that we anticipate that there will be some partial offsets to those numbers. So stay tuned, we will be finalizing that shortly and we will be releasing that information here in the next two weeks.

I appreciate that, Jeff. And then just as a follow-up, the InterOil acquisition that you announced this year, I am afraid I am a little bit lost on the process for actually completing the InterOil transaction. Can you talk about what is still outstanding there in order to get that deal done?

Yes. So we are going back through the process following a decision by Canadian courts and we have put in place a new amended agreement between InterOil and ExxonMobil. And I will just remind everybody that in the first process through, the InterOil Board fully unanimously approved this transaction and shareholders approved it by over 80%. So we are going back through the process and right now there is a shareholder vote anticipated in the middle of February. And then as in the last cycle through this, we will need to go back to the Yukon courts to make a final ruling on the offer and then hopefully close thereafter.

Great. Thanks Jeff. I appreciate that.

We will go next to Ryan Todd with Deutsche Bank.

Great. Thanks. Maybe if I could have a couple of quick follow-ups on capital budget. And I realize you are giving more details next month. But how should we think about capital allocation for the Lower 48 business with the addition of the Permian acquisition? Does that highlight a growing relative share of the capital budget by the U.S. on shore? Is it additive to your existing activity? Or should we expect to see the capital diverted away from areas like the Bakken in Oklahoma and be replaced by activity in the Permian?

Well, Ryan, we will certainly provide more color here in a month or so. But I mean, directionally, it's a fairly sizable acquisition that we are making in the Permian. We feel good about our acreage position in the other unconventional basins. I showed you a map where we have got a meaningful presence in everyone of them. As an indicative guidance, I would tell you that it's likely going to add additional CapEx to our short cycle investments in order to move forward on the acreage that we have picked up in acquisition.

Okay. Thanks. That's helpful. And then maybe just one on 2016 CapEx, which came in quite a bit lower than guidance early in the year. Any comments on what were the primary drivers? Is that cost deflation, deferral of activity, change in any expected scope in spend?

Yes. Thanks for asking the question, Ryan, because I think it does reflect very well on how the corporation responded and particularly our people and their focus on recognizing that we are in a down cycle and we have got a great opportunity to take advantage during that down cycle. I would say that it really is a function of a number of things. One is and it all is underpinned by our very strong focus around capital discipline. But it comes down to capital efficiency opportunities that we are able to continue to capture, regardless of where we are in the commodity price cycle. It includes market capture. We all know that the service sector and the related costs have dropped materially. Also importantly it has to do with the very strong project execution performance on our operated projects, most of which coming in on-budget and on-cost. And then there was an element of how we paced our projects for several reasons. One, recognizing the business climate, wanting to stay within our means. And two, in a low price environment, there is unique value that we are able to capture by going back and recycling through the development planning process on some of these projects to try to do things like reduce the cost structure, add additional resource to increase resource density, but it really is a opportunity in the down cycle to go ahead and add incremental value to those future investment.

Okay. Thanks Jeff.

Okay. Thank you.

We will go next to Paul Sankey with Wolfe Research.

Hi Jeff.

Good morning Paul.

Jeff, with the changes in Washington, I just wondered what Exxon has done to, firstly, I assume you guys are pro lifting sanctions on Russia. Secondly, I assume that you would be anti the border adjusted tax. And then finally, can you make any comments about the impact on your operations in Iraq from the recent limitations on travel there? I wondered if that was going to -- I assume that's going to directly impact you. Thanks.

Yes. I guess a couple of comments. We will continue to advocate for many of the areas you talked about, advocate for free market principles. When it comes down to the important discussion that's happening in Congress in the current administration around the tax code, we believe the tax code should be globally competitive. It should be predictable, stable, providing investment certainty and not picking winners and losers. So I mean, we will continue to stay principle based in our view on those matters. With respect to Russia, we will continue to fully comply with the existing sanctions and I am not going to speculate when or if they are fully satisfied and removed in the future. And then on Iraq and more broadly speaking some of the issues associated with decisions taken in the U.S., a key aspect wherever we are around the world, including Iraq, is the security of our people and our contractors and we have very dedicated effort within the organization to ensure that we are trying to stay in front of potential threats that the organization needs to respond to in order to ensure the safety and security of our assets and people. So I would rather not talk about specifics, but I will tell you that we are monitoring the situation very closely.

Understood. Jeff, if I could completely change subject, the President of Guyana was commenting earlier in the week that we could see production startup in 2019 from Liza. Is that reasonable, do you think? We have also obviously heard from Hess about a final investment decision this year. And if we look back to what you did in Angola as an example of your speed with which you can get these things up and running with the idea of getting very early cash flow, I wondered if you could handicap the chances that we do see first production much sooner than the, I think you have been talking more 2021?

