10-K 1 xom10k2017.htm FORM 10-K 2017 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2017 ☐ or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-2256 EXXON MOBIL CORPORATION (Exact name of registrant as specified in its charter) NEW JERSEY 13-5409005 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number) 5959 LAS COLINAS BOULEVARD, IRVING, TEXAS 75039-2298 (Address of principal executive offices) (Zip Code) (972) 940-6000 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange on Which Registered Title of Each Class Common Stock, without par value (4,237,462,159 shares outstanding at January 31, 2018) New York Stock Exchange Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☑ Yes ☐ No ☐ No ☑ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☑ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer Non-accelerated filer ☑ ☐ Accelerated filer Smaller reporting company Emerging growth company ☐ ☐ ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act). Yes ☐ No ☑ The aggregate market value of the voting stock held by non-affiliates of the registrant on June 30, 2017, the last business day of the registrant’s most recently completed second fiscal quarter, based on the closing price on that date of $80.73 on the New York Stock Exchange composite tape, was in excess of $342 billion. Documents Incorporated by Reference: Proxy Statement for the 2018 Annual Meeting of Shareholders (Part III) EXXON MOBIL CORPORATION FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2017 TABLE OF CONTENTS PART I Item 1. Business 1 Item 1A. Risk Factors 2 Item 1B. Unresolved Staff Comments 4 Item 2. Properties 5 Item 3. Legal Proceedings 26 Item 4. Mine Safety Disclosures 26 Executive Officers of the Registrant [pursuant to Instruction 3 to Regulation S-K, Item 401(b)] 27 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 30 Item 6. Selected Financial Data 30 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 30 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 31 Item 8. Financial Statements and Supplementary Data 31 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 31 Item 9A. Controls and Procedures 31 Item 9B. Other Information 31 PART III Item 10. Directors, Executive Officers and Corporate Governance 32 Item 11. Executive Compensation 32 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 32 Item 13. Certain Relationships and Related Transactions, and Director Independence 33 Item 14. Principal Accounting Fees and Services 33 PART IV Item 15. Exhibits, Financial Statement Schedules 33 Item 16. Form 10-K Summary 33 Financial Section 34 Index to Exhibits 120 Signatures 121 Exhibit 12 — Computation of Ratio of Earnings to Fixed Charges Exhibit 18 — Preferability Letter Exhibits 31 and 32 — Certifications PART I ITEM 1. BUSINESS Exxon Mobil Corporation was incorporated in the State of New Jersey in 1882. Divisions and affiliated companies of ExxonMobil operate or market products in the United States and most other countries of the world. Their principal business is energy, involving exploration for, and production of, crude oil and natural gas, manufacture of petroleum products and transportation and sale of crude oil, natural gas and petroleum products. ExxonMobil is a major manufacturer and marketer of commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics and a wide variety of specialty products. Affiliates of ExxonMobil conduct extensive research programs in support of these businesses. Exxon Mobil Corporation has several divisions and hundreds of affiliates, many with names that include ExxonMobil, Exxon, Esso, Mobil or XTO. For convenience and simplicity, in this report the terms ExxonMobil, Exxon, Esso, Mobil and XTO, as well as terms like Corporation, Company, our, we and its, are sometimes used as abbreviated references to specific affiliates or groups of affiliates. The precise meaning depends on the context in question. The energy and petrochemical industries are highly competitive. There is competition within the industries and also with other industries in supplying the energy, fuel and chemical needs of both industrial and individual consumers. The Corporation competes with other firms in the sale or purchase of needed goods and services in many national and international markets and employs all methods of competition which are lawful and appropriate for such purposes. Operating data and industry segment information for the Corporation are contained in the Financial Section of this report under the following: “Quarterly Information”, “Note 18: Disclosures about Segments and Related Information” and “Operating Information”. Information on oil and gas reserves is contained in the “Oil and Gas Reserves” part of the “Supplemental Information on Oil and Gas Exploration and Production Activities” portion of the Financial Section of this report. ExxonMobil has a long-standing commitment to the development of proprietary technology. We have a wide array of research programs designed to meet the needs identified in each of our business segments. Information on Company-sponsored research and development spending is contained in “Note 3: Miscellaneous Financial Information” of the Financial Section of this report. ExxonMobil held over 12 thousand active patents worldwide at the end of 2017. For technology licensed to third parties, revenues totaled approximately $89 million in 2017. Although technology is an important contributor to the overall operations and results of our Company, the profitability of each business segment is not dependent on any individual patent, trade secret, trademark, license, franchise or concession. The number of regular employees was 69.6 thousand, 71.1 thousand, and 73.5 thousand at years ended 2017, 2016 and 2015, respectively. Regular employees are defined as active executive, management, professional, technical and wage employees who work full time or part time for the Corporation and are covered by the Corporation’s benefit plans and programs. Regular employees do not include employees of the company-operated retail sites (CORS). The number of CORS employees was 1.6 thousand, 1.6 thousand, and 2.1 thousand at years ended 2017, 2016 and 2015, respectively. Throughout ExxonMobil’s businesses, new and ongoing measures are taken to prevent and minimize the impact of our operations on air, water and ground. These include a significant investment in refining infrastructure and technology to manufacture clean fuels, as well as projects to monitor and reduce nitrogen oxide, sulfur oxide and greenhouse gas emissions, and expenditures for asset retirement obligations. Using definitions and guidelines established by the American Petroleum Institute, ExxonMobil’s 2017 worldwide environmental expenditures for all such preventative and remediation steps, including ExxonMobil’s share of equity company expenditures, were $4.7 billion, of which $3.3 billion were included in expenses with the remainder in capital expenditures. The total cost for such activities is expected to increase to approximately $5 billion in 2018 and 2019. Capital expenditures are expected to account for approximately 30 percent of the total. Information concerning the source and availability of raw materials used in the Corporation’s business, the extent of seasonality in the business, the possibility of renegotiation of profits or termination of contracts at the election of governments and risks attendant to foreign operations may be found in “Item 1A. Risk Factors” and “Item 2. Properties” in this report. ExxonMobil maintains a website at exxonmobil.com. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934 are made available through our website as soon as reasonably practical after we electronically file or furnish the reports to the Securities and Exchange Commission (SEC). Also available on the Corporation’s website are the Company’s Corporate Governance Guidelines and Code of Ethics and Business Conduct, as well as the charters of the audit, compensation and nominating committees of the Board of Directors. Information on our website is not incorporated into this report. 1 ITEM 1A. RISK FACTORS ExxonMobil’s financial and operating results are subject to a variety of risks inherent in the global oil, gas, and petrochemical businesses. Many of these risk factors are not within the Company’s control and could adversely affect our business, our financial and operating results, or our financial condition. These risk factors include: Supply and Demand The oil, gas, and petrochemical businesses are fundamentally commodity businesses. This means ExxonMobil’s operations and earnings may be significantly affected by changes in oil, gas, and petrochemical prices and by changes in margins on refined products. Oil, gas, petrochemical, and product prices and margins in turn depend on local, regional, and global events or conditions that affect supply and demand for the relevant commodity. Any material decline in oil or natural gas prices could have a material adverse effect on certain of the Company’s operations, especially in the Upstream segment, financial condition, and proved reserves. On the other hand, a material increase in oil or natural gas prices could have a material adverse effect on certain of the Company’s operations, especially in the Downstream and Chemical segments. Economic conditions. The demand for energy and petrochemicals is generally linked closely with broad-based economic activities and levels of prosperity. The occurrence of recessions or other periods of low or negative economic growth will typically have a direct adverse impact on our results. Other factors that affect general economic conditions in the world or in a major region, such as changes in population growth rates, periods of civil unrest, government austerity programs, or currency exchange rate fluctuations, can also impact the demand for energy and petrochemicals. Sovereign debt downgrades, defaults, inability to access debt markets due to credit or legal constraints, liquidity crises, the breakup or restructuring of fiscal, monetary, or political systems such as the European Union, and other events or conditions that impair the functioning of financial markets and institutions also pose risks to ExxonMobil, including risks to the safety of our financial assets and to the ability of our partners and customers to fulfill their commitments to ExxonMobil. Other demand-related factors. Other factors that may affect the demand for oil, gas, and petrochemicals, and therefore impact our results, include technological improvements in energy efficiency; seasonal weather patterns, which affect the demand for energy associated with heating and cooling; increased competitiveness of alternative energy sources that have so far generally not been competitive with oil and gas without the benefit of government subsidies or mandates; changes in technology or consumer preferences that alter fuel choices, such as technological advances in energy storage that make wind and solar more competitive for power generation or increased consumer demand for alternative fueled or electric vehicles; and broad-based changes in personal income levels. Other supply-related factors. Commodity prices and margins also vary depending on a number of factors affecting supply. For example, increased supply from the development of new oil and gas supply sources and technologies to enhance recovery from existing sources tend to reduce commodity prices to the extent such supply increases are not offset by commensurate growth in demand. Similarly, increases in industry refining or petrochemical manufacturing capacity relative to demand tend to reduce margins on the affected products. World oil, gas, and petrochemical supply levels can also be affected by factors that reduce available supplies, such as adherence by member countries to OPEC production quotas and the occurrence of wars, hostile actions, natural disasters, disruptions in competitors’ operations, or unexpected unavailability of distribution channels that may disrupt supplies. Technological change can also alter the relative costs for competitors to find, produce, and refine oil and gas and to manufacture petrochemicals. Other market factors. ExxonMobil’s business results are also exposed to potential negative impacts due to changes in interest rates, inflation, currency exchange rates, and other local or regional market conditions. Government and Political Factors ExxonMobil’s results can be adversely affected by political or regulatory developments affecting our operations. Access limitations. A number of countries limit access to their oil and gas resources, or may place resources off-limits from development altogether. Restrictions on foreign investment in the oil and gas sector tend to increase in times of high commodity prices, when national governments may have less need of outside sources of private capital. Many countries also restrict the import or export of certain products based on point of origin. Restrictions on doing business. ExxonMobil is subject to laws and sanctions imposed by the United States or by other jurisdictions where we do business that may prohibit ExxonMobil or certain of its affiliates from doing business in certain countries, or restricting the kind of business that may be conducted. Such restrictions may provide a competitive advantage to competitors who may not be subject to comparable restrictions. Lack of legal certainty. Some countries in which we do business lack well-developed legal systems, or have not yet adopted, or may be unable to maintain, clear regulatory frameworks for oil and gas development. Lack of legal certainty exposes our operations to increased risk of adverse or unpredictable actions by government officials, and also makes it more difficult for us to enforce our contracts. In some cases these risks can be partially offset by agreements to arbitrate disputes in an international forum, but the adequacy of this remedy may still depend on the local legal system to enforce an award. 2 Regulatory and litigation risks. Even in countries with well-developed legal systems where ExxonMobil does business, we remain exposed to changes in law (including changes that result from international treaties and accords) that could adversely affect our results, such as: · · · · · · increases in taxes, duties, or government royalty rates (including retroactive claims); price controls; changes in environmental regulations or other laws that increase our cost of compliance or reduce or delay available business opportunities (including changes in laws related to offshore drilling operations, water use, methane emissions, or hydraulic fracturing); adoption of regulations mandating efficiency standards, the use of alternative fuels or uncompetitive fuel components; adoption of government payment transparency regulations that could require us to disclose competitively sensitive commercial information, or that could cause us to violate the non-disclosure laws of other countries; and government actions to cancel contracts, re-denominate the official currency, renounce or default on obligations, renegotiate terms unilaterally, or expropriate assets. Legal remedies available to compensate us for expropriation or other takings may be inadequate. We also may be adversely affected by the outcome of litigation, especially in countries such as the United States in which very large and unpredictable punitive damage awards may occur, or by government enforcement proceedings alleging non-compliance with applicable laws or regulations. Security concerns. Successful operation of particular facilities or projects may be disrupted by civil unrest, acts of sabotage or terrorism, cybersecurity attacks, and other local security concerns. Such concerns may require us to incur greater costs for security or to shut down operations for a period of time. Climate change and greenhouse gas restrictions. Due to concern over the risks of climate change, a number of countries have adopted, or are considering the adoption of, regulatory frameworks to reduce greenhouse gas emissions. These include adoption of cap and trade regimes, carbon taxes, restrictive permitting, increased efficiency standards, and incentives or mandates for renewable energy. These requirements could make our products more expensive, lengthen project implementation times, and reduce demand for hydrocarbons, as well as shift hydrocarbon demand toward relatively lower-carbon sources such as natural gas. Current and pending greenhouse gas regulations or policies may also increase our compliance costs, such as for monitoring or sequestering emissions. Government sponsorship of alternative energy. Many governments are providing tax advantages and other subsidies to support alternative energy sources or are mandating the use of specific fuels or technologies. Governments and others are also promoting research into new technologies to reduce the cost and increase the scalability of alternative energy sources. We are conducting our own research both in-house and by working with more than 80 leading universities around the world, including the Massachusetts Institute of Technology, Princeton University, the University of Texas, and Stanford University. Our research projects focus on developing algae-based biofuels, carbon capture and storage, breakthrough energy efficiency processes, advanced energy-saving materials, and other technologies. For example, ExxonMobil is working with Fuel Cell Energy Inc. to explore using carbonate fuel cells to economically capture CO2 emissions from gas-fired power plants. Our future results may depend in part on the success of our research efforts and on our ability to adapt and apply the strengths of our current business model to providing the energy products of the future in a cost-competitive manner. See “Operational and Other Factors” below. Operational and Other Factors In addition to external economic and political factors, our future business results also depend on our ability to manage successfully those factors that are at least in part within our control. The extent to which we manage these factors will impact our performance relative to competition. For projects in which we are not the operator, we depend on the management effectiveness of one or more coventurers whom we do not control. Exploration and development program. Our ability to maintain and grow our oil and gas production depends on the success of our exploration and development efforts. Among other factors, we must continuously improve our ability to identify the most promising resource prospects and apply our project management expertise to bring discovered resources on line as scheduled and within budget. Project and portfolio management. The long-term success of ExxonMobil’s Upstream, Downstream, and Chemical businesses depends on complex, long-term, capital intensive projects. These projects in turn require a high degree of project management expertise to maximize efficiency. Specific factors that can affect the performance of major projects include our ability to: negotiate successfully with joint venturers, partners, governments, suppliers, customers, or others; model and optimize reservoir performance; develop markets for project outputs, whether through long-term contracts or the development of effective spot markets; manage changes in operating conditions and costs, including costs of third party equipment or services such as drilling rigs and shipping; prevent, to the extent possible, and respond effectively to unforeseen technical difficulties that could delay project startup or cause unscheduled project downtime; and influence the performance of project operators where ExxonMobil does not perform that role. In addition to the effective management of individual projects, ExxonMobil’s success, including our ability to mitigate risk and 3 provide attractive returns to shareholders, depends on our ability to successfully manage our overall portfolio, including diversification among types and locations of our projects. The term “project” as used in this report can refer to a variety of different activities and does not necessarily have the same meaning as in any government payment transparency reports. Operational efficiency. An important component of ExxonMobil’s competitive performance, especially given the commodity-based nature of many of our businesses, is our ability to operate efficiently, including our ability to manage expenses and improve production yields on an ongoing basis. This requires continuous management focus, including technology improvements, cost control, productivity enhancements, regular reappraisal of our asset portfolio, and the recruitment, development, and retention of high caliber employees. Research and development. To maintain our competitive position, especially in light of the technological nature of our businesses and the need for continuous efficiency improvement, ExxonMobil’s research and development organizations must be successful and able to adapt to a changing market and policy environment, including developing technologies to help reduce greenhouse gas emissions. Safety, business controls, and environmental risk management. Our results depend on management’s ability to minimize the inherent risks of oil, gas, and petrochemical operations, to control effectively our business activities, and to minimize the potential for human error. We apply rigorous management systems and continuous focus to workplace safety and to avoiding spills or other adverse environmental events. For example, we work to minimize spills through a combined program of effective operations integrity management, ongoing upgrades, key equipment replacements, and comprehensive inspection and surveillance. Similarly, we are implementing cost-effective new technologies and adopting new operating practices to reduce air emissions, not only in response to government requirements but also to address community priorities. We also maintain a disciplined framework of internal controls and apply a controls management system for monitoring compliance with this framework. Substantial liabilities and other adverse impacts could result if our management systems and controls do not function as intended. Cybersecurity. ExxonMobil is regularly subject to attempted cybersecurity disruptions from a variety of threat actors. If our systems for protecting against cybersecurity disruptions prove to be insufficient, ExxonMobil as well as our customers, employees, or third parties could be adversely affected. Such cybersecurity disruptions could cause physical harm to people or the environment; damage or destroy assets; compromise business systems; result in proprietary information being altered, lost, or stolen; result in employee, customer, or third-party information being compromised; or otherwise disrupt our business operations. We could incur significant costs to remedy the effects of such a cybersecurity disruption as well as in connection with resulting regulatory actions and litigation. Preparedness. Our operations may be disrupted by severe weather events, natural disasters, human error, and similar events. For example, hurricanes may damage our offshore production facilities or coastal refining and petrochemical plants in vulnerable areas. Our facilities are designed, constructed, and operated to withstand a variety of extreme climatic and other conditions, with safety factors built in to cover a number of engineering uncertainties, including those associated with wave, wind, and current intensity, marine ice flow patterns, permafrost stability, storm surge magnitude, temperature extremes, extreme rain fall events, and earthquakes. Our consideration of changing weather conditions and inclusion of safety factors in design covers the engineering uncertainties that climate change and other events may potentially introduce. Our ability to mitigate the adverse impacts of these events depends in part upon the effectiveness of our robust facility engineering as well as our rigorous disaster preparedness and response and business continuity planning. Insurance limitations. The ability of the Corporation to insure against many of the risks it faces as described in this Item 1A is limited by the capacity of the applicable insurance markets, which may not be sufficient. Competition. As noted in Item 1 above, the energy and petrochemical industries are highly competitive. We face competition not only from other private firms, but also from state-owned companies that are increasingly competing for opportunities outside of their home countries. In some cases, these state-owned companies may pursue opportunities in furtherance of strategic objectives of their government owners, with less focus on financial returns than companies owned by private shareholders, such as ExxonMobil. Technology and expertise provided by industry service companies may also enhance the competitiveness of firms that may not have the internal resources and capabilities of ExxonMobil. Reputation. Our reputation is an important corporate asset. An operating incident, significant cybersecurity disruption, or other adverse event such as those described in this Item 1A may have a negative impact on our reputation, which in turn could make it more difficult for us to compete successfully for new opportunities, obtain necessary regulatory approvals, or could reduce consumer demand for our branded products. Projections, estimates, and descriptions of ExxonMobil’s plans and objectives included or incorporated in Items 1, 1A, 2, 7 and 7A of this report are forward-looking statements. Actual future results, including project completion dates, production rates, capital expenditures, costs, and business plans could differ materially due to, among other things, the factors discussed above and elsewhere in this report. ITEM 1B. UNRESOLVED STAFF COMMENTS None. ITEM 2. PROPERTIES Information with regard to oil and gas producing activities follows: 1. Disclosure of Reserves A. Summary of Oil and Gas Reserves at Year-End 2017 The table below summarizes the oil-equivalent proved reserves in each geographic area and by product type for consolidated subsidiaries and equity companies. Gas is converted to an oil-equivalent basis at six million cubic feet per one thousand barrels. The Corporation has reported proved reserves on the basis of the average of the first-day-of-the-month price for each month during the last 12-month period. No major discovery or other favorable or adverse event has occurred since December 31, 2017, that would cause a significant change in the estimated proved reserves as of that date. Proved Reserves Developed Consolidated Subsidiaries United States Canada/Other Americas (1) Europe Africa Asia Australia/Oceania Total Consolidated Crude Oil Natural Gas Liquids (million bbls) (million bbls) Bitumen Synthetic Oil Natural Gas Oil-Equivalent Basis (million bbls) (million bbls) (billion cubic ft) (million bbls) 1,137 85 93 593 2,070 85 4,063 352 7 26 83 112 46 626 657 657 473 473 12,649 512 1,231 584 4,030 4,420 23,426 3,597 1,307 325 773 2,854 868 9,724 Equity Companies United States Europe Africa Asia Total Equity Company Total Developed 201 14 715 930 4,993 7 304 311 937 657 473 154 4,899 12,898 17,951 41,377 234 830 3,168 4,232 13,956 Undeveloped Consolidated Subsidiaries United States Canada/Other Americas (1) Europe Africa Asia Australia/Oceania Total Consolidated 1,558 325 26 136 1,426 25 3,496 609 12 4 1 6 632 355 355 - 6,384 860 137 11 310 2,474 10,176 3,231 835 53 139 1,478 443 6,179 44 1 6 382 433 3,929 8,922 4 49 53 685 1,622 355 1,012 473 69 1,265 914 1,350 3,598 13,774 55,151 60 212 158 656 1,086 7,265 21,221 Equity Companies United States Europe Africa Asia Total Equity Company Total Undeveloped Total Proved Reserves (1) Other Americas includes proved developed reserves of 2 million barrels of crude oil and 42 billion cubic feet of natural gas, as well as proved undeveloped reserves of 150 million barrels of crude oil and 175 billion cubic feet of natural gas. In the preceding reserves information, consolidated subsidiary and equity company reserves are reported separately. However, the Corporation operates its business with the same view of equity company reserves as it has for reserves from consolidated subsidiaries. The Corporation anticipates several projects will come online over the next few years providing additional production capacity. However, actual volumes will vary from year to year due to the timing of individual project start-ups; operational outages; reservoir performance; performance of enhanced oil recovery projects; regulatory changes; the impact of fiscal and commercial terms; asset sales; weather events; price effects on production sharing contracts; changes in the amount and timing of capital investments that may vary depending on the oil and gas price environment; and other factors described in Item 1A. Risk Factors. The estimation of proved reserves, which is based on the requirement of reasonable certainty, is an ongoing process based on rigorous technical evaluations, commercial and market assessments and detailed analysis of well and reservoir information such as flow rates and reservoir pressures. Furthermore, the Corporation only records proved reserves for projects which have received significant funding commitments by management made toward the development of the reserves. Although the Corporation is reasonably certain that proved reserves will be produced, the timing and amount recovered can be affected by a number of factors including completion of development projects, reservoir performance, regulatory approvals, government policies, consumer preferences, and significant changes in long-term oil and natural gas price levels. In addition, proved reserves could be affected by an extended period of low prices which could reduce the level of the Corporation’s capital spending and also impact our partners’ capacity to fund their share of joint projects. B. Technologies Used in Establishing Proved Reserves Additions in 2017 Additions to ExxonMobil’s proved reserves in 2017 were based on estimates generated through the integration of available and appropriate geological, engineering and production data, utilizing well-established technologies that have been demonstrated in the field to yield repeatable and consistent results. Data used in these integrated assessments included information obtained directly from the subsurface via wellbores, such as well logs, reservoir core samples, fluid samples, static and dynamic pressure information, production test data, and surveillance and performance information. The data utilized also included subsurface information obtained through indirect measurements including high-quality 3D and 4-D seismic data, calibrated with available well control information. The tools used to interpret the data included proprietary seismic processing software, proprietary reservoir modeling and simulation software, and commercially available data analysis packages. In some circumstances, where appropriate analog reservoirs were available, reservoir parameters from these analogs were used to increase the quality of and confidence in the reserves estimates. C. Qualifications of Reserves Technical Oversight Group and Internal Controls over Proved Reserves ExxonMobil has a dedicated Global Reserves group that provides technical oversight and is separate from the operating organization. Primary responsibilities of this group include oversight of the reserves estimation process for compliance with Securities and Exchange Commission (SEC) rules and regulations, review of annual changes in reserves estimates, and the reporting of ExxonMobil’s proved reserves. This group also maintains the official company reserves estimates for ExxonMobil’s proved reserves of crude oil, natural gas liquids, bitumen, synthetic oil, and natural gas. In addition, the group provides training to personnel involved in the reserves estimation and reporting process within ExxonMobil and its affiliates. The Manager of the Global Reserves group has more than 25 years of experience in reservoir engineering and reserves assessment and has a degree in Engineering. He is an active member of the Society of Petroleum Engineers (SPE). The group is staffed with individuals that have an average of more than 20 years of technical experience in the petroleum industry, including expertise in the classification and categorization of reserves under the SEC guidelines. This group includes individuals who hold advanced degrees in either Engineering or Geology, and a member currently serves on the SPE Oil and Gas Reserves Committee. The Global Reserves group maintains a central database containing the official company reserves estimates. Appropriate controls, including limitations on database access and update capabilities, are in place to ensure data integrity within this central database. An annual review of the system’s controls is performed by internal audit. Key components of the reserves estimation process include technical evaluations and analysis of well and field performance and a rigorous peer review. No changes may be made to the reserves estimates in the central database, including additions of any new initial reserves estimates or subsequent revisions, unless these changes have been thoroughly reviewed and evaluated by duly authorized personnel within the operating organization. In addition, changes to reserves estimates that exceed certain thresholds require further review and approval of the appropriate level of management within the operating organization before the changes may be made in the central database. Endorsement by the Global Reserves group for all proved reserves changes is a mandatory component of this review process. After all changes are made, reviews are held with senior management for final endorsement. 6 2. Proved Undeveloped Reserves At year-end 2017, approximately 7.3 billion oil-equivalent barrels (GOEB) of ExxonMobil’s proved reserves were classified as proved undeveloped. This represents 34 percent of the 21.2 GOEB reported in proved reserves. This compares to the 6.2 GOEB of proved undeveloped reserves reported at the end of 2016. During the year, ExxonMobil conducted development activities that resulted in the transfer of approximately 0.7 GOEB from proved undeveloped to proved developed reserves by year-end. The largest transfers were related to the start-up of the Gorgon field and Longford Gas Conditioning Plant in Australia and drilling activity in the United States, the United Arab Emirates, and Kazakhstan. During 2017, extensions and discoveries, primarily in the United Arab Emirates, the United States, and Guyana resulted in an addition of approximately 0.9 GOEB of proved undeveloped reserves. Also, purchases, primarily in the United States and Mozambique resulted in the addition of approximately 0.9 GOEB of proved undeveloped reserves. Overall, investments of $8 billion were made by the Corporation during 2017 to progress the development of reported proved undeveloped reserves, including $8 billion for oil and gas producing activities and in addition, nearly $100 million for other non-oil and gas producing activities such as the construction of support infrastructure and other related facilities. These investments represented 48 percent of the $16.7 billion in total reported Upstream capital and exploration expenditures. Investments made by the Corporation to develop quantities which no longer meet the SEC definition of proved reserves due to 2017 average prices are included in the $16.7 billion of Upstream capital expenditures reported above but are excluded from amounts related to progressing the development of proved undeveloped reserves. One of ExxonMobil’s requirements for reporting proved reserves is that management has made significant funding commitments toward the development of the reserves. ExxonMobil has a disciplined investment strategy and many major fields require long lead-time in order to be developed. Development projects typically take several years from the time of recording proved undeveloped reserves to the start of production and can exceed five years for large and complex projects. Proved undeveloped reserves in Canada, Kazakhstan, Australia, the Netherlands, the United States, and Qatar have remained undeveloped for five years or more primarily due to constraints on the capacity of infrastructure, as well as the time required to complete development for very large projects. The Corporation is reasonably certain that these proved reserves will be produced; however, the timing and amount recovered can be affected by a number of factors including completion of development projects, reservoir performance, regulatory approvals, government policies, consumer preferences, the pace of co-venturer/government funding, and significant changes in long-term oil and natural gas price levels. Of the proved undeveloped reserves that have been reported for five or more years, over 80 percent are contained in the aforementioned countries. In Canada, proved undeveloped reserves are related to drilling activities in the offshore Hebron field and onshore Cold Lake operations. In Kazakhstan, the proved undeveloped reserves are related to the remainder of the initial development of the producing offshore Kashagan field which is included in the North Caspian Production Sharing Agreement and the Tengizchevroil joint venture which includes a production license in the Tengiz – Korolev field complex. The Tengizchevroil joint venture is producing, and proved undeveloped reserves will continue to move to proved developed as approved development phases progress. In Australia, proved undeveloped reserves are associated with future compression for the Gorgon Jansz LNG project. In the Netherlands, the Groningen gas field has proved undeveloped reserves related to installation of future compression. 7 3. Oil and Gas Production, Production Prices and Production Costs A. Oil and Gas Production The table below summarizes production by final product sold and by geographic area for the last three years. 2017 2016 2015 (thousands of barrels daily) Crude oil and natural gas liquids production Consolidated Subsidiaries United States Canada/Other Americas Europe Africa Asia Australia/Oceania Total Consolidated Subsidiaries Equity Companies United States Europe Asia Total Equity Companies Total crude oil and natural gas liquids production Crude Oil NGL Crude Oil NGL Crude Oil 361 44 147 412 373 35 1,372 96 6 31 11 26 19 189 347 53 171 459 383 37 1,450 87 6 31 15 27 19 185 326 47 173 511 346 33 1,436 86 8 28 18 29 17 186 55 4 235 294 2 64 66 58 2 232 292 2 65 67 61 3 241 305 3 68 71 1,666 255 1,742 252 1,741 257 Bitumen production Consolidated Subsidiaries Canada/Other Americas 305 304 289 Synthetic oil production Consolidated Subsidiaries Canada/Other Americas 57 67 58 2,283 2,365 2,345 Total liquids production (millions of cubic feet daily) Natural gas production available for sale Consolidated Subsidiaries United States Canada/Other Americas (1) Europe Africa Asia Australia/Oceania Total Consolidated Subsidiaries Equity Companies United States Europe Asia Total Equity Companies Total natural gas production available for sale NGL 2,910 218 1,046 5 906 1,310 6,395 3,052 239 1,093 7 927 887 6,205 3,116 261 1,110 5 1,080 677 6,249 26 902 2,888 3,816 10,211 26 1,080 2,816 3,922 10,127 31 1,176 3,059 4,266 10,515 (thousands of oil-equivalent barrels daily) Oil-equivalent production (1) 3,985 4,053 4,097 Other Americas includes natural gas production available for sale for 2017, 2016 and 2015 of 24 million, 22 million, and 21 million cubic feet daily, respectively. 8 B. Production Prices and Production Costs The table below summarizes average production prices and average production costs by geographic area and by product type for the last three years. United States Canada/ Other Americas Europe Africa (dollars per unit) Asia Australia/ Oceania Total During 2017 Consolidated Subsidiaries Average production prices Crude oil, per barrel NGL, per barrel Natural gas, per thousand cubic feet Bitumen, per barrel Synthetic oil, per barrel Average production costs, per oil-equivalent barrel - total Average production costs, per barrel - bitumen Average production costs, per barrel - synthetic oil 46.71 24.20 2.03 10.85 - 52.42 27.07 2.03 29.70 52.72 23.44 21.39 44.21 52.02 30.96 5.48 12.25 - 54.70 37.38 1.51 13.33 - 53.26 22.69 2.05 8.07 - 53.61 33.15 4.22 6.30 - 51.88 26.88 3.04 29.70 52.72 12.33 21.39 44.21 Equity Companies Average production prices Crude oil, per barrel NGL, per barrel Natural gas, per thousand cubic feet Average production costs, per oil-equivalent barrel - total 49.13 21.78 2.42 23.38 - 47.69 4.81 7.45 - 50.27 38.23 4.15 1.18 - 50.02 37.81 4.30 3.51 Total Average production prices Crude oil, per barrel NGL, per barrel Natural gas, per thousand cubic feet Bitumen, per barrel Synthetic oil, per barrel Average production costs, per oil-equivalent barrel - total Average production costs, per barrel - bitumen Average production costs, per barrel - synthetic oil 47.03 24.16 2.03 11.61 - 52.42 27.07 2.03 29.70 52.72 23.44 21.39 44.21 51.91 30.96 5.17 10.79 - 54.70 37.38 1.51 13.33 - 52.12 33.79 3.65 4.02 - 53.61 33.15 4.22 6.30 - 51.56 29.70 3.51 29.70 52.72 10.12 21.39 44.21 During 2016 Consolidated Subsidiaries Average production prices Crude oil, per barrel NGL, per barrel Natural gas, per thousand cubic feet Bitumen, per barrel Synthetic oil, per barrel Average production costs, per oil-equivalent barrel - total Average production costs, per barrel - bitumen Average production costs, per barrel - synthetic oil 36.47 16.16 1.43 10.41 - 39.50 18.91 1.71 19.30 43.03 21.16 18.25 33.64 40.57 22.17 4.26 12.78 - 42.59 26.78 1.14 12.75 - 41.89 17.12 1.56 6.44 - 43.33 23.95 3.46 7.12 - 40.59 18.99 2.25 19.30 43.03 11.79 18.25 33.64 Equity Companies Average production prices Crude oil, per barrel NGL, per barrel Natural gas, per thousand cubic feet Average production costs, per oil-equivalent barrel - total 38.44 14.85 2.03 22.26 - 36.13 4.19 7.92 - 39.69 25.21 3.59 1.80 - 39.41 24.87 3.75 4.21 Total Average production prices Crude oil, per barrel NGL, per barrel Natural gas, per thousand cubic feet Bitumen, per barrel Synthetic oil, per barrel Average production costs, per oil-equivalent barrel - total Average production costs, per barrel - bitumen 36.75 16.13 1.44 11.18 - 39.50 18.91 1.71 19.30 43.03 21.16 18.25 40.51 22.17 4.22 11.21 - 42.59 26.78 1.14 12.75 - 41.06 22.85 3.09 3.77 - 43.33 23.95 3.46 7.12 - 40.39 20.56 2.83 19.30 43.03 9.89 18.25 Average production costs, per barrel - oil - 33.64 - - - - 33.64 United States Canada/ Other Americas Europe Africa (dollars per unit) Asia Australia/ Oceania Total During 2015 Consolidated Subsidiaries Average production prices Crude oil, per barrel NGL, per barrel Natural gas, per thousand cubic feet Bitumen, per barrel Synthetic oil, per barrel Average production costs, per oil-equivalent barrel - total Average production costs, per barrel - bitumen Average production costs, per barrel - synthetic oil 41.87 16.96 1.65 12.50 - 44.30 21.91 1.78 25.07 48.15 22.68 19.20 41.83 49.04 27.50 6.47 15.86 - 51.01 33.41 1.57 10.31 - 48.30 21.14 2.02 7.71 - 49.56 29.75 5.13 8.86 - 47.75 22.16 2.95 25.07 48.15 12.97 19.20 41.83 Equity Companies Average production prices Crude oil, per barrel NGL, per barrel Natural gas, per thousand cubic feet Average production costs, per oil-equivalent barrel - total 46.34 15.37 2.05 22.15 - 46.05 6.27 7.75 - 48.44 32.36 5.83 1.41 - 47.99 31.75 5.92 3.89 Total Average production prices Crude oil, per barrel NGL, per barrel Natural gas, per thousand cubic feet Bitumen, per barrel Synthetic oil, per barrel Average production costs, per oil-equivalent barrel - total Average production costs, per barrel - bitumen Average production costs, per barrel - synthetic oil 42.58 16.92 1.65 13.16 - 44.30 21.91 1.78 25.07 48.15 22.68 19.20 41.83 48.97 27.50 6.37 13.09 - 51.01 33.41 1.57 10.31 - 48.36 28.94 4.84 3.96 - 49.56 29.75 5.13 8.86 - 47.79 24.77 4.16 25.07 48.15 10.56 19.20 41.83 Average production prices have been calculated by using sales quantities from the Corporation’s own production as the divisor. Average production costs have been computed by using net production quantities for the divisor. The volumes of crude oil and natural gas liquids (NGL) production used for this computation are shown in the oil and gas production table in section 3.A. The volumes of natural gas used in the calculation are the production volumes of natural gas available for sale and are also shown in section 3.A. The natural gas available for sale volumes are different from those shown in the reserves table in the “Oil and Gas Reserves” part of the “Supplemental Information on Oil and Gas Exploration and Production Activities” portion of the Financial Section of this report due to volumes consumed or flared. Gas is converted to an oil-equivalent basis at six million cubic feet per one thousand barrels. 