Вы находитесь на странице: 1из 10

INDUSTRY ANALYSIS OF OIL AND GAS COMPANY 1

Oil and Gas Industry Analysis

Cindy 0453037

Industry analysis of oil and gas company

Oil and Gas Industry Analysis


ExxonMobil is one of the largest oil and gas company with revenue amounted USD
394.11 billion. This company was known formerly as The Standard Oil Company descended by
John D. Rockefeller and his partners with sales of USD 80 billion. Then by 1999, Exxon and
Mobil were merged into ExxonMobil. Recently, the company was ranked as the second most
profitable company in Fortune 500.
BACKGROUND OF COMPANY
COMPANY PROFILE
Exxon Mobil Corp. (ExxonMobil) is prominent as Super-Majors multinational oil and
gas company which headquartered at Irving, Texas. It is claimed to be the largest publicly traded
international oil and gas company as well as the worlds largest integrated refiners and marketers
of petroleum products and chemical manufacturers. It operates in the most of the worlds
countries with leading brands: Exxon, Esso, and Mobil.
ExxonMobil currently engaged in the exploration for and the production of crude oil and
natural gas (upstream), manufacture, transportation and sale of crude oil, natural gas, and
petroleum products (downstream). ExxonMobil committed to be the worlds premier petroleum
and petrochemical company so that it must continuously achieve superior financial and operating
excellence and still adhering to high ethical standards.
NATURE AND HISTORY OF THE FIRM
Basically there are 4 main business operations that consist of upstream, chemical,
downstream, and natural gas and power marketing. Upstream activity which is the exploration
and production includes searching for potential underwater or underground crude oil and natural
gas field and drilling wells. Whilst downstream activity refers to refining / purifying and
distributing the crude oil and natural gas through products such as gasoline, kerosene, diesel oil,
etc.
For each activity, ExxonMobil delivers industry-leading project, like execution on exploring
heavy oil, Liquefied Natural Gas (LNG), tight gas as well as highly integration between those 2
activities followed by strong distribution network that can refine the crude oil and market its
product worldwide through its retail stations and business-to-business segments. ExxonMobil
also provides wide-range of petrochemical products, such as polyethylene and polypropylene for
the chemical operation. For natural gas and power marketing operation, ExxonMobil excels on
growing this market shown by selling more than 14 million net cubic feet / day of gas across 35
countries that delivered more than 62 million tons to global market in 2013.

Industry analysis of oil and gas company

Long standing reputation of this company was contributed by Rockefeller and his partner
to form Standard Oil Company, headquartered in Ohio with integrated facilities constituting that
largest refinery facilities in 1870. Due to some reasons, Standard Oil Co. was categorized into
Exxon and Mobil under different ownership but eventually by 1999 they were announced to
merge in order to be an effective global competitor in this competitive industry.
THE FIRM TODAY
ExxonMobil today is led by Rex W. Tillerson as Chairman and CEO since 2004. As
greatly known as complete integrated oil and gas company, ExxonMobil prolifically produce 4
million oil-equivalent per day. It continues to successfully advance in some upstream projects in
order to achieve 4.3 million oil-equivalent per day by 2017. Over the past years, it has completed
eight new major projects with more than 250 thousand oil equivalent per day. Some
ExxonMobils expertise projects that have been completed are Arkutun-Dagi in Russia; Cold lake
expansion in Canada; Lucius in the Gulf of Mexico. In the United States, it focuses more on
higher-margin liquid production to implement its advance technology across The Permian, The
Bakken, and The Ardmore/Marietta plays. Current start-up project is located in Banyu-Urip,
Indonesia; Kearl Expansion in Canada; and Hadrian South in Gulf of Mexico. While for
downstream and chemical businesses, ExxonMobil emphasize on diversifying feedstock through
integrated system, driving operational efficiency and maximizing sales of petroleum and chemical
products. Below would be shown past years ExxonMobil performance of its each business
activity.

Adapted from ExxonMobil Annual Report, 2015


THE COMPETITION.
Fierce competition happened amongst several big players in this industry like Chevron,
Shell, Total, and British Petroleum (BP). According Table 2 below, it has shown that ExxonMobil
has the largest total revenue and market capitalization followed by Royal Dutch Shell in 2014.

