The creation of Exxon Mobil Corporation became a reality on November 30, 1999, after a year of perhaps the most exhaustive and comprehensive regulatory reviews in the history of industrial mergers. Although the regulatory reviews were time-consuming, we used that time effectively to design the merged company and to seek ways to identify synergies that will allow us to capture more benefits at an even faster pace than we had estimated in 1998. We also used the time to consider an organization structure and processes that will help us improve capital productivity. Our new structure represents a major change. We moved from a multifunctional, geographically based regional organization to global functional businesses, each responsible for running its operations and stewarding results on a worldwide basis, with a geographic overlay. Transition teams, which involved more than 2,000 Exxon and Mobil people, were given the tasks of building a new company, using the best elements of the old ones, and of developing the most efficient, most streamlined organization structure possible. The efforts and contributions of these teams were invaluable. Equally important were those employees who were not directly involved in the transition but who were active in running the base business. Despite the many activities involved in preparation for the merger, they remained focused and contributed significantly to the results achieved in 1999. Better Together We achieved a number of important milestones during 1999. Earnings reached $7.9 billion. We achieved a 10.3 percent return on capital employed, and return on equity of 12.6 percent. Exxon and Mobil have historically placed the highest priority on safe, reliable and environmentally sound operations. Each company's employee safety performance set records in 1999, extending our trend of continuous safety improvement. In the upstream, our focus on efficiency, coupled with our long-term strategy of investing in projects that are resilient at low prices, allowed us to take greater advantage of 1999's improved price environment. We had an especially strong year in strategic developments. We launched projects in areas ranging from the Gulf of Mexico to West Africa to the Caspian region. We started up projects targeted for about 300,000 barrels of liquids a day and 1 billion cubic feet of gas a day. We advanced more than 30 development projects in more than 15 countries. And we continued an active drilling program in order to add new resources and reserves and additional volumes to existing fields. We also took advantage of a significant number of opportunities for longer-term growth. Our exploratory drilling programs were highly successful, with significant discoveries in the Gulf of Mexico, Nigeria and Angola. We secured high-potential acreage positions in areas such as Brazil, Eastern Canada and Angola. In addition, we made progress on significant new potential opportunities, notably in Nigeria, Azerbaijan and the Middle East. With 17 billion cubic feet of natural gas sales daily, ExxonMobil is the world's largest nongovernment natural gas marketer. We have a strong presence in Europe and North America and are looking for opportunities to develop profitably and to bring to market very large resources in areas such as Alaska, Africa, the Middle East, Southeast Asia and Russia. We also have a highly successful liquefied natural gas operation in Qatar that is expected to grow. The refining and marketing segments faced difficult industry conditions in 1999 but took steps to improve profitability. Operations were reorganized in Japan, Australia and Latin America. We announced a joint venture to improve the profitability of the Augusta refinery in Italy, and we expanded our use of cogeneration, the simultaneous production of steam and electricity. In fuels marketing, nearly 4 million customers in the United States are taking advantage of the Speedpass program, an innovative way for motorists to refuel faster. The program was also introduced in Singapore. At our Baytown, Texas, refinery, we completed facilities that will use proprietary technology to produce the next generation of lube basestocks. In chemicals, we achieved record sales volumes and expanded capacity at a number of key locations. We implemented a worldwide additives joint venture, broadening our product offerings and capturing efficiencies in research, development, manufacturing and marketing. To meet future demand in key growth markets, we continued work on world-scale facilities in Singapore and Saudi Arabia that will be completed in the year 2000. Throughout the year, we maintained focus on the efficiency and competitiveness of the base businesses. Our combined ongoing cash operating expenses were down by an impressive $1.2 billion from the previous year, continuing the trend of the past five years and getting us in better shape to face the uncertainty and volatility in our business. Regulatory Impacts When the merger was approved by the European Commission and, later, the U.S. Federal Trade Commission, public attention was focused on the required divestitures. It's important to put these in perspective. In our exploration and production business, we retained all our reserves and exploration acreage. This business segment maintains an excellent mix of mature, newly developed and exploration activities. Our chemicals and technology businesses were unaffected. The bulk of divestitures came in the refining and marketing sectors. In the United States, we were required to sell one refinery, which represented about 2 percent of our refining capacity. Our remaining worldwide refining network leads the industry, with 50 refineries and total capacity of 6.4 million barrels a day. In addition, we were required to divest some 770 company-owned or leased service stations in the United States and to assign contracts to new suppliers. These changes affected more than 1,600 stations owned by branded distributors and others. In Europe, Mobil was required to sell its 30 percent interest in the BP/Mobil joint-venture fuels business and its 28 percent interest in the German joint-venture marketing company Aral. These divestitures should be viewed in the context of the more than 45,000 remaining Exxon, Mobil and Esso stations worldwide. In the United States, despite the refinery and service station divestitures, our combined refining and marketing business is far stronger than either one of us had before. Expanded investments are expected. Exceeding Expectations Shareholders should be especially pleased that the projected financial benefits of the merger are expected to significantly exceed the estimates discussed when the merger was announced in December 1998. Originally, we felt that the merger would produce pre-tax synergies (i.e., cost savings and profit improvement items) of some $2.8 billion per year three years after the merger. After a year of merger planning, we concluded that near-term merger synergies would be considerably higher. We expect synergies directly attributable to the merger itself to amount to $3.8 billion annually on a pre-tax basis. In addition, we expect cost and margin improvements from our traditional ongoing efficiency programs. Looking Ahead But the longer-term benefits associated with improved capital efficiency are even more important. The hard work of many people has paid off with the creation of a unique world-class business enterprise capable of taking advantage of the best business opportunities available anywhere on the globe. We believe our exploration and production portfolio of complementary assets is the best in the industry. We are the world's largest private-sector producer of oil and gas combined, and we continue to expand our excellent position in many of the world's most exciting and rapidly emerging oil and gas areas. ExxonMobil's refining operations combine global scale with efficiency and match up well with the best of our competition. Fuels marketing will build on three of the best-recognized and most trusted brands in the world — Exxon, Mobil and Esso — complemented by strong retail networks in key established and high-growth markets. We also enjoy a strategic fit in lubricants, with Exxon's strong basestock business and Mobil's leadership in finished lubricants, resulting in a preeminent position. We have the most profitable petrochemical business of any integrated oil company. Our balanced portfolio is designed to deliver superior performance throughout the business cycle. We also benefit from the contributions of talented people in our support organizations — e.g., Controller's, Law, Public Affairs and Tax, among others — who add value to the work of our operating units. Constancy of Purpose Though much has changed over the past year, the fundamental principles by which we manage your company have not. We will operate safely, ethically and with regard for the environment. This is our highest priority. We are in this business for the long term and will manage the company to enhance shareholder value. With our considerable financial strength and abundance of opportunities, our investment strategy will be highly selective. We will share the best, most efficient practices across organizations and functions. And we will remain fully committed to innovation and technology development, which are absolutely essential to the growth of our business and competitive capability. We are, of course, pleased and gratified that the merger has been completed. ExxonMobil is well positioned — in terms of talented people, a diversified, high-quality asset base, leading technology and strong financial resources — to take advantage, as early as possible, of the many opportunities likely to be available in our industry. As a result, we believe very strongly that our future will indeed be "better together." We thank our shareholders, employees and, of course, our valued customers for their support of this once-in-a-lifetime opportunity to create the world's premier petroleum and petrochemical company.
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