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The following is an excerpt from a 10-Q SEC Filing, filed by EXXON MOBIL CORP on 5/8/2007.
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EXXON MOBIL CORP - 10-Q - 20070508 - MANAGEMENT_ANALYSIS

Management's Discussion and Analysis of Financial Condition

and Results of Operations


FUNCTIONAL EARNINGS SUMMARY


             

First Three Months

 
               

2007

   

2006

 
             

(millions of dollars)

 

Net Income (U.S. GAAP)

                       

Upstream

                       

   United States

           

$

1,177

 

$

1,280

 

   Non-U.S.

             

4,864

   

5,103

 

Downstream

                       

   United States

             

839

   

679

 

   Non-U.S.

             

1,073

   

592

 

Chemical

                       

   United States

             

346

   

329

 

   Non-U.S.

             

890

   

620

 

Corporate and financing

             

91

   

(203

)

Net Income (U.S. GAAP)

           

$

9,280

 

$

8,400

 
                         

Net income per common share (dollars)

           

$

1.64

 

$

1.38

 

Net income per common share

                       

   - assuming dilution (dollars)

           

$

1.62

 

$

1.37

 


REVIEW OF FIRST QUARTER 2007 RESULTS


Exxon Mobil Corporation reported first quarter 2007 net income of $9,280 million, an increase of 10 percent or $880 million from the first quarter of 2006.  Higher refining, marketing and chemical margins were partly offset by a decrease in crude oil and natural gas realizations.  Earnings per share were $1.62, an increase of 18 percent, reflecting strong earnings and the benefits of the share repurchase program.  Share purchases of $7.0 billion during the first quarter of 2007 reduced shares outstanding by 1.7 percent.  Average shares outstanding were 7 percent lower relative to the first quarter of 2006.



     

First Three Months

 
 

 

 

 

 

  2007

 

 2006

 
             

(millions of dollars)

 

Upstream earnings

                       

   United States

           

$

1,177

 

$

1,280

 

   Non-U.S.

             

4,864

   

5,103

 

Total

           

$

6,041

 

$

6,383

 


Upstream earnings were $6,041 million, down $342 million from the first quarter of 2006 primarily reflecting lower realizations and decreased natural gas volumes driven by lower European demand.  On an oil-equivalent basis, production decreased by 3 percent from the first quarter of 2006.  Excluding the cumulative impact of entitlements and divestments, as well as OPEC quota effects, production was up almost 1 percent.


Liquids production of 2,747 kbd (thousands of barrels per day) was 49 kbd higher.  Increased production from projects in West Africa, Russia and the Middle East were partly offset by mature field decline and the cumulative impact of entitlements and divestments.  Excluding cumulative entitlement and divestment effects, as well as OPEC quota impacts, liquids production increased by 7 percent.


First quarter natural gas production was 10,131 mcfd (millions of cubic feet per day) compared with 11,175 mcfd last year.  The impact of mature field decline and the reduction of European demand by about 1,400 mcfd due to weather were partly offset by higher volumes from projects in Qatar.


Earnings from U.S. Upstream operations were $1,177 million, $103 million lower than the first quarter of 2006.  Non-U.S. Upstream earnings were $4,864 million, down $239 million from 2006.


-16-



     

First Three Months

 
 


 


 

 2007

 

 2006

 
             

(millions of dollars)

 

Downstream earnings

                       

   United States

           

$

839

 

$

679

 

   Non-U.S.

             

1,073

   

592

 

Total

           

$

1,912

 

$

1,271

 


Downstream earnings were $1,912 million, up $641 million from the first quarter 2006, driven by higher refining and marketing margins and improved refinery throughput.  Petroleum product sales were 7,198 kbd, 21 kbd higher than last year's first quarter.


U.S. Downstream earnings were $839 million, up $160 million from the first quarter of 2006.  Non-U.S. Downstream earnings of $1,073 million were $481 million higher.


     

First Three Months

 
 


 


 

 2007

 

 2006

 
             

(millions of dollars)

 

Chemical earnings

                       

   United States

           

$

346

 

$

329

 

   Non-U.S.

             

890

   

620

 

Total

           

$

1,236

 

$

949

 


Chemical earnings were $1,236 million, up $287 million from the first quarter of 2006 due to improved margins.  Prime product sales of 6,805 kt (thousands of metric tons) in the first quarter of 2007 were down 111 kt from the prior year.


     

First Three Months

 
 


 


 

 2007

 

 2006

 
             

(millions of dollars)

 
                         

Corporate and financing earnings

           

$

91

 

$

(203

)


Corporate and financing earnings were $91 million, up $294 million, mainly due to tax items.



LIQUIDITY AND CAPITAL RESOURCES


             

First Three Months

 
               

2007

   

2006

 
             

(millions of dollars)

 

Net cash provided by/(used in)

                       

Operating activities

           

$

14,286

 

$

14,631

 

Investing activities

             

(3,238

)

 

(3,503

)

Financing activities

             

(9,505

)

 

(8,002

)

Effect of exchange rate changes

             

207

   

148

 

Increase/(decrease) in cash and cash equivalents

           

$

1,750

 

$

3,274

 
                         

Cash and cash equivalents

           

$

29,994

 

$

31,945

 

Cash and cash equivalents - restricted (note 3)

             

4,604

   

4,604

 

Total cash and cash equivalents (at end of period)

           

$

34,598

 

$

36,549

 
                         

Cash flow from operations and asset sales

                       

Net cash provided by operating activities (U.S. GAAP)

           

$

14,286

 

$

14,631

 

Sales of subsidiaries, investments and property,

                       

    plant and equipment

             

538

   

394

 

Cash flow from operations and asset sales

           

$

14,824

 

$

15,025

 


Because of the ongoing nature of our asset management and divestment program, we believe

it is useful for investors to consider asset sales proceeds together with cash provided by operating

activities when evaluating cash available for investment in the business and financing activities.