Industry analysis of oil and gas company

This might be affected by long-standing reputation, widely-available product, and intense


branding activity and promotion. ExxonMobil Corporation owns 3 different brands that are
marketed world-wide, i.e. ExxonMobil and Mobil are marketed across USA and Asia-Pacific
whilst Esso is marketed in European countries.
Table 2
Oil and Gas Companies Performance
Performance Indicator

ExxonMobil Chevron

Royal

Total

BP

Dutch
Shell
Total Revenue (2014)*
411,939
211,970
421,105
212,018
Number of Employees
75,300
61,456
94,000
100,307
Market Capital**
338.155
159.804
173.093
107.485
Note: *in Million USD include excise, value-added and similar taxes

358,678
84,700
89.343

** in Billion USD from www.Bloomberg.com 24.Feb.2016 20.24


Porters 5 forces model
Through this model we may conclude that oil and gas industry is unattractive due to high entry
barriers, intense competition, and high bargaining power of buyers. In addition, recent years
industry performance was unstable owing to volatile oil prices that highly affected by the nature
of the business.
1. Industry rivalry
Amongst the large players in this industry, ExxonMobil remained dominant with the
highest revenue obtain in year 2015. Despite being hard to differentiate in product
offerings, ExxonMobil is prominent for quality over price product, i.e. lubricant product
of ExxonMobil is the most expensive amid all competitors. Hence, industry rivalry midst
competitors is strong / high.
a. Equally balanced competitors in this industry intensify the competition. For example,
all players do possess similar resources and capability to produce the same products.
In addition, all players do control some territories in the world for oil and gas
drilling.
b. Slow industry growth entails each player to seize strongly with current market share.
c. Lack of differentiation in product offerings (similar product portfolio) but distinct in
after-sales service, product quality, and cooperation with OEM. ExxonMobil
attempted to cooperate with most of famous OEM to obtain recommendation using
its product.
2. Threat of new entrants

Industry analysis of oil and gas company

High barriers to entry restrict mediocre players to grasp on existing market Barriers to
entry in this industry include huge capital requirements, stricter government policy
mainly due to unstable oil prices and environment issue, as well as cost disadvantages
independent of scale such as government subsidies to existing players, more desirable
locations, and favorable access to raw materials.
3. Threat of substitute
Due to enormous investment and capital needed, renewable energy sources are still
unable to substitute fossil energy usage completely. In addition, the possibility of utilizing
such energy sources are still under more advance research. Therefore, substitutes in this
industry is considered as weak.
4. Buyers bargaining power
In this industry, buyers have significantly great power to easily change their option. One
of the reason is they purchase a large portion of ExxonMobil total output. Greater amount
of information available as well as undifferentiated product offerings increase their
bargaining power even further.
5. Suppliers bargaining power
Suppliers bargaining power is considered as moderate because both ExxonMobil and
supplier need each other help and support. ExxonMobil can provide the facilities needed
to exploit a countrys natural resources for those that are unable to provide substantially
sufficient facilities. On the other hand, ExxonMobil needs the permission and willingness
from related country to explore and produce its products.

Industry analysis of oil and gas company

Situation Analysis
INTERNAL ANALYSIS
PERFORMANCE
Sales and profitability
Business performance is highly affected by oil and gas price change worldwide. Due to
several undesirable issues, ExxonMobil overall financial performance improved dramatically in
short period but kept declining over past 3 years. Table 1 shows that between 2013 and 2014, both
company sales and profit declined by 6.4% to USD 394 million and 7.6% to USD 109,977
respectively. However, earnings per share experienced slight increased by 3.1%, with final
dividends increasing to USD 2.7, to the benefit of shareholders. Another indicator performance
that ExxonMobil used specifically to measure historical capital productivity in its capital
intensive, long-term industry, as well as to make investment decisions.
Other factor that is affecting ExxonMobil performance is industry prices that
significantly driven by market supply and demand. On the supply side, industry production is
declining but basically being offset by production from new discoveries and field developments.
OPEC production policies also have an impact on world oil supplies. The demand side is largely a
function of global economic growth.
Table 1
ExxonMobil Financial and Productivity Performance
Performance Indicator

Sales and Other Operating

2014

2013

2012

2011

2010

(Million

(Million

(Million

(Million

(Million

USD)*
394,105

USD)*
420,836

USD)*
451,509

USD)*
467,029

USD)*
370,125

Revenue
Total Revenues and Other Income
Gross Profit (After Tax)
Return On Average Capital
Employed (ROCE)
Net Income
Earnings / (Loss) per Share
Cash Dividends per Common

-7%
-7%
-3%
21%
411,939
438,255 480,681 486,429
-6%
-10%
-1%
109,977
118,973 133,565 144,644 121,614
-8%
-12%
-8%
16%
16.2%
17.2%
25.4%
24.2%
21.7%
32,520
32,580
44,880
41,060
30,460
-0.2%
-38%
9%
26%
7.6
7.37
9.70
8.43
6.24
3%
-32%
13%
26%
2.7
2.46
2.18
1.85
1.74

