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Andrea Abbatiello, Abram Edgar, Billy Greenfield, & John Gleason

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Table of Contents

Executive Summary…………………………………………….…………………………. 3

Overview of the Firm……………………………………………..………………………. 4

Chapter 1: Strategic Assessment of Operations

Processes …….…………………………………………………….………………………6

Facilities and Location……………………………………….……………………………..9

Supply Chain……………………………………………………..………………………..10

Technology……………………………………………………….……………………….12

Systems…...……………………………………………………………………………….14

Infrastructure…………...…………………………………………………………………14

Corporate Social Responsibility..…………………………………………………………..15

Order Qualifiers…….……………………………………………………………………..17

Order Winners……...……………………………………………………………………. 20

Chapter 2: Strategic Marketing Analysis

Evaluation of Immediate Environment…………...……………………………………….21

Evaluation of the Macro-Environmental Forces Impacting the Firm………...……………31

Evaluation of the Firm’s Strategic Marketing Mix…………………………………………32

Sales Forecasting…………………………………………………………….……………35

Chapter 3: Managerial Accounting Analysis

Analysis of Cost Behavior…………………………………………………..……………..37

Process Analysis…………………………………………………………….…………….39

Balance Scorecard…………………………………………………………..……………..40

Chapter 4: Financial Analysis

Current Financial Health…………………………………………………….…………….46

Macro-Environmental Factors……………………………………………...……………..50

Financial Appendix…………………………………………………………..……………55

SWOT…………………………………………………………………………………….57

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Executive Summary

ExxonMobil is not only one of the world's leading gas and oil companies, but it is one of the most profitable companies in the world. ExxonMobil’s achievement is shown through its strong market position, which is a result of its elaborate and successful upstream and downstream operations. It is very strong in research and development and has created numerous amounts of technology that have made its upstream and downstream more efficient and effective. ExxonMobil a global company, which qualifies it to compete on a top tier level, and helps it gain a competitive advantage in the market. Global demand for is increasing, which lends an opportunity for ExxonMobil to gain economic growth.

Although, ExxonMobil dominates in market share, there is a decline in its financial performance. This is due to the cyclical nature of the oil industry. Oil prices are very dynamic and are currently declining in value. Without limits on production, the price of oil will remain low and continue to affect the bottom line. Due to recent oil spills, there has been in increase in laws and regulations opposing oil companies from local, state, and federal governments. These new regulations may prohibit from drilling in certain geographic regions of the world.

The weakening growth rate of GDP, especially in China and Europe is a potential threat to the growth of the business. ExxonMobil’s revenue is directly proportional to world GDP, so if GDP in these countries fall then sales revenue of the company will fall as well. Natural Disasters also have a correlation with ExxonMobil’s production. If a natural disaster occurs it would create a dangerous working environment and periodically stall the upstream process. For examples, many off shore drilling sites are located within hurricane patterns.

ExxonMobil’s profitability is directly correlated to oil prices. Recently, the world has seen a decline in the price of oil, which can be attributed to the decreasing demand and increasing supply of oil, and in conjunction the decreased demand in recessing countries like China and the EU also affects ExxonMobil. While demand in these major players has decreased, supply has remained high because of OPEC countries. Oil prices are uncertain and are not expected to rise substantially in the near future. Because of this, the profitability of ExxonMobil is uncertain. Not only are its main revenue determining macro environmental factors uncertain, when examining price/earning ratios, the firm is also trading at a premium to similar companies. Even though ExxonMobil manages its assets well, the uncertainty of these factors has led us to conclude that the stock for ExxonMobil should be sold, not bought by potential investors.

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Overview In 1859 oil was stuck in Titusville, Pennsylvania. This event triggered an oil rush very similar to the Gold rush, and by 1870, John D Rockefeller and his associates merged companies to create the largest oil company in the world, Standard Oil. As time progressed public opinion of the company changed, and the company was split into 34 smaller unrelated companies, including Jersey Standard Oil. As the industry continued to grow, Jersey Standard Oil started to buy up its competitors, and in 1972 it decides to officially change its name to Exxon. Shortly after, in 1989, the Valdez tanker crashes in the Prince William Sound in Alaska, and Exxon’s public perception is damaged due to massive environmental damage. A decade later on November 20, 1999 Exxon and Mobil decide to merge and form the ExxonMobil corporation that we know today.

Headquartered in Irving, Texas, ExxonMobil is one of the premiere companies in the world, and is currently ranked number two according to the Fortune 500. ExxonMobil’s mission is its commitment to being “the world's premier petroleum and petrochemical company. To that end, we must continuously achieve superior financial and operating results while simultaneously adhering to high ethical standards.” ExxonMobil is a massive company that sells many commodity products, such as oil and natural gas. ExxonMobil is broken down into three main processes, the Upstream, the Downstream, and Chemical. Due the sheer size of the company and the scope of our analysis we have decided to omit Chemical sector of the company.

The Upstream segment is the exploration and production of crude oil. The downstream process is the refining of the crude oil into gasoline, diesel, and other fuels. ExxonMobil has 30 refineries in 17 countries. It is a large global company that achieves its efficiency in its processes through its advances in technology. The mass metering system and R3M are two technologies that have greatly impacted ExxonMobil and the way its processes are achieved. The mass flow metering system is the technology that is used to help the marines monitor the flow, temperature, and density of the fuel. The R3M, which stands for Remote Reservoir Resistivity Mapping. This is a technology that helps ExxonMobil improve its exploration of oil.

The oil industry is a highly competitive environment. The oil industry has five top tier players: ExxonMobil, Chevron, BP, Conoco Phillips, Royal Dutch/Shell. ExxonMobil specializes in taking crude oil and refining it into gasoline, diesel and petroleum. These competitors are positioned as top tier companies in the industry. ExxonMobil has the second highest market share and the highest market value when compared to other competitors in the industry.

Since oil based products are commodities, the price per barrel is determined by the supply and demand of the market. The products produced by these companies are sold both domestically and internationally. These markets play a tremendous role in the prices of ExxonMobil’s products.

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From a marketing perspective, it sells its products and its operations. ExxonMobil is an incredibly operationally efficient company, which allows it to market its operations. ExxonMobil will send search parties to different parts of the world searching for oil. Once it has found the resource, it sends drills, vessels, and pipelines to the spot so it can extract the oil and transport the crude oil to a refinery. Once in the refinery, the crude oil is made into gasoline, diesel, and petroleum. Then ExxonMobil sells these products to its customers, which are primarily business-to-business transactions to companies such as Cross America Partner and AKR Corporindo.

In the oil industry, sustainability and corporate social responsibility are very important. This is because the nature of the business affects the environment negatively. ExxonMobil’s processes produce extreme amounts of greenhouse gases that raise global temperature. It also produces products that will release more greenhouse gases when they are consumed as fuel. After many oil spills that have brought to light the harm that oil companies can do the environment, companies like ExxonMobil have a responsibility to try and give back to the communities they are involved in. This is an area where ExxonMobil needs to improve. Like their competitors, ExxonMobil tries to portray the impression that it is giving back to the community. However, it has not made much of an effort to reduce the effects of its products.

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Operations: What are ExxonMobil’s Processes

Of Production

Processes: How Does ExxonMobil Produce its Products & Services?

Exploration The world’s fossil fuel supply is a limited nonrenewable resource. Current oil wells contain a fixed amount of crude oil and run the risk of ‘drying up’ or ‘becoming tapped out.’ While supply for ExxonMobil’s always limited by its sources, it is critical to have elite exploration techniques in order to win these rights. ExxonMobil must continue to explore new sources of crude oil in order to remain competitive and maintain their supply of oil. Crude oil is an energy rich, naturally occurring substance that is found deep underneath the earth’s crust. It takes millions of years to form, and is created from dead plant and animal matter that becomes trapped under the earth’s crust. Subject to extreme pressure and heat for millions of years, this organic matter forms the energy rich crude oil that is harvested today. Since the formation of crude fossil fuels requires the pressure of the earth’s crust, the oil is inconveniently located thousands of feet under the earth’s surface. The average oil well in Texas is located 3,500 feet under the earth's surface. In context, the tallest skyscraper in the world, the 160 story Burj Khalifa in Dubair, stands only 2700 feet tall and The Grand Canyon in Arizona average a depth of 2,600 ft. (Possibly add a photo of the building or grand canyon) for comparison) While the average Texas oil well may appear impossibly deep, it pales in comparison to many offshore drilling projects. The BP Deep-water Horizon Offshore Oil Well in the Gulf of Mexico broke a world record for deepest oil well in history, drilling to a depth of over 35,000 feet. This is over a mile deeper than the height of Mount Everest’s tallest peak. Still yet, this record was demolished with the Sakhalin-I oil well, a partnership-drilling project between Sakhalin Oil and ExxonMobil. In 2012, the well reached its deepest level in history with a depth of over 40,000 ft. Putting the magnitude of this project into perspective, this is deeper than the Mariana Trench; the deepest known section of the ocean. With these oil wells and future reserves hidden miles below the earth’s crust, ExxonMobil has designed and implemented sophisticated technologies and processes. These technologies and processes allow ExxonMobil to predict the location of future reserves before the expensive and time-consuming process of drilling. The initial stage of exploration consists of bidding with other oil extractors for designated sections of land or water. These areas can be

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put up for auction by a country’s government or a private landowner. Once the bid has been won, the main exploration process can take place. This process consists of using technology to gain a 3D image of underground formations. For the past 40 years ExxonMobil has used many variants of seismic mapping in order to predict the location of oil reserves, but has more recently designed their new Remote Reservoir Resistivity Mapping (R3M) process. In the older seismic mapping process, seismic waves are used to form three-dimensional images of underground formations, and these waves are typically produced by an explosion, an air cannon, or some form of commercial vibrator. As these waves travel through the ground, different ground formations and materials reflect waves back to a seismic reader and computer where a 3D image of ground formations can be generated. ExxonMobil’s new R3M process is similar to seismic mapping, but the R3M process uses electricity to gain an image of underground formations. R3M uses low-frequency electromagnetic waves that travel through the ground and senses different formations and materials depending on their conductivity. This technology extends our reach when exploring for deep-water oil reserves. This new technology will be discussed in more detail in later parts of the analysis.

Drilling and Transportation Once ExxonMobil has reasonable suspicion that oil reserves exists underneath an area, the company begins its drilling process. Complying with legal regulation is the first step of the drilling process. ExxonMobil must conduct environmental impact surveys to gauge potential risk of the project. Lease agreements or property titles must be established to protect property rights. When drilling offshore, this could include legal jurisdiction and agreement between ExxonMobil and the country with rights to the waters. If the drill site is on land, the site must be leveled and prepped for construction. The site needs vehicle access so road construction may be necessary. The drilling process also requires a source a water source for pumping materials from the drill site. If not water source in available naturally, one must be connected. All this byproduct of the drilling process must be stored, so a plastic lined pit is dug for waste storage. Once the surrounding area has been prepped, the crew hired by ExxonMobil begins the setup for drilling operations. Essentially, the drill excavates dirt and other materials until an established depth is reached. Sections of drill are added as the drill pushes deeper. Oil will typically lie directly beneath a layer of rock called the reservoir rock. Oil sands will appear in the waste mixture once the reservoir rock has been reached. These sands are tested to indicate the presence of crude oil. Once the drill team is sure the reservoir rock has been reached, a special perforating gun is used similar to a jackhammer to break through the reservoir rock, releasing the supply of oil. Once the supply is tapped, a pump is installed at the head of the oil line so the well can provide a steady stream of crude oil. One the oil is pumped, it must be transported to the refinery where is can be converted into a plethora of consumer and industrial products. The crude oil is typically transported using

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oil tankers or direct pipelines. In some more rare cases, trucking companies and rail transportation may be utilized.