10 4. Drilling and Other Exploratory and Development Activities A. Number of Net Productive and Dry Wells Drilled 2017 2016 2015 Net Productive Exploratory Wells Drilled Consolidated Subsidiaries United States Canada/Other Americas Europe Africa Asia Australia/Oceania Total Consolidated Subsidiaries 5 1 6 2 1 1 4 1 1 1 2 1 6 Equity Companies United States Europe Africa Asia Total Equity Companies Total productive exploratory wells drilled 6 1 1 5 1 1 7 Net Dry Exploratory Wells Drilled Consolidated Subsidiaries United States Canada/Other Americas Europe Africa Asia Australia/Oceania Total Consolidated Subsidiaries 2 2 1 1 2 1 2 3 Equity Companies United States Europe Africa Asia Total Equity Companies Total dry exploratory wells drilled 1 1 3 2 1 1 2 5 11 2017 2016 2015 Net Productive Development Wells Drilled Consolidated Subsidiaries United States Canada/Other Americas Europe Africa Asia Australia/Oceania Total Consolidated Subsidiaries 300 12 6 6 15 1 340 335 13 9 7 13 377 692 53 10 23 14 4 796 Equity Companies United States Europe Africa Asia Total Equity Companies Total productive development wells drilled 154 1 3 158 498 121 2 3 126 503 390 1 2 393 1,189 Net Dry Development Wells Drilled Consolidated Subsidiaries United States Canada/Other Americas Europe Africa Asia Australia/Oceania Total Consolidated Subsidiaries 4 1 5 2 2 4 5 3 1 9 Equity Companies United States Europe Africa Asia Total Equity Companies Total dry development wells drilled 5 4 9 512 514 1,210 Total number of net wells drilled 12 B. Exploratory and Development Activities Regarding Oil and Gas Resources Extracted by Mining Technologies Syncrude Operations. Syncrude is a joint venture established to recover shallow deposits of oil sands using open-pit mining methods to extract the crude bitumen, and then upgrade it to produce a high-quality, light (32 degrees API), sweet, synthetic crude oil. Imperial Oil Limited is the owner of a 25 percent interest in the joint venture. Exxon Mobil Corporation has a 69.6 percent interest in Imperial Oil Limited. In 2017, the company’s share of net production of synthetic crude oil was about 57 thousand barrels per day and share of net acreage was about 63 thousand acres in the Athabasca oil sands deposit. Kearl Operations. Kearl is a joint venture established to recover shallow deposits of oil sands using open-pit mining methods to extract the crude bitumen. Imperial Oil Limited holds a 70.96 percent interest in the joint venture and ExxonMobil Canada Properties holds the other 29.04 percent. Exxon Mobil Corporation has a 69.6 percent interest in Imperial Oil Limited and a 100 percent interest in ExxonMobil Canada Properties. Kearl is comprised of six oil sands leases covering about 49 thousand acres in the Athabasca oil sands deposit. Kearl is located approximately 40 miles north of Fort McMurray, Alberta, Canada. Bitumen is extracted from oil sands produced from open-pit mining operations, and processed through bitumen extraction and froth treatment trains. The product, a blend of bitumen and diluent, is shipped to our refineries and to other third parties. Diluent is natural gas condensate or other light hydrocarbons added to the crude bitumen to facilitate transportation by pipeline and rail. During 2017, average net production at Kearl was about 174 thousand barrels per day. 5. Present Activities A. Wells Drilling Year-End 2017 Gross Net Year-End 2016 Gross Net Wells Drilling Consolidated Subsidiaries United States Canada/Other Americas Europe Africa Asia Australia/Oceania Total Consolidated Subsidiaries 820 30 12 10 58 3 933 334 22 2 2 15 1 376 760 22 12 30 38 4 866 302 17 3 7 11 1 341 Equity Companies United States Europe Asia Total Equity Companies Total gross and net wells drilling 10 8 14 32 965 1 3 4 8 384 22 9 7 38 904 3 4 2 9 350 B. Review of Principal Ongoing Activities UNITED STATES ExxonMobil’s year-end 2017 acreage holdings totaled 12.8 million net acres, of which 0.9 million net acres were offshore. ExxonMobil was active in areas onshore and offshore in the lower 48 states and in Alaska. During the year, 444.9 net development wells were completed in the inland lower 48 states. Development activities focused on liquidsrich opportunities in the onshore U.S., primarily in the Permian Basin of West Texas and New Mexico and the Bakken oil play in North Dakota. In addition, gas development activities continued in the Marcellus Shale of Pennsylvania and West Virginia, the Utica Shale of Ohio and the Haynesville Shale of East Texas and Louisiana. In 2017, ExxonMobil acquired a number of oil and gas properties in the Permian Basin. ExxonMobil’s net acreage in the Gulf of Mexico at year-end 2017 was 0.8 million acres. A total of 2.3 net development wells were completed during the year. Participation in Alaska production and development continued with a total of 10.9 net development wells completed. 13 CANADA / OTHER AMERICAS Canada Oil and Gas Operations: ExxonMobil’s year-end 2017 acreage holdings totaled 6.5 million net acres, of which 3.2 million net acres were offshore. A total of 10.8 net development wells were completed during the year. The Hebron project started up in 2017. In Situ Bitumen Operations: ExxonMobil’s year-end 2017 in situ bitumen acreage holdings totaled 0.7 million net onshore acres. Argentina ExxonMobil’s net acreage totaled 0.3 million onshore acres at year-end 2017, and there were 4.0 net exploration and development wells completed during the year. Guyana ExxonMobil’s net acreage totaled 5.2 million offshore acres at year-end 2017, and there were 2.3 net exploration wells completed during the year. The Liza Phase 1 project was funded in 2017. EUROPE Germany A total of 2.8 million net onshore acres were held by ExxonMobil at year-end 2017, with 1.3 net development wells completed during the year. Netherlands ExxonMobil’s net interest in licenses totaled approximately 1.5 million acres at year-end 2017, of which 1.1 million acres were onshore. A total of 1.3 net exploration and development wells were completed during the year. Norway ExxonMobil’s net interest in licenses at year-end 2017 totaled approximately 0.1 million acres, all offshore. A total of 3.9 net development wells were completed during the year. In 2017, ExxonMobil divested approximately 81 thousand net operated acres in Norway. United Kingdom ExxonMobil’s net interest in licenses at year-end 2017 totaled approximately 0.6 million acres, all offshore. A total of 1.2 net exploration and development wells were completed during the year. The Penguins Redevelopment project was funded in 2017. AFRICA Angola ExxonMobil’s net acreage totaled 0.2 million offshore acres at year-end 2017, with 5.9 net development wells completed during the year. On Block 32, development activities continued on the Kaombo Split Hub project. Chad ExxonMobil’s net year-end 2017 acreage holdings consisted of 46 thousand onshore acres. Equatorial Guinea ExxonMobil’s acreage totaled 0.3 million net offshore acres at year-end 2017, with 2.4 net exploration wells completed during the year. Mozambique ExxonMobil’s net acreage totaled approximately 0.1 million offshore acres at year-end 2017. ExxonMobil acquired an interest in Area 4 offshore Mozambique in December 2017. The Coral South Floating LNG project was funded in 2017. Nigeria ExxonMobil’s net acreage totaled 1.1 million offshore acres at year-end 2017, with 0.8 net development wells completed during the year. 14 ASIA Azerbaijan At year-end 2017, ExxonMobil’s net acreage totaled 9 thousand offshore acres. A total of 1.3 net development wells were completed during the year. Indonesia At year-end 2017, ExxonMobil had 0.1 million net acres onshore. In 2017, ExxonMobil relinquished approximately 0.4 million net acres offshore. Iraq At year-end 2017, ExxonMobil’s onshore acreage was 0.1 million net acres. A total of 4.5 net development wells were completed at the West Qurna Phase I oil field during the year. Oil field rehabilitation activities continued during 2017 and across the life of this project will include drilling of new wells, working over of existing wells, and optimization and debottlenecking of existing facilities. In the Kurdistan Region of Iraq, ExxonMobil continued exploration activities. Kazakhstan ExxonMobil’s net acreage totaled 0.1 million acres onshore and 0.2 million acres offshore at year-end 2017. A total of 4.3 net development wells were completed during 2017. Development activities continued on the Tengiz Expansion project. Malaysia ExxonMobil’s interests in production sharing contracts covered 2.5 million net acres offshore at year-end 2017. During the year, a total of 1.5 net development wells were completed. ExxonMobil acquired deepwater acreage offshore Sabah. Qatar Through our joint ventures with Qatar Petroleum, ExxonMobil’s net acreage totaled 65 thousand acres offshore at year-end 2017. ExxonMobil participated in 62.2 million tonnes per year gross liquefied natural gas capacity and 2.0 billion cubic feet per day of flowing gas capacity at year end. Development activities continued on the Barzan project in 2017. Republic of Yemen ExxonMobil’s net acreage in the Republic of Yemen production sharing areas totaled 10 thousand acres onshore at year-end 2017. Russia ExxonMobil’s net acreage holdings in Sakhalin at year-end 2017 were 85 thousand acres, all offshore. A total of 2.1 net exploration and development wells were completed. The Odoptu Stage 2 project started up in 2017. At year-end 2017, ExxonMobil’s net acreage in the Rosneft joint venture agreements for the Kara, Laptev, Chukchi and Black Seas was 63.6 million acres, all offshore. ExxonMobil and Rosneft formed a joint venture to evaluate the development of tight-oil reserves in western Siberia in 2013. Refer to the relevant portion of “Note 7: Equity Company Information” of the Financial Section of this report for additional information on the Corporation’s participation in Rosneft joint venture activities. Thailand ExxonMobil’s net onshore acreage in Thailand concessions totaled 21 thousand acres at year-end 2017. United Arab Emirates ExxonMobil’s net acreage in the Abu Dhabi offshore Upper Zakum oil concession was 81 thousand acres at year-end 2017. A total of 5.3 net development wells were completed. During 2017, development activities continued on the Upper Zakum 750 project, and agreements were signed for the Upper Zakum 1MBD (million barrels per day) project, including a 10-year extension to 2051 for the Upper Zakum concession. 15 AUSTRALIA / OCEANIA Australia ExxonMobil’s year-end 2017 acreage holdings totaled 2.0 million net offshore acres. The Gas Conditioning Plant at Longford started up in 2017. The third train of the co-venturer-operated Gorgon Jansz liquefied natural gas (LNG) project started up in 2017. The project consists of a subsea infrastructure for offshore production and transportation of the gas, a 15.6 million tonnes per year LNG facility and a 280 million cubic feet per day domestic gas plant located on Barrow Island, Western Australia. Papua New Guinea A total of 10.1 million net acres were held by ExxonMobil at year-end 2017, of which 5.4 million net acres were offshore. A total of 0.7 net exploration and development wells were completed during the year. The Papua New Guinea (PNG) LNG integrated development includes gas production and processing facilities in the southern PNG Highlands, onshore and offshore pipelines, and a 6.9 million tonnes per year LNG facility near Port Moresby. In 2017, ExxonMobil acquired InterOil Corporation (IOC), an exploration and production business focused on Papua New Guinea. WORLDWIDE EXPLORATION At year-end 2017, exploration activities were under way in several areas in which ExxonMobil has no established production operations and thus are not included above. A total of 30.1 million net acres were held at year-end 2017 in these countries. 6. Delivery Commitments ExxonMobil sells crude oil and natural gas from its producing operations under a variety of contractual obligations, some of which may specify the delivery of a fixed and determinable quantity for periods longer than one year. ExxonMobil also enters into natural gas sales contracts where the source of the natural gas used to fulfill the contract can be a combination of our own production and the spot market. Worldwide, we are contractually committed to deliver approximately 57 million barrels of oil and 2,400 billion cubic feet of natural gas for the period from 2018 through 2020. We expect to fulfill the majority of these delivery commitments with production from our proved developed reserves. Any remaining commitments will be fulfilled with production from our proved undeveloped reserves and spot market purchases as necessary. 16 7. Oil and Gas Properties, Wells, Operations and Acreage A. Gross and Net Productive Wells Year-End 2017 Oil Gross Year-End 2016 Gas Net Gross Oil Net Gross Gas Net Gross Net Gross and Net Productive Wells Consolidated Subsidiaries United States Canada/Other Americas Europe Africa Asia Australia/Oceania Total Consolidated Subsidiaries 20,679 4,877 1,016 1,222 900 588 29,282 8,366 4,618 267 474 299 129 14,153 27,700 4,273 664 15 139 73 32,864 15,979 1,646 268 6 82 30 18,011 20,470 5,024 1,130 1,268 882 588 29,362 8,037 4,767 323 494 299 128 14,048 32,949 4,362 641 17 140 53 38,162 19,873 1,668 253 7 82 23 21,906 Equity Companies United States Europe Asia Total Equity Companies Total gross and net productive wells 13,796 59 144 13,999 43,281 5,247 21 36 5,304 19,457 4,227 617 125 4,969 37,833 491 195 30 716 18,727 13,957 56 131 14,144 43,506 5,315 19 33 5,367 19,415 4,257 586 125 4,968 43,130 491 186 30 707 22,613 There were 30,263 gross and 25,827 net operated wells at year-end 2017 and 35,047 gross and 29,375 net operated wells at year-end 2016. The number of wells with multiple completions was 1,366 gross in 2017 and 1,209 gross in 2016. 17 B. Gross and Net Developed Acreage Year-End 2017 Year-End 2016 Gross Net Gross Net (thousands of acres) Gross and Net Developed Acreage Consolidated Subsidiaries United States Canada/Other Americas (1) Europe Africa Asia Australia/Oceania Total Consolidated Subsidiaries 14,836 3,604 2,970 2,492 1,983 3,262 29,147 9,026 2,328 1,335 866 586 1,068 15,209 14,678 3,374 3,215 2,492 1,934 3,020 28,713 8,958 2,146 1,446 866 562 1,005 14,983 Equity Companies United States Europe Asia Total Equity Companies Total gross and net developed acreage 930 4,170 628 5,728 34,875 208 1,317 155 1,680 16,889 929 4,191 628 5,748 34,461 209 1,321 155 1,685 16,668 (1) Includes developed acreage in Other Americas of 375 gross and 244 net thousands of acres for 2017 and 213 gross and 109 net thousands of acres for 2016. Separate acreage data for oil and gas are not maintained because, in many instances, both are produced from the same acreage. C. Gross and Net Undeveloped Acreage Year-End 2017 Year-End 2016 Gross Net Gross Net (thousands of acres) Gross and Net Undeveloped Acreage Consolidated Subsidiaries United States Canada/Other Americas (1) Europe Africa Asia Australia/Oceania Total Consolidated Subsidiaries 7,506 29,495 7,576 37,699 5,802 15,976 104,054 3,489 13,410 3,622 26,705 2,680 11,125 61,031 7,854 24,054 7,218 9,496 2,436 8,054 59,112 3,637 10,569 3,368 4,979 865 5,497 28,915 Equity Companies United States Europe Africa Asia Total Equity Companies Total gross and net undeveloped acreage 207 100 596 191,147 192,050 296,104 77 25 149 63,633 63,884 124,915 223 100 191,147 191,470 250,582 81 25 63,633 63,739 92,654 (1) Includes undeveloped acreage in Other Americas of 18,625 gross and 8,053 net thousands of acres for 2017 and 13,106 gross and 5,146 net thousands of acres for 2016. ExxonMobil’s investment in developed and undeveloped acreage is comprised of numerous concessions, blocks and leases. The terms and conditions under which the Corporation maintains exploration and/or production rights to the acreage are property-specific, contractually defined and vary significantly from property to property. Work programs are designed to ensure that the exploration potential of any property is fully evaluated before expiration. In some instances, the Corporation may elect to relinquish acreage in advance of the contractual expiration date if the evaluation process is complete and there is not a business basis for extension. In cases where additional time may be required to fully evaluate acreage, the Corporation has generally been successful in obtaining extensions. The scheduled expiration of leases and concessions for undeveloped acreage over the next three years is not expected to have a material adverse impact on the Corporation. 18 D. Summary of Acreage Terms UNITED STATES Oil and gas exploration and production rights are acquired from mineral interest owners through a lease. Mineral interest owners include the Federal and State governments, as well as private mineral interest owners. Leases typically have an exploration period ranging from one to ten years, and a production period that normally remains in effect until production ceases. Under certain circumstances, a lease may be held beyond its exploration term even if production has not commenced. In some instances regarding private property, a “fee interest” is acquired where the underlying mineral interests are owned outright. CANADA / OTHER AMERICAS Canada Exploration licenses or leases in onshore areas are acquired for varying periods of time with renewals or extensions possible. These licenses or leases entitle the holder to continue existing licenses or leases upon completing specified work. In general, these license and lease agreements are held as long as there is proven production capability on the licenses and leases. Exploration licenses in offshore eastern Canada and the Beaufort Sea are held by work commitments of various amounts and rentals. They are valid for a maximum term of nine years. Offshore production licenses are valid for 25 years, with rights of extension for continued production. Significant discovery licenses in the offshore, relating to currently undeveloped discoveries, do not have a definite term. Argentina The Federal Hydrocarbon Law was amended in December 2014. The onshore concession terms granted prior to the amendment are up to six years, divided into three potential exploration periods, with an optional extension for up to one year depending on the classification of the area. Pursuant to the amended law, the production term for a conventional production concession would be 25 years, and 35 years for an unconventional concession, with unlimited ten-year extensions possible, once a field has been developed. Guyana The Petroleum (Exploration and Production) Act authorizes the government of Guyana to grant petroleum prospecting and production licenses and to enter into petroleum agreements for the exploration and production of hydrocarbons. Petroleum agreements provide for an exploration period of up to 10 years with a production period of 20 years with a 10 year extension. EUROPE Germany Exploration concessions are granted for an initial maximum period of five years, with an unlimited number of extensions of up to three years each. Extensions are subject to specific, minimum work commitments. Production licenses are normally granted for 20 to 25 years with multiple possible extensions as long as there is production on the license. Netherlands Under the Mining Law, effective January 1, 2003, exploration and production licenses for both onshore and offshore areas are issued for a period as explicitly defined in the license. The term is based on the period of time necessary to perform the activities for which the license is issued. License conditions are stipulated in the license and are based on the Mining Law. Production rights granted prior to January 1, 2003, remain subject to their existing terms, and differ slightly for onshore and offshore areas. Onshore production licenses issued prior to 1988 were indefinite; from 1988 they were issued for a period as explicitly defined in the license, ranging from 35 to 45 years. Offshore production licenses issued before 1976 were issued for a fixed period of 40 years; from 1976 they were again issued for a period as explicitly defined in the license, ranging from 15 to 40 years. Norway Licenses issued between 1972 and 1997 were for an initial period of up to six years (with extension of the initial period of one year at a time up to ten years after 1985), and an extension period of up to 30 years, with relinquishment of at least one-half of the original area required at the end of the initial period. Licenses issued after July 1, 1997, have an initial period of up to ten years and a normal extension period of up to 30 years or in special cases of up to 50 years, and with relinquishment of at least one-half of the original area required at the end of the initial period. 19 United Kingdom Acreage terms are fixed by the government and are periodically changed. For example, many of the early licenses issued under the first four licensing rounds provided for an initial term of six years with relinquishment of at least one-half of the original area at the end of the initial term, subject to extension for a further 40 years. At the end of any such 40-year term, licenses may continue in producing areas until cessation of production; or licenses may continue in development areas for periods agreed on a case-by-case basis until they become producing areas; or licenses terminate in all other areas. The majority of traditional licenses currently issued have an initial exploration term of four years with a second term extension of four years, and a final production term of 18 years, with a mandatory relinquishment of 50 percent of the acreage after the initial term and of all acreage that is not covered by a development plan at the end of the second term. Terms for exploration acreage in technically challenged areas are governed by frontier production licenses, generally covering a larger initial area than traditional licenses, with an initial exploration term of six or nine years with a second term extension of six years, and a final production term of 18 years, with relinquishment of 75 percent of the original area after three years and 50 percent of the remaining acreage after the next three years. Innovate licenses issued replace traditional and frontier licenses and offer greater flexibility with respect to periods and work program commitments. AFRICA Angola Exploration and production activities are governed by production sharing agreements with an initial exploration term of four years and an optional second phase of two to three years. The production period is 25 years, and agreements generally provide for a negotiated extension. Chad Exploration permits are issued for a period of five years, and are renewable for one or two further five-year periods. The terms and conditions of the permits, including relinquishment obligations, are specified in a negotiated convention. The production term is 30 years and in 2017 was extended by 20 years to 2050. Equatorial Guinea Exploration, development and production activities are governed by production sharing contracts (PSCs) negotiated with the State Ministry of Mines and Hydrocarbons. A new PSC was signed in 2015; the initial exploration period is five years for oil and gas, with multi-year extensions available at the discretion of the Ministry and limited relinquishments in the absence of commercial discoveries. The production period for crude oil ranges from 25 to 30 years, while the production period for natural gas ranges from 25 to 50 years. Mozambique Exploration and production activities are generally governed by concession contracts with the Government of the Republic of Mozambique, represented by the Ministry of Mineral Resources and Energy. An interest in Area 4 offshore Mozambique was acquired in December 2017. Terms for Area 4 are governed by the Exploration and Production Concession Contract (EPCC) for Area 4 Offshore of the Rovuma Block dated December 20, 2006 and Decree Law 2/2014. The EPCC expires 30 years after the approval of a plan of development for a given discovery area. Nigeria Exploration and production activities in the deepwater offshore areas are typically governed by production sharing contracts (PSCs) with the national oil company, the Nigerian National Petroleum Corporation (NNPC). NNPC typically holds the underlying Oil Prospecting License (OPL) and any resulting Oil Mining Lease (OML). The terms of the PSCs are generally 30 years, including a tenyear exploration period (an initial exploration phase that can be divided into multiple optional periods) covered by an OPL. Upon commercial discovery, an OPL may be converted to an OML. Partial relinquishment is required under the PSC at the end of the tenyear exploration period, and OMLs have a 20-year production period that may be extended. Some exploration activities are carried out in deepwater by joint ventures with local companies holding interests in an OPL. OPLs in deepwater offshore areas are valid for 10 years, while in all other areas the licenses are for five years. Demonstrating a commercial discovery is the basis for conversion of an OPL to an OML. OMLs granted prior to the 1969 Petroleum Act (i.e., under the Mineral Oils Act 1914, repealed by the 1969 Petroleum Act) were for 30 years onshore and 40 years in offshore areas and have been renewed, effective December 1, 2008, for a further period of 20 years, with a further renewal option of 20 years. Operations under these pre-1969 OMLs are conducted under a joint venture agreement with NNPC rather than a PSC. Commercial terms applicable to the existing joint venture oil production are defined by the Petroleum Profits Tax Act. 20 OMLs granted under the 1969 Petroleum Act, which include all deepwater OMLs, have a maximum term of 20 years without distinction for onshore or offshore location and are renewable, upon 12 months’ written notice, for another period of 20 years. OMLs not held by NNPC are also subject to a mandatory 50-percent relinquishment after the first 10 years of their duration. ASIA Azerbaijan The production sharing agreement (PSA) for the development of the Azeri-Chirag-Gunashli field is established for an initial period of 30 years starting from the PSA execution date in 1994. The PSA was amended in September 2017 to extend the term by 25 years to 2049. Other exploration and production activities are governed by PSAs negotiated with the national oil company of Azerbaijan. The exploration period typically consists of three or four years with the possibility of a one to three-year extension. The production period, which includes development, is for 25 years or 35 years with the possibility of one or two five-year extensions. Indonesia Exploration and production activities in Indonesia are generally governed by cooperation contracts, usually in the form of a production sharing contract (PSC), negotiated with BPMIGAS, a government agency established in 2002 to manage upstream oil and gas activities. In 2012, Indonesia’s Constitutional Court ruled certain articles of law relating to BPMIGAS to be unconstitutional, but stated that all existing PSCs signed with BPMIGAS should remain in force until their expiry, and the functions and duties previously performed by BPMIGAS are to be carried out by the relevant Ministry of the Government of Indonesia until the promulgation of a new oil and gas law. By presidential decree, SKKMIGAS became the interim successor to BPMIGAS. The current PSCs have an exploration period of six years, which can be extended up to 10 years, and an exploitation period of 20 years. PSCs generally require the contractor to relinquish 10 percent to 20 percent of the contract area after three years and generally allow the contractor to retain no more than 50 percent to 80 percent of the original contract area after six years, depending on the acreage and terms. Iraq Development and production activities in the state-owned oil and gas fields are governed by contracts with regional oil companies of the Iraqi Ministry of Oil. An ExxonMobil affiliate entered into a contract with Basra Oil Company of the Iraqi Ministry of Oil for the rights to participate in the development and production activities of the West Qurna Phase I oil and gas field effective March 1, 2010. The term of the contract is 20 years with the right to extend for five years. The contract provides for cost recovery plus per-barrel fees for incremental production above specified levels. Exploration and production activities in the Kurdistan Region of Iraq are governed by production sharing contracts (PSCs) negotiated with the regional government of Kurdistan in 2011. The exploration term is for five years, with extensions available as provided by the PSCs and at the discretion of the regional government of Kurdistan. Current PSCs remain in effect by agreement of the regional government to allow additional time for exploration or evaluation of commerciality. The production period is 20 years with the right to extend for five years. Kazakhstan Onshore exploration and production activities are governed by the production license, exploration license and joint venture agreements negotiated with the Republic of Kazakhstan. Existing production operations have a 40-year production period that commenced in 1993. Offshore exploration and production activities are governed by a production sharing agreement negotiated with the Republic of Kazakhstan. The exploration period is six years followed by separate appraisal periods for each discovery. The production period for each discovery, which includes development, is 20 years from the date of declaration of commerciality with the possibility of two tenyear extensions. Malaysia Production activities are governed by production sharing contracts (PSCs) negotiated with the national oil company. The PSCs have exploration and production terms ranging up to 38 years. All extensions are subject to the national oil company’s prior written approval. The production periods range from 15 to 29 years, depending on the provisions of the respective contract. Qatar The State of Qatar grants gas production development project rights to develop and supply gas from the offshore North Field to permit the economic development and production of gas reserves sufficient to satisfy the gas and LNG sales obligations of these projects. 21 Republic of Yemen The Jannah production sharing agreement has a development period extending 20 years from first commercial declaration, which was made in June 1995. Due to force majeure events, the development period has been extended beyond its original expiration date, with the possibility of further extensions due to ongoing force majeure events. Russia Terms for ExxonMobil’s Sakhalin acreage are fixed by the current production sharing agreement (PSA) between the Russian government and the Sakhalin-1 consortium, of which ExxonMobil is the operator. Exploration and production activities in the Kara, Laptev, Chukchi and Black Seas are governed by joint venture agreements concluded with Rosneft in 2013 and 2014 that cover certain of Rosneft’s offshore licenses. The Kara Sea licenses covered by the joint venture agreements concluded in 2013 extend through 2040 and include exploration periods through 2020 and 2022. Additional licenses in the Kara, Laptev and Chukchi Seas covered by the joint venture agreements concluded in 2014 extend through 2043 and include an exploration period through 2023. The Kara, Laptev and Chukchi Sea licenses require development plan submission within eight to eleven years from a discovery and development activities within five years of plan approval. The Black Sea exploration license extends through 2020, and a discovery is the basis for obtaining a license for production. Refer to the relevant portion of “Note 7: Equity Company Information” of the Financial Section of this report for additional information on the Corporation’s participation in Rosneft joint venture activities. Thailand The Petroleum Act of 1971 allows production under ExxonMobil’s concession for 30 years with a ten-year extension at terms generally prevalent at the time. The term of the concession expires in 2021. United Arab Emirates An interest in the development and production activities of the Upper Zakum field, a major offshore field, was acquired effective as of January 2006, for a term expiring March 2026. In 2013 the governing agreements were extended to 2041 and in 2017 they were extended to 2051. AUSTRALIA / OCEANIA Australia Exploration and production activities conducted offshore in Commonwealth waters are governed by Federal legislation. Exploration permits are granted for an initial term of six years with two possible five-year renewal periods. Retention leases may be granted for resources that are not commercially viable at the time of application, but are expected to become commercially viable within 15 years. These are granted for periods of five years and renewals may be requested. Prior to July 1998, production licenses were granted initially for 21 years, with a further renewal of 21 years and thereafter “indefinitely”, i.e., for the life of the field. Effective from July 1998, new production licenses are granted “indefinitely”. In each case, a production license may be terminated if no production operations have been carried on for five years. Papua New Guinea Exploration and production activities are governed by the Oil and Gas Act. Petroleum Prospecting licenses are granted for an initial term of six years with a five-year extension possible (an additional extension of three years is possible in certain circumstances). Generally, a 50-percent relinquishment of the license area is required at the end of the initial six-year term, if extended. Petroleum Development licenses are granted for an initial 25-year period. An extension of up to 20 years may be granted at the Minister’s discretion. Petroleum Retention licenses may be granted for gas resources that are not commercially viable at the time of application, but may become commercially viable within the maximum possible retention time of 15 years. Petroleum Retention licenses are granted for five-year terms, and may be extended, at the Minister’s discretion, twice for the maximum retention time of 15 years. Extensions of Petroleum Retention licenses may be for periods of less than one year, renewable annually, if the Minister considers at the time of extension that the resources could become commercially viable in less than five years. 22 Information with regard to the Downstream segment follows: ExxonMobil’s Downstream segment manufactures and sells petroleum products. The refining and supply operations encompass a global network of manufacturing plants, transportation systems, and distribution centers that provide a range of fuels, lubricants and other products and feedstocks to our customers around the world. Refining Capacity At Year-End 2017 (1) ExxonMobil Share KBD (2) United States Joliet Baton Rouge Billings Baytown Beaumont Total United States Illinois Louisiana Montana Texas Texas Canada Strathcona Nanticoke Sarnia Total Canada Alberta Ontario Ontario Europe Antwerp Fos-sur-Mer Gravenchon Karlsruhe Augusta Trecate Rotterdam Slagen Fawley Total Europe Belgium France France Germany Italy Italy Netherlands Norway United Kingdom Asia Pacific Altona Fujian Jurong/PAC Sriracha Total Asia Pacific Middle East Yanbu Total Worldwide ExxonMobil Interest % 236 503 60 561 366 1,726 100 100 100 100 100 191 113 119 423 69.6 69.6 69.6 307 133 239 78 198 132 192 116 262 1,657 100 82.9 82.9 25 100 74.8 100 100 100 Australia China Singapore Thailand 86 67 592 167 912 100 25 100 66 Saudi Arabia 200 50 4,918 (1) Capacity data is based on 100 percent of rated refinery process unit stream-day capacities under normal operating conditions, less the impact of shutdowns for regular repair and maintenance activities, averaged over an extended period of time. The listing excludes cost company refining capacity in New Zealand, and the Laffan Refinery in Qatar for which results are reported in the Upstream segment. (2) Thousands of barrels per day (KBD). ExxonMobil share reflects 100 percent of atmospheric distillation capacity in operations of ExxonMobil and majority-owned subsidiaries. For companies owned 50 percent or less, ExxonMobil share is the greater of ExxonMobil’s interest or that portion of distillation capacity normally available to ExxonMobil. 23 The marketing operations sell products and services throughout the world through our Exxon, Esso and Mobil brands. Retail Sites At Year-End 2017 United States Owned/leased Distributors/resellers Total United States 10,573 10,573 Canada Owned/leased Distributors/resellers Total Canada 1,829 1,829 Europe Owned/leased Distributors/resellers Total Europe 1,843 3,975 5,818 Asia Pacific Owned/leased Distributors/resellers Total Asia Pacific 598 946 1,544 Latin America Owned/leased Distributors/resellers Total Latin America 5 785 790 Middle East/Africa Owned/leased Distributors/resellers Total Middle East/Africa 226 182 408 Worldwide Owned/leased Distributors/resellers Total Worldwide 2,672 18,290 20,962 24 Information with regard to the Chemical segment follows: ExxonMobil’s Chemical segment manufactures and sells petrochemicals. The Chemical business supplies olefins, polyolefins, aromatics, and a wide variety of other petrochemicals. Chemical Complex Capacity At Year-End 2017 (1)(2) Ethylene Polyethylene Polypropylene Paraxylene ExxonMobil Interest % North America Baton Rouge Baytown Beaumont Mont Belvieu Sarnia Total North America Louisiana Texas Texas Texas Ontario 1.1 2.3 0.9 0.3 4.6 1.3 1.0 2.3 0.5 5.1 0.4 0.7 1.1 0.6 0.3 0.9 100 100 100 100 69.6 Europe Antwerp Fife Gravenchon Meerhout Rotterdam Total Europe Belgium United Kingdom France Belgium Netherlands 0.4 0.4 0.8 0.4 0.4 0.5 1.3 0.3 0.3 0.7 0.7 100 50 100 100 100 Middle East Al Jubail Yanbu Total Middle East Saudi Arabia Saudi Arabia 0.6 1.0 1.6 0.7 0.7 1.4 0.2 0.2 - 50 50 Asia Pacific Fujian Singapore Sriracha Total Asia Pacific China Singapore Thailand 0.3 1.9 2.2 0.2 1.9 2.1 0.2 0.9 1.1 0.2 1.8 0.5 2.5 25 100 66 9.2 9.9 2.7 4.1 Total Worldwide (1) Capacity for ethylene, polyethylene, polypropylene and paraxylene in millions of metric tons per year. (2) Capacity reflects 100 percent for operations of ExxonMobil and majority-owned subsidiaries. For companies owned 50 percent or less, capacity is ExxonMobil’s interest. 25 ITEM 3. LEGAL PROCEEDINGS As reported in the Corporation’s Form 10-Q for the second quarter of 2017, on June 20, 2017, the United States Department of Justice (DOJ) and the United States Environmental Protection Agency (EPA) notified XTO Energy Inc. (XTO) concerning alleged violations of the Clean Air Act and the Fort Berthold Indian Reservation Federal Implementation Plan regarding the alleged failure of vapor control systems to properly route tank vapors to control devices at well pads and tank farms on the Fort Berthold Indian Reservation. In January 2018, XTO, the DOJ and the EPA agreed to the terms of a Consent Decree concerning those alleged violations. XTO has agreed to pay a penalty of $320,000, install automatic tank gauging on 30 well sites, and monitor and report emissions for three years. Following signature by EPA and the DOJ, the Consent Decree is subject to a 30-day public comment period and approval by the United States Federal District Court for the District of North Dakota – Western Division, in Bismarck, North Dakota, which is expected in March 2018. As reported in the Corporation’s Form 10-Q for the second quarter of 2017, in late April 2017, the State of North Dakota Department of Health (NDDOH) and the North Dakota State Office of the Attorney General notified XTO of their interest in settling alleged violations of the North Dakota Century Code and implementing regulations regarding the alleged failure of vapor control systems to properly route tank vapors to control devices at well pads and tank farms outside the Fort Berthold Indian Reservation. On February 1, 2018, the South Central Judicial District Court in Bismarck, North Dakota, approved a Consent Decree between XTO and NDDOH concerning those alleged violations. Under the Consent Decree, XTO will pay a civil penalty of up to $665,000, but that amount may be reduced if specified corrective actions are achieved by deadlines set forth in the Consent Decree. Assuming these deadlines are met, XTO anticipates that it will pay a penalty of approximately $440,000 in the fourth quarter of 2018. XTO will monitor and report compliance with the terms of the Consent Decree for a period of two years. On July 20, 2017, the United States Department of Treasury, Office of Foreign Assets Control (OFAC) assessed a civil penalty against Exxon Mobil Corporation, ExxonMobil Development Company and ExxonMobil Oil Corporation for violating the Ukraine-Related Sanctions Regulations, 31 C.F.R. part 589. The assessed civil penalty is in the amount of $2,000,000. ExxonMobil and its affiliates have been and continue to be in compliance with all sanctions and disagree that any violation has occurred. ExxonMobil and its affiliates filed a complaint on July 20, 2017, in the United States Federal District Court, Northern District of Texas seeking judicial review of, and to enjoin, the civil penalty under the Administrative Procedures Act and the United States Constitution, including on the basis that it represents an arbitrary and capricious action by OFAC and a violation of the Company’s due process rights. Refer to the relevant portions of “Note 16: Litigation and Other Contingencies” of the Financial Section of this report for additional information on legal proceedings. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. _______________________ 26 Executive Officers of the Registrant [pursuant to Instruction 3 to Regulation S-K, Item 401(b)] (positions and ages as of February 28, 2018) Darren W. Woods Chairman of the Board Held current title since: January 1, 2017 Age: 53 Mr. Darren W. Woods was President of ExxonMobil Refining & Supply Company August 1, 2012 – July 31, 2014 and Vice President of Exxon Mobil Corporation August 1, 2012 – May 31, 2014. He was Senior Vice President of Exxon Mobil Corporation June 1, 2014 – December 31, 2015. He became a Director and President of Exxon Mobil Corporation on January 1, 2016, and Chairman of the Board and Chief Executive Officer on January 1, 2017, positions he still holds as of this filing date. Mark W. Albers Senior Vice President Held current title since: April 1, 2007 Age: 61 Mr. Mark W. Albers became Senior Vice President of Exxon Mobil Corporation on April 1, 2007, a position he still holds as of this filing date. Neil A. Chapman Senior Vice President Held current title since: January 1, 2018 Age: 55 Mr. Neil A. Chapman was Senior Vice President, ExxonMobil Chemical Company April 1, 2011 – December 31, 2014. He was President of ExxonMobil Chemical Company and Vice President of Exxon Mobil Corporation January 1, 2015 – December 31, 2017. He became Senior Vice President of Exxon Mobil Corporation on January 1, 2018, a position he still holds as of this filing date. Michael J. Dolan Senior Vice President Held current title since: April 1, 2008 Age: 64 Mr. Michael J. Dolan became Senior Vice President of Exxon Mobil Corporation on April 1, 2008, a position he still holds as of this filing date. Andrew P. Swiger Senior Vice President Held current title since: April 1, 2009 Age: 61 Mr. Andrew P. Swiger became Senior Vice President of Exxon Mobil Corporation on April 1, 2009, a position he still holds as of this filing date. Jack P. Williams, Jr. Senior Vice President Held current title since: June 1, 2014 Age: 54 Mr. Jack P. Williams, Jr. was President of XTO Energy Inc. June 25, 2010 – May 31, 2013. He was Executive Vice President of ExxonMobil Production Company June 1, 2013 – June 30, 2014. He became Senior Vice President of Exxon Mobil Corporation on June 1, 2014, a position he still holds as of this filing date. Bradley W. Corson Vice President Held current title since: March 1, 2015 Age: 56 Mr. Bradley W. Corson was Regional Vice President, Europe/Caspian for ExxonMobil Production Company May 1, 2009 – April 30, 2014. He was Vice President, ExxonMobil Upstream Ventures May 1, 2014 – February 28, 2015. He became President of ExxonMobil Upstream Ventures and Vice President of Exxon Mobil Corporation on March 1, 2015, positions he still holds as of this filing date. 27 Neil W. Duffin Vice President Held current title since: January 1, 2017 Age: 61 Mr. Neil W. Duffin was President of ExxonMobil Development Company April 13, 2007 – December 31, 2016. He became President of ExxonMobil Production Company and Vice President of Exxon Mobil Corporation on January 1, 2017, positions he still holds as of this filing date. Randall M. Ebner Vice President and General Counsel Held current title since: November 1, 2016 Age: 62 Mr. Randall M. Ebner was Assistant General Counsel of Exxon Mobil Corporation January 1, 2009 – October 31, 2016. He became Vice President and General Counsel of Exxon Mobil Corporation on November 1, 2016, positions he still holds as of this filing date. Robert S. Franklin Vice President Held current title since: May 1, 2009 Age: 60 Mr. Robert S. Franklin was President of ExxonMobil Upstream Ventures and Vice President of Exxon Mobil Corporation May 1, 2009 – February 28, 2013. He became President of ExxonMobil Gas & Power Marketing Company and Vice President of Exxon Mobil Corporation on March 1, 2013, positions he holds as of February 28, 2018. Stephen M. Greenlee Vice President Held current title since: September 1, 2010 Age: 60 Mr. Stephen M. Greenlee became President of ExxonMobil Exploration Company and Vice President of Exxon Mobil Corporation on September 1, 2010, positions he still holds as of this filing date. Liam M. Mallon President, ExxonMobil Development Company Held current title since: January 1, 2017 Age: 55 Mr. Liam M. Mallon was Vice President, Africa, ExxonMobil Production Company June 1, 2012 – January 31, 2014. He was Executive Vice President, ExxonMobil Development Company February 1, 2014 – December 31, 2016. He became President of ExxonMobil Development Company on January 1, 2017, a position he still holds as of this filing date. Bryan W. Milton Vice President Held current title since: August 1, 2016 Age: 53 Mr. Bryan W. Milton was President of ExxonMobil Global Services Company April 1, 2011 – July 31, 2016. He was President of ExxonMobil Fuels, Lubricants & Specialties Marketing Company and Vice President of Exxon Mobil Corporation August 1, 2016 – December 31, 2017. He became President of ExxonMobil Fuels & Lubricants Company and Vice President of Exxon Mobil Corporation on January 1, 2018, positions he still holds as of this filing date. Sara N. Ortwein President, XTO Energy Inc., a subsidiary of the Corporation Held current title since: November 1, 2016 Age: 59 Ms. Sara N. Ortwein was President of ExxonMobil Upstream Research Company September 1, 2010 – October 31, 2016. She became President of XTO Energy Inc. on November 1, 2016, a position she still holds as of this filing date. David S. Rosenthal Held current title since: Vice President and Controller October 1, 2008 (Vice President) September 1, 2014 (Controller) Age: 61 Mr. David S. Rosenthal was Vice President – Investor Relations and Secretary of Exxon Mobil Corporation October 1, 2008 – August 31, 2014. He became Vice President and Controller of Exxon Mobil Corporation on September 1, 2014, positions he still holds as of this filing date. 28 Robert N. Schleckser Vice President and Treasurer Held current title since: May 1, 2011 Age: 61 Mr. Robert N. Schleckser became Vice President and Treasurer of Exxon Mobil Corporation on May 1, 2011, positions he still holds as of this filing date. James M. Spellings, Jr. Vice President and General Tax Counsel Held current title since: March 1, 2010 Age: 56 Mr. James M. Spellings, Jr. became Vice President and General Tax Counsel of Exxon Mobil Corporation on March 1, 2010, positions he still holds as of this filing date. John R. Verity Vice President Held current title since: January 1, 2018 Age: 59 Mr. John R. Verity was Vice President, Polyolefins, ExxonMobil Chemical Company October 17, 2008 – March 31, 2014. He was Vice President, Plastics & Resins, ExxonMobil Chemical Company April 1, 2014 – December 31, 2014. He was Senior Vice President, Polymers, ExxonMobil Chemical Company January 1, 2015 – December 31, 2017. He became President of ExxonMobil Chemical Company and Vice President of Exxon Mobil Corporation on January 1, 2018, positions he still holds as of this filing date. Theodore J. Wojnar, Jr. Vice President – Corporate Strategic Planning Held current title since: August 1, 2017 Age: 58 Mr. Theodore J. Wojnar, Jr. was President of ExxonMobil Research and Engineering Company April 1, 2011 – July 31, 2017. He became Vice President – Corporate Strategic Planning of Exxon Mobil Corporation on August 1, 2017, a position he still holds as of this filing date. Jeffrey J. Woodbury Vice President – Investor Relations and Secretary Held current title since: July 1, 2011 (Vice President) September 1, 2014 (Secretary) Age: 57 Mr. Jeffrey J. Woodbury was Vice President, Safety, Security, Health and Environment of Exxon Mobil Corporation July 1, 2011 – August 31, 2014. He became Vice President – Investor Relations and Secretary of Exxon Mobil Corporation on September 1, 2014, positions he still holds as of this filing date. Officers are generally elected by the Board of Directors at its meeting on the day of each annual election of directors, with each such officer serving until a successor has been elected and qualified. 