Industry analysis of oil and gas company

Share
9%
Note: * Except per share amounts and ROCE

11%

15%

6%

CORE COMPETENCY
ExxonMobil principal business is energy, involving exploration for, and production of
crude oil and natural gas, manufacture of petroleum products and transportation as well as crude
oil, natural gas, and petroleum products. ExxonMobil is a major manufacturer and marketer of
commodity petrochemicals, including olefin, aromatic, and wide variety of specialty products.
Throughout its businesses, updated and ongoing measures are taken to prevent and minimize the
impact of operations on air, water, and ground which includes substantial investment in refining
infrastructure and technology to manufacture clean fuels, as well as to monitor and reduce the
side-pollutants that it might potentially produce, e.g. nitrogen oxide, greenhouse gas, etc.
Amid all the processes that it had, ExxonMobil distinct itself for being the worlds
premier petroleum and petrochemical company. To that extent, it continuously strives to achieve
superior financial and operating excellence and simultaneously adhering to high ethical standard.
By executing its structured business plans, following the guiding principles, striving to improve
efficiency as well as advance in research and development, ExxonMobil Corporation aims to be
at the leading edge of competition in each business units.
EXXONMOBIL GENERIC VALUE CHAIN

Primary activities
Inbound logistics sourcing oil, gas, and petrochemical products from rich natural sources
countries, e.g. Middle East with whom they have long-standing relationship and built up efficient
supply chain facilities

Industry analysis of oil and gas company

Operations - operates facilities and markets products worldwide across six continents. Upstream
base is geographically diverse with E&P acreage in 36 countries, production sites in 23 countries,
and sales of natural gas in 32 countries. It also has interests in 36 refineries in 21 countries plus
51 wholly owned and joint venture manufacturing of chemicals locations.
Outbound logistics ExxonMobil provides retail sites e.g. gas station and workshop to reach the
end customers. Also, selling through OEM (Original Equipment Manufacturer) for serving the
business-to-business market.
Marketing and sales Traditionally rely on the reputable brand of Exxon, Mobil, Esso, and Mobil
1 through its retail sites. Most of times ExxonMobil also sponsored and contributed as part of
corporate social responsibility.
Service ExxonMobils method to distinct itself from other competitors is high-quality service to
its end customers.
Supporting activities
Firm infrastructure they have well designed and tidy retail sites. They also have capable people
serving in different subsidiaries and necessary job functions such as legal, finance and accounting
to support their activities.
Human resource management Great benefits, employee empowerment, and the corporate
culture makes ExxonMobil drive efficient management in human capital.
Technology development Substantial amount of investment to enhance their operations in terms
of efficiency and reducing pollution.
Procurement ExxonMobil procures its petroleum products from different E&P sites across the
world.
EXTERNAL ANALYSIS
SWOT ANALYSIS
Strength
Weakness
ExxonMobils favorable reputation as the oldest and More expensive pricing compared to other players in
mature player in the industry
several product portfolio
Differentiation strategy through quality over price Several controversies regarding high-level of

Industry analysis of oil and gas company


builds its differentiation over other players
Advance in technology development could enhance its
position and competitive strategy
Widely spread branches, offices, and E&P sites
contributes to even more advantages for boosting its
brand image
Outstanding project management capability that can
operate effectively and efficiently, manage expenses,
and improve production yields.

9
contamination and pollution produced as well as
imposed by US law

Opportunity
Threat
Globalized market reduces boundaries to explore more Unstable and volatile oil price reduce its strategic
energy market
position due to oil, gas and petrochemical business
nature itself is fundamentally commodity business
Renewable energy development would threat fossil
energy utilization and exploration hence would also
risk ExxonMobil resources
Environmental issue also threats ExxonMobil
existence in this industry
Access limitations implemented by some countries to
do investment of their oil and gas reserves tend to
increase the high commodity price and affect
ExxonMobil financial performance
More countries concern over the risk of pollutants
produced by oil, gas and petroleum companies that
now these countries adopted higher taxes and
restrictive policies that would cause higher price in oil,
gas and petroleum products.

RECOMMENDATION

Industry analysis of oil and gas company

10

References
www.Bloomberg.com 24.Feb.2016 20.24
ExxonMobil Annual Report Series.(2014). Annual Report of ExxonMobil Corporation. US
Securities and Exchange Commision
Ireland, Hoskisson, Hitt.(2012). The Management of Strategy Concept 10th Edition. Canada:
South-Western Cengage Learning