Good day, everyone, and welcome to this Exxon Mobil Corporation First Quarter 2020 Earnings Call. Today's call is being recorded. At this time, I'd like to turn the call over to the Vice President of Investor Relations and Secretary, Mr. Stephen Littleton. Please go ahead sir.

Thank you. Good morning, everyone. Welcome to our first quarter earnings call. We appreciate your participation and continued interest in Exxon Mobil. As a quick introduction, my name is Stephen Littleton. I assumed the role of Vice President of Investor Relations on March 15. Joining me on the call today is our Chairman and CEO Darren Woods. Before discussing our results, I would like to express our hope that all of you listening and your families are safe and taking the appropriate steps to fight the coronavirus. These are challenging and unprecedented times as the world deals with and adapts to the coronavirus pandemic. Global economies have slowed down significantly as governments work to contain the disease. During the call today, we will put our results into context and share with you how our business performed in the first quarter. After I cover the quarterly, financial and operating results, Darren will provide his perspectives reflecting on the broader market environment and steps we're taking to both respond to these challenges and ensure we remain well positioned for the recovery. Following Darren's remarks, I will be happy to address specifics on the quarterly reported results, while Darren will be available to take your question on broader themes, including the corporation's actions related to COVID, progress on major growth projects, strategic priorities and views on market fundamentals. Our comments this morning will reference the slides available on the Investors section of our website. I would also like to draw your attention to the cautionary statement on Slide 2 and supplemental information at the end of this presentation. As referenced in the cautionary statement, please take note that in light of the COVID-19 pandemic and reduced spending plans, we've put in place many of the forward-looking statements from our Investor Day have changed.…

Thank you, Stephen and good morning, everybody. I hope all of you and your families are safe and healthy. We certainly appreciate you taking time to join us today. I think we can all agree that these are very challenging times. And I know, I speak for many when I say that our thoughts are with those who have been personally affected by this pandemic with the health care workers and first responders who are on the front lines. This morning, I will discuss how we are approaching the current circumstances and how we are working to keep our people and communities safe managing through the near-term market downturn and preserving long-term shareholder value. As you well know, today we face two acute challenges: a global threat to public health and a significant global economic downturn resulting in a commodity price collapse. What started with an oversupply situation was made more extreme by a sudden and unprecedented drop in energy demand as the economy shut down to stop the spread of the virus. As a capital-intensive commodity business, we certainly weathered the ups and downs of many price cycles. However, I have to say we've never seen anything like what the world is experiencing today. Our response is primarily focused on three areas: protecting the health and safety of our employees and communities, keeping our operations running to provide the critical energy and products that support modern life and the COVID response efforts and aggressively reducing spend in today's depressed markets, while preserving value to ensure we are in the best position for the eventual recovery. I know that there are a lot of different views on what the future holds, but I want to be clear on how we see it. The long-term fundamentals that drive our business have…

Thank you for your comments, Darren. We'll now be more than happy to take any questions you might have.

Thank you, Mr. Littleton and Mr. Woods. [Operator Instructions] We'll go first to Sam Margolin with Wolfe Research.

Good morning. Hope all is well and you're safe. So, you've been steadfast on your view of secular energy demand growth with a cyclical pace and it's something you deploy a lot of human capital to. You're not just talking off agency forecasts or anything. So I wonder how that is moving around here in the early days of this crisis. For example, jet fuel, huge component of demand growth out to 2030, but maybe structurally changed. If there's anything in your forecasts on the demand side that are changing on kind of on a structural or long-term basis that might inform how you deploy capital on the other side of the crisis period of the cycle, within the prior range of your five-year plan.