29 PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Reference is made to the “Quarterly Information” portion of the Financial Section of this report and Item 12 in Part III of this report. Issuer Purchases of Equity Securities for Quarter Ended December 31, 2017 Period October 2017 November 2017 December 2017 Total Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs - (See Note 1) - During the fourth quarter, the Corporation did not purchase any shares of its common stock for the treasury. Note 1 - On August 1, 2000, the Corporation announced its intention to resume purchases of shares of its common stock for the treasury both to offset shares issued in conjunction with company benefit plans and programs and to gradually reduce the number of shares outstanding. The announcement did not specify an amount or expiration date. The Corporation has continued to purchase shares since this announcement and to report purchased volumes in its quarterly earnings releases. In its earnings release dated February 2, 2016, the Corporation stated it will continue to acquire shares to offset dilution in conjunction with benefit plans and programs, but had suspended making purchases to reduce shares outstanding effective beginning the first quarter of 2016. ITEM 6. SELECTED FINANCIAL DATA 2017 Sales and other operating revenue (1) Net income attributable to ExxonMobil Earnings per common share Earnings per common share - assuming dilution Cash dividends per common share Total assets Long-term debt (1) 237,162 19,710 4.63 4.63 3.06 348,691 24,406 Years Ended December 31, 2016 2015 2014 (millions of dollars, except per share amounts) 200,628 7,840 1.88 1.88 2.98 330,314 28,932 239,854 16,150 3.85 3.85 2.88 336,758 19,925 367,647 32,520 7.60 7.60 2.70 349,493 11,653 2013 393,039 32,580 7.37 7.37 2.46 346,808 6,891 Effective December 31, 2017, the Corporation revised its accounting policy election related to sales-based taxes. See Note 2: Accounting Changes of the Financial Section of this report. As a result, Sales and other operating revenue excludes previously reported sales-based taxes of $17,980 million in 2016, $19,634 million in 2015, $26,458 million in 2014 and $27,797 million in 2013. ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Reference is made to the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Financial Section of this report. 30 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Reference is made to the section entitled “Market Risks, Inflation and Other Uncertainties”, excluding the part entitled “Inflation and Other Uncertainties”, in the Financial Section of this report. All statements, other than historical information incorporated in this Item 7A, are forward-looking statements. The actual impact of future market changes could differ materially due to, among other things, factors discussed in this report. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Reference is made to the following in the Financial Section of this report: · · · · Consolidated financial statements, together with the report thereon of PricewaterhouseCoopers LLP dated February 28, 2018, beginning with the section entitled “Report of Independent Registered Public Accounting Firm” and continuing through “Note 20: Acquisitions”; “Quarterly Information” (unaudited); “Supplemental Information on Oil and Gas Exploration and Production Activities” (unaudited); and “Frequently Used Terms” (unaudited). Financial Statement Schedules have been omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES Management’s Evaluation of Disclosure Controls and Procedures As indicated in the certifications in Exhibit 31 of this report, the Corporation’s Chief Executive Officer, Principal Financial Officer and Principal Accounting Officer have evaluated the Corporation’s disclosure controls and procedures as of December 31, 2017. Based on that evaluation, these officers have concluded that the Corporation’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Corporation in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to them in a manner that allows for timely decisions regarding required disclosures and are effective in ensuring that such information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Management’s Report on Internal Control Over Financial Reporting Management, including the Corporation’s Chief Executive Officer, Principal Financial Officer and Principal Accounting Officer, is responsible for establishing and maintaining adequate internal control over the Corporation’s financial reporting. Management conducted an evaluation of the effectiveness of internal control over financial reporting based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that Exxon Mobil Corporation’s internal control over financial reporting was effective as of December 31, 2017. PricewaterhouseCoopers LLP, an independent registered public accounting firm, audited the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2017, as stated in their report included in the Financial Section of this report. Changes in Internal Control Over Financial Reporting There were no changes during the Corporation’s last fiscal quarter that materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting. ITEM 9B. OTHER INFORMATION None. 31 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Reference is made to the section of this report titled “Executive Officers of the Registrant [pursuant to Instruction 3 to Regulation S-K, Item 401(b)]”. Incorporated by reference to the following from the registrant’s definitive proxy statement for the 2018 annual meeting of shareholders (the “2018 Proxy Statement”): · · · · ITEM 11. The section entitled “Election of Directors”; The portion entitled “Section 16(a) Beneficial Ownership Reporting Compliance” of the section entitled “Director and Executive Officer Stock Ownership”; The portions entitled “Director Qualifications”, “Board Succession” and “Code of Ethics and Business Conduct” of the section entitled “Corporate Governance”; and The “Audit Committee” portion, “Director Independence” portion and the membership table of the portions entitled “Board Meetings and Annual Meeting Attendance” and “Board Committees” of the section entitled “Corporate Governance”. EXECUTIVE COMPENSATION Incorporated by reference to the sections entitled “Director Compensation”, “Compensation Committee Report”, “Compensation Discussion and Analysis”, “Executive Compensation Tables” and “Pay Ratio” of the registrant’s 2018 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required under Item 403 of Regulation S-K is incorporated by reference to the sections “Director and Executive Officer Stock Ownership” and “Certain Beneficial Owners” of the registrant’s 2018 Proxy Statement. Equity Compensation Plan Information Plan Category Equity compensation plans approved by security holders (a) (b) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights WeightedAverage Exercise Price of Outstanding Options, Warrants and Rights 37,374,885 (1) Equity compensation plans not approved by security holders Total - (c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans [Excluding Securities Reflected in Column (a)] 89,100,173 (2)(3) - - - 37,374,885 - 89,100,173 (1) The number of restricted stock units to be settled in shares. (2) Available shares can be granted in the form of restricted stock, options, or other stock-based awards. Includes 88,595,473 shares available for award under the 2003 Incentive Program and 504,700 shares available for award under the 2004 Non-Employee Director Restricted Stock Plan. (3) Under the 2004 Non-Employee Director Restricted Stock Plan approved by shareholders in May 2004, and the related standing resolution adopted by the Board, each non-employee director automatically receives 8,000 shares of restricted stock when first elected to the Board and, if the director remains in office, an additional 2,500 restricted shares each following year. While on the Board, each non-employee director receives the same cash dividends on restricted shares as a holder of regular common stock, but the director is not allowed to sell the shares. The restricted shares may be forfeited if the director leaves the Board early. 32 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Incorporated by reference to the portions entitled “Related Person Transactions and Procedures” and “Director Independence” of the section entitled “Corporate Governance” of the registrant’s 2018 Proxy Statement. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Incorporated by reference to the portion entitled “Audit Committee” of the section entitled “Corporate Governance” and the section entitled “Ratification of Independent Auditors” of the registrant’s 2018 Proxy Statement. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) (1) and (2) Financial Statements: See Table of Contents of the Financial Section of this report. (a) (3) Exhibits: See Index to Exhibits of this report. ITEM 16. FORM 10-K SUMMARY None. 33 FINANCIAL SECTION TABLE OF CONTENTS Business Profile Financial Information Frequently Used Terms Quarterly Information Management’s Discussion and Analysis of Financial Condition and Results of Operations Functional Earnings Forward-Looking Statements Overview Business Environment and Risk Assessment Review of 2017 and 2016 Results Liquidity and Capital Resources Capital and Exploration Expenditures Taxes Environmental Matters Market Risks, Inflation and Other Uncertainties Recently Issued Accounting Standards Critical Accounting Estimates Management’s Report on Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm Consolidated Financial Statements Statement of Income Statement of Comprehensive Income Balance Sheet Statement of Cash Flows Statement of Changes in Equity Notes to Consolidated Financial Statements 1. Summary of Accounting Policies 2. Accounting Changes 3. Miscellaneous Financial Information 4. Other Comprehensive Income Information 5. Cash Flow Information 6. Additional Working Capital Information 7. Equity Company Information 8. Investments, Advances and Long-Term Receivables 9. Property, Plant and Equipment and Asset Retirement Obligations 10. Accounting for Suspended Exploratory Well Costs 11. Leased Facilities 12. Earnings Per Share 13. Financial Instruments and Derivatives 14. Long-Term Debt 15. Incentive Program 16. Litigation and Other Contingencies 17. Pension and Other Postretirement Benefits 18. Disclosures about Segments and Related Information 19. Income and Other Taxes 20. Acquisitions Supplemental Information on Oil and Gas Exploration and Production Activities 35 36 37 39 40 40 40 41 44 47 51 52 53 53 55 55 60 61 63 64 65 66 67 68 72 73 74 75 75 76 78 78 80 82 83 83 84 85 86 88 96 99 103 104 Operating Information 1 19 34 BUSINESS PROFILE Financial Upstream United States Non-U.S. Total Downstream United States Non-U.S. Total Chemical United States Non-U.S. Total Corporate and financing Total Earnings After Average Capital Income Taxes Employed 2017 2016 2017 2016 (millions of dollars) Return on Average Capital Employed 2017 2016 (percent) Capital and Exploration Expenditures 2017 2016 (millions of dollars) 6,622 6,733 13,355 (4,151) 4,347 196 64,896 109,778 174,674 62,114 107,941 170,055 10.2 6.1 7.6 (6.7) 4.0 0.1 3,716 12,979 16,695 3,518 11,024 14,542 1,948 3,649 5,597 1,094 3,107 4,201 7,936 14,578 22,514 7,573 14,231 21,804 24.5 25.0 24.9 14.4 21.8 19.3 823 1,701 2,524 839 1,623 2,462 2,190 2,328 4,518 (3,760) 19,710 1,876 2,739 4,615 (1,172) 7,840 10,672 16,844 27,516 (2,073) 222,631 9,018 15,826 24,844 (4,477) 212,226 20.5 13.8 16.4 9.0 20.8 17.3 18.6 3.9 1,583 2,188 3,771 90 23,080 1,553 654 2,207 93 19,304 See Frequently Used Terms for a definition and calculation of capital employed and return on average capital employed. Operating 2017 2016 2017 (thousands of barrels daily) Net liquids production United States Non-U.S. Total 514 1,769 2,283 (thousands of barrels daily) Refinery throughput United States Non-U.S. Total 494 1,871 2,365 (millions of cubic feet daily) Natural gas production available for sale United States Non-U.S. Total 2,936 7,275 10,211 3,985 1,508 2,783 4,291 1,591 2,678 4,269 (thousands of barrels daily) Petroleum product sales (2) United States Non-U.S. Total 3,078 7,049 10,127 (thousands of oil-equivalent barrels daily) Oil-equivalent production (1) 2016 2,190 3,340 5,530 2,250 3,232 5,482 (thousands of metric tons) 4,053 Chemical prime product sales (2) (3) United States Non-U.S. Total 9,307 16,113 25,420 9,576 15,349 24,925 (1) Gas converted to oil-equivalent at 6 million cubic feet = 1 thousand barrels. (2) Petroleum product and chemical prime product sales data reported net of purchases/sales contracts with the same counterparty. (3) Prime product sales are total product sales including ExxonMobil’s share of equity company volumes and finished-product transfers to the Downstream. 35 FINANCIAL INFORMATION 2017 2016 2015 2014 2013 (millions of dollars, except per share amounts) Sales and other operating revenue (1) Earnings Upstream Downstream Chemical Corporate and financing Net income attributable to ExxonMobil Earnings per common share Earnings per common share – assuming dilution Cash dividends per common share 237,162 13,355 5,597 4,518 (3,760) 19,710 4.63 4.63 3.06 Earnings to average ExxonMobil share of equity (percent) 11.1 Working capital Ratio of current assets to current liabilities (times) (10,637) 0.82 Additions to property, plant and equipment Property, plant and equipment, less allowances Total assets 24,901 252,630 348,691 Exploration expenses, including dry holes Research and development costs Long-term debt Total debt Fixed-charge coverage ratio (times) Debt to capital (percent) Net debt to capital (percent) (2) ExxonMobil share of equity at year-end ExxonMobil share of equity per common share Weighted average number of common shares outstanding (millions) 200,628 196 4,201 4,615 (1,172) 7,840 1.88 1.88 2.98 4.6 7,101 6,557 4,418 (1,926) 16,150 3.85 3.85 2.88 9.4 367,647 27,548 3,045 4,315 (2,388) 32,520 7.60 7.60 2.70 18.7 393,039 26,841 3,449 3,828 (1,538) 32,580 7.37 7.37 2.46 19.2 (11,353) 0.79 (11,723) 0.82 (12,416) 0.83 16,100 244,224 330,314 27,475 251,605 336,758 34,256 252,668 349,493 37,741 243,650 346,808 1,790 1,063 1,467 1,058 1,523 1,008 1,669 971 1,976 1,044 24,406 42,336 13.2 17.9 16.8 28,932 42,762 5.7 19.7 18.4 19,925 38,687 17.6 18.0 16.5 11,653 29,121 46.9 13.9 11.9 6,891 22,699 55.7 11.2 9.1 187,688 44.28 167,325 40.34 170,811 41.10 174,399 41.51 174,003 40.14 4,256 4,177 4,196 4,282 4,419 69.6 71.1 73.5 75.3 75.0 1.6 1.6 2.1 8.4 9.8 Number of regular employees at year-end (thousands) (3) CORS employees not included above (thousands) (4) (6,222) 0.87 239,854 (1) Effective December 31, 2017, the Corporation revised its accounting policy election related to sales-based taxes. See Note 2 to the financial statements, Accounting Changes. As a result, Sales and other operating revenue excludes previously reported salesbased taxes of $17,980 million for 2016, $19,634 million for 2015, $26,458 million for 2014 and $27,797 million for 2013. (2) Debt net of cash, excluding restricted cash. (3) Regular employees are defined as active executive, management, professional, technical and wage employees who work full time or part time for the Corporation and are covered by the Corporation’s benefit plans and programs. (4) CORS employees are employees of company-operated retail sites. 36 FREQUENTLY USED TERMS Listed below are definitions of several of ExxonMobil’s key business and financial performance measures. These definitions are provided to facilitate understanding of the terms and their calculation. Cash Flow From Operations and Asset Sales Cash flow from operations and asset sales is the sum of the net cash provided by operating activities and proceeds associated with sales of subsidiaries, property, plant and equipment, and sales and returns of investments from the Consolidated Statement of Cash Flows. This cash flow reflects the total sources of cash from both operating the Corporation’s assets and from the divesting of assets. The Corporation employs a long-standing and regular disciplined review process to ensure that all assets are contributing to the Corporation’s strategic objectives. Assets are divested when they are no longer meeting these objectives or are worth considerably more to others. Because of the regular nature of this activity, we believe it is useful for investors to consider proceeds associated with asset sales together with cash provided by operating activities when evaluating cash available for investment in the business and financing activities, including shareholder distributions. Cash flow from operations and asset sales 2017 2016 2015 (millions of dollars) Net cash provided by operating activities Proceeds associated with sales of subsidiaries, property, plant and equipment, and sales and returns of investments Cash flow from operations and asset sales 30,066 22,082 30,344 3,103 33,169 4,275 26,357 2,389 32,733 Capital Employed Capital employed is a measure of net investment. When viewed from the perspective of how the capital is used by the businesses, it includes ExxonMobil’s net share of property, plant and equipment and other assets less liabilities, excluding both short-term and longterm debt. When viewed from the perspective of the sources of capital employed in total for the Corporation, it includes ExxonMobil’s share of total debt and equity. Both of these views include ExxonMobil’s share of amounts applicable to equity companies, which the Corporation believes should be included to provide a more comprehensive measure of capital employed. Capital employed 2017 2016 2015 (millions of dollars) Business uses: asset and liability perspective Total assets Less liabilities and noncontrolling interests share of assets and liabilities Total current liabilities excluding notes and loans payable Total long-term liabilities excluding long-term debt Noncontrolling interests share of assets and liabilities Add ExxonMobil share of debt-financed equity company net assets Total capital employed Total corporate sources: debt and equity perspective Notes and loans payable Long-term debt ExxonMobil share of equity Less noncontrolling interests share of total debt Add ExxonMobil share of equity company debt Total capital employed 37 348,691 330,314 336,758 (39,841) (72,014) (8,298) 3,929 232,467 (33,808) (79,914) (8,031) 4,233 212,794 (35,214) (86,047) (8,286) 4,447 211,658 17,930 24,406 187,688 (1,486) 3,929 232,467 13,830 28,932 167,325 (1,526) 4,233 212,794 18,762 19,925 170,811 (2,287) 4,447 211,658 FREQUENTLY USED TERMS Return on Average Capital Employed Return on average capital employed (ROCE) is a performance measure ratio. From the perspective of the business segments, ROCE is annual business segment earnings divided by average business segment capital employed (average of beginning and end-of-year amounts). These segment earnings include ExxonMobil’s share of segment earnings of equity companies, consistent with our capital employed definition, and exclude the cost of financing. The Corporation’s total ROCE is net income attributable to ExxonMobil excluding the after-tax cost of financing, divided by total corporate average capital employed. The Corporation has consistently applied its ROCE definition for many years and views it as the best measure of historical capital productivity in our capital-intensive, longterm industry, both to evaluate management’s performance and to demonstrate to shareholders that capital has been used wisely over the long term. Additional measures, which are more cash flow based, are used to make investment decisions. Return on average capital employed 2017 2016 2015 (millions of dollars) Net income attributable to ExxonMobil Financing costs (after tax) Gross third-party debt ExxonMobil share of equity companies All other financing costs – net Total financing costs Earnings excluding financing costs Average capital employed 19,710 7,840 16,150 (709) (204) 515 (398) 20,108 (683) (225) 423 (485) 8,325 (362) (170) 88 (444) 16,594 222,631 Return on average capital employed – corporate total 9.0% 38 212,226 3.9% 208,755 7.9% QUARTERLY INFORMATION First Quarter Volumes Production of crude oil, natural gas liquids, synthetic oil and bitumen Refinery throughput Petroleum product sales (1) Natural gas production available for sale 2017 Second Third Fourth Quarter Quarter Quarter Year First Quarter Second Quarter 2016 Third Fourth Quarter Quarter Year (thousands of barrels daily) 2,333 2,269 2,280 2,251 2,283 2,538 2,330 2,211 2,384 2,365 4,324 5,395 4,345 5,558 4,287 5,542 4,207 5,624 4,291 5,530 4,185 5,334 4,152 5,500 4,365 5,585 4,371 5,506 4,269 5,482 9,762 9,601 10,424 10,127 3,957 3,811 4,121 4,053 6,310 6,133 6,309 24,925 43,032 9,999 51,714 11,687 52,123 11,774 53,759 8,762 200,628 42,222 1,810 1,700 2,650 1,680 7,840 (millions of cubic feet daily) 10,908 9,920 9,585 10,441 10,211 10,724 (thousands of oil-equivalent barrels daily) Oil-equivalent production (2) 4,151 3,922 3,878 3,991 Chemical prime product sales (1) 6,072 6,120 6,446 6,782 56,474 13,751 56,026 12,773 59,350 14,704 4,010 3,350 3,970 3,985 4,325 (thousands of metric tons) Summarized financial data Sales and other operating revenue (3) Gross profit (4) Net income attributable to ExxonMobil (5) Per share data Earnings per common share (6) Earnings per common share – assuming dilution (6) Dividends per common share Common stock prices High Low 25,420 6,173 (millions of dollars) 65,312 237,162 13,696 54,924 8,380 19,710 (dollars per share) 0.95 0.78 0.93 1.97 4.63 0.43 0.41 0.63 0.41 1.88 0.95 0.75 0.78 0.77 0.93 0.77 1.97 0.77 4.63 3.06 0.43 0.73 0.41 0.75 0.63 0.75 0.41 0.75 1.88 2.98 91.34 80.31 83.69 79.26 82.49 76.05 84.36 80.01 91.34 76.05 85.10 71.55 93.83 81.99 95.55 82.29 93.22 82.76 95.55 71.55 (1) Petroleum product and chemical prime product sales data reported net of purchases/sales contracts with the same counterparty. (2) Gas converted to oil-equivalent at 6 million cubic feet = 1 thousand barrels. (3) Effective December 31, 2017, the Corporation revised its accounting policy election related to sales-based taxes. See Note 2 to the financial statements, Accounting Changes. As a result, Sales and other operating revenue excludes previously reported sales-based taxes of $4,616 million for first quarter 2017, $4,799 million for second quarter 2017, $5,065 million for third quarter 2017, $4,073 million for first quarter 2016, $4,646 million for second quarter 2016, $4,644 million for third quarter 2016, $4,617 million for fourth quarter 2016, and $17,980 million for the year 2016. (4) Gross profit equals sales and other operating revenue less estimated costs associated with products sold. Effective December 31, 2017, the Corporation revised its accounting policy election related to sales-based taxes, which reduced previously reported gross profit by the amounts shown in note (3) above. See Note 2 to the financial statements, Accounting Changes. (5) Fourth quarter 2017 included a U.S. tax reform impact of $5,942 million and an impairment charge of $1,294 million. Fourth quarter 2016 included an impairment charge of $2,135 million. (6) Computed using the average number of shares outstanding during each period. The sum of the four quarters may not add to the full year. The intraday price range of ExxonMobil common stock is as reported on the composite tape of the several U.S. exchanges where ExxonMobil common stock is traded. The principal market where ExxonMobil common stock (XOM) is traded is the New York Stock Exchange, although the stock is traded on other exchanges in and outside the United States. There were 386,892 registered shareholders of ExxonMobil common stock at December 31, 2017. At January 31, 2018, the registered shareholders of ExxonMobil common stock numbered 384,745. On January 31, 2018, the Corporation declared a $0.77 dividend per common share, payable March 9, 2018. 39 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FUNCTIONAL EARNINGS 2017 2016 2015 (millions of dollars, except per share amounts) Earnings (U.S. GAAP) Upstream United States Non-U.S. Downstream United States Non-U.S. Chemical United States Non-U.S. Corporate and financing Net income attributable to ExxonMobil (U.S. GAAP) Earnings per common share Earnings per common share – assuming dilution 6,622 6,733 (4,151) 4,347 (1,079) 8,180 1,948 3,649 1,094 3,107 1,901 4,656 2,190 2,328 (3,760) 19,710 1,876 2,739 (1,172) 7,840 2,386 2,032 (1,926) 16,150 4.63 4.63 1.88 1.88 3.85 3.85 References in this discussion to total corporate earnings mean net income attributable to ExxonMobil (U.S. GAAP) from the consolidated income statement. Unless otherwise indicated, references to earnings, Upstream, Downstream, Chemical and Corporate and financing segment earnings, and earnings per share are ExxonMobil’s share after excluding amounts attributable to noncontrolling interests. FORWARD-LOOKING STATEMENTS Statements in this discussion regarding expectations, plans and future events or conditions are forward-looking statements. Actual future financial and operating results or conditions, including demand growth and energy source mix; government policies relating to climate change; project plans, capacities, schedules and costs; production growth and mix; rates of field decline; asset carrying values; proved reserves; financing sources; the resolution of contingencies and uncertain tax positions; and environmental and capital expenditures; could differ materially depending on a number of factors, such as changes in the supply of and demand for crude oil, natural gas, and petroleum and petrochemical products and resulting price impacts; the outcome of commercial negotiations; the impact of fiscal and commercial terms; political or regulatory events; the outcome of exploration and development projects, and other factors discussed herein and in Item 1A. Risk Factors. The term “project” as used in this report can refer to a variety of different activities and does not necessarily have the same meaning as in any government payment transparency reports. OVERVIEW The following discussion and analysis of ExxonMobil’s financial results, as well as the accompanying financial statements and related notes to consolidated financial statements to which they refer, are the responsibility of the management of Exxon Mobil Corporation. The Corporation’s accounting and financial reporting fairly reflect its straightforward business model involving the extracting, manufacturing and marketing of hydrocarbons and hydrocarbon-based products. The Corporation’s business model involves the production (or purchase), manufacture and sale of physical products, and all commercial activities are directly in support of the underlying physical movement of goods. ExxonMobil, with its resource base, financial strength, disciplined investment approach and technology portfolio, is well-positioned to participate in substantial investments to develop new energy supplies. The company’s integrated business model, with significant investments in Upstream, Downstream and Chemical segments, reduces the Corporation’s risk from changes in commodity prices. While commodity prices are volatile on a short-term basis and depend on supply and demand, ExxonMobil’s investment decisions are based on our long-term business outlook, using a disciplined approach in selecting and pursuing the most attractive investment opportunities. The corporate plan is a fundamental annual management process that is the basis for setting near-term operating and capital objectives in addition to providing the longer-term economic assumptions used for investment evaluation purposes. Volumes are based on individual field production profiles, which are also updated annually. Price ranges for crude oil, natural gas, refined products, and chemical products are based on corporate plan assumptions developed annually by major region and are utilized for investment evaluation purposes. Major investment opportunities are evaluated over a range of economic scenarios. Once major investments are made, a reappraisal process is completed to ensure relevant lessons are learned and improvements are incorporated into future projects. 40 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BUSINESS ENVIRONMENT AND RISK ASSESSMENT Long-Term Business Outlook The basis for the Long-Term Business Outlook is the Corporation’s annual Outlook for Energy, which is used to help inform our long-term business strategies and investment plans. By 2040, the world’s population is projected to grow to approximately 9.2 billion people, or about 1.7 billion more than in 2016. Coincident with this population increase, the Corporation expects worldwide economic growth to average close to 3 percent per year. As economies and populations grow, and as living standards improve for billions of people, the need for energy will continue to rise. Even with significant efficiency gains, global energy demand is projected to rise by about 25 percent from 2016 to 2040. This demand increase is expected to be concentrated in developing countries (i.e., those that are not member nations of the Organisation for Economic Co-operation and Development). As expanding prosperity drives global energy demand higher, increasing use of energy-efficient technologies and practices as well as lower-emission fuels will continue to help significantly reduce energy consumption and emissions per unit of economic output over time. Substantial efficiency gains are likely in all key aspects of the world’s economy through 2040, affecting energy requirements for transportation, power generation, industrial applications, and residential and commercial needs. Energy for transportation – including cars, trucks, ships, trains and airplanes – is expected to increase by about 30 percent from 2016 to 2040. The growth in transportation energy demand is likely to account for approximately 60 percent of the growth in liquid fuels demand worldwide over this period, even as liquids demand for light-duty vehicles is relatively flat to 2040, reflecting the impact of better fleet fuel economy and significant growth in electric cars over the period. Nearly all the world’s transportation fleets are likely to continue to run on liquid fuels, which are abundant, widely available, easy to transport, and provide a large quantity of energy in small volumes. Demand for electricity around the world is likely to increase approximately 60 percent from 2016 to 2040, with developing countries accounting for about 85 percent of the increase. Consistent with this projection, power generation is expected to remain the largest and fastest-growing major segment of global primary energy demand. Meeting the expected growth in power demand will require a diverse set of energy sources. The share of coal-fired generation is likely to decline substantially and approach 25 percent of the world’s electricity in 2040, versus nearly 40 percent in 2016, in part as a result of policies to improve air quality as well as reduce greenhouse gas emissions to address the risks of climate change. From 2016 to 2040, the amount of electricity supplied using natural gas, nuclear power, and renewables is likely to nearly double, and account for about 95 percent of the growth in electricity supplies. Renewables in total, led by wind and solar, will account for about half of the increase in electricity supplies worldwide over the period to 2040, reaching nearly 35 percent of global electricity supplies by 2040. Natural gas and nuclear will also gain share over the period to 2040, reaching about 25 percent and 12 percent of global electricity supplies respectively by 2040. Supplies of electricity by energy type will reflect significant differences across regions reflecting a wide range of factors including the cost and availability of various energy supplies. Liquid fuels provide the largest share of global energy supplies today reflecting broad-based availability, affordability, ease of distribution, and fitness as a practical solution to meet a wide variety of needs. By 2040, global demand for liquid fuels is projected to grow to approximately 118 million barrels of oil-equivalent per day, an increase of about 20 percent from 2016. Much of this demand today is met by crude production from traditional conventional sources; these supplies will remain important as significant development activity is expected to offset much of the natural declines from these fields. At the same time, a variety of emerging supply sources – including tight oil, deepwater, oil sands, natural gas liquids and biofuels – are expected to grow to help meet rising demand. The world’s resource base is sufficient to meet projected demand through 2040 as technology advances continue to expand the availability of economic supply options. However, access to resources and timely investments will remain critical to meeting global needs with reliable, affordable supplies. Natural gas is a versatile fuel, suitable for a wide variety of applications, and it is expected to grow the most of any primary energy type from 2016 to 2040, meeting more than 35 percent of global energy demand growth. Global natural gas demand is expected to rise nearly 40 percent from 2016 to 2040, with about 45 percent of that increase in the Asia Pacific region. Helping meet these needs will be significant growth in supplies of unconventional gas - the natural gas found in shale and other rock formations that was once considered uneconomic to produce. In total, about 55 percent of the growth in natural gas supplies is expected to be from unconventional sources. At the same time, conventionally-produced natural gas is likely to remain the cornerstone of supply, meeting about two-thirds of global demand in 2040. Worldwide liquefied natural gas (LNG) trade will expand significantly, meeting about one-third of the increase in demand growth, with much of this supply expected to help meet rising demand in Asia Pacific. The world’s energy mix is highly diverse and will remain so through 2040. Oil is expected to remain the largest source of energy with its share remaining close to one-third in 2040. Coal is currently the second largest source of energy, but it is likely to lose that position to natural gas in the 2020-2025 timeframe. The share of natural gas is expected to reach 25 percent by 2040, while the share of coal falls to about 20 percent. Nuclear power is projected to grow significantly, as many nations are likely to expand nuclear capacity to address rising electricity needs as well as energy security and environmental issues. Total renewable energy is likely to exceed 15 percent of global energy by 2040, with biomass, hydro and geothermal contributing a combined share of more 41 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS than 10 percent. Total energy supplied from wind, solar and biofuels is expected to increase rapidly, growing nearly 250 percent from 2016 to 2040, when they will be about 5 percent of world energy. The Corporation anticipates that the world’s available oil and gas resource base will grow not only from new discoveries, but also from reserve increases in previously discovered fields. Technology will underpin these increases. The cost to develop and supply these resources will be significant. According to the International Energy Agency’s World Energy Outlook 2017, the investment required to meet oil and natural gas supply requirements worldwide over the period 2017-2040 will be about $21 trillion (New Policies Scenario, measured in 2016 dollars) or approximately $860 billion per year on average. International accords and underlying regional and national regulations covering greenhouse gas emissions continue to evolve with uncertain timing and outcome, making it difficult to predict their business impact. For many years, the Corporation has taken into account policies established to reduce energy-related greenhouse gas emissions in its long-term Outlook for Energy. The climate accord reached at the Conference of the Parties (COP 21) in Paris set many new goals, and many related policies are still emerging. Our Outlook reflects an environment with increasingly stringent climate policies and is consistent with the aggregation of Nationally Determined Contributions which were submitted by signatories to the United Nations Framework Convention on Climate Change (UNFCCC) 2015 Paris Agreement. Our Outlook seeks to identify potential impacts of climate-related policies, which often target specific sectors, by using various assumptions and tools including application of a proxy cost of carbon to estimate potential impacts on consumer demands. For purposes of the Outlook, a proxy cost on energy-related CO2 emissions is assumed to reach about $80 per tonne on average in 2040 in OECD nations. China and other leading non-OECD nations are expected to trail OECD policy initiatives. Nevertheless, as people and nations look for ways to reduce risks of global climate change, they will continue to need practical solutions that do not jeopardize the affordability or reliability of the energy they need. Practical solutions to the world’s energy and climate challenges will benefit from market competition as well as well-informed, well-designed, and transparent policy approaches that carefully weigh costs and benefits. Such policies are likely to help manage the risks of climate change while also enabling societies to pursue other high priority goals around the world – including clean air and water, access to reliable, affordable energy, and economic progress for all people. All practical and economically-viable energy sources, both conventional and unconventional, will need to be pursued to continue meeting global energy demand, recognizing the scale and variety of worldwide energy needs as well as the importance of expanding access to modern energy to promote better standards of living for billions of people. The information provided in the Long-Term Business Outlook includes ExxonMobil’s internal estimates and forecasts based upon internal data and analyses as well as publicly available information from external sources including the International Energy Agency. Upstream ExxonMobil continues to maintain a diverse portfolio of exploration and development opportunities, which enables the Corporation to be selective, maximizing shareholder value and mitigating political and technical risks. ExxonMobil’s fundamental Upstream business strategies guide our global exploration, development, production, and gas and power marketing activities. These strategies include capturing material and accretive opportunities to continually high-grade the resource portfolio, selectively developing attractive oil and natural gas resources, developing and applying high-impact technologies, and pursuing productivity and efficiency gains. These strategies are underpinned by a relentless focus on operational excellence, development of our employees, and investment in the communities within which we operate. As future development projects and drilling activities bring new production online, the Corporation expects a shift in the geographic mix and in the type of opportunities from which volumes are produced. Oil equivalent production from North America is expected to increase over the next several years based on current investment plans, contributing over a third of total production. Further, the proportion of our global production from resource types utilizing specialized technologies such as unconventional drilling and production systems, LNG, deepwater, and arctic, is a majority of production and is expected to grow over the next few years. We do not anticipate that the expected change in the geographic mix of production volumes, and in the types of opportunities from which volumes will be produced, will have a material impact on the nature and the extent of the risks disclosed in Item 1A. Risk Factors, or result in a material change in our level of unit operating expenses. The Corporation anticipates several projects will come online over the next few years providing additional production capacity. However, actual volumes will vary from year to year due to the timing of individual project start-ups; operational outages; reservoir performance; performance of enhanced oil recovery projects; regulatory changes; the impact of fiscal and commercial terms; asset sales; weather events; price effects on production sharing contracts; changes in the amount and timing of capital investments that may vary depending on the oil and gas price environment; and other factors described in Item 1A. Risk Factors. The upstream industry environment continued to recover in 2017 as crude oil prices increased in response to tighter supply and higher demand; gas prices also improved with increasing demand, particularly in Asia. The markets for crude oil and natural gas have a history of significant price volatility. ExxonMobil believes prices over the long term will continue to be driven by market supply and demand, with the demand side largely being a function of general economic activities and levels of prosperity. On the 42 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS supply side, prices may be significantly impacted by political events, the actions of OPEC and other large government resource owners, and other factors. To manage the risks associated with price, ExxonMobil evaluates annual plans and major investments across a range of price scenarios. In 2017, our Upstream business produced 4 million oil-equivalent barrels per day. During the year, we added over 200,000 oil-equivalent barrels per day of gross production capacity through project start-ups in Eastern Canada (Hebron) and at our Sakhalin-1 operation in Russia (Odoptu Stage 2). We added 2.7 billion oil-equivalent barrels of proved reserves, reflecting a 183 percent replacement of 2017 production. We also made strategic acquisitions in Papua New Guinea, Mozambique, and U.S. tight oil, and continued to have exploration success in Guyana. Downstream ExxonMobil’s Downstream is a large, diversified business with refining, logistics, and marketing complexes around the world. The Corporation has a presence in mature markets in North America and Europe, as well as in the growing Asia Pacific region. ExxonMobil’s fundamental Downstream business strategies competitively position the company across a range of market conditions. These strategies include targeting best-in-class operations in all aspects of the business, maximizing value from advanced technologies, capitalizing on