Exxon Mobil Corporation · NYSE:XOM
Exxon Mobil — Proxy Contest (May 2021)
83 slides from Exxon Mobil's proxy contest presentation, May 3, 2021
Slide 1: Reenergize ExxonMobil Investor Presentation
ENGINE NO. 1 Reenergize ExxonMobil // Investor Presentation May 2021
Slide 2: Disclaimers: Important Information
Disclaimers Important Information Engine No. 1 LLC, Engine No. 1 LP, Engine No. 1 NY LLC, Christopher James, Charles Penner (collectively, “Engine No. 1”), Gre gor y J. Goff, Kaisa Hietala, Alexander Karsner, and Anders Runevad (collectively and together with Engine No. 1, the “Participants”) have f
Slide 3: Disclaimers: Forward-Looking Statements
Disclaimers Forward - Looking Statements This presentation contains forward - looking statements. All statements contained in this presentation that are not clearly histor ical in nature or that necessarily depend on future events are forward - looking, and the words “anticipate,” “believe,” “expect
Slide 4: Table of Contents
TABLE OF CONTENTS EXECUTIVE SUMMARY I 5 The Need for Change at ExxonMobil A CLOSER LOOK AT THE ISSUES II 24 Issue #1 – Failure to Position ExxonMobil for Long - Term Value Creation II 33 Issue #2 – Rhetoric Does Not Address Long - Term Business Risk from Emissions II 41 Issue #3 – Lack of Capital Al
Slide 5: Part I: Executive Summary
PART I: EXECUTIVE SUMMARY The Need for Change at ExxonMobil 5
Slide 6: The industry is evolving, and so must ExxonMobil
The industry is evolving, and so must ExxonMobil O il and gas companies face significant long - term challenges. Declining long - term returns and lower capital productivity for non - state oil and gas companies Growing long - term demand uncertainty due to advancements in low and no - carbon techno
Slide 7: ExxonMobil has dramatically underperformed for shareholders over any relevant time period
ExxonMobil has dramatically underperformed for shareholders over any relevant time period Source: Bloomberg. *Pre - COVID returns are as of February 19, 2020. **Returns are as of December 4,2020 close, the last trading d ay prior to Energy No. 1’s public engagement with ExxonMobil. Total Returns inc
Slide 8: This decline occurred while oil and gas still dominate global energy
This decline occurred while oil and gas are still the dominant forms of global energy Source: Company 10Ks and Bloomberg. All share price, total shareholder returns, and market capitalization figures for ExxonMo bil are as of the last date prior to Engine #1’s public engagement, December 4, 2020, un
Slide 9: Most aggressive spending plans in the industry to chase production growth
ExxonMobil has pursued the most aggressive spending plans in the industry to chase production growth • Despite investor demand for spending discipline, for years ExxonMobil has pursued aggressive capital expenditure plans to chase production growth • This strategy has contributed to significant shar
Slide 10: Board's strategy eroded shareholder value before COVID
Board’s strategy eroded shareholder value before COVID, and left ExxonMobil far more vulnerable • Irresponsible spending resulted in ExxonMobil having the highest oil break - even price of any of its peers, leaving it more vulnerable to drops in demand Source: JP Morgan research; breakeven prices ar
Slide 11: Funding low-return projects by taking on large amounts of debt
ExxonMobil has been funding spending on low - return projects by taking on large amounts of debt • While its balance sheet once had almost zero net debt, today ExxonMobil has the most debt in its history, increasing over $80 billion in the last 12 years, and since 2016 has had three debt ratings dow
Slide 12: A decade of value destruction
This strategy has contributed to a decade of value destruction … • ExxonMobil invested over $300 billion in capex from 2011 - 2020, which failed to produce even an equivalent amount of value in undiscounted dollars • We estimate that unproductive capex has destroyed at least ~$175 billion in value,
Slide 13: Stands out even in a challenged industry
… which stands out even in a challenged industry * Data is as of December 4, 2020, the last trading day prior to Engine No. 1’s public engagement. Quote Source: Kevin Crowley and Bryan Gruley (Apr. 30, 2020). The Humbling Of Exxon. Bloomberg Businessweek. Christopher M. Matthews (Sep. 13, 2020). Exx
Slide 14: No credible plan to protect value in an energy transition
ExxonMobil still has no credible plan to protect value in an energy transition … • ExxonMobil is world’s 5th largest producer of greenhouse gas (GHG) emissions (after coal from China, Saudi Aramco, Gazprom, and Nat’l Iranian Oil) • This is an existential business risk given that 2/3 of emissions com
