Portfolio of ExxonMobil and Its Financial Performance - Essay Example

ExxonMobil Table of Content Financial performance of the company 10 Company history 11 Recommendation on the Strategies by the CEO- Marketing 12 Reaction from outsider 15 Recommendation 16 Reference 17 Business structure ExxonMobil is the world’s largest publicly traded company of oil and gas who is also the world’s largest refiners and marketer of these products. Over the last 125 year, the company is providing energy that helps in strengthening of growing economies and to improve the living standard throughout the world. The company also applies science and technical innovation for finding better, safe and cleaner energy. ExxonMobil explores and trades crude oil and natural gas; they manufacture petroleum product; and they also transport and sale crude oil, natural gas along with petroleum products and are also involved in electric power generation facilities. In 38 countries Exxon has its exploration and production utilities and in 23 countries they have the production operation. The company has 38 refineries around the world. Close to 90% chemical business of Exxon is ranked first or second in the world, and they are the market leader in this field. ExxonMobil has invested $5 billion over the last five years in technological up-gradation (About Us, n.d.) Operation of ExxonMobil is divided into three major categories which are- upstream, downstream and chemicals. Upstream In petroleum industry upstream indicates operation like search, recovery and production of crude oil and natural gas. This sector is also known as Exploration and Production sector. Under this division ExxonMobil have the following units- ExxonMobil Exploration Company ExxonMobil Development Company ExxonMobil Production Company ExxonMobil Gas and Power Marketing Company ExxonMobil Upstream Research Company Earning from the upper stream as in 2008 was recorded $35.4 billion. The return on average capital in 2008 was 54% and earning per oil-equivalent barrel was $24.67. The total liquid production and the natural production which was available for sale was 3.9 million oil equivalent per day. The upstream capital and exploration spending was $19.7 billion. Earnings of Upper Stream in the years from 2004 to 2008 The graph indicates that the earnings from the upper division have been increasing constantly. In the year 2007, the earnings were $26497 million which further increased to $35402 by the year 2008. This indicates a sharp rise of 33.61%. This was possible because of the fact that the company managed to increase their production by 3.2 billion barrel oil equivalent per year through out the last five years. The finding and the resource acquisition cost has been gone to $0.66 per barrel which might go high in the coming years. If this happens then the company’s cost of production will go high leading resulting lower earnings in the future. Resource Acquisition Cost over the years Source: (ExxonMobil, 2008) The portfolio of ExxonMobil is one of the largest in the world which includes several units situated in the highly diversified region like extreme deep water heavy oil/oil sand, unconventional gas, arctic, liquefied natural gas, acid on sour gas project and many more. This indicates that the company adopts projects those are situated in different economical situation but which provide high returns and give a high profitability. ExxonMobil has started 8 major new projects and planning to start up 9 more in the fiscal year 2009. This will expand the existing capacity of ExxonMobil and will keep the revenue growing up at a higher rate. The company also implementing secondary and tertiary recovery program to further enhance the production In North America the demand of natural gas is expected to increase by 1% per year till the end of 2030. As the supply is constantly reducing for the existing field, hence new discoveries are required to fulfill the growing demand. To meet the demand for Natural Gas import may increase to some extents and the company is also participating in the Golden Pass LNG re-gasification terminal in the U.S. Golf Cost. The company is a major supplier of Natural gas in Europe and to meet the demand, company is providing the unconventional source of gas. There is an assumption that the demand of the Asia Pacific region will increase at a faster rate compared to the other parts by 3.7% per year till the end of year 2030. ExxonMobil also have the electricity production capability of around 16,000 megawatts. Down stream This division consists of mainly refining, marketing and retailing business in petroleum industry. ExxonMobil has many units under this divisions based in Fairfax and in Virginia, which are as follow ExxonMobil Refining and Supply Company ExxonMobil Fuels Marketing Company ExxonMobil Lubricants & Specialties Company ExxonMobil Research and Engineering Company In 2008 the refineries of the down stream division has increased its production by 5.4 million barrels per day and the earning has been increased by $8.2 billion, with petroleum production sale rising to 6.8 million barrel per day. The company started a new 125 megawatts project in Antwerp, Belgium refinery. Earnings of Down Stream in the years from 2004 to 2008 ExxonMobil refineries provide fuel, lubricant, feed products and other high quality