WHEN: Today, Wednesday, December 1, 2021
WHERE: CNBC's "Squawk on the Street"
Following is the unofficial transcript of a CNBC exclusive interview with Exxon Mobil Chairman & CEO Darren Woods on CNBC's "Squawk on the Street" (M-F 9AM – 11AM ET) today, Wednesday, December 1st. Following is a link to video on CNBC.com: https://www.cnbc.com/video/2021/12/01/exxon-mobil-ceo-latest-spending-plan-puts-earnings-goal-back-on-track.html.
All references must be sourced to CNBC.
DAVID FABER: Welcome back to "Squawk on the Street." I'm David Faber on the Houston campus of Exxon Mobil joined now by the company's Chairman and CEO, Darren Woods. A nice background behind you, by the way, I'm told Darren it's the drilling fluids analysis that's going on. There's some people actually working on that. Important part of the business, figuring out new fluids that will actually help obviously optimize the drilling process, not what we're here to talk about today though but very glad that we could join you. We are here to talk about the release out this morning in which, you know, you codify many of the targets that you shared to a certain extent during your last quarter. So, what is different about today in terms of why people should think about these numbers again if they already sort of saw you talk about them a few weeks back?
DARREN WOODS: Well, let me just extend my welcome. Glad to have you here, David, and glad to share the view of the lab and some of the discussions and things that we're doing there. With respect to the release today, what we did and our third quarter earnings call in October is we had just had a preliminary review with the board, shared some of the perspective of the things the board was looking at as part of our plan. In November, we finalize that plan and in this release, basically puts in a lot more detail behind the initial numbers that we shared in October. And it's a plan frankly that we're very, very proud of. If you think back in 2018, we set some fairly aggressive targets like for 2025 to double earnings and cash flow. Pandemic got in the way of that and obviously set those plans back. This plan basically achieves doubling the earnings by 2025 back on track, nearly doubles cash flow and by 2027 basically double earnings and cash flow very soundly so very proud of the progress that we've made despite the setback of the pandemic.
FABER: Yeah, a lot of focus is also going to be on the $15 billion number, again, a number that we had seen previously, but a bit more detail behind it as well. You know, you're talking about 15 billion on greenhouse gas emission reduction products over the next six years. There are those who want to know what's the return going to look like on that expenditure and how are you going to go about spending it?
WOODS: Yeah, so it's a mix and what we've tried to do here, and I think one of the things that board has brought to this year's plan in the discussion is challenge us to take a lead in how Exxon Mobil can help society address this challenge of reducing emissions. That portfolio, $15 billion, includes projects that today generate good returns with existing policy. There are other aspects of that portfolio where we are developing projects, seeding projects, large scale projects, in anticipation of policy and trying to develop those projects in a way that can inform policymakers to help them think about how best to shape policy—
FABER: So, what would be an example of that Darren?
WOODS: So, the Houston hub that we proposed is a great example of that where we've got 11 companies collaborating to make a significant step change in emissions 50 million tons per annum by 2030, 100 million tons per annum by 2040, very high concentrations of CO2 and do that at a cost which is cheaper than essentially any other programs or initiatives that the government is currently funding. So that's a great example but it needs some policy to help support that project.
FABER: What's the policy then?
WOODS: So, you need, you need policy, which frankly, the infrastructure bill has helped with to regulate pore space and allow access to pore space. We're going to need infrastructure and pipeline, we need some additional 45Q, some additional incentives for carbon reduction that's being considered in the Build Back Better legislation, so I think there's the, you know, the, the policy makers are receptive to the ideas and the constructs that we're trying to put together to table opportunities, make significant reductions in a cost-effective way.
FABER: So, if you see those policy changes that you're talking about, is it possible that you will choose to increase that number or is that number going to be what your shareholders should expect for the next six years?
WOODS: If you look at that number, last year, we've more than quadrupled it and it's really a function of the organization focusing and finding the opportunities around the world. We're working with governments around the world. So, I would expect that if those policies come into play and provide the necessary incentives to drive that investment, you'd see that investment level go up. Absolutely.
FABER: And you talked about the use in the hub, and you talked about, you know, carbon capture obviously. There's a lot of carbon that comes out of there. But we're not in a technological place where we can actually suck it out of the air in an efficient way and just store it somewhere or are we?
WOODS: No, that's the holy grail if you think about if you could leave the existing infrastructure in place which is very efficient today and find a way to extract CO2 out of the air cost effectively, that's the holy grail because you get your cake and you eat it too. There are a lot of people working on that technology and I think we will make advances there, but I would say you need to spend money on that technology have some breakthroughs there and you also need to develop a broader set of portfolios because as you know, predicting when you're going to have a breakthrough and the magnitude of that breakthrough is often challenging so you better have a portfolio of opportunities that you're pursuing. But I think direct air captures is an important technology.
FABER: You do, you know, when you talk about carbon capture which is becoming an important component of your product portfolio for lack of a better term, I mean, you say, unique capability that Exxon Mobil has. You talk about leveraging your advantage in science and technology. Give our viewers some sense as to what you're talking about when you say that. What is it about Exxon Mobil that gives you the confidence that that's where you should be focused and that that's where you can distinguish yourself, as you say, in terms of being sort of unique?
