ExxonMobil Corporation 2013

Forest R. David

A.

Case Abstract
Headquartered in Irving, Texas, Exxon Mobil is the world's largest oil company and engages in oil and
gas exploration, production, supply, transportation, and marketing worldwide. With 24.9 billion barrels
of proven oil reserves, Exxons 36 refineries in 20 countries have a capacity of more than 6.2 million
barrels per day. Exxon supplies refined products to more than 25,000 gas stations in 100 countries.
With operations on all continents except Antarctica, Exxon has 82,000 employees and operates over
30,000 oil wells around the world. In late 2013, the USA surpassed Russia as the world's largest
producer of oil and natural gas, a startling shift that is reshaping markets and eroding the clout of
traditional energy-rich nations. Between 2008 and 2012, natural gas as a percentage of Exxon's total
production grew from 38.7 percent to 48.5 percent. This trend is alarming to some analysts because
natural gas is less profitable than oil and is also more expensive to transport. Also alarming is that
more and more of Exxons production every year is coming from its joint venture affiliates rather than
from its company-owned wells. Poor execution of major projects is another concern that analysts have
with Exxon Mobil. Exxon quite often fails to complete projects on schedule and spends beyond
originally budgeted amounts -- spending that translates to lower overall returns. For example, in three
of its large projects, note the following:

Kashagan: 7 years late, $30 billion (300%) over budget

Kearl Oil Sands: 1 year late, $4.1 billion (61%) over budget

PNG LNG: expected for 2014, $3.3 billion (21%) over budget

B.

Vision Statement (proposed)

To be the world leader in all aspects of oil production while creating a safer and cleaner environment
for everyone.

C.

Mission Statement (proposed)

ExxonMobil Corporation is an environmentally conscious, high quality energy company, competitively
priced, using technology to find cleaner and safer alternatives to provide energy to the world (2, 4).
We appreciate our customers from the average person to the largest corporation (1) and we are
indebted to all our employees (9) for their hard work. We develop and utilize high impact technologies
(4) to sustain growth and profitability (5). We are partners with all communities where we operate
globally (3, 8). Our philosophy is to protect the earth and the people living on it (6) by providing
energy safely and ethically, and focusing on renewable efforts (6, 7).

1.
2.

Customers
Products or services

3.
4.
5.
6.
7.
8.
9.

D.

Markets
Technology
Concern for survival, growth, and profitability
Philosophy
Self-concept
Concern for public image
Concern for employees

External Audit
Opportunities
1.

Between now and 2016, oil and natural gas output in North America is expected to increase
dramatically.
2. Melting of the Artic ice cap due to global warming is spurring additional drilling as well as rising
disputes among Russia, Canada, and the USA regarding ownership of new unfrozen areas.
3. Natural gas prices are not strongly correlated with crude prices and can even be negatively
correlated at times.
4. Natural gas burns much cleaner than crude.
5. Acquisitions and joint ventures are common in the oil industry.
6. Energy demand is expected to increase about 30% by 2040.
7. Liquid fuel is expected to be the fuel of choice to power the worlds transportation fleets by 2040.
8. Notable hotbeds for shale, rock and sand exploration include the Eagle Ford, Bakken and Permian
Basin. Eagle Ford is located in south Texas and is considered the hottest area in North America,
producing higher liquid content than traditional shale.
9. Technology and rising fuel prices are making exploration in shale, rock and sands financially
feasible.
10. Growing middle class around the world.
Threats
1.
2.

Natural gas prices are at all time historic low levels.

The crude business is becoming more competitive and there is an increased difficulty in finding
oil.
3. Increased governmental regulations regarding pollution and a growth in biofuels also hinder
growth in the refining business.
4. Saudi Aramco controls liquid reserves of 24 times that of ExxonMobil and gas reserves of 3.6
times greater. Iran based and state owned (NIOC) controls 14 times the liquid reserves and 15
times the gas reserves than ExxonMobil controls.
5. BP and Chevron are large competitors in the industry.
6. Coal, despite environmental concerns, is expected to continue to be the leading choice of power
generation for a number of years.
7. Energy prices tend to be highly volatile and are expected to continue their volatile nature in the
future.
8. OPEC, accounts for nearly 80 percent of the worlds oil reserves.
9. Growth in electric cars and more energy efficient engines.
10. ConocoPhillips and Marathon Oil Corp. (MRO) recently separated their refining operations into
separate companies.
Competitive Profile Matrix

Exxon is the clear leader among rival firms in the petroleum business. A major area for improvement
moving forward would be divesting the refinery business altogether or making the refinery business a
separate company owned by Exxon.
EFE Matrix

Exxon is doing very well in addressing external issues. One area, moving forward, that needs to
be addressed is that Exxons rivals are divesting their refining operations which offer much
smaller margins than upstream operations.

E.

Internal Audit
Strengths
1.
2.
3.
4.
5.
6.
7.
8.
9.

