MARKET RISKS, INFLATION AND OTHER
UNCERTAINTIES

Worldwide 2016 2015 2014
Average Realizations (1)
────────────────────────────────────────────────────────────────────────────
Crude oil and NGL ($ per barrel) 38.15 44.77 87.42
Natural gas ($ per thousand cubic feet) 2.25 2.95 4.68
(1)

Crude
oil, natural gas, petroleum product and chemical prices have fluctuated in
response to changing market forces. The impacts of these price fluctuations on
earnings from Upstream, Downstream and Chemical operations have varied. In the
Upstream, a $1 per barrel change in the weighted-average realized
price of oil would have approximately a $400 million annual after-tax effect on
Upstream consolidated plus equity company earnings. Similarly, a $0.10 per thousand
cubic feet change in the worldwide average gas realization would have approximately
a $150 million annual after-tax effect on Upstream consolidated plus equity
company earnings. For any given period, the extent of actual benefit or
detriment will be dependent on the price movements of individual types of crude
oil, taxes and other government take impacts, price adjustment lags in
long-term gas contracts, and crude and gas production volumes. Accordingly,
changes in benchmark prices for crude oil and natural gas only provide broad
indicators of changes in the earnings experienced in any particular period.

In
the very competitive downstream and chemical environments, earnings are
primarily determined by margin capture rather than absolute price levels of
products sold. Refining margins are a function of the difference between what a
refiner pays for its raw materials (primarily crude oil) and the market prices
for the range of products produced. These prices in turn depend on global and
regional supply/demand balances, inventory levels, refinery operations,
import/export balances and weather.

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

The global
energy markets can give rise to extended periods in which market conditions are
adverse to one or more of the Corporation's businesses. Such conditions, along
with the capital-intensive nature of the industry and very long lead times
associated with many of our projects, underscore the importance of maintaining
a strong financial position. Management views the Corporation's financial
strength as a competitive advantage.

In
general, segment results are not dependent on the ability to sell and/or
purchase products to/from other segments. Instead, where such sales take place,
they are the result of efficiencies and competitive advantages of integrated
refinery/chemical complexes. Additionally, intersegment sales are at
market-based prices. The products bought and sold between segments can also be
acquired in worldwide markets that have substantial liquidity, capacity and
transportation capabilities. About 35 percent of the Corporation's intersegment
sales represent Upstream production sold to the Downstream. Other intersegment
sales include those between refineries and chemical plants related to raw
materials, feedstocks and finished products.

Although
price levels of crude oil and natural gas may rise or fall significantly over
the short to medium term due to global economic conditions, political events, decisions
by OPEC and other major government resource owners and other factors, industry
economics over the long term will continue to be driven by market supply and
demand. Accordingly, the Corporation evaluates the viability of its major investments
over a range of prices.

The
Corporation has an active asset management program in which underperforming
assets are either improved to acceptable levels or considered for divestment.
The asset management program includes a disciplined, regular review to ensure
that all assets are contributing to the Corporation's strategic objectives
resulting in an efficient capital base.

Risk Management

The
Corporation's size, strong capital structure, geographic diversity and the
complementary nature of the Upstream, Downstream and Chemical businesses reduce
the Corporation's enterprise-wide risk from changes in interest rates, currency
rates and commodity prices. As a result, the Corporation makes limited use of
derivative instruments to mitigate the impact of such changes. With respect to
derivatives activities, the Corporation believes that there are no material
market or credit risks to the Corporation's financial position, results of
operations or liquidity as a result of the derivatives described in Note 13.
The Corporation does not engage in speculative derivative activities or
derivative trading activities nor does it use derivatives with leveraged
features. Credit risk associated with the Corporation's derivative position is
mitigated by several factors, including the use of derivative clearing
exchanges and the quality of and financial limits placed on derivative
counterparties. The Corporation maintains a system of controls that includes
the authorization, reporting and monitoring of derivative activity.

The
Corporation is exposed to changes in interest rates, primarily on its short-term
debt and the portion of long-term debt that carries floating interest rates.
The impact of a 100-basis-point change in interest rates affecting the
Corporation's debt would not be material to earnings, cash flow or fair value. The
Corporation has access to significant capacity of long-term and short-term
liquidity. Internally generated funds are expected to cover the majority of
financial requirements, supplemented by long-term and short-term debt. Some
joint-venture partners are dependent on the credit markets, and their funding
ability may impact the development pace of joint-venture projects.

The
Corporation conducts business in many foreign currencies and is subject to
exchange rate risk on cash flows related to sales, expenses, financing and
investment transactions. The impacts of fluctuations in exchange rates on
ExxonMobil's geographically and functionally diverse operations are varied and
often offsetting in amount. The Corporation makes limited use of currency
exchange contracts to mitigate the impact of changes in currency values, and
exposures related to the Corporation's limited use of the currency exchange
contracts are not material.