Slide 15: Trying to change the subject rather than strategy
… yet rather than changing its long - term strategy, ExxonMobil is trying to change the subject • In the past ExxonMobil dismissed total emissions reduction targets as a “beauty competition” • Now it claims its emissions reduction targets are “consistent” with the Paris Agreement • However, in setti
Slide 16: Unrealistic picture of carbon capture
ExxonMobil paints an unrealistic picture of the likelihood that carbon capture will obviate the need for change ... • It is true that the IPCC and IEA have said that carbon capture is critical for a 2 ƒ C pathway, but they have made clear that it is not a substitute for dramatically reducing convent
Slide 17: Fails to portray relevance of its carbon capture capabilities
… and fails to accurately portray the relevance of its own carbon capture capabilities • ExxonMobil claims to be the “global leader” in carbon capture, yet most of this is the necessary separation of CO 2 that naturally occurs during the production of methane (the key ingredient in natural gas), whi
Slide 18: Reenergizing ExxonMobil requires real change
Reenergizing ExxonMobil for today and tomorrow requires real change Long - term commitment to a coherent returns - focused capex strategy CAPITAL ALLOCATION POSITIONS TO ENHANCE AND PROTECT LONG - TERM VALUE CREATION POSITIONS TO RISK CONTINUED LONG - TERM VALUE DESTRUCTION LONG - TERM STRATEGY INCE
Slide 19: Our nominees bring the missing energy experience
Our nominees bring the successful and transformative energy experience that the Board is missing Quote Sources: Derek Brower (Mar. 3, 2021). Exxon v. Activist . Financial Times. Robert Cyran (Mar. 22, 2021). More Than This . Reuters Breakingviews. Paul Sankey (Apr. 1, 2021). Morning Sankey 4/1/2021
Slide 20: Gregory Goff
Gregory Goff • Served as President and Chief Executive Officer (2010 - 2018) of Andeavor (formerly Tesoro), a leading petroleum refining and marketing company • During his tenure, Andeavor generated total returns of over 1,200%, versus the U.S. Energy sector’s total return of 55% • ~30 - year career
Slide 21: Kaisa Hietala
Kaisa Hietala • Trained geophysicist and environmental scientist • Began oil and gas career in E&P and crude trading at Neste, then led strategic review that resulted in creation of the Renewable Products segment. Served as EVP for 5 years ending in 2019, during which annual segment revenues grew by
Slide 22: Alexander Karsner
Alexander Karsner • Began career developing energy infrastructure. As a private equity investor, venture partner and advisor, portfolios have included some of the most successful clean tech startups of the past decade • Part of the executive leadership team at X (formerly Google X), shaping strategy
Slide 23: Anders Runevad
Anders Runevad • CEO of Vestas, which has more installed wind power worldwide than any other manufacturer, for 6 years ending in 2019 • During his tenure, stock returned a total of 480%, significantly outperforming the global energy and industrials sectors • Credited with turning around Vestas, incl
Slide 24: Part II: Issue #1 – Failure to Position ExxonMobil for Long-Term Value
PART II: A CLOSER LOOK AT THE ISSUES Issue #1 – Failure to Position ExxonMobil for Long - Term Value 24
Slide 25: Static view of the future represents poor risk management
ExxonMobil’s static view of the future represents poor risk management and risks continued value destruction • Long - term business planning centered narrowly on projections of oil and gas demand growth for decades • Focus on near - term emissions intensity reduction, despite existential business mo
Slide 26: Little interest in repositioning its business
Despite rhetoric, ExxonMobil has shown little interest in even gradually repositioning its business • ExxonMobil significantly lags public integrated oil companies in measures of transition - readiness, scoring better than only state - controlled entities • While recently shifting its rhetoric on th
Slide 27: Not just a climate issue – a valuation issue
Not just a climate issue – a valuation issue for all long - term investors • The market ascribes a higher growth multiple to companies positioned to capture value in a decarbonizing world, and a declining terminal value and increased cost of capital to ExxonMobil and peers who are poorly positioned
Slide 28: A good trade, but the goal should be a good investment
ExxonMobil may currently be a good trade, but long - term goal should be becoming a good investment 28 Source: 2020 excludes one - time asset impairment expenses. Net Income projections (2021E – 2025E) are Bloomberg consensus. Cap ex Projections per ExxonMobil guidance ($20 - 25bn 2022 – 2025). Hist