Refining Once crude oil is discovered and extracted, it is sent to a refinery via pipelines, ships, or a combination of the two. It is at the refinery that crude oil is converted into a number of consumer and industrial products. These products include fuels, waxes, plastics, lubricants, and chemicals. While the refining process is complex, it can be broken down into three main stages. These stages are separation, conversion, and finally purification. The first stage of the refining process is separation. In the separation process, the crude oil is divided into its natural components. Similar to the making of liquor or spirits, separating of the crude product is made possible by distillation. As can be seen in the figure below, crude oil heated to over 750 degree Fahrenheit is added to a large distillation tower. The heated crude oil begins to turn into vapor, rising up the tower. In these towers, the heat source is located at the base and lessens moving up the tower. As the vapor moves up the tower, it drops in temperature. Different byproducts of the separation process have specific temperature where its vapors condense into a form extractable from the tower. Some byproducts have a low evaporation temperature and rise to the top of the tower while those with a higher evaporation temperature stay at the bottom of the tower. As can be seen in the diagram below, the gaseous byproducts of crude oil rise to the tip of the tower where they are extracted. These byproducts include gases like propane or butane. These gases are used in everyday equipment like burners or grills. Condensing at lower points of the tower are gasoline, jet fuel, and diesel. These fuels are extracted as liquids. Settling at the bottom of the tower are the most solid byproducts. This includes heavy oils, waxes, industrial fuels, and asphalt base. After the crude oil is separated into its natural components and extracted as unfinished products, the refiners are left with a proportion of products that is unequal to the proportional demand of each product. For example, gasoline is one of the most highly demanded byproducts of crude oil and heavy oils are in relatively low demand. A problem arises because the separation process creates much more heavy oil than it does gasoline. Because of this, the less demanded unfinished products are converted into forms of the most demanded problems. In order to understand the conversion process, it is important to understand the basic chemistry of crude oil. All of the byproducts of crude oil are based on the same building blocks. This building block is the hydrocarbon chain. These chains occur in all the products extracted from the separation process, but vary in lengths. Gaseous products like propane and butane consist of short hydrocarbon chains while thick, solid fuel sources like paraffin wax are made up of much longer chains. In a few different processes, ExxonMobil is able to break and conjoin the chains of one product to form the other. While the exact science

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behind the process is unnecessary for the present analysis, this process is important in ensuring that production of each product is equal to demand. After the components of crude oil have been separated and converted to quantities matching demand, the raw products must be purified. The purification process is conducted in order to remove sulfur from the products. The sulfur must be removed in order to insure a quality product that meets environmental standard. After the purification process, the refinery has its finished products. Through countless forms of petrochemical technologies, these finished goods can be turned into thousands of useful products. These fuels can be used in everything from powering jet planes, making acrylic materials for clothing, or making plastic bottle for Coca-Cola.

Facilities & Locations: Where is the Firm Located? ExxonMobil is a United States based company headquartered in Irving, Texas just outside of Dallas. It has a large presence in five different continents and has plants located in North America, South America, Europe, Africa and Asia. They have a total of 30 refineries in 17 different countries and over 75,000 employees.

ExxonMobil recently opened an employee training facility in Houston, Texas that will provide employees with comprehensive training and skill building sessions to improve their quality of work. This is a logical location for the facility because it is relatively close to ExxonMobil’s corporate headquarters. It will also help improve the quality of work throughout the company because ExxonMobil employs many high skilled laborers, which operate extremely expensive machinery.

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Supply Chain: Connect Suppliers to the Customers The supply chain is ExxonMobil’s entire system of producing and selling their products. It includes suppliers that help them get the materials they need to extract and produce the oil, the refineries where the oil made into a finished product, and the customers that purchase ExxonMobil’s products.

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Suppliers

As one of the world's largest companies, ExxonMobil has roughly 165,000 suppliers. (Supplier development, 2015) The majority of these suppliers provide ExxonMobil with the equipment or services needed to complete the upstream and downstream processes. For the upstream process these suppliers provide drills, vessels, pipeline materials, and other machinery that is required to extract crude oil. Most of the supplies used in the downstream refining process are chemicals that are used to refine the crude oil. The majority of ExxonMobil’s suppliers supply equipment but a small percentage of these supplies are addition crude oil and chemicals. Although ExxonMobil has a large upstream process, it still refines more oil per day than it can extract. Therefore it is necessary to supplement supply with crude oil is extracted from other companies.

ExxonMobil’s most extensive supplier is Fluor Corporation. Fluor accounts for 9.8% of ExxonMobil’s capital expenditures and supplies them with various construction products to help both the upstream and downstream processes. (Fluor Corporation, 2015) Other elite system companies that supply ExxonMobil are Seadrill, Plains All American, Parker Drilling and Glencore. All of these companies sell with different kinds of extracting and refining equipment that ExxonMobil utilizes. (Bloomberg, 2015)

Before they are allowed to explore a certain area ExxonMobil must outbid their competitors for the right to the land, which could be owned by the government of a nearby country or by a private landowner. Once ExxonMobil has been granted access to the land by countries like Qatar and Saudi Arabia, they send teams to search for oil. ExxonMobil employs some of these teams, but some teams are hired from other companies such as CGG (Geoconsulting). Geologist experts at CGG help give ExxonMobil a competitive advantage in frontier exploration.

ExxonMobil outsources a large portion of the drilling process to drilling companies. Once they have found a good drilling spot ExxonMobil contracts drilling companies like Seadrill or Parker Drilling to come drill for a certain period of time. It is not cheap to outsource the drilling process but it saves ExxonMobil money in the long run because to do not have to pay salaries for employees that would not be working every day.

Once the oil has been extracted ExxonMobil has the option to store it on site or send it through the pipeline to a refinery. The majority of the time ExxonMobil will choose to send the oil directly to the refinery. However, if there is excess in supply or if another company is using ExxonMobil’s pipelines they have the option to store the oil on site. The final option they have would be to sell the crude oil to other companies, but this would be a last resort option if they did not have enough room left in storage.

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Customers

ExxonMobil has many different customers that buy their products for energy purposes and of these customers Cross America Partner and AKR Corporindo buy the largest percentage. (Bloomberg, 2015) Both Cross America Partner and AKR Corporindo are involved in fuel distribution. So they buy the already refined oil from ExxonMobil then distribute it to an array of their own customers. A large majority of ExxonMobil’s revenue comes from business to business transactions with companies like Cross America Partner and AKR Corporindo. A much smaller percentage comes from selling gasoline at ExxonMobil gas stations. Other than their gas stations almost all their profits come from business to business.

Once they have finished refining their products, ExxonMobil has different distributors that send their products around the world. The two largest distributors ExxonMobil works with are CrossAmerica Partner and AKR Corporindo. These companies will take the fuel and lubricants to different retailers, transportation companies and ExxonMobil gas stations.

ExxonMobil sells its fuel products to Safeway and many other retailers. These retails use ExxonMobil’s products to fuel their transportation process such as delivery trucks. Many transportation companies partner with ExxonMobil as their provider for fuel. The most prominent of these companies is EasyJet, who uses ExxonMobil high quality fuels and lubricants to run their jets.

Technology: What Innovations in Technology has ExxonMobil Made? The advanced technology that ExxonMobil employs is a crucial factor in their ability to be a leading global energy company. This new technology is the result of an annual amount $1.044 billion per year that ExxonMobil spends on research and development (Company Profile ExxonMobil, 2014). These new technological advances help the company become more efficient and save money.

Exploration Technology

ExxonMobil has developed an innovative vessel that allows it to extract oil from the sea floor. (Deep-water technology, 2015) This easy to use Floating, Production, Storage and Offloading (FPSO) vessel allows ExxonMobil to extract oil from areas up to 5,000 feet deep. This vessel extracts hydrocarbons, the main ingredient in oil, from nearby platforms or subsea templates. These hydrocarbons will then bond together resulting in oil and are stored inside the vessel until it is ready to be loaded into a tanker or transported through a pipeline. Five years ago ExxonMobil partnered with the Nigerian National Petroleum Corporation and has installed FPSO vessels off the coast of Nigeria. The vessels have been extremely successful so far adding an average of 3.1 billion barrels of oil annually to ExxonMobil’s total oil production over the past five years.

Before ExxonMobil can drill and extract oil, it has to find a location that produces oil. Exploration technology is important for ExxonMobil to find many different locations that

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are rich in oil, hopefully before their competitors find them. That is why ExxonMobil has put a lot of effort into developing new exploration technology. Their newest technology in this field is called Remote Reservoir Resistivity Mapping, or R3M. ExxonMobil scientists created this technology based on the notion that both oil and gas are poor conductors of electricity. (Remote reservoir resistivity mapping, 2015) R3M technology sends out very low-frequency waves that give ExxonMobil signals if there is oil nearby. This type of technology is very useful in difficult to reach places such as deep in the ocean where generally you wouldn’t be able to know if there is oil without drilling into it. R3M technology has successfully discovered oil of the coasts of Canada, Columbia, Brazil, West Africa and the Gulf of Mexico.

Drilling Technology

ExxonMobil has also developed a Fast-Drilling technology. This new technology not only ExxonMobil drill wells faster, but it also lessens the effect that ExxonMobil has in the environment by saving energy and consuming less fuel. (Reducing environmental impacts, 2015) ExxonMobil has an 80% better drilling rate since implementing this new fast-drilling technology. It also has the annual energy savings equivalent to taking 1,200 cars off the road.

Refinery & Gas Production Technology

Scientists  for  ExxonMobil  invented  Controlled  Freeze  Zone  (CFZ)  technology technology, which is designed to remove impurities from natural gases. Before CFZ technology, oil companies were restricted from large portions of natural gases that are rich in CO2 because of its negative effect on the environment. (Controlled freeze zone, 2015). This new technology allows ExxonMobil to tap into previously inaccessible reservoirs because it will be able to safely remove the harmful substances from the oil. This technology works by removing the CO2 and hydrogen sulfide from the oil. Next, ExxonMobil freezes the CO2 and applies heat to develop methane, which can be used as a form of sustainable energy. This technology allows ExxonMobil to produce more oil without breaking CO2 regulations, and saves time and money due to the simplification of the refining process.

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Systems Many of ExxonMobil’s processes can be dangerous, so ExxonMobil is required to set-up systems to mitigate any damage that can be caused by the company. One of these systems that have been implemented in the Gulf of Mexico is the Marine Well Containment System. The Marine Well Containment Company is a separate non-profit company that protects all oil companies that drill in the Gulf of Mexico, not just ExxonMobil. (Marine well containment system, 2015) The MWCC provides companies with equipment and technology that has been approved by the Bureau of Safety and Environmental Enforcement.

One of ExxonMobil’s most important systems is its pipeline system. The ExxonMobil Pipeline Company transports over 2.7 million barrels of crude oil, refined products, and natural gas liquids, through roughly 8,000 miles of pipelines each day. (ExxonMobil Pipeline). In addition to these pipelines, ExxonMobil’s Pipeline Company operates 23 terminals throughout the United States that help them transport a wide variety of their product portfolio. Even though ExxonMobil has an in house pipeline company, they also outsource the pipeline system to other companies such as Plains All American. The pipeline system is key in connecting the upstream process and downstream process, so this system is crucial to company operations.

Infrastructure ExxonMobil has just constructed a state-of-the-art facility in Houston, Texas. This new facility was created to provide its employees with the opportunity and tools to accelerate the discovery of new resources, and achieve future and current business objectives (Locations, 2014). The Houston plant accommodates 10,000 employees with the ability to explore, collaborate, and innovate. This plant was designed for the production and the exploration, along with top-tier training for its employees (Locations, 2014).

ExxonMobil recognizes the significant responsibilities they have to their customers, communities, and shareholders to bring affordable energy to the global market. This new facility has increased the safety and efficiency in the way they operate. Its core values include safety, professional development, diversity and inclusion, health and wellness, sustainability, ethics, and integrity (ExxonMobil, Culture and Values, 2015). The company culture stresses the commitment of integrity. They focus on safety, operational excellence, financial discipline and high ethical standards, which in turn should help the company to be the best positioned to meet the world’s growing energy needs. Customers are going to buy a product not only based on price, but also based on company culture. If a company stands by ethical standards, more people will be willing to buy their products. ExxonMobil makes it a priority to meet the energy needs of the current generation in an economically, environmentally, and socially responsible manner. Global policies and practice, enforced in every location and aspect of operation, implement its commitment to high ethical standards. It has a Standard of Business Conduct that provides a framework and guidelines for employment practices. In the global market that ExxonMobil operates, it is important that their ethics remain high due

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to the frequency of oil spills and other macro-environmental factors that could have a great affect on the community and surrounding areas (ExxonMobil, Culture and Values, 2015).

Environmental Social Responsibility As a global company ExxonMobil must have a level of corporate social responsibility to fulfill the corporate need. This is especially important for a company like ExxonMobil, which is known to have environmentally harmful operations and products. Marketing its sustainable initiatives is critical for ExxonMobil in order to promote a better global perception. For example, ExxonMobil boasts about being the largest non-pharmaceutical donor to malaria research and development efforts, and since 2002 they have distributed 13.1 million bed nets (Progress Through Partnership, 2015). Even though ExxonMobil supports many worthy causes they are also have a reputation of being exploitive. For example, in Nigeria when Exxon merged with Mobil it new firm failed to report its merger status, which is required by law in order collect merger payments to home and hosting countries (How IOCs Fleeced Nigeria of Billions of Dollars in M&A Fees, Taxes). Nigeria would have collected $10 billion dollars in transaction fees, however ExxonMobil managed to avoid the payments. Although Exxon and Mobil admitted their mergers internationally, they denied the merger of their subsidiaries in Nigeria. This allowed for the company to avoid the payments of the merger. In all aspects except for the formalities, Exxon and Mobil had merged allowing them to gain benefits of the merger and simultaneously avoid any of the costs. This is purely exploitive because it is fraudulent misrepresentation of identity, and knowledge poor oversight and weak enforcement capabilities allowed for exploitation to succeed in Nigeria (How IOCs Fleeced Nigeria of Billions of Dollars in M&A Fees, Taxes). ExxonMobil’s enormous clout as a one of the largest companies in the world creates a window that allows for them to have the ability to exploit countries that need their investment.