Well, thanks Sam. Hope all is well with you and your family. Yes, we've looked at that. Frankly, it's real difficult to plan a longer-term horizon and factor in the impacts of what we're seeing today when what we're seeing today hasn't fully played out yet. And so I just caveat my comments with the fact that we're in the middle of this thing. And so, we'll see how it kind of plays out through the rest of the year, if it sticks with the forecasts that are out there and what I showed in my prepared comments. But if you look back in time and you can take 9/11 as an example, you have these dips and then over time you see a recovery. And while you start from a lower point, you see a continued growth and a slope that's very consistent with what the world has experienced in the past. I don't think events like this change the basic human nature or people's wants and desires. I don't think it changes people's drive to improve their living -- manage their prosperity. I don't think it changes the economic growth that's required to support growing populations, particularly in some of the developing world. So as you look further out and get past this short-term challenge, I think we're going to be back to the same fundamentals that we've always talked about, because people want a better standard of living for themselves and their family. That is a very basic human dynamic. And as I've shown before many times, as people's standards of living grows, as economies grow the demand for energy will grow with it.

Thanks. And then just as a follow-up to that theme of kind of exit rate capital spending relative to the prior five-year plan, LNG Exxon had a number of projects identified that were pre-FID. The structural challenge with that asset class always seems like there were a lot of parties that were pursuing a utility model, which sort of compressed the returns profile of it, as it just seemed like a very un-Exxon asset class in that regard. As you think about restoring capital spending to some number closer to your prior five-year range is LNG, the category that you think might have a structural slowdown in the outer years out to 2025, or are those projects still very high on your priority list?

So, I think, Sam, if you go back to the longer-term growth forecast and the demand for fuel, LNG and gas continues to be a fast-growing product and demand for LNG continues to grow. So I think that's going to continue to play a role. I think the -- if you look at the capital projects that were sanctioned and moving forward, many of those have slowed down. Some have been canceled. So I think as we go through this year, there's going to be some things changing around, which projects get sanctioned and move forward what the time frame of those projects are. And then, of course, the demand will pick back up and we'll see gas continue to grow. So my suspicion is, we'll see some shifting around in the schedules. But, again, the fundamentals are going to require additional LNG. And so I would expect to see that continue to be represented to a fairly large extent in our portfolio. What I would say on the utilities type return, it really depends on the specifics of the project. I think you can't look at those as one asset class. As you move around the world there are different dynamics and challenges and risks associated with different LNG projects. And what we look to do is to make sure that the returns of the specific projects meet our criteria. And so, that's I think how we look at it and you got to kind of separate each one individually and look at it. We've got pretty high standards to make sure that we maintain the returns that we need to as a corporation. Thank you, Sam.

Thank you so much. Be safe. Great.

You too.

We'll go next to Jon Rigby with UBS.

Thank you. Can I -- just as a follow-on from that, just two things around that commentary about the slowdown and speed up of activity. Can you give a little bit more color on the process you go through about sort of identifying which assets you mothball or slow down how you sort of identify how you preserve value through the sort of lower spending period? And then internally give some indication of how quickly you could mobilize again in terms of people and spending to move back up to the sort of cadence that you were running at pre-COVID if that's possible. That's my first question.

Okay. Well, thanks John. Yes the process -- and if you recall when -- after our Investor Day is as Saudis and Russia made their announcements and then the impact of the COVID started picking up, we shortly after that around mid-March issued a statement that said we were going to revise our capital and OpEx targets for the year. We're going to significantly revise those and then basically announced about a month later what the reductions were. The process we went through I would characterize as a grassroots process in terms of bringing our businesses together talking about the challenges and what we needed to do as a company and then letting the businesses and our project organization step back and start engaging with the relevant stakeholders to figure out how best to make this change. And the point I made in my prepared remarks was a fundamental principle in looking at this was how do we do this recognizing that stopping some projects in progress will have some inefficiencies and costs associated with it. We need to offset those and find ways to do that and this market ought to provide that. And the fact that everybody was experiencing these challenges ought to get people similar motivations to work together and find efficiencies. And so, one key criteria was figuring out where those biggest opportunities were and therefore taking advantage of that to make sure that we did not compromise the returns of the projects. And so part of the criteria was understanding which ones had more flexibility than others. Hence the large reductions in unconventional, the short-cycle investments we had some -- a lot more opportunity in that space. So we saw a large reduction there. That was a key driver. The other then was just looking…

Right. Good. And then just as a follow-up can I just get you to comment on Chem? It obviously as you referenced was still towards the bottom end of the cycle. But it seems to me the last couple of quarters, there's been some signs of improvement. Is that temporary the quarter this 1Q primarily to do with the falling liquids price, or is there some hope there that things are starting to get a little better either internally operationally or from the macro?