integration across ExxonMobil businesses, selectively investing for resilient, advantaged returns, operating efficiently and effectively, and providing quality, valued and differentiated products and services to customers. ExxonMobil’s operating results, as noted in Item 2. Properties, reflect 22 refineries, located in 14 countries, with distillation capacity of 4.9 million barrels per day and lubricant basestock manufacturing capacity of 125 thousand barrels per day. ExxonMobil’s fuels and lubes value chains have significant global reach, with multiple channels to market serving a diverse customer base. Our portfolio of world-renowned brands includes Exxon, Mobil, Esso and Mobil 1. Demand growth remained strong in 2017, and margins strengthened during the year drawing on previous high inventories, particularly in North America due to Latin American demand and hurricane related refinery outages. North American refineries also benefited from cost-competitive feedstock and energy supplies as the differential between Brent and WTI widened. Margins in Europe and Asia strengthened versus 2016, with rising Asia demand and economic growth in Europe. In the near term, we see variability in refining margins, with some regions seeing weaker margins as new capacity additions are expected to outpace growth in global demand for our products, which can also be affected by global economic conditions and regulatory changes. Refining margins are largely driven by differences in commodity prices and are a function of the difference between what a refinery pays for its raw materials (primarily crude oil) and the market prices for the range of products produced (primarily gasoline, heating oil, diesel oil, jet fuel and fuel oil). Crude oil and many products are widely traded with published prices, including those quoted on multiple exchanges around the world (e.g., New York Mercantile Exchange and Intercontinental Exchange). Prices for these commodities are determined by the global marketplace and are influenced by many factors, including global and regional supply/demand balances, inventory levels, industry refinery operations, import/export balances, currency fluctuations, seasonal demand, weather, and political climate. ExxonMobil’s long-term outlook is that industry refining margins will remain subject to intense competition as new capacity additions outpace the growth in global demand. ExxonMobil’s integration across the value chain, from refining to marketing, enhances overall value in both fuels and lubricants businesses. As described in more detail in Item 1A. Risk Factors, proposed carbon policy and other climate-related regulations in many countries, as well as the continued growth in biofuels mandates, could have negative impacts on the Downstream business. In the fuels marketing business, margins remained relatively flat in 2017. In 2017, ExxonMobil expanded its branded retail site network and progressed the multi-year transition of the direct served (i.e., dealer, company-operated) retail network in portions of Europe to a more capital-efficient Branded Wholesaler model. The company’s lubricants business continues to grow, leveraging world-class brands and integration with industry-leading basestock refining capability. ExxonMobil remains a market leader in the high-value synthetic lubricants sector, despite increasing competition. The Downstream portfolio is continually evaluated during all parts of the business cycle, and numerous asset divestments have been made over the past decade. When investing in the Downstream, ExxonMobil remains focused on selective and resilient projects. At the end of 2017, construction was nearly complete on a new delayed coker unit at the refinery in Antwerp, Belgium, to upgrade low-value bunker fuel into higher value diesel products. Construction also progressed on a proprietary hydrocracker at the refinery in Rotterdam, Netherlands, to produce higher value ultra-low sulfur diesel and Group II basestocks. In addition, an expansion in Singapore is underway to support demand growth for finished lubricants in key markets. Finally, ExxonMobil announced plans to increase production of ultra-low sulfur fuels at the Beaumont, Texas, refinery by approximately 40,000 barrels per day. 43 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Chemical Worldwide petrochemical demand remained strong in 2017, led by growing demand from Asia Pacific manufacturers of industrial and consumer products. North America continued to benefit from abundant supplies of natural gas and gas liquids, providing both low-cost feedstock and energy. Specialty product margins moderated in 2017 with capacity additions exceeding demand growth. ExxonMobil sustained its competitive advantage through continued operational excellence, investment and cost discipline, a balanced portfolio of products, and integration with refining and upstream operations, all underpinned by proprietary technology. In 2017, we completed start-up of the polyethylene derivative lines in Mont Belvieu, Texas, and the adhesion hydrocarbon resin plant in Singapore. Construction continued on major expansions at our Texas facilities, including a new world-scale ethane cracker in Baytown and expansion of the polyethylene plant in Beaumont, to capitalize on low-cost feedstock and energy supplies in North America and to meet rapidly growing demand for premium polymers. The company also continued construction on the specialty elastomers plant expansion in Newport, Wales, with start-up anticipated in 2018. Construction of a new halobutyl rubber unit also progressed in Singapore to further extend our specialty product capacity in Asia Pacific. In addition, the company completed the acquisition of a petrochemical plant from Jurong Aromatics Corporation, to complement the existing petrochemical complex in Singapore and meet growing demand for chemicals products in Asia Pacific. REVIEW OF 2017 AND 2016 RESULTS 2017 2016 2015 (millions of dollars) Earnings (U.S. GAAP) Net income attributable to ExxonMobil (U.S. GAAP) 19,710 7,840 16,150 Upstream 2017 2016 2015 (millions of dollars) Upstream United States Non-U.S. Total 6,622 6,733 13,355 (4,151) 4,347 196 (1,079) 8,180 7,101 2017 Upstream earnings were $13,355 million, up $13,159 million from 2016. Higher realizations increased earnings by $5.3 billion. Unfavorable volume and mix effects decreased earnings by $440 million. All other items increased earnings by $8.3 billion, primarily due to the $7.1 billion non-cash impact from U.S. tax reform, lower asset impairments of $659 million, lower expenses, and gains from asset management activity. On an oil-equivalent basis, production of 4 million barrels per day was down 2 percent compared to 2016. Liquids production of 2.3 million barrels per day decreased 82,000 barrels per day as field decline and lower entitlements were partly offset by increased project volumes and work programs. Natural gas production of 10.2 billion cubic feet per day increased 84 million cubic feet per day from 2016 as project ramp-up, primarily in Australia, was partly offset by field decline and regulatory restrictions in the Netherlands. U.S. Upstream earnings were $6,622 million in 2017, including $7.6 billion of U.S. tax reform benefits and asset impairments of $521 million. Non-U.S. Upstream earnings were $6,733 million, including asset impairments of $983 million and unfavorable impacts of $480 million from U.S. tax reform. 2016 Upstream earnings were $196 million in 2016 and included asset impairment charges of $2,163 million mainly relating to dry gas operations with undeveloped acreage in the Rocky Mountains region of the U.S. Earnings were down $6,905 million from 2015. Lower realizations decreased earnings by $5.3 billion. Favorable volume and mix effects increased earnings by $130 million. The impairment charges reduced earnings by $2.2 billion. All other items increased earnings by $440 million, primarily due to lower expenses partly offset by the absence of favorable tax items from the prior year. On an oil equivalent basis, production of 4.1 million barrels per day was down slightly compared to 2015. Liquids production of 2.4 million barrels per day increased 20,000 barrels per day with increased project volumes, mainly in Canada, Indonesia and Nigeria, partly offset by field decline, the impact from Canadian wildfires, and downtime notably in Nigeria. Natural gas production of 10.1 billion cubic feet per day decreased 388 million cubic feet per day from 2015 as field decline, regulatory restrictions in the Netherlands and divestments were partly offset by higher project volumes and work programs. U.S. Upstream earnings declined $3,072 million from 2015 to a loss of $4,151 million, and included impairment charges of $2,163 million. Earnings outside the U.S. were $4,347 million, down $3,833 million from the prior year. 44 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Upstream Additional Information 2017 2016 (thousands of barrels daily) Volumes Reconciliation (Oil-equivalent production) (1) Prior Year Entitlements - Net Interest Entitlements - Price / Spend / Other Quotas Divestments Growth / Other Current Year 4,053 (62) (15) 9 3,985 4,097 9 (23) (34) 4 4,053 (1) Gas converted to oil-equivalent at 6 million cubic feet = 1 thousand barrels. Listed below are descriptions of ExxonMobil’s volumes reconciliation factors which are provided to facilitate understanding of the terms. Entitlements - Net Interest are changes to ExxonMobil’s share of production volumes caused by non-operational changes to volume-determining factors. These factors consist of net interest changes specified in Production Sharing Contracts (PSCs) which typically occur when cumulative investment returns or production volumes achieve defined thresholds, changes in equity upon achieving pay-out in partner investment carry situations, equity redeterminations as specified in venture agreements, or as a result of the termination or expiry of a concession. Once a net interest change has occurred, it typically will not be reversed by subsequent events, such as lower crude oil prices. Entitlements - Price, Spend and Other are changes to ExxonMobil’s share of production volumes resulting from temporary changes to non-operational volume-determining factors. These factors include changes in oil and gas prices or spending levels from one period to another. According to the terms of contractual arrangements or government royalty regimes, price or spending variability can increase or decrease royalty burdens and/or volumes attributable to ExxonMobil. For example, at higher prices, fewer barrels are required for ExxonMobil to recover its costs. These effects generally vary from period to period with field spending patterns or market prices for oil and natural gas. Such factors can also include other temporary changes in net interest as dictated by specific provisions in production agreements. Quotas are changes in ExxonMobil’s allowable production arising from production constraints imposed by countries which are members of the Organization of the Petroleum Exporting Countries (OPEC). Volumes reported in this category would have been readily producible in the absence of the quota. Divestments are reductions in ExxonMobil’s production arising from commercial arrangements to fully or partially reduce equity in a field or asset in exchange for financial or other economic consideration. Growth and Other factors comprise all other operational and non-operational factors not covered by the above definitions that may affect volumes attributable to ExxonMobil. Such factors include, but are not limited to, production enhancements from project and work program activities, acquisitions including additions from asset exchanges, downtime, market demand, natural field decline, and any fiscal or commercial terms that do not affect entitlements. 45 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Downstream 2017 2016 2015 (millions of dollars) Downstream United States Non-U.S. Total 1,948 3,649 5,597 1,094 3,107 4,201 1,901 4,656 6,557 2017 Downstream earnings of $5,597 million increased $1,396 million from 2016. Stronger refining and marketing margins increased earnings by $1.5 billion, while volume and mix effects decreased earnings by $30 million. All other items decreased earnings by $40 million, driven by the absence of a $904 million gain from the Canadian retail assets sale, and Hurricane Harvey related expenses, which were mostly offset by $618 million of U.S. tax reform impacts and non-U.S. asset management gains in the current year. Petroleum product sales of 5.5 million barrels per day were 48,000 barrels per day higher than 2016. Earnings from the U.S. Downstream were $1,948 million, including favorable U.S. tax reform impacts of $618 million. Non-U.S. Downstream earnings were $3,649 million, compared to $3,107 million in the prior year. 2016 Downstream earnings of $4,201 million decreased $2,356 million from 2015. Weaker refining and marketing margins decreased earnings by $3.8 billion, while volume and mix effects increased earnings by $560 million. All other items increased earnings by $920 million, mainly reflecting gains from divestments, notably in Canada. Petroleum product sales of 5.5 million barrels per day were 272,000 barrels per day lower than 2015 mainly reflecting the divestment of refineries in California and Louisiana. U.S. Downstream earnings were $1,094 million, a decrease of $807 million from 2015. Non-U.S. Downstream earnings were $3,107 million, down $1,549 million from the prior year. Chemical 2017 2016 2015 (millions of dollars) Chemical United States Non-U.S. Total 2,190 2,328 4,518 1,876 2,739 4,615 2,386 2,032 4,418 2017 Chemical earnings of $4,518 million decreased $97 million from 2016. Weaker margins decreased earnings by $260 million. Volume and mix effects increased earnings by $100 million. All other items increased earnings by $60 million, primarily due to U.S. tax reform of $335 million and improved inventory effects, partially offset by higher expenses from increased turnaround activity and new business growth. Prime product sales of 25.4 million metric tons were up 495,000 metric tons from 2016. U.S. Chemical earnings were $2,190 million in 2017, including favorable U.S. tax reform impacts of $335 million. Non-U.S. Chemical earnings of $2,328 million were $411 million lower than prior year. 2016 Chemical earnings of $4,615 million increased $197 million from 2015. Stronger margins increased earnings by $440 million. Favorable volume and mix effects increased earnings by $100 million. All other items decreased earnings by $340 million, primarily due to the absence of U.S. asset management gains. Prime product sales of 24.9 million metric tons were up 212,000 metric tons from 2015. U.S. Chemical earnings were $1,876 million, down $510 million from 2015 reflecting the absence of asset management gains. Non-U.S. Chemical earnings of $2,739 million were $707 million higher than the prior year. 46 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Corporate and Financing 2017 2016 2015 (millions of dollars) Corporate and financing (3,760) (1,172) (1,926) 2017 Corporate and financing expenses were $3,760 million in 2017 compared to $1,172 million in 2016, with the increase mainly due to unfavorable impacts of $2.1 billion from U.S. tax reform and the absence of favorable non-U.S. tax items. 2016 Corporate and financing expenses of $1,172 million in 2016 were $754 million lower than 2015 mainly reflecting favorable non-U.S. tax items. LIQUIDITY AND CAPITAL RESOURCES Sources and Uses of Cash 2017 2016 2015 (millions of dollars) Net cash provided by/(used in) Operating activities Investing activities Financing activities Effect of exchange rate changes Increase/(decrease) in cash and cash equivalents 30,066 (15,730) (15,130) 314 (480) 22,082 (12,403) (9,293) (434) (48) 30,344 (23,824) (7,037) (394) (911) (December 31) Total cash and cash equivalents 3,177 3,657 3,705 Total cash and cash equivalents were $3.2 billion at the end of 2017, down $0.5 billion from the prior year. The major sources of funds in 2017 were net income including noncontrolling interests of $19.8 billion, the adjustment for the noncash provision of $19.9 billion for depreciation and depletion, proceeds from asset sales of $3.1 billion, and other investing activities including collection of advances of $2.1 billion. The major uses of funds included spending for additions to property, plant and equipment of $15.4 billion, dividends to shareholders of $13.0 billion, the adjustment for noncash deferred income tax credits of $8.6 billion, and additional investments and advances of $5.5 billion. Total cash and cash equivalents were $3.7 billion at the end of 2016, essentially in line with the prior year. The major sources of funds in 2016 were net income including noncontrolling interests of $8.4 billion, the adjustment for the noncash provision of $22.3 billion for depreciation and depletion, proceeds from asset sales of $4.3 billion, and a net debt increase of $4.3 billion. The major uses of funds included spending for additions to property, plant and equipment of $16.2 billion, dividends to shareholders of $12.5 billion, the adjustment for noncash deferred income tax credits of $4.4 billion, and a change in working capital, excluding cash and debt, of $1.4 billion. The Corporation has access to significant capacity of long-term and short-term liquidity. Internally generated funds are generally expected to cover financial requirements, supplemented by short-term and long-term debt as required. On December 31, 2017, the Corporation had unused committed short-term lines of credit of $5.4 billion and unused committed long-term lines of credit of $0.2 billion. Cash that may be temporarily available as surplus to the Corporation’s immediate needs is carefully managed through counterparty quality and investment guidelines to ensure it is secure and readily available to meet the Corporation’s cash requirements, and to optimize returns. To support cash flows in future periods the Corporation will need to continually find or acquire and develop new fields, and continue to develop and apply new technologies and recovery processes to existing fields, in order to maintain or increase production. After a period of production at plateau rates, it is the nature of oil and gas fields eventually to produce at declining rates for the remainder of their economic life. Averaged over all the Corporation’s existing oil and gas fields and without new projects, ExxonMobil’s production is expected to decline at an average of approximately 3 percent per year over the next few years. Decline rates can vary widely by individual field due to a number of factors, including, but not limited to, the type of reservoir, fluid properties, recovery mechanisms, work activity, and age of the field. Furthermore, the Corporation’s net interest in production for individual fields can vary with price and the impact of fiscal and commercial terms. 47 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Corporation has long been successful at offsetting the effects of natural field decline through disciplined investments in quality opportunities and project execution. The Corporation anticipates several projects will come online over the next few years providing additional production capacity. However, actual volumes will vary from year to year due to the timing of individual project start-ups; operational outages; reservoir performance; performance of enhanced oil recovery projects; regulatory changes; the impact of fiscal and commercial terms; asset sales; weather events; price effects on production sharing contracts; and changes in the amount and timing of investments that may vary depending on the oil and gas price environment. The Corporation’s cash flows are also highly dependent on crude oil and natural gas prices. Please refer to Item 1A. Risk Factors for a more complete discussion of risks. The Corporation’s financial strength enables it to make large, long-term capital expenditures. Capital and exploration expenditures in 2017 were $23.1 billion, reflecting the Corporation’s continued active investment program. The Corporation anticipates an investment level of $24 billion in 2018. Actual spending could vary depending on the progress of individual projects and property acquisitions. The Corporation has a large and diverse portfolio of development projects and exploration opportunities, which helps mitigate the overall political and technical risks of the Corporation’s Upstream segment and associated cash flow. Further, due to its financial strength, debt capacity and diverse portfolio of opportunities, the risk associated with failure or delay of any single project would not have a significant impact on the Corporation’s liquidity or ability to generate sufficient cash flows for operations and its fixed commitments. Cash Flow from Operating Activities 2017 Cash provided by operating activities totaled $30.1 billion in 2017, $8.0 billion higher than 2016. The major source of funds was net income including noncontrolling interests of $19.8 billion, an increase of $11.5 billion. The noncash provision for depreciation and depletion was $19.9 billion, down $2.4 billion from the prior year. The adjustment for deferred income tax credits was $8.6 billion, compared to $4.4 billion in 2016. Changes in operational working capital, excluding cash and debt, decreased cash in 2017 by $0.6 billion. 2016 Cash provided by operating activities totaled $22.1 billion in 2016, $8.3 billion lower than 2015. The major source of funds was net income including noncontrolling interests of $8.4 billion, a decrease of $8.2 billion. The noncash provision for depreciation and depletion was $22.3 billion, up $4.3 billion from the prior year. The adjustment for net gains on asset sales was $1.7 billion while the adjustment for deferred income tax credits was $4.4 billion. Changes in operational working capital, excluding cash and debt, decreased cash in 2016 by $1.4 billion. Cash Flow from Investing Activities 2017 Cash used in investing activities netted to $15.7 billion in 2017, $3.3 billion higher than 2016. Spending for property, plant and equipment of $15.4 billion decreased $0.8 billion from 2016. Proceeds associated with sales of subsidiaries, property, plant and equipment, and sales and returns of investments of $3.1 billion compared to $4.3 billion in 2016. Additional investments and advances were $4.1 billion higher in 2017, while proceeds from other investing activities including collection of advances increased by $1.2 billion. 2016 Cash used in investing activities netted to $12.4 billion in 2016, $11.4 billion lower than 2015. Spending for property, plant and equipment of $16.2 billion decreased $10.3 billion from 2015. Proceeds associated with sales of subsidiaries, property, plant and equipment, and sales and returns of investments of $4.3 billion compared to $2.4 billion in 2015. Additional investments and advances were $0.8 billion higher in 2016. 48 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cash Flow from Financing Activities 2017 Cash used in financing activities was $15.1 billion in 2017, $5.8 billion higher than 2016. Dividend payments on common shares increased to $3.06 per share from $2.98 per share and totaled $13.0 billion. Total debt decreased $0.4 billion to $42.3 billion at year-end. The reduction was principally driven by net repayments of $1.0 billion, and included short-term debt repayments of $5.0 billion that were partly offset by additions in commercial paper and other debt of $4.0 billion. ExxonMobil share of equity increased $20.4 billion to $187.7 billion. The addition to equity for earnings was $19.7 billion. This was partly offset by reductions for distributions to ExxonMobil shareholders of $13.0 billion, all in the form of dividends. Foreign exchange translation effects of $5.0 billion for the weaker U.S. currency and a $1.0 billion change in the funded status of the postretirement benefits reserves both increased equity. Shares issued for acquisitions added $7.8 billion to equity. During 2017, Exxon Mobil Corporation acquired 10 million shares of its common stock for the treasury. Purchases were made to offset shares or units settled in shares issued in conjunction with the company’s benefit plans and programs. Shares outstanding increased from 4,148 million to 4,239 million at the end of 2017, mainly due to a total of 96 million shares issued for the acquisitions of InterOil Corporation and of companies that hold acreage in the Permian basin. 2016 Cash used in financing activities was $9.3 billion in 2016, $2.3 billion higher than 2015. Dividend payments on common shares increased to $2.98 per share from $2.88 per share and totaled $12.5 billion. Total debt increased $4.1 billion to $42.8 billion at year-end. The first quarter issuance of $12.0 billion in long-term debt was partly offset by repayments of $8.0 billion in commercial paper and other short-term debt during the year. ExxonMobil share of equity decreased $3.5 billion to $167.3 billion. The addition to equity for earnings was $7.8 billion. This was offset by reductions for distributions to ExxonMobil shareholders of $12.5 billion, all in the form of dividends. Foreign exchange translation effects of $0.3 billion for the stronger U.S. currency reduced equity, while a $1.6 billion change in the funded status of the postretirement benefits reserves increased equity. During 2016, Exxon Mobil Corporation acquired 12 million shares of its common stock for the treasury. Purchases were made to offset shares or units settled in shares issued in conjunction with the company’s benefit plans and programs. Shares outstanding were reduced from 4,156 million to 4,148 million at the end of 2016. 49 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Commitments Set forth below is information about the outstanding commitments of the Corporation’s consolidated subsidiaries at December 31, 2017. The table combines data from the Consolidated Balance Sheet and from individual notes to the Consolidated Financial Statements. Payments Due by Period Commitments Note Reference Number 2018 20192020 20212022 2023 and Beyond Total 14,360 9,178 14,704 1,521 12,259 737 24,406 4,766 12,705 20,703 4,290 26,491 9,646 (millions of dollars) Long-term debt (1) – Due in one year (2) Asset retirement obligations (3) Pension and other postretirement obligations (4) Operating leases (5) Take-or-pay and unconditional purchase obligations (6) Firm capital commitments (7) 14 6 9 17 11 4,766 777 2,061 936 3,389 5,743 5,662 1,856 1,991 1,166 5,973 2,338 4,384 894 1,947 667 4,870 828 This table excludes commodity purchase obligations (volumetric commitments but no fixed or minimum price) which are resold shortly after purchase, either in an active, highly liquid market or under long-term, unconditional sales contracts with similar pricing terms. Examples include long-term, noncancelable LNG and natural gas purchase commitments and commitments to purchase refinery products at market prices. Inclusion of such commitments would not be meaningful in assessing liquidity and cash flow, because these purchases will be offset in the same periods by cash received from the related sales transactions. The table also excludes unrecognized tax benefits totaling $8.8 billion as of December 31, 2017, because the Corporation is unable to make reasonably reliable estimates of the timing of cash settlements with the respective taxing authorities. Further details on the unrecognized tax benefits can be found in “Note 19: Income and Other Taxes”. Notes: (1) Includes capitalized lease obligations of $1,327 million. (2) The amount due in one year is included in Notes and loans payable of $17,930 million. (3) Asset retirement obligations are primarily upstream asset removal costs at the completion of field life. (4) The amount by which the benefit obligations exceeded the fair value of fund assets for certain U.S. and non-U.S. pension and other postretirement plans at year-end. The payments by period include expected contributions to funded pension plans in 2018 and estimated benefit payments for unfunded plans in all years. (5) Minimum commitments for operating leases, shown on an undiscounted basis, cover drilling equipment, tankers, service stations and other properties. Total includes $611 million related to drilling rigs and related equipment. (6) Take-or-pay obligations are noncancelable, long-term commitments for goods and services. Unconditional purchase obligations are those long-term commitments that are noncancelable or cancelable only under certain conditions, and that third parties have used to secure financing for the facilities that will provide the contracted goods or services. The undiscounted obligations of $26,491 million mainly pertain to pipeline, manufacturing supply and terminal agreements. (7) Firm capital commitments represent legally binding payment obligations to third parties where agreements specifying all significant terms have been executed for the construction and purchase of fixed assets and other permanent investments. In certain cases where the Corporation executes contracts requiring commitments to a work scope, those commitments have been included to the extent that the amounts and timing of payments can be reliably estimated. Firm capital commitments, shown on an undiscounted basis, totaled $9.6 billion, including $1.9 billion in the U.S. Firm capital commitments for the non-U.S. Upstream of $7.2 billion were primarily associated with projects in the United Arab Emirates, Africa, United Kingdom, Guyana, Malaysia, Norway, Canada and Australia. The Corporation expects to fund the majority of these commitments with internally generated funds, supplemented by short-term and long-term debt as required. 50 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Guarantees The Corporation and certain of its consolidated subsidiaries were contingently liable at December 31, 2017, for guarantees relating to notes, loans and performance under contracts (Note 16). Where guarantees for environmental remediation and other similar matters do not include a stated cap, the amounts reflect management’s estimate of the maximum potential exposure. These guarantees are not reasonably likely to have a material effect on the Corporation’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. Financial Strength On December 31, 2017, the Corporation’s unused short-term committed lines of credit totaled $5.4 billion (Note 6) and unused longterm committed lines of credit totaled $0.2 billion (Note 14). The table below shows the Corporation’s fixed-charge coverage and consolidated debt-to-capital ratios. The data demonstrates the Corporation’s creditworthiness. Fixed-charge coverage ratio (times) Debt to capital (percent) Net debt to capital (percent) 2017 2016 2015 13.2 17.9 16.8 5.7 19.7 18.4 17.6 18.0 16.5 Management views the Corporation’s financial strength, as evidenced by the above financial ratios and other similar measures, to be a competitive advantage of strategic importance. The Corporation’s sound financial position gives it the opportunity to access the world’s capital markets in the full range of market conditions, and enables the Corporation to take on large, long-term capital commitments in the pursuit of maximizing shareholder value. Litigation and Other Contingencies As discussed in Note 16, a variety of claims have been made against ExxonMobil and certain of its consolidated subsidiaries in a number of pending lawsuits. Based on a consideration of all relevant facts and circumstances, the Corporation does not believe the ultimate outcome of any currently pending lawsuit against ExxonMobil will have a material adverse effect upon the Corporation’s operations, financial condition, or financial statements taken as a whole. There are no events or uncertainties beyond those already included in reported financial information that would indicate a material change in future operating results or financial condition. Refer to Note 16 for additional information on legal proceedings and other contingencies. CAPITAL AND EXPLORATION EXPENDITURES U.S. Upstream (1) Downstream Chemical Other Total 3,716 823 1,583 90 6,212 2017 Non-U.S. 12,979 1,701 2,188 16,868 Total U.S. (millions of dollars) 16,695 2,524 3,771 90 23,080 3,518 839 1,553 93 6,003 2016 Non-U.S. Total 11,024 1,623 654 13,301 14,542 2,462 2,207 93 19,304 (1) Exploration expenses included. Capital and exploration expenditures in 2017 were $23.1 billion, as the Corporation continued to pursue opportunities to find and produce new supplies of oil and natural gas to meet global demand for energy. The Corporation anticipates an investment level of $24 billion in 2018. Actual spending could vary depending on the progress of individual projects and property acquisitions. Upstream spending of $16.7 billion in 2017 was up 15 percent from 2016. Investments in 2017 included acquisitions in Mozambique and Brazil, U.S. onshore drilling activity and global development projects. Development projects typically take several years from the time of recording proved undeveloped reserves to the start of production and can exceed five years for large and complex projects. The percentage of proved developed reserves was 66 percent of total proved reserves at year-end 2017, and has been over 60 percent for the last ten years. Capital investments in the Downstream totaled $2.5 billion in 2017, consistent with 2016, reflecting global refining project spending. Chemical capital expenditures of $3.8 billion increased $1.6 billion from 2016 mainly resulting from the acquisition of a large-scale aromatics plant in Singapore. 51 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS TAXES 2017 Income taxes Effective income tax rate Total other taxes and duties Total (1,174) 5% 32,459 31,285 2016 (millions of dollars) (406) 13% 31,375 30,969 2015 5,415 34% 32,834 38,249 2017 Total taxes on the Corporation’s income statement were $31.3 billion in 2017, an increase of $0.3 billion from 2016. Income tax expense, both current and deferred, was a credit of $1.2 billion compared to a credit of $0.4 billion in 2016, with the U.S. tax reform impact of $5.9 billion partially offset by higher pre-tax income. The effective tax rate, which is calculated based on consolidated company income taxes and ExxonMobil’s share of equity company income taxes, was 5 percent compared to 13 percent in the prior year due primarily to the impact of U.S. tax reform. Total other taxes and duties of $32.5 billion in 2017 increased $1.1 billion. 2016 Total taxes were $31.0 billion in 2016, a decrease of $7.2 billion from 2015. Income tax expense, both current and deferred, was a credit of $0.4 billion, $5.8 billion lower than 2015, reflecting lower pre-tax income. The effective tax rate, which is calculated based on consolidated company income taxes and ExxonMobil’s share of equity company income taxes, was 13 percent compared to 34 percent in the prior year due primarily to a lower share of earnings in higher tax jurisdictions, favorable one-time items, and the impact of the U.S. Upstream impairment charge. Total other taxes and duties of $31.4 billion in 2016 decreased $1.5 billion. U.S. Tax Reform Following the December 22, 2017, enactment of the U.S. Tax Cuts and Jobs Act, in accordance with Accounting Standard Codification Topic 740 (Income Taxes) and following the guidance outlined in the SEC Staff Accounting Bulletin No. 118, the Corporation has included reasonable estimates of the income tax effects of the changes in tax law and tax rate. These include amounts for the remeasurement of the deferred income tax balance from the reduction in the corporate tax rate from 35 to 21 percent and the mandatory deemed repatriation of undistributed foreign earnings and profits. ExxonMobil’s significant historical investments in the United States have created large deferred income tax liabilities. Remeasurement of these deferred income tax liabilities from the 35 percent rate to 21 percent results in a one-time non-cash benefit to earnings. The Corporation has paid taxes on earnings outside the United States at tax rates on average above the historical U.S. rate of 35 percent. As a result, the deemed repatriation tax does not create a significant tax impact for ExxonMobil. The impact of tax law changes on the Corporation’s financial statements could differ from its estimates due to further analysis of the new law, regulatory guidance, technical corrections legislation, or guidance under U.S. GAAP. If significant changes occur, the Corporation will provide updated information in connection with future regulatory filings. The 21 percent corporate tax rate will reduce the tax cost of U.S. earnings from U.S. investments, although the savings may be somewhat offset by other provisions that could raise the Corporation’s future tax liability. Within the normal course of business, other provisions of the tax law that are effective in 2018 are not expected to have a material effect on operating results or financial condition. 52 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ENVIRONMENTAL MATTERS Environmental Expenditures 2017 2016 (millions of dollars) Capital expenditures Other expenditures Total 1,321 3,349 4,670 1,436 3,451 4,887 Throughout ExxonMobil’s businesses, new and ongoing measures are taken to prevent and minimize the impact of our operations on air, water and ground. These include a significant investment in refining infrastructure and technology to manufacture clean fuels, as well as projects to monitor and reduce nitrogen oxide, sulfur oxide and greenhouse gas emissions, and expenditures for asset retirement obligations. Using definitions and guidelines established by the American Petroleum Institute, ExxonMobil’s 2017 worldwide environmental expenditures for all such preventative and remediation steps, including ExxonMobil’s share of equity company expenditures, were $4.7 billion, of which $3.3 billion were included in expenses with the remainder in capital expenditures. The total cost for such activities is expected to increase to approximately $5 billion in 2018 and 2019. Capital expenditures are expected to account for approximately 30 percent of the total. Environmental Liabilities The Corporation accrues environmental liabilities when it is probable that obligations have been incurred and the amounts can be reasonably estimated. This policy applies to assets or businesses currently owned or previously disposed. ExxonMobil has accrued liabilities for probable environmental remediation obligations at various sites, including multiparty sites where the U.S. Environmental Protection Agency has identified ExxonMobil as one of the potentially responsible parties. The involvement of other financially responsible companies at these multiparty sites could mitigate ExxonMobil’s actual joint and several liability exposure. At present, no individual site is expected to have losses material to ExxonMobil’s operations or financial condition. Consolidated company provisions made in 2017 for environmental liabilities were $302 million ($665 million in 2016) and the balance sheet reflects accumulated liabilities of $872 million as of December 31, 2017, and $852 million as of December 31, 2016. MARKET RISKS, INFLATION AND OTHER UNCERTAINTIES Worldwide Average Realizations (1) Crude oil and NGL ($ per barrel) Natural gas ($ per thousand cubic feet) 2017 2016 2015 48.91 3.04 38.15 2.25 44.77 2.95 (1) Consolidated subsidiaries. Crude oil, natural gas, petroleum product and chemical prices have fluctuated in response to changing market forces. The impacts of these price fluctuations on earnings from Upstream, Downstream and Chemical operations have varied. In the Upstream, a $1 per barrel change in the weighted-average realized price of oil would have approximately a $425 million annual after-tax effect on Upstream consolidated plus equity company earnings. Similarly, a $0.10 per thousand cubic feet change in the worldwide average gas realization would have approximately a $165 million annual after-tax effect on Upstream consolidated plus equity company earnings. For any given period, the extent of actual benefit or detriment will be dependent on the price movements of individual types of crude oil, taxes and other government take impacts, price adjustment lags in long-term gas contracts, and crude and gas production volumes. Accordingly, changes in benchmark prices for crude oil and natural gas only provide broad indicators of changes in the earnings experienced in any particular period. In the very competitive downstream and chemical environments, earnings are primarily determined by margin capture rather than absolute price levels of products sold. Refining margins are a function of the difference between what a refiner pays for its raw materials (primarily crude oil) and the market prices for the range of products produced. These prices in turn depend on global and regional supply/demand balances, inventory levels, refinery operations, import/export balances and weather. 53 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The global energy markets can give rise to extended periods in which market conditions are adverse to one or more of the Corporation’s businesses. Such conditions, along with the capital-intensive nature of the industry and very long lead times associated with many of our projects, underscore the importance of maintaining a strong financial position. Management views the Corporation’s financial strength as a competitive advantage. In general, segment results are not dependent on the ability to sell and/or purchase products to/from other segments. Instead, where such sales take place, they are the result of efficiencies and competitive advantages of integrated refinery/chemical complexes. Additionally, intersegment sales are at market-based prices. The products bought and sold between segments can also be acquired in worldwide markets that have substantial liquidity, capacity and transportation capabilities. About 35 percent of the Corporation’s intersegment sales represent Upstream production sold to the Downstream. Other intersegment sales include those between refineries and chemical plants related to raw materials, feedstocks and finished products. Although price levels of crude oil and natural gas may rise or fall significantly over the short to medium term due to global economic conditions, political events, decisions by OPEC and other major government resource owners and other factors, industry economics over the long term will continue to be driven by market supply and demand. Accordingly, the Corporation evaluates the viability of its major investments over a range of prices. The Corporation has an active asset management program in which underperforming assets are either improved to acceptable levels or considered for divestment. The asset management program includes a disciplined, regular review to ensure that all assets are contributing to the Corporation’s strategic objectives resulting in an efficient capital base. Risk Management The Corporation’s size, strong capital structure, geographic diversity and the complementary nature of the Upstream, Downstream and Chemical businesses reduce the Corporation’s enterprise-wide risk from changes in interest rates, currency rates and commodity prices. In addition, the Corporation uses commodity-based contracts, including derivatives, to manage commodity price risk and for trading purposes. Credit risk associated with the Corporation’s derivative position is mitigated by several factors, including the use of derivative clearing exchanges and the quality of and financial limits placed on derivative counterparties. The Corporation believes that there are no material market or credit risks to the Corporation’s financial position, results of operations or liquidity as a result of the derivatives described in Note 13. The Corporation maintains a system of controls that includes the authorization, reporting and monitoring of derivative activity. The Corporation is exposed to changes in interest rates, primarily on its short-term debt and the portion of long-term debt that carries floating interest rates. The impact of a 100-basis-point change in interest rates affecting the Corporation’s debt would not be material to earnings, cash flow or fair value. The Corporation has access to significant capacity of long-term and short-term liquidity. Internally generated funds are expected to cover the majority of financial requirements, supplemented by long-term and short-term debt. Some joint-venture partners are dependent on the credit markets, and their funding ability may impact the development pace of joint-venture projects. The Corporation conducts business in many foreign currencies and is subject to exchange rate risk on cash flows related to sales, expenses, financing and investment transactions. Fluctuations in exchange rates are often offsetting and the impacts on ExxonMobil’s geographically and functionally diverse operations are varied. The Corporation makes limited use of currency exchange contracts to mitigate the impact of changes in currency values, and exposures related to the Corporation’s limited use of the currency exchange contracts are not material. Inflation and Other Uncertainties The general rate of inflation in many major countries of operation has remained moderate over the past few years, and the associated impact on non-energy costs has generally been mitigated by cost reductions from efficiency and productivity improvements. Beginning several years ago, an extended period of increased demand for certain services and materials resulted in higher operating and capital costs. Since then, multiple market changes, including lower oil prices and reduced upstream industry activity, have contributed to lower prices for oilfield services and materials. The Corporation monitors market trends and works to minimize costs in all commodity price environments through its economies of scale in global procurement and its efficient project management practices. 