Yes. It's a good question. Listen, I think first and foremost is that we are going to work with our co-ventures and the government to move this project along in the most efficient and expedient way. And all stakeholders have a role in deciding how this project moves forward. And we certainly understand the resource owners' interest and I will tell you, we are very attuned to it. As I indicated in my prepared comments, we think it is reasonable that the initial phase will move forward to an FID decision later this year. The guidance that we have been providing as well as consistent with the regulatory filings says that the initial phase would startup in 2020.

Got it, Jeff. Thank you.

You are welcome.

We will take our next question from Asit Sen with CLSA Americas.

Good morning Jeff.

Good morning Asit.

So thanks for the color on the short cycle versus long cycle. I just wanted to make sure I got the Permian numbers right. So the 140,000 barrels a day production now and your comment on the 350,000 barrels a day of plateau production from the recent Delaware acquisition, what time frame are we looking at?

Well, we have yet to share the specifics around the buildup of that. But as I indicated, Asit, we want to get at it quickly. But the 350,000 potential and that's oil equivalent barrels per day, we believe is a reasonable investment program that could be maintained over multi-decades.

Got you. Okay. And my quick question on the new project startup, Barzan, is that a 2017 startup? And could you remind us on the working interest that you have there? 7% is that's what I have.

Yes. Our working interest is 7% and you really need to talk to the operator RasGas on specifics around the project.

Great. Thanks Jeff.

Welcome.

We will go next to Paul Cheng with Barclays.

Hi. This is Moses Sutton, on for Paul. A quick question on the impairment charges. Have you completed the review of the entire portfolio? Or are certain assets still under review in 2017?

We have completed the review of the entire portfolio.

Great. Thank you. That's it from us.

You are welcome.

We will go next to Alastair Syme with Citi.

Hi Jeff. I also had a question on the impairment. If you look back at your most recent energy outlook, it looks like you have made some quite big changes around the expectation on North American tight oil and gas. Is it possible to relate those changes back to today's impairment decision? It feels like you expect there's going to be a lot of growth in associated gas, for instance.

Well, I mean it's good question, Alastair, but I would tell you, the first point I would make is the reason why we do an annual updated energy outlook is really to make sure that we are most informed about the fundamental building blocks that really underpin that demand projection. The changes that you are asking about is really a function of a number of factors. It's not just energy outlook. We do this in conjunction with our annual budget and plans process. And it also is of the function as part of the energy outlook is looking at the competitiveness of different resources that underpin that demand outlook. So it's a number of factors that will drive our decisions and ultimately the choices that we make.

Thank you. As a follow-up, can I ask, can you explain what non-U.S. tax effects are on the corporate items? Are these upstream or downstream items?

The non-U.S. tax items are really across a number of the business segments, but the largest in the fourth quarter were primarily in the upstream business.

Is it possible to get any color what they relate to?

No, we don't have any additional information to share.

Okay. Thanks very much, Jeff.

You are welcome.

We will go next to Brendan Warren with BMO Capital Markets.

Thanks Jeff. Just first question, just on those five major project startups. You flagged 2017 into 2018, particularly with Hebron and Sakhalin that you do operate. Are they still in 2017, recognizing Hebron most recently said it was on track for end-2017. I have a follow-up as well. Thanks.

Yes. That's correct. They are currently on plan to achieve those objectives.

Okay. So they are both in before end-2017. And then my follow-up refers and you would probably say defer this to the capital markets day, but if I refer back to slide 33 from the capital markets day, you had given guidance of cash flow from operations and asset sales for 2016 with a range at $40 a barrel to $80 a barrel. It looks like at $45 average for this year, you have just come in where the $40 a barrel line should be. I am trying to reconcile, you had a weaker cash flow number for 2016. And whether that changes your view for 2017 in terms of cash flow from operations?

Yes. Brendan, a good question. An important dialog that we think is something that we should be talking to and we will update that chart you are referring to in the upcoming Analyst Day here within a month and be ready to talk more about it with our current views.

Okay. Thanks Jeff.

Welcome.

We will go next to Ed Westlake with Credit Suisse.

Yes. Good morning at top of the hour here. Two questions, I guess. Firstly, decline rates. I mean you guys have done very well on the production side to minimize base decline. You have got long duration assets in a number of geographies. Maybe just a quick update as far out as you could go on expected decline rate on the base business.