Slide 29: Many projects in portfolio offer less compelling returns
While ExxonMobil is focusing investors on its best assets, many projects in portfolio offer less compelling returns • ExxonMobil presents any effort to diversify its portfolio as an extreme risk, yet its long - term portfolio contains many projects likely to realize “utility” type returns • Out of a
Slide 30: Coal shows how quickly demand can change
Coal shows how quickly changes in demand can occur once alternative technologies provide a better product • While ExxonMobil notes that it took 100 years for coal to be phased out, the actual drop in demand occurred relatively rapidly. In fact, 10 years ago forecasts for coal production were nearly
Slide 31: Possible to begin bending the long-term trajectory
Change will surely be gradual, but it is possible to begin bending the long - term trajectory • Peers have shown it is possible to begin gradually diversifying – and embracing long - term total emissions reduction targets – while maintaining focus on core business profitability and explaining strate
Slide 32: ExxonMobil can still play a profitable role in the energy transition
With the right strategic oversight, ExxonMobil can still play a profitable role in the energy transition • The energy transition will require technological innovation at scale, and the Oil Majors can utilize their size, global influence, and complex energy project expertise to play an important role
Slide 33: Issue #2 – Rhetoric Does Not Address Long-Term Business Risk from Emissions
Issue #2 – Rhetoric Does Not Address Long - Term Business Risk from Emissions 33
Slide 34: Distorting its long-term emissions trajectory
ExxonMobil has sought to obscure long - term risk by distorting its long - term emissions trajectory • While in the past ExxonMobil sought to disrupt the work of Intergovernmental Panel on Climate Change (IPCC), today it seeks to distort the meaning of its work • Arguing that reducing emissions inte
Slide 35: ExxonMobil has gone backwards on its own emissions standards
Even by its own limited standards, ExxonMobil has gone backwards and aims to do worse in 2025 than 2010 • Upstream emission intensity has worsened over the last decade, increasing 26% in 2019 vs. 2009 • ExxonMobil has set a target of reducing upstream intensity by 15 - 20% by 2025 (vs. 2016 baseline
Slide 36: Minimal investment in advanced carbon capture
Minimal investment in more advanced carbon capture mostly produces advertising • ExxonMobil has heavily advertised its investment in a company called Global Thermostat which is pursuing direct air capture, yet this effort is miniscule ($15 million according to Global Thermostat) and appears primaril
Slide 37: Advertising blitz on unfunded carbon capture project
Latest advertising blitz regarding a theoretical and unfunded carbon capture project lacks any real substance • ExxonMobil recently released ads touting a $100 billion carbon vaporware capture project • This appears to be another attempt to shift focus from long - term risk facing ExxonMobil – There
Slide 38: Unprepared for an actual carbon tax
Despite claimed support, ExxonMobil’s long - term strategy leaves it entirely unprepared for an actual carbon tax • A meaningful cost on carbon would likely make natural gas - based power more expensive than battery - backed solar and wind as early as 2024, and would dramatically limit natural gas d
Slide 39: A decade of promoting algae biofuels
A decade of promoting algae biofuels despite lack of viability shows a similar focus on advertising over reality • ExxonMobil has touted algae biofuels for more than a decade, yet has little to demonstrate for it other than advertising (during this same time period, one of our nominees helped build
Slide 40: Focusing on societal choices is poor risk management
Focusing on societal choices while trying to limit those choices is poor long - term risk management • ExxonMobil argues that meaningful decreases in Scope 3 emissions will require “changes in society’s energy choices coupled with the development and deployment of affordable lower - emission technol
Slide 41: Issue #3 – Lack of Capital Allocation Discipline
Issue #3 – Lack of Capital Allocation Discipline 41
Slide 42: Upstream returns have been falling for years
Returns on upstream projects (~75% of capex) have been falling for years, even during times of higher prices Chart Source: ExxonMobil 10 - Ks; Upstream ROCE excludes corporate investment and costs. 2020 ROCE includes $19.4bn in asset impairment, excluding which the ROCE is still negative ( - 0.4%).