ExxonMobil suffers from environmental lawsuits that fine the company large amounts of money. US Department of Justice and the State of Arkansas both filed a consent decree against ExxonMobil in 2011 and 2103. These decrees require clarification for specific elements of the company, and often lead to massive penalties that the company has to pay (Company Profile Exxon Mobil Corporation, 2012). For example, the recent settlement of an environmental destruction lawsuit in New Jersey resulted in ExxonMobil having to pay $225 million for 1,500 acres of wetland destruction (Weiser, 2015). Subsequently, in California ExxonMobil was recently fined $120,000 for turning in tardy and incorrectly reported emission reports (Barboza, T. 2015)

ExxonMobil approaches the environmental aspect of corporate responsibility very cautiously. After the massive Alaskan Valdez Oil spill in 1989, ExxonMobil’s environmental sustainability and preservation was critically damaged after 257,000 barrels or 11 million gallons of oil spilled into Alaskan costal waters (see picture below) (Oil Spill Facts, 1990). This spill affected approximately 1,300 miles of shoreline and the animal and fish death rate was so large it is currently unknown, but the estimates of waterfowl deaths are approximately 250,000. This single oil spill is very similar to the BP oil spill that affected the Gulf of

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Mexico in 2010. The political whiplash negatively affected ExxonMobil and resulted in a loss of profits.

In order to mitigate future spills and environmental disasters, ExxonMobil has started to take measures to ensure fewer oil spills. Contracting with the Marine Well Containment Company (MWCC), which specializes in deep-water well containment in the Gulf of Mexico, helps ExxonMobil have a timely response team to any oil crises (Well Containment, 2015). This system is designed to cap deep-water wells that rupture at depths up to 10,000 feet. This system can contain 100,000 barrels a day and has the potential for expansion to contain more oil. MWCC is available to all companies that operate in the Gulf of Mexico, however the existing partners of the company have greater access to the preventative and containment technology (Marine Well Containment Company, 2015).

Providing the world with energy comes with a cost, and the extraction and refining of nonrenewable resources degrades the environment. The processes of extracting fossil fuels harms the environment, for example, drilling wells, refining fossil fuels materials, and eventually burning them adds greenhouse gases to the atmosphere. Large-scale pollution is one of the most difficult challenges for ExxonMobil, and they produced almost double the amount of pollution than their competitors BP and Shell (ExxonMobil Corporation Sustainability Case Study, 2010, pg. 25). This makes it clear that ExxonMobil is not doing enough to reduce their emissions, and an aspect of that is not allocating enough funding to research and development (ExxonMobil Corporation Sustainability Case Study, 2010, pg. 25). There is also speculation that ExxonMobil consistently falsifies their emission reports, and they have gotten in trouble by trespassing ethical standards and falsely reporting their emissions. For example, they were fined 3.6 million pounds by the UK for failing to report the complete amount of their greenhouse emissions (ExxonMobil paid £3.6m for two EU

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ETS errors, 2012). In conjunction with the false reporting in the UK, they were fined $120,000 in California for filing late and incorrect information on their Torrance refinery and Pacific Gas & Electric Co (Barboza, T. 2015). ExxonMobil’s toll on the environment means that they are very susceptible to environmental regulations and lawsuits. These regulations increase the cost of operations and can prevent them from accessing untapped resources. The results of poor environmental stewardship harm ExxonMobil by not allowing them to access reservoirs of oil and forcing hefty fines on the company.

Order Qualifiers: What must the firm have in order to compete in the oil Industry?

Quality

The first qualifier for ExxonMobil is the quality of its products. Having a quality level that is equal to the competition allows for ExxonMobil to compete regardless of other factors. ExxonMobil’s integration enables control over its supply chain and limited outsourcing prevents major quality problems.

Vertical Integration

As an oil giant, ExxonMobil has both an incredibly large upstream and downstream process, and this company's processes are heavily vertically integrated. This gives ExxonMobil a large amount of control over its supply chain and allows ExxonMobil to acutely manage product quality. However, ExxonMobil is not the only oil giant that has vertical integration. The majority of their major competitors have vertically integrated aspects of their operations as well. Therefore, the vertical integration of ExxonMobil is a qualifier because it allows for the company to compete against its top tier competitors

Upstream

ExxonMobil has a very large upstream process, which involves exploration and extraction of oil and gases. (ExxonMobil Annual Report, 2014) These processes are a competitive part of the oil industry, because access to oil rights is critical for company success. All top tier oil companies such as Chevron, Royal-Dutch Shell, and British Petroleum have their own upstream processes. Therefore, ExxonMobil must have an upstream process to qualify to compete in the oil manufacturing industry. Falling behind in the extraction of oil would cut into the amount of oil they are able to refine which would reduce the bottom line. While this is a good thing for ExxonMobil to pursue, when looking at it from a customer’s perspective the efficiency of the upstream process does not add value to the final product. Consequently it is not an order winner.

Downstream

Another qualifier for ExxonMobil is its downstream or refining process. While the upstream process focuses on extracting crude resources, the downstream process focuses on refining the crude oil. The downstream process includes everything from the time the oil gets to the

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factory, to the time it reaches the consumer. (ExxonMobil Annual Report, 2014) This process is the biggest source of revenue for the company. This sector is comparable to the upstream process due to ExxonMobil’s competitors having large downstream operations as well.

From the consumer perspective of the downstream process, their first instinct is to think about business-to-customer operations, which are the ExxonMobil and Esso gas stations. However, that is only a small percentage of the revenue ExxonMobil receives from the downstream process. It gets the majority of its revenue through business-to-business transactions.

Diverse Geographic Portfolio

Although based in the United States, ExxonMobil is a global company and most of its drilling, refining, and selling of oil is done internationally. (Locations, 2015) The oil industry is a global market due to diverse geographic regions containing the resource. Therefore being a global company is necessary for ExxonMobil to compete with other oil companies. If ExxonMobil only focused on oil it could find domestically it would compete on a top tier level. This global integration would be an order winner if not for several of ExxonMobil’s competitors having geographically rich portfolios as well. ExxonMobil has an upstream base in 36 countries and downstream refineries in 17 countries.

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ExxonMobil’s tremendous size and wealth has made them one of the most influential companies in the world. They actually have larger revenue than the GDP of some of the countries they are involved in. This power makes it easy for them to cut favorable deals with these countries so they can produce oil on their land.

Brand

Much like any industry, to be a significant player in the oil industry you must have a strong brand name. ExxonMobil has built a strong brand name due to its massive size and influence. It is recognized as one of the most profitable and dominate companies in the entire world. To its customers it has a reputation for being extremely dependable. The only stain on ExxonMobil’s brand name is the way it affects the environment. While no oil company is perfect in realm of environmental degradation, ExxonMobil has a history of large oil spills and environmental destruction. It will never have a sterling reputation when it comes to being environmentally friendly, but it must be careful not to stray far behind their competitors when making environmental policies. While its brand is not perfect, its strong presence helps ExxonMobil compete in the industry. However it is not enough to differentiate them from competitors, making it a qualifier.

Production

One place where ExxonMobil excels is its ability to produce more oil than its competitors. Looking at the below figure (figure 1.1) ExxonMobil produces over 2 million barrels of oil per day more than any of their other competitors. This can be attributed to its superior technology and extreme production efficiency. Producing a higher volume gives ExxonMobil more refined oil and natural gases to sell to its customers.

Figure 1.1   XOM   Chevron   BP   Total   Shell    

Revenue   $428.3  billion  

$222.5  billion  

$375.5  billion  

$237.0  billion    

$451.2  billion  

Daily  production   6.4  million  barrels  

2.6  million  barrels  

4.1  million  barrels  

3.4  million  barrels  

3.1  million  barrels  

Reserves   13.6  billion  barrels  

11.3  billion  barrels  

18.1  billion  barrels  

11.5  billion  barrels  

13.6  billion  barrels  

(Shell competitors [Table]. 2015)

Price

With the nature of commodity products, the price of crude oil is not directly under ExxonMobil’s control. This commodity price per barrel is determined by an array of

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different factors. For example, supply. If there is a shortage in crude oil the price will rise and conversely if there is an excess supply the price will drop. The cost will also rise or fall with the cost of transporting the oil. If cost changes at any point in the supply chain, it will be reflected in the price of both crude oil and gasoline. (What sets oil prices, 2014) Although there are different factors that change the price of oil, the current price of a barrel of oil is not significant between competitors so solicit a winner. Therefore, the price of oil qualifies ExxonMobil to compete with its international competitors.

Order Winners: What Makes Customers Want to Do Business With ExxonMobil?

Product Variety

ExxonMobil offers a large spectrum of products. In an industry where the main product sold is a commodity, it is difficult to differentiate the firm from its competitors on a product-to-product basis. Offering a wide product portfolio for ExxonMobil such as fuels, technology, and lubricants allows for them to be differentiated from their competitors. ExxonMobil is able to accommodate a limited level of customization in customer’s orders that other companies with limited products cannot. If a customer were looking for a source of fuel and a lubricant then it would be more convenient to them to buy both of those from the same company. This would allow ExxonMobil to win that order over a competitor that does not sell both fuel and lubricants.

Technology and Innovation

ExxonMobil’s technology is a large reason that is one of the most profitable companies in the world. Last year ExxonMobil spent over a billion dollars on research and development alone on which the firm invested large amounts of capital into researching and designing the newest technology so it can stay ahead of its competition (Company Profile ExxonMobil, 2014). This new technology helps ExxonMobil produce greater quantities of oil more efficiently and has helped improve the quality of its products. New technology helps ExxonMobil win orders because it improves product quality, which raises customer satisfaction.

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MARKETING: How Does ExxonMobil Communicate to Their Customers?

ExxonMobil is a majority business-to-business company with a small consumer-to-business sector that markets on a global level. They have several brand names that are used to convey the trust and prestige of the company and their operations. ExxonMobil has a strong market position, which helps them to market their products and gain new business.

Market Environment: What Factors Affect ExxonMobil’s Ability to Communicate & Build Relationships? ExxonMobil operates in three different marketing segments: Upstream, Downstream, and Chemical. This analysis focuses on the Upstream and Downstream marketing segments. The upstream encompasses the exploration and the production of crude oil and natural gases. ExxonMobil achieves their success through a diverse portfolio of exploration and development opportunities (ExxonMobil Corporation, 2015). The Upstream business strategies consist of identifying and selectively pursuing the highest quality exploration opportunities, investing in projects that deliver superior returns, and maximizing profitability of existing oil and gas production.

Partners

ExxonMobil’s Downstream is a large, diversified business with refining, logistics, and marketing techniques around the world. The corporation has a presence in the markets of North America and Europe, as well as in the growing Asia Pacific region. ExxonMobil’s fundamental Downstream business strategically positions the company to deliver long-term growth in shareholder value, which is superior to competition across a range of market conditions. These strategies include maintaining best-in-class operations in all aspects of the business, maximizing value from leading-edge technologies, capitalizing on integration across ExxonMobil businesses, and leading the industry in efficiency and effectiveness. These provide valuable products and services to its customers (ExxonMobil Corporation, 2015).

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Corporate Partners

ExxonMobil’s corporate partners are located internationally and are chosen based on which geographic location is suited for a specific project. One of ExxonMobil’s corporate partners is Qatar Petroleum. Qatar Petroleum and ExxonMobil work together to deploy innovative technologies and creative commercial arrangements in the development of the North Field refinery, which is the world’s largest non-associated gas resource. The North Field is a natural gas condensate field located in the Persian Gulf. ExxonMobil and Qatar Petroleum Corporation agreed to develop additional North Field gas pipelines for sales of domestic products and regional gas exports. This project will produce a capacity of 1.75 billion cubic feet per day of gas sales. The North Field will also contribute to future petrochemical ventures. ExxonMobil and Qatar Petroleum share the view that advances in technology will play a crucial role in meeting the energy demands and challenges of the future (Qatar activities, 2015).

Competition

ExxonMobil is involved in a highly competitive environment. This environment is made up of the top-tier, elite companies involved in the exploration, production and refining of crude oil and natural gas. Competitors in both the upstream and downstream of the business include: Royal Dutch Shell, Chevron Corporation, Total, and Occidental Petroleum Corporation. These companies are selling commodity products; therefore price is determined by future demands. Success in the oil and gas industry depends largely on technological efficiency and access to materials. Due to these factors, a large capital base is essential to success. In order for these companies to gain competitive advantage, they must invest in the best technology and be able to negotiate globally for access to the best oil reserves. One way in which ExxonMobil achieved a competitive advantage is through the partnership with Qatar Petroleum in developing the world’s largest non-associated natural gas field (ExxonMobil Corporation, An Outlook for Energy: A View to 2014, 2015).