Well if you think -- what we've talked about in the past, what we're seeing in the chemical industry is, what I'd call is a classic commodity cycle where we had a lot of capacity brought on in the short term. While growth remains good in those products that excess capacity is overwhelm that growth in the short term and therefore driven margins down to what we're seeing at the back end of last year or really through last year. That has not changed. We continue to see basically a length in oversupply there. And the benefits we saw in the first quarter is really around feedstock and feedstock prices dropping off. To the other point within that is just, if you look at the mix of chemical products that we make, some of those in response to what we're seeing with COVID and the products required demand has grown pretty significantly. We happen to be in a position to make some specialty products that supply those markets and demand for those types of products. So we've seen a boost in that. And obviously as the COVID impacts start to wind down, we should see some of that revert back to what would be standard demand levels. I can tell you the organization remains very focused on a challenging marketplace. Steve you got anything to add to those?

Yeah. Jon, the other thing I'd add is if you notice in the bar -- I mean the chart that we put out there, we did see really a significant improvement in our OpEx, which was the earnings benefit for us this quarter in the Chemical business.

Okay. That's a good point.

Okay. Steve, thank you.

We'll go next to Neil Mehta with Goldman Sachs.

Good morning, team. Thank you. Thanks for taking the question. Darren, I guess the first question is around capital allocation and dividend sustainability. We saw one of your peers reduce their dividend in light of the macro environment. Just wanted to get your views on the right level of distribution, how you think about dividend growth and how you think about that in terms of prioritization around capital allocation?

Sure. Good morning, Neil. I think as I said in my prepared remarks and I've repeated in some of our press release, the priorities in the capital allocation scheme that we've got have not changed with what we're seeing here in the short-term. And again it kind of comes back to a large business that has depleting assets. You've got to continue to invest in industry-advantaged accretive projects if you're going to sustain a strong foundation to support the business going forward, a successful business to support a growing and reliable dividend and to maintain a strong balance sheet. So the project's investments are critical foundation to the long-term health of the business. And then obviously if you look at our shareholder base about 70% of them are retail or long-term investors that look for our dividend and see that as an important source of stability in their income. And so we have a strong commitment to that. And then finally, making sure that we have a balance sheet to manage the volatility that we see in the ups and downs of the price cycles. Obviously we're in a pretty deep -- pretty big dip here, which is outside of the normal price cycle volatility. But I think we're demonstrating that the balance sheet is handling that through this time frame. So that priority remains the same. And then I think the question and I talked about this in the Investor Day is how do you balance across those priorities in the short-term. And so today as we -- to face these very short-term challenging market headwinds, we are making sure that we're maintaining that dividend and continuing to advance the projects with the expectation that we'll see a recovery. Our revenues will rise, more cash will come in, which will allow us to continue to invest in those projects. And so that we're not making a trade-off on the medium to long-term but one in the short-term based on the needs of our investment base. And I would just tell you that we'll continue to strike that balance as we go forward. If this market evolves and we see changes in a recovery that's slower than what we have even anticipated recognizing we've been pretty conservative in our outlook, we'll have to step back and look to see if we need to make any further adjustments there. But my view is, if you don't have those investments, you're not providing the foundation to support that dividend. A lot of the projects that we've been putting in place, the capital we've been spending here over the last couple of years those projects are going to come online and start contributing cash. So I think we're going to begin to see here in the next year or so, a lot of the benefits associated with the investments we have been making and that will contribute to the cash and provide the basis to support the dividend.