Slide 43: Rising costs and falling capital productivity
38.8 27.9 19.6 10.0 8.7 7.9 0 5 10 15 20 25 30 35 40 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Rising costs and falling capital productivity have fundamentally changed return profile • ExxonMobil produced 39 barrels of oil equivalent (boe) pe
Slide 44: More exposed to declining demand than National Oil Companies
ExxonMobil and peers are far more exposed to risk of declining demand than National Oil Companies (NOCs) • For example, Saudi Aramco sits on the low end of the cost curve with significant underlying reserves, while ExxonMobil is relatively disadvantaged with production costs that are ~3x higher, cre
Slide 45: Capital expenditures have outgrown cash generation
ExxonMobil’s capital expenditures have outgrown cash generation, despite declining returns • As costs grew and returns declined, ExxonMobil’s capex increased from an average of ~50% of cash flow from operations from 2001 - 2010, to 85% on average from 2011 - 2020 • Total shareholder distributions al
Slide 46: Repeatedly committed to more aggressive spending than the industry
Despite these dynamics, ExxonMobil has repeatedly committed to more aggressive spending than the industry • ExxonMobil by its own admission has in recent years pursued one of the most “aggressive” capex spending plans in the industry, including pursuing heavy growth (versus maintenance) capex, as pe
Slide 47: Investors had turned against chasing production growth
Well before COVID, investors had turned against aggressively chasing production growth … Sources: Biraj Borkhataria (Mar. 6, 2020). Exxon Mobil Corporation: Needing flawless execution & macro recovery . RBC Capital Markets. Peter Low (May 13, 2020). Oil Majors: The Road to Recovery . Redburn. Devin
Slide 48: Peers with disciplined risk management have fared better
… and peers with a more disciplined risk management approach have fared much better “[W] ith Covid - 19 rampant and [ExxonMobil’s CEO] presenting the company’s first quarterly loss in decades, he finally relented: Exxon would reduce the number of rigs operating in the Permian by three - quarters to
Slide 49: Lack of capital allocation discipline unlikely to work going forward
Lack of capital allocation discipline unlikely to work any better going forward given long - term uncertainty Quote Source: Michele Della Vigna et. al. (Sep. 1, 2020). Carbonomics: Re - imagining Big Oils – The Age of Transformation . Goldman Sachs. Chart Source: Company ROIC from Company filings an
Slide 50: Issue #4 – Little Reason to Trust Newfound Spending Discipline
Issue #4 – Little Reason to Trust Newfound Spending Discipline 50
Slide 51: Clinging to plans until forced to change is not a strategy
Clinging to plans until forced to change is not a strategy • ExxonMobil finally acknowledged in late 2020 that it could not continue spending at its projected levels without adding more debt, yet hedged just days later Quote sources: ExxonMobil CEO (Mar. 6, 2019). 2019 Investor Day. Kevin Crowley (M
Slide 52: Shareholders need a Board with consistent capital discipline
We believe shareholders need a Board that will maintain a consistent strategy of capital allocation discipline • While presented with great fanfare, ExxonMobil’s near - term spending cuts came as little surprise to analysts given ExxonMobil’s deteriorating financial position Table Source: S&P Capita
Slide 53: History of shifting stances instills little confidence
History of shifting stances instills little confidence that Board now has a coherent strategy Sources: Phil Gresh (Aug. 2, 2020). Assessing Implications of 2020 - 21 Capex Cuts . JP Morgan. Peter Coy (Jan. 26, 2021). ExxonMobil Needs a Wind - Down Strategy as Oil’s Prospects Dim . Bloomberg Business
Slide 54: Issue #5 – Lack of Transformative Energy Experience on the Board
PART II: FUNDAMENTAL ISSUES Issue #5 – Lack of Successful and Transformative Energy Experience on the Board 54
Slide 55: Board filled with former CEOs without energy experience
ExxonMobil has for years filled its Board with former CEOs without any energy experience Source: Bloomberg and ExxonMobil proxy statements. *Sector Return is S&P's GICS Level 1 Sector return for the respective comp any ; Market Return is the S&P 500 return for the same tenure. Performance of Ken Fra
Slide 56: Excluded nominees bring little relevant experience
