EXXON MOBIL CORP (XOM) FY 2022 MD&A

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

Statements related to outlooks; projections; descriptions of strategic, operating, and financial plans and objectives; statements of future ambitions and plans; and other statements of future events or conditions are forward-looking statements. Similarly, discussion of emission-reduction roadmaps or future plans related to carbon capture, biofuel, hydrogen, plastics recycling, and other plans to drive towards net-zero emissions are dependent on future market factors, such as continued technological progress and policy support, and represent forward-looking statements. Actual future results, including financial and operating performance; total capital expenditures and mix, including allocations of capital to low carbon solutions; cost reductions and efficiency gains, including the ability to offset inflationary pressure; ambitions to achieve net-zero operated Scope 1 and Scope 2 emissions by 2050; plans to reach net-zero operated Scope 1 and 2 emissions in our unconventional Permian Basis operated assets by 2030, to eliminate routine flaring in-line with World Bank Zero Routine Flaring, and to reach near-zero methane emissions from operated assets, within evolving growth, start-up, divestment, and technological efforts; timing and outcome of projects to capture and store CO2, and produced biofuels; timing and outcome of hydrogen projects; timing to increase the use of plastic waste as feedstock for advanced recycling; cash flow, dividends and shareholder returns, including the timing and amounts of share repurchases; future debt levels and credit ratings; business and project plans, timing, costs, capacities and returns; and resource recoveries and production rates could differ materially due to a number of factors. These include global or regional changes in the supply and demand for oil, natural gas, petrochemicals, and feedstocks and other market factors, economic conditions or seasonal fluctuations that impact prices and differentials for our product; government policies supporting lower carbon investment opportunities such as the U.S. Inflation Reduction Act or policies limiting the attractiveness of future investment such as the additional European taxes on the energy sector; variable impacts of trading activities on our margins and results each quarter; actions of competitors and commercial counterparties; the outcome of commercial negotiations, including final agreed terms and conditions; the ability to access debt markets; the impacts of COVID-19 or other public health crises, including the effects of government responses on people and economies; reservoir performance, including variability and timing factors applicable to unconventional resources; the level and outcome of exploration projects and decisions to invest in future reserves; timely completion of development and other construction projects; final management approval of future projects and any changes in the scope, terms, or costs of such projects as approved; changes in law, taxes, or regulation including environmental regulations, trade sanctions, and timely granting of governmental permits and certifications; government policies and support and market demand for low carbon technologies; war, civil unrest, attacks against the company or industry, and other political or security disturbances; expropriations, seizure, or capacity, insurance or shipping limitations by foreign governments or laws; opportunities for potential investments or divestments and satisfaction of applicable conditions to closing, including regulatory approvals; the capture of efficiencies within and between business lines and the ability to maintain near-term cost reductions as ongoing efficiencies; unforeseen technical or operating difficulties and unplanned maintenance; the development and competitiveness of alternative energy and emission-reduction technologies; the results of research programs and the ability to bring new technologies to commercial scale on a cost-competitive basis; and other factors discussed under Item 1A. Risk Factors.

Forward-looking and other statements regarding our environmental, social and other sustainability efforts and aspirations are not an indication that these statements are necessarily material to investors or requiring disclosure in our filing with the SEC. In addition, historical, current, and forward-looking environmental, social and sustainability-related statements may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future, including future rule-making.

Energy demand models are forward-looking by nature and aim to replicate system dynamics of the global energy system, requiring simplifications. The reference to any scenario in this report, including any potential net-zero scenarios, does not imply ExxonMobil views any particular scenario as likely to occur. In addition, energy demand scenarios require assumptions on a variety of parameters. As such, the outcome of any given scenario using an energy demand model comes with a high degree of uncertainty. For example, the International Energy Agency (IEA) describes its Net Zero Emissions (NZE) by 2050 scenario as extremely challenging, requiring unprecedented innovation, unprecedented international cooperation and sustained support and participation from consumers. Third-party scenarios discussed in this report reflect the modeling assumptions and outputs of their respective authors, not ExxonMobil, and their use by ExxonMobil is not an endorsement by ExxonMobil of their underlying assumptions, likelihood or probability. Investment decisions are made on the basis of ExxonMobil’s separate planning process. Any use of the modeling of a third-party organization within this report does not constitute or imply an endorsement by ExxonMobil of any or all of the positions or activities of such organization.

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.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 integrated business model involving exploration for, and production of, crude oil and natural gas; manufacture, trade, transport and sale of crude oil, natural gas, petroleum products, petrochemicals, and a wide variety of specialty products; and pursuit of lower-emission business opportunities including carbon capture and storage, hydrogen, and lower-emission fuels. ExxonMobil's operating segments are Upstream, Energy Products, Chemical Products, and Specialty Products. Where applicable, ExxonMobil voluntarily discloses additional U.S., Non-U.S., and regional splits to help investors better understand the company's operations.

Effective April 2022, the Corporation streamlined its business structure by combining the Chemical and Downstream businesses into Product Solutions. The company is organized along three businesses – Upstream, Product Solutions, and Low Carbon Solutions, aligning along market-focused value chains. Product Solutions consists of Energy Products, Chemical Products, and Specialty Products. Low Carbon Solutions will continue to be included in Corporate and Financing as the business continues to mature through commercialization and deployment of technology. The businesses are supported by a combined technology organization, and other centralized service-delivery groups, including a global projects organization.

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, Energy Products, Chemical Products, and Specialty Products segments and Low Carbon Solutions business, generally reduces the Corporation’s risk from changes in commodity prices. While commodity prices depend on supply and demand and may be volatile on a short-term basis, ExxonMobil’s investment decisions are grounded on fundamentals reflected in our long-term business outlook, and use 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 operating and capital objectives in addition to providing the economic assumptions used for investment evaluation purposes. The foundation for the assumptions supporting the Corporate Plan is the Outlook for Energy (Outlook), and Corporate Plan volume projections are based on individual field production profiles, which are also updated at least annually. Price ranges for crude oil, natural gas, including price differentials, refinery and chemical margins, volumes, development and operating costs, including greenhouse gas emissions pricing, and foreign currency exchange rates 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 potential market conditions. Once we make major investments, we complete a reappraisal process to ensure we learn from the investment decision and incorporate the lessons into future projects.

BUSINESS ENVIRONMENT

Long-Term Business Outlook

ExxonMobil’s business planning is underpinned by a deep understanding of long-term market fundamentals. These fundamentals include supply and demand trends, the scale and variety of energy needs worldwide; capability, practicality and affordability of energy alternatives including low-carbon solutions; greenhouse gas emission-reduction technologies; and supportive government policies. The company’s Outlook considers these fundamentals to form the basis for the company’s long-term business planning, investment decisions, and research programs. The Outlook reflects the company’s view of global energy demand and supply through 2050. It is a projection based on current trends in technology, government policies, consumer preferences, geopolitics, and economic development.

In addition, ExxonMobil considers a range of scenarios - including remote scenarios - to help inform perspective of the future and enhance strategic thinking over time. Included in the range of these scenarios are the Intergovernmental Panel on Climate Change Lower 2°C scenarios and the IEA NZE by 2050 scenario. The IEA describes the IEA NZE as extremely challenging, requiring all stakeholders – governments, businesses, investors, and citizens – to take immediate, unprecedented action. The IEA acknowledges that society is not currently on the IEA NZE pathway. No single transition pathway can be reasonably predicted, given the wide range of uncertainties. Key unknowns include yet-to-be-developed government policies, market conditions, and advances in technology that may influence the cost, pace, and potential availability of certain pathways. Scenarios that employ a full complement of technology options are likely to provide the most economically efficient pathways.