And then the follow-up -- thank you, Darren. Then the follow-up is just around the capital structure and the balance sheet. As you indicated in your slides, you've got a good balance sheet and your leverage ratios are lower than your peer set. But you have been taking on debt at a quite accelerated pace here over the last couple of years. Is there a governor that you look at and say we have -- we don't want to take on any more debt? And just talk about the importance and the strength of the balance sheet to you as you think about weighing those different priorities?

Sure. I would just maybe start first with the draw that we've had on the balance sheet. And I think the context to keep in mind as we've done that is what I would call as a restructuring of the business or bringing in high-margin profitable investments into the base to strengthen the structural capacity of the company. And so that's been an important priority for us and the reason why we've increased the investment is to make sure that we're building the capital base and the assets to be successful in the markets that we expect to be in here over the next decade. And so low cost, high-margin, oil barrels, high-performance products and chemicals to meet the growing demand there and configuration of key integrated refining assets to make sure that we've got the yield profile that's consistent with demands that society have. So those investments are pretty strategic and pretty foundation. And the idea was to structurally improve the business through those investments and so that has a priority. As we did that, we wanted to make sure that we maintain the capacity to manage the swings. And as you see today, we have that capacity. So we've managed that and met that objective. And then, as we look longer-term, what's the right level, our view is it has to be sustainable something that the business continue to bear and allow us to have continued, attractive and competitive access to the debt markets. And so making sure that we keep that in a range that allows us a good access and people continue to see us as a sound investment and basis for loaning money to its going to be important. So we try to keep all that balanced, recognizing that there are going to be short-term debt dips in that process. We feel right now where we're at pretty good around, where we've leveraged up to and the resources that we have available for us. We think we've got what we need to kind of manage through this year.

All right. Thanks, Darren.

Sure.

We'll go next to Roger Read with Wells Fargo.

Yeah. Thank you and good morning.

Good morning, Roger.

I guess what I'd like to ask given the CapEx that you're doing, the ones the industry is doing the -- I guess what's called a selective shut-ins whether it's part of OPEC+ or price driven. What do you think the other side of this is, in terms of depletion rates? And the reason I asked is at the, follow-up breakfast after the investor event it was a very clear discussion from Exxon side that this 6% to 8% annual decline is out there. And the comment from those of us on the analyst investor side was we haven't seen it. So is this something that brings that more to the 4%? And how do you see that within Exxon's portfolio?

Yeah. Thanks for the question, Roger. I think, that -- I don't think, you're going to see that change. When you say you haven't seen it our experience -- we're physically managing that every year. And so we're pretty confident in what the physics are associated with production of the oil and gas resources that we've got. What often maybe obscures the view is a lot of work programs that companies are doing to maintain and offset that decline which doesn't often -- they're not discrete projects so to speak so it's often hard to model those. But there is a lot of activity. In fact we do that, ourselves to offset that natural decline work. And that takes resources that takes capital and investment spend. So I think, what you're going to find, which I'm not sure if this is where your question was heading. But as you strip out some of that work and those programs to reduce activity to mitigate that decline, because the revenues aren't there to support it. I think you'll see that decline rate manifest itself more explicitly across the industry. So my view would be you'll probably get a better visibility into that. It won't be a change per se around what naturally happens through production. It'll just be that the offsets aren't necessarily masking that underlying decline rate and then, just stepping back maybe more broadly to your question. I was at the Investor Day and I think as a company we continue to believe that the industry as a whole has been under investing for the demand that's going to be needed in the future. Obviously, what's happened here with the coronavirus and the drop in prices is going to pull a lot more capital out of the industry as you've seen -- as you've already seen which is going to exaggerate that issue. So I think on the back end of this thing we're going to find a market that eventually gets a lot shorter than we were already anticipating.

Yeah. That's -- I think, that's the right direction. It's just been close to that. Thanks for that.

Welcome Roger.

Thank you, Roger.

I guess the next question, I'd like to go to on the Downstream obviously you've mentioned that things had improved or were improving in China. We'll see if that sustains. Within the U.S. and Europe, we've seen the first signs of some of the lockdowns come off. And I was just curious, if you had any kind of more immediate responses in terms of North American or European demand trends.