54 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RECENTLY ISSUED ACCOUNTING STANDARDS Effective January 1, 2018, ExxonMobil adopted the Financial Accounting Standards Board’s standard, Revenue from Contracts with Customers, as amended. The standard establishes a single revenue recognition model for all contracts with customers, eliminates industry and transaction specific requirements, and expands disclosure requirements. The standard was adopted using the Modified Retrospective method, under which prior year results are not restated, but supplemental information on the impact of the new standard must be provided for 2018 results, if material. The standard is not expected to have a material impact on the Corporation’s financial statements. The cumulative effect of adoption of the new standard is de minimis. Effective January 1, 2018, ExxonMobil adopted the Financial Accounting Standards Board’s Update, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The standard requires investments in equity securities other than consolidated subsidiaries and equity method investments to be measured at fair value with changes in the fair value recognized through net income. Companies can elect a modified approach for equity securities that do not have a readily determinable fair value. The standard is not expected to have a material impact on the Corporation’s financial statements. Effective January 1, 2018, ExxonMobil adopted the Financial Accounting Standards Board’s Update, Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The update requires the service cost component of net benefit costs to be reported in the same line of the income statement as other compensation costs and the other components of net benefit costs (non-service costs) to be presented separately from the service cost component. Additionally, only the service cost component of net benefit costs is eligible for capitalization. The Corporation expects to add a new line “Non-service pension and postretirement benefit expense” to its Consolidated Statement of Income and expects to include all of these costs in its Corporate and financing segment. This line would reflect the non-service costs that were previously included in “Production and manufacturing expenses” and “Selling, general and administrative expenses”. The update is not expected to have a material impact on the Corporation’s financial statements. Effective January 1, 2019, ExxonMobil will adopt the Financial Accounting Standards Board’s standard, Leases. The standard requires all leases with an initial term greater than one year be recorded on the balance sheet as an asset and a lease liability. The Corporation is gathering and evaluating data and recently acquired a system to facilitate implementation. We are progressing an assessment of the magnitude of the effect on the Corporation’s financial statements. CRITICAL ACCOUNTING ESTIMATES The Corporation’s accounting and financial reporting fairly reflect its straightforward business model involving the extracting, refining and marketing of hydrocarbons and hydrocarbon-based products. The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (GAAP) requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. The Corporation’s accounting policies are summarized in Note 1. Oil and Natural Gas Reserves The estimation of proved reserves is an ongoing process based on rigorous technical evaluations, commercial and market assessments and detailed analysis of well information such as flow rates and reservoir pressure declines, among other factors. The estimation of proved reserves is controlled by the Corporation through long-standing approval guidelines. Reserve changes are made within a wellestablished, disciplined process driven by senior level geoscience and engineering professionals, assisted by the Global Reserves group which has significant technical experience, culminating in reviews with and approval by senior management. Notably, the Corporation does not use specific quantitative reserve targets to determine compensation. Key features of the reserve estimation process are covered in Disclosure of Reserves in Item 2. Oil and natural gas reserves include both proved and unproved reserves. · Proved oil and natural gas reserves are determined in accordance with Securities and Exchange Commission (SEC) requirements. Proved reserves are those quantities of oil and natural gas which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible under existing economic and operating conditions and government regulations. Proved reserves are determined using the average of first-of-month oil and natural gas prices during the reporting year. Proved reserves can be further subdivided into developed and undeveloped reserves. Proved developed reserves include amounts which are expected to be recovered through existing wells with existing equipment and operating methods. Proved undeveloped reserves include amounts expected to be recovered from new wells on undrilled proved acreage or from existing wells where a relatively major expenditure is required for completion. Proved undeveloped reserves are recognized only if a development plan has been adopted indicating that the reserves are scheduled to be drilled within five years, unless specific circumstances support a longer period of time. 55 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The percentage of proved developed reserves was 66 percent of total proved reserves at year-end 2017 (including both consolidated and equity company reserves), a reduction from 69 percent in 2016, and has been over 60 percent for the last ten years. Although the Corporation is reasonably certain that proved reserves will be produced, the timing and amount recovered can be affected by a number of factors including completion of development projects, reservoir performance, regulatory approvals, government policy, consumer preferences and significant changes in long-term oil and natural gas prices. · Unproved reserves are quantities of oil and natural gas with less than reasonable certainty of recoverability and include probable reserves. Probable reserves are reserves that, together with proved reserves, are as likely as not to be recovered. Revisions in previously estimated volumes of proved reserves for existing fields can occur due to the evaluation or re-evaluation of (1) already available geologic, reservoir or production data, (2) new geologic, reservoir or production data or (3) changes in the average of first-of-month oil and natural gas prices and / or costs that are used in the estimation of reserves. Revisions can also result from significant changes in development strategy or production equipment and facility capacity. Unit-of-Production Depreciation Oil and natural gas reserve quantities are used as the basis to calculate unit-of-production depreciation rates for most upstream assets. Depreciation is calculated by taking the ratio of asset cost to total proved reserves or proved developed reserves applied to actual production. The volumes produced and asset cost are known, while proved reserves are based on estimates that are subject to some variability. In the event that the unit-of-production method does not result in an equitable allocation of cost over the economic life of an upstream asset, an alternative method is used. The straight-line method is used in limited situations where the expected life of the asset does not reasonably correlate with that of the underlying reserves. For example, certain assets used in the production of oil and natural gas have a shorter life than the reserves, and as such, the Corporation uses straight-line depreciation to ensure the asset is fully depreciated by the end of its useful life. To the extent that proved reserves for a property are substantially de-booked and that property continues to produce such that the resulting depreciation charge does not result in an equitable allocation of cost over the expected life, assets will be depreciated using a unit-of-production method based on reserves determined at the most recent SEC price which results in a more meaningful quantity of proved reserves, appropriately adjusted for production and technical changes. The effect of this approach on the Corporation’s 2018 depreciation expense versus 2017 is anticipated to be immaterial. Impairment The Corporation tests assets or groups of assets for recoverability on an ongoing basis whenever events or circumstances indicate that the carrying amounts may not be recoverable. Among the events or changes in circumstances which could indicate that the carrying value of an asset or asset group may not be recoverable are the following: · · · · · · a significant decrease in the market price of a long-lived asset; a significant adverse change in the extent or manner in which an asset is being used or in its physical condition including a significant decrease in current and projected reserve volumes; a significant adverse change in legal factors or in the business climate that could affect the value, including an adverse action or assessment by a regulator; an accumulation of project costs significantly in excess of the amount originally expected; a current-period operating loss combined with a history and forecast of operating or cash flow losses; and a current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. Asset valuation analyses performed as part of its asset management program and other profitability reviews assist the Corporation in assessing whether events or circumstances indicate the carrying amounts of any of its assets may not be recoverable. In general, the Corporation does not view temporarily low prices or margins as an indication of impairment. Management believes that prices over the long term must be sufficient to generate investments in energy supply to meet global demand. Although prices will occasionally drop significantly, industry prices over the long term will continue to be driven by market supply and demand fundamentals. On the supply side, industry production from mature fields is declining. This is being offset by investments to generate production from new discoveries, field developments and technology and efficiency advancements. OPEC investment activities and production policies also have an impact on world oil supplies. The demand side is largely a function of general economic activities and levels of prosperity. Because the lifespans of the vast majority of the Corporation’s major assets are measured in decades, the value of these assets is predominantly based on long-term views of future commodity prices and production costs. During the lifespan of these major assets, the Corporation expects that oil and gas prices will experience significant volatility, and consequently these assets will experience periods of higher earnings and periods of lower earnings, or even losses. 56 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In assessing whether the events or changes in circumstances indicate the carrying value of an asset may not be recoverable, the Corporation considers recent periods of operating losses in the context of its longer-term view of prices. While near-term prices are subject to wide fluctuations, longer-term price views are more stable and meaningful for purposes of assessing future cash flows. When the industry experiences a prolonged and deep reduction in commodity prices, the market supply and demand conditions may result in changes to the Corporation’s long-term price or margin assumptions it uses for its capital investment decisions. To the extent those changes result in a significant reduction to its long-term oil price, natural gas price or margin ranges, the Corporation may consider that situation, in conjunction with other events and changes in circumstances such as a history of operating losses, an indicator of potential impairment for certain assets. In the Upstream, the standardized measure of discounted cash flows included in the Supplemental Information on Oil and Gas Exploration and Production Activities is required to use prices based on the average of first-of-month prices. These prices represent discrete points in time and could be higher or lower than the Corporation’s long-term price assumptions which are used for impairment assessments. The Corporation believes the standardized measure does not provide a reliable estimate of the expected future cash flows to be obtained from the development and production of its oil and gas properties or of the value of its oil and gas reserves and therefore does not consider it relevant in determining whether events or changes in circumstances indicate the need for an impairment assessment. If events or circumstances indicate that the carrying value of an asset may not be recoverable, the Corporation estimates the future undiscounted cash flows of the affected properties to judge the recoverability of carrying amounts. In performing this assessment, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets. Cash flows used in recoverability assessments are based on the Corporation’s assumptions which are developed in the annual planning and budgeting process, and are consistent with the criteria management uses to evaluate investment opportunities. These evaluations make use of the Corporation’s assumptions of future capital allocations, crude oil and natural gas commodity prices, refining and chemical margins, volumes, costs, and foreign currency exchange rates. Volumes are based on projected field and facility production profiles, throughput, or sales. Where unproved reserves exist, an appropriately risk-adjusted amount of these reserves may be included in the evaluation. Cash flow estimates for impairment testing exclude the effects of derivative instruments. An asset group is impaired if its estimated undiscounted cash flows are less than the asset’s carrying value. Impairments are measured by the amount by which the carrying value exceeds fair value. Fair value is based on market prices if an active market exists for the asset group, or discounted cash flows using a discount rate commensurate with the risk. Significant unproved properties are assessed for impairment individually, and valuation allowances against the capitalized costs are recorded based on the estimated economic chance of success and the length of time that the Corporation expects to hold the properties. Properties that are not individually significant are aggregated by groups and amortized based on development risk and average holding period. The Corporation has a robust process to monitor for indicators of potential impairment across its asset groups throughout the year. This process is aligned with the requirements of ASC 360 and relies in part on the Corporation’s planning and budgeting cycle. As part of its 2017 annual planning and budgeting cycle, the Corporation identified emerging trends such as increasing estimates of available natural gas supplies and ongoing reductions in the industry’s costs of supply for natural gas that resulted in a reduction to the Corporation’s long-term natural gas price outlooks. Based in part on these trends, the Corporation concluded that events and circumstances indicated that the carrying value of certain long-lived assets, notably North America natural gas assets and certain other assets across the remainder of its Upstream operations, may not be recoverable. Accordingly, an impairment assessment was performed which indicated that the vast majority of asset groups assessed have future undiscounted cash flow estimates that exceed their carrying values. However, the carrying values for certain asset groups in the United States exceeded the estimated cash flows. As a result, the Corporation’s fourth quarter 2017 results include an after-tax charge of $0.5 billion to reduce the carrying value of those assets to fair value. The asset groups subject to this impairment charge are primarily dry gas operations with little additional development potential. In addition, the Corporation made a decision to cease development planning activities and further allocation of capital to certain nonproducing assets outside the United States. The Corporation’s fourth quarter 2017 results include an after-tax charge of $0.8 billion to reduce the carrying value of those assets. Other impairments during the year resulted in an after-tax charge of $0.2 billion. The assessment of fair values required the use of Level 3 inputs and assumptions that are based upon the views of a likely market participant. The principal parameters used to establish fair values included estimates of both proved and unproved reserves, future commodity prices which were consistent with the average of third-party industry experts and government agencies, drilling and development costs, discount rates ranging from 5.5 percent to 8 percent depending on the characteristics of the asset group, and comparable market transactions. Factors which could put further assets at risk of impairment in the future include reductions in the Corporation’s long-term price outlooks, changes in the allocation of capital, and operating cost increases which exceed the pace of efficiencies or the pace of oil and natural gas price increases. However, due to the inherent difficulty in predicting future 57 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS commodity prices, and the relationship between industry prices and costs, it is not practicable to reasonably estimate the existence or range of any potential future impairment charges related to the Corporation’s long-lived assets. Inventories Crude oil, products and merchandise inventories are carried at the lower of current market value or cost (generally determined under the last-in, first-out method – LIFO). Asset Retirement Obligations The Corporation incurs retirement obligations for certain assets. The fair values of these obligations are recorded as liabilities on a discounted basis, which is typically at the time the assets are installed. In the estimation of fair value, the Corporation uses assumptions and judgments regarding such factors as the existence of a legal obligation for an asset retirement obligation; technical assessments of the assets; estimated amounts and timing of settlements; discount rates; and inflation rates. Asset retirement obligations are disclosed in Note 9 to the financial statements. Suspended Exploratory Well Costs The Corporation continues capitalization of exploratory well costs when the well has found a sufficient quantity of reserves to justify its completion as a producing well and the Corporation is making sufficient progress assessing the reserves and the economic and operating viability of the project. Exploratory well costs not meeting these criteria are charged to expense. The facts and circumstances that support continued capitalization of suspended wells at year-end are disclosed in Note 10 to the financial statements. Consolidations The Consolidated Financial Statements include the accounts of subsidiaries the Corporation controls. They also include the Corporation’s share of the undivided interest in certain upstream assets, liabilities, revenues and expenses. Amounts representing the Corporation’s interest in entities that it does not control, but over which it exercises significant influence, are accounted for using the equity method of accounting. Investments in companies that are partially owned by the Corporation are integral to the Corporation’s operations. In some cases they serve to balance worldwide risks, and in others they provide the only available means of entry into a particular market or area of interest. The other parties, who also have an equity interest in these companies, are either independent third parties or host governments that share in the business results according to their ownership. The Corporation does not invest in these companies in order to remove liabilities from its balance sheet. In fact, the Corporation has long been on record supporting an alternative accounting method that would require each investor to consolidate its share of all assets and liabilities in these partially-owned companies rather than only its interest in net equity. This method of accounting for investments in partially-owned companies is not permitted by U.S. GAAP except where the investments are in the direct ownership of a share of upstream assets and liabilities. However, for purposes of calculating return on average capital employed, which is not covered by U.S. GAAP standards, the Corporation includes its share of debt of these partially-owned companies in the determination of average capital employed. Pension Benefits The Corporation and its affiliates sponsor nearly 100 defined benefit (pension) plans in over 40 countries. The Pension and Other Postretirement Benefits footnote (Note 17) provides details on pension obligations, fund assets and pension expense. Some of these plans (primarily non-U.S.) provide pension benefits that are paid directly by their sponsoring affiliates out of corporate cash flow rather than a separate pension fund because applicable tax rules and regulatory practices do not encourage advance funding. Book reserves are established for these plans. The portion of the pension cost attributable to employee service is expensed as services are rendered. The portion attributable to the increase in pension obligations due to the passage of time is expensed over the term of the obligations, which ends when all benefits are paid. The primary difference in pension expense for unfunded versus funded plans is that pension expense for funded plans also includes a credit for the expected long-term return on fund assets. For funded plans, including those in the U.S., pension obligations are financed in advance through segregated assets or insurance arrangements. These plans are managed in compliance with the requirements of governmental authorities and meet or exceed required funding levels as measured by relevant actuarial and government standards at the mandated measurement dates. In determining liabilities and required contributions, these standards often require approaches and assumptions that differ from those used for accounting purposes. 58 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Corporation will continue to make contributions to these funded plans as necessary. All defined-benefit pension obligations, regardless of the funding status of the underlying plans, are fully supported by the financial strength of the Corporation or the respective sponsoring affiliate. Pension accounting requires explicit assumptions regarding, among others, the long-term expected earnings rate on fund assets, the discount rate for the benefit obligations and the long-term rate for future salary increases. Pension assumptions are reviewed annually by outside actuaries and senior management. These assumptions are adjusted as appropriate to reflect changes in market rates and outlook. The long-term expected earnings rate on U.S. pension plan assets in 2017 was 6.50 percent. The 10-year and 20-year actual returns on U.S. pension plan assets were 5 percent and 8 percent, respectively. The Corporation establishes the long-term expected rate of return by developing a forward-looking, long-term return assumption for each pension fund asset class, taking into account factors such as the expected real return for the specific asset class and inflation. A single, long-term rate of return is then calculated as the weighted average of the target asset allocation percentages and the long-term return assumption for each asset class. A worldwide reduction of 0.5 percent in the long-term rate of return on assets would increase annual pension expense by approximately $170 million before tax. Differences between actual returns on fund assets and the long-term expected return are not recognized in pension expense in the year that the difference occurs. Such differences are deferred, along with other actuarial gains and losses, and are amortized into pension expense over the expected remaining service life of employees. Litigation Contingencies A variety of claims have been made against the Corporation and certain of its consolidated subsidiaries in a number of pending lawsuits. Management has regular litigation reviews, including updates from corporate and outside counsel, to assess the need for accounting recognition or disclosure of these contingencies. The status of significant claims is summarized in Note 16. The Corporation accrues an undiscounted liability for those contingencies where the incurrence of a loss is probable, and the amount can be reasonably estimated. These amounts are not reduced by amounts that may be recovered under insurance or claims against third parties, but undiscounted receivables from insurers or other third parties may be accrued separately. The Corporation revises such accruals in light of new information. For contingencies where an unfavorable outcome is reasonably possible and which are significant, the Corporation discloses the nature of the contingency and, where feasible, an estimate of the possible loss. For purposes of our litigation contingency disclosures, “significant” includes material matters as well as other items which management believes should be disclosed. Management judgment is required related to contingent liabilities and the outcome of litigation because both are difficult to predict. However, the Corporation has been successful in defending litigation in the past. Payments have not had a material adverse effect on operations or financial condition. In the Corporation’s experience, large claims often do not result in large awards. Large awards are often reversed or substantially reduced as a result of appeal or settlement. Tax Contingencies The Corporation is subject to income taxation in many jurisdictions around the world. Significant management judgment is required in the accounting for income tax contingencies and tax disputes because the outcomes are often difficult to predict. The benefits of uncertain tax positions that the Corporation has taken or expects to take in its income tax returns are recognized in the financial statements if management concludes that it is more likely than not that the position will be sustained with the tax authorities. For a position that is likely to be sustained, the benefit recognized in the financial statements is measured at the largest amount that is greater than 50 percent likely of being realized. A reserve is established for the difference between a position taken or expected to be taken in an income tax return and the amount recognized in the financial statements. The Corporation’s unrecognized tax benefits and a description of open tax years are summarized in Note 19. Foreign Currency Translation The method of translating the foreign currency financial statements of the Corporation’s international subsidiaries into U.S. dollars is prescribed by GAAP. Under these principles, it is necessary to select the functional currency of these subsidiaries. The functional currency is the currency of the primary economic environment in which the subsidiary operates. Management selects the functional currency after evaluating this economic environment. Factors considered by management when determining the functional currency for a subsidiary include the currency used for cash flows related to individual assets and liabilities; the responsiveness of sales prices to changes in exchange rates; the history of inflation in the country; whether sales are into local markets or exported; the currency used to acquire raw materials, labor, services and supplies; sources of ?nancing; and signi?cance of intercompany transactions. 59 MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Management, including the Corporation’s Chief Executive Officer, Principal Financial Officer, and Principal Accounting Officer, is responsible for establishing and maintaining adequate internal control over the Corporation’s financial reporting. Management conducted an evaluation of the effectiveness of internal control over financial reporting based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that Exxon Mobil Corporation’s internal control over financial reporting was effective as of December 31, 2017. PricewaterhouseCoopers LLP, an independent registered public accounting firm, audited the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2017, as stated in their report included in the Financial Section of this report. Darren W. Woods Chief Executive Officer Andrew P. Swiger Senior Vice President (Principal Financial Officer) 60 David S. Rosenthal Vice President and Controller (Principal Accounting Officer) REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Exxon Mobil Corporation Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Exxon Mobil Corporation and its subsidiaries (the “Corporation”) as of December 31, 2017 and 2016, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2017, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Corporation's internal control over financial reporting as of December 31, 2017 based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Corporation as of December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Change in Accounting Principle As discussed in Note 2 to the consolidated financial statements, in 2017 the Corporation changed the manner in which it accounts for certain sales and value-added taxes imposed on and concurrent with revenue-producing transactions with customers and collected on behalf of governmental authorities. Basis for Opinions The Corporation's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Corporation’s consolidated financial statements and on the Corporation's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. 61 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ PricewaterhouseCoopers LLP Dallas, Texas February 28, 2018 We have served as the Corporation’s auditor since 1934. 62 CONSOLIDATED STATEMENT OF INCOME Note Reference Number 2017 2016 2015 (millions of dollars) Revenues and other income Sales and other operating revenue (1) Income from equity affiliates Other income Total revenues and other income Costs and other deductions Crude oil and product purchases Production and manufacturing expenses Selling, general and administrative expenses Depreciation and depletion Exploration expenses, including dry holes Interest expense Other taxes and duties Total costs and other deductions Income before income taxes Income taxes Net income including noncontrolling interests Net income attributable to noncontrolling interests Net income attributable to ExxonMobil 2 7 9 2, 19 19 237,162 5,380 1,821 244,363 200,628 4,806 2,680 208,114 239,854 7,644 1,750 249,248 128,217 34,128 10,956 19,893 1,790 601 30,104 225,689 18,674 (1,174) 19,848 138 19,710 104,171 31,927 10,799 22,308 1,467 453 29,020 200,145 7,969 (406) 8,375 535 7,840 130,003 35,587 11,501 18,048 1,523 311 30,309 227,282 21,966 5,415 16,551 401 16,150 Earnings per common share (dollars) 12 4.63 1.88 3.85 Earnings per common share - assuming dilution (dollars) 12 4.63 1.88 3.85 (1) Effective December 31, 2017, the Corporation revised its accounting policy election related to sales-based taxes. See Note 2: Accounting Changes. The information in the Notes to Consolidated Financial Statements is an integral part of these statements. 63 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 2017 2016 2015 (millions of dollars) Net income including noncontrolling interests Other comprehensive income (net of income taxes) Foreign exchange translation adjustment Adjustment for foreign exchange translation (gain)/loss included in net income Postretirement benefits reserves adjustment (excluding amortization) Amortization and settlement of postretirement benefits reserves adjustment included in net periodic benefit costs Unrealized change in fair value of stock investments Realized (gain)/loss from stock investments included in net income Total other comprehensive income Comprehensive income including noncontrolling interests Comprehensive income attributable to noncontrolling interests Comprehensive income attributable to ExxonMobil 19,848 5,352 234 (219) 1,165 6,532 26,380 693 25,687 The information in the Notes to Consolidated Financial Statements is an integral part of these statements. 64 8,375 16,551 (174) (9,303) 493 (14) 2,358 1,086 1,405 9,780 668 9,112 1,448 33 27 (5,451) 11,100 (496) 11,596 CONSOLIDATED BALANCE SHEET Note Reference Number Assets Current assets Cash and cash equivalents Notes and accounts receivable, less estimated doubtful amounts Inventories Crude oil, products and merchandise Materials and supplies Other current assets Total current assets Investments, advances and long-term receivables Property, plant and equipment, at cost, less accumulated depreciation and depletion Other assets, including intangibles, net Total assets Liabilities Current liabilities Notes and loans payable Accounts payable and accrued liabilities Income taxes payable Total current liabilities Long-term debt Postretirement benefits reserves Deferred income tax liabilities Long-term obligations to equity companies Other long-term obligations Total liabilities 3,177 25,597 3,657 21,394 12,871 4,121 1,368 47,134 39,160 10,877 4,203 1,285 41,416 35,102 9 252,630 9,767 348,691 244,224 9,572 330,314 6 17,930 36,796 3,045 57,771 24,406 21,132 26,893 4,774 19,215 154,191 13,830 31,193 2,615 47,638 28,932 20,680 34,041 5,124 20,069 156,484 14,656 414,540 (16,262) 12,157 407,831 (22,239) (225,246) 187,688 6,812 194,500 348,691 (230,424) 167,325 6,505 173,830 330,314 6 3 8 6 14 17 19 Commitments and contingencies Dec. 31 Dec. 31 2017 2016 (millions of dollars) 16 Equity Common stock without par value (9,000 million shares authorized, 8,019 million shares issued) Earnings reinvested Accumulated other comprehensive income Common stock held in treasury (3,780 million shares in 2017 and 3,871 million shares in 2016) ExxonMobil share of equity Noncontrolling interests Total equity Total liabilities and equity The information in the Notes to Consolidated Financial Statements is an integral part of these statements. 65 CONSOLIDATED STATEMENT OF CASH FLOWS Note Reference Number Cash flows from operating activities Net income including noncontrolling interests Adjustments for noncash transactions Depreciation and depletion Deferred income tax charges/(credits) Postretirement benefits expense in excess of/(less than) net payments Other long-term obligation provisions in excess of/(less than) payments Dividends received greater than/(less than) equity in current earnings of equity companies Changes in operational working capital, excluding cash and debt Reduction/(increase) - Notes and accounts receivable - Inventories - Other current assets Increase/(reduction) - Accounts and other payables Net (gain) on asset sales All other items - net Net cash provided by operating activities Cash flows from investing activities Additions to property, plant and equipment Proceeds associated with sales of subsidiaries, property, plant and equipment, and sales and returns of investments Decrease/(increase) in restricted cash and cash equivalents Additional investments and advances Other investing activities including collection of advances Net cash used in investing activities Cash flows from financing activities Additions to long-term debt Reductions in long-term debt Additions to short-term debt Reductions in short-term debt Additions/(reductions) in commercial paper, and debt with three months or less maturity Cash dividends to ExxonMobil shareholders Cash dividends to noncontrolling interests Changes in noncontrolling interests Tax benefits related to stock-based awards Common stock acquired Common stock sold Net cash used in financing activities Effects of exchange rate changes on cash Increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 9 2017 2016 (millions of dollars) 2015 19,848 8,375 16,551 19,893 (8,577) 22,308 (4,386) 18,048 (1,832) 1,135 (329) 2,153 (610) (19) (380) 131 (579) (691) (3,954) (1,682) (117) 5,104 (334) (771) 30,066 (2,090) (388) 171 915 (1,682) (214) 22,082 4,692 (379) 45 (7,471) (226) (166) 30,344 5 (15,402) (16,163) (26,490) 5 3,103 (5,507) 2,076 (15,730) 4,275 (1,417) 902 (12,403) 2,389 42 (607) 842 (23,824) 5 60 1,735 (5,024) 12,066 (314) 8,028 (26) (506) 5 2,181 (13,001) (184) (150) (747) (15,130) 314 (480) 3,657 3,177 (7,459) (12,453) (162) (977) 6 (9,293) (434) (48) 3,705 3,657 1,759 (12,090) (170) 2 (4,039) 5 (7,037) (394) (911) 4,616 3,705 5 5 The information in the Notes to Consolidated Financial Statements is an integral part of these statements. 66 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Common Stock Balance as of December 31, 2014 Amortization of stock-based awards Tax benefits related to stock-based awards Other Net income for the year Dividends - common shares Other comprehensive income Acquisitions, at cost Dispositions Balance as of December 31, 2015 Amortization of stock-based awards Tax benefits related to stock-based awards Other Net income for the year Dividends - common shares Other comprehensive income Acquisitions, at cost Dispositions Balance as of December 31, 2016 Amortization of stock-based awards Other Net income for the year Dividends - common shares Other comprehensive income Acquisitions, at cost Issued for acquisitions Dispositions Balance as of December 31, 2017 Common Stock Share Activity Balance as of December 31, 2014 Acquisitions Dispositions Balance as of December 31, 2015 Acquisitions Dispositions Balance as of December 31, 2016 Acquisitions Issued for acquisitions Dispositions Balance as of December 31, 2017 10,792 828 116 (124) 11,612 796 30 (281) 12,157 801 (380) 2,078 14,656 ExxonMobil Share of Equity Accumulated Common Other Stock ExxonMobil Earnings Comprehensive Held in Share of Reinvested Income Treasury Equity (millions of dollars) 408,384 16,150 (12,090) 412,444 7,840 (12,453) 407,831 19,710 (13,001) 414,540 (18,957) (4,554) (23,511) 1,272 (22,239) 5,977 (16,262) (225,820) (4,039) 125 (229,734) (977) 287 (230,424) (828) 5,711 295 (225,246) Issued Noncontrolling Interests 174,399 828 116 (124) 16,150 (12,090) (4,554) (4,039) 125 170,811 796 30 (281) 7,840 (12,453) 1,272 (977) 287 167,325 801 (380) 19,710 (13,001) 5,977 (828) 7,789 295 187,688 Held in Treasury (millions of shares) 8,019 8,019 8,019 8,019 The information in the Notes to Consolidated Financial Statements is an integral part of these statements. (3,818) (48) 3 (3,863) (12) 4 (3,871) (10) 96 5 (3,780) 6,665 401 (170) (897) 5,999 535 (162) 133 6,505 (52) 138 (184) 555 (150) 6,812 Total Equity 181,064 828 116 (124) 16,551 (12,260) (5,451) (4,039) 125 176,810 796 30 (281) 8,375 (12,615) 1,405 (977) 287 173,830 801 (432) 19,848 (13,185) 6,532 (978) 7,789 295 194,500 Outstanding 4,201 (48) 3 4,156 (12) 4 4,148 (10) 96 5 4,239 67 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The accompanying consolidated financial statements and the supporting and supplemental material are the responsibility of the management of Exxon Mobil Corporation. The Corporation’s principal business is energy, involving the worldwide exploration, production, transportation and sale of crude oil and natural gas (Upstream) and the manufacture, transportation and sale of petroleum products (Downstream). The Corporation is also a major worldwide manufacturer and marketer of petrochemicals (Chemical). The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (GAAP) requires management to make estimates that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from these estimates. Prior years’ data has been reclassified in certain cases to conform to the 2017 presentation basis. 1. Summary of Accounting Policies Principles of Consolidation The Consolidated Financial Statements include the accounts of subsidiaries the Corporation controls. They also include the Corporation’s share of the undivided interest in certain upstream assets, liabilities, revenues and expenses. Amounts representing the Corporation’s interest in entities that it does not control, but over which it exercises significant influence, are included in “Investments, advances and long-term receivables”. The Corporation’s share of the net income of these companies is included in the Consolidated Statement of Income caption “Income from equity affiliates”. Majority ownership is normally the indicator of control that is the basis on which subsidiaries are consolidated. However, certain factors may indicate that a majority-owned investment is not controlled and therefore should be accounted for using the equity method of accounting. These factors occur where the minority shareholders are granted by law or by contract substantive participating rights. These include the right to approve operating policies, expense budgets, financing and investment plans, and management compensation and succession plans. Evidence of loss in value that might indicate impairment of investments in companies accounted for on the equity method is assessed to determine if such evidence represents a loss in value of the Corporation’s investment that is other than temporary. Examples of key indicators include a history of operating losses, negative earnings and cash flow outlook, significant downward revisions to oil and gas reserves, and the financial condition and prospects for the investee’s business segment or geographic region. If evidence of an other than temporary loss in fair value below carrying amount is determined, an impairment is recognized. In the absence of market prices for the investment, discounted cash flows are used to assess fair value. The Corporation’s share of the cumulative foreign exchange translation adjustment for equity method investments is reported in Accumulated Other Comprehensive Income. Revenue Recognition The Corporation generally sells crude oil, natural gas and petroleum and chemical products under short-term agreements at prevailing market prices. In some cases (e.g., natural gas), products may be sold under long-term agreements, with periodic price adjustments. Revenues are recognized when the products are delivered, which occurs when the customer has taken title and has assumed the risks and rewards of ownership, prices are fixed or determinable and collectibility is reasonably assured. Revenues from the production of natural gas properties in which the Corporation has an interest with other producers are recognized on the basis of the Corporation’s net working interest. Differences between actual production and net working interest volumes are not significant. Purchases and sales of inventory with the same counterparty that are entered into in contemplation of one another are combined and recorded as exchanges measured at the book value of the item sold. Taxes on Sales Transactions Beginning in 2017, the Corporation revised its reporting of certain sales and value-added taxes imposed on and concurrent with revenue-producing transactions with customers and collected on behalf of governmental authorities (sales-based taxes). This changes reporting of sales-based taxes from gross reporting (included in both “Sales and other operating revenue” and “Sales-based taxes”) to net reporting (excluded from both “Sales and other operating revenue” and “Sales-based taxes”) in the Consolidated Statement of Income. This change in reporting was applied retrospectively and does not affect earnings. Similar taxes, for which the Corporation is not considered to be an agent for the government, continue to be reported on a gross basis. 