ExxonMobil is one of the leading oil companies who lead the industry on the list of the World’s Biggest Public Companies in 2015. Forbes Global 2000 is an annual ranking of the top 2,000 companies in the world by Forbes magazine. The ranking is based on four measures: sales, profits, assets, and market value. The sales represent the company’s revenue, the profit is the income distributed to the owner during the process, assets are any tangible or intangible things can be owned or controlled to produce a profit. The market value is the price in which an asset would be traded in a competitive auction setting. ExxonMobil was ranked #7 on this list stating that their sales were $376.2 billion, profits were $32.5 billion, assets accounted for $349.5 billion, and $357.1 billion in market value (The World’s Biggest Public Companies, 2015).

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1. Royal Dutch Shell:

Royal Dutch Shell is an Anglo-Dutch multinational oil and gas company headquartered in the Netherlands. According to the Forbes World’s Biggest Public Companies, Royal Dutch Shell was ranked #13. Their sales are $420.4 billion, which is 11.7% greater than ExxonMobil’s sales. Royal Dutch Shell has a profit value of $14.9 billion, which is 54% less than ExxonMobil’s profits, which is the income distributed to the owner in a profitable market production process. They have $353.1 billion in assets, which only exceeds ExxonMobil by 1%. Lastly, their market value is $195.4 billion, which is 45% less than ExxonMobil’s market value. This concludes that ExxonMobil is seen as a superior company compared with Shell due to ExxonMobil’s sales, profit, and market value.

2. Chevron Corporation: Chevron is an American held global energy corporation that is headquartered in San Ramon, California. It was ranked #16 according to Forbes. Its sales in 2015 are shown as $191.8 billion, which is 49% lower than ExxonMobil’s sales during this time. Chevron’s profits have totaled to $19.2 billion, which is about 41% less than ExxonMobil. This conveys that out of all the processes done by these two companies, ExxonMobil earns more from their processes. Chevron has $266 billion in assets. This is 23.9% less than ExxonMobil’s assets. Their market value is also 44% lower than ExxonMobil’s because Chevron has a $201 billion market value, while ExxonMobil has a $357.1 billion market value. Compared to Chevron, ExxonMobil exceeds in sales, profits, assets, and market value.

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3. Total S.A.: Total S.A is a French company that operates globally, and it is headquartered just west of Paris, in the district of Courbevoie. Total was ranked #35 on Forbes List of World’s Biggest Companies. Its annual sales for 2015 are $211.4 billion, which is 78% less than ExxonMobil’s sales. Its profits are $4.2 billion, which is 87% less than ExxonMobil. Total’s assets came to $229.8 billion which is 34.2% less than ExxonMobil. Its market value was 66% less than ExxonMobil’s market value. This is because Total had a market value of $120.2 billion and ExxonMobil’s market value was $357.1 billion. Total S.A. is inferior in sales, profits, assets, and market value.

4. BP British Petroleum is one of the world’s leading international oil and gas companies, headquartered in London, United Kingdom. BP was ranked #41 on Forbes World’s Biggest Public Companies. Its sales totaled to $352.8 billion, which is 6% less than ExxonMobil’s sales. Its profit accounted for $3.5 billion dollars, which is 89% less than ExxonMobil’s profits during the year 2015. BP had $284.3 billion in assets, which is 18% less than ExxonMobil. BP’s market value is $120.8 billion, 66% less than ExxonMobil’s market value. BP is shown as inferior to ExxonMobil in regards to sales, profits, assets, and market value.

5. Occidental Petroleum Corporation:

Occidental was ranked #364 in the Forbes World’s Biggest Public Companies. Their sales totaled to $19.4 billion, which is 95% less than ExxonMobil’s sales. Occidental profits are $616 million, which is 98% less than ExxonMobil and their profits. Occidental had $56.3 billion in assets which 73% less than ExxonMobil. Their market value is $59 billion, which is 84% less than ExxonMobil’s market value. Concluding what is found based on sales, profits, assets, and market value, Occidental is not as advanced or profitable as ExxonMobil.

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After analyzing major competitors in the oil and gas industry, it is evident that ExxonMobil is highly positioned in the market place. Their competitive advantage is achieved through operational excellence, a balanced portfolio of products, and integrated refining and upstream operations (Company Profile ExxonMobil, 2015). ExxonMobil recognizes customer satisfaction is a key to its success; this is achieved operationally through reliable supply chain performance. Mindful of its responsibility to the consumers, it serves directly to the businesses by offering a wide variety of oil-based products, such as natural gas, gasoline, and lubricants. ExxonMobil strives to understand its requirements and concerns by responding effectively to its customers’ needs. One key example is the mass flow metering system, which allows for the vessel operators to efficiently monitor fuel quantity (ExxonMobil Fuels and Lubricants). ExxonMobil’s vertical integration allows for it to create a wide variety of products from a single refinery, because 75% of the chemical company is integrated into refining process (2014 Summary Annual Report, 2014, pg. 33).

Customers

ExxonMobil is primarily a large business-to-business corporation, although it does have a small business-to-consumer market. It also sells its technologies that contribute to the efficiency of oil production and refining. Reliance Petroleum Limited selected ExxonMobil’s Sulfuric Acid Alkylation technology for the world’s largest unit at its export refinery, located in Jamnagar, India. This technology is used to upgrade the gasoline pool, and this will result in a reduction in capital investment and operating costs. The vast experience of ExxonMobil’s process, which has been operating in multiple units for over five decades, has led to significant cost and reliability improvements that are incorporated in new plant ideas (Reliance Petroleum Limited Selects ExxonMobil Sulfuric Acid Alkylation Technology).

The marine industry is another major customer of ExxonMobil. ExxonMobil provides the marine industry with high performance fuels, lubricants, and technical solutions (Performance and technology, 2015). Their wide range of marine fuel oils and distillates allows marine vessel engines to perform efficiently and reliably (Performance and technology, 2015). ExxonMobil Marine Fuels and Lubricants is the first bunker supplier approved by the Maritime and Port Authority of Singapore due to the use of the mass flow metering system (MFMS) (Performance and technology, 2015). MFMS is a technology that monitors the direct mass flow, the density, and the temperature both continuously and automatically. This system is used to help enhance the integrity, security, and efficiency of fuel quantity. This technology has been proven to save vessel operators an estimated of three hours per delivery (Performance and technology, 2015). It has also been proven to save around $7000 per delivery as well. Due to the cost savings and time efficiency in its technologies, ExxonMobil is a leader in the marine fuel industry.

The sale of fuels is a core activity of ExxonMobil’s success. Large retailers with gas stations and distribution centers rely on ExxonMobil for their fuel (Gas stations in United States). ExxonMobil’s fuel is designed to help your car engine produce better performance (Products and services, 2015). This is done by minimizing the amount of deposits that form in the fuel system (Products and services, 2015). ExxonMobil has over 10,000 gas stations in the United States alone. Along with gas stations, it provides convenience stores, car washes, and repair

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facilities. ExxonMobil looks to improve efficiencies for its customers. The 8,000 convenience stores, 500 branded service stations; numerous repair facilities are ways in which ExxonMobil can work directly with the customer to increase efficiency (Gas stations in United States, 2015). ExxonMobil sold a lot of its gas stations due to a lack of profitability.

In the lubricant industry, Camping World selected ExxonMobil as its exclusive lubricants supplier (ExxonMobil selected as exclusive lubricants supplier to camping world.). “As the leading industry supplier of RVs and RV supplies, we are committed to bringing our customers new and efficient ways to enhance their RV and outdoor experience by offering products and services that best fit their needs at the best value,” said Marcus Lemonis, chairman and chief executive officer of Camping World. “We’ve chosen to exclusively offer Mobil products because of their reputation for exceptional quality, performance and reliability” (ExxonMobil selected as exclusive lubricants supplier to camping world.). There are more than 75 Camping World locations across the nation that now sell Mobil-branded products, a full line of Mobil Delvac products, and Mobil 1 and Mobil Clean products ” (ExxonMobil selected as exclusive lubricants supplier to camping world).

ExxonMobil is highly positioned in the market due to being a major supplier in many different industries. Their customer base has a wide range of associations. This is the way in which they gain competitive advantage in the highly competitive environment that they are in. ExxonMobil continues to work with companies internationally to improve their efficiency in operations, while also helping to cut costs.

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Perceptual Map

According to the calculations of revenue divided by the total revenue of the competitors, which conveys the market share, ExxonMobil is ranked second against its competitors. Royal Dutch Shell leads the market share with 26%. ExxonMobil is trailing Royal Dutch Shell with a market share of 23.7%. BP has a market share of 22.2%, which helps to convey the competitive nature of this environment. Total has a market share of 13%, followed by Chevron with 12.6%. The numbers in this analysis convey the competitive environment in the oil industry. To get a better look at the positioning of the companies, number of refineries was the comparison used. ExxonMobil, although not the leader in market share, it

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has the greatest number of refineries. Total and Royal Dutch Shell follow ExxonMobil with 24 refineries. BP has a total of 17 refineries, followed by Chevron with 11, the least number of refineries. This conveys that the number of refineries does not directly affect the market share. ExxonMobil had the second largest market share, but had 6 more refineries. Total had the second largest number of refineries, although had the second smallest market share.

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BCG Matrix: What Priorities Should Be Given in ExxonMobil’s Product Portfolio?

Stars

ExxonMobil’s research, development, and exploration is achieved through its collaboration of new technologies. A star conveys high growth and high market share. ExxonMobil is known for its advances and innovation in technology, which is shown through the development of the mass metering system and the Sulfuric Acid Alkylation technology. These projects show ExxonMobil’s commitment to improve its processes, which conveys the potential market growth. ExxonMobil also plans to increase research and development spending to $25-$30 billion annually for the next several years (Research and development.). Its constant improvement in technology has increased the ability for ExxonMobil to continually expand on the development of their products. ExxonMobil’s constant growth in this area has helped to earn them a high market position.

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Question Marks

Alternative energy sources have high potential for growth. Alternative energy sources are renewable, such as wind energy, nuclear energy, solar energy, and geothermal energy. These sources refer to energy that has lower carbon emissions compared to conventional energy sources, such as oil and coal. These sources have high potential growth due to the rapid change in environmental awareness. This has low market share due to the expense, geography, and the lack of efficiency.

Alternative energy sources such as hydropower and solar are limited by geography, which makes their potential more questionable. These resources are often located in remote areas or areas that have large amounts of sunlight. Solar and wind power are not continuous and can be very irregular. This creates a problem because storage technology does not allow for large quantities of electricity to be stored for later use (Renewable energy sources, 2015). Currently, alternative energy source production is about 10% globally and 8% domestically (Renewable energy sources, 2015).

The costs for alternative energy sources are generally higher than those of fossil or nuclear-based energy and require large initial investments. (Renewable energy sources, 2015). In addition, they require significant investments in technology to improve efficiency, and can take many years before they pay off. (Renewable energy sources, 2015). Low-cost electricity is crucial for the economy today. This increases the income and employment, while also making U.S. exports more competitive (Renewable energy sources, 2015).

By using alternative energy sources, the world reduces the dependence on fossil fuels. This could pose a threat for ExxonMobil because natural gas is made from petroleum, which would go out of business if alternative energy sources were to take over.

Cash Cows

In the foreseeable future, there will be a need for gasoline, diesel, and petroleum. These products are cash cows in ExxonMobil’s business due to the constant demand for these sources. People will not stop buying these products therefore demands will remain high.

Natural gas, since it is derived from petroleum, is also considered a cash cow. This is a form of conventional energy is important to ExxonMobil’s market so it wishes to maintain a high market share (Natural Gas).

Dogs

The upstream and the downstream of ExxonMobil’s processes lacked recognizable dogs. There were no products that had low market growth and low market share.

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Macro-environmental Forces: How Does a Changing World Affect ExxonMobil?

Culture

Increasing amounts of people are becoming more conscious about the environment around us. This has a tremendous impact on ExxonMobil and its processes because they are known for not being environmentally conscious. Being an oil and gas company, ExxonMobil must remain conscious of how they are impacting the environment around them because this could affect how their consumers view them. It has a Standard of Business Conduct that provides a framework and guidelines for employment practices. In the global market that ExxonMobil operates, it is important that its ethics remain high due to the frequency of oil spills and other macro-environmental factors that could have a great affect on the community and surrounding areas (ExxonMobil, Culture and Values, 2015).

Demographics

There are no specific demographics that are associated with the buying of ExxonMobil products. Due to the commodity nature of ExxonMobil’s products, demographics are not relative. ExxonMobil concentrates on business-to-business in which demographics have little to no importance.

Social Trends

Following the B.P oil spill in Valdez, there have been many federal, state, and local laws and regulations passed in regards to where companies can drill and how they can do it. This was due to an outrage of the people because of the damage done to the environment. Oil companies have to be careful because people are starting to desire more environmental protection and stewardship.

People recognize ExxonMobil because of its brand, and this is important because brand perception can trigger a company’s associations. If ExxonMobil has an accidental oil spill, consumers might not buy their products or go to their gas stations. Oil companies are forced to create ways in which to prevent and fix possible environmental problems. Oil companies already look bad in terms of helping the environment, which means ExxonMobil must have plans to avoid these accidents.