WOODS: So, if you go back and look at our history over 135 years, I mean, our job has been to discover and develop hydrocarbon and then to transform that hydrocarbon into products that consumers need and to manage the impact of that hydrocarbon. What we're talking about with carbon capture is just a variation on that theme of managing carbon and managing hydrocarbon molecules. And so today, we're the largest sequester of carbon in the world today, we've captured more anthropogenic CO2 than any other entity in the world and, so we've got a lot of experience in that space. It's going to require large scale projects, which we have an expertise in. It's going to be needed all around the world where we have the relationships with governments and had done that work in the past, requires technology and advances in technology which is where we spend a lot of money and it requires an understanding of how to integrate those projects into existing facilities which obviously, we have a very large facility footprint. So, there's a lot of aspects of what we do today that lend itself and support what we can do tomorrow with carbon capture and the beauty of carbon capture hydrogen and biofuels, all those lower emissions investment opportunities draw on the same sets of skills and capabilities, and in fact, are competitive advantages. So as the world transitions and we have this uncertainty as to exactly when it's going to happen, we have the optionality and the flexibility to shift from the traditional investments in what we're leveraging are those skills to the alternative investments and we can pace that as the world transitions and as we work with governments, and if that accelerates faster, we can ship those resources faster. If it slows down, we can keep those resources balanced.
FABER: What's your guess right now, you know, based on what you see right now and our ability to actually combat climate change, come to some sort of agreement by the way within our own country, not to mention with nations around the world, what's your best guess in terms of how that shift is going to take place and when?
WOODS: You know, I think it's hard to predict and that is not, in fact, very different than what the price of crude or any of our other products can be very difficult to predict so the plan is to basically build an optionality, so you're prepared irrespective of what direction that goes in. It's challenging to put that policy in place. The fact of the matter is today, the alternatives to replacing the existing energy system are expensive, and consumers will have to pay for that. We're working hard to bring that cost down. I think that's the best solution is to invest in the technology, provide alternatives that don't require consumers to give up the standards that they've become accustomed to and don't require them to spend a lot of money. I think that's the work that has to happen, and how quickly that technology evolves to get those costs down will help drive the pace of the transition.
FABER: But people are going to have to potentially be willing to spend more is what I hear you saying.
WOODS: I think, you know, there will be a cost for moving to what is today a very efficient to a new alternative. The more that we do that cost will come down obviously and the better the technology becomes that that cost will come down but that there will be a transition cost. No doubt about it.
FABER: You know, speaking of that transition of course, we're focused on Europe to a certain extent this winter because the wind hasn't been blowing quite as hard in the North Sea, the sun doesn't always shine and there has been a transition that has taken place more, more so than here certainly in terms of power generation. Are you concerned at all about what you see in Europe and potentially what they're facing?
WOODS: Yeah, no, I think, it's I am concerned and it is this, I think when you're moving from if you think about today's global energy system, it has developed over decades and billions of people around the world depend on it to support their modern living and so as you transition out of that, which has to happen to get the emissions down which I think is the right objective, you gotta be very thoughtful about how you do that because if you, if you don't have the same availability and reliability, that will translate into people going without energy, which is absolutely critical to their standards of living and obviously in the wintertime, it becomes very important with heat so we're going to have a challenge I think. It's going to be a function of how, how cold it gets and what the demand looks like. It's been compounded not just by the transition in the investments and the alternatives, but coming out of the pandemic, the industry saw a tremendous impact from that pandemic and a loss of revenue and prices being as low as they were and so investments had to pull back. The industry didn't have the money to make the investments that has in a depleting business has really constrained supply. Now the demand is picking back up again. So, there's a number of dynamics there are influencing that, we got to get our, we got to get through that, frankly.
FABER: Well, speaking of rising prices, I did want to get your response to President Biden a few weeks back when he asked the Federal Trade Commission to examine oil and gas companies and their role in rising gasoline prices. There seem to be this idea that there's potentially illegal conduct. What's your response?
WOODS: I think, you know, if you go back in time in history, every time we see the supply and demand balances get tightened, prices rise. You see similar types of investigations. I think you're gonna find there's nothing, there's no there there. I mean, frankly, this is a commodity market. The prices are set by the amount of supply that's out there and by the amount of demand. If you restrict that supply and you don't do anything about demand, I promise you prices will go up.
FABER: Can you give us any prediction on oil prices?
WOODS: I can't do that, David. I wish I could.
FABER: And finally though, how about cost reduction? You've taken four and a half billion out in costs since I think 18 or maybe 19, you have a $6 billion target, are you going to be able to exceed that?
WOODS: Absolutely. I think, I've been very proud of the organization. The changes that we made starting in 2018, 2019, where we changed how the organization was configured and moved to value change that allowed us to really focus the organization in becoming more efficient, both from a capital deployment standpoint, if you look at the, the earnings and cash flow growth that I talked about, we're doing that with a lot less capital than we had before in large part because of the productivity we're getting out but it's also allowing us to significantly reduce our expenses and I expect to beat $6 billion easily.
FABER: Alright, we'll hold you to that.
FABER: And look forward to future interview, as well when we discuss it. Darren, thank you for taking time. Appreciate it.
WOODS: Thank you David. Thanks for coming down.
FABER: Sure thing. Darren Woods, Chairman and CEO of Exxon Mobil. Carl, back over to you.