Exxon produces about 6.3 million barrels of oil daily by operating over 37,000 oil wells in 21 different
countries with reported net income of $45 billion in 2012.
Exxon employs more single hull oil tankers than the next 10 largest oil companies combined.
Upstream revenues account for over 80% of total revenues after tax.
80% of all revenues are derived from outside the USA.
About 30% of Exxons production comes from North America, but by 2016 this number is expected to
grow to 35%.
Arctic technology, deep water drilling, and oil sands recovery are expected to grow from 45% to 50%
by 2016.
Exxon is the largest global refiner of oil in the world with downstream operations refining and
distributing products derived from crude oil to customers around the world.
Exxons lubricants business in the downstream market continues to grow, and Exxon is the current
market leader in high value synthetic lubricants in many key markets such as China, India, and Russia.
ExxonMobil is one of the largest petrochemical companies in the world, providing materials for use in
products including plastic bottles, synthetic rubber, solvents, and countless other goods.

Weaknesses

1.
2.

Exxon does not report a mission or vision statement.

There apparently is no COO or CAO in the Exxon hierarchy, nor an SBU head for each group. Exxon
has virtually no women, Hispanics, or African-Americans among their top corporate executives.
3. Notable oil spills in the last 25 years have hurt Exxons reputation and hurt the firm financially.
4. Downstream revenues account for only around 10% of total revenues.
5. Starting in 2008, Exxon began transitioning its gas stations (downstream operations) into a branded
distributor model, allowing distributors to use the Exxon and Mobil names.
6. Downstream business remains weak, and Exxon recently divested their downstream businesses in
Argentina, Uruguay, Paraguay, Central America, Malaysia and Switzerland. In 2012, Exxon
announced restructuring of their downstream holdings in Japan.
7. Over the prior 20-year period, inflation-adjusted refining margins have been flat and Exxons longterm outlook in refining margins will likely remain weak, as competition grows and capacity additions
grow quicker than global demand.
8. Refining business is still structured as part of the Downstream SBU at Exxon.
9. With no long term debt, Exxon is not taking advantage of cheap financing at historically low rates.
10. Earnings for the Chemical SBU declined 10% from both 2010 to 2011 and 2011 to 2012.
Financial Ratio Analysis
Profit Margin Percent
Gross Margin
Pre-Tax Margin
Net Profit Margin

Exxon
28.27
14.31
8.04

Industry
27.75
11.58
6.74

Liquidity Ratios
Debt/Equity Ratio
Current Ratio
Quick Ratio

0.05
0.86
0.55

0.21
1.12
0.7

Profitability Ratios
Return On Equity
Return On Assets
Return On Capital

21.85
10.69
18.45

16.09
7.85
12.64

Efficiency Ratios
Income/Employee
Revenue/Employee
Receivable Turnover
Inventory Turnover
Asset Turnover

466,579
5.8 Mil
12.92
19.67
1.33

106,226
1.69 Mil
11.1
11.95
1.17

Exxon is doing very well financially when viewed from afar. However, the downstream and chemical
business is struggling.

Net Worth Analysis (in billions)

Exxon is worth substantially more ($156 billion more) than Chevron; Exxon reports no goodwill or
intangible assets on its balance sheet.
IFE Matrix

Exxon is doing exceptionally well addressing internal issues. The firm, moving forward, needs to develop
mission and vision statements as well as hire a COO, so it can better address its refining and chemical
businesses.

F.

SWOT
SO Strategies
1.
2.
3.
4.

Spend $500 million to acquire rights to additional shale and rock formations in Canada and the
USA (S3, S5, S6, O1, O8).
Invest $200 million in natural gas exploration in the USA (S3, S5, O3, O4).
Purchase 10 new oil tankers at $100 million each (S1, S2, O6, O7, O10).
Invest $50 million in R&D related to Arctic drilling (S6, O2).

WO Strategies
1.
2.
3.

Divest all refining operations (W4, W6, W7, W8, O9).

Start financing via debt while rates remain low (W9, O1, O6).
Hire a COO for $10 million to help guide the firm and better analyze any profitable acquisitions or
joint ventures present (W1, W2, O5).

ST Strategies
1.
2.

Invest $200 million in natural gas exploration in the USA (S3, S5, T2, T3).
Expand lubricant business 100% in China by 2017 (S8, S9, T3, T5).

WT Strategies
1.
2.
3.

G.

Restructure all refining operations into separate companies (W4, W7, W8, T2, T10)
Restructure the Chemical SBU for a cost of $50 million (W10, T1, T2).
Spend $1 billion to acquire new oil fields in Russia (W9, T4, T5).

SPACE Matrix

Exxon is solidly in the Aggressive Quadrant but much of this is from its upstream business. Downstream and
Chemical SBUs are not nearly as efficient or strong. Interestingly, with the factors considered, Exxon received a
perfect -1 score for CP.

H.

