Engineering Economy and Geo-Resource Evaluation and Investment Analysis - Term Paper Example

?  Engineering Economy & Geo-Resource Evaluation and Investment Analysis Outline (summary of the report) 3. Introduction 3.1. History and Background of the company 4. Procedures 5. Discussions 5.1. Hypothesis 5.2. Variables 6. Methodology 6.1. How you constructed Table 7. Source of Data 7.1. Data manipulation 7.2 Graphs 7.3. Description of the graphs 7.4. Time Table 8. Event Description 8.1. Ten Key Events in the company 8.2. Five key events related to the related commodity 8.3. Highlight of the events in the stock vs. commodity graph 8.4. Explanation of each of the 10 key events 9. Summary 10. Conclusions 1. Abstract (summary of the report) This project is about reporting the performance of a company’s events versus its variation in stock value. It studies ten key events in Exxon Mobil, which is the company of choice. This study is done through the history of Exxon Mobil, highlighting the ten events and then narrowing down into five of the events (Coll, 2012). The events are about the important management of the Economy of the company and the behavior of the company stock in the stock market. The report will culminate into data analysis in which it will show the values of the stock found during the semester. It will have the inclusion of the discussion supporting this pattern of behavior of the stock price during the same period and in the previous year. 3. Introduction Exxon Mobil Oil Company is the largest among the major oil companies vertically integrated in the New York Stock Exchange. Its stock is the second best in the global domain and hence it is the second largest revenue contributor in the region. In the year 2010, Exxon Mobil generated total revenue of 30.50 billion US Dollars, growing by 57 percent from the previous year 2009 (Okada & Adelman, 2012). Its Stock Exchange name is XOM. ExxonMobil is a collection of six global major oil-trading organizations, which does oil exploration, production, refinery and sales of gas and oil. The six companies in the group include ChevronTexaco, Royal Dutch Shell, BP, ConocoPhillips and Total. ExxonMobil has been consistent in its production of the largest revenue returns on invested capital and income. In 2009, it produced return on investment of 63% (Russell and Angel, 2011). It diversifies its revenues and continues to expand by introducing its natural gas capacity. It does this through the acquisition of shale deposits, exploration of oil sands increasing its geographical coverage. Even though ExxonMobil has all these strengths, its performance is highly determined by the market performance and the decisions by Organization of Petroleum Exporting Countries (OPEC). OPEC controls the oil prices of all oil trading countries by keeping the base (40%) of oil crude oil stock in the whole world (Okada & Adelman, 2012). It is also affected by the environmental factors affecting the production of natural gas and oil. Its geographical coverage is also very expensive to create and maintain. The other factors include threats from alternative energy supply including bio-fuels. 3.1. History and Background of the company In 2010, ExxonMobil generated revenue of 30.5 billion US Dollars, which was an increase of 57% from the previous year 2009. The dramatic increase was because of the massive crude oil supply and the realization of natural gas. Additionally, ExxonMobil recorded a capital of 32.2 billion US Dollars including exploration costs. It distributed more than 19 billion US Dollars to its shareholders in form of dividends and buy back of shares. At the end of the year 2010, ExxonMobil had a reserve base of oil of 24.8 billion barrels. It had upstream revenue of 75.1 percent. This segment was involved in the E and P program (Exploration and Production). The total revenue from gas and oil in 2010 was 24.1 billion US Dollars (Coll, 2012). In the same year, it had a downstream earning of 11.1 percent. The downstream segment was used in the refinery and marketing of natural gas as well as oil. It earned a total of 3.6 billion US Dollars. Chemicals (15.3% of 2010 earnings): ExxonMobil earned 15.5 percent from its chemicals segment. This segment consumed oil to produce the chemicals and petrochemicals such as plastics. According to Okada and Adelman (2012), the percentage translated into total revenue of 4.9 billion US Dollars, which it earned in the year 2010. The company diversified its product base by engaging in wide expansion in Gas products to increase its sources of sustainable Revenues. ExxonMobil made several attempts of exploration on new areas, which started to expand its investment ventures in natural gas. Back in 2009, ExxonMobil finished a project worth 30 billion US Dollars, where it developed the biggest field for