Exxon Mobil Corporation (Exxon Mobil) is engaged in exploration and production of crude oil and natural gas, manufacture of petroleum products, and transportation and sale of crude oil, natural gas, and petroleum products with a global presence. The company operates in more than 200 countries under the names Exxon Mobil, Exxon, Esso, and Mobil. Exxon Mobil had a strong asset base of $242 billion in 2007, an increase of 10.5% over 2006. However, slowdown in the US economy and the European Union would depress revenue growth and reduce margins of Exxon Mobil.
Leading market position Diversified revenue stream Steady financial performance Strong R&D capabilities
Continued weak upstream performance in
Increasing demand for refined products in
Increasing demand for liquefied natural gas
Economic slowdown in the US and the
Risks associated with conducting business
outside the US
Leading market position
Exxon Mobil is the world’s largest publicly traded integrated petroleum and natural gas company with market capitalization of $448,638.50 as on February 2008.The company operates in more than 200 countries under the names Exxon Mobil, Exxon, Esso, and Mobil.
The company holds exploration and production acreage in 36 countries and production operations in 24 countries around the world. In 2007, seven major upstream projects started production. The total oil and gas production available for sale averaged 4.2 million oil-equivalent barrels per day in 2007.
Exxon Mobil has interests in 38 refineries located in 21 countries and markets its products through more than 32,000 retail service stations. In 2007, refinery throughput averaged 5.6 million barrels per day, and petroleum product sales were 7.1 million barrels per day. Exxon Mobil is the leading global supplier of lube basestocks and marketing finished lubricants, asphalt, and specialty products.
Exxon Mobil leads the petrochemical industry with interests in 49 wholly-owned and joint-venture facilities around the world. Leading market position across key product lines gives the company a competitive edge with a strong brand image.
Diversified revenue stream
Exxon Mobil has wide presence across various regions.The company’s revenue stream is diversified in terms of geographies. Exxon Mobil divides its geographic divisions as US and non-US.The non-US region covers the countries of Japan, Canada, the UK, Germany, Belgium, Italy, and France.
In FY2007, the company generated 31% of the total sales and operating revenues from the US, its core market. Revenues from Canada accounted for 6.9%, revenues from Japan accounted for 6.7%, and revenues from the UK accounted for 6.4% of the total revenues. Belgium contributed 5.3% to the total revenues, Germany 4.5%, Italy 4.2%, and the revenues from France accounted for the remaining 3.7%. Other countries accounted for 31.3% of the revenues. The company’s global operations and regional brand identity gives it competitive advantage over its competitors and also indicates that the company has a wider scope in increasing its revenues by utilizing its global presence. Further, its world wide presence reduces exposure to economic conditions or political stability in any once country or region.
Steady financial performance
Over the years, Exxon Mobil has delivered consistent financial results. The company had a strong asset base of $242 billion in 2007, an increase of 10.5% over 2006. The revenues of the company have increased at a CAGR of 11% during 2004-2007 from $298 billion in 2004 to $404.5 billion in 2007. Further, the sales and operating revenues revenues increased at a rate of 6.8% in 2007 over 2006.The company’s profits have followed a similar trend.The net profit of the company was recorded at $40.6 billion in fiscal year 2007, as compared to a net profit of $39.5 billion in 2006. Steady financial performance enables the company to manage its operations well and also increases the financial flexibility of the company.
Strong R&D capabilities
The company has strong research and development (R&D) capability. The company conducts research to develop new products and improve existing products, as well as to enhance manufacturing and production methods and improve service. It spent $814 million on R&D in FY2007. R&D expenses in previous years were $733 million in 2006, $712 million in 2005, $649 million in 2004, and $618 million in 2003. Because of its strong R&D capabilities, the company, for instance, in April 2008 introduced Metallyte UBW-ES, a new OPP film for flexible packaging. This sealant technology is a breakthrough for oriented polypropylene (OPP) films as it provides excellent seal strength (1500 g/2.5cm), seal integrity, and the ability to seal through product contamination in the seal area, as compared to traditional OPP films.
Further in 2008, Exxon Mobil Chemical Company introduced a new product, Enable mPE, with the potential to significantly reduce waste and energy consumption across a wide variety of film applications. Enable mPE makes packaging easier for shipping and storing bottled water, beverages, canned goods, hand soaps, detergents, health products, and beauty aids.