products. The company pays special importance toward the safety measures in the refineries. The Operation Integration Management System helps to provide world wide safety in the operation by identifying the personal and the operation related risk factors. This makes ExxonMobil as the industry leader in operation excellence. ExxonMobil is considered to have the world’s largest distillation, conversion and lube basestock production capacity. Their market comprises of the whole world along with the strong presence in Asia Pacific region. Their refineries are 60% larger compared to the industry average and the most integrated in term of lubes operation. This high economy in scale provides the company to save much of the production cost and they can get more flexibility in operation. For increasing the profit margins company pays emphasis to the three basic points which are economically increasing production, reducing the production costs and increasing efficiency of the production. With the application of technology, company has managed to reduce the cost of raw material and also the quality of raw material. The cash operation cost of ExxonMobil is lowest in the whole industry. By application of cost effective and energy efficient methods of production, company manages to save a good amount of its production cost. These savings are reinvested within the company for research and developments in the field of energy saving methods. The company also operates Global Energy Management System which helps in conserving energy up to 15% to 20% in the petroleum plants and refineries. ExxonMobil also implemented many maintenance technologies for the purpose of cost saving. Chemical division This division is mainly based in Houston and in Texas. Under this division the following unit is present- ExxonMobil Chemical Company The chemical business of ExxonMobil is a growth oriented division, with a portfolio of high volume commodity. The company always tries to develop new products to expand its portfolio and to enter into new markets. The company’s focus is to reduce cost of production in the manufacturing, selling and in the distribution sector of the chemical division. ExxonMobil has a plan to build a stream-cracker complex which will be of the world class. The cost of production is being estimated to be around $4 billion. This will help the company to meet the increasing demand of this region and will add synergies to both chemicals and the refineries. This petroleum project comprises of 1 million tonne per year capacity of ethylene steam crackers units, two 650,000 tonne per year capacity of polyethylene units, a 450,000 tonne per year of polypropylene unit, 340,000 tonne per year of benzene and an oxo-alcohol expansion of 125,000 tonne per year. The company also announced many new projects will come up in 2009 to fulfill the growing demand of the Asian region (Company Intelligence, 2009). The Output of Chemical Division over the years Source: http://www.exxonmobil.com/Corporate/Files/news_pub_sar_2008.pdf   Global Division The other division of ExxonMobil is the Global Division which consists of ExxonMobil Information Technology It is a global organization that implements and supports the IT system used by the ExxonMobil business. This division works along with the Upstream, Downstream, Corporate and Chemicals business division of the company. This division provides support for exploration and extraction of oil and natural gas. The division has around 35,000 service stations throughout the world (What Kind Of works, 2004). ExxonMobil Chemical Technology Licensing, LLC has announced that they had made agreements with Saudi International Petrochemical Company (SIPCHEM) where ExxonMobil will provide new world class high pressure low density polyethylene for them. By the end of 2013, the plant will have the capacity to produce 200,000 metric tones of the chemical (News Room, 2002). Global Real Estate and Facilities Global Procurement Business Support Centers These are the growing sector where ExxonMobil is trying to expand and through this way the company is trying to diversify themselve. Financial performance of the company The net income of ExxonMobil over the years from 2004 to 2008 The company’s net profit was always kept on growing over the years. This clearly indicates that the company has the potential to handle even the adverse situations like the one which the whole world is facing, the Global Economic Slowdown. In such a scenario when most of the giant companies booked losses for the fiscal year 2008, ExxonMobil managed to increase their total sale by 17.74% year on year basis and their net income rouse by 11.35%. The company increased their expense on research and developments by 4%. This clearly indicates that the company is more interested in developing new techniques of working to save their production cost and also interest in developing new products. Company’s total assets decreased by 5.4% and the total debt decreased by 1.5%. This indicates that the company is diluting their assets (which are of no use) to fill up the requirement of finance and thus the debt is also going down. But the thing of concern is, the share holder’s equity has reduced by 7.22%. This indicates the investors’ sentiment toward the company’s new polices taken by the top management. Table-1: Changes happened in the ExxonMobil during the year 2007-2008 2008 2007 % change Sale 459579 390328 17.74175 Net Income 45220 40610 11.35188 Research& Development 847 814 4.054054 Total Assets 228052 241082 -5.4048 Total Debt 9425 9566 -1.47397 Share holders Equity 112965 121762 -7.22475 Company history The company known as ExxonMobil was formed by merger of two major oil companies called Exxon and Mobil in the year 1999. Both of these companies where the descendent of “John D. Rockefeller Corporation, Standard oil”, which was established in 1870 which got a bad named after publication of “The History of the Standard Oil Company” in 1904. In 1911 the company got split into 34 companies as per the order of law. One of these companies called “Jersey Standard” developed into “Exxon” and another one called Socony developed into “Mobil”. Over the years both these companies developed into two major giant in their respective field. Exxon developed into a the largest oil producer of the world and Mobil Chemical company which was established in1950 attained growth at a faster rate and by 1999 the portfolio of their products consisted of olefins and aromatics, ethylene glycol along with polyethylene. Exxon Chemical, in 1999 became the major producer of olefins and aromatics including ethylene glycol and polyethylene. In the year 1998 both the companies Exxon and Mobil signed an agreement of mergers of US$73.7 billion. This merger resulted into a new company called “Exxon Mobil Corporation” which became incorporated from November 30, 1999 and stood as the world’s largest company. This merger was of great importance as this lead into re-union of two companies which got separated forcibly by U.S. Government. ExxonMobil sold one of its refinery in Benicia, California by 2000 and 340 Brand stations to Valero Energy Corporation as the part of diversification of California Assets. ExxonMobil use to supply petroleum products to 700 Mobil retail outlets in California. In 2005, company’s market capitalization over crossed General Electric as the stock price of ExxonMobil increased due to the increased in the oil prices. The companies profit increased by 42% compared to the previous year’s profit. By June 12, 2008, company announced that Exxon will exit the retail business of fuel as the price of crude price was increasing. Recommendation on the Strategies by the CEO- Marketing In the year 2008, ExxonMobil has started many new projects, which include new oil exploration and extraction, the company has made huge investment in the field of technology and in setting new plants. The company is basically in the petrochemical sector; hence they are making huge investment for research and development. The annual report of the company 2008 shows that the company’s investment in the field of research and development has increased by 4% which is a huge increment for any company in the phase of economic down time. The company has refineries in 26 countries with the distillation capability of 6.3 million barrel per day. They also have a basestock of 150,000 barrels of lube. The company has its major refineries concentrated in the region of United State’s Gulf Coast, North West Europe, Japan and South East Asia. As per the company’s research, demand of crude oil and natural gas is going to increase sharply in the eastern region, the Asia Pacific by the year ending 2030. So the company has taken major initiatives. One of the major such decision taken by them is the making new investment by ExxonMobil Chemical Co. in Jurong Island of Singapore.” This petrochemical project will include 1000,000 tones per year ethylene steam cracker, two 650,000 tones per year polyethylene units, a 450,000 tones per year polypropylene unit, a 300,000 tones per year specialty elastomers unit, an aromatics extraction unit to produce 340,000 tones per year of benzene, an oxo-alcohol expansion of 125,000 tons a year, and a 220-Mw power cogeneration unit” (Watkins, Eric, 2008). This stream cracker plant will become productive from early 2011 onwards. The approximate investment is going to be $4 billion. This will make ExxonMobil world’s single largest foreign manufacturing investor. This is a major investment which the company is making which will have a large impact on the company as a whole and especially in the marketing and retailing segment of the company. As per the CEO-Marketing of the company one can say that the decision taken by the ExxonMobil is the best one in the long Run. The economic growth of the developed nation is becoming stagnant, as they are highly industrialized, the rate of population growth is also slow and the living standard is already quite high. So the chances of growth in energy consumption per capita is not going to increase to a large extent, but on the other hand the economic growth of the developing countries is still much high. The per capita income is increasing and thus the living standers are also going high, so the demand of energy is increasing. The growth rate of industrialization is picking up, so the need of energy and raw material will go high in the Eastern Developing countries. But such a huge investment with such a high gestation period is always highly risky, because the world economy is always unstable. This has came true due to the present economical slowdown where whole world is