Using our own experts and third-party sources, we monitor a variety of signposts that may indicate a potential shift in the energy transition. For example, the regional pace of the transition could be influenced by the cost of new technologies compared to existing or alternative energy sources. To effectively evaluate the pace of change, ExxonMobil uses many scenarios to help identify signposts that provide leading indicators of future developments and allow for timely adjustments to future versions of the Outlook.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Under our Outlook, global electricity demand is expected to increase over 75 percent from 2021 to 2050, with developing countries likely to account for about 80 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, supported by a wide variety of energy sources. The share of coal-fired generation is expected to decline substantially and approach 15 percent of the world’s electricity in 2050, versus nearly 35 percent in 2021, in part due to policies to improve air quality as well as reduce greenhouse gas emissions to address risks related to climate change. From 2021 to 2050, the amount of electricity supplied using natural gas, nuclear power, and renewables is expected to more than double, accounting for the entire growth in electricity supplies and offsetting the reduction of coal. Electricity from wind and solar is expected to increase more than 550 percent, helping total renewables (including other sources, e.g., hydropower) to account for over 80 percent of the increase in electricity supplies worldwide through 2050. Total renewables are expected to reach about 50 percent of global electricity supplies by 2050. Natural gas and nuclear are expected to be about 25 percent and 10 percent, respectively, of global electricity supplies by 2050. 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 and policy developments.

Under our Outlook, energy for transportation - including cars, trucks, ships, trains and airplanes - is expected to increase by over 30 percent from 2021 to 2050. Transportation energy demand is expected to account for around 65 percent of the growth in liquid fuels demand worldwide over this period. Light-duty vehicle demand for liquid fuels is projected to peak by around 2025, and then decline to levels seen in the early-2000s by 2050, as the impact of better fuel economy and significant growth in electric cars, led by China, Europe, and the United States, work to offset growth in the worldwide car fleet of almost 70 percent. By 2050, light-duty vehicles are expected to account for around 15 percent of global liquid fuels demand. During the same time period, nearly all the world’s commercial transportation fleets are expected to continue to run on liquid fuels, including biofuels, which are expected to be widely available and offer practical advantages in providing a large quantity of energy in small volumes.

Almost half of the world’s energy use is dedicated to industrial activity. As the global middle class continues to grow, demand for durable products, appliances, and consumable goods will increase. Industry uses energy products both as a fuel and as a feedstock for chemicals, asphalt, lubricants, waxes, and other specialty products. The Outlook anticipates technology advances, as well as the increasing shift toward cleaner forms of energy, such as electricity and natural gas, with coal declining. Demand for oil will continue to grow as a feedstock for industry.

As populations grow and prosperity rises, more energy will be needed to power homes, offices, schools, shopping centers, hospitals, etc. Combined residential and commercial energy demand is projected to rise by around 15 percent through 2050. Led by the growing economies of developing nations, average worldwide household electricity use will rise about 75 percent between 2021 and 2050.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Liquid fuels provide the largest share of global energy supplies today reflecting broad-based availability, affordability, ease of transportation, and fitness as a practical solution to meet a wide variety of needs. By 2050, global demand for liquid fuels is projected to grow to approximately 110 million oil equivalent barrels per day, an increase of about 17 percent from 2021. The non-OECD share of global liquid fuels demand is expected to increase to nearly 70 percent by 2050, as liquid fuels demand in the OECD is expected to decline by around 20 percent. Much of the global liquid fuels demand today is met by crude production from conventional sources; these supplies will remain important, and 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 2050 as technology advances continue to expand the availability of more economic and lower-carbon supply options. However, timely investments will remain critical to meeting global needs with reliable and affordable supplies.

Natural gas is a lower-emission, versatile and practical fuel for a wide variety of applications, and it is expected to grow the most of any primary energy type from 2021 to 2050, meeting about 40 percent of global energy demand growth. Global natural gas demand is expected to rise nearly 25 percent from 2021 to 2050, with around two-thirds of that increase coming from the Asia Pacific region. Significant growth in supplies of unconventional gas - the natural gas found in shale and other tight rock formations - will help meet these needs. In total, about 50 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 global supply, meeting around two-thirds of worldwide demand in 2050. LNG trade will expand significantly, meeting about 50 percent of the increase in global demand growth, with much of this supply expected to help meet rising demand in Asia Pacific.

Oil and natural gas projected to play a critical role in the global energy mix

The world’s energy mix is highly diverse and will remain so through 2050. Oil is expected to remain the largest source of energy with its share remaining close to 30 percent in 2050. Coal and gas are the next largest sources of energy today, with the share of natural gas growing to more than 25 percent by 2050, while the share of coal falls to about half that of natural gas. Nuclear power is projected to grow, 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 expected to exceed 20 percent of global energy by 2050, with other renewables (e.g., biomass, hydropower, geothermal) contributing a combined share of more than 10 percent. Total energy supplied from wind and solar is expected to increase rapidly, growing over 480 percent from 2021 to 2050, when they are projected to be around 10 percent of the world energy mix.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Decarbonization of industry activities will require a suite of nascent or future lower-carbon technologies and supporting policies. Lower-emission fuels, hydrogen-based fuels, and carbon capture and storage are three key lower-carbon solutions needed to support a lower-emission future, in addition to wind and solar. Along with electrification, lower-emission fuels are expected to play an important role in decarbonization of the transportation sector, particularly in hard-to-decarbonize areas, such as aviation. Low-carbon hydrogen will be a key enabler replacing traditional furnace fuel to decarbonize the industrial sector. Hydrogen and hydrogen-based fuels like ammonia are also expected to make inroads into commercial transportation as technology improves to lower its cost and policy develops to support the needed infrastructure development. Carbon capture and storage on its own, or in combination with hydrogen production, is among the few proven technologies that could enable CO2 emission reductions from high-emitting and hard-to-decarbonize sectors such as power generation and heavy industries, including manufacturing, refining, and petrochemicals.

Significant oil and natural gas investment needed to meet projected global demand

Projected oil supply and demand

Million barrels per day

Excludes biofuels; IEA STEPS and IEA NZE Source: IEA WEO 2021; Outlook Source: ExxonMobil 2022 Outlook for Energy; Average IPCC Lower 2°C Source: IPCC AR6 Scenarios Database hosted by IIASA release 1.0 average IPCC C3: 311 “Likely below 2°C” scenarios used

Projected global natural gas supply and demand

Billion cubic feet per day

IEA STEPS and IEA NZE Source: IEA WEO 2021; Outlook Source: ExxonMobil 2022 Outlook for Energy; Average IPCC Lower 2°C Source: IPCC AR6 Scenarios Database hosted by IIASA release 1.0 average IPCC C3: 311 “Likely below 2°C” scenarios used

To meet this projected demand under our Outlook and the IEA's Stated Policies Scenario (STEPS), the Corporation anticipates that the world’s available oil and gas resource base will grow, not only from new discoveries, but also from increases in previously discovered fields. Technology will underpin these increases. The investments to develop and supply resources to meet global demand through 2050 will be significant, and would be needed to meet even the rapidly declining demand for oil and gas envisioned in the IEA’s Net Zero Emissions by 2050 scenario.