Technological Advances

ExxonMobil strongly believes in the value of energy technology. It locates reserves using R3M seismic data and uses new techniques for producing previously inaccessible, large quantities of natural gas trapped in ‘tight’ underground rock reservoirs. Today, major advances in drilling technology enable ExxonMobil to ‘unlock’ these resources, by using advanced hydraulic fracturing technology. This enables the creation of pathways for the trapped gas to reach the wellbore, and then the surface. (ExxonMobil, Upstream. 2015). ExxonMobil uses a combination of hydraulic fracturing and horizontal drilling to reach

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North America’s unconventional gas. This has enabled rapid expansion of production levels (ExxonMobil Corporation, An Outlook for Energy: A View to 2014, 2015).

Economics There is an increase consciousness to pricing in the outside environment. Customers base their decisions on the price of goods and services. The economic standpoint of the company is dynamic due to oil prices rising and falling based off the market. Fuel prices are determined by a variety of factors: change in prices of crude oil, supply and demand, fuel specifications, government regulations, taxes, and transportation costs. The profitability of oil and gas companies is tied to the strength of the economy. Buyers pay more for oil when there is a strengthening global economy, which directly affects the increase in demand. Due to the commodity nature of crude oil, supply and demand is directly affected by how the economy is doing (Gas prices and industry earnings, 2011).

Political

After several large-scale oil spills, there have been many federal, state, and local laws and regulations passed. The US government has implemented regulations governing the manufacture, storage, handling and disposal of hazardous substances, waste, and other toxic materials on a federal level. State governments determine which areas are open to oil exploration and extraction. State governments are in charge of issuing exploration and production leases, as well as enforcing environmental legislation.

Political instability in several oil-producing nations has a tremendous contribution to the uncertainty of future supply. Since crude fossil fuels has specific geographic locations, political events located in oil-rich areas can affect the access and price of oil. The Gulf War in Iraq is a prime example of a political macroeconomic factor, and the war resulted in volatility in oil prices (Who sets the price of commodities, 2015).

Strategic Marketing Mix: How Does ExxonMobil Utilize Product, Place, Promotion, & Price?

ExxonMobil uses specific marketing strategies such as pricing, promotion, place, and product to promote its products in domestic and international markets. Its products are marketed under the brands of Esso, Exxon, Mobil, and ExxonMobil. Esso is the largest petroleum retailer in the UK, and proves that ExxonMobil has leveraged its products effectively to international markets. Esso has approximately 1,630 international stations and produces 10% of the UK oil and gas (ExxonMobil, Our Brands, 2015). The Esso brand name conveys quality fuels supplied through a network of service stations and retailers to car drivers, companies, and organizations (ExxonMobil, Our Brands, 2015). The original Esso brand name was changed to Exxon in the U.S in 1972 (ExxonMobil, Our Brands, 2015).

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The Mobil brand, used in the U.S., has had tremendous success in the development of lubricants for over 100 years. Since then, Mobil has developed lubricants in every market segment that has exceeded all corresponding technical requirements. Mobil has secured a strong position in the synthetic lubricants sector. Its products are on sale at a number of Esso service stations, which highlights multiple levels of the ExxonMobil brand. Mobil is marketed globally and is recognized for performance and innovation, and has also received praise for its advanced technology in fuels, lubricant, and services.

After the merger of Exxon and Mobil, ExxonMobil as a merged company was able to capitalize on its prior brand names. For example, Mobil has a strong reputation for lubricants and Exxon was well established as a fuel provider. These brand names have helped propel ExxonMobil to be ranked #24 on the world’s most valuable brands. ExxonMobil’s brands are used to convey the trust, reliance, and prestige to which the company holds itself.

Brand awareness contributes to the value of the brand. Level of customer awareness positively correlates to competitive advantage and company success. By marketing ExxonMobil’s products and services in a global market, it is creating an increase in exposure of its brand to the outside environment. ExxonMobil’s brands are recognized across the United States with over 10,000 sites in 47 states (ExxonMobil branded partners, 2014). Its advertising and marketing campaigns are among the best in the industry due to actively promoting its brands and its business success. Its brand promotion is shown through its retail promotions and their site advertising, which are developed nationally and shared with their retailers (ExxonMobil branded partners, 2014).

Based on revenue per time and the Fortune 500 global list, ExxonMobil is the largest oil and gas company. The geographic expansion of this company has helped emphasize its value proposition through the visual representation of its brand. ExxonMobil’s brand is easily recognizable due to the large blue and red logo shown on all of its service stations. The Global ExxonMobil Innovative New Image (GEMINI), is recognized as the “best in class” for providing a buying experience that is safe and clean (ExxonMobil branded partners, 2014). This image is a 3-D illuminated Fascia System is a cost-effective, low maintenance canopy image, designed to increase brand visibility.

Its retail promotions and advertising are developed domestically and shared globally for further brand promotion (ExxonMobil branded partners, 2014).

ExxonMobil also offers commercial and personal credit cards. These cards have minimal to zero fees, which aid in the franchising of gas stations in today’s marketplace. This is an important feature of its brand due the use of their Speedpass technology. This innovative payment method continues to prosper with over five million Speedpass users today (ExxonMobil branded partners, 2014).

ExxonMobil’s pricing strategy is based highly on supply and demand, along with future speculations. ExxonMobil sells a majority of crude oil, which is a commodity. Like other commodities, such as corn, wheat, or sugar, pricing is based the buyers and sellers in the global market (Gas prices and industry earnings, 2011). In an increasing economy buyers pay more for oil and demand increases. Political instability can contribute to the uncertainty in

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future supply (Gas prices and industry earnings, 2011). Commodity prices helps to guide production decisions and demand. This future expectation is not always correct, but it guides production and demand (Who sets the price of commodities, 2015). Commodity prices are based on market demand, which is very dynamic. Certain events, such as the Gulf War in Iraq, contribute to the dynamic nature of these commodity prices. The price of oil fluctuated, correlating with what was going on in the war (Who sets the price of commodities, 2015). ExxonMobil and their team of experts must evaluate past events and make future expectations in order to predict the supply and demand for the upcoming years.

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Conduct (Isolated) Sales Forecasting

For our analysis of ExxonMobil, we have decided to look at ExxonMobil’s sales revenue compared to the world’s largest two economies, the United States and the People's Republic of China. Looking at both United States and China as real GDP rises, the sales revenue of ExxonMobil increases. This indicates that as real GDP rises the demand for oil increases, which is portrayed through ExxonMobil's increase in sales. As these two massive economies grow, so does the demand for the most efficient energy in the world, oil. Increasing GDP means that the total value of all goods and services purchased over time is increasing. Looking at the positive correlation of each line means that more oil is demanded as more purchases are made. Since these countries are also major drivers of the world economy, ExxonMobil can expect all of its sales to increase in markets besides just the US and China. Two examples of such products are vehicles and more oil based products such as petrochemicals. Especially because when the GDP of China rises, so does its middle class. This means that more Chinese citizens will have the ability to purchase vehicles, increasing the demand for oil.

These regressions are a good way for ExxonMobil to forecast its sales. Based on this analysis, if real GDP of the United States and China is increasing it means that ExxonMobil

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can expect that its sales are also going to increase. This correlation can also be viewed in the inverse manner, so if real GDP is decreasing then the sales of ExxonMobil will also decrease. Understanding this correlation is critical because as long as GDP is expected to increase, ExxonMobil will continue to look for more crude resources in order to meet global demand. In the inverse manner this is important because it can give ExxonMobil the ability to brace for slowed financial performance. For example, if GDP is expected to fall or slow, ExxonMobil has the ability to understand that it will affect its sales and prepare financially. However, since the GDP of China and Europe is slowing substantially, it means that ExxonMobil's revenue streams will also slow, meaning that the line could potentially decline in slope.

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3

Accounting: How Does the Firm Measure & Evaluate its Processes and Financials?

Cost Behavior: How Does ExxonMobil Allocate Expenses in Production? ExxonMobil uses a two-part operation, the Upstream and the Downstream. The Upstream does not have direct materials because it is the process and equipment that extracts the direct materials for the Downstream. The fossil fuels that are extracted from the Upstream are transported to the Downstream and become the direct materials for the refining process in the Downstream. These fossil fuels are broken down into several main categories: Natural Gas Liquids, Oil Sands, Tight Oil, Deep Water, Conventional Crude and Condensate, and Biofuel (2014 Summary Annual Report, 2014, pg. 31). Since it is easy to trace the amount of resource collected in the Upstream and then how much is refined, these categories can be considered direct materials to ExxonMobil.

Most of the costs affecting oil production are fixed with small intermittent variable costs. Since oil has to be extracted and refined before it can be used, the sheer scale of the operation is huge. If we break down each aspect of the Upstream and Downstream from a cost perspective it will generally follow the thread of fixed costs.

The process begins with exploration and finding the oil, and then there are costs associated with acquiring the land. This is most likely on a fixed basis such as renting or purchasing the land; however, there could be contracts that specify variable costs. For example the contracts could be based on barrels of crude oil extracted. These contracts would be mixed cost contracts due to the initial cost of the land and the variable cost of oil extracted.

After the land has been acquired, the cost of extraction machinery most likely follows a fixed cost basis. Once this large-scale machinery has been properly placed at the extraction sites, its cost does not change with every gallon of oil extracted. Even if ExxonMobil does not own its extraction equipment, the rent ExxonMobil would pay is a fixed expense. For example, Seadrill is one of our key outsourcers for Upstream drilling. In Canada, Seadrill uses the West Aquarius semi-submersible to extract oil at a day rate of $540,000 US (Seadrill, 2015). This cost does not change at a variable rate, and is a strong example of a fixed cost in the Upstream.

Once the Upstream extraction of direct materials for the Downstream has been completed, the crude oil needs to be transported to the refining facilities. Our main form of crude oil transportation comes from pipelines (2014 Summary Annual Report, 2014). This also follows a fixed cost structure, because once the pipeline has been built, ExxonMobil is not charged for the amount of barrels that pass through the pipelines. This is another portion

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the supply chain that can be outsourced, and one of its major suppliers is Plains All American (Bloomberg, 2015).

Once the oil reaches the refining facility, it most likely follows a fixed cost operating system. The refining facilities are built specifically to be able to refine mass amounts of crude oils and gases, and the largest fixed cost is building these facilities. This means that most likely the overhead costs associated with the facilities are fixed and do not vary with the amount refined. Logically this makes sense because ExxonMobil wants to produce the maximum amount of refined products because these refined products are their largest total revenue stream. They would not want to have a variable cost structure because maximizing production maximizes revenue, because a variable cost structure would increase their overhead costs as it is refined. However, if it follows a fixed cost structure the increase of crude materials reduces the amount of overhead allocated to each barrel of oil/natural gas. So there is an incentive to refine as much oil as possible because it reduces the total fixed cost in proportion to revenue.

After the overarching fixed costs have been allocated there are aspects of variable costs that also apply to ExxonMobil. With any major company there are direct labor hours that are directly applicable to the manufacturing process of the company. For ExxonMobil manufacturing encompasses both the extraction and refining of the crude resources. This is because both of the Upstream and Downstream are major aspects of producing the final product. The man-hours and the machine hours would feed directly into manufacturing overhead. In addition to DL and MH, another aspect of overhead are the direct materials that are used in the refining process. An example of this would be the chemicals that are used in the refining process. Instead of considering the crude oil as a direct material cost, ExxonMobil most likely only considers only the materials its uses to refine the oil as a direct material.

This style of cost structure is critical to company decision making. Since fossil fuel extraction and refining is such an expensive and large-scale operation, it is important that management has an understanding of fixed costs. Since most of the operational aspects of the company likely follow the fixed cost model it is important to know how much capital must be spent in order to create the facilities required. For example, if ExxonMobil is interested in building another refinery they must know the cost of constructing the refinery. Since the purpose of a refinery is to bring in a raw substance, alter it, and then sell the new substance, the cost of building the refinery is more important than how much each barrel/gallon costs the company. This is because the Upstream has already extracted the raw materials so ExxonMobil’s refining focus is not on acquiring the direct materials themselves. This is important because refineries are designed to produce mass amounts of the end product. Therefore the initial fixed cost of building the refinery is spread over all final products produced compared to focusing on each barrel/gallon having a variable cost.

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Process Analysis ExxonMobil most likely uses a process costing system. Process costing is used when companies mass-produce comparable products or use a continuous manufacturing model as its process for creating the product. This is because of the sheer scale of the technology and large scale operations that are required to extract and refine the oil. An example of this technology is that ExxonMobil has drilled 26 of the world’s 30 longest wells. This even includes a 7.7 mile long horizontal well in Russia near Sakhalin Island (Progress Through Partnership, 2014). In addition to Upstream technology, ExxonMobil has 30 refineries, and costing machine hours for each Upstream and Downstream activity is too difficult and time consuming. This means that the process costing method is the most practical.