Inflation and Other Uncertainties

The
general rate of inflation in many major countries of operation has remained
moderate over the past few years, and the associated impact on non-energy costs
has generally been mitigated by cost reductions from efficiency and
productivity improvements. Beginning several years ago, an extended period of
increased demand for certain services and materials resulted in higher
operating and capital costs. More recently, multiple market changes, including
general commodity price decreases, lower oil prices and reduced upstream industry
activity, have contributed to lower prices for oilfield services and materials.
The Corporation works to minimize costs in all commodity price environments through
its economies of scale in global procurement and its efficient project
management practices.

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

RECENTLY
ISSUED ACCOUNTING STANDARDS

In
May 2014, the Financial Accounting Standards Board issued a new standard, Revenue
from Contracts with Customers. The standard establishes a single revenue
recognition model for all contracts with customers, eliminates industry
specific requirements, and expands disclosure requirements. The standard is
required to be adopted beginning January 1, 2018. "Sales and Other Operating
Revenue" on the Consolidated Statement of Income includes sales, excise and
value-added taxes on sales transactions. When the Corporation adopts the standard,
revenue will exclude sales-based taxes collected on behalf of third parties.
This change in reporting will not impact earnings. The Corporation expects to
adopt the standard using the Modified Retrospective method, under which prior
years' results are not restated, but supplemental information on the impact of
the new standard is provided for 2018 results. The Corporation continues to
evaluate other areas of the standard, which are not expected to have a material
effect on the Corporation's financial statements.

In
February 2016, the Financial Accounting Standards Board issued a new standard, Leases.
The standard requires that all leases with an initial term greater than one
year be recorded on the balance sheet as a lease asset and a lease liability.
The standard is required to be adopted beginning January 1, 2019, with early
adoption permitted. ExxonMobil is evaluating the standard and its effect on the
Corporation's financial statements and plans to adopt it in 2019.

CRITICAL ACCOUNTING ESTIMATES

The
Corporation's accounting and financial reporting fairly reflect its
straightforward business model involving the extracting, refining and marketing
of hydrocarbons and hydrocarbon-based products. The preparation of financial
statements in conformity with U.S. Generally Accepted Accounting Principles
(GAAP) requires management to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses and the
disclosure of contingent assets and liabilities. The Corporation's accounting
policies are summarized in Note 1.

Oil and Natural Gas Reserves

The
estimation of proved reserves is an ongoing process based on rigorous technical
evaluations, commercial and market assessment, and detailed analysis of well
information such as flow rates and reservoir pressure declines, among other
factors. The estimation of proved reserves is controlled by the Corporation
through long-standing approval guidelines. Reserve changes are made within a
well-established, disciplined process driven by senior level geoscience and
engineering professionals, assisted by the Global Reserves Group which has
significant technical experience, culminating in reviews with and approval by
senior management. Notably, the Corporation does not use specific quantitative
reserve targets to determine compensation. Key features of the reserve
estimation process are covered in Disclosure of Reserves in Item 2.

Oil
and natural gas reserves include both proved and unproved reserves.

·Proved oil and natural gas
reserves are determined in accordance with Securities and Exchange Commission
(SEC) requirements. Proved reserves are those quantities of oil and natural gas
which, by analysis of geoscience and engineering data, can be estimated with
reasonable certainty to be economically producible under existing economic and
operating conditions and government regulations. Proved reserves are determined
using the average of first-of-month oil and natural gas prices during the
reporting year.

Proved
reserves can be further subdivided into developed and undeveloped reserves.
Proved developed reserves include amounts which are expected to be recovered
through existing wells with existing equipment and operating methods. Proved
undeveloped reserves include amounts expected to be recovered from new wells on
undrilled proved acreage or from existing wells where a relatively major
expenditure is required for completion. Proved undeveloped reserves are
recognized only if a development plan has been adopted indicating that the
reserves are scheduled to be drilled within five years, unless specific
circumstances support a longer period of time.

The
percentage of proved developed reserves was 69 percent of total proved reserves
at year-end 2016 (including both consolidated and equity company reserves), a
reduction from 73 percent in 2015, and has been over 60 percent for the last
ten years. Although the Corporation is reasonably certain that proved reserves
will be produced, the timing and amount recovered can be affected by a number
of factors including completion of development projects, reservoir performance,
regulatory approvals and significant changes in long-term oil and natural gas
prices.

·Unproved reserves are quantities
of oil and natural gas with less than reasonable certainty of recoverability
and include probable reserves. Probable reserves are reserves that, together
with proved reserves, are as likely as not to be recovered.

Revisions in
previously estimated volumes of proved reserves for existing fields can occur due
to the evaluation or re-evaluation of (1) already available geologic,
reservoir or production data, (2) new geologic, reservoir or production
data or (3) changes in the