Yeah. No that's something we're keeping a really close eye on is, what are the tell signs in terms of what we see. And April was significantly lower demand month than what we saw in March. And so I kind of saw that, as the depth of the coronavirus impact. If you look at kind of going forward into May -- and what we're using in terms of looking -- trying to get a view of that looking forward is sales out of our retail assets around the world and using that to see how -- what kind of demand response for people primarily around road transportation. And we are seeing improvements really across all three markets. We've seen in May volumes trending up in Europe. We see that happening in the U.S. and we see that also in Asia, although, Asia didn't drop nearly as far as Europe or the U.S. And so there are some. I'd say encouraging early signs in the transportation sector particularly road transportation. I think on aviation that's probably going to take a little bit longer. We haven't seen any uptick in that space yet.

Thank you.

You're welcome. Take care.

We'll go next to Doug Leggate with Bank of America.

Thank you. Good morning, everyone. Good morning, Darren. I hope everybody is doing well over there. And obviously, we appreciate all the comments you guys have been making about how you've adjusted your business to adapt to this situation we're in right now. I have two questions. They're really follow-ups I guess to what Neil, asked but I want to be a little bit more direct if I may. What are the circumstances, Darren, I think you've been pretty clear. You've obviously underlined the issue of the dividend. But what are the circumstances where you would ever envisage that Exxon Mobil would cut its dividend?

Well, good morning, Doug and everyone's fine here so thank you for asking. I hope the same is true with you. Look, you know -- I know you're looking for a very explicit answer. And all I would tell you is we think it's -- the dividend is an important part of the value proposition that we provide to our shareholders particularly given the base of our shareholders. It would depend on the circumstances that we see in the market and how prolonged we think those circumstances are going to exist. So, I mean, I would just tell you we're going to have to wait and see how the market plays itself out. If we find ourselves with some sustained structural deficit that says the business is going to have trouble over a much longer time period, we'd have to step back and rethink that. But frankly, we're not seeing that today. If you look at some of the early signs, I think, we see some encouragement in -- going into May. And so I think we're going to have to kind of play that by ear. The beauty of the dividend is it's flexible. We -- the Board considers that every quarter and we're obviously, looking at the macro environment looking at some of the -- kind of telltales that are out there. We've got our organization working very hard around what are some leading metrics that we can keep an eye on to see which direction things are going. And so we're going to continue to look at that and make decisions as we go forward to ensure that for the long-term, this business is strong and has a good foundation to provide continuing dividends out into the future and products that the world are going to need.

I understand, it's a tough one to answer explicitly. I guess the perception out there is - rather Shell has given you cover -- given the industry cover for a wholesale reset. I just wanted to see if you could offer some perspective. But I appreciate you answering to the extent you have. Well my follow-up is just kind of -- go on sure.

Doug, let me just say, on that. Well, we're not -- I don't really look to what Shell is doing to decide our dividend policy frankly. It's a function of our investment base and the commitment that we've made to them.

And the opportunity set for sure. My follow-up is kind of related. The credit agencies took, obviously, took you down a notch. You've obviously added that and presumably you shared with them what you were doing. Where -- is there a limit that you would be comfortable allowing the balance sheet to go? And again it's tender dividend related as well I guess. Your capital is flexible if the dividend is sacrosanct. Where does the balance sheet get to a level where you're not comfortable? And I'll leave it there. Thanks.

Well, again I know you like real specific numbers. But I would just tell you one of the principles that we had in managing the balance sheet is to make sure that we maintain capacity because as we've just seen here this quarter the market's got a lot of volatility in it. And therefore, we need to have a foundation or a base that allows us to accommodate that volatility. And we need to have access -- competitive access to the market. So we're going to make sure that we stay in a range that allows us to competitively continue -- to competitively access the debt markets when we need them and make sure that we've got a buffer that allows us to run and continue to manage the ups and downs that are not going to away in this commodity-based business. So again it's an ongoing conversation something that the Board and I spent time talking about and looking at. And we're going to kind of continue to adjust it as we go forward. I mean, the priorities that I've laid out around the investment the dividends and the balance sheet -- and I used the term earlier this morning, I used it in our Investor Day balance. We got to kind of balance it based on what we see happening in the marketplace. We -- today we've taken a position that we believe balance in what we're seeing. As the quarter moves on if things don't play out the way we think or we see something that's structurally very different than what we anticipate, we'll look at rebalancing that. It's just difficult to tell right now frankly.