Referring to the Summary Statement of Income for ExxonMobil, it consistently has a higher depreciation and depletion expense than selling, general, and administrative expense for years 2012-2014. This implies that there are vast amounts of large-scale machinery that is being depreciated (2014 Summary Annual Report, 2014, pg. 41). The production and manufacturing expense for 2014 ($40,859 billion) in addition to the depreciation and depletion expenses ($17,182 billion) for 2014 indicates that large-scale machinery is being depreciated while the entire process is being costed into the $40,859 billion. This means that overhead is being allocated properly based off of process costing instead of machine hours.

Even though ExxonMobil has 75,300 employees, one of the largest work forces in the world, not all of these employees are involved in the manufacturing process (Number of employees at Exxon Mobil from 2001 to 2014 (in 1,000), 2014). The global nature of ExxonMobil means that there are many different corporate and regional offices internationally, with operations occurring in over 50 countries worldwide (Progress Through Partnership, pg 4). This means that not all 75,300 employees will be involved in the manufacturing process, eliminating them as a process cost and adding its salaries expense to selling, general, and administrative expenses.

In our supply chain, ExxonMobil’s technology is extremely high cost due to its high-tech nature. For example, it costs ExxonMobil $656,000 a day to rent the West Polaris ultra-deep-water drillship from Seadrill (Seadrill, 2015.). ExxonMobil has many of these contracts in Upstream alone, and this proves that many aspects of ExxonMobil’s supply chain are extremely expensive. These high costs follow the fixed cost structure, so ExxonMobil focuses on volume in order to spread the high fixed over extremely high oil amounts. Since ExxonMobil produce commodity items, its high fixed costs does not affect its product cost. This is especially important because all of our competitors also face the same high fixed cost structure.

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The Balanced Scorecard: A Strategy Performance Management Tool

Vision

“Exxon Mobil Corporation is committed to being the world's premier petroleum and petrochemical company. To that end, we must continuously achieve superior financial and operating results while simultaneously adhering to high ethical standards”

Financial

From a financial perspective, ExxonMobil is meeting its goal because it is leading in utilization of its assets, generating new income with its return on equity, and maintaining a credit and debt capacity that is unmatched not just in oil, but throughout all markets. Compared to the industry average for return on assets, ExxonMobil’s is above the average for the past five years, and finishes 2014 with a return on asset ratio of 9.40% which is 4.24% points higher than the industry average, in other words, ExxonMobil makes incredibly large returns on their assets, placing them in a better financial position. ExxonMobil also has a very high return on equity; this means that it does a fantastic job managing shareholder money and its assets. Finally, ExxonMobil has an unparalleled estimated debt capacity (figure 1.3). Based off the Moody’s Analytics and Standard & Poor’s ExxonMobil is the only competitor it its industry to have an AAA rating, and one of three companies in the world to also have this credit rating, others being Microsoft and Johnson & Johnson. From the investor's point of view it is seen as a cyclical company, just as they view the oil market. It is a financially sound and extremely well managed company, but because of the current price of oil its earning potential is directly connected to the price of oil. So an investor’s perspective is determined whether positive or negative based off this commodity price. ExxonMobil currently is in a great financial position; even though cost of oil is falling. Even with its excellent management and financial position investors probably view ExxonMobil as a heightened risk profile because future oil prices are unsure.

The financial metric of the balanced scorecard follows the lagging metric due to the nature that the financial ratios being analyzed are based on the previous year. This means the firm’s previous information can be used to determine the current financial health. Since lagging indicators can be used to predict future financial health, these indicators are what the company will use to predict its financial future. The prevailing idea is that if it were able to have strong return on assets last year, then it will also expect that turnout for the upcoming year. A reasonable financial target for ExxonMobil is to continue to manage company assets well, and maintain the strong financial position that it is already in.

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Internal Business processes

As a large-scale oil company ExxonMobil is able to efficiently transport its refined oil to their customers. Since it produces and sells a commodity, the product price is not maximized simply because ExxonMobil’s oil is radically better or worse quality than its competitors. However, ExxonMobil is constantly improving processes to increase efficiency and reduce waste. This process enhancement delivers customer value because these customers know that they will have their value in a timely fashion. A key example of this is Fast-Drilling Technology that is being used in the Upstream. This allows for wells to be dug at rates up to 80% faster (Reducing Environmental Impacts, 2015). Another example of technology that allows for efficient exploration is the R3M technology that has been previously explained in the analysis. Even though this process is in the Upstream it allows for more crude materials to be accessible and provides more oil in the Downstream for the customer. A consistent value that ExxonMobil’s efficient processes provide are the known availability of its oil and that it will be efficiently delivered.

The internal business practices of ExxonMobil follow both a lagging and leading metric. When it is implementing new technologies to improve the existing processes, it sees the fullness of its results after the new technology has been implemented. This means that specific aspect of the internal business practices are lagging. These technologies also follow the leading metric due to the nature that new technology can aid in predictions of future events and allowed proactive decision-making. Internal business practices are measured financially. Since the product that ExxonMobil is producing is a commodity, a key way for the company to gain leverage over its competitors is to have more efficient processes. When it reduces lead-time and operation time they are saving the firm money. Having more efficient process than its competitors is strength of ExxonMobil, but it can always be improved to increase efficiency and save operational costs.

Learning and Growth

To develop learning and growth, ExxonMobil focuses on the safety of its employees and implementing technologies that change our processes to be more efficient (2014 Summary Annual Report, 2014). Since ExxonMobil runs such large-scale extraction and refining, there is risk that is involved in the operation. For 2011-2014, ExxonMobil has only experienced one employee death (Performance data (citizenship data), 2014). With the scale of operations this is a very strong number for ExxonMobil, but its contractors have experienced the most deaths. For the years 2012-2014 ExxonMobil’s contractors have experienced twenty-two deaths, this is most likely due to contracting the most dangerous jobs to other firms.

In order to increase safety, ExxonMobil has implemented the Product Stewardship Information Management System (PSIM). “This system allows for standard global processes and computer systems to absorb and transfer information on safe handling, transport, use and disposal of their products, as well as emergency contact information (Safety and security, 2014).” This system helps ExxonMobil make sure that it follows regulations in all the countries that it operates under and follow the regulations created by: United Nations Globally Harmonized System of Classification and Labeling of Chemicals (GHS),

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Registration, Evaluation, Authorization and Restriction of Chemicals (REACH), United Nations Strategic Approach to International Chemicals Management (SAICM), and Clean fuel standards in the US and the EU. (Safety and security, 2014).

Technologies have allowed ExxonMobil to expand its exploration and extraction processes. This is an opportunity for growth, because innovative technologies enable better processes. An example of technology that allows for ExxonMobil to have a greater reach is the floating storage and offloading (FSO) vessel. This vessel can store up to 2.2 million barrels of oil and allows for ExxonMobil to drill on land and directly pipe the crude materials into the ship. This allows for ExxonMobil to grow into markets that used to be inaccessible and allows for potential growth (2014 Summary Annual Report, pg 14).

The constant addition of new technologies and processes to the learning and growth section of the balanced scorecard uses both lagging and leading metrics. For example, the PSIM system was implemented because ExxonMobil needed to reduce the number of deaths that they were experiencing. This was introduced due to a lagging metric that tracked employee deaths, and the leading metric in the PSIM. This metric’s goal is to improve the safety of ExxonMobil’s employees and ensure that it is continuing to meet regulations (Safety and security, 2014)

Customer

In order to look at ExxonMobil from the customer perspective, it needs to be broken down into the Upstream and Downstream. Since the Upstream is focused on exploration and extraction, it does not have any customer expectations to meet, expect when it outsources. Since it does outsource a portion of the Upstream, ExxonMobil expects a portion of its expectations to be met, since they are the customers in the Upstream. Choosing suppliers is important for ExxonMobil because it wants to ensure that oil will be delivered promptly.

For the Downstream, a large majority of its customers are involved in the Chemical sector of the company, but due to the scope of this project we have decided to omit ExxonMobil’s Chemical division. ExxonMobil often sells its products in the business-to-business sector, which is a large majority of its downstream. ExxonMobil pride itself in supply reliability to it 300 plus terminals across the United States (ExxonMobil branded partners, 2014).

ExxonMobil markets itself worldwide to customers through its retail gas stations. In the United States, these gas stations are called ExxonMobil and in international markets they are under the name of Esso (Choose your country, 2015). In the gas station sector, since oil is a fuel source the product will always meet the customer's’ expectation of functionality. However, as a commodity, the price of oil is not going to be vastly different across different companies. But, not all customers realize that there are external factors affecting the price of the oil, and they simply believe that the company is just raising prices, so customer expectation can fall short when the price fluctuates due to commodity pricing (Coll, 2013).

In the customer sector, the leading metric is used to analyze customer retention rate. For example, ExxonMobil has commercial and personal credit cards, and an ExxonMobil business card offers six cents off of every gallon purchased. This strategy is a way to accomplish customer retention by offering financial incentives to the customer

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(ExxonMobilCard, 2015). This metric can help retain and incentivize the customer to visit ExxonMobil gas stations. Another example of a leading metric could be the quality control checks that occur at the refinery level. This continues the idea of operational excellence and make sure that customers are receiving the quality of product they are expecting.

Decision Making

The balanced scorecard can be used to help the company understand the internal processes of the company from a holistic perspective. This allows the management of the firm to make decisions on how the different areas of the company intertwine. For example, since ExxonMobil understands the importance of operations, it is willing to pay the price to improve the operations. Using the scorecard it will understand if it has the financial clout to carry the new idea forward. The scorecard then helps ExxonMobil understand how these processes can be opportunities for growth and how it affects the customer. For example, internal monitoring processes allow for the company to make sure that it can protect its employees, and using the scorecard the company can determine if it has the resources and infrastructure required to implement the system.

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4

Financial Analysis:

How if the Firm’s Current Financial Health and Can it Create Wealth for the Investor?

Financial Overview and History

In order to accurately analyze the financial health of ExxonMobil, this analysis compares the firm to an industry average calculated by averaging financial ratios of five US based oil and natural gas companies most comparable to ExxonMobil by oil production and market value. The companies factored into the industry average are Chevron, ConocoPhillips, Occidental Petroleum, Hess Corporation, and Apache Corporation. Financial information from 2010-2014 is utilized from ExxonMobil and the selected comparable companies. In order to gain a broad representation of the health of the firm, financial tools and ratios pertaining to liquidity, asset management, debt management, investor payouts, and overall profitability are considered. Financial information/annual reports of ExxonMobil and companies included in the industry average are cited below in the references section.

In multiple instances, ratios will be measured without the consideration of Apache Corporation. The company has experienced profitability issues during 2012-2014 severe enough to be deemed a-typical and considered as outliers. While it may be arguable that totally omitting Apache from the analysis gives a better illustration of the true industry averages, omitting the company would induce selective sampling bias to the averages. To account for this problem, Apache is omitted when deemed an outlier by the analyst’s discernment. When applicable, the omission of any data will be disclosed and rationalized in a footnote.

When considering the financial health of ExxonMobil, one cannot help but notice its financial successes. There is a reason that ExxonMobil and its predecessors have spent the last 125+ years evolving from a small kerosene marketer to the largest publicly traded energy company in the world. It success is not happenstance. It is not lucky capitalism; a company riding on the coattails of oil, the world’s most demanded and inelastic resource. It is undeniable that industrial advancement and revolution aided the firm in its growth, but as one can see in industry history many companies have emerged in this market and failed. What makes ExxonMobil different? What makes it a company that can boast its oil lubricant being used in the Wright brother’s flying machine over Kitty Hawk while still supplying airlines all over the world with aviation fuel? What makes it a company that is more financially trusted than the United States government? What about this company promises longevity into the future? In this analysis we examine the firm’s current financial standings and factors with the ability to affect its potential success.

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For evaluating ExxonMobil’s potential future success, the perspective of a potential investor is adopted and financial elements are evaluated. As hypothetical investors, the analyst seeks to evaluate the most recent financial health of the firm. Internal practices and macro environmental factors must be identified and evaluated for their potential effects on ExxonMobil. After obtaining a better understanding of the internal finances of the firm, the current overall environment of the oil industry is assessed. It must be determined whether changes in the overall market point to signs of future success. Finally, as possible investors, the potential of new wealth creating ventures for ExxonMobil is evaluated with special interest paid to possible wealth creating acquisitions. With these financial elements considered, ExxonMobil’s potential to deliver wealth to its shareholders can be most accurately speculated.

All ratios can be found at the end of this section in the Ratio Appendix

Current Financial Health: Liquidity, Financing, & Debt Management A major component of ExxonMobil’s financial structure is its debt management and ability to borrow capital. ExxonMobil holds a distinct advantage in being able to quickly and inexpensively raise capital to fund investments or pay its debts. In order to evaluate the firm’s borrowing position, its liquidity and debt management ratios give an illustration of the firm’s position.

When examining measures of liquidity, we see both the current and quick ratio are less than the industry average. In the last five years, the firm has been consistently less liquid than its competitors. It does not hold as many assets able to be quickly turned into cash. On average, ExxonMobil holds 31.27% less liquid assets relative to current liabilities than its competitors. Excluding inventory, the ratio decreases to 40.96% less than the competition. At first glance it may seem that ExxonMobil will run into problems paying off its short-term debt obligations, but after examining the company’s debt capacity relative to industry competitors, the liquidity of its assets can be seen as an advantage rather than a hindrance on the company.

