ExxonMobil Research and Engineering - Case Study Example

Introduction: Exxon Mobil is an American company that ventures in oil and gas exploration. The merger of Mobil and Exxon in 1999 formed this company, making it one of the largest companies in the world. The company is the most profitable in the world, both in its line of business, and in relation to the performance of other large multinational corporations (Coll, 2012). Coll (2012) observes that the company operates in more than 200 countries, with an asset base of 37 oil refineries (p.34). Due to these massive resources, the company refines an approximate value of six million barrels of oil per day. Esso, Exxon and Mobil are the brands in which the company uses to consolidate the market. These are energy products used in the petrochemical industry, lubrication and transport industry, and companies that require petroleum energy to drive their production (Coll 2012, Abreu 2010 and Choi, 2008). This paper is a report on the strengths, weaknesses, opportunities and threats that face the company. It provides a critical evaluation of the above elements of the company, and where possible, this paper gives examples, and explains them. The main aim of this analysis is to predict the future potential of the weakness, and advice investors on whether it is wise to invest in this company. The importance of this SWOT analysis is to identify whether it is a wise venture to invest in ExxonMobil. To effectively explain the strengths of the organization, this paper highlights the following issues in regard to ExxonMobil, its position as the most dominant player in its field of operation, and its varied sources of revenue. This paper recognizes the company’s stable economic performance as one of its strengths. This paper identifies and explains the following as the weaknesses of the organization, excessive legal proceedings, employee instability, and a week upstream performance in the United States economy, and its association with dictatorial regimes in African countries such as Chad. It identifies the opportunities of this company as, emerging markets for energy in china, an increase for the demand of liquefied gas, increase in profitability due to its extensive base, among others. In identifying and describing the threats the organization faces, this paper focuses on the economic recession in United States of America and Europe, piracy and terror threats, and laws regulating the environment. This paper has a conclusion, and it is an analysis of the various described, and it gives a recommendation on whether investing in the company is a wise decision. Strengths of Exxon Mobil: Choi (2008) observes that, the size of Exxon Mobil as the largest oil and Gas Company in the world makes it enjoy the benefits of economies of scale (p.32). Because of its massive size, the company has the ability to easily attract capital. The company is a large multinational organization, and it operates in over 21 countries of the world. The company’s revenue is high, because of its massive capital, since it operates an approximate number of 37 oil refineries (Coll, 2012). For instance, in 2007, the company had an oil reserve whose value was 72 billion, with the capability of lasting for 14 years. This if all the factors affecting oil supply and production remained constant. The company, due to its size, has a capability of refining an approximate daily value of 6.3 million barrels of oil (Abreu, 2010 and Coll, 2012). This is a large figure considering how many a million barrel of oil can last, in a single country. In percentage terms, the company controls 3% of the world energy supplies through its refineries and subsidiary companies all over the world. Due to its position as the most dominant player in the exploration and production of energy, the company makes billions of profits. This gives it the ability to control the foreign of the American government. The company operates under three divisions, and they are downstream, chemical and upstream division (ExxonMobil, 2010). Due to its massive revenue and capital base, the company outperforms its competitors such as Royal Dutch Shell, BP and Chevron Corporation. (Abreu, 2010). The company has different areas of acquiring revenue, and this is its other strength. The company operates under three divisions, namely upstream, downstream and chemical stream. At the chemical division, the company operates through ExxonMobil chemical company. This division concentrates with chemical energy, and its production (Abreu, 2010). The division concerns itself with petro-chemical technology, and produces substances such as aromatics and polymers. Anyone wishing to use them must obtain a license from the company, and at a fee. It also leases zealot catalyst, for use in petrochemical processes. Another revenue stream for Exxon Mobil is its upstream division (ExxonMobil 2010 and ExxonMobil, 2009). The division has companies such as ExxonMobil Exploration Company, ExxonMobil Production Company, ExxonMobil Gas and Marketing Company. The responsibility of the exploration company