Thanks, Darren. Good luck.

Good. Thank you, Doug. Take care.

We'll go next to Doug Terreson with Evercore ISI.

Good morning, everybody.

Good morning, Doug.

Good morning, Doug.

So Darren, you reiterated your business plan which you guys have had for a while that global prosperity would drive investment and that you guys would end up excelling versus your peers through advantaged investments. And on this point you kind of also indicated that your priorities for capital management aren't going to change, but the pace probably would. So my question is that do you think that we'd know already that there are going to be broad changes to Exxon Mobil and the industry's capital management program over the medium-term? And so what might be different -- meaning you just use the word balance to describe the approach. Do you think we need better balance or maybe more balance? And also how does consolidation play into all of this that is if you think it does given the distress that we're seeing in the energy markets today?

Yes. Thanks Doug. Hope all is well with you. On the balancing, I think that balance is going to be a very I'll call it sector maybe company-specific point in terms of where everyone stands with respect to their balance sheet, with their capacity, their scale, their integration. So I think the balance will be different. And in my view some segments of our industry today needed better balance and I think that will manifest itself. I think there -- you got to be able to survive through these downturns and position your company to do that. So I do think there's a balance that's needed there. I also think that the demand will be there, because of the fundamental role it plays in economic growth in people's lives. And so as much as the short-term kind of swings the industry around, ultimately the demand for the products will come back and the industry is going to have to respond to that demand. And if in the short-term a lot more conservatism comes in, a lot less capital flows into the marketplace, we'll open up that supply/demand balance going forward and that will then incentivize things coming back in, and frankly, may lead to less balance in terms of what you're talking about. So I think it's really a function of the capacity and capability of companies to kind of weather through this short-term period. And I think some companies are better positioned to do that than others, which is -- probably leads you to your second point about consolidation. And I think again that opportunity exists particularly in periods like that. If you look back in time when prices get low and companies get stressed you see that tend to happen not only in our industry, but in other industries. So that's certainly a theme, which I think will resonate within the industry. Exactly how that plays itself out though I think we'll just have to wait and see.

Yes. Let me ask you something else about that. I mean, it always -- there always seems to be the ability to have financial transactions work, but when you guys bought Mobil there was obviously lots of strategic merit to that combination and other combinations during that period as well. So do you think that we're in an environment where there is enough strategic merits, especially -- in combinations, especially for a company your size, or do you think it's different this time around?

I come back to a lot of the value levers that we saw with the Exxon Mobil merger. I mean, those value levers I don't think have really changed over time. And so it's really a question of what opportunities are out there where you can see some of those probably a subset of the value levers that we saw with that. And of course, as we look at opportunities -- I've been asked this a lot of times in these calls about acquisitions. And what I've always said is we have to look and find some unique value levers to justify the deal. And if you can't do that then there's no space for the deal. And that has really been I think the underlying criteria that we've had as we've looked at acquisitions as we continue to look at acquisitions and opportunities is can we find a way of creating and extracting unique value out of some acquisition or opportunity. And that's not going to change. We continue to look for those things. And if we find them…

Thank you. Yes.

Hey, you bet. Thank you, Doug.

Thanks, Doug.

Yeah. Thanks.

We'll go next to Jeanine Wai with Barclays.

Hi. Good morning everyone. My first question…

Good morning, Jeanine.