Grand Strategy Matrix

Overall the industry is experiencing Rapid Market Growth. However, areas such as downstream
operations, chemicals, natural gas, and rock and shale exploration are not growing as strongly as traditional
petroleum.

I.

The Internal-External (IE) Matrix

Segment
Upstream
Downstream
Chemical
Corporate & Financing
Total

J.

QSPM

2012 Total Sales

(in billions)
$40
374
39
0.24
453

2012 Profits (in billions)

$30
13
4
(2)
45

Both options have approximately the same weighted scores, and with Exxons capital position, both should
be implemented.

K.

Recommendations
1.
2.
3.
4.
5.
6.
7.
8.

Spend $500 million to acquire rights to additional shale and rock formations in Canada and the USA.
Invest $200 million in natural gas exploration in the USA.
Purchase 10 new oil tankers at $100 million each.
Invest $50 million in R&D related to Arctic drilling.
Hire a COO for $10 million to help guide the firm and better analyze any profitable acquisitions or
joint ventures present.
Restructure all refining operations into separate companies for a cost of $50 million.
Restructure the Chemical SBU for a cost of $50 million.
Spend $1 billion to acquire new oil fields in Russia.

L.

EPS/EBIT Analysis (in billions expect for EPS and Share Price)
Amount Needed: $2.95
Stock Price: $ 86.95
Shares Outstanding: 4.4
Interest Rate: 3%
Tax Rate: 40%

Debt financing maximizes EPS under all economic conditions. Considering Exxon has virtually no debt,
debt financing is more appropriate. It is also important to note that Exxon has nearly $10 billion in cash,
easily enough to finance $2.95 billion in projects recommended.

M.

Epilogue
In June 2013, a Russian firm, Rosneft, and ExxonMobil signed final agreements establishing a joint Arctic
Research Center (ARC) in Russia and an over-arching technology sharing agreement to support the
companies joint ventures worldwide.
Formally named the Arctic Research and Design Center for Continental Shelf Development, the ARC has a
near-term focus on the Kara Sea engaging in activities such as safety and environmental protection; ice,
ocean and geotechnical surveys; sea ice management; development of design criteria; and the evaluation
and design of development concepts.
In May 2013, ExxonMobil began operation of its Singapore Chemical Plant producing ethylene from the
facilitys second world-scale steam cracker. Powered by a 375-megawatt cogeneration plant, the facility
includes three polyethylene plants, two polypropylene plants, a specialty metallocene elastomers unit, and
the expanded oxo-alcohol and aromatics units.

In May 2013, ExxonMobil began development of the Julia oil field in the Gulf of Mexico which is
expected to begin oil production in 2016. Cost of the operation is estimated to be more than $4 billion. The
field was discovered in 2007 and is estimated to have nearly six billion barrels of resource in place. The
facility is being designed for daily production of 34,000 barrels of oil and includes six wells with subsea
tie-backs to the Jack & St. Malo production facility operated by Chevron. The Julia oil field is located
more than 30,000 feet below the oceans surface 265 miles southwest of New Orleans. ExxonMobil, the
operator, and Statoil Gulf of Mexico LLC each hold a 50 percent interest in the Julia facility. Over the past
decade, ExxonMobil has drilled 36 deep water wells in the Gulf of Mexico in water ranging from 4,000
feet to 8,700 feet.
In Q1 of 2013, ExxonMobils Upstream earnings were $7,037 million, down $765 million from Q1 of
2012. The companys liquids production totaled 2,193 kbd (thousands of barrels per day), down 21 kbd
from Q1 of 2012 as field decline was partially offset by project ramp-up in West Africa. The companys Q1
2013 natural gas production was 13,213 mcfd (millions of cubic feet per day), down 823 mcfd from 2012.
Earnings from the companys USA Upstream operations were $859 million, $151 million lower than Q1 of
2012. Non-U.S. Upstream earnings were $6,178 million, down $614 million from the prior year. The
companys Downstream Q1 2013 earnings were $1,545 million, down $41 million from Q1of 2012.
Petroleum product sales of 5,755 kbd were 561 kbd lower than Q1 2012. Earnings from the USA
Downstream were $1,039 million, up $436 million from Q1 of 2012. Non-U.S. Downstream earnings of
$506 million were $477 million lower than last year. The companys Chemical earnings in Q1 2013 were
$1,137 million, up $436 million from Q1 of 2012.
Exxon Mobil has historically drawn much criticism for its policies related to gay and lesbian workers, but
in October 2013, the company extended health insurance and other employee benefits to married same-sex
couples. Exxon says it is simply following the policies of the federal government, which has begun to issue
rule changes and guidance on how gay couples should be treated in light of the Supreme Courts
monumental decision in June 2013 to strike down the Defense of Marriage Act. The decision found that
legally married gay couples were entitled to the same federal benefits as straight couples.
Chapter 18: Exon Mobil
10 Basic Questions

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15 Applied Questions
Strategic Position and Action Evaluation (SPACE) Matrix

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Value Chain Analysis

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Governance

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