To understand the liquidity situation of ExxonMobil, it is important to understand the debt capacity of the firm relative to that of its competitors. Figure 1.2 and 1.3 below both portray the relative ability of oil companies to take on debt. ExxonMobil has an unmatched debt capacity in the oil industry. It is the only company in the group of oil companies to be rated AAA by Standard & Poor’s or Aaa by Moody’s Analytics. Not only is it the only firm in the group below, but also is one of a handful of companies in the United States with such a high rating. Not even the United States federal government maintains a credit rating at this level. (Bloomberg L.P, 2015)

When an obligor has an extremely strong capacity to meet its financial commitments, the company benefits from low risk premiums. This means it is able to borrow at lower rates and do not have as strong a need for liquid assets as other companies who must borrow at a higher risk premium. In ExxonMobil’s case, having liquid assets available to pay short-term obligations when the cost of money is so low would not be the best positioning of capital. If

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these assets can be placed in income generating areas where profits are generated in excess of the cost of money, ExxonMobil holds a strategic advantage in limited liquid assets. Currently, the average cost of capital of the oil and gas industry has been just over 7.5%, but ExxonMobil was able to raise capital at an average of just 4.62% in 2014. (Citation Needed)

Figure 1.2: Estimated Debt Capacity

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Figure 1.3: Estimated Debt Capacity & Credit Rating Table

This ability to take on debt and raise capital efficiently has led to a noticeable difference in the debt structure of ExxonMobil compared to the industry. Relative to equity and total assets, ExxonMobil carries marginally higher debt. In regards to their debt ratio, the corporation is consistently higher, averaging 7.14% more debt relative to total assets than the industry. Debt to equity is similar at an average of 10.05% higher than the industry. The same story is told by the firm’s equity multiplier, averaging 4.23% more assets relative to stockholder’s equity than the industry. Again, this relative increase is understandable considering the firm’s opportunity to borrow money at low cost. The firm has great potential to derive profits from capital above and beyond the cost.

ExxonMobil’s ability to borrow money responsibly and effectively is clearly seen from the firm’s times interest earned rate. The company is consistently better than the industry average in its ability to repay interest rates. On average, the firm has enough earnings before interest and taxes to pay their contractual debt interest 1021 times over. The industry on average has the ability to pay its interest 45 times over. While neither ExxonMobil nor the Industry seem to have much threat of being unable to pay its interest expenses, these numbers again illustrate ExxonMobil ability to keep cost of capital low relative to its assets. From all of the ratios considered, ExxonMobil clearly has a debt management and financing advantage to other comparable companies in the oil industry, but how well is the firm able to utilize its capital and manage its assets and investments?

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Current Financial Health: Asset Management As discussed earlier, ExxonMobil choses to keep less liquid assets than the industry average relative to its current liabilities. Not only is this due to the firm’s lower than average cost of capital, but is also due to its ability to turnover inventory and collect on credit sales quickly. This helps keep a steady flow of sales and cash coming into the organization. Also by turning sales into cash quickly, the firm is able to put cash to use more quickly, thus making better use of its assets and generating more sales. ExxonMobil averages 4.044% more efficient than the industry when turning over inventory. On these sales, the time it takes for ExxonMobil to collect on a sale is 60.63% quicker than the industry average.

While its ability to turn inventory into cash is a strong advantage over the competition, its effectiveness in generating sales relative to assets shows an even more substantial advantage. When examining fixed asset and total asset turnovers, we see that ExxonMobil is more effective in this area than the industry as a whole. ExxonMobil’s ability to utilize property, plant, and equipment to generate revenue is 90.72% more efficient than the industry. Similarly, the firm’s ability to generate sales utilizing total assets averages 136.62% better than the industry. ExxonMobil, like other companies in the industry, operates with huge economies of scale from its extensive equipment utilized in both the upstream and downstream processes. It is crucial that a company is able to generate sales relative to its equipment and other fixed assets. ExxonMobil holds a distinct competitive advantage in this aspect of asset management.

Current Financial Health: Profitability While the former analyses have indicated that ExxonMobil has an above average ability to take on debt and an above average revenue generation from its assets, is this company one that makes sense for an investor? It is not simply a question of debt management or its ability to generate sale with assets. In order to gain perspective on the attractiveness of ExxonMobil to a potential investor, our analysis asks three questions. How profitable is the company and what kind of value does ExxonMobil return to their shareholders? To what environmental factors is ExxonMobil most susceptible and how might these factors affect the firm’s future profitability? Finally, are there any investments or acquisitions ExxonMobil could engage in to increase growth and future profitability?

Paying attention to the firm’s earnings per share below, ExxonMobil’s payout trend for the last five years has been sporadic at best. Although on average ExxonMobil’s earning per share are nearly identical to that industry, with an EPS of just .10% higher, the sporadic nature of the returns could signal uncertain earnings. For example, in 2012 ExxonMobil saw an EPS 25% higher than the industry average. In 2013 their EPS dropped to over 25% below the industry and in 2014, EPS rose back to 25% higher than the average. In part, this fluctuation may be attributed to the financial situation at the time of reporting data. Reporting an EPS average with data collect more frequent than annual could result in different results, but this variation is something that must be considered by the potential investor.

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In regards to dividends per share, ExxonMobil average consistently higher than the industry average. The company averaged 17.60% higher in dividend yield than the industry average. This above average return in the form of cash payouts may be due to the age of the company. The company that would eventually become ExxonMobil was introduced over 130 years ago and the tradition of returning dividends may still exist in its current relationship with shareholders. In short, an investor in ExxonMobil can expect to see a payout of relatively high dividends, but may experience a more volatile return in stock price.

In terms of profitability, ExxonMobil has a profit margin on sales showing the net income earned on each dollar of revenue is 43.09% worse than the industry average. When comparing gross profit margins, ExxonMobil averages 57.15% worse than the industry average comparing the profits leftover after cost of goods sold is expensed. It is possible that both of these margins are lower than the industry average because of the vertical integration of the firm. While others included in the average may only be involved in the downstream refining process of purchased crude oil, ExxonMobil is involved in nearly every process from exploration to drilling to retailing. This vertical integration plays a role in profit and gross profit margins because exploration and drilling can be viewed as a large research & development cost. These high costs are expensed to cause lower profit margins. Exploration and drilling have high materials and labor cost adding to cost of goods sold, causing lower gross profit margins.

While these expenses may be high causing lower profit margins, ExxonMobil is able to generate net income relative to its assets more effectively than the industry average. In regards to return on assets, ExxonMobil averages 53.30% more effective. We see a similar story of ExxonMobil’s ability to generate net income relative to shareholder’s equity. ExxonMobil averages 52.80% more effective in giving shareholders more for its money. Both ExxonMobil’s return on equity and assets show that the firm is able to generate earnings with its investments.

While it may seem like ExxonMobil is a good investment considering its ability to effectively utilize shareholder’s money and its assets, it may not be in the investor’s best interest to buy ExxonMobil at the current time. When evaluating price/earnings ratios for the firm, we see many years when ExxonMobil is trading at a premium compared to the industry average. On average, ExxonMobil has a stock price to earnings ratio 5% higher than other major players in the industry. This could be partly due to the firm’s tradition of delivering payouts in the form of dividends, but it may be beneficial to the investor to inquire into more undervalued stocks. While this may indicate a pass or sell from investors, this information must be evaluated with the current and future market conditions and the macro environmental factors with the potential to affect these conditions.

Macro Environmental Factors ExxonMobil’s foremost determinant of future success is the price of a barrel of oil. Oil is a commodity and, being a commodity, it is priced following supply and demand. The demand is directly linked to the world’s production and economic output, while supply is linked directly to technology advancements, political situations, and environmental activity. This

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correlation is only strengthened with the world’s current dependence on the fuel source. Oil is something that developed countries will continue to need and emerging countries will require until the world diverges its dependence to alternative fuel sources. In the short term, ExxonMobil could see opportunities from economic growth in the world, political agreements or regulations, and macroeconomic factors influencing either the demand or supply of oil. Just as these factors could present opportunities for the firm, they could also present threats. In the long term, the firm could see technological and environmental changes affecting the profitability of the oil industry.

The Price of Crude Oil and Demand

Areas like Brazil, Mexico, Indonesia, India, and Southeast Asia have seen unprecedented growth in the last decade and with growth has come an increased global oil demand. The demand created by these emerging economies presents ExxonMobil with growth opportunities and a hopeful price premium for oil. As discussed in earlier sections, ExxonMobil saw past sales revenue highly correlated with the GDP growth in both America and China. In the recent past, this increased demand from the other side of the world has moved oil prices higher. In recent years we have seen a decline in the production of once highly industrious countries, like China and the EU. This decline preceded a drop in oil prices to the lowest in 15 years (Crude Oil Price History Chart | MacroTrends, 2015). In the short term, the decline in productivity in these regions poses a serious threat to oil price and ExxonMobil’s sales revenue (The Top 20 Emerging Markets: Global Emerging Markets, 2015).

The Price of Crude Oil and Supply

Like demand, changes in supply can provide pricing opportunities or pose a threat to ExxonMobil’s profitability. Partnerships like the Organization of Petroleum Exporting Countries (OPEC) are the main regulators of worldwide oil supply. The organization, also known as OPEC, is made up of thirteen countries in control of over 40% of the world’s supply of oil. The group is able to set production levels to influence price and the profitability of the oil industry. In recent years, OPEC has allowed high productions in its countries. In November of 2014, OPEC announced that it would not alter its production target of 30 million barrels per day. Since this announcement, the partnership has consistently met and exceeded its target production. This OPEC policy is the current largest threat to oil prices and the profitability of ExxonMobil.

These partnerships are not the only macro political factors posing a threat to the oil industry. Specifically in the case of ExxonMobil, its global empire has placed them in politically unstable areas around the world. When the firm enters an area and invests significant capital dollars into the exploration and development of the area, they incur huge sunk costs. In some of these areas, specifically in western Africa, civil war and political instability have erupted, leaving the firm in the middle. It is not financially feasible to relocate because of the huge investments and ever increasing oil demands. The firm is exposed to a heightened risk profile including international relations and terrorism in these countries.

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In addition to political relations, oil supply can be affected by environmental events. In a number of ExxonMobil’s upstream and downstream locations, natural disasters are a constant threat to physical investments and future production. When Hurricane Katrina hit the United States, the nation’s largest energy hub suffered a devastating shock affecting oil supplies and causing prices to skyrocket (Mouawad & Romero, 2005). As ExxonMobil pushes further offshore and deeper into new territories, the risk of natural disasters is heightened (What causes oil prices to fluctuate?, 2015).

Technological Advancement: Shale Oil, Batteries, & Natural Gas

In addition to these shorter-term threats, ExxonMobil faces long-term technological threats and opportunities. Most of these technological threats involve the development and production of alternative energy sources. One such innovation is shale oil produced from the conversion of organic matter found within certain sedimentary rocks into liquid hydrocarbons. This alternative fuel can be refined to a form, which behaves very similar to crude oil byproducts. While this could prove in the future to be a viable alternative to crude oil, it is presently more financially costly to produce. Because of the higher cost, the oil may not presently present a large threat to ExxonMobil, but could prove to be a future threat because of its accelerating production as seen in the diagram below (Shale oil: The next energy revolution, 2013).

In addition to these shorter-term threats, ExxonMobil faces long-term technological threats and opportunities. Most of these technological threats involves the development and production of alternative energy sources. One such innovation is shale oil produced from the conversion of organic matter found within certain sedimentary rocks into liquid hydrocarbons. This alternative fuel can be refined to a form which behaves very similar to crude oil byproducts. While this could prove in the future to be a viable alternative to crude oil, it is presently more financially costly to produce. Because of the higher cost, the oil may not presently present a large threat to ExxonMobil, but could prove to be a future threat because of its accelerating production as seen in the diagram below (Shale oil: The next energy revolution. 2013)  

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Another technological threat to the firm is the innovations in battery capacity and recharge rates. In term of personal and commercial transportation, a battery with a more efficient capacity makes an electric vehicle a more viable alternative to a traditional engine. Battery improvements can be made in two ways: higher energy capacity and faster recharges rates. In many ways, the research and development into capacity has only had marginal progress. Since being introduced in 1991, modern lithium batteries have only double in capacity while other specs of the battery have improved ten times over. The capacity may be reaching a peak in energy storage, with experts predicting future limit only 30% more than current capacity. This can be seen in mobile cell phones. The only part that does not get smaller or thinner is the battery. Many experts do not see the future battery having immense storage capacity, but rather a faster recharge rate. While electric cars may never see the 500-mile fuel range of a petroleum fueled model, they may see a charge rate equivalent to time of filling a tank with gas. In this way, a faster recharge rate could push more vehicle buyers towards electric and pose a threat to future gasoline demand (Shale oil: The next energy revolution. 2013).