Good morning. Thanks for taking my question. My first question maybe skipping gears real quick here is on the Permian. And you've invested meaningful capital in the Permian including on infrastructure spending. And your partners have indicated that the Wink-Webster pipeline has not been delayed. So is it fair to think that when Exxon eventually does resume some kind of higher level of overall corporate CapEx that the Permian would be the first call on growth capital from a returns perspective? And given the reduced CapEx in the Permian this year is there any infrastructure build-out that you need to address before you get back to your prior growth trajectory? I know you mentioned that the Line 1 of the Cowboy facility was complete.

Yes. Thanks Jeanine. So and Neil talked about this in our Investor Day as we looked at the range of flexibility that we had. And that was one of the points I think Neil tried to make was we -- even within in early March as we looked at our investments in the unconventional space that we did have opportunities to ramp down spend and investment there and still fully utilize the infrastructure that we are putting in place and making sure that we got a return on those investments. And frankly, it was pretty critical to do that and maintain scale and scale advantage in the cost. If you think more broadly about what we're trying to do in the Permian, it's really with this long supply market in mind that we've got to find a way to get the cost -- the unit cost of production in the Permian down. And the way we're approaching that is through scale and technology. We think that's absolutely critical. And so, our view is to make that investment in the Permian very competitive in an oversupplied market which I would tell you we're well on the way towards. And so, the cuts we've seen to date allow us to continue to preserve that capital efficiency. It allows us to do -- continue with the development, the cube developments to make sure we're maximizing the recovery, and it utilizes our above-surface facility. So I think that's where we're at today. And we're looking now -- and you saw in the presentation that Stephen gave with the second quarter outlook we are taking economic shut-ins in the Permian. And that's not a -- that's really a function of -- if you think about a lot of these wells that are early in their…

Thank you for the very comprehensive answer. My follow-up question is maybe following up on some of the other questions, but in a different way. Darren, you already have some pre-FID capital invested in attractive projects. And if we end up being in a prolonged oil price environment, at what point is it too detrimental to the long-term business to stay at the current CapEx level, since at some point you need to continue to invest in the business to grow the cash flow to sustain the dividend? And you mentioned earlier on the call, that there is an economic cost for slowing down some of these projects, but you still think that there's long-term fundamentals that are intact.

Yeah. I think Jeanine, we'll have to watch and see how the world evolves. I mean I keep coming back to -- and I know you guys probably feel like it's a repetitive statement, but the basic drivers of energy demand have not changed with what we're seeing today. The demand drivers the fact that energy plays such a critical role in people's everyday lives and the growth of economies mean that that energy will be needed. So it's really a question of timing and the recovery. And again, I think, we're -- April is probably the depth of the impact in our industry. I hope that's true. Certainly, it's looking that way from the early signs. But we're going to have to let this kind of quarter play out. I think the second quarter will be a challenging quarter, but we'll have a better view around how the rest of the year is shaping up and we'll continue to adjust it. We've got additional flexibility to use if we want to. And if we start to conclude that based on some structural change, which frankly it's hard to see right now, but if we see that we'll adjust the plans again.

Great. Thank you for the answer.

You’re welcome.

We'll go next to Jason Gammel with Jefferies.

Thanks very much, gentlemen. I just wanted to see, if I could get you to elaborate a little bit further on the sources of the production curtailments that you're going to be undertaking over the course of the quarter. And are they primarily based upon the economics of the individual plays, or is some of this at the direction of host governments?

Yeah. No. I would say, the 400 koebd that we put in Stephen's second quarter look ahead. And I would tell you the way to think about that is about two-thirds of that roughly would be in the economic category and about half of that in Kearl, and then the other half in this economic steps that we're taking in the Permian, which is really around preserving value. Kearl with a low price environment I think it's more challenged from a competitive or cost of supply basis. Permian we get higher value by deferring some of those. And so, about a third -- out of Kearl, about a third in the unconventional space and then about a third associated with restrictions put on us by the governments around the world.

Yeah. That's very useful. You actually somewhat pre-empted my follow-up question, which was going to note that the operational performance at Kearl has actually been quite strong. So, you're talking about the potential economic shut-ins that -- could you maybe elaborate a little bit more about any logistical issues that could constrain Kearl to coming back in the near term?