natural gas. This essentially formed what it called the North Field, whose geographical location is in Qatar, in the region of Persian Gulf. ExxonMobil expects that this field will boost its gas production and supply by 12 percent. This increase in volumes of gas production is bound to make ExxonMobil the biggest producer and supplier of natural gas in the whole world. The total yield of gas and oil will then increase to 4.3 million barrels daily, with the North Field containing natural gas of more than 1000 trillion feet. ExxonMobil seeks to increase its portfolio of natural gas. ExxonMobil began to work together with Chevron and the Royal Dutch Shell in joint venture to make a facility for production of natural gas on the Barrow Island (Australia). In this facility, ExxonMobil will own 25 percent of the joint project. The project would double the production capacity of natural liquefied gas in Australia to an annual capacity of 15 million tons. The joint venture will link ExxonMobil to Korea, Japan and China market. It already has a chance to make annual supply of 3 million of Natural Liquefied Gas to Japan, specifically in Osaka and Tokyo Gas (Okada & Adelman, 2012). It also has an opening in GS Caltex, Korea. Considering the natural gas capacity, ExxonMobil will be able to maintain the supply and consumption of demand constant through massive supply and reduced prices of the products the market (Sarnoff, 2010). It will enjoy advantage in the ability to control the market supply in order to raise the prices. Apart from that, it will be able to depend on the increased income from production and supply of propane and butane gases. The strength and advantage of Exxon is its participation in Natural Gas. It also has an upper hand compared to its competitors since it has acquired the Shale Companies. In the year 2010, it acquired another company called XTO Energy, which was already valued at 41 billion US Dollars and was the biggest company in the U.S. supplying petroleum products. This ensures that Exxon had business continuity in the production and supply of natural liquefied gas and oil. XTO has a lot of influence in the US economy since it has a strong hold of the shale (Pratt, 2012). XTO is among companies, which have controlled the economic performance of the U.S. fuel yield. It explores and exploits the shale plays. Other partners in the venture include Chesapeake Energy Corporation, Anadarko Petroleum and Ultra Petroleum Corporation. As Exxon acquired and extended its presence in shale in Colorado, in places like Piceance Basin, it continued to grow stronger in the production of natural gas (Krauss & Mouawad, 2007). 4. Procedures The processes followed in order to study and analyses the performance of Exxon begins with the identification of the data sources. This is a set of secondary information with the historical background of Exxon, its product profile and market share position. This means that the vital events within the company have to be converted into quantitative parameters for the purpose of data analysis and interpretation. After assigning measures to the parameters, then it is important to define the problem to be solved by this project, which entails relating the parameters (coefficients of the important events) to the company Stock prices in the stock Market (Okada & Adelman, 2012). The next stage is data sampling. This is very critical because the data parameters selected at this point will be used in the analysis and presentation of the information. The same will be used to interpret the relationship between its performances in the oil market to the variation of its share price in the New York stock Exchange. The dependent variable in this relationship will therefore be the stock share price of Exxon, while the independent variable will be the revenue generation. The third step is to perform data collection and stabilization. For example, the sales volume of Exxon can be measured from 2007 to the year 2012 in one table. The same table can then contain the corresponding stock prices for all the years from 2007 to 2012 (Coll, 2012). The stabilization in this case is to make sure that all the data are made in the same units. The next step is to perform data analysis. This is where we design statistical measures of performance including aggregate functions such as mean, median, maximum, minimum and mode. It also measures the dispersal such as standard deviation and variance. The next step is to present the interpretation of the data in various forms such as tables and graphs. From the presentation, it will be opposable to make conclusions and recommendations for future consideration. 