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. 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 global aggregation of Nationally Determined Contributions (NDCs), submitted by the nations that are signatories to the Paris Agreement, as available at the end of 2021. Our Outlook seeks to identify potential impacts of climate-related government policies, which often target specific sectors. For purposes of the Outlook, a proxy cost on energy-related CO2 emissions is assumed, based on regional considerations and relative levels of economic development, and by 2050, reaches up to $150 per metric ton for OECD nations and up to $100 per metric ton for non-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. The Corporation continues to monitor the updates to the NDCs that nations provided around COP 27 in Egypt in November 2022 as well as other policy developments in light of net-zero ambitions formulated by some nations.

The information provided in the Outlook includes ExxonMobil’s internal estimates and projections based upon internal data and analyses as well as publicly available information from external sources including the International Energy Agency.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Progress Reducing Emissions

The Corporation’s strategy seeks to maximize the advantages of our scale, business integration, leading technology, functional excellence, and our people to build globally competitive businesses that lead industry in earnings and cash flow growth across a range of future scenarios. We strive to play a leading role in the energy transition, bringing to bear these same advantages while retaining investment flexibility across a portfolio of evolving opportunities to grow shareholder value.

With advances in technology and the support of clear and consistent government policies, we aim to achieve net-zero operated Scope 1 and 2 greenhouse gas emissions by 2050. To this end, we have taken a comprehensive approach to create greenhouse gas emission-reduction roadmaps for our major operated assets. The roadmaps build on the company’s 2030 emission-reduction plans and, notably, include reaching net-zero emissions (Scopes 1 and 2) in our unconventional Permian Basin operated assets by 2030. We completed these roadmaps in 2022. Many of the required reduction steps are unaffordable with today's technology and policy support. We plan to update the roadmaps as needed to reflect technology, policy, and other necessary developments, including the development and acquisition of major operated assets.

Compared to 2016 levels, our 2030 emission-reduction plans include a 20-30 percent reduction in corporate-wide greenhouse gas intensity, 40-50 percent reduction in upstream greenhouse gas intensity, 70-80 percent reduction in company-wide methane intensity, and 60-70 percent reduction in corporate-wide hydrocarbon flaring intensity. In achieving these objectives, we also expect to see absolute reduction in:

•Corporate-wide greenhouse gas emissions by approximately 20 percent;

•Upstream greenhouse gas emissions of approximately 30 percent;

•Corporate-wide hydrocarbon flaring of approximately 60 percent;

•Corporate-wide methane emissions by approximately 70 percent; and

•World Bank Zero Routine Flaring by 2030.

These emission-reduction plans cover Scope 1 and 2 emissions from assets we operate.

Since formally launching ExxonMobil’s Low Carbon Solutions business in early 2021, the Corporation has significantly grown the pipeline of emission-reduction opportunities in carbon capture and storage, hydrogen, and lower-emission fuels. Low Carbon Solutions leverages the Corporation’s unique combination of existing assets, technical capabilities, project management skills, and broad relationships with industry and governments to accelerate emission reductions for customers and help to reduce emissions in our existing businesses.

The Corporation plans to invest in initiatives to lower greenhouse gas emissions. These investments are designed to reduce emissions in the company’s operations and are also directed toward reducing others’ emissions through commercializing and scaling carbon capture and storage, hydrogen, and lower-emission fuels. Policy support, along with technology advancements, are important to the development and deployment of lower-emission technologies necessary for a net-zero future.

Recent Business Environment

Prior to the COVID-19 pandemic, many companies in the industry invested below the levels needed to maintain or increase production capacity to meet anticipated demand. During the COVID-19 pandemic, this decline in investments accelerated as industry revenue collapsed resulting in underinvestment and supply tightness as demand for petroleum and petrochemical products recovered. In addition, industry rationalization of refining assets resulted in more than 3 million barrels per day of capacity being taken offline. Across late 2021 and the first half of 2022, these reductions, along with supply chain constraints, and a continuation of demand recovery led to a steady increase in oil and natural gas prices and refining margins.

Demand for petroleum and petrochemical products grew in 2022, with the Corporation's financial results benefiting from stronger prices and margins, notably for crude oil and natural gas as well as refining products. The rate and pace of recovery, however, has varied across geographies and business lines, with industry Chemical margins falling below the bottom of the 10-year range late in 2022 reflecting weakening global demand and capacity additions. Commodity and product prices are expected to remain volatile given the current global economic uncertainty and geopolitical events affecting supply and demand.

The general rate of inflation across major countries experienced a brief decline in the initial stage of the COVID-19 pandemic, before starting to increase steadily in 2021 due to an imbalance in supply and demand. The underlying factors include, but are not limited to, time cycle of capacity investments, supply chain disruptions, shipping bottlenecks, labor constraints, and side effects from monetary and fiscal expansions. Inflationary pressure intensified in 2022 with additional impacts from the Russia-Ukraine conflict, and currently remains elevated despite policy tightening by major central banks and a moderating pace of world economic expansion. The Corporation closely monitors market trends and works to mitigate both operating and capital cost impacts in all price environments.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Organizational changes implemented over the past several years enabled the Corporation to realize $7 billion of structural cost savings(1) versus 2019, through increased operational efficiencies and reduced overhead costs. Included in these savings is the completion of the workforce reduction programs, which are estimated to generate savings of approximately $2 billion per year compared to 2019 from lower employee and contractor costs. The company continues to take actions to streamline its business structure to improve effectiveness and reduce costs. The changes more fully leverage global functional capabilities, improve line of sight to markets, and enhance resource allocation to the highest corporate priorities.

(1) Refer to Frequently Used Terms for definition of structural cost savings.

Russia-Ukraine Conflict

In response to Russia’s military action in Ukraine, the Corporation announced in early 2022 that it planned to discontinue operations on the Sakhalin-1 project (“Sakhalin”) and develop steps to exit the venture. The Corporation’s first-quarter results included after-tax charges of $3.4 billion largely representing the impairment of its operations related to Sakhalin (refer to Note 2 for further information on Russia). While the Corporation’s affiliate was in force majeure due to the impact of global sanctions, it continued to make concerted attempts to engage in good-faith exit discussions with the Russian government and all Sakhalin partners. The Corporation remained focused on safety of people, protection of the environment, and integrity of operations. Effective October 14, through two decrees the Russian government unilaterally terminated the Corporation’s interests in Sakhalin, transferring operations to a Russian operator.

The Corporation’s fourth-quarter results include an after-tax benefit of $1.1 billion largely reflecting the impact of the expropriation on the company’s various obligations related to Sakhalin. The Corporation's exit from the project results in approximately 150 million oil-equivalent barrels no longer qualifying as proved reserves at year-end 2022.

The Corporation holds a 25 percent interest in Tengizchevroil, LLP (TCO), which operates the Tengiz and Korolev oil fields in Kazakhstan, and a 16.8 percent working interest in the Kashagan field in Kazakhstan. Oil production from those operations is exported through the Caspian Pipeline Consortium (CPC), in which the Corporation holds a 7.5 percent interest. CPC traverses parts of Kazakhstan and Russia to tanker-loading facilities on the Russian coast of the Black Sea. In the event that Russia takes countermeasures in response to existing sanctions related to its military actions in Ukraine, it is possible that the transportation of Kazakhstan oil through the CPC pipeline could be disrupted, curtailed, temporarily suspended, or otherwise restricted. In such a case, the Corporation could experience a loss of cash flows of uncertain duration from its operations in Kazakhstan. For reference, after-tax earnings related to the Corporation’s interests in Kazakhstan in 2022 were approximately $2.5 billion, and its share of combined oil and gas production was approximately 246 thousand oil-equivalent barrels per day.