-17-




Total cash and cash equivalents, including the $4.6 billion of restricted cash, was $34.6 billion at the end of the first quarter of 2007.


Cash provided by operating activities totaled $14,286 million for the first three months of 2007, similar to 2006.  The major source of funds was net income of $9,280 million, adjusted for the noncash provision of $2,942 million for depreciation and depletion, both of which increased.  The net timing effects of changes in operational working capital provided an offset.  For additional details, see the Condensed Consolidated Statement of Cash Flows on page 5.


Investing activities for the first three months of 2007 used net cash of $3,238 million compared to $3,503 million in the prior year. Spending for additions to property, plant and equipment decreased $624 million to $3,106 million.  Proceeds from asset divestments of $538 million in 2007 were higher.


Cash flow from operations and asset sales in the first three months of 2007 of $14.8 billion, including asset sales of $0.5 billion, was comparable to the prior year period.


Net cash used in financing activities of $9,505 million in the first three months of 2007 increased $1,503 million reflecting a higher level of purchases of shares of ExxonMobil stock.


During the first quarter of 2007, Exxon Mobil Corporation purchased 108 million shares of its common stock for the treasury at a gross cost of $8.0 billion.  These purchases included $7.0 billion to reduce the number of shares outstanding and the balance to offset shares issued in conjunction with the company's benefit plans and programs.  Shares outstanding were reduced from 5,729 million at the end of the fourth quarter to 5,633 million at the end of the first quarter.  Purchases may be made in both the open market and through negotiated transactions, and may be increased, decreased or discontinued at any time without prior notice.


In the first quarter of 2007 the Corporation distributed a total of $8.8 billion to shareholders, an increase of 26 percent versus the first quarter of 2006, including dividends of $1.8 billion and share purchases to reduce shares outstanding of $7.0 billion.


Total debt of $8.8 billion at March 31, 2007, increased from $8.3 billion at year-end 2006.  The Corporation's debt to total capital ratio was 6.9 percent at the end of the first quarter of 2007 compared to 6.6 percent at year-end 2006.


Although the Corporation issues long-term debt from time to time and maintains a revolving commercial paper program, internally generated funds cover the majority of its financial requirements.


In accordance with a nationalization decree issued by Venezuela's President Chavez in February, the Venezuelan National Oil Company (PdVSA) on May 1, 2007 assumed the operatorship of the Cerro Negro heavy oil development, which had been operated by an ExxonMobil affiliate that holds a 41.67 percent ownership interest in the project.  The decree also requires conversion of the Cerro Negro project into a "mixed enterprise" structure and an increase in PdVSA's ownership interest in the project.  Discussions with Venezuelan authorities are continuing over proposed changes to the joint venture relating to the nationalization decree.  The Corporation does not expect the resolution of these issues to have a material effect upon the Corporation’s operations or financial condition.  L itigation items and other contingencies are discussed in note 3 to the unaudited condensed consolidated financial statements.


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.




-18-




TAXES

     

First Three Months

 
 


 


 

 2007

 

 2006

 
             

(millions of dollars)

 

Taxes

                       

Income taxes

           

$

6,784

 

$

7,059

 

Sales-based taxes

             

7,284

   

7,664

 

All other taxes and duties

             

10,408

   

9,747

 

Total

           

$

24,476

 

$

24,470

 
                         

Effective income tax rate

             

44

%

 

47

%


Income, sales-based and all other taxes for the first quarter of 2007 of $24,476 million were similar to 2006.  In the first quarter of 2007 income tax expense was $6,784 million and the effective income tax rate was 44 percent, compared to $7,059 million and 47 percent, respectively, in the prior year period.  Resolution of income tax related issues resulted in charges in the first quarter of 2006.



CAPITAL AND EXPLORATION EXPENDITURES


     

First Three Months

 
 


 


 

 2007

 

 2006

 
             

(millions of dollars)

 

Capital and exploration expenditures

                       

Upstream (including exploration expenses)

           

$

3,469

 

$

4,087

 

Downstream

             

531

   

581

 

Chemical

             

219

   

144

 

Other

             

3

   

12

 

Total

           

$

4,222

 

$

4,824

 


In the first quarter, ExxonMobil continued to actively invest, bringing additional crude oil, finished products and natural gas to market.  Spending on capital and exploration projects totaled $4.2 billion in the first quarter.


Capital and exploration expenditures for full year 2006 were $19.9 billion and are expected to continue in this range for the next several years.  Actual spending could vary depending on the progress of individual projects.



FORWARD-LOOKING STATEMENTS


Statements in this report relating to future plans, projections, events or conditions are forward-looking statements.  Actual results, including project plans and related expenditures, resource recoveries, timing and capacities, could differ materially due to changes in long-term oil or gas prices or other market conditions affecting the oil and gas industry; political events or disturbances; reservoir performance; the outcome of commercial negotiations; potential liability resulting from pending or future litigation; wars and acts of terrorism or sabotage; changes in technical or operating conditions; and other factors discussed under the heading "Factors Affecting Future Results" on our website and in Item 1A of ExxonMobil's 2006 Form 10-K.  We assume no duty to update these statements as of any future date.



-19-

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