5. Discussions 5.1. Hypothesis The hypothesis in this study is that the activities that Exxon engages in and all the events in the company contribute to its value of stock in the stock exchange market. The essence of this project will therefore be to establish the validity of the hypothesis. This will require an establishment of various data sets relevant to the assessment of the scenario. The hypothesis passes its test if the coefficient of relationship between the events and the marker stock price is greater than 1. 5.2. Variables The project will use US Dollars as its currency of choice. It will then use Tons as the unit of measurement of the oil and gas capacities. The shares will therefore be values in US Dollars, whereas the profits or revenues will alternate between percentages and amounts in Dollars. There will be about four data sets for the analysis of the company's performance and its events in order to establish their effects on the New York Stock Market. The first data set will contain the percentage profits for each year and their corresponding values of the company stock (Krauss & Mouawad, 2007). The next data set will contain the capacities of oil production for the same range of years and the corresponding stock prices. The third data set will be containing the oil and gas stocks for Exxon and its close competitors in oil production. The measurement will be an average for all the years in the range, for each company. The fourth data set will be a comparison of the sale volume of the oil and gas through the years and the corresponding stock prices through the years in the range. 6. Methodology The approach given to this study is quantitative research methodology involving conversion of qualitative attributes of events to quantitative properties for the sake of analysis. The methodology involves the identification of study question as the first step. This then leads to the second phase, description of the qualitative events. This is done in two stages, where the first selection involves 10 events. The second phase is the selection of five major events that have close relationship to the commodity in the study. In this case, the five major events must be those directly linked to oil and liquefied natural gas products. The third stage of the methodology is to convert the five major events to quantitative measures that can be used to analyze the data and produce tests for the hypothesis. After this stage, the next process is data analysis and interpretation in form of tables and graphs. The final stage is conclusion and recommendation based on the hypothesis test results (Krauss & Mouawad, 2007). 6.1. How you constructed Table The research will involve bivariate correlational data analysis; the datasets will each consist of two data fields. This means that the tables will have three columns each, except for table 3 that will consist of four data fields. The order of the tables will be as follows: Table 1: Revenues of Exxon versus Market Share prices between 2007 and 2012 Data Fields: Revenue (UD Dollars) and Share Prices (US Dollars) Table 2: Volumes of Stock of Natural Gas and Oil for Exxon for 2007 to 2012 Data Fields: Capacity (Tons) and Share Prices (US Dollars) Table 3: Comparison of Exxon’s Performance and its Competitors Data Fields: Names of the Companies, Profits for each year (percentage increase) and Market Share Prices (US Dollars) Table 4: Profits for Exxon and its Market Share Prices Data Fields: Profits (Percentage Increase) and Share Prices (US Dollars) 7. Source of Data Data collection sources are majorly secondary sources including periodic journals from where the company (Exxon) records its performances and events. The data sets are presented as shown below: Year Revenue (Billion US $) Market Share Price (US$) 2007 12.4 20 2008 15.6 22 2009 19.10 25 2010 30.50 27 2011 36 30 2012 39 35 Table 1: Revenues of Exxon versus Market Share prices between 2007 and 2012 Year Product Volume (Billion Tons) Market Share Price (US$) 2007 8 20 2008 12.5 22 2009 15.8 25 2010 19.5 27 2011 24.0 30 2012 27.5 35 Table 2: Volumes of Stock of Natural Gas and Oil for Exxon for 2007 to 2012 Company Name Stock Name % increase in profits Market Share Price (US$) Exxon Mobil Corp XOM 27.5 35 Chevron Corp CVX 45 45 Royal Dutch Shell RDS.A 25 32 BP (ADR) BP 46 27 Total (ADR) TOT 34 32 Phillips Company PSX 22 36 Hess Corp HES 54 32 Holly Frontier Corp HFC 47 43 Conoco Phillips COP 32 34 Honeywell Intl HON 23 27 Marathon Petroleum MPC 25 32 Table 3: Comparison of Exxon’s Performance and its Competitors by the end of 2012 Year Profits (% increase) Market Share Price (US$) 2007 10 20 2008 19 22 2009 36 25 2010 57 27 2011 60 30 2012 64 35 Table 4: Profits for Exxon and its Market Share Prices The next stage is data manipulation (analysis). This involves calculation of the central tendencies of the data as well as the measures of dispersal 7.1. Data manipulation Calculation of averages, Standard Deviation, Maximum