Additional European Taxes on the Energy Sector

On October 6, 2022, European Union (“EU”) Member States adopted an EU Council Regulation which, along with other measures, introduced a new tax described as an emergency intervention to address high energy prices. This regulation imposed a mandatory tax on certain companies active in the crude petroleum, coal, natural gas, and refinery sectors. The regulation required Member States to levy a minimum 33 percent tax on in-scope companies’ 2022 and/or 2023 “surplus profits", defined in the regulation as taxable profits exceeding 120 percent of the annual average profits during the 2018-2021 period. EU Member States were required to implement the tax, or an equivalent national measure, by December 31, 2022. The enactment of these regulations by Member States resulted in an after-tax charge of approximately $1.8 billion to the Corporation’s fourth-quarter 2022 results, mainly reflected in the line “Income tax expense (benefit)” on the Consolidated Statement of Income.

The future impact of this regulation and other measures directed at the energy sector which were imposed by EU Member States and the UK over the last few months could be a reduction to earnings of up to $2 billion depending on commodity prices and levels of taxable income.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

BUSINESS RESULTS

Upstream

ExxonMobil continues to sustain a diverse growth 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 strategies guide our global Upstream business, including 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 as well as a reduction in greenhouse gas emissions. 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. Based on current investment plans, the proportion of oil-equivalent production from the Americas is generally expected to increase over the next several years. About half of the Corporation's global production comes from unconventional, deepwater, and LNG resources. This proportion is generally expected to grow over the next few years.

The Upstream capital program continues to prioritize low cost-of-supply opportunities. ExxonMobil has a strong pipeline of development projects including continued growth in Guyana, Brazil, the Permian Basin, as well as LNG expansion opportunities in Qatar, Mozambique, Papua New Guinea, and the United States.

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; 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; international trade patterns and relations; and other factors described in Item 1A. Risk Factors.

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, levels of prosperity, technology advances, consumer preference and government policies. On the supply side, prices may be significantly impacted by political events, the actions of OPEC and other large government resource owners, alternative energy sources, and other factors.

Key Recent Events

Significant progress was made on key new developments during 2022.

Guyana: Exploration success continued with 10 additional discoveries in 2022 in the Stabroek block. The Liza Phase 2 Unity floating production, storage and offloading vessel started production in February 2022, and our combined Liza Phase 1 and 2 developments produced above previous expectations, averaging more than 360 thousand oil-equivalent barrels per day in the fourth quarter. On Payara, the third project, development drilling continued and anticipated start-up timing has been accelerated to year-end 2023. Yellowtail is the fourth and largest world-class development project and is expected to achieve first oil in 2025.

Brazil: Development work is progressing on the Bacalhau Phase 1 project.

Permian: Production volumes averaged about 550 thousand oil-equivalent barrels per day (koebd) in 2022, approximately 90 koebd higher than the previous year. The Corporation was successful in increasing drilling performance and continuing to improve capital efficiency. ExxonMobil previously announced plans to achieve net-zero greenhouse gas emissions (Scope 1 and 2) from our operated unconventional operations in the Permian Basin by 2030. Towards this objective, we advanced several emissions-reduction initiatives in 2022 including elimination of all routine flaring(1), progress with pneumatic device replacement, electrification of equipment and enhancements to methane emissions detection technology.

LNG: ExxonMobil continued work to expand its LNG portfolio and secured participation in the Qatar North Field East project, which will increase ExxonMobil’s participation in Qatar LNG production from 52 to 60 million metric tons per year. The Coral South Floating LNG development began production in October 2022 as the first development in Mozambique’s Rovuma Basin, and is expected to produce up to 3.4 million metric tons of LNG per year. The company also completed key commercial milestones to begin the Papua New Guinea expansion, and the Golden Pass LNG project remains on schedule for 2024 start-up in the U.S. Gulf Coast.

(1) References to routine flaring herein are consistent with the World Bank's Zero Routine Flaring Reduction Partnership's (GGFRP) principle of routine flaring, and excludes safety and non-routine flaring.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Upstream Financial Results

Price – Higher realizations increased earnings by $21,290 million reflecting tight supply and recovering demand, and favorable mark-to-market impacts of $2,800 million.

Volume/Mix – Volume and mix effects decreased earnings by $110 million. The earnings benefit from volume growth in Guyana and the Permian was offset by the volume loss from divestments, the Russia expropriation, and other impacts including weather-related downtime.

Other – All other items decreased earnings by $880 million as strong cost control partly offset impacts from inflation and increased activity.

Identified Items(1) – 2021 $(543) million loss as a result of impairments of $(752) million and contractual provisions of $(250) million, partly offset by a $459 million gain from the U.K Central and Northern North Sea divestment; 2022 $(2,939) million loss mainly driven by the Russia expropriation $(2,185) million and impacts from additional European taxes $(1,415) million, partly offset by gains of $886 million on the sale of the Romania, U.S. Barnett Shale, and XTO Energy Canada assets.

(1) Refer to Frequently Used Terms for definition of Identified Items and earnings (loss) excluding Identified Items.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Price – Higher realizations increased earnings by $14,960 million.

Volume/Mix – Unfavorable volume and mix effects decreased earnings by $340 million.

Other – All other items increased earnings by $2,040 million, primarily driven by lower expenses of $1,360 million and one-time favorable tax items.

Identified Items(1) – 2020 $(19,694) million loss primarily reflected impairments of dry gas assets; 2021 $(543) million loss was as a result of impairments of $(752) million and contractual provisions of $(250) million, partly offset by a $459 million gain from the U.K Central and Northern North Sea divestment.

(1) Refer to Frequently Used Terms for definition of Identified Items and earnings (loss) excluding Identified Items.

Upstream Operational Results

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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.

Government Mandates are changes to ExxonMobil's sustainable production levels as a result of temporary non-operational production limits or sanctions imposed by governments, generally upon a country, sector, type or method of production.

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.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Energy Products

ExxonMobil's Energy Products is one of the largest, most integrated businesses of its kind among international oil companies, with significant representation across the entire fuels value chain including refining, logistics, trading, and marketing. This segment brings fuels and aromatics value chains together, recognizing their history of working closely to optimize manufacturing sites, and includes catalysts and licensing.

With the largest refining footprint among international oil companies, ExxonMobil’s Energy Products earnings are closely tied to industry refining margins. 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 and the market prices for the products produced. 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 considerations. While industry refining margins significantly impact Energy Products earnings, strong operations performance, product mix optimization, and disciplined cost control are also critical to strong financial performance.

Refining margins increased sharply in 2022, well above the top of the 10-year historical range (2010–2019). Demand for gasoline and diesel recovered to pre-pandemic levels, while jet fuel demand remained below historical levels reflecting continued COVID-19 impacts. Refinery shutdowns and lack of investments driven by the pandemic reduced industry capacity and resulted in a tight market.

Refining margins are anticipated to remain volatile in the near term as a result of significant global factors including China demand recovery and export quotas, recession fears, impacts from price caps and sanctions, low inventory levels, and new refining capacity additions.

