EXXON MOBIL

-Problem of Declining Production

By Group P1 (Sec-3)
-Umang Sharma
-Shalabh
-Shah Savan
-Sudip Kar
-Kirti Mishra
About the Company – ExxonMobil

The Exxon Mobil Corporation, or ExxonMobil, is an American multinational oil and gas

corporation. It is a direct descendant of John D. Rockefeller's Standard Oil company, and was

formed on November 30, 1999, by the merger of Exxon and Mobil. Its headquarters are located

in Irving, Texas.

ExxonMobil is one of the largest publicly traded companies in the world. It is No. 2 on Fortune

500 List of companies for 2010.

Exxon Mobil's reserves were 72 billion oil-equivalent barrels at the end of 2007 and, at then

(2007) rates of production, are expected to last over 14 years.[4] The company has 38 oil

refineries in 21 countries constituting a combined daily refining capacity of 6.3 million barrels.

ExxonMobil is the largest of the six oil ‘supermajors’ with daily production of 3.921 million

BOE (barrels of oil equivalent). In 2008, this was approximately 3% of world production, which

is less than several of the largest state-owned petroleum companies. When ranked by oil and gas

reserves it is 14th in the world with less than 1% of the total.

Over the last 125 years ExxonMobil has evolved from a regional marketer of kerosene in the

U.S. to the largest publicly traded petroleum and petrochemical enterprise in the world. Today

they operate in most of the world's countries and are best known by their familiar brand names:

Exxon, Esso and Mobil. They make the products that drive modern transportation, power cities,

lubricate industry and provide petrochemical building blocks that lead to thousands of consumer

goods.

Problem Statement:
The problem that Exxon is facing today is one of falling production (2006 - 2008).

This in the long run, has lead to falling revenues and profits.

This has raised questions on the growth and future of the company.

As can be seen in the (Ref. Table 1), the production has been falling consistently from 2006 to

2009. Till 2008, Exxon Mobil was able to maintain an increase in both profits and revenues,

despite of the fall in production, by compensating with the earnings from their upstream

operations (exploration), due to the hike in Crude oil prices.

But, when in the year 2009, the price for crude oil fell, this coupled with the already falling

production lead to decrease in the net revenues and profit for the company.

Behavior Over Time Graph (BOT - Graph)

 In this Behavior Over Time (BOT) Graph we have considered three variables which are:

1) Production

2) Operating Expenses

3) Profit

4) Revenue

Here production is decreasing steadily for the period of 2006 to 2008. The operating costs which

include excavation, extraction & processing of resources and other operating costs are increasing

during this period. Inspite of this the net Revenue & Profit are both increasing this is

counterintuitive behavior.

The falling production and increasing operating expenses should have decreased the total

revenue from oil. But, during the considered time period, there was a hike in the Petrol prices,

leading to much higher margins for Exxon Mobil than expected.

Stake Holder Map

Community

Environment Government

Exxon Mobil
 Internal Media

Economic
Stakeholders Chart

INTERNAL COMMUNITY
– Managers - Local Residents
– Share Holders - Property Owners
– Workers - Local Businesses

ECONOMIC
ENVIRONMENT
– Commercial Banks - Local environment
– OPEC - Ocean Environment

MEDIA
GOVERNMENT
– Newspaper - Income Tax
Department
– Television - Ministry of
Petroleum
– Internet - Ministry of
Transport
- Ministry of Environment

CUSTOMER
– Countries
Identifying the Stakes

Economic

OPEC: The principal goal of OPEC is the determination of the best means for safeguarding the
OPEC country’s interests, individually and collectively and it also ensures the stabilization of prices in

international oil markets; giving due regard at all times to the interests of the producing nations and to the

necessity of securing a steady income to the producing countries; an efficient and regular supply of

petroleum to consuming nations, and a fair return on their capital to those investing in the petroleum

industry.

Commercial Banks: Banks provides loans and also helps in generating revenue and
profits.

Customers
Country: Imports and exports of oil and oil related products, thus helping in the country’s
overall growth and economic development.

Organization: Selling, buying and using of oil and oil related products for various use.

Automobile Drivers: For various transport purposes.

Government

– Collection of duties from the revenues generated.

– Subsidizing the prices of the oil.

– Controlling import and export.

Internal

Managers: Managing the different aspects of the company.

Workers: Perform various tasks for the company.

Shareholders: They have a direct claim on the company’s revenue and profit.

Community
 Local Residents: The Company provided employment to the local residents and helped in
developing the overall local surroundings.

Property Owners: Appreciation of the value of the property.

Local Business: Ancillary industries grew in and around thus again providing impetus to
the overall growth of the surroundings.

Environment

Affects the surroundings (land, water and air surroundings) and local environment.

Media

Media plays a major role in the marketing and promotion of company’s products through

advertisements and thus contribute to the company’s revenue and the overall growth.

Power vs. Stake Grid

Power Formal or Economic Political

Stake Voting
Equity Managers

Shareholders

Workers
 Economic Commercial Income tax

Banks Department
Influencers Community OPEC Ministry of

Media petroleum

Ministry of

Environment

Causal Feedback Loop:

Natural Resources

Price R B
Competition
Profit

Production
Analysis of Causal Cycle:

Here we have two loops. In the Main loop, Natural Resources have been depleting.