and Minimum for Table 1 Average 25.43333333 26.5 Standard Deviation 11.20761646 5.468089246 Max 39 35 Min 12.4 20 Calculation of averages, Standard Deviation, Maximum and Minimum for Table 2 Average 17.88333333 26.5 Standard Deviation 7.259591357 5.468089246 Max 27.5 35 Min 8 20 Calculation of averages, Standard Deviation, Maximum and Minimum for Table 3 Average 34.59090909 34.09091 Standard Deviation 11.41669432 5.664884 Max 54 45 Min 22 27 Calculation of averages, Standard Deviation, Maximum and Minimum for Table 4 Average 41 26.5 Standard Deviation 22.87356553 5.468089246 Max 64 35 Min 10 20 7.2 Graphs The analysis results have to be presented in graphical form. The four graphs have one common variable, the share price of XOM in the New York Stock. The gradients are measured by the ratios of the various parameters and the share price of XOM. Figure 1: Revenue versus Share price Figure 2: Product Volume versus Share price Figure 3: Percentage increase in Profit Versus Share Pries Figure 4: Profits versus Market Share 7.3. Description of the graphs The graph in figure 1 measures the effects of revenue on the Share price. The gradient is calculated by dividing the Revenue by the market Share price. Year Revenue (Billion US $) Market Share Price (US$) Market Share / Revenue 2007 12.4 20 1.612903226 2008 15.6 22 1.41025641 2009 19.1 25 1.308900524 2010 30.5 27 0.885245902 2011 36 30 0.833333333 2012 39 35 0.897435897 Average 1.158012549 Table 5: Measuring the Gradient of Revenue and Market Share From the table, the average ratio of to market share price versus revenue is 1.158012549. Year Product Volume (Billion Tons) Market Share Price (US$) Market Share / Product Volume 2007 8 20 2.5 2008 12.5 22 1.76 2009 15.8 25 1.582278481 2010 19.5 27 1.384615385 2011 24 30 1.25 2012 27.5 35 1.272727273 Average 1.624936856 Table 6: Measuring the Gradient of Product Volume and Market Share From the table, the average ratio of market share price versus revenue to is 1.624936856. Stock Name % increase in profits Market Share Price (US$) Market Share / Increase in Profits XOM 27.5 35 1.272727273 CVX 45 45 1 RDS.A 25 32 1.28 BP 46 27 0.586956522 TOT 34 32 0.941176471 PSX 22 36 1.636363636 HES 54 32 0.592592593 HFC 47 43 0.914893617 COP 32 34 1.0625 HON 23 27 1.173913043 MPC 25 32 1.28 Average 1.067374832 Table 7: Measuring the Gradient of Increase in Profit versus and Market Share prices The average ratio of market share to increase in profit is 1.067374832. Year Profits (%) Market Share Price (US$) Market Share / Profit 2007 10 20 2 2008 19 22 1.157894737 2009 36 25 0.694444444 2010 57 27 0.473684211 2011 60 30 0.5 2012 64 35 0.546875 Average 0.895483065 Table 8: Measuring the Gradient of Profit versus and Market Share Prices The average ratio of market share to profit is 0.895483065 The first three gradients are greater than 1. This means they are the most influential factors in the variation. 8. Event Description The company (Exxon) has many activities and events in which it engages in on an annual basis. This study discusses ten key events that are relevant to its scope. 8.1. Ten Key Events in the company The ten key events in Exxon include: Stock Trading Gas Exploration Oil Refinery Oil and Gas sale Marketing of Petrochemicals Transportation of Crude Oil Research and Innovation Corporate investment in Diversification Financial Analysis Partnership with other companies 8.2. Five key events related to the related commodity Among the ten events, there are five key events, which are closely related and are influential to the performance of the stock of Exxon. The five major events are: Exploration of natural Gas Transportation of Crude Oil Corporate Investment and Diversification Stock Trading Oil Refinery 8.3. Time Table The timetable contains the schedule that controls the events and the resources allocated to them in the company. The timetable only considers the five most influential activities as shown below: Priority Event Quarter 1 Quarter 2 Quarter 3 Quarter 4 1 Exploration of Natural Gas v 2 Transportation of Crude Oil v v 3 Oil Refinery v v v 4 Corporate Investment and Diversification v v v v 5 Stock Trading v v v v Table 9: Time Table for Events The events are arranged in their orders of priority, spreading them from quarter 1 to quarter. Each of the vital activities occupies all the boxes with ticks while the empty boxes represent the time in the year remaining or allocated to the remaining five activities. Exploration of natural gases is an activity meant for the first quarter. Transportation of crude oil then takes place during the second and the third quarter (Coll, 2012). Oil Refinery runs parallel with the transportation of crude oil in the second and the third quarter. It proceeds to the fourth quarter after the transportation ends. Corporate Investment in the business strategy runs throughout the year. Stock Trading is another activity that runs in all the four quarters. 