Key Recent Events

Future capacity additions: The company mechanically completed its Beaumont Refinery expansion. This expansion will bring 250,000 barrels per day of crude distillation capacity to the market in first quarter 2023.

Strathcona Renewable Diesel Project: Progressed 20,000 barrels per day renewable diesel project, culminating in final investment decision in January 2023 for the largest such facility in Canada.

Billings divestment(1): In October 2022, ExxonMobil and its affiliates reached an agreement with Par Pacific Holdings for the sale of the Billings Refinery and select midstream assets in Montana and Washington.

Italy Fuels divestment(1): In December 2022, ExxonMobil reached an agreement with Italiana Petroli to sell its interest in the Trecate Refinery joint venture, select midstream assets, and the fuels marketing business.

Esso Thailand divestment(1): In January 2023, ExxonMobil reached an agreement with Bangchak Corporation to sell its interest in Esso Thailand, which includes the Sriracha Refinery, select distribution terminals, and a network of Esso-branded retail stations.

(1) The Corporation expects the transactions to close in 2023.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Energy Products Financial Results

Margins – Increased earnings by $14,360 million as industry refining conditions significantly improved from increased demand and low inventories, as well as stronger trading and marketing margins.

Volume/Mix – Increased earnings by $1,060 million reflecting improved product yields and higher throughput.

Other – Increased earnings by $570 million due to favorable foreign exchange and year-end inventory effects.

Identified Items (1) – 2022 $(684) million loss was driven by additional European taxes on the energy sector and impairments.

(1) Refer to Frequently Used Terms for definition of Identified Items and earnings (loss) excluding Identified Items.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Margins – Increased earnings by $1,360 million as industry refining conditions improved.

Volume/Mix – Decreased earnings by $90 million reflecting higher planned maintenance.

Other – Increased earnings by $320 million due to lower expenses, partly offset by unfavorable foreign exchange impacts.

Identified Items (1) – 2020 $(640) million loss was primarily as a result of impairments and unfavorable tax items.

(1) Refer to Frequently Used Terms for definition of Identified Items and earnings (loss) excluding Identified Items.

Energy Products Operational Results

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Chemical Products

ExxonMobil is a leading global manufacturer and marketer of petrochemicals that support modern living. Chemical Products helps meet society’s evolving needs by providing a wide range of innovative, valuable products in an efficient and responsible manner. This is supported by our unique combination of industry-leading scale and integration along with ExxonMobil’s proprietary technology, which is fundamental to producing performance products that enable lighter, more durable solutions that use less material, save energy, and reduce costs and waste. These competitive advantages are underpinned by operational excellence, advantaged investments, and cost discipline. This segment includes olefins, polyolefins, and intermediates.

Over the long term, worldwide demand for chemicals is expected to grow faster than the economy as a whole, driven by global population growth, an expanding middle class, and improving living standards. Chemical Products integration with refineries, performance product mix, and project execution capability improves returns on investments across a range of market environments.

In 2022, chemical industry margins decreased, falling below the 10-year historical range (2010-2019), reflecting bottom-of-cycle conditions in Asia Pacific, increased industry capacity, and the closure of the regional pricing disconnect between Asia and the Atlantic Basin. Despite the decline in industry margins, Chemical Products earnings remained above the segment’s 10-year average, benefiting from strong reliability, expense management, and mix of performance products.

Key Recent Events

Polypropylene expansion: ExxonMobil successfully started up a new polypropylene unit in Baton Rouge, Louisiana. This increased capacity by 450,000 metric tons per year, meeting growing demand for high-performance, lightweight, and durable plastics.

Advanced recycling: ExxonMobil started up one of North America’s largest advanced recycling units at our integrated manufacturing complex in Baytown, Texas. This facility uses proprietary technology to break down hard-to-recycle plastics and transform them into raw materials for new products. It is capable of processing more than 80 million pounds of plastic waste per year, supporting a circular economy for post-use plastics and helping divert plastic waste currently sent to landfills.

Future capacity additions: ExxonMobil is making additional, long-term chemical investments with our Chemical expansion in Baytown, Texas, which will produce performance chemicals such as Vistamaxx™ polymers and Elevexx™ linear alpha olefins, and in China, where we continue to progress construction of our multi-billion dollar chemical complex in the Dayawan Petrochemical Industrial Park in Huizhou, Guangdong Province.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Chemical Products Financial Results

Margins – Lower margins decreased earnings by $3,030 million with normalization of regional prices during the year, increased supply, and bottom-of-cycle conditions in Asia Pacific.

Volume/Mix – Product mix decreased earnings by $170 million.

Other – All other items decreased earnings by $250 million primarily as a result of higher expenses from production capacity additions, and foreign exchange effects from a stronger U.S. dollar.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Margins – Stronger margins increased earnings by $4,370 million.

Volume/Mix – Higher volumes increased earnings by $130 million.

Other – All other items increased earnings by $130 million primarily as a result of lower expenses.

Identified Items (1) – 2020 $(105) million loss was driven by impairments.

(1) Refer to Frequently Used Terms for definition of Identified Items and earnings (loss) excluding Identified Items.

Chemical Products Operational Results

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Specialty Products

ExxonMobil Specialty Products is a combination of business units that manufacture and market a range of performance products including high-quality lubricants, basestocks, waxes, synthetics, elastomers, and resins. Leveraging ExxonMobil’s proprietary technologies, Specialty Products focuses on providing performance products that help customers improve efficiency in the transportation and industrial sectors.

Demand for lubricants is expected to remain strong and grow in the industrial, aviation, and marine sectors. Specialty Products is well-positioned to help meet that demand through advantaged projects that leverage ExxonMobil's integration and world-class brands, such as Mobil 1.

In 2021, ExxonMobil completed the acquisition of Materia, a U.S.-based specialty chemical company. This business, built on proprietary technology, is now a part of the Specialty Products segment. Materia’s new class of polymers has properties well-suited for infrastructure, oil and gas, and mobility segments, notably wind turbine blades, steel rebar replacement, and anti-corrosion paints. Plans are being progressed to bring the product to market at scale.

Key Recent Events

Singapore Resid Upgrade Project: Progressed project which will leverage two proprietary technologies to upgrade fuel oil to Group II lubes and clean products, further strengthening ExxonMobil’s position as the largest basestock producer in the world.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Specialty Products Financial Results

Margins – Margins decreased earnings by $220 million driven by higher feed costs and energy prices.

Volume/Mix – Higher volumes increased earnings by $20 million on robust demand.

Other – All other items increased earnings by $30 million primarily as a result of positive year-end inventory effects, offset by increased expenses from higher maintenance and inflation, and unfavorable foreign exchange impacts.

Identified Items (1) – 2021 $634 million gain resulted from the Santoprene divestment; 2022 $(40) million loss from impairments.

(1) Refer to Frequently Used Terms for definition of Identified Items and earnings (loss) excluding Identified Items.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Margins – Stronger margins, particularly for basestocks, increased earnings by $680 million.

Volume/Mix – Higher volumes increased earnings by $300 million.

Other – All other items increased earnings by $220 million primarily as a result of lower expenses.

Identified Items (1) – 2020 $(228) million loss was driven by impairments; 2021 $634 million gain came from the Santoprene divestment.

(1) Refer to Frequently Used Terms for definition of Identified Items and earnings (loss) excluding Identified Items.

