WHEN: Today, Thursday, March 3rd
WHERE: CNBC's "Squawk Box"
Following are excerpts from the unofficial transcript of a CNBC EXCLUSIVE interview with ExxonMobil Chairman and CEO Rex Tillerson and CNBC's Becky Quick, which ran on CNBC's "Squawk Box" (M-F, 6AM-9AM ET) today, Thursday, March 3rd. Following is a link to the video on CNBC.com: http://video.cnbc.com/gallery/?video=3000498622.
All references must be sourced to CNBC.
TILLERSON ON CAPITAL INVESTMENT
REX TILLERSON: We're coming off of a five-year period of very high capital investment. If you look at the previous five years to 2015, we had invested about $190 billion dollars back into the business and some of the major projects that would have funded they are where we have partners, and-- the partners and we have agreed we should take advantage of this market situation, let's go back and re-look at the costing of those projects, the contracting strategies, and is there some value we should be trying to claw of out this market before we make a final decision? And governments have been working collaboratively with us on that. The second is in our North American drilling activity, we've been bringing our rigs down like everyone else, not because the opportunities are no longer economic at this low price, but clearly the returns have been diminished--
BECKY QUICK: Sure.
REX TILLERSON: --and as I told the-- the group today, I said, "I just don't see pushing a rope into this market and, you know, we're gonna drill to sa-- maintain our acreage, we're gonna continue a program so that we keep learning, 'cause we got a very good learning process going on in the basins where we are working and I don't wanna interrupt that." But it's just a question of how active do you want to be?
BECKY QUICK: You have-- recently stopped buying back shares. Part of the way that you're gonna make sure you maintain your balance sheets strength. But you raised your dividend again and-- now its 33 years running that Exxon has continuously raised that dividend. How safe is the dividend?
REX TILLERSON: Well, as I told the group today, you know, and I've said it many times over the years, we are a company that's built for the long-term shareholder. We're not built for short-term investors, we love it when they wanna buy the stock. I hope they do. But when we make decisions about the financial structure of the company, our investment programs, we're really thinking about 20, 30 years out. And we're thinking about those long-term shareholders. So our view-- and the question came today on the borrowing, I said-- they said, "What did you borrow to b-- pay dividend, or did you borrow to invest?" And I said--
BECKY QUICK: The $12 billion--
REX TILLERSON: Yeah, I said--
BECKY QUICK: --that you just borrowed.
REX TILLERSON: --"We borrowed to invest." We take the cash flow and we're going to pay that dividend because know that's-- it's so important to people, for a lotta people it's really important to them. And so I'm-- in answer to their question, the dividend is safe. We have again, as part of what we feel is the obligation to our shareholders.
BECKY QUICK: Let's talk about that $12 billion, what you see in terms of potential opportunities. Are we talking mergers and acquisitions here?
REX TILLERSON: All of the above. (LAUGH) You know, and it's really to give us that flexibility—the cost of borrowing is about as low as it's going to get. And so we wanna take advantage of that. Today-- and I commented to the group today, most of what we're doing are asset acquisitions because whole company acquisitions still appear to be difficult to do.
BECKY QUICK: Why-- is that? You'd think--there'd been more bloodletting since then.
REX TILLERSON: Well, there's-- there has been. And I think there's two aspects of it. One is valuations, believe it or not, are still not aligned in terms of what companies want versus what we see the value to be. And the second thing that's happened over the last year and I commented to the group, because companies have wanted to maintain themselves looking I think for the price upside, they've taken on additional leverage, they've issued additional shares, diluting their existing shareholders. And in some respects, in doing that, they've destroyed some of the inherent value. When I-- so when we look at the-- the assets, we love their assets, but when I look at the balance sheet, I'm buying a house that's got a huge mortgage on it.
BECKY QUICK: How--much would valuations have to come down before things look a little bit more reasonable to you? I know it's a case-by-case basis and you can't paint too broad of a stroke.
REX TILLERSON: Well, and maybe it's-- the question is more how much does the premium need to come down--
BECKY QUICK: Yeah.
REX TILLERSON: --because that-- that's really where the--hurdle is and I understand and I appreciate the other folks that are running these companies, they have to justify to their shareholders, you know, why they cannot command premiums that are what people are accustomed to. You know, and then the conversations we have, that's generally where we get stuck.