The company’s strong R&D capabilities provide it with a competitive advantage and help it to innovate and launch new products.
Exxon Mobil is involved in many legal proceedings. In June 2008, Exxon Mobil was sued by the attorney of San Francisco. The company faced an allegation that it failed to clean up hazardous pollutants from a fueling depot at Fisherman’s Wharf. Mobil Oil operated a fueling facility at Fisherman’s Wharf between 1938 and 1992. The suit alleges that Exxon Mobil’s neglect has contaminated the soil, groundwater, tidal water, and sediment of San Francisco Bay. The suit demands that Exxon clean the site and pay the damages.
In another incident, a resident of Linden claimed to contract a rare form of stomach cancer as a result of conditions at the Bayway Refinery in Linden. This refinery was formerly owned by Exxon Mobil. The jury found Exxon Mobil responsible for the cancer called ‘peritoneal mesothelioma.’ The company had to pay $7.5 million as damages. Such cases result in huge penalties and can have adverse effects on the company’s profitability.
In April 2008, workers of Mobil Producing Nigeria (MPN), an affiliate of Exxon Mobil, went on a strike over pay and working conditions.
Exxon Mobil, the largest oil producer in Nigeria, produces about 800,000 barrels per day in a joint venture with the state. The company’s equity share is around 427,000 bpd. The eight day strike by workers resulted in the stoppage of the full production of 800,000 barrels per day and forced the company to declare force majeure on its shipments. Therefore, the company could not fulfill contractural obligations to clients.The strike resulted in a decline of the Exxon Mobil’s oil production by more than half.
Further, in May 2008, port workers of Exxon Mobil carried out a strike at the Los Angeles-area refinery in Torrance, California. Such employee actions adversely affect the operations of the company and result in decline in the productivity.
Continued weak upstream performance in the US
The upstream division in the US has witnessed a consistent decline in the earnings.The net income for the US upstream operations declined 5.8% from $5,168 million in 2006 to $4,870 million in 2007. The company reported a net income for the US upstream operations of $6,200 million in 2005.
The lower net income from the US is attributed to lower net liquid (crude oil and natural gas liquid) production in the region. The net liquid production declined consistently since 2005. It declined by 15.2% from 477,000 of barrels per day in 2005 to 414,000 barrels per day in 2006. The company recorded a net liquid production of 392,000 barrels per day in 2007, a decrease of 5.3% compared with 2006. The natural gas production from the US also fell by 6.6% from 1,739 million cubic feet per day in 2005 to 1,625 million cubic feet per day in 2006. It further declined to 1,468 million cubic feet per day in 2007.
As net income from the US upstream operations contributed 12% to the consolidated upstream net income for Exxon Mobil in FY2007, continued weak earnings from the US operations would impact the consolidated financial results of the company.
Increasing demand for refined products in China
The demand for refined petroleum products in China is expected to rise sharply in the coming decades. China, despite substantial additions to refining capacity over the next three decades, is expected to remain a net importer of refined products in 2030. The refining capacity in China is forecast to increase from 6.2 million barrels per day in 2006 to 14.6 million barrels per day in 2030.
Over the next 10 years, the company expects about 60% percent of the world’s petrochemical demand growth to occur in Asia, with more than one-third in China alone. The company has exploration interests in China. In 2007, Exxon Mobil announced its plans to set up two joint ventures, Fujian Refining & Petrochemical Company and Sinopec SenMei (Fujian) Petroleum Company in Fujian Province with Sinopec and Saudi Aramco. The Chinese government granted the business licenses for their two joint ventures in March 2007. The two joint ventures, with a total investment of about $5 billion, will be Exxon Mobil’s first fully integrated refining, petrochemicals, and fuels marketing project with foreign participation in China.
Exxon Mobil China Petroleum and Petrochemical Company would own a 25% stake in Fujian Refining & Petrochemical Company and 22.5% stake in Sinopec SenMei (Fujian) Petroleum Company, the Fujian fuels marketing joint venture.These investments in China would enable the company to export refined products or establish fresh refining capacity and take advantage of the increasing demand for refined products in the country.