68 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Derivative Instruments The Corporation has the ability to use derivative instruments to offset exposures associated with commodity prices, foreign currency exchange rates and interest rates that arise from existing assets, liabilities and forecasted transactions. The gains and losses resulting from changes in the fair value of derivatives are recorded in income. The Corporation may designate derivatives as fair value hedges or cash flow hedges. For fair value hedges, the gain or loss on the derivative and the offsetting loss or gain on the hedged item are recognized in current earnings. For cash flow hedges, the effective part of the hedge is initially reported as a component of other comprehensive income and subsequently reclassified into earnings in the period that the forecasted transaction affects earnings, and the ineffective part of the hedge is recognized immediately in earnings. Fair Value Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Hierarchy Levels 1, 2 and 3 are terms for the priority of inputs to valuation techniques used to measure fair value. Hierarchy Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Hierarchy Level 2 inputs are inputs other than quoted prices included within Level 1 that are directly or indirectly observable for the asset or liability. Hierarchy Level 3 inputs are inputs that are not observable in the market. Inventories Crude oil, products and merchandise inventories are carried at the lower of current market value or cost (generally determined under the last-in, first-out method – LIFO). Inventory costs include expenditures and other charges (including depreciation) directly and indirectly incurred in bringing the inventory to its existing condition and location. Selling expenses and general and administrative expenses are reported as period costs and excluded from inventory cost. Inventories of materials and supplies are valued at cost or less. Property, Plant and Equipment Cost Basis. The Corporation uses the “successful efforts” method to account for its exploration and production activities. Under this method, costs are accumulated on a field-by-field basis. Costs incurred to purchase, lease, or otherwise acquire a property (whether unproved or proved) are capitalized when incurred. Exploratory well costs are carried as an asset when the well has found a sufficient quantity of reserves to justify its completion as a producing well and where the Corporation is making sufficient progress assessing the reserves and the economic and operating viability of the project. Exploratory well costs not meeting these criteria are charged to expense. Other exploratory expenditures, including geophysical costs and annual lease rentals, are expensed as incurred. Development costs, including costs of productive wells and development dry holes, are capitalized. Depreciation, Depletion and Amortization. Depreciation, depletion and amortization are primarily determined under either the unitof-production method or the straight-line method, which is based on estimated asset service life taking obsolescence into consideration. Acquisition costs of proved properties are amortized using a unit-of-production method, computed on the basis of total proved oil and gas reserves. Capitalized exploratory drilling and development costs associated with productive depletable extractive properties are amortized using the unit-of-production rates based on the amount of proved developed reserves of oil and gas that are estimated to be recoverable from existing facilities using current operating methods. Under the unit-of-production method, oil and gas volumes are considered produced once they have been measured through meters at custody transfer or sales transaction points at the outlet valve on the lease or field storage tank. In the event that the unit-of-production method does not result in an equitable allocation of cost over the economic life of an upstream asset, an alternative method is used. The straight-line method is used in limited situations where the expected life of the asset does not reasonably correlate with that of the underlying reserves. For example, certain assets used in the production of oil and natural gas have a shorter life than the reserves, and as such, the Corporation uses straight-line depreciation to ensure the asset is fully depreciated by the end of its useful life. To the extent that proved reserves for a property are substantially de-booked and that property continues to produce such that the resulting depreciation charge does not result in an equitable allocation of cost over the expected life, assets will be depreciated using a unit-of-production method based on reserves determined at the most recent SEC price which results in a more meaningful quantity of proved reserves, appropriately adjusted for production and technical changes. Investments in refinery, chemical process, and lubes basestock manufacturing equipment are generally depreciated on a straight-line basis over a 25-year life. Service station buildings and fixed improvements generally are depreciated over a 20-year life. Maintenance and repairs, including planned major maintenance, are expensed as incurred. Major renewals and improvements are capitalized and the assets replaced are retired. 69 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Impairment Assessment. The Corporation tests assets or groups of assets for recoverability on an ongoing basis whenever events or circumstances indicate that the carrying amounts may not be recoverable. Among the events or changes in circumstances which could indicate that the carrying value of an asset or asset group may not be recoverable are the following: · · · · · · a significant decrease in the market price of a long-lived asset; a significant adverse change in the extent or manner in which an asset is being used or in its physical condition including a significant decrease in current and projected reserve volumes; a significant adverse change in legal factors or in the business climate that could affect the value, including an adverse action or assessment by a regulator; an accumulation of project costs significantly in excess of the amount originally expected; a current-period operating loss combined with a history and forecast of operating or cash flow losses; and a current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. Asset valuation analyses performed as part of its asset management program and other profitability reviews assist the Corporation in assessing whether events or circumstances indicate the carrying amounts of any of its assets may not be recoverable. In general, the Corporation does not view temporarily low prices or margins as an indication of impairment. Management believes that prices over the long term must be sufficient to generate investments in energy supply to meet global demand. Although prices will occasionally drop significantly, industry prices over the long term will continue to be driven by market supply and demand fundamentals. On the supply side, industry production from mature fields is declining. This is being offset by investments to generate production from new discoveries, field developments and technology and efficiency advancements. OPEC investment activities and production policies also have an impact on world oil supplies. The demand side is largely a function of general economic activities and levels of prosperity. Because the lifespans of the vast majority of the Corporation’s major assets are measured in decades, the value of these assets is predominantly based on long-term views of future commodity prices and production costs. During the lifespan of these major assets, the Corporation expects that oil and gas prices will experience significant volatility, and consequently these assets will experience periods of higher earnings and periods of lower earnings, or even losses. In assessing whether the events or changes in circumstances indicate the carrying value of an asset may not be recoverable, the Corporation considers recent periods of operating losses in the context of its longer-term view of prices. While near-term prices are subject to wide fluctuations, longer-term price views are more stable and meaningful for purposes of assessing future cash flows. When the industry experiences a prolonged and deep reduction in commodity prices, the market supply and demand conditions may result in changes to the Corporation’s long-term price or margin assumptions it uses for its capital investment decisions. To the extent those changes result in a significant reduction to its long-term oil price, natural gas price or margin ranges, the Corporation may consider that situation, in conjunction with other events and changes in circumstances such as a history of operating losses, an indicator of potential impairment for certain assets. In the Upstream, the standardized measure of discounted cash flows included in the Supplemental Information on Oil and Gas Exploration and Production activities is required to use prices based on the average of first-of-month prices. These prices represent discrete points in time and could be higher or lower than the Corporation’s long-term price assumptions which are used for impairment assessments. The Corporation believes the standardized measure does not provide a reliable estimate of the expected future cash flows to be obtained from the development and production of its oil and gas properties or of the value of its oil and gas reserves and therefore does not consider it relevant in determining whether events or changes in circumstances indicate the need for an impairment assessment. If events or circumstances indicate that the carrying value of an asset may not be recoverable, the Corporation estimates the future undiscounted cash flows of the affected properties to judge the recoverability of carrying amounts. In performing this assessment, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets. Cash flows used in recoverability assessments are based on the Corporation’s assumptions which are developed in the annual planning and budgeting process, and are consistent with the criteria management uses to evaluate investment opportunities. These evaluations make use of the Corporation’s assumptions of future capital allocations, crude oil and natural gas commodity prices, refining and chemical margins, volumes, costs, and foreign currency exchange rates. Volumes are based on projected field and facility production profiles, throughput, or sales. Where unproved reserves exist, an appropriately risk-adjusted amount of these reserves may be included in the evaluation. Cash flow estimates for impairment testing exclude the effects of derivative instruments. An asset group is impaired if its estimated undiscounted cash flows are less than the asset’s carrying value. Impairments are measured by the amount by which the carrying value exceeds fair value. Fair value is based on market prices if an active market exists for the asset group, or discounted cash flows using a discount rate commensurate with the risk. Significant unproved properties are assessed for impairment individually, and valuation allowances against the capitalized costs are recorded based on the estimated economic chance of success and the length of time that the Corporation expects to hold the properties. Properties 70 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS that are not individually significant are aggregated by groups and amortized based on development risk and average holding period. Other. Gains on sales of proved and unproved properties are only recognized when there is neither uncertainty about the recovery of costs applicable to any interest retained nor any substantial obligation for future performance by the Corporation. Losses on properties sold are recognized when incurred or when the properties are held for sale and the fair value of the properties is less than the carrying value. Interest costs incurred to finance expenditures during the construction phase of multiyear projects are capitalized as part of the historical cost of acquiring the constructed assets. The project construction phase commences with the development of the detailed engineering design and ends when the constructed assets are ready for their intended use. Capitalized interest costs are included in property, plant and equipment and are depreciated over the service life of the related assets. Asset Retirement Obligations and Environmental Liabilities The Corporation incurs retirement obligations for certain assets. The fair values of these obligations are recorded as liabilities on a discounted basis, which is typically at the time the assets are installed. The costs associated with these liabilities are capitalized as part of the related assets and depreciated. Over time, the liabilities are accreted for the change in their present value. Liabilities for environmental costs are recorded when it is probable that obligations have been incurred and the amounts can be reasonably estimated. These liabilities are not reduced by possible recoveries from third parties, and projected cash expenditures are not discounted. Foreign Currency Translation The Corporation selects the functional reporting currency for its international subsidiaries based on the currency of the primary economic environment in which each subsidiary operates. Downstream and Chemical operations primarily use the local currency. However, the U.S. dollar is used in countries with a history of high inflation (primarily in Latin America) and Singapore, which predominantly sells into the U.S. dollar export market. Upstream operations which are relatively self-contained and integrated within a particular country, such as Canada, the United Kingdom, Norway and continental Europe, use the local currency. Some Upstream operations, primarily in Asia and Africa, use the U.S. dollar because they predominantly sell crude and natural gas production into U.S. dollar-denominated markets. For all operations, gains or losses from remeasuring foreign currency transactions into the functional currency are included in income. Stock-Based Payments The Corporation awards stock-based compensation to employees in the form of restricted stock and restricted stock units. Compensation expense is measured by the price of the stock at the date of grant and is recognized in income over the requisite service period. 71 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. Accounting Changes Effective December 31, 2017, the Corporation revised its accounting policy election related to the reporting of certain sales and valueadded taxes imposed on and concurrent with revenue-producing transactions with customers and collected on behalf of governmental authorities (sales-based taxes). This changes reporting of sales-based taxes from gross reporting (included in both “Sales and other operating revenue” and “Sales-based taxes”) to the preferable method of net reporting (excluded from both “Sales and other operating revenue” and “Sales-based taxes”) in the Consolidated Statement of Income. The revised election makes reported revenue more consistent with ExxonMobil’s role as an agent for the government and is more consistent with the reporting practices of other international major oil and gas companies and the largest U.S. companies. This change in accounting principle was applied retrospectively and does not affect net income attributable to ExxonMobil. Also effective December 31, 2017, the Corporation reclassified U.S. Federal excise tax from “Sales-based taxes” to “Other taxes and duties”. For these taxes ExxonMobil is not considered to be an agent for the government and these taxes will continue to be reported gross. The amount reclassified was $3,110 million in 2016 and $3,044 million in 2015. This change in classification was applied retrospectively and does not affect net income attributable to ExxonMobil. As Reported Sales and other operating revenue Sales-based taxes Other taxes and duties 218,608 21,090 25,910 2016 Change (17,980) (21,090) 3,110 As Adjusted As Reported (millions of dollars) 200,628 29,020 259,488 22,678 27,265 2015 Change (19,634) (22,678) 3,044 As Adjusted 239,854 30,309 Effective January 1, 2018, ExxonMobil adopted the Financial Accounting Standards Board’s standard, Revenue from Contracts with Customers, as amended. The standard establishes a single revenue recognition model for all contracts with customers, eliminates industry and transaction specific requirements, and expands disclosure requirements. The standard was adopted using the Modified Retrospective method, under which prior year results are not restated, but supplemental information on the impact of the new standard must be provided for 2018 results, if material. The standard is not expected to have a material impact on the Corporation’s financial statements. The cumulative effect of adoption of the new standard is de minimis. Effective January 1, 2018, ExxonMobil adopted the Financial Accounting Standards Board’s Update, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The standard requires investments in equity securities other than consolidated subsidiaries and equity method investments to be measured at fair value with changes in the fair value recognized through net income. Companies can elect a modified approach for equity securities that do not have a readily determinable fair value. The standard is not expected to have a material impact on the Corporation’s financial statements. Effective January 1, 2018, ExxonMobil adopted the Financial Accounting Standards Board’s Update, Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The update requires the service cost component of net benefit costs to be reported in the same line of the income statement as other compensation costs and the other components of net benefit costs (non-service costs) to be presented separately from the service cost component. Additionally, only the service cost component of net benefit costs is eligible for capitalization. The Corporation expects to add a new line “Non-service pension and postretirement benefit expense” to its Consolidated Statement of Income and expects to include all of these costs in its Corporate and financing segment. This line would reflect the non-service costs that were previously included in “Production and manufacturing expenses” and “Selling, general and administrative expenses”. The update is not expected to have a material impact on the Corporation’s financial statements. Effective January 1, 2019, ExxonMobil will adopt the Financial Accounting Standards Board’s standard, Leases. The standard requires all leases with an initial term greater than one year be recorded on the balance sheet as an asset and a lease liability. The Corporation is gathering and evaluating data and recently acquired a system to facilitate implementation. We are progressing an assessment of the magnitude of the effect on the Corporation’s financial statements. 72 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. Miscellaneous Financial Information Research and development expenses totaled $1,063 million in 2017, $1,058 million in 2016, and $1,008 million in 2015. Net income included before-tax aggregate foreign exchange transaction gains of $6 million in 2017 and $29 million in 2016, and a loss of $119 million in 2015. In 2017, 2016, and 2015, net income included losses of $10 million, $295 million, and $186 million, respectively, attributable to the combined effects of LIFO inventory accumulations and drawdowns. The aggregate replacement cost of inventories was estimated to exceed their LIFO carrying values by $10.8 billion and $8.1 billion at December 31, 2017, and 2016, respectively. Crude oil, products and merchandise as of year-end 2017 and 2016 consist of the following: 2017 2016 (billions of dollars) Crude oil Petroleum products Chemical products Gas/other Total 4.6 4.3 3.3 0.7 12.9 73 3.9 3.7 2.8 0.5 10.9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. Other Comprehensive Income Information ExxonMobil Share of Accumulated Other Comprehensive Income Cumulative Foreign Exchange Translation Adjustment Postretirement Benefits Reserves Adjustment Unrealized Change in Stock Investments Total (millions of dollars) Balance as of December 31, 2014 Current period change excluding amounts reclassified from accumulated other comprehensive income Amounts reclassified from accumulated other comprehensive income Total change in accumulated other comprehensive income Balance as of December 31, 2015 Current period change excluding amounts reclassified from accumulated other comprehensive income Amounts reclassified from accumulated other comprehensive income Total change in accumulated other comprehensive income Balance as of December 31, 2016 Current period change excluding amounts reclassified from accumulated other comprehensive income Amounts reclassified from accumulated other comprehensive income Total change in accumulated other comprehensive income Balance as of December 31, 2017 (5,952) (12,945) (60) (18,957) (8,204) 2,202 33 (5,969) (14) (8,218) (14,170) 1,402 3,604 (9,341) 27 60 - 1,415 (4,554) (23,511) (331) (331) (14,501) 4,879 140 5,019 (9,482) Amounts Reclassified Out of Accumulated Other Comprehensive Income - Before-tax Income/(Expense) 552 - 221 1,051 1,603 (7,738) - 1,051 1,272 (22,239) (170) - 4,709 1,128 958 (6,780) - 1,268 5,977 (16,262) 2016 2015 2017 (millions of dollars) Foreign exchange translation gain/(loss) included in net income (Statement of Income line: Other income) Amortization and settlement of postretirement benefits reserves adjustment included in net periodic benefit costs (1) Realized change in fair value of stock investments included in net income (Statement of Income line: Other income) (234) (1,656) (1,531) - - 14 (2,066) (42) (1) These accumulated other comprehensive income components are included in the computation of net periodic pension cost. (See Note 17 – Pension and Other Postretirement Benefits for additional details.) Income Tax (Expense)/Credit For Components of Other Comprehensive Income 2017 2016 2015 (millions of dollars) Foreign exchange translation adjustment Postretirement benefits reserves adjustment (excluding amortization) Amortization and settlement of postretirement benefits reserves adjustment included in net periodic benefit costs Unrealized change in fair value of stock investments Realized change in fair value of stock investments included in net income 67 201 43 (247) 170 (1,192) (491) - (445) - (618) (17) (15) Total 74 (223) (649) (1,672) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. Cash Flow Information The Consolidated Statement of Cash Flows provides information about changes in cash and cash equivalents. Highly liquid investments with maturities of three months or less when acquired are classified as cash equivalents. For 2017, the “Net (gain) on asset sales” on the Consolidated Statement of Cash Flows includes before-tax amounts from the sale of service stations in multiple countries, Upstream asset transactions in the U.S., and the sale of ExxonMobil’s operated Upstream business in Norway. For 2016, the number includes before-tax amounts from the sale of service stations in Canada, the sale of Upstream properties in the U.S., and the sale of aviation fueling operations across multiple countries. For 2015, the number includes before-tax amounts from the sale of service stations in Europe, the sale of Upstream properties in the U.S., the sale of ExxonMobil’s interests in Chemical and Refining joint ventures, and the sale of the Torrance refinery. These net gains are reported in “Other income” on the Consolidated Statement of Income. In 2017, the “Additions/(reductions) in commercial paper, and debt with three months or less maturity” on the Consolidated Statement of Cash Flows includes a net $121 million repayment of commercial paper with maturity over three months. The gross amount issued was $3.6 billion, while the gross amount repaid was $3.7 billion. In 2016, the number includes a net $608 million addition of commercial paper with maturity over three months. The gross amount issued was $3.9 billion, while the gross amount repaid was $3.3 billion. In 2015, the number includes a net $358 million addition of commercial paper with maturity over three months. The gross amount issued was $8.1 billion, while the gross amount repaid was $7.7 billion. In 2017, the Corporation completed the acquisitions of InterOil Corporation and of companies that own certain oil and gas properties in the Permian basin and other assets. These transactions included a significant noncash component. Additional information is provided in Note 20. In 2015, ExxonMobil completed an asset exchange that resulted in value received of approximately $500 million including $100 million in cash. The noncash portion was not included in the “Sales of subsidiaries, investments, and property, plant and equipment” or the “All other items-net” lines on the Statement of Cash Flows. Capital leases of approximately $1 billion were not included in the “Additions to long-term debt” or “Additions to property, plant and equipment” lines on the Statement of Cash Flows. 2017 2016 2015 (millions of dollars) Cash payments for interest 1,132 818 586 Cash payments for income taxes 7,510 4,214 7,269 6. Additional Working Capital Information Dec. 31 2017 Dec. 31 2016 (millions of dollars) Notes and accounts receivable Trade, less reserves of $72 million and $75 million Other, less reserves of $539 million and $627 million Total 21,274 4,323 25,597 16,033 5,361 21,394 Notes and loans payable Bank loans Commercial paper Long-term debt due within one year Total 115 13,049 4,766 17,930 143 10,727 2,960 13,830 Accounts payable and accrued liabilities Trade payables Payables to equity companies Accrued taxes other than income taxes Other Total 21,701 5,453 3,311 6,331 36,796 17,801 4,748 2,653 5,991 31,193 The Corporation has short-term committed lines of credit of $5.4 billion which were unused as of December 31, 2017. These lines are available for general corporate purposes. The weighted-average interest rate on short-term borrowings outstanding was 1.3 percent and 0.6 percent at December 31, 2017, and 2016, respectively. 75 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. Equity Company Information The summarized financial information below includes amounts related to certain less-than-majority-owned companies and majorityowned subsidiaries where minority shareholders possess the right to participate in significant management decisions (see Note 1). These companies are primarily engaged in oil and gas exploration and production, and natural gas marketing in North America; natural gas exploration, production and distribution in Europe; and exploration, production, liquefied natural gas (LNG) operations, refining operations, petrochemical manufacturing, and fuel sales in Asia and the Middle East. Also included are several refining, petrochemical manufacturing and marketing ventures. The share of total equity company revenues from sales to ExxonMobil consolidated companies was 15 percent, 14 percent and 15 percent in the years 2017, 2016 and 2015, respectively. The Corporation’s ownership in these ventures is in the form of shares in corporate joint ventures as well as interests in partnerships. Differences between the company’s carrying value of an equity investment and its underlying equity in the net assets of the affiliate are assigned to the extent practicable to specific assets and liabilities based on the company’s analysis of the factors giving rise to the difference. The amortization of this difference, as appropriate, is included in “Income from equity affiliates” on the Consolidated Statement of Income. In 2013 and 2014, the Corporation and Rosneft established various entities to conduct exploration and research activities. In 2014, the European Union and United States imposed sanctions relating to the Russian energy sector. In the latter half of 2017, the United States codified and expanded sanctions against Russia. With respect to the foregoing, the Corporation and its affiliates continue to comply with all applicable laws, rules and regulations. In late 2017, the Corporation decided to withdraw from these joint ventures. The Corporation expects it will formally initiate the withdrawal in 2018. The decision to withdraw resulted in an after-tax loss of $0.2 billion. In 2017, the Corporation invested about $3 billion to acquire shares in four joint venture companies, resulting in a 25 percent indirect interest in the natural gas-rich Area 4 block offshore Mozambique. The transaction was completed on December 13, 2017. The investments are accounted for using the equity method of accounting. 2016 2017 Equity Company Financial Summary Total ExxonMobil Share Total 2015 ExxonMobil Share Total ExxonMobil Share (millions of dollars) Total revenues Income before income taxes Income taxes Income from equity affiliates Current assets Long-term assets Total assets Current liabilities Long-term liabilities Net assets 94,791 29,748 8,421 21,327 29,340 8,498 2,236 6,262 80,247 22,269 6,334 15,935 24,668 6,509 1,701 4,808 111,866 36,379 11,048 25,331 34,297 10,670 3,019 7,651 35,367 122,221 157,588 21,725 59,736 76,127 12,050 34,931 46,981 6,348 17,056 23,577 34,412 109,646 144,058 20,507 62,110 61,441 11,392 32,357 43,749 5,765 17,288 20,696 32,879 109,684 142,563 22,947 60,388 59,228 11,244 32,878 44,122 6,738 17,165 20,219 76 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A list of significant equity companies as of December 31, 2017, together with the Corporation’s percentage ownership interest, is detailed below: Percentage Ownership Interest Upstream Aera Energy LLC Barzan Gas Company Limited BEB Erdgas und Erdoel GmbH & Co. KG Cameroon Oil Transportation Company S.A. Cross Timbers Energy, LLC Golden Pass LNG Terminal LLC Marine Well Containment Company LLC Mozambique Rovuma Venture, S.p.A. Nederlandse Aardolie Maatschappij B.V. Qatar Liquefied Gas Company Limited (2) Ras Laffan Liquefied Natural Gas Company Limited Ras Laffan Liquefied Natural Gas Company Limited (II) Ras Laffan Liquefied Natural Gas Company Limited (3) South Hook LNG Terminal Company Limited Tengizchevroil, LLP Terminale GNL Adriatico S.r.l. 48 7 50 41 50 18 10 36 50 24 25 31 30 24 25 71 Downstream 25 12 50 Fujian Refining & Petrochemical Co. Ltd. Permian Express Partners LLC Saudi Aramco Mobil Refinery Company Ltd. Chemical Al-Jubail Petrochemical Company Infineum Italia s.r.l. Infineum Singapore Pte. Ltd. Infineum USA L.P. Saudi Yanbu Petrochemical Co. 50 50 50 50 50 77 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. Investments, Advances and Long-Term Receivables Dec. 31, Dec. 31, 2017 2016 (millions of dollars) Companies carried at equity in underlying assets Investments Advances Total equity company investments and advances Companies carried at cost or less and stock investments carried at fair value Long-term receivables and miscellaneous investments at cost or less, net of reserves of $5,432 million and $4,141 million Total 24,354 9,112 33,466 174 20,810 9,443 30,253 154 5,520 39,160 4,695 35,102 9. Property, Plant and Equipment and Asset Retirement Obligations Property, Plant and Equipment December 31, 2017 December 31, 2016 Cost Net Cost Net (millions of dollars) Upstream Downstream Chemical Other Total 371,904 50,343 37,966 16,972 477,185 200,291 21,732 20,117 10,490 252,630 355,265 47,915 34,098 16,637 453,915 195,904 20,588 17,401 10,331 244,224 The Corporation has a robust process to monitor for indicators of potential impairment across its asset groups throughout the year. This process is aligned with the requirements of ASC 360 and relies in part on the Corporation’s planning and budgeting cycle. As part of its 2017 annual planning and budgeting cycle, the Corporation identified emerging trends such as increasing estimates of available natural gas supplies and ongoing reductions in the industry’s costs of supply for natural gas that resulted in a reduction to the Corporation’s long-term natural gas price outlooks. Based in part on these trends, the Corporation concluded that events and circumstances indicated that the carrying value of certain long-lived assets, notably North America natural gas assets and certain other assets across the remainder of its Upstream operations, may not be recoverable. Accordingly, an impairment assessment was performed which indicated that the vast majority of asset groups assessed have future undiscounted cash flow estimates that exceed their carrying values. However, the carrying values for certain asset groups in the United States exceeded the estimated cash flows. As a result, the Corporation’s fourth quarter 2017 results include a before-tax charge of $0.8 billion to reduce the carrying value of those assets to fair value. The asset groups subject to this impairment charge are primarily dry gas operations with little additional development potential. In addition, the Corporation made a decision to cease development planning activities and further allocation of capital to certain nonproducing assets outside the United States resulting in a before-tax charge of $0.9 billion to reduce the carrying value of those assets that are included in Property, Plant and Equipment. Other impairments during the year resulted in a before-tax charge of $0.3 billion. The impairment charges are recognized primarily in the line “Depreciation and depletion” on the Consolidated Statement of Income. The assessment of fair values required the use of Level 3 inputs and assumptions that are based upon the views of a likely market participant. The principal parameters used to establish fair values included estimates of both proved and unproved reserves, future commodity prices which were consistent with the average of third-party industry experts and government agencies, drilling and development costs, discount rates ranging from 5.5 percent to 8 percent depending on the characteristics of the asset group, and comparable market transactions. Factors which could put further assets at risk of impairment in the future include reductions in the Corporation’s long-term price outlooks, changes in the allocation of capital, and operating cost increases which exceed the pace of efficiencies or the pace of oil and natural gas price increases. However, due to the inherent difficulty in predicting future commodity prices, and the relationship between industry prices and costs, it is not practicable to reasonably estimate the existence or range of any potential future impairment charges related to the Corporation’s long-lived assets. Accumulated depreciation and depletion totaled $224,555 million at the end of 2017 and $209,691 million at the end of 2016. Interest capitalized in 2017, 2016 and 2015 was $749 million, $708 million and $482 million, respectively. 78 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Asset Retirement Obligations The Corporation incurs retirement obligations for certain assets. The fair values of these obligations are recorded as liabilities on a discounted basis, which is typically at the time the assets are installed. In the estimation of fair value, the Corporation uses assumptions and judgments regarding such factors as the existence of a legal obligation for an asset retirement obligation; technical assessments of the assets; estimated amounts and timing of settlements; discount rates; and inflation rates. Asset retirement obligations incurred in the current period were Level 3 fair value measurements. The costs associated with these liabilities are capitalized as part of the related assets and depreciated as the reserves are produced. Over time, the liabilities are accreted for the change in their present value. Asset retirement obligations for downstream and chemical facilities generally become firm at the time the facilities are permanently shut down and dismantled. These obligations may include the costs of asset disposal and additional soil remediation. However, these sites have indeterminate lives based on plans for continued operations and as such, the fair value of the conditional legal obligations cannot be measured, since it is impossible to estimate the future settlement dates of such obligations. The following table summarizes the activity in the liability for asset retirement obligations: 2017 2016 (millions of dollars) Beginning balance Accretion expense and other provisions Reduction due to property sales Payments made Liabilities incurred Foreign currency translation Revisions Ending balance 13,243 780 (906) (730) 128 611 (421) 12,705 13,704 740 (134) (549) 204 (513) (209) 13,243 The long-term Asset Retirement Obligations were $11,928 million and $12,352 million at December 31, 2017, and 2016, respectively, and are included in Other long-term obligations. 79 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. Accounting for Suspended Exploratory Well Costs The Corporation continues capitalization of exploratory well costs when the well has found a sufficient quantity of reserves to justify its completion as a producing well and the Corporation is making sufficient progress assessing the reserves and the economic and operating viability of the project. The term “project” as used in this report can refer to a variety of different activities and does not necessarily have the same meaning as in any government payment transparency reports. The following two tables provide details of the changes in the balance of suspended exploratory well costs as well as an aging summary of those costs. Change in capitalized suspended exploratory well costs: 2017 2016 2015 (millions of dollars) Balance beginning at January 1 Additions pending the determination of proved reserves Charged to expense Reclassifications to wells, facilities and equipment based on the determination of proved reserves Divestments/Other Ending balance at December 31 Ending balance attributed to equity companies included above 4,477 906 (1,205) 4,372 180 (111) 3,587 847 (5) (497) 19 3,700 306 36 4,477 707 (43) (14) 4,372 696 Period end capitalized suspended exploratory well costs: 2017 2016 2015 (millions of dollars) 906 1,345 1,064 385 2,794 3,700 Capitalized for a period of one year or less Capitalized for a period of between one and five years Capitalized for a period of between five and ten years Capitalized for a period of greater than ten years Capitalized for a period greater than one year - subtotal Total 180 2,981 911 405 4,297 4,477 847 2,386 826 313 3,525 4,372 Exploration activity often involves drilling multiple wells, over a number of years, to fully evaluate a project. The table below provides a breakdown of the number of projects with only exploratory well costs capitalized for a period of one year or less and those that have had exploratory well costs capitalized for a period greater than one year. Number of projects that only have exploratory well costs capitalized for a period of one year or less Number of projects that have exploratory well costs capitalized for a period of greater than one year Total 2017 2016 2015 11 2 4 46 57 58 60 55 59 Of the 46 projects that have exploratory well costs capitalized for a period greater than one year as of December 31, 2017, 10 projects have drilling in the preceding year or exploratory activity planned in the next two years, while the remaining 36 projects are those with completed exploratory activity progressing toward development. 80 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The table below provides additional detail for those 36 projects, which total $1,639 million. Country/Project Angola - AB32 Central NE Hub - Kaombo Split Hub Phase 2 - Perpetua-Zinia-Acacia Argentina - La Invernada Australia - East Pilchard Years Dec. 31, Wells 2017 Drilled (millions of dollars) Comment 69 2006 - 2014 Evaluating development plan for tieback to existing production facilities. 20 2005 - 2006 Evaluating development plan to tie into planned production facilities. 15 2008 - 2009 Oil field near Pazflor development, awaiting capacity in existing/planned infrastructure. 72 2014 Evaluating development plan to tie into planned infrastructure. 8 2001 - SE Longtom 12 2010 - SE Remora 36 2010 Gas field near Kipper/Tuna development, awaiting capacity in existing/ planned infrastructure. Gas field near Tuna development, awaiting capacity in existing/planned infrastructure. Gas field near Marlin development, awaiting capacity in existing/planned infrastructure. 11 2011 Development activity under way to tie into planned production facilities. 109 2015 Evaluating commercialization alternatives, while waiting for government approval to enter Gas Holding Period. Indonesia - Kedung Keris Iraq - Kurdistan Pirmam Kazakhstan - Kairan 53 - Kalamkas 18 Malaysia - Bindu Nigeria - Bolia 15 - Bosi 79 - Bosi Central 16 - Erha Northeast - OML 138 Ukot SW - OML 138 Ukot SS - Pegi - Satellite Field Development Phase 2 - Other (3 projects) Norway - Gamma - Lavrans 26 41 13 32 12 - Other (7 projects) 27 2 7 14 16 2004 - 2007 Evaluating commercialization and field development alternatives, while continuing discussions with the government regarding the development plan. 2006 - 2009 Evaluating development alternatives, while continuing discussions with the government regarding development plan. 1995 Awaiting capacity in existing/planned infrastructure. 2002 - 2006 Evaluating development plan, while continuing discussions with the government regarding regional hub strategy. 2002 - 2006 Development activity under way, while continuing discussions with the government regarding development plan. 2006 Development activity under way, while continuing discussions with the government regarding development plan. 2008 Evaluating development plan for tieback to existing production facilities. 2014 Evaluating development plan for tieback to existing production facilities. 2015 Evaluating development plan for tieback to existing production facilities. 2009 Awaiting capacity in existing/planned infrastructure. 2013 Evaluating development plan to tie into planned production facilities. 2002 Evaluating and pursuing development of several additional discoveries. 2008 - 2009 Evaluating development plan for tieback to existing production facilities. 1995 - 1999 Evaluating development plan, awaiting capacity in existing Kristin production facility. 2008 - 2014 Evaluating development plans, including potential for tieback to existing production facilities. Papua New Guinea - Juha 28 2007 Progressing development plans to tie into existing LNG facilities. 81 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Country/Project Republic of Congo - Mer Tres Profonde Sud Romania - Neptun Deep Vietnam - Blue Whale Total 2017 (36 projects) Years Dec. 31, Wells 2017 Drilled (millions of dollars) 56 Comment 2000 - 2007 Evaluating development alternatives, while continuing discussions with the government regarding development plan. 536 2012 - 2016 Continuing discussions with the government regarding development plan. 296 2011 - 2015 Development planning activity under way, while continuing commercial discussions with the government. 1,639 11. Leased Facilities At December 31, 2017, the Corporation and its consolidated subsidiaries held noncancelable operating charters and leases covering drilling equipment, tankers, service stations and other properties with minimum undiscounted lease commitments totaling $4,290 million as indicated in the table. Estimated related sublease rental income from noncancelable subleases totals $36 million. Lease Payments Under Minimum Commitments Drilling Rigs and Related Equipment Other Total (millions of dollars) 2018 2019 2020 2021 2022 2023 and beyond Total 169 131 101 70 41 99 611 767 537 397 297 259 1,422 3,679 936 668 498 367 300 1,521 4,290 Net rental cost under both cancelable and noncancelable operating leases incurred during 2017, 2016 and 2015 were as follows: 2017 2016 2015 (millions of dollars) Rental cost Drilling rigs and related equipment Other (net of sublease rental income) Total 792 1,826 2,618 82 1,274 1,817 3,091 1,853 2,076 3,929 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. Earnings Per Share Earnings per common share 2017 2016 2015 19,710 7,840 16,150 4,256 4,177 4,196 Earnings per common share (dollars) (1) 4.63 1.88 3.85 Dividends paid per common share (dollars) 3.06 2.98 2.88 Net income attributable to ExxonMobil (millions of dollars) Weighted average number of common shares outstanding (millions of shares) (1) The earnings per common share and earnings per common share - assuming dilution are the same in each period shown. 13. Financial Instruments and Derivatives Financial Instruments. The fair value of financial instruments is determined by reference to observable market data and other valuation techniques as appropriate. The only category of financial instruments where the difference between fair value and recorded book value is notable is long-term debt. The estimated fair value of total long-term debt, excluding capitalized lease obligations, was $23.7 billion and $28.0 billion at December 31, 2017, and 2016, respectively, as compared to recorded book values of $23.1 billion and $27.7 billion at December 31, 2017, and 2016, respectively. The fair value of long-term debt by hierarchy level at December 31, 2017, is: Level 1 $23,529 million; Level 2 $170 million; and Level 3 $6 million. Derivative Instruments. The Corporation’s size, strong capital structure, geographic diversity and the complementary nature of the Upstream, Downstream and Chemical businesses reduce the Corporation’s enterprise-wide risk from changes in interest rates, currency rates and commodity prices. In addition, the Corporation uses commodity-based contracts, including derivatives, to manage commodity price risk and for trading purposes. Credit risk associated with the Corporation’s derivative position is mitigated by several factors, including the use of derivative clearing exchanges and the quality of and financial limits placed on derivative counterparties. The Corporation believes that there are no material market or credit risks to the Corporation’s financial position, results of operations or liquidity as a result of the derivatives. The Corporation maintains a system of controls that includes the authorization, reporting and monitoring of derivative activity. The estimated fair value of derivative instruments outstanding and recorded on the balance sheet was a net liability of $38 million at year-end 2017 and a net liability of $22 million at year-end 2016. Assets and liabilities associated with derivatives are usually recorded either in “Other current assets” or “Accounts payable and accrued liabilities”. The Corporation’s fair value measurement of its derivative instruments use either Level 1 or Level 2 inputs. The Corporation recognized a before-tax gain or (loss) related to derivative instruments of $(99) million, $(81) million and $39 million during 2017, 2016 and 2015, respectively. Income statement effects associated with derivatives are usually recorded either in “Sales and other operating revenue” or “Crude oil and product purchases”. 