With increasing battery technology, electricity may prove to be a more viable alternative energy source to replace oil in the future. In addition to the threat of electricity, natural gas may prove as a feasible alternative to oil in the future. ExxonMobil has already recognized the shift toward natural gas as an alternative fuel and the future growth potential in this market. The gas is an inexpensive, trustworthy, efficient, and readily available energy source. This alternative energy also shows their commitment to the environment, emitting 60% less carbon emissions than coal burning power plants. According to the Natural Gas Supply Association, ExxonMobil leads the industry in natural gas production, producing 23.13% more than the next largest supplier. Because of this growth opportunity, ExxonMobil should consider the acquisition of Apache Corporation.

Based on these reports, the acquisition of Apache Corporation would increase its natural gas production by 23.77% making it 52.41% larger than the next largest supplier. In the event that this merger did not cause anti-monopoly regulations to emerge, the acquisition would diversify its product portfolio and lessen reliance on oil production. As was discussed in the financial analysis earlier in the section, Apache has been recently mismanaged and may be on the path to a hostile takeover. Apache is currently undergoing unsolicited bids from Anadarko, but these bids have been rejected outright. Apache is currently being valued around $18-20 billion. (Dillalo, 2015) If the debt capacity analyzed earlier is considered, we see that ExxonMobil currently has the ability to take on over $30 billion in debt. The firm may be in the best position relative to competition to take on an investment of this size at this time. This acquisition would gain market share in the oil business and provide future security through an investment in the growing industry of natural gas. (U.S. Natural Gas Production, 2013)

ExxonMobil at this time is undeniably financially well managed relative to other firms in the oil industry. They have an unmatched ability to borrow and repay debt; giving them the resources they need for continual investment and growth. The company has a number of growth opportunities, but also faces the risk and threats from macro-environmental factors and technological changes associated with the oil industry. With annual revenue similar to the GDP or Norway or Belgium, ExxonMobil’s size and influence is more similar to that of a nation-state rather than a company.

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However, when evaluating the ability of ExxonMobil to deliver wealth to the investor, there are three main factors for consideration: relative price premium, the fact that earning are often a result of stock buybacks, & macro environmental factors limiting prospects of the oil industry as a whole. ExxonMobil’s current business model, with a high reliance on the sale of crude oil, is dependent on the commodity’s price. This price is constantly manipulated by foreign powers, partnerships, and global supply/demand. As OPEC countries continue to not limit oil production and overall productivity continues to slow in China and the EU, oil prices will continue to fall. This will directly affect the bottom line of ExxonMobil and the shareholder’s wealth. Not only is this not the time to invest into the oil industry, but also compared to its competitors, ExxonMobil is currently priced at a premium. With a price to earnings five percent higher than the industry average, an investor should look to other firms to deliver more wealth for their dollar.   For the earnings ExxonMobil does return, some of these are a direct result of huge buybacks, a practice becoming common with all companies considered in the industry average. Over the past decade, ExxonMobil has reduced their outstanding shares by 40% (Jakab, S. 2015). Is this practice truly better for the investor in the long run, or is it simply a way to artificially bolster the value of stock options? This is a question the stockholder must take into serious consideration. Because of these factors, this analysis concludes that ExxonMobil is a sell for the investor.

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Financial Appendix

 

 

 

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1

 

 

                                                                                                                         1 Apache Omitted in Equity Multiplier, Profit Margins on Sale 2012-2014, Gross Profit Margin 2014, 2014 ROA & ROE, & Both Occidental and Apache Removed from P/E Ratio 2014

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SWOT Analysis:

What are the firm’s strengths and weaknesses? Which Factors Pose potential opportunities or threats?

ExxonMobil’s Strengths: What Advantages Do ExxonMobil Hold?

Elaborate Upstream and Downstream operations / Technology

ExxonMobil is a vertically integrated company that has tight control over both its Upstream and Downstream. The Upstream consists of global exploration, development, research activities, and extraction for the Downstream (Company Profile Exxon Mobil Corporation, 2015). The Downstream sector of the company refines crude oil and sells its products to businesses and directly to customers. These extensive sectors allow for ExxonMobil to monitor and control its crude and refined oil operations. Since ExxonMobil sells a commodity, the operations of the firm are a large determinate of the success of the company. Since the price of many of its products is based on market demand, efficient processes are essential for saving the company money. In order for ExxonMobil to be in its strong current position they have to have elite internal processes in both the Upstream and Downstream. The upstream consists of many technologies that advance the efficiencies of the exploration and refining of oil. The mass metering system has helped ExxonMobil and its customer be able to efficiently monitor the direct mass flow, density, and temperature of

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its oil (Mass flow metering system) This process, as described previously, has helped to cut the cost and time spent of this process.

The efficiency of ExxonMobil’s elaborate Upstream and Downstream is a strength for the company because it allows for the company to reduce production costs. Approximately 75% of its refineries have integrated aspects of its chemical and lubrication manufacturing process. (2014 Summary Annual Report, 2014, pg. 33). This allows for ExxonMobil to require fewer facilities to produce its product portfolio. As a vertically integrated company they have less external supply chain dependency, which makes it more resilient to complications that can arise with external suppliers.

Research and Development Capabilities

Research and Development is a strength of ExxonMobil because it is constantly innovating its processes and trying to improve them. This can take the form of funding research and development in order to better its operations. Constant innovations allow for development to improve the exploration process, drilling process, and extracting process. In fiscal year 2013, ExxonMobil spent $1.044 billion on research and development alone, which is .25% of total revenue (Company Profile Exxon Mobil Corporation, 2014). This massive amount of money dedicated to research and development resulted in technological advances such as the Sulfuric Acid Alkylation technology that improves gasoline. Another example of effective research and development is the development of the Remote Reservoir Resistivity Mapping (R3M), which allows for efficient oil exploration. Due to the increase in funding for research and development, ExxonMobil has been able to make strides towards more efficient technology.

Geographic Diverse Portfolio

ExxonMobil’s geographically diverse portfolio is a major strength for the firm because it is able to exploit its global resources. Having access to raw materials in many different regions reduces the portfolio risk of the company. This allows for the company to have a revenue stream that is coming from many different sources which helps protect the company financially. In fiscal year 2014, ExxonMobil only produced 37.7% of their total sales and operating revenues within the United States (Company Profile Exxon Mobil Corporation, 2015). ExxonMobil’s ability to leverage its global operations and brand gives it a competitive advantage and allows the company to have a larger reach (Company Profile Exxon Mobil Corporation, 2014). Furthermore, the diverse portfolio allows for ExxonMobil to avoid exposure to political risks or instability in specific regions.

Strong Market Position

ExxonMobil has a presence in almost every facet of the oil industry, due to its vertical integration. The strong market position that ExxonMobil has achieved is based upon all the other strengths of the company. In order to maintain and improve vertical integration, ExxonMobil has weaved many aspects of its petrochemical company into its oil refineries,

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which improves efficiency and cost, by reducing the number of refineries needed. This means that ExxonMobil can create many of its chemical products through the refineries designed for oil, reducing the number of refineries needed. The company is involved in roughly 50 countries and explores natural gas and oil on six continents. They possess 30 refineries, which are located in 17 countries and have a massive distillation capacity (Company Profile Exxon Mobil Corporation. 2015). ExxonMobil possesses 1,630 Esso gas stations internationally (Double Check), which allows for high customer contact and the opportunity for business-to-customer interaction. Since ExxonMobil sells commodity products, its market position is mostly determined by processes and the ability to work with macro-environmental factors. Avoiding this risk with a diversified portfolio is critical for company success because the oil rich Middle East countries are riddled with instability, and offshore drilling sites are subject to storm patterns. These multiple revenue streams allow for ExxonMobil to maintain its status, because it increases resilience. ExxonMobil’s vertically integrated processes and diverse geographic portfolio result in high finished product output allowing for ExxonMobil to have a strong market position.

ExxonMobil’s Weaknesses: Areas for Improvement

Declining Financial Results

ExxonMobil is suffering from declining financial results. This is mainly due to oil price falling because of excess supply. This disparity is driving the market price for oil downward. In addition to the increased supply of oil, the current recession in Europe and China has slowed oil demand. The drastic drop in demand plus continued production has caused oil to reach its lowest price in 15 years. The OPEC countries have also continued to maintain high production, which continues to keep the price of oil low. Without limits on production, the price of oil will remain low and continue to affect the bottom line. Since the company has little control over the price of oil, this is a weakness to ExxonMobil because it is subject to the whims of changing oil prices. In recent years ExxonMobil has had declining revenues, which leads to declining Operating Income and Net Profits ratios. This follows similar trends in industry. This is due to the fact that the most recent years taken into consideration have seen a decline in oil prices from a relevantly high price in preceding years.

Litigations and Contingencies

Environmental degradation that has been caused by ExxonMobil has led to lawsuits that are negatively impacting the company. These litigations seek damages, fines, or penalties in order to correct the wrongdoings of the company. Such litigations and lawsuits are negatively affecting the company’s image and the large financial penalties affect the bottom line.

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ExxonMobil’s Future Opportunities

Rising Global Energy Consumption

The global demand for energy is increasing and ExxonMobil is well positioned to capitalize on this energy demand. Some of the key drivers are population, demographics, economic growth, and income levels (2014 Summary Annual Report, pg. 6). According to ExxonMobil’s research, the global energy demand will grow roughly 65% by 2040 in developing countries (Non OECD) (Company Profile Exxon Mobil Corporation, 2014). Energy demand is also expected to grow by 37% by 2040, which provides an energy supplier like ExxonMobil opportunity to capitalize on the expanding market (World Energy Outlook 2014, pg. 1). Global transportation fuel is also expected to increase 40% by 2040, and this will be driven by an increase in commercial transportation in developing countries (Company Profile Exxon Mobil Corporation, 2015). As the global demand for energy is increasing ExxonMobil’s efficient operations and integrated processes position it well to capitalize on these heightened demands, and provide an excellent opportunity to grow into expanding markets.

Increasing Demand for Natural Gas Liquids

This is an opportunity for ExxonMobil because the projections for natural gas indicate its demand is expected to increase. The U.S. Energy Information Administration has forecasted the annual energy demand for natural gas will increase by .7% over the next 26 years. This number could even grow to be larger if climate change legislation continues to grow and the demand lower carbon emissions. Fuels such as clean natural gas will increase in demand, providing an opportunity for ExxonMobil to expand into that market (Natural Gas Demand). As stated earlier in the financial analysis, purchasing Apache could be an avenue into this market. The largest natural gas market is the Asia Pacific, which is roughly two-thirds of global natural gas trade. As Asian markets are expected to grow substantially in the future, emerging markets in the Southeast Asia are expected to be major players in the demand of natural gas. This provides an important opportunity for ExxonMobil because as increasing global energy demand transitions towards cleaner fuels, natural gas will allow ExxonMobil to main their current processes and produce this new opportunity.

ExxonMobil’s Potential Threats

Environmental Regulations

The very nature of ExxonMobil’s entire business is the extraction of nonrenewable resources from the earth’s crust and refining these products to be burned for energy. Every aspect of the supply chain releases massive amounts of the greenhouse gases and pollution. Due to rising global awareness on the environmental damage caused by the industry, specifically global warming, environmental regulations pose a huge risk to ExxonMobil. These

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regulations can prevent the company from expanding and can cause penalties and restrictions to be placed on the company. Even though ExxonMobil is taking new and ongoing measures to reduce their environmental impact, the amount of capital that must be employed to mitigate these regulations is extremely large. For example, in fiscal year 2013 they expensed 6 billion dollars in attempts to reduce its environmental impact. These environmental regulations on ExxonMobil are a threat because as regulations are tightening, the price to reduce its emissions could increase.

Economic Conditions

Economic conditions such as the demand for energy and petrochemicals correlate closely with growth rates. Economic recessions or periods of low economic growth will have negative effects on the company. Based off our recession analysis, the more a country produces the more oil it requires, so during a regression the company will require less oil. Price manipulation from international partnerships like OPEC also threatens ExxonMobil’s profitability since most of its products are commodities. Other examples of economic conditions that threaten ExxonMobil are regions that experience civil unrest, political unrest, and changes in population in growth rates. Economic conditions that are created by fiscal, monetary, or political systems such as the EU can impair the functioning of financial markets and institutions, which increases risk of ExxonMobil’s financial assets and the ability for customers to fulfill its commitments to ExxonMobil.

Alternate Energy Sources

The probability of future energy sources is a threat to ExxonMobil. Alternative resources allow energy to be used without having as negative of an impact of the environment as nonrenewable resources. As the global demand of energy is increasing, leading global countries are pushing for sustainable alternatives for energy. Although, alternative energy sources are a threat, they still have very high investment price and lack efficiencies to truly this industry at the present time. This threat might become more evident in the future once the initial investment for sustainable energy sources decreases and once the ventures become more efficient. Technology changes such as high capacity batteries and faster charging batteries can be problematic for ExxonMobil because it makes electric cars more practical. Which in turn reduces the amount of oil required.

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