Excluded nominees bring little relevant experience and track records of value destruction as Board members • All three presided over ExxonMobil’s ill - advised decision to chase oil and gas production growth over returns by dramatically increasing capex in March 2018, then again in 2019, and to re -
Slide 57: New directors do not fill the need for energy experience
• Board already has a representative from the investor community with experience in ESG investing • Other board experience includes Nikola, Valeant, AES, and Enviva • Board already has numerous executives with capital allocation and risk management experience • Other board experience includes TriNet
Slide 58: Board avoided adding directors with energy experience
Board went to great lengths to avoid adding directors with successful and transformative energy experience • Rather than even meeting with our nominees (the “Nominees”), ExxonMobil added three new directors in a process rife with serious issues Quote sources: Scott Deveau and Ed Hammond (February 4,
Slide 59: The Board would benefit from a wider range of views
The Board would benefit from a wider range of views 59 “Nearly two - thirds [of global energy] comes from non - OECD countries. In fact, going forward, all of the growth in global emissions is expected to come from non - OECD countries … Wind and solar, while growing rapidly, are challenged in some
Slide 60: Unfair attacks on our nominees
Unfair attacks on our nominees shows Exxon's cultural hostility towards change ExxonMobil Claim Our Response “Two of the candidates don’t have CEO experience at any company …” • The Board has long used having held the CEO role in an unrelated industry as primary criteria, despite a decade of underpe
Slide 61: Unfair attacks on our nominees (cont.)
Unfair attacks on our nominees shows Exxon's cultural hostility towards change (cont.) ExxonMobil Claim Our Response “Engine No. 1 wants the company to invest in wind and solar …” • We have said the Board needs to explore all diversification opportunities, and our nominees have experience across ene
Slide 62: Unfair attacks on our nominees (cont.)
Unfair attacks on our nominees shows Exxon's cultural hostility towards change (cont.) ExxonMobil Claim Our Response Claim about Andeavor regulatory issue • This apparently refers to a settlement agreed to by Marathon Petroleum after it acquired Andeavor , which addressed alleged failures with respe
Slide 63: Issue #6 – Misaligned Incentives
Issue #6 – Misaligned Incentives 63
Slide 64: Inverse relationship between compensation and shareholder performance
Inverse relationship between management compensation and performance for shareholders • From 2017 - 19, ExxonMobil’s total return was - (12)% and share repurchases were effectively halted in 2017, yet CEO compensation rose 35% during this period • While 2020 CEO compensation was down 33%, ~72% of th
Slide 65: Compensation plans that reward volumes over value
Disconnect results in part from compensation plans that can reward volumes over sustainable value Source: Company proxy statements. ExxonMobil’s performance metrics are Safety and Operation Integrity, ROCE, Cash Flow from Operations & Asset Sales, and TSR. • Limited disclosure regarding project retu
Slide 66: Ad hoc changes undercut compensation plans
Ad hoc changes have also undercut effectiveness of compensation plans Source: Company proxy statements. • Metrics are not assigned specific weights using a pre - set formula, allowing for ad hoc changes including alteration of key compensation metrics • For example, as ExxonMobil created aggressive
Slide 67: Part III: Seizing the Opportunity for Real Change
PART III: REENERGIZING EXXONMOBIL Seizing the Opportunity for Real Change 67
Slide 68: Reenergizing ExxonMobil requires real change
Reenergizing ExxonMobil requires real change Long - term commitment to a coherent returns - focused capex strategy CAPITAL ALLOCATION POSITIONS TO ENHANCE AND PROTECT LONG - TERM VALUE CREATION POSITIONS TO RISK CONTINUED LONG - TERM VALUE DESTRUCTION LONG - TERM STRATEGY INCENTIVES Gradually but pu
Slide 69: Board Composition – nominees add complementary skills
Board Composition – All 4 nominees each add a highly relevant yet unique and complementary set of skills • Election of all 4 critical to help Board address array of industry challenges, and to bring real change to a Board that has refreshed itself for years without a change in performance or strateg