suffering with financial crises, retarded economical growth rate and people with less money to spend. So this will create problem for the company to manage its cash flow and fund flow in short run. This will also have a negative impact on the future project of the company because the running project will have an unexpected long payback period. ExxonMobil is a giant company which stands at a high rank among the other world’s largest companies. When the crude oil prices going high and reached almost the sky, the company’s stock prices moved up with a greater hike, but as on when the crude prices are low the company’s stock value has also gone low. The crude oil price is not the only factor that impacts the stock price; there are many other factors that matter. Stock price always indicate the sentiment of public and what the people think about the company. The company has a policy of distributing low dividend and retaining high cash reserves, this impart a negative impact on the investors because they are neither getting capital gain nor they are receiving the high dividend. Companies oil and natural extraction from the existing field is reducing day by day, the new finding are also not much in numbers so that they can help the company to increase its production to large extents. As discusses in the Annual Financial Report 2008, companies cost on research and development has gone high per barrel, which has a possibility to go much high in the future. The oil reservoir within Earth is reducing day by day, and most of the field of light crude oil is getting dried up. For further extraction of oil, secondary phase of extraction has to be started and the well has to be dug much deeper which need large investment. The cheap crude oil supply from South Arabia is very low and also new refineries for the heavy oil need huge investments (Sosnoff, Martin T., 2008) In the mid of June the company said that they are moving out from the retail business along with many other major player in this field in mainly in the U.S. this step has an bad impact on the investors sentiments and the stock price feel drastically (CBS News). The profits from the Down streams division are down from the last year which indicates that the retail and the marketing departments is not in the good state and some major changes has to be taken into consideration. Environment was one of the sectors that were highly ignored by ExxonMobil, by paying less attention toward the pollution control and eco-friendly process of production. All these have imparted negative impact on the company’s image. Hence as the marketing CEO of ExxonMobil one can say that the decisions taken by the company were not very accurate and the company should have been more proactive, instead of being reactive. Reaction from outsider Outsider represents the general public are the one who have invested their savings in the company and the company runs with their capital. It also includes the people whose life gets affected by the presence of company. So they have interest in the functioning and the policy adopted by the company. Reactions of these people are reflected in the stock price movement. If the stock price and the volume of trading of the ExxonMobil in NYSE are taken into consideration, it will make it clear that the company has lost its charm and the stock prices are moving almost flat. The volume movement of the company ExxonMobil over the year June 18, 2008 to June 17 2009 Stock price movement of ExxonMobil in NYSE as on June 18,2008 to June 17, 2009 Recommendation The company is a highly diversified one with a long range of products and the production plant distributed in different region. It is very important that while making any major decision the company should take into account the economic scenario of the world. The world is facing economic recession which has hit hard all the developed countries leading to a state where the people are left with very scanty disposable income. The consumption rate has decline to a large extent resulting to less production in the industries. Hence the company should pay more emphasis on their marketing and retailing division. The mantra should be to hold the market which is already in the company’s portfolio rather than going for further expatiation. The company should shift their attention more in exploring more oil and natural gas field so that when the economy regain it momentum, the company should be in the state to fulfill the demand of energy and chemical. The marketing division should pay more attention on the developing countries where the impact of recession is not that harsh. Reference About Us. Company Profile, no date. ExxonMobil. June 18, 2009 ExxonMobil, 2008. 2008 Summer Annual Report. June 18, 2009. Company Intelligence. ExxonMobil | Strategy and Financial Highlights Information from ICIS, 2009 ICSI.Com. June 18, 2009. What Kind Of Works. Information Technology , 2004. ExxonMobil. June 18, 2009. News Room. Our Chemical Company, 2002. ExxonMobil Chemical. June 18, 2009. Watkins, Eric. ExxonMobil expands capacity at Singapore facility, October, 2008. Oil & Gas Journal. June 18, 2009. Sosnoff, Martin T. The Case Against Exxon Mobil, July 2008. Forbes.Com. Journal. June 18, 2009. CBS News. Exxon Mobil Getting Out Of Retail Gas Biz, June 12, 2008. CBS News.Com. June 18, 2009. Read More