Specialty Products Operational Results

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Corporate and Financing

Corporate and Financing is comprised of corporate activities that support the Corporation’s operating segments and ExxonMobil’s Low Carbon Solutions business. Corporate activities include general administrative support functions, financing and insurance activities. Low Carbon Solutions activities will be included in Corporate and Financing until the business is established with a material level of assets and customer contracts.

Corporate and Financing Financial Results

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

LIQUIDITY AND CAPITAL RESOURCES

Total cash and cash equivalents were $29.7 billion at the end of 2022, up $22.9 billion from the prior year. The major sources of funds in 2022 were net income including noncontrolling interests of $57.6 billion, the adjustment for the noncash provision of $24.0 billion for depreciation and depletion, proceeds from asset sales of $5.2 billion, and other investing activities of $1.5 billion. The major uses of funds included spending for additions to property, plant and equipment of $18.4 billion; dividends to shareholders of $14.9 billion; the purchase of ExxonMobil stock of $15.2 billion; a debt reduction of $7.2 billion; and additional investments and advances of $3.1 billion.

Total cash and cash equivalents were $6.8 billion at the end of 2021, up $2.4 billion from the prior year. The major sources of funds in 2021 were net income including noncontrolling interests of $23.6 billion, the adjustment for the noncash provision of $20.6 billion for depreciation and depletion, contributions from operational working capital of $4.2 billion, proceeds from asset sales of $3.2 billion, and other investing activities of $1.5 billion. The major uses of funds included a debt reduction of $19.7 billion; spending for additions to property, plant and equipment of $12.1 billion; dividends to shareholders of $14.9 billion; and additional investments and advances of $2.8 billion.

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. On December 31, 2022, the Corporation had undrawn short-term committed lines of credit of $0.3 billion and undrawn long-term lines of credit of $1.2 billion.

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 to eventually produce at declining rates for the remainder of their economic life. 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. In particular, the Corporation’s key tight-oil plays have higher initial decline rates which tend to moderate over time. Furthermore, the Corporation’s net interest in production for individual fields can vary with price and the impact of fiscal and commercial terms.

The Corporation has long been successful at mitigating 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; 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 investments that may vary depending on the oil and gas price environment; and international trade patterns and relations. 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 2022 were $22.7 billion, reflecting the Corporation’s continued active investment program. The Corporation plans to invest in the range of $23 billion to $25 billion in 2023.

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 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.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Corporation, as part of its ongoing asset management program, continues to evaluate its mix of assets for potential upgrade. Because of the ongoing nature of this program, dispositions will continue to be made from time to time which will result in either gains or losses. Additionally, the Corporation continues to evaluate opportunities to enhance its business portfolio through acquisitions of assets or companies, and enters into such transactions from time to time. Key criteria for evaluating acquisitions include strategic fit, potential for future growth and attractive current valuations. Acquisitions may be made with cash, shares of the Corporation’s common stock, or both.

ExxonMobil closely monitors the potential impact of Interbank Offered Rate (IBOR) reform, including LIBOR, under a number of scenarios and has taken steps to mitigate the potential impact. Accordingly, ExxonMobil does not believe this event represents a material risk to the Corporation’s consolidated results of operations or financial condition.

Cash Flow from Operating Activities

2022

Cash provided by operating activities totaled $76.8 billion in 2022, $28.7 billion higher than 2021. The major source of funds was net income including noncontrolling interests of $57.6 billion, an increase of $34.0 billion. The noncash provision for depreciation and depletion was $24.0 billion, up $3.4 billion from the prior year. The adjustment for the net gain on asset sales was $1.0 billion, a decrease of $0.2 billion. The adjustment for dividends received less than equity in current earnings of equity companies was a reduction of $2.4 billion, compared to a reduction of $0.7 billion in 2021. Changes in operational working capital, excluding cash and debt, decreased cash in 2022 by $0.2 billion.

2021

Cash provided by operating activities totaled $48.1 billion in 2021, $33.5 billion higher than 2020. The major source of funds was net income including noncontrolling interests of $23.6 billion, an increase of $46.8 billion. The noncash provision for depreciation and depletion was $20.6 billion, down $25.4 billion from the prior year. The adjustment for the net gain on asset sales was $1.2 billion, an increase of $1.2 billion. The adjustment for dividends received less than equity in current earnings of equity companies was a reduction of $0.7 billion, compared to a reduction of $1.0 billion in 2020. Changes in operational working capital, excluding cash and debt, increased cash in 2021 by $4.2 billion.

Cash Flow from Investing Activities

2022

Cash used in investing activities netted to $14.7 billion in 2022, $4.5 billion higher than 2021. Spending for property, plant and equipment of $18.4 billion increased $6.3 billion from 2021. Proceeds from asset sales and returns of investments of $5.2 billion compared to $3.2 billion in 2021. Additional investments and advances were $0.3 billion higher in 2022, while proceeds from other investing activities including collection of advances were $1.5 billion during the year.

2021

Cash used in investing activities netted to $10.2 billion in 2021, $8.2 billion lower than 2020. Spending for property, plant and equipment of $12.1 billion decreased $5.2 billion from 2020. Proceeds from asset sales and returns of investments of $3.2 billion compared to $1.0 billion in 2020. Additional investments and advances were $2.0 billion lower in 2021, while proceeds from other investing activities including collection of advances decreased by $1.2 billion.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cash Flow from Financing Activities

2022

Cash used in financing activities was $39.1 billion in 2022, $3.7 billion higher than 2021. Dividend payments on common shares increased to $3.55 per share from $3.49 per share and totaled $14.9 billion. During 2022, the Corporation utilized cash to reduce debt by $7.2 billion.

ExxonMobil share of equity increased $26.5 billion to $195.0 billion. The addition to equity for earnings was $55.7 billion. This was offset by reductions for dividends to ExxonMobil shareholders of $14.9 billion. Foreign exchange translation effects of $3.1 billion for the stronger U.S. dollar reduced equity, and a $3.6 billion change in the funded status of the postretirement benefits reserves increased equity.

During 2022, Exxon Mobil Corporation restarted its share repurchase program for up to $50 billion in shares through 2024, including the purchase of 162 million shares at a cost of $15 billion in 2022.

2021

Cash flow from financing activities was $35.4 billion in 2021, $40.7 billion higher than 2020. Dividend payments on common shares increased to $3.49 per share from $3.48 per share and totaled $14.9 billion. During 2021, the Corporation utilized cash to reduce debt by $19.7 billion.

ExxonMobil share of equity increased $11.4 billion to $168.6 billion. The addition to equity for earnings was $23.0 billion. This was offset by reductions for distributions to ExxonMobil shareholders of $14.9 billion, all in the form of dividends. Foreign exchange translation effects of $0.9 billion for the stronger U.S. dollar reduced equity, and a $3.8 billion change in the funded status of the postretirement benefits reserves increased equity.

During 2021, Exxon Mobil Corporation suspended its share repurchase program used to offset shares or units settled in shares issued in conjunction with the company’s benefit plans and programs.

Contractual Obligations

The Corporation has contractual obligations involving commitments to third parties that impact its liquidity and capital resource needs. These contractual obligations are primarily for leases, debt, asset retirement obligations, pension and other postretirement benefits, take-or-pay and unconditional purchase obligations, and firm capital commitments. See Notes 9, 11, 14 and 17 for information related to asset retirement obligations, leases, long-term debt and pensions, respectively.

In addition, the Corporation also enters into 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. These commitments are not meaningful in assessing liquidity and cash flow, because the purchases will be offset in the same periods by cash received from the related sales transactions.