Sure. I know there's been a lot written about that. I would have to tell you, this has been again another really great benefit of the reorganizations that we've done along the value chain with our Upstream. We made the change in our Downstream, beginning of 2018. We made the change in the Upstream in April 2019. And so if you look today, as we headed into this, our ability to see end to end from the wellhead all the way down to the customers, I think was the best in industry frankly. Certainly, nobody had anything better in terms of that ability to see along. And so we were very early into that process making sure that we had a clear line of sight of how we would move the physicals and that we do not find logistics constraints. Of course, you know we've been investing in logistics both out of Canada and Kearl with takeaway capacity there on the rail and in type. And we've invested in the Permian and takeaway capacity there. And so we've got I think a good line of sight of where the bottlenecks are going to happen and really secure position with respect to the logistics to move the barrels. And we've applied -- our team has basically been keeping an eye on that around the world, not just out of those two resource plays, but everywhere that we lift barrel is making sure that we've got a clear line of sight of how we keep them flowing to the extent that the economics warrant that. So we have not seen the logistics constraints that others have talked about, just because of the fact that the organization was able to kind of see some of those coming and take the appropriate steps to make sure we didn't get caught with any of them.

Very appreciate dealing with Upstream.

Operator, we probably have time for one more call.

Okay. We'll go next to Phil Gresh with JPMorgan.

Hey, good morning, Darren. Thanks for taking the question.

Good morning, Phil.

So one of the, I guess bridges of the multiyear guidance was your asset sale plan. And I'm just wondering -- obviously this is a tougher environment for asset sales. So I guess, is it fair to assume that that lever -- the next one to two years might get pushed back a bit? And then in terms of the impact kind of shorter term on the balance sheet from that is that you need to -- with the lower prices you need to lean more in the balance sheet in the interim. So just curious how you think about toggling between those two items. And I guess, it does all kind of come back to the dividend question being asked. Is it -- if the asset sale bridge isn't there, do you look to the flexibility that dividend is something that can help? Thanks.

Yes. Sure Phil. Good morning to you. I would say, you're absolutely -- the activity that we have, the focus that we have around restructuring the portfolio and high-grading that portfolio hasn't really changed, so the drivers and the motivation remain there. The work list that we have with respect to getting assets in the marketplace and the divestments are still in place. It's really a question of what we said all along is our ability to execute that divestment program will be a function of finding buyers who put a value on those assets, a value that's higher than what we see with them and so that we find a deal space and transact. And I think your point, which is a valid one and absolutely correct I think is going to be harder to do that in an environment like this where people are strapped of cash. So I would expect to see that divestment program slowed just because of the market dynamics and the buyer, seller -- the availability of buyers. And we're not counting on that with respect to how we think about the business and how we're going to fund the ongoing business. We have not assumed that we're going to benefit from asset sales. All of our plans are based on essentially managing with the portfolio that we have.

Okay great. The second one I guess, this one is just around the quarter for Steve. In your 8-K, you gave obviously the guidance items around these inventory impacts and you also gave guidance around the derivative impacts on the Downstream side of the business. I think there's a little confusion on Downstream specifically with those derivative impacts. But could you just clarify the magnitude of that benefit that was baked into I think the margin bar in the bridge?

Yes. Phil, if you look at the margin factor included in that was the benefit of financial derivatives of about $1.3 billion or so plus or minus. And then obviously, that was offset by weaker refining margins. They brought it back down to about a $900-plus million benefit to the Downstream business.

Okay. Great. Thank you.

Thank you, Phil. Operator?

At this time, I'll turn the call back to the speakers for closing remarks.

Okay. Thank you for your time and thoughtful questions this morning. We appreciate you allowing us the opportunity to highlight first quarter results and the steps we're taking to not only manage through these challenging times, but to position ourselves for long-term growth in the eventual recovery. We appreciate your interest and hope you enjoy the rest of your day. Thank you and please be safe.

This does conclude today's conference. We thank you for your participation.