TILLERSON ON VOLUME
REX TILLERSON: Well, hopefully we've provided a little bit of insight in that today-- with our forward-- expectations on volumes. And as we told the group today, we don't set volume target, we set investment programs and the volumes are the outcome. But having said that, even at a reduced levels because we have a lot of major projects that are nearing completion that's coming off of this high-- period of investment, we have a lot of new volumes coming online this year and over the next two years. So our volumes are expected to stay in the 4-4.2 million barrel a day range, which is only slightly off of what we told people last year. And going forward as I said, that deep pool resource base, the quality of it's still good. And I think as we look over the next certainly five to ten years, we've got plenty of capacity to maintain our volumes and continue to bring reserves online. So I understand and we are-- you know, we wanna give the rating agencies all the information that we can give them to help them understand how the future looks. You know, over 90 years of being AAA, this is not the first time we've been through a period like this of pretty extreme stress on the financial-- model of the company. In fact, we've had periods where our financial metrics by their standards are much worse than they are today and they've maintained that rating. I hope we can maintain the rating 'cause it's important to us reputationally--our cost in the marketplace has been-- is-- it's largely unaffected. But I think it's something that I'd be disappointed if they lower it, but I understand, they have to-- you know, they have a job they have to do.
BECKY QUICK: I've read some things recently where Harold Hamm from Continental Resources and one of their competitors Whiting Petroleum have said that-- they're now able to make shale-- worthwhile at $40 a barrel, $40-45. And both of them saying that they would-- pump more if we got back to $40 or just north of that. What--does that mean for the long-term-- price of oil?
REX TILLERSON: Well, it suggests that-- the future's gonna be in a fairly narrow band, depending again on what global demand does. Our development cost in the Permian are about $10 a barrel now, the Bakken is down to $11. Our cash cost is $10. So you can drill today at these prices and generate a modest return. We wouldn't do that 'cause we think their resources are worth more than that.
BECKY QUICK: Right.
REX TILLERSON: But I'm sure others are in similar situations, so when you get to $40, particularly companies that this is really all they have, it's a one-play-- opportunity for them, I expect there will be some volumes come back. And so it says we're gonna continue to have some volatility but it's probably gonna bounce around in at a narrower range.
BECKY QUICK: Rex, what has lower oil prices meant for-- your home state of Texas where you all are based? What--has it meant in terms of the jobs and in terms of the economy there?
REX TILLERSON: Well, you really do sense it in certain parts of the state, certainly Midland-- you sense it. You-- drive out there and there's a forest of rigs that are sitting on the side of the highway stacked. And you know every one of those rigs had a crew of people working on it six months ago. And where are those people? In Houston, it's having an effect but Houston has so diversified its economy over the years that this is nothing like the 1980s which really devastated the Houston economy. And so I'd say by and large, the state's weathering it really quite well. They are seeing it in tax and royalty revenues. Local governments are seeing it in tax revenues, and so it's putting some pressure on some localized areas. But I'd say by and large the state's doing fine.
TILLERSON ON BUSINESS OUTSIDE THE U.S.
REX TILLERSON: U.S. companies like ours are still unable to conduct business in Iran. A lot of our European competitors are in, working actively. I don't know that-- that we're necessarily at a disadvantage. The history of Iranian-- in foreign investment in the past, their terms were always quite challenging, quite difficult. We--never had large investments in Iran for that reason. And I don't know that the Iranians are gonna be any different today. We'll have to wait and see and there hasn't been any contracts put out. But I also learned a long time ago that sometimes being the first in is not necessarily best. We'll wait and see if things open up for U.S. companies. We would certainly take a look because it's a huge resource-owning country.
BECKY QUICK: That-- brings us to-- a lot of the instability that's been out there in places like Saudi Arabia and places like Russia. How--do you measure things just in terms of a global risk factor right now? And-- where would you say we are?
REX TILLERSON: Well, geopolitical risk is just a way of life for us-- has been my whole career. And it just-- it changes, and the nature of it changes. We've been through wars, we've been through revolutions, we've been kicked outta countries, we've gone back to countries. It is very country by country specific. I would say there-- you know, there is a lot of uncertainty in the world today, certainly in the big producing regions, the Middle East-- the relationship with Russia. And those are enormously important parts of the world for everyone's economies. I mean, this is-- you know, energy is the life blood to economic growth. Hopefully things will work themselves out. Middle East is a tough place right now, lotta wars on multiple borders that people are having to deal with. We continue to work successfully there in spite of that and have very good open relationships with the governments there.
BECKY QUICK: Is-- OPEC still a factor?
REX TILLERSON: OPEC is still a factor, although I would say I think they're going through a process of coming to grips with what that means when they're a factor. And, you know, when—
BECKY QUICK: Instead of being the only 800-pound gorilla.
REX TILLERSON: Yeah instead of just the one-- instead of one country--
REX TILLERSON:--and I think in many respects perhaps that's what-- Minister Naimi in Saudi Arabia are trying to do is-- is create a--basis on which to-- let's have a conversation about what is OPEC today and in the future. You know, when he talks about needing to force the high cost barrels out of the market, and of course everybody sees that as being North America and Deepwater, within OPEC though, there are barrels that are not high cost per se, but there are barrels that going to get forced out because countries do not have the wherewithal to continue to reinvest. Venezuela, Nigeria, those are low cost barrels but they're likely to-- decline rates going to overtake their capacity. So OPEC's gotta deal with that.
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