As a result of this, the competition among various oil companies for the existing

and new oil fields has been increasing.

This leads to a decrease in production.

This decrease should lead to a corresponding decrease in the Profit.

But, this is where the second loop comes into play. The Price increases, as a result

of which the Profit increases. This compensates for the decrease due to falling

production, leading to a net increase in production.

Reasons behind falling production:

• Depleting Resources: The current sources of crude oil, like Mexico are
fast dwindling. Resources of oil are both hard to find and recover, so the costs of

exploration operations have risen sharply. The older sources are soon drying up, and most

of the largest deposits being discovered now are in deep water. These resources are miles

beneath the ocean's surface and then more miles below the ocean's floor. Recovering this

oil will test the limits of drilling technology, and it will be expensive.

• Political reasons: Some of the countries where Exxon Mobil has setup crude oil
extraction are politically unstable. For instance, the Labor trouble in Nigeria adversely

impacted the production.

Recently the assets of Exxon Mobil in Venezuela were nationalized which lead to heavy

losses in both production and revenues.

• Resource-rich countries' demands for bigger shares of oil and

natural-gas production as prices climbed: The resource-rich countries

which act as partners for Exxon Mobil are demanding contracts that give more barrels to

them when oil prices rise, and as a result the net production for Exxon Mobil decreases.

• Competition from China: As China's need for oil and gas has increased
tremendously as a result of the growth of its economy, the Chinese companies, which are

backed by the Chinese Government are very aggressive bidders for oil supplies. Exxon

Mobil is finding it increasingly difficult to compete with them.

 DATA

Table 1 – Production Data

 Industry (USD)
Annual
31- 31- 31- 31-
FISCAL YEAR ENDING DEC DEC DEC DEC
2006 2007 2008 2009

〉
Revenue - Exploration & Production 32.9B 28.7B - -

Average Natural Gas Price per Mcf 6.08 5.29 7.54 -

Average Price per Barrel 58.3 66.0 89.3 -

Gross Wells 55.4K 54.7K 54.2K - 〉

Average Daily Production of Natural Gas in Cubic

9.33B 9.38B 9.10B 0
Feet
Average Daily Production of Oil & Liquids in Barrels
2.68M 2.62M 2.40M -
per Day 〉
Net Productive Gas Wells 9254 9417 9387 -

Net Productive Oil Wells 17.2K 16.8K 16.6K -

Net Productive Wells 26.4K 26.3K 25.9K -

〉
Number of Refineries 40.0 38.0 37.0 -

Oil Sales 48.5B 52.9B 64.7B -

Natural Gas Sales 16.9B 14.2B 18.6B -

〉
Proved Natural Gas Reserves in Cubic Feet 32.5T 32.6T 31.4T -

Proved Oil Reserves in Barrels 8.19B 7.74B 7.58B -

Refining Capacity in Barrels per Day 6.40M 6.30M 6.20M -

Distributor Outlets - - 100 - 〉

Annual Production of Oil & Liquids in Barrels 832M 801M 724M -

Annual Production of Natural Gas in Cubic Feet 2.78T 2.68T 2.47T 1.00

Revenue - US - - 138B -
〉
Revenue - International - - 322B -

Revenue - Chemicals - - 38.4B -

Add Metric

Table 2 (Income 〉

Statement (USD))
31-DEC 31-DEC 31-DEC 31-DEC
FISCAL YEAR ENDING
2006 2007 2008 2009

Total Revenue 378 405 477 311

〉
 B B B B

164 172 189 96.8

Gross Profit
B B B B

〉
Research &
0 0 0 0
Development

14.3 14.9 15.9 14.7

SG&A
B B B B

11.4 12.2 12.4 11.9 〉

Amortization & Deprec
B B B B

74.8 78.0 82.9 43.9

Other Expenses
B B B B

Total Operating 100 105 111 70.6

Expenses B B B B 〉
63.9 66.6 77.4 26.2
Operating Income
B B B B

5.18 5.32 6.70 9.09 〉

Other Income
B B B B

69.1 71.9 84.1 35.3

EBIT
B B B B

〉
1.05 1.00 1.65 378
Minority Interest
B B B M

654 400 673 548

Interest Expense
M M M M

67.4 70.5 81.8 34.4

Income Before Taxes
B B B B

27.9 29.9 36.5 15.1

Income Taxes
B B B B

Net Income from 39.5 40.6 45.2 19.3

Continuing Ops B B B B
Income - Discontinued
0 0 0 0
Ops

Extraordinary Items 0 0 0 0

Effect of Accounting
0 0 0 0
Changes

Other Items 0 0 0 0

39.5 40.6 45.2 19.3

Net Income
B B B B

Prices Vs Time Chart (5 – Year Data):

Sources & References:

– http://www.exxonmobil.com/Corporate/community_ccr_stakeholders.as
px
– www.wikipedia.com
– http://www.wikinvest.com/
– http://oil-price.net/
– www.google.com