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. These obligations mainly pertain to pipeline, manufacturing supply and terminal agreements. The total obligation at year-end 2022 for take-or-pay and unconditional purchase obligations was $38.2 billion. Cash payments expected in 2023 and 2024 are $3.8 billion and $3.5 billion, respectively.

Guarantees

The Corporation and certain of its consolidated subsidiaries were contingently liable at December 31, 2022 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. Where it is not possible to make a reasonable estimation of the maximum potential amount of future payments, future performance is expected to be either immaterial or have only a remote chance of occurrence. 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.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Financial Strength

On December 31, 2022, the Corporation had total unused short-term committed lines of credit of $0.3 billion (Note 6) and total unused long-term committed lines of credit of $1.2 billion (Note 14). The table below shows the Corporation’s consolidated debt to capital ratios.

Management views the Corporation’s financial strength to be a competitive advantage of strategic importance. The Corporation’s financial position gives it the opportunity to access the world’s capital markets across a range of market conditions, and enables the Corporation to take on large, long-term capital commitments in the pursuit of maximizing shareholder value.

Stronger industry conditions in 2021 and 2022 enabled the Corporation to strengthen the balance sheet and return debt to pre-pandemic levels. The Corporation reduced debt by $19.9 billion in 2021 and an additional $6.5 billion in 2022, ending the year with $41.2 billion in total debt.

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.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAPITAL AND EXPLORATION EXPENDITURES

Capital and exploration expenditures (Capex) represent the combined total of additions at cost to property, plant and equipment, and exploration expenses on a before-tax basis from the Consolidated Statement of Income. ExxonMobil’s Capex includes its share of similar costs for equity companies. Capex excludes assets acquired in nonmonetary exchanges, the value of ExxonMobil shares used to acquire assets, and depreciation on the cost of exploration support equipment and facilities recorded to property, plant and equipment when acquired. While ExxonMobil’s management is responsible for all investments and elements of net income, particular focus is placed on managing the controllable aspects of this group of expenditures.

Capex in 2022 was $22.7 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 plans to invest in the range of $23 billion to $25 billion in 2023. Included in the 2023 capital spend range is $11.6 billion of firm capital commitments. An additional $11.4 billion of firm capital commitments have been made for years 2024 and beyond. Actual spending could vary depending on the progress of individual projects and property acquisitions.

Upstream spending of $17.0 billion in 2022 was up 39 percent from 2021, reflecting higher spend in the U.S. Permian Basin and advantaged projects in Guyana. 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 63 percent of total proved reserves at year-end 2022, and has been over 60 percent for the last ten years.

Capital investments in Energy Products totaled $2.4 billion in 2022, an increase of $0.4 billion from 2021, reflecting higher global project spending, including the refinery expansion in Beaumont, Texas. Chemical Products capital expenditures of $3.0 billion increased $0.9 billion, representing increased spend on key growth projects such as the China chemical complex. Specialty Products capital expenditures of $0.3 billion decreased $0.1 billion.

TAXES

2022

Total taxes on the Corporation’s income statement were $51.6 billion in 2022, an increase of $11.0 billion from 2021. Income tax expense, both current and deferred, was $20.2 billion compared to $7.6 billion in 2021. The effective tax rate, which is calculated based on consolidated company income taxes and ExxonMobil’s share of equity company income taxes, was 33 percent compared to 31 percent in the prior year driven by impacts from additional European taxes on the energy sector. Total other taxes and duties of $31.5 billion in 2022 decreased $1.5 billion.

2021

Total taxes on the Corporation’s income statement were $40.6 billion in 2021, an increase of $17.8 billion from 2020. Income tax expense, both current and deferred, was $7.6 billion compared to a $5.6 billion benefit in 2020. The effective tax rate, which is calculated based on consolidated company income taxes and ExxonMobil’s share of equity company income taxes, was 31 percent compared to 17 percent in the prior year due primarily to a change in mix of results in jurisdictions with varying tax rates. Total other taxes and duties of $33.0 billion in 2021 increased $4.5 billion.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ENVIRONMENTAL MATTERS

Environmental Expenditures

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 air, water, and waste emissions, and expenditures for asset retirement obligations. Using definitions and guidelines established by the American Petroleum Institute, ExxonMobil’s 2022 worldwide environmental expenditures for all such preventative and remediation steps, including ExxonMobil’s share of equity company expenditures, were $5.7 billion, of which $3.8 billion were included in expenses with the remainder in capital expenditures. As the Corporation progresses its emission-reduction plans, worldwide environmental expenditures are expected to increase to approximately $7.3 billion in 2023, with capital expenditures expected to account for approximately 46 percent of the total. Costs for 2024 are anticipated to increase to approximately $8.2 billion, with capital expenditures expected to account for approximately 51 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 2022 for environmental liabilities were $185 million ($146 million in 2021), and the balance sheet reflects liabilities of $730 million as of December 31, 2022, and $807 million as of December 31, 2021.

MARKET RISKS

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 have varied across the Corporation's operating segments. For the year 2023, a $1 per barrel change in the weighted-average realized price of oil would have approximately a $500 million annual after-tax effect on Upstream consolidated plus equity company earnings, excluding the impact of derivatives. Similarly, a $0.10 per thousand cubic feet change in the worldwide average gas realization would have approximately a $140 million annual after-tax effect on Upstream consolidated plus equity company earnings, excluding the impact of derivatives. For any given period, the extent of actual benefit or detriment will be dependent on the price movements of individual types of crude oil, results of trading activities, 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 petroleum and petrochemical environment, 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.

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.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 and 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. Refer to Note 18 for additional information on intersegment revenue.

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. The Corporation evaluates investments over a range of prices, including estimated greenhouse gas emission costs even in jurisdictions without a current greenhouse gas pricing policy.

The Corporation has an active asset management program in which nonstrategic assets are considered for divestment. The asset management program includes a disciplined, regular review to ensure that assets are contributing to the Corporation’s strategic objectives.

Risk Management

The Corporation’s size, strong capital structure, geographic diversity, and the complementary nature of its business segments reduce the Corporation’s enterprise-wide risk from changes in commodity prices, currency rates, and interest rates. In addition, the Corporation uses commodity-based contracts, including derivatives, to manage commodity price risk and to generate returns from trading. The Corporation’s commodity derivatives are not accounted for under hedge accounting. At times, the Corporation also enters into currency and interest rate derivatives, none of which are material to the Corporation’s financial position as of December 31, 2022 and 2021, or results of operations for the years ended 2022, 2021, and 2020. 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. No material market or credit risks to the Corporation’s financial position, results of operations or liquidity exist 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 or cash flow. 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 long-term and short-term debt as required. Commercial paper is used to balance short-term liquidity requirements. 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 use of these contracts are not material.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CRITICAL ACCOUNTING ESTIMATES

The Corporation’s accounting and financial reporting fairly reflect its integrated business model involving exploration for, and production of, crude oil and natural gas; manufacture, trade, transport and sale of crude oil, natural gas, petroleum products, petrochemicals, and a wide variety of specialty products; and pursuit of lower-emission business opportunities including carbon capture and storage, hydrogen, and lower-emission fuels. 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 oil and natural gas reserve volumes 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, development and production costs, and other factors. The estimation of proved reserves is controlled by the Corporation through long-standing approval guidelines. Reserve changes are made within a well-established, disciplined process driven by senior level geoscience and engineering professionals, assisted by the Global Reserves and Resources 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.