is to look for new oil production areas. As the company’s oil fields and gas field diminish, the Exploration Company is responsible for identifying new exploration ground (Coll, 2012 and Choi, 2008). This ensures the company is in business, and does not run out of stock. The downstream division consists of a refinery and a supply company. The purpose of this company is to refine the barrels of oil in its possession, and thereafter sell them. Other organizations in this subsidiary are ExxonMobil Fuels and Lubricants supply and ExxonMobil Engineering and Research Company (APQC, 2004). This organization of the company accelerates its efficiency in its business, and this leads to increased profitability, because the subsidiary organizations, supplement the work of each other. As compared to other oil production companies, it is ExxonMobil that has the most sophisticated structure in terms of the operations of its subsidiary companies and their management (Coll, 2012). Coll (2012) in his analysis of the company’s financial record observes that, the company has a stable economic performance, emanating from its strong performance of the 2005 financial year (p.12). In 2004, the company made profits to the tune of 340 billion dollars. In 2006, the company performed slightly lower than 2005, and made a profit of 335.1 billion dollars (Coll, 2012). In 2012, the company became the most profitable business organization in the world. It maintained this position from the last three years. Weaknesses of ExxonMobil One of the weaknesses of the company is that it faces numerous legal challenges. An instance involves a lawsuit by Ryanair against the company. The airline company sought damages amounting to millions of dollars, alleging that ExxonMobil overcharged it in terms of fuel prices. The airline company sought at least 7.6 million pounds, as compensation for its lost profits. This is after a review of prices by the company, over a seven year period (Coll, 2012). The lawsuit alleges that, through its subsidiary, Esso Italiana, the airline paid higher prices for jet oil in Italian airports, as compared to other airlines in Europe. The company in the lawsuit alleges that, the higher prices made them suffer loss, because of low ticket sales. Ryanair filed the lawsuit in 2011. In 2006, the company faced charges of engaging in exchange of information with its competitors for purposes of market domination. This was in relation to an attempt of the company in controlling a refueling facility in Italy. The Italian oil regulator fined the company a total of 315 million Euros (Abreu, 2010) . In 2006, the company faced a series of lawsuits due to a leakage of gasoline oil in Jacksonville. An approximate number of 300 people filed a case against the company demanding compensation over the health risks associated with the leakage. In July 2011, the court awarded the plaintiff an approximate award of half a billion dollars in terms of damages (ExxonMobil, 2010 and ExxonMobil, 2009). The company faced a punitive fine of 1.5 billion dollars, for negligence and fraud in relation to the Jacksonville gas leakage. In March 20009, a court in Baltimore awarded some 300 people an approximate amount of $ 150 million, in relation to the Jacksonville leakages . On February 26th 2009, the company faced a law suit for environmental damages, arising from the destruction of Kivalina. The company won the law suit. In Yellow Stone County, the company faces legal proceedings, because of an oil spill on the Yellowstone River. An approximate value of 70,000 gallons of oil spilled into the river (Coll, 2012). The plaintiffs brought legal proceedings against ExxonMobil on the grounds that the oil spill affected their lives, and animals. The company faces challenges in regard to maintaining the trust and confidentiality of their employees, especially in its security sector. An instance involves a group of Indonesian villagers who accused the company’s security officers of human rights violations. According to the Alien Tort Statute of 1789, the company does not enjoy immunity. It must account for its actions, and therefore control its employees. Such decisions affect the operation of its employees, taking caution of their action, least they face disciplinary action, and possibly legal lawsuit. On April 2008, Nigerian employees of ExxonMobil went on an industrial action demanding better pay wages, and good working conditions (ExxonMobil, 2010). The company under scrutiny was Mobil Producing Nigeria, an affiliate company of ExxonMobil. A decline in the production of energy outputs in its upstream division in United States of America is another weakness facing the company. There is a sharp decline in the production of liquefied oil and gas in United States of America, and this affects the operations of the company in terms of its supplies (Abreu, 2010). In the long run, this situation produces n effect of reducing the revenue base of the company. For instance, in 2012, ExxonMobil management gave their quarterly earnings, and its upstream division, which contributes a larger