Increasing demand for liquefied natural gas (LNG)
The demand for liquid fuels is expected to increase from the 86 million oil-equivalent barrels per day, as of December 2007, to 116 million oil-equivalent barrels per day in 2030. The demand for natural gas is expected increase in North America, Europe and the Asia Pacific.
The company forecasts the global liquefied natural gas (LNG) demand to grow at more than 4% per year through 2030, driven by the demand in North America, Europe, and Asia Pacific markets. The demand for LNG would reach about 16% of the world’s gas demand by 2030. Currently, Exxon Mobil is participating in LNG projects in Qatar and Indonesia with a combined gross capacity of approximately 35 million tons per year, supplying LNG to markets in Asia, Europe, and North America. This represents about 20% of global industry capacity.
In March 2007, Exxon Mobil completed RasGas Train 5, one of the largest LNG plants in the world, for supplying gas into the northern European market. RasGas Company is a joint venture owned by Qatar Petroleum (QP) and Exxon Mobil RasGas. Over the next ten years, Exxon Mobil’s joint venture facilities in Qatar will have grown to over 60 MTA, contributing to Qatar becoming the world’s largest LNG supplier. Exxon Mobil is also developing LNG regasification terminals in the UK, the US, and offshore Italy with Qatar Petroleum. Such investments place the company in an ideal position to exploit growing demand for LNG.
Exxon Mobil plans to invest more than $125 billion in capital spending over the next five years to deliver major projects to meet growing world energy demand. The demand for global energy is expected to increase 1.3% per annum on average from 2005 to 2030. The company expects to participate in the start up of 19 new projects during 2008-2010, collectively adding more than 725,000 oil-equivalent barrels per day to Exxon Mobil’s production.
The demand for liquid fuels is expected to increase from the 86 million oil-equivalent barrels per day currently to 116 million oil-equivalent barrels per day in 2030. Exxon Mobil expects to start up multiple projects over the next three years across the full value chain of the liquefied natural gas (LNG) business, including production, transportation, and distribution. Using its proprietary technology, the company would commission four of the world’s largest liquefaction facilities and new LNG ships which can carry 80% more natural gas than conventional ships.
These investments aim to develop new technology, bring on new upstream projects, increase the company’s base refining capacity, and grow its chemical business.These investments also reinforce Exxon Mobil’s position as an industry leader in bringing new supplies to the market.
Economic slowdown in the US and the European Union
The company has a significant presence across the US and the European market. According to International Monetary Fund’s (IMF) World Economic Outlook, April 2008, the US and the European Union economy could face slowdown in 2008. The US GDP growth rate is likely to decline from 2.2% in 2007 to around 0.5% in 2008; and the GDP growth in the European Union market is forecasted to decline from 3.1% in 2007 to 1.8% in 2008. A weak economic outlook for these regions could depress industrial development and impact the demand for the company’s products.
Risks associated with conducting business outside the US
The company operates in more than 200 countries under the names Exxon Mobil, Exxon, Esso, and Mobil. Non-US, Exxon Mobil’s largest geographical market, accounted for 69% of the total revenues in the fiscal year 2007. In these foreign locations, the company might experience fluctuations in exchange rates, complex regulatory requirements, and restrictions on its ability to repatriate investments and earnings from its foreign operations. The company might also face changes in the political or economic conditions in the foreign countries it operates in. Such instabilities could negatively impact the revenue growth of the company.
Exxon Mobil’s businesses are subject to numerous laws and regulations relating to the protection of the environment. With rising awareness of the damage to the environment caused by industry, especially regarding global warming, regulatory standards have been continuously tightened in recent years. One of the most important developments in this area has been the introduction of the Kyoto Protocol for the reduction of greenhouse gases.The protocol calls on industrialized countries to reduce their greenhouse gas emissions level by 5.2% on an average annual basis during the 2008-2012 period, compared with 1990 emissions levels.
Further, in 2005, the US environmental protection agency (EPA) issued a ’clean air interstate rule’ (CAIR), to reduce the emission levels. According to the rule, the states have to reduce the allowable sulfur dioxide (SO2) emissions by 70% and reduce Nitrous Oxide (NOX) emissions by 60%, by 2015 compared with the 2003 levels.The company is governed by these regulations which could impose new liabilities on the company. This could result in a material decline in Exxon Mobil’s profitability in the short term.