The Corporation is reasonably certain that 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 policy, consumer preferences, and significant changes in oil and natural gas price levels.

•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 volumes 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.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Impairment

The Corporation tests assets or groups of assets for recoverability on an ongoing basis whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. 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 ASC 932, and relies, in part, on the Corporation’s planning and budgeting cycle.

Because the lifespans of the vast majority of the Corporation’s major assets are measured in decades, the future cash flows of these assets are predominantly based on long-term oil and natural gas commodity prices and industry margins, development costs, and production costs. Significant reductions in the Corporation’s view of oil or natural gas commodity prices or margin ranges, especially the longer-term prices and margins, and changes in the development plans, including decisions to defer, reduce, or eliminate planned capital spending, can be an indicator of potential impairment. Other events or changes in circumstances, including indicators outlined in ASC 360, can be indicators of potential impairment as well.

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, alternative energy sources, and levels of prosperity. During the lifespan of its major assets, the Corporation expects that oil and gas prices and industry margins will experience significant volatility. Consequently, these assets will experience periods of higher earnings and periods of lower earnings, or even losses. In assessing whether 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 and margins.

Outlook for Energy and Cash Flow Assessment. The annual planning and budgeting process, known as the Corporate Plan, is the mechanism by which resources (capital, operating expenses, and people) are allocated across the Corporation. The foundation for the assumptions supporting the Corporate Plan is the Outlook for Energy (Outlook), which contains the Corporation’s demand and supply projections based on its assessment of current trends in technology, government policies, consumer preferences, geopolitics, economic development, and other factors. Reflective of the existing global policy environment, the Outlook does not attempt to project the degree of necessary future policy and technology advancement and deployment for the world, or the Corporation, to meet net zero by 2050. As future policies and technology advancements emerge, they will be incorporated into the Outlook, and the Corporation’s business plans will be updated accordingly.

If events or changes in 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 assumptions developed in the Corporate Plan, which is reviewed and approved by the Board of Directors, 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 including price differentials, refining and chemical margins, volumes, development and operating costs including greenhouse gas emission prices, and foreign currency exchange rates. Notably, when assessing future cash flows, the Corporation includes the estimated costs in support of reaching its 2030 greenhouse gas emission-reduction plans, including its goal of net-zero greenhouse gas emissions (Scope 1 and 2) from unconventional operated assets in the Permian Basin. Volumes are based on projected field and facility production profiles, throughput, or sales. Management’s estimate of upstream production volumes used for projected cash flows makes use of proved reserve quantities and may include risk-adjusted unproved reserve quantities. ExxonMobil considers a range of scenarios - including remote scenarios - to help inform perspective of the future and enhance strategic thinking over time. While third-party scenarios, such as the International Energy Agency's Net Zero Emissions by 2050, may be used for these purposes, they are not used as a basis for developing future cash flows for impairment assessments. As part of the Corporate Plan, the Company considers estimated greenhouse gas emission costs, even for jurisdictions without a current greenhouse gas pricing policy.

Fair Value of Impaired Assets. An asset group is impaired if its estimated undiscounted cash flows are less than the asset group’s carrying value. Impairments are measured by the excess of the carrying value over fair value. The assessment of fair value is based upon the views of a likely market participant. The principal parameters used to establish fair value include estimates of acreage values and flowing production metrics from comparable market transactions, market-based estimates of historical cash flow multiples, and discounted cash flows. Inputs and assumptions used in discounted cash flow models include estimates of future production volumes, throughput and product sales volumes, commodity prices which are consistent with the average of third-party industry experts and government agencies, refining and chemical margins, drilling and development costs, operating costs, and discount rates which are reflective of the characteristics of the asset group.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Other Impairment Estimates. Unproved properties are assessed periodically to determine whether they have been impaired. Significant unproved properties are assessed for impairment individually, and valuation allowances against the capitalized costs are recorded based on the Corporation's future development plans, 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.

Long-lived assets that are held for sale are evaluated for possible impairment by comparing the carrying value of the asset with its fair value less the cost to sell. If the net book value exceeds the fair value less cost to sell, the assets are considered impaired and adjusted to the lower value. Judgment is required to determine if assets are held for sale and to determine the fair value less cost to sell.

Investments accounted for by the equity method are assessed for possible impairment when events or changes in circumstances indicate that the carrying value of an investment may not be recoverable. 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 the decline in value of the investment is other than temporary, the carrying value of the investment is written down to fair value. In the absence of market prices for the investment, discounted cash flows are used to assess fair value, which requires significant judgment.

Recent Impairments. In early 2022, in response to Russia’s military action in Ukraine, the Corporation announced that it planned to discontinue operations on the Sakhalin-1 project (“Sakhalin”) and develop steps to exit the venture. The Corporation’s first quarter results included after-tax charges of $3.0 billion representing the impairment of its Upstream operations related to Sakhalin. (Refer to Note 2 for further information on Russia.) Other after-tax impairment charges of $1.6 billion and $0.3 billion were recognized in Upstream and Energy Products, respectively.

In 2021, largely as a result of changes to Upstream development plans, the Corporation recognized after-tax impairment charges of approximately $1 billion. In 2020, as part of the Corporation's annual review and approval of its business and strategic plan, a decision was made to no longer develop a significant portion of the dry gas portfolio in the United States, Canada, and Argentina. The impairment of these assets resulted in after-tax charges of $18.4 billion in Upstream. Other after-tax impairment charges of $1.8 billion across the year related mainly to impairments of property, plant, and equipment, goodwill, and equity method investments.

Factors which could put further assets at risk of impairment in the future include reductions in the Corporation’s price or margin outlooks, changes in the allocation of capital or development plans, reduced long-term demand for the Corporation's products, and operating cost increases which exceed the pace of efficiencies or the pace of oil and natural gas price or margin increases. However, due to the inherent difficulty in predicting future commodity prices or margins, 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.

For further information regarding impairments in goodwill, equity method investments, property, plant, and equipment, and suspended wells, refer to Notes 3, 7, 9, and 10, respectively.

Asset Retirement Obligations

The Corporation is subject to 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. See Note 9 for further information regarding asset retirement obligations.

Suspended Exploratory Well Costs

The Corporation continues capitalization of exploratory well costs when it has found a sufficient quantity of reserves to justify 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. Assessing whether the Corporation is making sufficient progress on a project requires careful consideration of the facts and circumstances. The facts and circumstances that support continued capitalization of suspended wells at year-end are disclosed in Note 10.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Pension Benefits

The Corporation and its affiliates sponsor 75 defined benefit (pension) plans in 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.

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 2022 was 4.6 percent. The 10-year and 20-year actual returns on U.S. pension plan assets were 4 percent and 7 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 $140 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 and Tax Contingencies

A variety of claims have been made against the Corporation and certain of its consolidated subsidiaries in a number of pending lawsuits. The Corporation accrues an undiscounted liability for those contingencies where the incurrence of a loss is probable and the amount can be reasonably estimated. For contingencies where an unfavorable outcome is reasonably possible and significant, the Corporation discloses the nature of the contingency and, where feasible, an estimate of the possible loss. 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.

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 our 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.

The Corporation is subject to income taxation in many jurisdictions around the world. 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. Significant management judgment is required in the accounting for income tax contingencies and tax disputes because the outcomes are often difficult to predict. The Corporation’s unrecognized tax benefits and a description of open tax years are summarized in Note 19.

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