Slide 70: Long-Term Strategy – Profitability today, repositioning for the future
Long - Term Strategy – Focus on profitability today while pragmatically repositioning for the future • ExxonMobil has no plan to reposition for the future and relies instead on misleading arguments about its emissions and carbon capture capabilities, yet argues that we must produce a detailed busine
Slide 71: Capital Allocation – Returns-focused strategy
Capital Allocation – Long - term commitment to a coherent returns - focused strategy • ExxonMobil has cut 2022 - 25 capex guidance in response to financial and investor pressure, but most spending has been deferred rather than canceled • Even within this range there is wide flexibility; next year’s
Slide 72: Incentives – Aligning goals to drivers of shareholder value
Incentives – Better aligning performance goals to drivers of shareholder value • We believe a Board with a better understanding of the long - term drivers of value in energy can better set compensation strategy, which we believe would include: – Consistent metrics with disclosed preset weightings an
Slide 73: Repositioning for the future can enhance returns
Gradually repositioning for the future can enhance returns for long - term investors • ExxonMobil is solely reliant on the hope of consistently high oil and gas prices well into the future to generate long - term returns • Better capital management can boost profitability in a wider range of demand
Slide 74: Benefits of investor engagement have been tangible
50% 70% 90% 110% 130% 150% 170% 190% 210% 1-Oct-20 16-Oct-20 31-Oct-20 15-Nov-20 30-Nov-20 15-Dec-20 30-Dec-20 14-Jan-21 29-Jan-21 13-Feb-21 28-Feb-21 15-Mar-21 30-Mar-21 Benefits of investor engagement have been tangible, but preserving gains will require real change Source: Bloomberg data as of 1
Slide 75: Now is the time to seize this chance
Now is the time to seize this chance to give ExxonMobil’s Board the experience and skills it needs to face the future 75 • The Board of ExxonMobil will be addressing the most important questions facing the energy industry for years to come, including: – How to responsibly allocate capital to preserv
Slide 76: Appendix: Analyzing Long-Term Demand Projections
APPENDIX Analyzing Long - Term Demand Projections 76
Slide 77: ExxonMobil's world view fails in lower demand scenarios
ExxonMobil’s world view has resulted in a failure to position itself for success in lower demand scenarios • While new oil and gas capex will be required under even aggressive decarbonization pathways, ExxonMobil relies on forecasts that discount the possibility of a material energy transition, most
Slide 78: Assumptions Regarding Impact of Population Growth
Assumptions Regarding Impact of Population Growth • ExxonMobil points to population growth, particularly in the developing world, and the historical page of change in the industry in predicting future growth in fossil fuel demand • This conclusion does not necessarily follow, however, as continued e
Slide 79: ExxonMobil's Position on Power Generation
ExxonMobil’s Position on Power Generation • The world power generation mix may be radically different in 20 years • ExxonMobil’s 2040 projections regarding the contribution from Solar, Wind and Hydropower, however, assume the world will continue along its present path • However, even natural gas, wh
Slide 80: Impact of Falling Costs for Renewables
Impact of Falling Costs for Renewables • Significant and sustained improvements in the cost of renewable energy production have been consistently underestimated by industry participants, and the cost of both Solar PV and wind energy have rapidly become on par with natural gas - powered generation Lo
Slide 81: ExxonMobil's Position on Electric Vehicles
ExxonMobil’s Position on Electric Vehicles • Average battery prices have fallen at an 18% learning rate since 2010. At this rate, an EV would cost the same as an ICE car by 2024, which could lead to peak demand in ICE cars • ExxonMobil’s EV estimates have trailed IEA, OPEC, BP and BNEF estimates, an
Slide 82: Impact of Increased Efficiency on Demand Predictions
Impact of Increased Efficiency on Demand Predictions • Increased efficiency in manufacturing and industrial processes could dramatically impact future demand • For example, the IEA’s WEO 2020 assumes that petrochemicals will be the largest driver of future oil demand growth, accounting for three - q
Slide 83: www.reenergizexom.com
www.reenergizexom.com