Yes. So we assess our long-term decline rate over every year and in fact, it's in our 10-K. And what we have had in terms of a decline rate here in the recent past, last couple of years, has been 3%. And let me just qualify that 3% as being that does not include project activity. So if we were to stop our investment program, that's what we would have.

Yes.

Okay.

And then we haven't really had a conversation around OpEx and margins, maybe deferred tax maybe to the prior question on cash flow as you go forward, but maybe just a word on how much more savings you can get on OpEx? The new projects, are they accretive to margins? And then what you expect to happen to deferred taxes as prices bump up a little here?

Yes. A really good question in terms of OpEx and how we are managing that. I would tell you that we are never satisfied. We clearly understand there's been a lot of progress here over the last two years, but I can tell you that the organization doesn't believe status quo is sufficient. As I alluded to previously, we will continue to look for structural opportunities. We will continue to be very focused on our organizational effectiveness. And importantly, we will continue to work with the service sector to come up with lower cost, higher quality opportunities. And I am sure if the activity continues to build, there is going to be market pressures, but we are going to continue to work against those market pressures to capture incremental value. On deferred income taxes in the future, there's really nothing more I can share with you. You can appreciate some of this has to do with the current low price environment that have been through here last couple years.

And margin should also improve with the new projects coming on, presumably?

Well, that's the objective of the investment program. Thanks, Ed.

We will go next to Theepan Jothilingam with Exane BNP.

Yes. Hi. Good morning Jeff. Thanks for taking my questions. I had two actually. Firstly, could you talk about, I know you are intending to issue equity for the recent Permian transaction. Is there any thoughts about buying back to offset that dilution? And my second question, just in terms of exploration for 2017. I know the focus is on Guyana, but could you talk about any other high impact place for 2017 and the spend associated? Thank you.

Yes. So Theepan, on the fundamental question of, to me, I interpret it as whether we would buy back any stock and I will go back to our earlier discussion around it. It's really a quarterly decision that management makes based on a number of variables that I have already described. And as I said in the prepared comments, we don't anticipate doing any type of buybacks, other than into to address anti-dilutive impacts associated with the benefits programs and plans. On other exploration focus, we expect for the near term, flat spend out to out through the next several years, but I have shared a number of key areas that we are focusing our attention. Cypress, the high quality block we have got there on Block 10 that we have entered in negotiations on the production sharing contract, but we are very encouraged by it. Mexico, the Block 1 that we picked up, which is right along the U.S. border adjacent to some U.S. acreage that we have got. Again, very encouraged by it, putting plans in place. I indicated that we continue to expand to our exploration acreage position in Papa New Guinea. You think about some of the big high potential areas for us, Papa New Guinea is very important to us. Guyana, that area has been very important to us. And then as we have been talking about often on today is the unconventional business with a very strong focus on the liquids potential. So I think it really does make a very strong statement around the value proposition that we are trying to deliver to our shareholders.

Okay. Thanks Jeff. I was just wondering, when you think about potential acquisition add between equity and adding debt, could you talk about how the market should think about that? Should we see if there are opportunities Exxon uses paper rather than debt?

Yes. Well, it's going to be case specific. I mean the important message for you to understand is that we have the flexibility to do either. The final structure of a given transaction is really a function of the dialog between the parties with the focus of what the seller wants from the transaction. But I wouldn't read anymore into it relating to our capital structure.

Great. Thank you.

And our final question comes from Pavel Molchanov with Raymond James.

Thanks for taking the question guys. Just two quick ones. You mentioned that almost all of the increase towards the $22 billion CapEx budget reflects higher activity. Can you be a little more specific on what service cost inflation you are assuming, particularly in your North American CapEx?

Pavel, as I indicated earlier, we are going to provide more color around our investment plans in about a month's time in the Analyst Meeting. I would just ask you to hold out until we get to that point.

Okay. And as far as the InterOil closing process, you are currently doing the rerun of the shareholder vote. Should the Yukon court bock the second attempt, as they blocked the first one, is there any other alternative in your mind to getting shareholder approval?

Yes, well, I mean let me not speculate as to how this will progress. Very strong support from the shareholders of InterOil. This is a process that InterOil is running and we think that we have addressed some of the comments that were made in the first process. So let's let that go through and then we will decide how we move forward from there.

All right. I appreciate it.

Thank you.

And we have no further questions in the queue at this time.

Well, I want to thank everybody for their participation today and I really do appreciate your time and the questions. We appreciate your continues interest in ExxonMobil and we really do look forward to visiting with you next month at the Analyst Meeting. So until then, we will keep very focused on our fundamental mission of growing long-term shareholder value. Thank you.

And that concludes today's conference. We thank you for your participation.