83 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14. Long-Term Debt At December 31, 2017, long-term debt consisted of $23,736 million due in U.S. dollars and $670 million representing the U.S. dollar equivalent at year-end exchange rates of amounts payable in foreign currencies. These amounts exclude that portion of long-term debt, totaling $4,766 million, which matures within one year and is included in current liabilities. The amounts of long-term debt, including capitalized lease obligations, maturing in each of the four years after December 31, 2018, in millions of dollars, are: 2019 – $4,045; 2020 – $1,617; 2021 – $2,549; and 2022 – $1,835. At December 31, 2017, the Corporation’s unused long-term credit lines were $0.2 billion. Summarized long-term debt at year-end 2017 and 2016 are shown in the table below: Average Rate (1) 2017 2016 (millions of dollars) Exxon Mobil Corporation 1.305% notes due 2018 1.439% notes due 2018 Floating-rate notes due 2018 (Issued 2016) Floating-rate notes due 2018 (Issued 2015) 1.819% notes due 2019 1.708% notes due 2019 Floating-rate notes due 2019 (Issued 2014) Floating-rate notes due 2019 (Issued 2016) 1.912% notes due 2020 2.222% notes due 2021 2.397% notes due 2022 Floating-rate notes due 2022 2.726% notes due 2023 3.176% notes due 2024 2.709% notes due 2025 3.043% notes due 2026 3.567% notes due 2045 4.114% notes due 2046 1,750 1,250 500 250 1,500 2,500 1,150 500 1,250 1,000 1,750 2,500 1,000 2,500 1,600 1,000 750 500 1,750 1,250 500 250 1,500 2,500 1,150 500 1,250 1,000 1,750 2,500 1,000 2,500 XTO Energy Inc. (2) 5.500% senior notes due 2018 6.500% senior notes due 2018 6.100% senior notes due 2036 6.750% senior notes due 2037 6.375% senior notes due 2038 195 302 232 371 453 197 304 233 Mobil Corporation 8.625% debentures due 2021 250 249 Industrial revenue bonds due 2019-2051 Other U.S. dollar obligations Other foreign currency obligations Capitalized lease obligations Debt issuance costs Total long-term debt 1.345% 1.953% 1.557% 0.764% 8.504% 2,559 162 34 1,327 (55) 24,406 2,559 103 57 1,225 (69) 28,932 (1) Average effective interest rate for debt and average imputed interest rate for capital leases at December 31, 2017. (2) Includes premiums of $102 million in 2017 and $138 million in 2016. 84 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15. Incentive Program The 2003 Incentive Program provides for grants of stock options, stock appreciation rights (SARs), restricted stock and other forms of award. Awards may be granted to eligible employees of the Corporation and those affiliates at least 50 percent owned. Outstanding awards are subject to certain forfeiture provisions contained in the program or award instrument. Options and SARs may be granted at prices not less than 100 percent of market value on the date of grant and have a maximum life of 10 years. The maximum number of shares of stock that may be issued under the 2003 Incentive Program is 220 million. Awards that are forfeited, expire or are settled in cash, do not count against this maximum limit. The 2003 Incentive Program does not have a specified term. New awards may be made until the available shares are depleted, unless the Board terminates the plan early. At the end of 2017, remaining shares available for award under the 2003 Incentive Program were 89 million. Restricted Stock and Restricted Stock Units. Awards totaling 8,916 thousand, 9,583 thousand, and 9,681 thousand of restricted (nonvested) common stock units were granted in 2017, 2016 and 2015, respectively. Compensation expense for these awards is based on the price of the stock at the date of grant and is recognized in income over the requisite service period. Shares for these awards are issued to employees from treasury stock. The units that are settled in cash are recorded as liabilities and their changes in fair value are recognized over the vesting period. During the applicable restricted periods, the shares and units may not be sold or transferred and are subject to forfeiture. The majority of the awards have graded vesting periods, with 50 percent of the shares and units in each award vesting after three years and the remaining 50 percent vesting after seven years. Awards granted to a small number of senior executives have vesting periods of five years for 50 percent of the award and of 10 years or retirement, whichever occurs later, for the remaining 50 percent of the award. The Corporation has purchased shares in the open market and through negotiated transactions to offset shares or units settled in shares issued in conjunction with benefit plans and programs. Purchases may be discontinued at any time without prior notice. The following tables summarize information about restricted stock and restricted stock units for the year ended December 31, 2017. 2017 Restricted stock and units outstanding Shares Weighted Average Grant-Date Fair Value per Share (thousands) (dollars) 43,833 9,582 (10,136) (2,201) 41,078 Issued and outstanding at January 1 2016 award issued in 2017 Vested Forfeited Issued and outstanding at December 31 Value of restricted stock and units Grant price (dollars) Value at date of grant: Restricted stock and units settled in stock Units settled in cash Total value 84.43 87.70 80.71 80.11 86.34 2017 2016 2015 81.89 87.70 81.27 (millions of dollars) 667 63 730 771 69 840 727 60 787 As of December 31, 2017, there was $2,049 million of unrecognized compensation cost related to the nonvested restricted awards. This cost is expected to be recognized over a weighted-average period of 4.5 years. The compensation cost charged against income for the restricted stock and restricted stock units was $856 million, $880 million and $855 million for 2017, 2016 and 2015, respectively. The income tax benefit recognized in income related to this compensation expense was $78 million, $80 million and $78 million for the same periods, respectively. The fair value of shares and units vested in 2017, 2016 and 2015 was $826 million, $851 million and $808 million, respectively. Cash payments of $64 million, $67 million and $64 million for vested restricted stock units settled in cash were made in 2017, 2016 and 2015, respectively. 85 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 16. Litigation and Other Contingencies Litigation. A variety of claims have been made against ExxonMobil and certain of its consolidated subsidiaries in a number of pending lawsuits. Management has regular litigation reviews, including updates from corporate and outside counsel, to assess the need for accounting recognition or disclosure of these contingencies. The Corporation accrues an undiscounted liability for those contingencies where the incurrence of a loss is probable and the amount can be reasonably estimated. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued. The Corporation does not record liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated or when the liability is believed to be only reasonably possible or remote. For contingencies where an unfavorable outcome is reasonably possible and which are significant, the Corporation discloses the nature of the contingency and, where feasible, an estimate of the possible loss. For purposes of our contingency disclosures, “significant” includes material matters, as well as other matters, which management believes should be disclosed. ExxonMobil will continue to defend itself vigorously in these matters. Based on a consideration of all relevant facts and circumstances, the Corporation does not believe the ultimate outcome of any currently pending lawsuit against ExxonMobil will have a material adverse effect upon the Corporation’s operations, financial condition, or financial statements taken as a whole. Other Contingencies. The Corporation and certain of its consolidated subsidiaries were contingently liable at December 31, 2017, for guarantees relating to notes, loans and performance under contracts. Where guarantees for environmental remediation and other similar matters do not include a stated cap, the amounts reflect management’s estimate of the maximum potential exposure. Equity Company Obligations (1) December 31, 2017 Other Third-Party Obligations Total (millions of dollars) Guarantees Debt-related Other Total 98 1,191 1,289 270 4,514 4,784 368 5,705 6,073 (1) ExxonMobil share. Additionally, the Corporation and its affiliates have numerous long-term sales and purchase commitments in their various business activities, all of which are expected to be fulfilled with no adverse consequences material to the Corporation’s operations or financial condition. In accordance with a nationalization decree issued by Venezuela’s president in February 2007, by May 1, 2007, a subsidiary of the Venezuelan National Oil Company (PdVSA) assumed the operatorship of the Cerro Negro Heavy Oil Project. This Project had been operated and owned by ExxonMobil affiliates holding a 41.67 percent ownership interest in the Project. The decree also required conversion of the Cerro Negro Project into a “mixed enterprise” and an increase in PdVSA’s or one of its affiliate’s ownership interest in the Project, with the stipulation that if ExxonMobil refused to accept the terms for the formation of the mixed enterprise within a specified period of time, the government would “directly assume the activities” carried out by the joint venture. ExxonMobil refused to accede to the terms proffered by the government, and on June 27, 2007, the government expropriated ExxonMobil’s 41.67 percent interest in the Cerro Negro Project. On September 6, 2007, affiliates of ExxonMobil filed a Request for Arbitration with the International Centre for Settlement of Investment Disputes (ICSID). The ICSID Tribunal issued a decision on June 10, 2010, finding that it had jurisdiction to proceed on the basis of the Netherlands-Venezuela Bilateral Investment Treaty. On October 9, 2014, the ICSID Tribunal issued its final award finding in favor of the ExxonMobil affiliates and awarding $1.6 billion as of the date of expropriation, June 27, 2007, and interest from that date at 3.25 percent compounded annually until the date of payment in full. The Tribunal also noted that one of the Cerro Negro Project agreements provides a mechanism to prevent double recovery between the ICSID award and all or part of an earlier award of $908 million to an ExxonMobil affiliate, Mobil Cerro Negro, Ltd., against PdVSA and a PdVSA affiliate, PdVSA CN, in an arbitration under the rules of the International Chamber of Commerce. On February 2, 2015, Venezuela filed a Request for Annulment of the ICSID award. On March 9, 2017, the ICSID Committee hearing the Request for Annulment issued a decision partially annulling the award of the Tribunal issued on October 9, 2014. The Committee affirmed the compensation due for the La Ceiba project and for export curtailments at the Cerro Negro project, but annulled the portion of the award relating to the Cerro Negro Project’s expropriation ($1.4 billion) based on its determination that the prior Tribunal failed to adequately explain why the cap on damages in the indemnity owed by PdVSA did not affect or limit the amount owed for the expropriation of the Cerro Negro project. As a result, ExxonMobil retains an award for $260 million (including accrued interest). ExxonMobil reached an agreement with Venezuela for full payment of the $260 million and Venezuela has begun performing on it. The agreement does not impact ExxonMobil’s ability to re-arbitrate the issue that was the basis for the annulment in a new ICSID arbitration proceeding. 86 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The United States District Court for the Southern District of New York entered judgment on the ICSID award on October 10, 2014. Motions filed by Venezuela to vacate that judgment on procedural grounds and to modify the judgment by reducing the rate of interest to be paid on the ICSID award from the entry of the court’s judgment, until the date of payment, were denied on February 13, 2015, and March 4, 2015, respectively. On March 9, 2015, Venezuela filed a notice of appeal of the court’s actions on the two motions. On July 11, 2017, the United States Court of Appeals for the Second Circuit rendered its opinion overturning the District Court’s decision and vacating the judgment on the grounds that a different procedure should have been used to reduce the award to judgment. The Corporation is evaluating next steps. A stay of the District Court’s judgment has continued pending the completion of the Second Circuit appeal. The net impact of these matters on the Corporation’s consolidated financial results cannot be reasonably estimated. Regardless, the Corporation does not expect the resolution to have a material effect upon the Corporation’s operations or financial condition. An affiliate of ExxonMobil is one of the Contractors under a Production Sharing Contract (PSC) with the Nigerian National Petroleum Corporation (NNPC) covering the Erha block located in the offshore waters of Nigeria. ExxonMobil's affiliate is the operator of the block and owns a 56.25 percent interest under the PSC. The Contractors are in dispute with NNPC regarding NNPC's lifting of crude oil in excess of its entitlement under the terms of the PSC. In accordance with the terms of the PSC, the Contractors initiated arbitration in Abuja, Nigeria, under the Nigerian Arbitration and Conciliation Act. On October 24, 2011, a three-member arbitral Tribunal issued an award upholding the Contractors' position in all material respects and awarding damages to the Contractors jointly in an amount of approximately $1.8 billion plus $234 million in accrued interest. The Contractors petitioned a Nigerian federal court for enforcement of the award, and NNPC petitioned the same court to have the award set aside. On May 22, 2012, the court set aside the award. The Contractors appealed that judgment to the Court of Appeal, Abuja Judicial Division. On July 22, 2016, the Court of Appeal upheld the decision of the lower court setting aside the award. On October 21, 2016, the Contractors appealed the decision to the Supreme Court of Nigeria. In June 2013, the Contractors filed a lawsuit against NNPC in the Nigerian federal high court in order to preserve their ability to seek enforcement of the PSC in the courts if necessary. Following dismissal by this court, the Contractors appealed to the Nigerian Court of Appeal in June 2016. In October 2014, the Contractors filed suit in the United States District Court for the Southern District of New York to enforce, if necessary, the arbitration award against NNPC assets residing within that jurisdiction. NNPC has moved to dismiss the lawsuit. The stay in the proceedings in the Southern District of New York has been lifted. At this time, the net impact of this matter on the Corporation's consolidated financial results cannot be reasonably estimated. However, regardless of the outcome of enforcement proceedings, the Corporation does not expect the proceedings to have a material effect upon the Corporation's operations or financial condition. 87 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 17. Pension and Other Postretirement Benefits The benefit obligations and plan assets associated with the Corporation’s principal benefit plans are measured on December 31. Pension Benefits U.S. 2017 Non-U.S. 2016 2017 2016 Other Postretirement Benefits 2017 2016 (percent) Weighted-average assumptions used to determine benefit obligations at December 31 Discount rate Long-term rate of compensation increase 3.80 5.75 4.25 5.75 2.80 4.30 3.00 4.00 3.80 5.75 4.25 5.75 7,800 129 317 231 (543) 40 126 8,100 - 8,282 153 344 (560) (537) 16 102 7,800 - (millions of dollars) Change in benefit obligation Benefit obligation at January 1 Service cost Interest cost Actuarial loss/(gain) Benefits paid (1) (2) Foreign exchange rate changes Amendments, divestments and other Benefit obligation at December 31 Accumulated benefit obligation at December 31 19,960 784 798 733 (2,964) (1) 19,310 15,557 19,583 810 793 250 (1,476) 19,960 16,245 25,196 596 772 250 (1,291) 2,484 (44) 27,963 25,557 25,117 585 844 1,409 (1,228) (1,520) (11) 25,196 22,867 (1) Benefit payments for funded and unfunded plans. (2) For 2017 and 2016, other postretirement benefits paid are net of $16 million and $22 million of Medicare subsidy receipts, respectively. For selection of the discount rate for U.S. plans, several sources of information are considered, including interest rate market indicators and the effective discount rate determined by use of a yield curve based on high-quality, noncallable bonds applied to the estimated cash outflows for benefit payments. For major non-U.S. plans, the discount rate is determined by using a spot yield curve of highquality, local-currency-denominated bonds at an average maturity approximating that of the liabilities. The measurement of the accumulated postretirement benefit obligation assumes a health care cost trend rate of 4.5 percent in 2019 and subsequent years. A one-percentage-point increase in the health care cost trend rate would increase service and interest cost by $72 million and the postretirement benefit obligation by $696 million. A one-percentage-point decrease in the health care cost trend rate would decrease service and interest cost by $53 million and the postretirement benefit obligation by $536 million. Pension Benefits U.S. 2017 Change in plan assets Fair value at January 1 Actual return on plan assets Foreign exchange rate changes Company contribution Benefits paid (1) Other Fair value at December 31 (1) Benefit payments for funded plans. 12,793 1,831 619 (2,461) 12,782 Non-U.S. 2016 10,985 949 2,068 (1,209) 12,793 2017 2016 (millions of dollars) 19,043 1,442 1,776 440 (902) (338) 21,461 18,417 2,443 (1,452) 492 (857) 19,043 Other Postretirement Benefits 2017 2016 411 40 34 (58) 427 414 20 36 (59) 411 88 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The funding levels of all qualified pension plans are in compliance with standards set by applicable law or regulation. As shown in the table below, certain smaller U.S. pension plans and a number of non-U.S. pension plans are not funded because local applicable tax rules and regulatory practices do not encourage funding of these plans. All defined benefit pension obligations, regardless of the funding status of the underlying plans, are fully supported by the financial strength of the Corporation or the respective sponsoring affiliate. Pension Benefits U.S. 2017 Non-U.S. 2016 2017 2016 (millions of dollars) Assets in excess of/(less than) benefit obligation Balance at December 31 Funded plans Unfunded plans Total (3,957) (2,571) (6,528) (4,306) (2,861) (7,167) 413 (6,915) (6,502) 212 (6,365) (6,153) The authoritative guidance for defined benefit pension and other postretirement plans requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through other comprehensive income. Pension Benefits U.S. 2017 Other Postretirement Non-U.S. 2016 2017 Benefits 2016 2017 2016 (millions of dollars) Assets in excess of/(less than) benefit obligation Balance at December 31 (1) (6,528) (7,167) (6,502) (6,153) (7,673) (7,389) Amounts recorded in the consolidated balance sheet consist of: Other assets Current liabilities Postretirement benefits reserves Total recorded (276) (6,252) (6,528) (409) (6,758) (7,167) 1,403 (338) (7,567) (6,502) 1,035 (294) (6,894) (6,153) (360) (7,313) (7,673) (361) (7,028) (7,389) 3,982 11 5,354 15 5,586 (143) 5,629 (123) 1,595 (397) 1,468 (430) 3,993 5,369 5,443 5,506 1,198 1,038 Amounts recorded in accumulated other comprehensive income consist of: Net actuarial loss/(gain) Prior service cost Total recorded in accumulated other comprehensive income (1) Fair value of assets less benefit obligation shown on the preceding page. 89 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The long-term expected rate of return on funded assets shown below is established for each benefit plan by developing a forward-looking, long-term return assumption for each asset class, taking into account factors such as the expected real return for the specific asset class and inflation. A single, long-term rate of return is then calculated as the weighted average of the target asset allocation percentages and the long-term return assumption for each asset class. Other Postretirement Benefits Pension Benefits U.S. 2017 Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31 Discount rate Long-term rate of return on funded assets Long-term rate of compensation increase Components of net periodic benefit cost Service cost Interest cost Expected return on plan assets Amortization of actuarial loss/(gain) Amortization of prior service cost Net pension enhancement and curtailment/settlement cost Net periodic benefit cost Changes in amounts recorded in accumulated other comprehensive income: Net actuarial loss/(gain) Amortization of actuarial (loss)/gain Prior service cost/(credit) Amortization of prior service (cost)/credit Foreign exchange rate changes Total recorded in other comprehensive income Total recorded in net periodic benefit cost and other comprehensive income, before tax Non-U.S. 2016 2015 2017 2016 2015 2017 2016 2015 (percent) 4.25 6.50 5.75 4.25 6.50 5.75 4.00 7.00 5.75 3.00 5.20 4.00 3.60 5.25 4.80 3.10 5.90 5.30 4.25 6.50 5.75 4.25 6.50 5.75 4.00 7.00 5.75 129 317 (24) 96 (33) 153 344 (25) 153 (30) 170 346 (28) 206 (24) 485 595 670 (millions of dollars) 784 798 (775) 438 5 609 1,859 (324) (1,047) (5) (1,376) 483 810 793 (726) 492 6 319 1,694 864 785 (830) 544 6 499 1,868 27 592 (811) (1,043) (6) (6) (790) (457) 904 1,411 596 772 (1,000) 476 47 19 910 (191) (495) 111 (47) 559 (63) 847 585 689 844 850 (927) (1,094) 536 730 54 87 2 1,094 22 1,284 (156) (1,375) (538) (752) 32 (401) (54) (87) (108) (1,126) (824) (3,741) 270 (2,457) 215 (96) 33 8 160 645 (555) (589) (153) (206) (535) 30 24 5 (31) (673) (1,337) (78) Costs for defined contribution plans were $384 million, $399 million and $405 million in 2017, 2016 and 2015, respectively. 90 (667) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A summary of the change in accumulated other comprehensive income is shown in the table below: Total Pension and Other Postretirement Benefits 2017 (Charge)/credit to other comprehensive income, before tax U.S. pension Non-U.S. pension Other postretirement benefits Total (charge)/credit to other comprehensive income, before tax (Charge)/credit to income tax (see Note 4) (Charge)/credit to investment in equity companies (Charge)/credit to other comprehensive income including noncontrolling interests, after tax Charge/(credit) to equity of noncontrolling interests (Charge)/credit to other comprehensive income attributable to ExxonMobil 2016 (millions of dollars) 2015 1,376 63 (160) 1,279 (290) (43) 790 824 673 2,287 (692) (16) 457 3,741 1,337 5,535 (1,810) 81 946 12 958 1,579 24 1,603 3,806 (202) 3,604 The Corporation’s investment strategy for benefit plan assets reflects a long-term view, a careful assessment of the risks inherent in plan assets and liabilities and broad diversification to reduce the risk of the portfolio. The benefit plan assets are primarily invested in passive global equity and local currency fixed income index funds to diversify risk while minimizing costs. The equity funds hold ExxonMobil stock only to the extent necessary to replicate the relevant equity index. The fixed income funds are largely invested in investment grade corporate and government debt securities. Studies are periodically conducted to establish the preferred target asset allocation percentages. The target asset allocation for the U.S. benefit plans and the major non-U.S. plans is 30 percent equity securities and 70 percent debt securities. The equity targets for the U.S. and certain non-U.S. plans include a small allocation to private equity partnerships that primarily focus on early-stage venture capital of 5 percent and 3 percent, respectively. The fair value measurement levels are accounting terms that refer to different methods of valuing assets. The terms do not represent the relative risk or credit quality of an investment. 91 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The 2017 fair value of the benefit plan assets, including the level within the fair value hierarchy, is shown in the tables below: U.S. Pension Fair Value Measurement at December 31, 2017, Using: Asset category: Equity securities U.S. Non-U.S. Private equity Debt securities Corporate Government Asset-backed Cash Total at fair value Insurance contracts at contract value Total plan assets (1) Non-U.S. Pension Fair Value Measurement at December 31, 2017, Using: Net Asset Value (1) Level 1 Level 2 Level 3 Total Level 1 (millions of dollars) - - - 1,665 1,570 532 1,665 1,570 532 - 5,260 (3) 3,604 (3) 8,864 - 1 2 1 138 3,909 5,261 3,606 1 138 12,773 Level 2 Level 3 111 (2) - - - 237 (4) 54 402 131 32 34 2 199 (3) (3) (3) (5) Net Asset Value (1) Total 2,967 2,903 522 2,967 3,014 522 - 5,215 - 9,056 72 102 - 20,837 5,346 9,325 106 158 21,438 9 12,782 23 21,461 Per ASU 2015-07, certain instruments that are measured at fair value using the Net Asset Value (NAV) per share practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the total value of plan assets. (2) For non-U.S. equity securities held in separate accounts, fair value is based on observable quoted prices on active exchanges. (3) For corporate, government and asset-backed debt securities, fair value is based on observable inputs of comparable market transactions. (4) For government debt securities that are traded on active exchanges, fair value is based on observable quoted prices. (5) For cash balances that are subject to withdrawal penalties or other adjustments, the fair value is treated as a Level 2 input. 92 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Other Postretirement Fair Value Measurement at December 31, 2017, Using: Level 1 Level 2 Level 3 Net Asset Value (1) Total (millions of dollars) Asset category: Equity securities U.S. Non-U.S. Private equity Debt securities Corporate Government Asset-backed Cash Total at fair value - - - 73 55 - 73 55 - - 99 (2) 197 (2) 1 (2) 297 - 2 130 99 197 1 2 427 (1) Per ASU 2015-07, certain instruments that are measured at fair value using the Net Asset Value (NAV) per share practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the total value of plan assets. (2) For corporate, government and asset-backed debt securities, fair value is based on observable inputs of comparable market transactions. 93 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The 2016 fair value of the benefit plan assets, including the level within the fair value hierarchy, is shown in the tables below: U.S. Pension Non-U.S. Pension Fair Value Measurement at December 31, 2016, Using: Fair Value Measurement at December 31, 2016, Using: Net Asset Level 1 Level 2 Level 3 Net Asset Value (1) Total Level 1 Level 2 Level 3 Value (1) Total (millions of dollars) Asset category: Equity securities U.S. Non-U.S. Private equity Debt securities Corporate Government Asset-backed Cash Total at fair value Insurance contracts at contract value Total plan assets (1) - - - 2,347 2,126 553 2,347 2,126 553 142 (2) - - 4,978 (4) 2,635 (4) 3 (4) 7,616 - 1 1 1 137 5,166 4,979 2,636 4 137 12,782 167 (5) 23 332 2 (3) 123 32 35 9 201 (4) (4) (4) (6) - 3,343 3,632 539 3,343 3,776 539 - 4,075 - 6,753 72 73 - 18,487 4,198 6,952 107 105 19,020 11 12,793 23 19,043 Per ASU 2015-07, certain instruments that are measured at fair value using the Net Asset Value (NAV) per share practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the total value of plan assets. (2) For non-U.S. equity securities held in separate accounts, fair value is based on observable quoted prices on active exchanges. (3) For U.S. and non-U.S. equity securities held in the form of fund units that are redeemable at the measurement date, the published unit value is treated as a Level 2 input. The fair value of the securities owned by the funds is based on observable quoted prices on active exchanges, which are Level 1 inputs. (4) For corporate, government and asset-backed debt securities, fair value is based on observable inputs of comparable market transactions. (5) For government debt securities that are traded on active exchanges, fair value is based on observable quoted prices. (6) For cash balances that are subject to withdrawal penalties or other adjustments, the fair value is treated as a Level 2 input. 94 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Other Postretirement Fair Value Measurement at December 31, 2016, Using: Net Asset Level 1 Level 2 Level 3 Value (1) Total (millions of dollars) Asset category: Equity securities U.S. Non-U.S. Private equity Debt securities Corporate Government Asset-backed Cash Total at fair value - - - 98 71 - 98 71 - - 82 (2) 159 (2) 1 (2) 242 - 169 82 159 1 411 (1) Per ASU 2015-07, certain instruments that are measured at fair value using the Net Asset Value (NAV) per share practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the total value of plan assets. (2) For corporate, government and asset-backed debt securities, fair value is based on observable inputs of comparable market transactions. 95 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A summary of pension plans with an accumulated benefit obligation in excess of plan assets is shown in the table below: Pension Benefits U.S. 2017 Non-U.S. 2016 2017 2016 (millions of dollars) For funded pension plans with an accumulated benefit obligation in excess of plan assets: Projected benefit obligation Accumulated benefit obligation Fair value of plan assets 16,739 14,022 12,782 17,099 14,390 12,793 3,384 3,264 3,219 837 612 564 2,571 1,535 2,861 1,855 6,915 6,208 6,365 5,687 For unfunded pension plans: Projected benefit obligation Accumulated benefit obligation Other Pension Benefits U.S. Non-U.S. Postretirement Benefits (millions of dollars) Estimated 2018 amortization from accumulated other comprehensive income: Net actuarial loss/(gain) (1) Prior service cost (2) 539 5 412 47 112 (40) (1) The Corporation amortizes the net balance of actuarial losses/(gains) as a component of net periodic benefit cost over the average remaining service period of active plan participants. (2) The Corporation amortizes prior service cost on a straight-line basis as permitted under authoritative guidance for defined benefit pension and other postretirement benefit plans. Pension Benefits U.S. Non-U.S. Other Postretirement Benefits Medicare Gross Subsidy Receipt (millions of dollars) Contributions expected in 2018 Benefit payments expected in: 2018 2019 2020 2021 2022 2023 - 2027 490 720 - - 1,364 1,279 1,267 1,268 1,285 6,355 1,183 1,163 1,197 1,203 1,220 6,162 459 465 469 470 468 2,329 25 26 28 29 30 174 18. Disclosures about Segments and Related Information The Upstream, Downstream and Chemical functions best define the operating segments of the business that are reported separately. The factors used to identify these reportable segments are based on the nature of the operations that are undertaken by each segment. The Upstream segment is organized and operates to explore for and produce crude oil and natural gas. The Downstream segment is organized and operates to manufacture and sell petroleum products. The Chemical segment is organized and operates to manufacture and sell petrochemicals. These segments are broadly understood across the petroleum and petrochemical industries. These functions have been defined as the operating segments of the Corporation because they are the segments (1) that engage in business activities from which revenues are earned and expenses are incurred; (2) whose operating results are regularly reviewed by the Corporation’s chief operating decision maker to make decisions about resources to be allocated to the segment and to assess its performance; and (3) for which discrete financial information is available. Earnings after income tax include transfers at estimated market prices. 96 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In corporate and financing activities, interest revenue relates to interest earned on cash deposits and marketable securities. Interest expense includes non-debt-related interest expense of $136 million in 2017, $63 million in 2016 and $100 million in 2015. Corporate and Corporate Financing Total Upstream U.S. Non-U.S. Downstream Chemical U.S. Non-U.S. U.S. Non-U.S. (millions of dollars) As of December 31, 2017 Earnings after income tax Earnings of equity companies included above Sales and other operating revenue Intersegment revenue Depreciation and depletion expense Interest revenue Interest expense Income tax expense (benefit) Effect of U.S. tax reform - noncash Additions to property, plant and equipment Investments in equity companies Total assets 6,622 216 9,349 5,729 6,963 87 (8,552) (7,602) 9,761 4,680 89,048 6,733 3,618 14,508 22,935 9,741 29 5,463 480 8,617 14,494 155,822 1,948 118 61,695 14,857 658 1 (61) (618) 769 276 18,172 3,649 490 122,881 22,263 883 6 934 1,551 1,462 34,294 2,190 90 11,035 7,270 299 362 (335) 1,330 341 13,363 2,328 1,217 17,659 5,550 504 664 2,019 3,387 21,133 (3,760) (369) 35 208 845 36 478 16 2,133 854 (286) 16,859 19,710 5,380 237,162 19,893 36 601 (1,174) (5,942) 24,901 24,354 348,691 As of December 31, 2016 Earnings after income tax Earnings of equity companies included above Sales and other operating revenue (1) Intersegment revenue Depreciation and depletion expense Interest revenue Interest expense Income tax expense (benefit) Additions to property, plant and equipment Investments in equity companies Total assets (4,151) 53 7,552 3,827 9,626 17 (2,600) 3,144 4,917 86,146 4,347 3,359 12,278 18,099 9,550 29 1,818 7,878 11,364 153,183 1,094 58 52,630 11,796 628 1 396 791 111 16,201 3,107 404 102,756 18,775 889 8 951 1,525 1,255 29,208 1,876 111 9,944 6,404 275 693 1,463 158 11,600 2,739 1,188 15,447 4,211 477 609 482 3,247 18,453 (1,172) (367) 21 236 863 30 398 (2,273) 817 (242) 15,523 7,840 4,806 200,628 22,308 30 453 (406) 16,100 20,810 330,314 As of December 31, 2015 Earnings after income tax Earnings of equity companies included above Sales and other operating revenue (1) Intersegment revenue Depreciation and depletion expense Interest revenue Interest expense Income tax expense (benefit) Additions to property, plant and equipment Investments in equity companies Total assets (1,079) 226 8,241 4,344 5,301 26 (879) 6,915 5,160 93,648 8,180 5,831 15,446 20,839 9,227 27 4,703 14,561 10,980 155,316 1,901 170 69,706 12,440 664 8 866 916 95 16,498 4,656 444 119,050 22,166 1,003 4 1,325 1,477 1,179 29,808 2,386 144 10,879 7,442 375 646 1,865 125 10,174 2,032 1,235 16,524 5,168 654 1 633 629 3,025 18,236 (1,926) (406) 8 274 824 46 245 (1,879) 1,112 (227) 13,078 16,150 7,644 239,854 18,048 46 311 5,415 27,475 20,337 336,758 (1) Sales and other operating revenue excludes previously reported sales-based taxes of $17,980 million for 2016 and $19,634 million for 2015. See Note 2: Accounting Changes. 97 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Geographic Sales and other operating revenue (1) 2017 2016 2015 (millions of dollars) United States Non-U.S. Total Significant non-U.S. revenue sources include: Canada United Kingdom Belgium Singapore Italy France Germany 82,079 155,083 237,162 70,126 130,502 200,628 88,826 151,028 239,854 20,116 16,611 13,633 11,589 11,476 11,235 8,484 17,682 15,452 10,834 9,919 9,715 9,487 7,899 19,076 20,605 12,481 10,632 11,220 10,631 8,447 (1) Sales and other operating revenue excludes previously reported sales-based taxes of $17,980 million for 2016 and $19,634 million for 2015. See Note 2: Accounting Changes. Long-lived assets 2017 2016 2015 (millions of dollars) United States Non-U.S. Total Significant non-U.S. long-lived assets include: Canada Australia Singapore Kazakhstan Nigeria Papua New Guinea Angola Russia 98 105,101 147,529 252,630 101,194 143,030 244,224 107,039 144,566 251,605 41,138 16,908 11,292 10,121 9,734 8,463 7,689 5,702 40,144 16,510 9,769 10,325 11,314 5,719 8,413 4,828 39,775 15,894 9,681 9,705 12,222 5,985 8,777 4,744 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 19. Income and Other Taxes U.S. Income tax expense Federal and non-U.S. Current Deferred - net U.S. tax on non-U.S. operations Total federal and non-U.S. State Total income tax expense All other taxes and duties Other taxes and duties Included in production and manufacturing expenses Included in SG&A expenses Total other taxes and duties Total 2017 Non-U.S. 2016 U.S. Non-U.S. Total (millions of dollars) Total U.S. 2015 Non-U.S. 7,126 (571) 6,555 6,555 Total 577 (9,075) 17 (8,481) (80) (8,561) 6,633 754 7,387 7,387 7,210 (8,321) 17 (1,094) (80) (1,174) (214) (2,801) 41 (2,974) (66) (3,040) 4,056 (1,422) 2,634 2,634 3,842 (4,223) 41 (340) (66) (406) (1,166) 38 (1,128) (12) (1,140) 7,126 (1,737) 38 5,427 (12) 5,415 3,330 26,774 30,104 3,209 25,811 29,020 3,206 27,103 30,309 1,107 147 4,584 (3,977) 747 354 27,875 35,262 1,854 501 32,459 31,285 1,052 133 4,394 1,354 808 362 26,981 29,615 1,860 495 31,375 30,969 1,157 150 4,513 3,373 828 390 28,321 34,876 1,985 540 32,834 38,249 Sales-based taxes were previously reported gross on the income statement and included in total taxes in the above table. See Note 2: Accounting Changes. The above provisions for deferred income taxes include a net credit of $5,920 million in 2017, reflecting a $5,942 million credit related to U.S. tax reform and $22 million of other changes in tax laws and rates outside of the United States. Deferred income tax expense also includes net charges of $180 million in 2016 and $177 million in 2015 for the effect of changes in tax laws and rates. Following the December 22, 2017, enactment of the U.S. Tax Cuts and Jobs Act, in accordance with Accounting Standard Codification Topic 740 (Income Taxes) and following guidance outlined in the SEC Staff Accounting Bulletin No. 118, the Corporation has included reasonable estimates of the income tax effects of the changes in tax law and tax rate. These include amounts for the remeasurement of the deferred income tax balance from the reduction in the corporate tax rate from 35 to 21 percent and the mandatory deemed repatriation of undistributed foreign earnings and profits. The Corporation has paid taxes on earnings outside the United States at tax rates on average above the historical U.S. rate of 35 percent. As a result, the deemed repatriation tax does not create a significant tax impact for ExxonMobil. The impact of tax law changes on the Corporation’s financial statements could differ from its estimates due to further analysis of the new law, regulatory guidance, technical corrections legislation, or guidance under U.S. GAAP. If significant changes occur, the Corporation will provide updated information in connection with future regulatory filings. 99 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The reconciliation between income tax expense and a theoretical U.S. tax computed by applying a rate of 35 percent for 2017, 2016 and 2015 is as follows: 2017 2016 (millions of dollars) 2015 Income before income taxes United States Non-U.S. Total Theoretical tax Effect of equity method of accounting Non-U.S. taxes in excess of/(less than) theoretical U.S. tax (1) Effect of U.S. tax reform Other (2) Total income tax expense (754) 19,428 18,674 6,536 (1,883) 1,848 (5,942) (1,733) (1,174) (5,832) 13,801 7,969 2,789 (1,682) (582) (931) (406) 147 21,819 21,966 7,688 (2,675) 1,415 (1,013) 5,415 Effective tax rate calculation Income taxes ExxonMobil share of equity company income taxes Total income taxes Net income including noncontrolling interests Total income before taxes (1,174) 2,228 1,054 19,848 20,902 (406) 1,692 1,286 8,375 9,661 5,415 3,011 8,426 16,551 24,977 5% 13% Effective income tax rate 34% (1) 2016 includes a $227 million expense from an adjustment to deferred taxes and a $548 million benefit from an adjustment to a tax position in prior years. (2) 2017 includes an exploration tax benefit of $708 million. 2016 includes an exploration tax benefit of $198 million and benefits from an adjustment to a prior year tax position of $176 million. 100 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Deferred income taxes reflect the impact of temporary differences between the amount of assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes. Balances at December 31, 2017, reflect the deferred income tax effects from the enactment of the U.S. Tax Cuts and Jobs Act of 2017. The Corporation has elected to account for the tax on global intangible low-taxed income (GILTI) as a tax expense in the period in which it is incurred. Deferred tax liabilities/(assets) are comprised of the following at December 31: Tax effects of temporary differences for: 2017 2016 (millions of dollars) Property, plant and equipment Other liabilities Total deferred tax liabilities Pension and other postretirement benefits Asset retirement obligations Tax loss carryforwards Other assets Total deferred tax assets Asset valuation allowances Net deferred tax liabilities 36,559 5,625 42,184 46,744 4,262 51,006 (4,338) (4,237) (6,767) (5,832) (21,174) (6,053) (5,454) (5,472) (5,615) (22,594) 2,565 23,575 1,509 29,921 In 2017, asset valuation allowances of $2,565 million increased by $1,056 million and included net provisions of $502 million, $402 million recorded in the acquisition of InterOil Corporation, and effects of foreign currency translation of $152 million. Balance sheet classification 2017 2016 (millions of dollars) Other assets, including intangibles, net Deferred income tax liabilities Net deferred tax liabilities (3,318) 26,893 23,575 (4,120) 34,041 29,921 The Corporation’s earnings from subsidiary companies outside the United States were subject to the deemed repatriation required by the U.S. Tax Cuts and Jobs Act of 2017. Those amounts continue to be indefinitely reinvested and are retained to fund prior and future capital project expenditures. Deferred income taxes have not been recorded for certain additional future tax obligations, such as foreign withholding tax and state tax, as these earnings are expected to be indefinitely reinvested for the foreseeable future. As of December 31, 2017, it is not practicable to estimate the unrecognized deferred income tax liability. 101 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Unrecognized Tax Benefits. The Corporation is subject to income taxation in many jurisdictions around the world. Unrecognized tax benefits reflect the difference between positions taken or expected to be taken on income tax returns and the amounts recognized in the financial statements. The following table summarizes the movement in unrecognized tax benefits: Gross unrecognized tax benefits 2017 2016 2015 (millions of dollars) Balance at January 1 Additions based on current year's tax positions Additions for prior years' tax positions Reductions for prior years' tax positions Reductions due to lapse of the statute of limitations Settlements with tax authorities Foreign exchange effects/other Balance at December 31 9,468 522 523 (865) (113) (782) 30 8,783 9,396 655 534 (1,019) (7) (70) (21) 9,468 8,986 903 496 (190) (4) (725) (70) 9,396 The gross unrecognized tax benefit balances shown above are predominantly related to tax positions that would reduce the Corporation’s effective tax rate if the positions are favorably resolved. Unfavorable resolution of these tax positions generally would not increase the effective tax rate. The 2017, 2016 and 2015 changes in unrecognized tax benefits did not have a material effect on the Corporation’s net income. Resolution of these tax positions through negotiations with the relevant tax authorities or through litigation will take many years to complete. It is difficult to predict the timing of resolution for tax positions since such timing is not entirely within the control of the Corporation. In the United States, the Corporation has various ongoing U.S. federal income tax positions at issue with the Internal Revenue Service (IRS) for tax years beginning in 2006. The IRS has asserted penalties associated with several of those positions. The Corporation has not recognized the penalties as an expense because the Corporation does not expect the penalties to be sustained under applicable law. The Corporation has filed a refund suit for tax years 2006-2009 in a U.S. federal district court with respect to the positions at issue for those years. Unfavorable resolution of all positions at issue with the IRS would not have a materially adverse effect on the Corporation’s net income or liquidity. It is reasonably possible that the total amount of unrecognized tax benefits could increase or decrease by 10 percent in the next 12 months with no material impact on the Corporation's net income. The following table summarizes the tax years that remain subject to examination by major tax jurisdiction: Country of Operation Abu Dhabi Angola Australia Belgium Canada Equatorial Guinea Indonesia Iraq Malaysia Nigeria Norway Papua New Guinea Russia United Kingdom United States Open Tax Years 2014 - 2017 2016 - 2017 2008 - 2017 2015 - 2017 1998 - 2017 2007 - 2017 2007 - 2017 2012 - 2017 2009 - 2017 2006 - 2017 2007 - 2017 2008 - 2017 2015 - 2017 2015 - 2017 2006 - 2017 The Corporation classifies interest on income tax-related balances as interest expense or interest income and classifies tax-related penalties as operating expense. The Corporation incurred $36 million, $4 million and $39 million in interest expense on income tax reserves in 2017, 2016 and 2015, respectively. The related interest payable balances were $168 million and $191 million at December 31, 2017, and 2016, respectively. 