percentage of revenue to the company, plunged in relation to profitability (Coll, 2012). The company attributed this to low prices of natural gas, falling prices of crude oil, and low production of oil and gas in America by its upstream division. In 2004, United States of America experienced a decline of gas and oil production, and this situation still exists many years down the line (ExxonMobil, 2010 and Coll, 2012). To mitigate this situation, oil companies in America use the hydraulic fracturing technique to exploit reserves that they deem an expensive venture. To mitigate against low prices, the company drills shale’s that produce high value liquefied gas, and hydro carbons Opportunities of Exxon Mobil: One of the opportunities the company has is an increase in the demands of refined energy in Asia, and specifically China. China has the largest world population, and its ever seeking for new avenues of energy and gas supply. This presents the company with an opportunity of venturing into the Chinese market, enhancing its growth (Abreu, 2010). The company has an opportunity to expand its operations in Qatar, in relation to exporting liquefied gas from Texas, a State in America. On August 2012, the company, through Qatar Petroleum International signed a proposal to export liquefied natural gas (Coll, 2012). The deal is approximated at 10 billion United States dollars; however the company is cautious in this approach because of the risks it entails. Due to the emerging markets of liquefied gas, the company seeks exploration sites that have liquefied gas (Coll, 2012). For instance, the company paid 2.86 billion dollars to acquire mining rights in Alberta gas producing regions of Duvernay and Montney. The strength of its capital investment makes it possible for the company to engage in expansionist tendencies. ExxonMobil plans to invest over $25 billion dollars, in the next coming years, and the aim of this is to satisfy the growing needs of energy consumption (Coll, 2012). The company seeks to develop new technology, such as its advance vehicle fuel energy. These are technological measures by the company for the purposes of reducing fuel emissions emanating from vehicles. Other technological innovations are, the development of a remote gas detection system that effectively detects hydro-carbons, ensuring a reduction in hydro-carbon emissions (Abreu, 2010). Due to its strong capital base, the company managed to form a group termed as Emerging Energy Sources Technology Team . The responsibility of this group is to evaluate and analyze emerging trends of technological know-how and implement them into the running the company’s affairs (Abreu, 2010). The group analyzes a technology in relation to the supply demand perspectives, and looks at the company’s ability to implement and initiate the technology. These new technological know-how is for the purposes of increasing the organization refinery capacity, ensuring a growth in its upstream, downstream and chemical divisions (ExxonMobil, 2009). Apart from increasing the company’s revenue base, the organization heavily invests into new technology for purposes of improving efficiency in the supply and production of energy. Threats Facing ExxonMobil: Economic recession in United States of America and Europe is one of the main threats facing ExxonMobil. The company has operations in Europe, and its headquarters is in Texas, America, and therefore economic problems’ facing these countries is a threat to its financial dominance. Coll (2012) observes that the situation is bad in Europe, with states such as Greece and Poland unable to protect their civilians against harsh economic conditions (Coll, 2012). Poor economic condition, limits the demand of energy products, resulting to decreased profitability. For example, as by 2nd November 2012, the prices of oil fell by 22 cents a barrel. Industrial experts denote that, this emanates from a slowdown in the United States economy, resulting to a decline of energy products, such as fuel and gas. Another example that explains the symbiotic relationship between economic growth and oil production is the rise of oil prices on 25th October 2012, due to a data, explaining an improvement on the American economy. In Europe, countries such as Italy and Greece face economic problems, and ExxonMobil has subsidiary companies operating in such economies. In Italy, the company has three subsidiary organizations, and they are Esso Italiana, ExxonMobil Mediterranea, and Sarpom spa (Coll, 2012). Because of the poor economic condition in Italy, the company sought to retrench its staff, to a manageable level. For example, in the year 2004, due to economic recession in Europe, the company initiated a policy of work force reduction. It signed an agreement with the Italian Union of workers where it will reduce its workforce by 346 (ExxonMobil, 2005). In negotiating the agreement, the company agreed to pay financial incentives to employees who willingly left the organization. The deal was to reduce its subsidiary company, Sarpom spa by 31 people, ExxonMobil Mediterranea