8.4. Highlight of the events in the stock vs. commodity graphs Graph Related Events Exploration of Natural Gas Corporate Investment and Diversification Corporate Investment and Diversification Stock Trading Transportation of Crude Oil Figure 3: Percentage increase in Profit Versus Share Pries Stock Trading Exploration of Natural Gas Corporate Investment and Diversification Oil Refinery Table 10: Events in the Stock vs. Commodity Graphs 8.5. Explanation of each of the 10 key events Stock Trading Exxon Mobil runs this activity in conjunction with the New York Stock Exchange. Its stock value changes daily in a daily activity. Gas Exploration Gas Exploration is a continuous process in the business expansion and continuity strategy. Exxon emphasizes on exploration of new natural gas wells and oil fields. Oil Refinery Exxon converts every crude oil into oil ready for consumption. This is presented in the global potential market in various forms of gas and oil products. Oil and Gas sale Exxon presents natural gas and oil products and oil in the market for sale and consumption. This requires continuous search for market and price management through OPEC. Marketing of Petrochemicals Exxon has a marketing and business expansion strategy. Practically, Exxon has been in the habit of collaborating with its close rivals to capture the unreached markets in Japan, China and Korea among other parts of the globe. Transportation of Crude Oil Exxon transports crude oil from the oil fields to the refinery factories for processing before being distributed to the consumers. Research and Innovation Research is applicable in all stages of the oil business in Exxon. This takes lace to discover new technologies of oil extraction as well as in the business management strategies. Corporate Investment in Diversification Exxon collaborates with strong competitors in the oil business for example Chevron. It trades in various products such as natural liquefied natural gas and petrochemical products. Financial Analysis Exxon runs financial analysis as a continuous process to ascertain its financial position every year. This is how it calculates its profitability every year and its daily stock prices. Partnership with Other Companies Exxon enjoys synergy and advantage in the sense that it operates with partners who are already strong in business. The list of partners is long, including ChevronTexaco, Royal Dutch Shell, BP, ConocoPhillips and Total. 9. Summary All the events that run in the company have contributions to the stock price. Even so, the contribution of the five most influential events matter more than the five minor events (Russell and Angel, 2011). As it is evident in the graphs, three graphs have the average gradient being more than 1. This is sufficient to qualify the hypothesis in this study. The business strategy for ExxonMobil can therefore rely on its activities and events to facilitate its business objectives. Its continued expansion policy is likely to propel its growth and the price of its shares in the Market. However, ExxonMobil has many challenges considering its close competitors such as CVX and BP Shell whose prices of the shares are always higher than XOM in the New York Stock Exchange (Pratt, 2012). This is a threat because the competitors perpetually present progressive growth in their profits. 10. Conclusions The study has proved that all the events have direct contribution to the growth of the stock prices of ExxonMobil. The fact that more than half of the graphs support the hypothesis positive test implies that all the events in ExxonMobil favor the share value of its stock. From the test therefore, it is recommendable for ExxonMobil to increase its most influential events in the daily operations. From the outlook of the stock behavior, it will continue to expand further when it finally wins the new markets. The company will have to increase its strength in the five most important events that were identified in the study if it ever has to exercise competitive advantage against its close rival companies in the oil and natural gas industry. References Coll, S. (2012). Private Empire: ExxonMobil and American Power. New York, NY: The Penguin Press. Krauss, C., & Mouawad, J. (2007). Exxon Chief Cautions against Rapid Action to Cut Carbon Emissions. New York Times. Okada, Y., & Adelman, J. (2012). Tonen General to Buy Exxon Japan Refining, Marketing Unit for $3.9 Billion. Bloomberg. Pratt, J. A. (2012). Exxon and the Control of Oil. The Journal of American History, 99 (1), 141–150. Russell, G., and Angel, G. (2011). Exxon Struggles to Find New Oil. Wall Street Journal. Sarnoff, N. (2010). ExxonMobil is considering a move. Houston Chronicle. Read More