102 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 20. Acquisitions InterOil Corporation On February 22, 2017, the Corporation completed the acquisition of InterOil Corporation (IOC) for $2.7 billion. The IOC acquisition was mostly unproved properties in Papua New Guinea. Consideration included 28 million shares of Exxon Mobil Corporation common stock having a value on the acquisition date of $2.2 billion, a Contingent Resource Payment (CRP) with a fair value of $0.3 billion and cash of $0.2 billion. The CRP provided IOC shareholders $7.07 per share in cash for each incremental independently certified Trillion Cubic Feet Equivalent (TCFE) of resources above 6.2 TCFE, up to 11.0 TCFE. IOC’s assets include a contingent receivable related to the same resource base for volumes in excess of 3.5 TCFE at amounts ranging from $0.24 - $0.40 per thousand cubic feet equivalent. The fair value of the contingent receivable was $1.1 billion at the acquisition date. Fair values of contingent amounts were based on assumptions about the outcome of the resource certification, future business plans and appropriate discount rates. On September 6, 2017, the resource certification was finalized triggering both payment of the CRP to former IOC shareholders and receipt of the current portion of the contingent receivable. The earnings impact from settlement of the CRP and the related contingent receivable was not material. Permian Basin Properties On February 28, 2017, the Corporation completed the acquisition for $6.2 billion of a number of companies from the Bass family in Fort Worth, Texas, that indirectly own mostly unproved oil and gas properties in the Permian Basin. Consideration included 68 million shares of Exxon Mobil Corporation common stock having a value on the acquisition date of $5.5 billion, together with additional contingent cash payments tied to future drilling and completion activities (up to a maximum of $1.02 billion). Fair value of the contingent payment was $0.7 billion as of the acquisition date and is expected to be paid beginning in 2020 and ending no later than 2032 commensurate with development of the resource. Fair value of the contingent payment was based on assumptions including drilling and completion activities, appropriate discount rates and tax rates. The fair value of the contingent payment is adjusted each quarter. The earnings impact from these adjustments was not material. Below is a summary of the net assets acquired for each acquisition. IOC Permian (billions of dollars) Current assets Property, plant and equipment Other Total assets 0.6 2.9 0.6 4.1 6.3 6.3 Current liabilities Long-term liabilities Total liabilities 0.5 0.9 1.4 0.1 0.1 2.7 6.2 Net assets acquired 103 SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES (unaudited) The results of operations for producing activities shown below do not include earnings from other activities that ExxonMobil includes in the Upstream function, such as oil and gas transportation operations, LNG liquefaction and transportation operations, coal and power operations, technical service agreements, other nonoperating activities and adjustments for noncontrolling interests. These excluded amounts for both consolidated and equity companies totaled $1,402 million in 2017, $719 million in 2016, and $831 million in 2015. Oil sands mining operations are included in the results of operations in accordance with Securities and Exchange Commission and Financial Accounting Standards Board rules. Results of Operations Consolidated Subsidiaries 2017 - Revenue Sales to third parties Transfers Production costs excluding taxes Exploration expenses Depreciation and depletion Taxes other than income Related income tax Results of producing activities for consolidated subsidiaries Equity Companies 2017 - Revenue Sales to third parties Transfers Production costs excluding taxes Exploration expenses Depreciation and depletion Taxes other than income Related income tax Results of producing activities for equity companies Total results of operations United States Canada/ Other Americas Europe Africa Asia (millions of dollars) Australia/ Oceania Total 5,223 3,852 9,075 3,730 162 6,689 684 (8,066) 1,911 3,462 5,373 3,833 647 2,005 97 (180) 3,652 1,631 5,283 1,576 94 1,055 146 1,717 993 7,771 8,764 2,064 311 2,957 559 1,911 2,239 6,035 8,274 1,618 494 1,782 811 2,148 2,244 689 2,933 626 82 913 311 316 5,876 (1,029) 695 962 1,421 685 8,610 1,636 10 1,646 418 13 166 679 130 240 - 8,926 638 9,564 336 878 477 2,997 1,924 2,952 - 11,147 1,091 12,238 1,277 892 963 3,709 2,054 3,343 935 962 4,373 685 11,953 585 443 1,028 523 1 320 33 151 6,027 (1,029) 104 16,262 23,440 39,702 13,447 1,790 15,401 2,608 (2,154) Results of Operations Consolidated Subsidiaries 2016 - Revenue Sales to third parties Transfers Production costs excluding taxes Exploration expenses Depreciation and depletion Taxes other than income Related income tax Results of producing activities for consolidated subsidiaries Equity Companies 2016 - Revenue Sales to third parties Transfers Production costs excluding taxes Exploration expenses Depreciation and depletion Taxes other than income Related income tax Results of producing activities for equity companies Total results of operations Consolidated Subsidiaries 2015 - Revenue Sales to third parties Transfers Production costs excluding taxes Exploration expenses Depreciation and depletion Taxes other than income Related income tax Results of producing activities for consolidated subsidiaries Equity Companies 2015 - Revenue Sales to third parties Transfers Production costs excluding taxes Exploration expenses Depreciation and depletion Taxes other than income Related income tax Results of producing activities for equity companies Total results of operations United States Canada/ Other Americas Europe Africa Asia (millions of dollars) 4,424 2,323 6,747 3,590 220 9,334 491 (2,543) 1,511 2,652 4,163 3,651 572 1,601 165 (688) 2,921 1,568 4,489 1,794 94 1,678 139 546 (4,345) (1,138) 238 506 344 850 527 301 31 (9) - 705 6,498 7,203 2,216 292 3,573 762 (149) Australia/ Oceania Total 1,826 4,638 6,464 1,331 205 1,613 621 1,767 1,273 578 1,851 531 84 532 209 167 12,660 18,257 30,917 13,113 1,467 18,331 2,387 (900) 509 927 328 (3,481) 1,677 9 1,686 529 36 143 661 86 231 - 7,208 418 7,626 504 21 437 2,456 1,472 2,736 - 9,391 771 10,162 1,560 57 881 3,148 1,558 2,958 (4,354) (1,138) 469 509 3,663 328 4,830 2,557 7,387 4,252 182 5,054 630 (976) 1,756 2,858 4,614 3,690 473 1,315 111 (79) 3,933 2,024 5,957 2,232 187 1,641 200 807 1,275 8,135 9,410 1,993 319 3,874 734 1,556 2,651 4,490 7,141 1,562 254 1,569 706 2,117 1,408 608 2,016 527 108 392 171 238 15,853 20,672 36,525 14,256 1,523 13,845 2,552 3,663 (1,755) (896) 890 934 933 580 686 2,723 31 2,754 565 21 146 1,258 263 501 - 11,174 379 11,553 422 18 457 3,197 2,559 4,900 - 14,505 869 15,374 1,541 51 874 4,502 2,822 5,584 1,391 934 5,833 580 6,270 608 459 1,067 554 12 271 47 183 (1,572) (896) (523) 105 Oil and Gas Exploration and Production Costs The amounts shown for net capitalized costs of consolidated subsidiaries are $15,292 million less at year-end 2017 and $15,239 million less at year-end 2016 than the amounts reported as investments in property, plant and equipment for the Upstream in Note 9. This is due to the exclusion from capitalized costs of certain transportation and research assets and assets relating to LNG operations. Assets related to oil sands and oil shale mining operations are included in the capitalized costs in accordance with Financial Accounting Standards Board rules. Canada/ Other Americas Europe Capitalized Costs United States Consolidated Subsidiaries As of December 31, 2017 Property (acreage) costs- Proved - Unproved Total property costs Producing assets Incomplete construction Total capitalized costs Accumulated depreciation and depletion Net capitalized costs for consolidated subsidiaries 17,380 27,051 44,431 94,253 2,016 140,700 61,041 79,659 2,560 5,238 7,798 48,951 1,484 58,233 18,780 39,453 139 62 201 30,908 1,173 32,282 27,040 5,242 982 196 1,178 52,137 4,294 57,609 37,924 19,685 2,624 179 2,803 37,808 5,499 46,110 18,354 27,756 778 2,701 3,479 14,564 1,440 19,483 6,279 13,204 24,463 35,427 59,890 278,621 15,906 354,417 169,418 184,999 78 11 89 6,410 98 6,597 2,722 3,875 - 4 4 5,678 45 5,727 4,625 1,102 309 3,111 3,420 516 3,936 3,936 59 59 9,824 4,611 14,494 6,519 7,975 - 391 3,181 3,572 21,912 5,270 30,754 13,866 16,888 16,075 22,747 38,822 91,651 2,099 132,572 55,924 76,648 2,339 4,030 6,369 40,291 6,154 52,814 15,740 37,074 134 25 159 33,811 1,403 35,373 28,291 7,082 929 291 1,220 51,307 4,495 57,022 35,085 21,937 1,739 269 2,008 34,690 8,377 45,075 17,475 27,600 736 115 851 11,730 2,827 15,408 5,084 10,324 21,952 27,477 49,429 263,480 25,355 338,264 157,599 180,665 77 12 89 6,326 109 6,524 2,417 4,107 - 3 3 5,043 40 5,086 3,987 1,099 - 59 59 8,646 4,791 13,496 6,013 7,483 - 80 71 151 20,015 4,940 25,106 12,417 12,689 Equity Companies As of December 31, 2017 Property (acreage) costs- Proved - Unproved Total property costs Producing assets Incomplete construction Total capitalized costs Accumulated depreciation and depletion Net capitalized costs for equity companies Consolidated Subsidiaries As of December 31, 2016 Property (acreage) costs- Proved - Unproved Total property costs Producing assets Incomplete construction Total capitalized costs Accumulated depreciation and depletion Net capitalized costs for consolidated subsidiaries Equity Companies As of December 31, 2016 Property (acreage) costs- Proved - Unproved Total property costs Producing assets Incomplete construction Total capitalized costs Accumulated depreciation and depletion Net capitalized costs for equity companies Africa Asia (millions of dollars) Australia/ Oceania Total 106 Oil and Gas Exploration and Production Costs (continued) The amounts reported as costs incurred include both capitalized costs and costs charged to expense during the year. Costs incurred also include new asset retirement obligations established in the current year, as well as increases or decreases to the asset retirement obligation resulting from changes in cost estimates or abandonment date. Total consolidated costs incurred in 2017 were $19,644 million, up $8,269 million from 2016, due primarily to acquisitions of unproved properties, partially offset by lower development costs including lower asset retirement obligation cost estimates mainly in the North Sea. In 2016 costs were $11,375 million, down $10,512 million from 2015, due primarily to lower development costs. Total equity company costs incurred in 2017 were $6,008 million, up $4,602 million from 2016, due primarily to acquisition of unproved properties. Costs Incurred in Property Acquisitions, Exploration and Development Activities During 2017 Consolidated Subsidiaries Property acquisition costs- Proved - Unproved Exploration costs Development costs Total costs incurred for consolidated subsidiaries Equity Companies Property acquisition costs- Proved - Unproved Exploration costs Development costs Total costs incurred for equity companies During 2016 Consolidated Subsidiaries Property acquisition costs- Proved - Unproved Exploration costs Development costs Total costs incurred for consolidated subsidiaries Equity Companies Property acquisition costs- Proved - Unproved Exploration costs Development costs Total costs incurred for equity companies During 2015 Consolidated Subsidiaries Property acquisition costs- Proved - Unproved Exploration costs Development costs Total costs incurred for consolidated subsidiaries Equity Companies Property acquisition costs- Proved - Unproved Exploration costs United States Canada/ Other Americas 88 6,167 190 3,752 10,197 5 1,004 702 877 2,588 1 137 138 Europe Africa (millions of dollars) Asia Australia/ Oceania Total 35 109 (39) 105 50 70 373 628 1,121 583 224 1,450 2,257 2,601 509 266 3,376 726 9,877 2,107 6,934 19,644 - 3 41 44 309 3,111 323 192 3,935 90 1,801 1,891 - 309 3,111 417 2,171 6,008 1 170 145 3,054 3,370 1 27 689 1,396 2,113 156 538 694 321 1,866 2,187 71 187 2,214 2,472 133 406 539 73 197 1,631 9,474 11,375 1 106 107 - 36 88 124 - 32 1,143 1,175 - 69 1,337 1,406 6 305 195 6,774 7,280 39 621 3,764 4,424 411 1,439 1,850 93 425 3,149 3,667 31 1 405 3,068 3,505 2 157 1,002 1,161 37 440 2,214 19,196 21,887 9 - 41 - - 31 (19) Development costs Total costs incurred for equity companies 411 420 - 107 143 184 - 879 860 - 1,433 1,464 Oil and Gas Reserves The following information describes changes during the years and balances of proved oil and gas reserves at year-end 2015, 2016, and 2017. The definitions used are in accordance with the Securities and Exchange Commission’s Rule 4-10 (a) of Regulation S-X. Proved oil and natural gas reserves are those quantities of oil and natural gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible – from a given date forward, from known reservoirs, and under existing economic conditions, operating methods and government regulations – prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain. In some cases, substantial new investments in additional wells and related facilities will be required to recover these proved reserves. In accordance with the Securities and Exchange Commission’s (SEC) rules, the Corporation’s year-end reserves volumes as well as the reserves change categories shown in the following tables are required to be calculated on the basis of average prices during the 12month period prior to the ending date of the period covered by the report, determined as an unweighted arithmetic average of the firstday-of-the-month price for each month within such period. These reserves quantities are also used in calculating unit-of-production depreciation rates and in calculating the standardized measure of discounted net cash flow. Revisions can include upward or downward changes in previously estimated volumes of proved reserves for existing fields due to the evaluation or re-evaluation of (1) already available geologic, reservoir or production data, (2) new geologic, reservoir or production data or (3) changes in the average of first-of-month oil and natural gas prices and / or costs that are used in the estimation of reserves. Revisions can also result from significant changes in either development strategy or production equipment/facility capacity. Reserve volumes that were subject to a downward revision can be revised upward at some point in the future when price levels increase, costs decline, and / or operating efficiencies occur. Proved reserves include 100 percent of each majority-owned affiliate’s participation in proved reserves and ExxonMobil’s ownership percentage of the proved reserves of equity companies, but exclude royalties and quantities due others. Natural gas reserves exclude the gaseous equivalent of liquids expected to be removed from the natural gas on leases, at field facilities and at gas processing plants. These liquids are included in net proved reserves of crude oil and natural gas liquids. In the proved reserves tables, consolidated reserves and equity company reserves are reported separately. However, the Corporation does not view equity company reserves any differently than those from consolidated companies. Reserves reported under production sharing and other nonconcessionary agreements are based on the economic interest as defined by the specific fiscal terms in the agreement. The production and reserves that we report for these types of arrangements typically vary inversely with oil and natural gas price changes. As oil and natural gas prices increase, the cash flow and value received by the company increase; however, the production volumes and reserves required to achieve this value will typically be lower because of the higher prices. When prices decrease, the opposite effect generally occurs. The percentage of total liquids and natural gas proved reserves (consolidated subsidiaries plus equity companies) at year-end 2017 that were associated with production sharing contract arrangements was 12 percent of liquids, 10 percent of natural gas and 11 percent on an oil-equivalent basis (natural gas converted to oil-equivalent at 6 billion cubic feet = 1 million barrels). Net proved developed reserves are those volumes that are expected to be recovered through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well. Net proved undeveloped reserves are those volumes that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. Crude oil and natural gas liquids and natural gas production quantities shown are the net volumes withdrawn from ExxonMobil’s oil and natural gas reserves. The natural gas quantities differ from the quantities of natural gas delivered for sale by the producing function as reported in the Operating Information due to volumes consumed or flared and inventory changes. The changes between 2017 year-end proved reserves and 2016 year-end proved reserves primarily reflect extensions/discoveries in the United States, Guyana, and the United Arab Emirates, as well as purchases in the Permian Basin and offshore Area 4 in Mozambique, along with upward revisions to North America natural gas, liquids in the United Arab Emirates, and bitumen at Kearl and Cold Lake. Downward revisions are reflected in Europe for the Groningen gas field. The downward revisions in 2016, as the result of very low prices during 2016, include the entire 3.5 billion barrels of bitumen at Kearl. In addition, 0.8 billion barrels of oil equivalent across the remainder of North America no longer qualified as proved reserves at yearend 2016 mainly due to the acceleration of the projected end-of-field-life. 108 Crude Oil, Natural Gas Liquids, Bitumen and Synthetic Oil Proved Reserves Natural Gas Liquids (1) Crude Oil Canada/ United Other States Americas Europe Net proved developed and undeveloped reserves of consolidated subsidiaries January 1, 2015 Revisions Improved recovery Purchases Sales Extensions/discoveries Production December 31, 2015 2,108 (150) 161 (9) 387 (119) 2,378 282 (10) 3 2 (17) 260 199 1,102 2,132 46 48 123 2 1 (1) (2) 698 (63) (187) (126) 184 963 2,825 Proportional interest in proved reserves of equity companies January 1, 2015 Revisions Improved recovery Purchases Sales Extensions/discoveries Production December 31, 2015 Total liquids proved reserves at December 31, 2015 2,632 260 209 Net proved developed and undeveloped reserves of consolidated subsidiaries January 1, 2016 Revisions Improved recovery Purchases Sales Extensions/discoveries Production December 31, 2016 2,378 (307) 79 (15) 173 (127) 2,181 260 3 (5) 3 (20) 241 184 43 (3) 12 (63) 173 Proportional interest in proved reserves of equity companies January 1, 2016 Revisions Improved recovery Purchases Sales Extensions/discoveries Production December 31, 2016 Total liquids proved reserves at December 31, 2016 (See footnote on next page) 328 (52) (22) 254 254 3 (21) 236 2,417 - 241 Africa Australia/ Asia Oceania Total Worldwide (millions of barrels) 27 (1) (1) 25 25 (7) (1) 17 190 963 1,100 65 (88) 1,077 3,902 963 2,825 49 73 (168) (140) 844 2,758 844 1,077 191 (85) 1,183 3,941 141 5,964 (4) 53 2 165 (12) - 1,087 (12) (524) 125 6,735 125 1,455 12 (111) 1,356 8,091 125 6,735 9 (130) 79 (23) 188 (13) (531) 121 6,318 121 1,356 187 (107) 1,436 7,754 1,092 (95) 46 (1) 101 (65) 1,078 435 5 (26) 414 Bitumen Canada/ Other Americas 4,233 433 (106) 4,560 Synthetic Oil Canada/ Other Americas 534 68 (21) 581 Total 11,823 459 2 211 (13) 1,188 (716) 12,954 - - 1,492 4,560 581 14,724 1,078 47 32 (5) 66 (64) 1,154 4,560 (3,748) (111) 701 581 8 (25) 564 12,954 (3,823) 111 (28) 254 (731) 8,737 414 (5) (25) 384 1,538 - - 701 564 1,890 17 (137) 1,770 1,770 182 (132) 1,820 10,557 109 Crude Oil, Natural Gas Liquids, Bitumen and Synthetic Oil Proved Reserves (continued) Natural Gas Liquids (1) Crude Oil Canada/ United Other States Americas Europe Net proved developed and undeveloped reserves of consolidated subsidiaries January 1, 2017 Revisions Improved recovery Purchases Sales Extensions/discoveries Production December 31, 2017 Proportional interest in proved reserves of equity companies January 1, 2017 Revisions Improved recovery Purchases Sales Extensions/discoveries Production December 31, 2017 Total liquids proved reserves at December 31, 2017 2,181 70 428 (10) 158 (132) 2,695 236 29 (20) 245 2,940 241 19 5 161 (16) 410 410 173 43 (43) (54) 119 17 (1) (1) 15 134 Africa Australia/ Asia Oceania Total Worldwide (millions of barrels) 844 2,758 30 490 2 3 384 (150) (136) 729 3,496 6 6 735 1,183 (86) 1,097 4,593 121 6,318 2 654 2 433 (53) 706 (13) (501) 110 7,559 110 1,436 28 6 (107) 1,363 8,922 1,154 (49) 164 (2) 58 (67) 1,258 384 4 (24) 364 1,622 Bitumen Canada/ Other Americas 701 416 6 (111) 1,012 Synthetic Oil Canada/ Other Americas 564 (70) (21) 473 - - 1,012 473 Total 8,737 951 8 597 (55) 764 (700) 10,302 1,820 32 6 (131) 1,727 12,029 (1) Includes total proved reserves attributable to Imperial Oil Limited of 7 million barrels in 2015, 7 million barrels in 2016 and 10 million barrels in 2017, as well as proved developed reserves of 4 million barrels in 2015, 4 million barrels in 2016 and 3 million barrels in 2017, and in addition, proved undeveloped reserves of 3 million barrels in 2015, 3 million barrels in 2016 and 7 million barrels in 2017, in which there is a 30.4 percent noncontrolling interest. 110 Crude Oil, Natural Gas Liquids, Bitumen and Synthetic Oil Proved Reserves (continued) Crude Oil and Natural Gas Liquids United States Proved developed reserves, as of December 31, 2015 Consolidated subsidiaries Equity companies Proved undeveloped reserves, as of December 31, 2015 Consolidated subsidiaries Equity companies Total liquids proved reserves at December 31, 2015 Proved developed reserves, as of December 31, 2016 Consolidated subsidiaries Equity companies Proved undeveloped reserves, as of December 31, 2016 Consolidated subsidiaries Equity companies Total liquids proved reserves at December 31, 2016 Proved developed reserves, as of December 31, 2017 Consolidated subsidiaries Equity companies Proved undeveloped reserves, as of December 31, 2017 Consolidated subsidiaries Equity companies Total liquids proved reserves at December 31, 2017 Canada/ Other Amer. (1) Europe Africa Australia/ Asia Oceania Total (millions of barrels) Synthetic Bitumen Oil Canada/ Canada/ Other Other Amer. (2) Amer. (3) Total 1,427 228 101 - 192 25 900 - 1,707 1,151 107 - 4,434 1,404 4,108 - 581 - 9,123 1,404 1,619 39 174 - 34 - 230 - 1,239 327 83 - 3,379 366 452 - - 3,831 366 3,313 275 251 1,130 4,424 190 9,583 4,560 581 14,724 1,317 210 87 - 175 11 836 - 1,858 1,114 105 - 4,378 1,335 436 - 564 - 5,378 1,335 1,626 36 169 - 31 6 169 - 1,025 443 74 - 3,094 485 265 - - 3,359 485 3,189 256 223 1,005 4,440 179 9,292 701 564 10,557 1,489 208 92 - 119 14 676 - 2,182 1,019 131 - 4,689 1,241 657 - 473 - 5,819 1,241 2,167 48 337 - 30 1 137 6 1,426 431 31 - 4,128 486 355 - - 4,483 486 3,912 429 164 819 5,058 1,012 473 12,029 162 10,544 (4) (1) Includes total proved reserves attributable to Imperial Oil Limited of 34 million barrels in 2015, 35 million barrels in 2016 and 45 million barrels in 2017, as well as proved developed reserves of 23 million barrels in 2015, 19 million barrels in 2016 and 10 million barrels in 2017, and in addition, proved undeveloped reserves of 11 million barrels in 2015, 16 million barrels in 2016 and 35 million barrels in 2017, in which there is a 30.4 percent noncontrolling interest. (2) Includes total proved reserves attributable to Imperial Oil Limited of 3,515 million barrels in 2015, 701 million barrels in 2016 and 946 million barrels in 2017, as well as proved developed reserves of 3,063 million barrels in 2015, 436 million barrels in 2016 and 591 million barrels in 2017, and in addition, proved undeveloped reserves of 452 million barrels in 2015, 265 million barrels in 2016 and 355 million barrels in 2017, in which there is a 30.4 percent noncontrolling interest. (3) Includes total proved reserves attributable to Imperial Oil Limited of 581 million barrels in 2015, 564 million barrels in 2016 and 473 million barrels in 2017, as well as proved developed reserves of 581 million barrels in 2015, 564 million barrels in 2016 and 473 million barrels in 2017, in which there is a 30.4 percent noncontrolling interest. (4) See previous pages for natural gas liquids proved reserves attributable to consolidated subsidiaries and equity companies. For additional information on natural gas liquids proved reserves see Item 2. Properties in ExxonMobil’s 2017 Form 10-K. 111 Natural Gas and Oil-Equivalent Proved Reserves Natural Gas United States Canada/ Other Amer. (1) Europe Africa Asia (billions of cubic feet) Australia/ Oceania Total Oil-Equivalent Total All Products (2) (millions of oilequivalent barrels) Net proved developed and undeveloped reserves of consolidated subsidiaries January 1, 2015 Revisions Improved recovery Purchases Sales Extensions/discoveries Production December 31, 2015 25,987 (6,693) 182 (9) 1,167 (1,254) 19,380 1,226 (45) 29 (5) 34 (112) 1,127 2,383 63 (56) (434) 1,956 811 25 (43) 793 5,460 303 (89) 102 (447) 5,329 7,276 23 (258) 7,041 43,143 (6,324) 211 (159) 1,303 (2,548) 35,626 19,013 (595) 2 246 (39) 1,405 (1,140) 18,892 Proportional interest in proved reserves of equity companies January 1, 2015 Revisions Improved recovery Purchases Sales Extensions/discoveries Production December 31, 2015 Total proved reserves at December 31, 2015 272 (38) 1 (15) 220 19,600 1,127 8,418 (83) (432) 7,903 9,859 793 17,505 86 (1,130) 16,461 21,790 7,041 26,195 (35) 1 (1,577) 24,584 60,210 6,256 11 (400) 5,867 24,759 Net proved developed and undeveloped reserves of consolidated subsidiaries January 1, 2016 Revisions Improved recovery Purchases Sales Extensions/discoveries Production December 31, 2016 19,380 (1,630) 148 (45) 1,156 (1,223) 17,786 1,127 (102) (12) 34 (107) 940 1,956 126 (2) 6 (427) 1,659 793 21 (43) 771 5,329 (16) (392) 4,921 7,041 35,626 658 (943) 148 (59) 1,196 (342) (2,534) 7,357 33,434 18,892 (3,980) 135 (38) 453 (1,153) 14,309 Proportional interest in proved reserves of equity companies January 1, 2016 Revisions Improved recovery Purchases Sales Extensions/discoveries Production December 31, 2016 Total proved reserves at December 31, 2016 220 4 (13) 211 17,997 940 7,903 114 5 (398) 7,624 9,283 771 16,461 (183) (1,044) 15,234 20,155 7,357 5,867 171 1 (374) 5,665 19,974 (See footnotes on next page) 112 24,584 (65) 5 (1,455) 23,069 56,503 Natural Gas and Oil-Equivalent Proved Reserves (continued) Natural Gas United States Canada/ Other Amer. (1) Europe Africa Asia (billions of cubic feet) Net proved developed and undeveloped reserves of consolidated subsidiaries January 1, 2017 Revisions Improved recovery Purchases Sales Extensions/discoveries Production December 31, 2017 17,786 649 982 (172) 956 (1,168) 19,033 940 206 1 56 (1) 269 (99) 1,372 1,659 134 (17) (408) 1,368 Proportional interest in proved reserves of equity companies January 1, 2017 Revisions Improved recovery Purchases Sales Extensions/discoveries Production December 31, 2017 Total proved reserves at December 31, 2017 211 25 (13) 223 19,256 1,372 7,624 (1,129) (331) 6,164 7,532 771 (135) (41) 595 914 914 1,509 4,921 (214) 13 (380) 4,340 15,234 86 (1,072) 14,248 18,588 Australia/ Oceania Total Oil-Equivalent Total All Products (2) (millions of oilequivalent barrels) 7,357 33,434 33 673 1 1,038 (190) 1,238 (496) (2,592) 6,894 33,602 14,309 1,063 8 771 (87) 970 (1,131) 15,903 6,894 5,665 (138) 158 (367) 5,318 21,221 23,069 (1,018) 914 (1,416) 21,549 55,151 (1) Includes total proved reserves attributable to Imperial Oil Limited of 583 billion cubic feet in 2015, 495 billion cubic feet in 2016 and 641 billion cubic feet in 2017, as well as proved developed reserves of 283 billion cubic feet in 2015, 263 billion cubic feet in 2016 and 282 billion cubic feet in 2017, and in addition, proved undeveloped reserves of 300 billion cubic feet in 2015, 232 billion cubic feet in 2016 and 359 billion cubic feet in 2017, in which there is a 30.4 percent noncontrolling interest. (2) Natural gas is converted to oil-equivalent basis at six million cubic feet per one thousand barrels. 113 Natural Gas and Oil-Equivalent Proved Reserves (continued) Natural Gas United States Canada/ Other Amer. (1) Europe Africa Asia Australia/ Oceania Total (billions of cubic feet) Proved developed reserves, as of December 31, 2015 Consolidated subsidiaries Equity companies Oil-Equivalent Total All Products (2) (millions of oilequivalent barrels) 13,353 156 552 - 1,593 6,146 750 - 4,917 15,233 1,962 - 23,127 21,535 12,977 4,993 6,027 64 575 - 363 1,757 43 - 412 1,228 5,079 - 12,499 3,049 5,915 874 Total proved reserves at December 31, 2015 19,600 1,127 9,859 793 21,790 7,041 60,210 24,759 Proved developed reserves, as of December 31, 2016 Consolidated subsidiaries Equity companies 11,927 144 478 - 1,473 5,804 728 - 4,532 14,067 3,071 - 22,209 20,015 9,079 4,671 5,859 67 462 - 186 1,820 43 - 389 1,167 4,286 - 11,225 3,054 5,230 994 Total proved reserves at December 31, 2016 17,997 940 9,283 771 20,155 7,357 56,503 19,974 Proved developed reserves, as of December 31, 2017 Consolidated subsidiaries Equity companies 12,649 154 512 - 1,231 4,899 584 - 4,030 12,898 4,420 - 23,426 17,951 9,724 4,232 6,384 69 860 - 137 1,265 11 914 310 1,350 2,474 - 10,176 3,598 6,179 1,086 19,256 1,372 7,532 1,509 18,588 6,894 55,151 21,221 Proved undeveloped reserves, as of December 31, 2015 Consolidated subsidiaries Equity companies Proved undeveloped reserves, as of December 31, 2016 Consolidated subsidiaries Equity companies Proved undeveloped reserves, as of December 31, 2017 Consolidated subsidiaries Equity companies Total proved reserves at December 31, 2017 (See footnotes on previous page) 114 Standardized Measure of Discounted Future Cash Flows As required by the Financial Accounting Standards Board, the standardized measure of discounted future net cash flows is computed by applying first-day-of-the-month average prices, year-end costs and legislated tax rates and a discount factor of 10 percent to net proved reserves. The standardized measure includes costs for future dismantlement, abandonment and rehabilitation obligations. The Corporation believes the standardized measure does not provide a reliable estimate of the Corporation’s expected future cash flows to be obtained from the development and production of its oil and gas properties or of the value of its proved oil and gas reserves. The standardized measure is prepared on the basis of certain prescribed assumptions including first-day-of-the-month average prices, which represent discrete points in time and therefore may cause significant variability in cash flows from year to year as prices change. Standardized Measure of Discounted Future Cash Flows United States Canada/ Other Americas (1) Europe Asia Australia/ Oceania 57,702 17,114 11,170 14,018 15,400 5,226 10,174 156,378 50,745 15,371 62,353 27,909 17,396 10,513 29,535 8,889 8,237 5,012 7,397 3,454 3,943 588,307 283,446 118,049 92,155 94,657 51,882 42,775 Africa Total (millions of dollars) Consolidated Subsidiaries As of December 31, 2015 Future cash inflows from sales of oil and gas Future production costs Future development costs Future income tax expenses Future net cash flows Effect of discounting net cash flows at 10% Discounted future net cash flows 144,910 82,678 35,016 5,950 21,266 13,336 7,930 176,452 115,285 36,923 3,042 21,202 13,415 7,787 Equity Companies As of December 31, 2015 Future cash inflows from sales of oil and gas Future production costs Future development costs Future income tax expenses Future net cash flows Effect of discounting net cash flows at 10% Discounted future net cash flows 13,065 6,137 2,903 4,025 1,936 2,089 - 49,061 35,409 2,190 4,027 7,435 4,287 3,148 - 143,692 57,080 12,796 24,855 48,961 26,171 22,790 - 205,818 98,626 17,889 28,882 60,421 32,394 28,027 Total consolidated and equity interests in standardized measure of discounted future net cash flows 10,019 7,787 5,576 10,174 33,303 3,943 70,802 23,330 8,735 11,332 1,780 1,483 (945) 2,428 (1) Includes discounted future net cash flows attributable to Imperial Oil Limited of $5,607 million in 2015, in which there is a 30.4 percent noncontrolling interest. 115 Standardized Measure of Discounted Future Cash Flows (continued) United States Canada/ Other Americas (1) Europe Asia Australia/ Oceania 40,734 14,447 8,833 8,025 9,429 2,790 6,639 118,997 38,727 13,088 44,641 22,541 12,848 9,693 28,877 7,643 8,177 2,316 10,741 5,556 5,185 372,621 161,562 82,812 58,435 69,812 34,662 35,150 Africa Total (millions of dollars) Consolidated Subsidiaries As of December 31, 2016 Future cash inflows from sales of oil and gas Future production costs Future development costs Future income tax expenses Future net cash flows Effect of discounting net cash flows at 10% Discounted future net cash flows 118,283 65,585 31,744 2,223 18,731 11,039 7,692 50,243 29,798 11,735 1,052 7,658 3,443 4,215 Equity Companies As of December 31, 2016 Future cash inflows from sales of oil and gas Future production costs Future development costs Future income tax expenses Future net cash flows Effect of discounting net cash flows at 10% Discounted future net cash flows 9,551 5,289 2,948 1,314 393 921 - 32,121 21,342 2,048 2,206 6,525 4,158 2,367 - 104,700 41,563 12,656 16,622 33,859 18,946 14,913 - 146,372 68,194 17,652 18,828 41,698 23,497 18,201 Total consolidated and equity interests in standardized measure of discounted future net cash flows 8,613 4,215 4,093 6,639 24,606 5,185 53,351 Consolidated Subsidiaries As of December 31, 2017 Future cash inflows from sales of oil and gas Future production costs Future development costs Future income tax expenses Future net cash flows Effect of discounting net cash flows at 10% Discounted future net cash flows 186,126 78,980 39,996 12,879 54,271 30,574 23,697 78,870 42,280 18,150 4,527 13,913 6,158 7,755 14,794 4,424 7,480 2,790 100 (1,255) 1,355 43,223 14,049 8,897 8,818 11,459 2,996 8,463 191,254 53,723 15,156 90,614 31,761 17,511 14,250 40,814 8,424 7,951 6,017 18,422 8,741 9,681 555,081 201,880 97,630 125,645 129,926 64,725 65,201 Equity Companies As of December 31, 2017 Future cash inflows from sales of oil and gas Future production costs Future development costs Future income tax expenses Future net cash flows Effect of discounting net cash flows at 10% Discounted future net cash flows 12,643 5,927 3,012 3,704 1,668 2,036 - 28,557 21,120 1,913 1,683 3,841 2,116 1,725 2,366 247 417 514 1,188 1,045 143 127,364 48,300 11,825 22,396 44,843 23,744 21,099 - 170,930 75,594 17,167 24,593 53,576 28,573 25,003 Total consolidated and equity interests in standardized measure of discounted future net cash flows 25,733 7,755 3,080 8,606 35,349 9,681 90,204 (1) 15,487 5,362 9,235 178 712 (1,014) 1,726 Includes discounted future net cash flows attributable to Imperial Oil Limited of $2,322 million in 2016 and $3,344 million in 2017, in which there is a 30.4 percent noncontrolling interest. 116 Change in Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves Consolidated and Equity Interests 2015 Consolidated Subsidiaries Share of Equity Method Investees Total Consolidated and Equity Interests (millions of dollars) Discounted future net cash flows as of December 31, 2014 Value of reserves added during the year due to extensions, discoveries, improved recovery and net purchases less related costs Changes in value of previous-year reserves due to: Sales and transfers of oil and gas produced during the year, net of production (lifting) costs Development costs incurred during the year Net change in prices, lifting and development costs Revisions of previous reserves estimates Accretion of discount Net change in income taxes Total change in the standardized measure during the year Discounted future net cash flows as of December 31, 2015 138,664 68,921 207,585 5,678 - 5,678 (20,694) 18,359 (203,224) 6,888 17,828 79,276 (95,889) (9,492) 1,198 (57,478) (134) 7,257 17,755 (40,894) (30,186) 19,557 (260,702) 6,754 25,085 97,031 (136,783) 42,775 28,027 70,802 Consolidated and Equity Interests 2016 Consolidated Subsidiaries Share of Equity Method Investees Total Consolidated and Equity Interests (millions of dollars) Discounted future net cash flows as of December 31, 2015 Value of reserves added during the year due to extensions, discoveries, improved recovery and net purchases less related costs Changes in value of previous-year reserves due to: Sales and transfers of oil and gas produced during the year, net of production (lifting) costs Development costs incurred during the year Net change in prices, lifting and development costs (1) Revisions of previous reserves estimates Accretion of discount Net change in income taxes Total change in the standardized measure during the year Discounted future net cash flows as of December 31, 2016 (1) 42,775 28,027 70,802 1,377 5 1,382 (17,110) 9,905 (26,561) 4,908 7,854 12,002 (7,625) (5,540) 1,438 (15,549) 1,425 3,857 4,538 (9,826) (22,650) 11,343 (42,110) 6,333 11,711 16,540 (17,451) 35,150 18,201 53,351 Securities and Exchange Commission (SEC) rules require the Corporation’s reserves to be calculated on the basis of average first-of-month oil and natural gas prices during the reporting year. As a result of very low prices during 2016, under the SEC definition of proved reserves, certain quantities of oil and natural gas that qualified as proved reserves in prior years did not qualify as proved reserves at year-end 2016. Future net cash flows for these quantities are excluded from the 2016 Standardized Measure of Discounted Future Cash Flows. Substantially all of this reduction in discounted future net cash flows since December 31, 2015, is reflected in the line “Net change in prices, lifting and development costs” in the table above. 117 Change in Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves Consolidated and Equity Interests (continued) 2017 Consolidated Subsidiaries Share of Equity Method Investees Total Consolidated and Equity Interests (millions of dollars) Discounted future net cash flows as of December 31, 2016 Value of reserves added during the year due to extensions, discoveries, improved recovery and net purchases less related costs Changes in value of previous-year reserves due to: Sales and transfers of oil and gas produced during the year, net of production (lifting) costs Development costs incurred during the year Net change in prices, lifting and development costs Revisions of previous reserves estimates Accretion of discount Net change in income taxes Total change in the standardized measure during the year Discounted future net cash flows as of December 31, 2017 118 35,150 18,201 53,351 10,375 255 10,630 (24,911) 7,066 51,703 6,580 4,951 (25,713) 30,051 (7,358) 2,020 12,782 1,193 2,124 (4,214) 6,802 (32,269) 9,086 64,485 7,773 7,075 (29,927) 36,853 65,201 25,003 90,204 OPERATING INFORMATION (unaudited) 2017 Production of crude oil, natural gas liquids, bitumen and synthetic oil Net production United States Canada/Other Americas Europe Africa Asia Australia/Oceania Worldwide Natural gas production available for sale Net production United States Canada/Other Americas Europe Africa Asia Australia/Oceania Worldwide 2016 2015 2014 2013 454 301 184 489 624 59 2,111 431 280 190 469 784 48 2,202 3,404 310 2,816 4 4,099 512 11,145 3,545 354 3,251 6 4,329 351 11,836 (thousands of barrels daily) 514 412 182 423 698 54 2,283 494 430 204 474 707 56 2,365 476 402 204 529 684 50 2,345 (millions of cubic feet daily) 2,936 218 1,948 5 3,794 1,310 10,211 3,078 239 2,173 7 3,743 887 10,127 3,147 261 2,286 5 4,139 677 10,515 (thousands of oil-equivalent barrels daily) Oil-equivalent production (1) Refinery throughput United States Canada Europe Asia Pacific Other Non-U.S. Worldwide Petroleum product sales (2) United States Canada Europe Asia Pacific and other Eastern Hemisphere Latin America Worldwide Gasoline, naphthas Heating oils, kerosene, diesel oils Aviation fuels Heavy fuels Specialty petroleum products Worldwide Chemical prime product sales (2) United States Non-U.S. Worldwide 3,985 4,053 4,097 3,969 4,175 (thousands of barrels daily) 1,508 383 1,510 690 200 4,291 1,591 363 1,417 708 190 4,269 1,709 386 1,496 647 194 4,432 1,809 394 1,454 628 191 4,476 1,819 426 1,400 779 161 4,585 2,190 499 1,597 1,164 80 5,530 2,262 1,850 382 371 665 5,530 2,250 491 1,519 1,140 82 5,482 2,270 1,772 399 370 671 5,482 2,521 488 1,542 1,124 79 5,754 2,363 1,924 413 377 677 5,754 2,655 496 1,555 1,085 84 5,875 2,452 1,912 423 390 698 5,875 2,609 464 1,497 1,206 111 5,887 2,418 1,838 462 431 738 5,887 9,528 14,707 24,235 9,679 14,384 24,063 (thousands of metric tons) 9,307 16,113 25,420 9,576 15,349 24,925 9,664 15,049 24,713 Operating statistics include 100 percent of operations of majority-owned subsidiaries; for other companies, crude production, gas, petroleum product and chemical prime product sales include ExxonMobil’s ownership percentage and refining throughput includes quantities processed for ExxonMobil. Net production excludes royalties and quantities due others when produced, whether payment is made in kind or cash. (1) Gas converted to oil-equivalent at 6 million cubic feet = 1 thousand barrels. (2) Petroleum product and chemical prime product sales data reported net of purchases/sales contracts with the same counterparty. 119 INDEX TO EXHIBITS Exhibit Description 3(i) Restated Certificate of Incorporation, as restated November 30, 1999, and as further amended effective June 20, 2001 (incorporated by reference to Exhibit 3(i) to the Registrant’s Annual Report on Form 10-K for 2015). 3(ii) By-Laws, as revised effective November 1, 2017 (incorporated by reference to Exhibit 3(ii) to the Registrant’s Report on Form 8-K of October 31, 2017). 10(iii)(a.1) 2003 Incentive Program, as approved by shareholders May 28, 2003.* 10(iii)(a.2) Extended Provisions for Restricted Stock Agreements (incorporated by reference to Exhibit 10(iii)(a.2) to the Registrant’s Annual Report on Form 10-K for 2016).* 10(iii)(a.3) Extended Provisions for Restricted Stock Unit Agreements – Settlement in Shares.* 10(iii)(b.1) Short Term Incentive Program, as amended (incorporated by reference to Exhibit 10(iii)(b.1) to the Registrant’s Annual Report on Form 10-K for 2013).* 10(iii)(b.2) Earnings Bonus Unit instrument.* 10(iii)(c.1) ExxonMobil Supplemental Savings Plan (incorporated by reference to Exhibit 10(iii)(c.1) to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017).* 10(iii)(c.2) ExxonMobil Supplemental Pension Plan (incorporated by reference to Exhibit 10(iii)(c.2) to the Registrant’s Annual Report on Form 10-K for 2014).* 10(iii)(c.3) ExxonMobil Additional Payments Plan (incorporated by reference to Exhibit 10(iii)(c.3) to the Registrant’s Annual Report on Form 10-K for 2013).* 10(iii)(d) ExxonMobil Executive Life Insurance and Death Benefit Plan (incorporated by reference to Exhibit 10(iii)(d) to the Registrant’s Annual Report on Form 10-K for 2016).* 10(iii)(f.1) 2004 Non-Employee Director Restricted Stock Plan (incorporated by reference to Exhibit 10(iii)(f.1) to the Registrant’s Annual Report on Form 10-K for 2013).* 10(iii)(f.2) Standing resolution for non-employee director restricted grants dated September 26, 2007 (incorporated by reference to Exhibit 10(iii)(f.2) to the Registrant’s Annual Report on Form 10-K for 2016).* 10(iii)(f.3) Form of restricted stock grant letter for non-employee directors (incorporated by reference to Exhibit 10(iii)(f.3) to the Registrant’s Annual Report on Form 10-K for 2014).* 10(iii)(f.4) Standing resolution for non-employee director cash fees dated October 26, 2011 (incorporated by reference to Exhibit 10(iii)(f.4) to the Registrant’s Annual Report on Form 10-K for 2015).* 12 Computation of ratio of earnings to fixed charges. 14 Code of Ethics and Business Conduct. 18 Preferability Letter of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm. 21 Subsidiaries of the registrant. 23 Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm. 31.1 Certification (pursuant to Securities Exchange Act Rule 13a-14(a)) by Chief Executive Officer. 31.2 Certification (pursuant to Securities Exchange Act Rule 13a-14(a)) by Principal Financial Officer. 31.3 Certification (pursuant to Securities Exchange Act Rule 13a-14(a)) by Principal Accounting Officer. 32.1 Section 1350 Certification (pursuant to Sarbanes-Oxley Section 906) by Chief Executive Officer. 32.2 Section 1350 Certification (pursuant to Sarbanes-Oxley Section 906) by Principal Financial Officer. 32.3 Section 1350 Certification (pursuant to Sarbanes-Oxley Section 906) by Principal Accounting Officer. 101 Interactive data files. _____________________ * Compensatory plan or arrangement required to be identified pursuant to Item 15(a)(3) of this Annual Report on Form 10-K. The registrant has not filed with this report copies of the instruments defining the rights of holders of long-term debt of the registrant and its subsidiaries for which consolidated or unconsolidated financial statements are required to be filed. The registrant agrees to furnish a copy of any such instrument to the Securities and Exchange Commission upon request. 120 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. EXXON MOBIL CORPORATION By: /s/ DARREN W. WOODS (Darren W. Woods, Chairman of the Board) Dated February 28, 2018 POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints Beth E. Casteel, Stephen A. Littleton, and Richard C. Vint and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated and on February 28, 2018. /s/ DARREN W. WOODS Chairman of the Board (Principal Executive Officer) (Darren W. Woods) /s/ SUSAN K. AVERY Director (Susan K. Avery) /s/ MICHAEL J. BOSKIN Director (Michael J. Boskin) /s/ ANGELA F. BRALY Director (Angela F. Braly) /s/ URSULA M. BURNS Director (Ursula M. Burns) 121 /s/ KENNETH C. FRAZIER Director (Kenneth C. Frazier) /s/ STEVEN A. KANDARIAN Director (Steven A. Kandarian) /s/ DOUGLAS R. OBERHELMAN Director (Douglas R. Oberhelman) /s/ SAMUEL J. PALMISANO Director (Samuel J. Palmisano) /s/ STEVEN S REINEMUND Director (Steven S Reinemund) /s/ WILLIAM C. WELDON Director (William C. Weldon) /s/ ANDREW P. SWIGER Senior Vice President (Principal Financial Officer) (Andrew P. Swiger) /s/ DAVID S. ROSENTHAL Vice President and Controller (Principal Accounting Officer) (David S. Rosenthal) 122