by 32 and Esso Italian by 283 people (Coll, 2012). Another threat facing the company are risks of doing business outside the United States of America (ExxonMobil, 2000). The company does business in countries such as Indonesia, and recently, it closed its operations in the country due to armed conflict between the rebels and government forces. The political and economic in United States of America is viable for business operations, and American companies venturing outside the state, amounts to lots of calculated risk taking. ExxonMobil has a presence in more than 200 countries in the world, through its brands Exxon, ExxonMobil, Esso and Mobil (ExxonMobil, 2010). The revenue generated from outside United States of America amounts to 70% of its total revenue and therefore their international subsidiary companies are important. However, there are risks of doing business outside America (ExxonMobil, 2010). For instance political instability in countries such as Nigeria and Chad, whereby there are armed conflicts. This makes their operations difficult, and their employees risk losing their lives. In Europe, the company has presence in virtually all European markets. The European states face an economic recession, and this threatens its profitability (Choi, 2008). Environmental laws and statutes are other threats that the organization faces in relation to the exploration and production of energy products. The operations of the entity are subject to numerous laws and guidelines that guide the protection of the environment. The current century, there are numerous environmental damages such as global warming, caused by carbon emissions to the atmosphere. Recently, the company faces a lawsuit in relation to oil spillage at the Yellowstone River. Conclusion: In conclusion, ExxonMobil is a good company to invest in. This is because the strengths and the opportunities of the company far outweighs the weaknesses and threats facing the company. For example, as a leader in the market, the company manages to make exorbitant profits to the tune of billions of dollars, and as per 2012, it was the leading company in the world in relation to revenue accumulation. The company has a stable financial record, and most investors prefer to invest in a company that guarantees then profit. Since 2004, this company has seen growth in its profitability, even though it faces numerous challenges in relation to energy production, and regulation (Coll, 2012). Its diversified revenue steam protects it against relying on one source of income, and thus making it very attractive to invest in it. Apart from its strengths, the company experiences growth on almost all the sectors of its operation. For instance, in 2000, the company acquired the Sable Offshore Energy Company, at a tune of 2 billion dollars ( Abreu, 2010). In 2002, the company created the ExxonMobil travels, while in 2006, the company made an entry into Germany and Poland markets. The aim of the organization was to distribute lubricants (Coll, 2012 and Abreu, 2010). The company has alliances with other organizations such as, Infenium and Imperial oil. These alliances are for purposes of protecting its market share, and therefore improve its profitability. Finally, the reason as to why I advocate for investing into the company, it its efficient leadership, and operational organization. The headquarters of the company is in Texas, and it engages in the marketization of its products through the brand names of Esso, Exxon and Mobil. To effectively sell its products, it uses subsidiary companies such as Sea river maritime and imperial oil limited. Bibliography: Abreu, V. (2010). Sequence stratigraphy of siliciclastic systems: the ExxonMobil methodology ; atlas of exercises. Tulsa, Okla.: SEPM. Choi, J. S. (2008). Review of ExxonMobil Canadas 2007 offshore environmental effects monitoring report. Dartmouth, N.S.: Fisheries and Oceans Canada, Science, Maritimes Region. Coll, S. (2012). Private empire: ExxonMobil and American power. New York: Penguin Press. ExxonMobil Corporation Sustainability Case Study. (2010). S.l.: Datamonitor Plc. ExxonMobil and Shell answer questions about hot fuel hearing before the Subcommittee on Domestic Policy of the Committee on Oversight and Government Reform , House of Representatives, One Hundred Tenth Congress, first session, July 25, 2007.. (2009). Washington: U.S. G.P.O.. ExxonMobil dispersant guidelines. (2000). Irving, Tex.?: ExxonMobil Research and Engineering Co.. ExxonMobil geoscience research: selected papers representing 50 years of technical excellence.. (2005). Houston, Tex.?: ExxonMobil Upstream Research Co.?. ExxonMobil geoscience research: selected papers representing 50 years of technical excellence.. (2005). Houston, Tex.?: ExxonMobil Upstream Research Co.?. Improving New Product Development Performance & Practices: ExxonMobil. (2004). S.l.: American Productivity & Quality Center (APQC). Review of ExxonMobil Canadas 2009 offshore environmental effects monitoring report. (2010). Ottawa: Canadian Science Advisory Secretariat. Top of Form Bottom of Form Read More