SWOT Analysis

Strengths

Well established brand with a strong reputation: One of the major strengths of Exxon Mobil is its huge scale of operations. It currently is involved in exploration activities in six continents across the globe. The company’s existence in the energy and petrochemical business for over a century now provides it with formidable economies of scale and scope in the space. It has the largest crude capacity and the highest number of refineries in its peer group (Exhibit-1). As a result of all these factors Exxon Mobil has been able to carve out a strong brand image for itself in the competitive energy and petrochemicals landscape that provides a sense of security to its stakeholders. In the natural gas industry through the acquisition of XTO which was the leading technology provider in natural gas exploration, it has been further able to capitalize its stronghold in the industry.

Exhibit – 1: Key operational information of major players in the Petrochemical Industry (2013)

Exxon (XOM)

Royal Dutch Shell (RDS)

Chevron Corp. (CVX)

ConocoPhillips (COP)

BP

Crude Cap. (bn. barrels/day) 5.8 4.8 2.75 2.77 3.32Natural Gas Reserves (1000s) 78.815 47.135 24.251 10.740 42.7No. of Retail Outlets (1000s) 26 25 20 2.94 22.4No. of Refineries 37 30 16 11 7Revenues ($bn.) 438.26 451.235 200.5 52.5 353.57Net Income ($ bn.) 32.52 14.87 19.24 6.869 3.78

(Source: Yahoo Finance)

Diversified operations across geographies: One of the major strengths of Exxon Mobil is the vast scale of its diversified operations across geographies. Even though the main source of revenue stream for the company comes from the US, the non US regions such as France, Belgium, Germany, Singapore, Japan, Italy and many other countries are also a significant source of revenue (Exhibit -2). The diversified geographic presence enjoyed by the company provides it with the discretion of managing its global revenues in accordance with the varying economic and political conditions across various geographies and therefore minimize risk with respect to its operations. Furthermore, it has operations in a vast number of Non OECD countries, which is again a source of advantage as the major growth in demand is expected from these countries in the near future. This vast scale of operation across geographies therefore provides Exxon with a competitive advantage by providing it with wider flexibility and scope in increasing its revenues through leveraging its global presence.

Exhibit – 2: Revenue breakup of Exxon Mobil region wise (2013)

36%

9%8%5%

5%

4%

4%

4%

26%

Revenue (%)

US Canada UK Belgium Italy France Germany Singapore Other Countries

(Source: Exxon Mobil)

Robust Research and Development: With its extensive experience in the energy and petrochemicals business, Exxon Mobil has been able to garner strong R&D capabilities. The company focuses on deriving a strong competitive advantage through continued investment in R&D (around $1bn in FY 2013) and explore more efficacious drilling and resource exploration techniques. Through a strong focus on R&D activities the company looks for opportunities in new product development, improve existing products and enhance customer service through optimization of existent manufacturing and production capabilities. This therefore provides Exxon the advantage to establish itself at the forefront of radical innovations associated with the industry in which it operates.

Vertically integrated operations: Being an integrated Oil and gas company provides Exxon with the expertise to focus on all the aspects of the value chain of the business rather than focusing on a particular compartmentalized activity such as refining or production. By exercising operational discretion and control in each and every step of the oil and gas process, the company is able to optimize the entire value chain to minimize costs and maximize process efficiencies.

Weaknesses

Lawsuits and Contingencies: The conduct of Exxon’s business has led it to accumulate a number of litigations and other legal proceedings leading to damages, penalties and fines on account of environmental degradation. Recently, in January 2014, the company for its facility in Louisiana, settled with the Louisiana Department of Environmental Quality which involved a fine of

$300,000 and an agreement to undertake on-site improvement projects worth $1 million. The settlement also included the firm to undertake beneficial environmental projects worth $1.029 million along with a stipulated penalty to address future environmental non-compliances. Such lawsuits, penalties and damages accrued at the cost of environmental degradation would adversely affect the strong brand reputation that Exxon enjoys before its stakeholders.

Health and Safety: The employees of Exxon are one of the critical stakeholders for the company. It is therefore the key responsibility of the company to ensure their health and safety given the physically challenging and risky nature of the job they are involved in. However numerous safety accidents with respect to employees reported across locations and sites indicate the fact that the health and safety of its employees still remains to be an issue for Exxon. The failure to meet these requirements could be detrimental to the company in several ways, the most important being the renouncing of faith in the company by the employees.

Decline in Financial Performance: Recent years have shown declining financial performance by Exxon. Company revenues declined by around 7% in the financial year 2013 as compared to the previous year. The company also witnessed a decline of 27.4% in net profits and a 26.7% reduction in its operating profits. Downstream business, which is the largest contributor of revenues for the company also experienced a decline of 8.4% in revenues during the same period. Such kind of sustained decline in financial performance would lead to concerns amongst shareholders regarding the health of the company which is detrimental to the value of the firm.

Declining Oil Reserves: One of the key weaknesses facing Exxon is the declining oil reserves that it owns. The issue is further aggravated by the low replacement rate of Exxon for oil reserves. It generates around 12% of revenues from its downstream business which might be at risk because of the issue of declining oil reserves. Coming to the natural gas industry where the depletion of reserves occurs at a much faster rate compared to the oil industry, Exxon needs to ensure availability of adequate level of reserves to meet the required demand. Low prices due to a large number of players in the natural gas industry further puts pressure on margins for Exxon.

Opportunities

Rising demand of Global Energy: Following ExxonMobil’s energy outlook report (Exhibit – 3), global demand for natural energy is supposed to grow to 1.2 percent every year till 2030. This demand is expected to be sustainable given the fact that natural energy burns clean. This would give more room for exploration to Exxon since more than half of the natural energy reserves are outside the control of OPEC. With the advent of fracking and other viable low cost drilling technologies, this presents a huge opportunity for Exxon. The huge demand growth is also expected from Asian nations such as China and India which present huge opportunities for the oil sector of Exxon as these nations follow oil based products such as diesel & gasoline as the primary fuel.

Exhibit – 3: Global demand for fuel (ExxonMobil’s Energy Outlook)

Oil Coal Biomass Nuclear Hydro0

50

100

150

200

ExxonMobil's Energy Outlook - Global Energy Demand

2005 2030

Increasing LNG demand: LNG global demand is expected to grow at a rate of 5% per year till 2025 resulting in an additional demand of 200 million tons per annum. Asia pacific is the largest LNG market which accounts for around 67% of the global trade. Countries such as Japan, South Korea and Taiwan have the major market for LNG with emerging nations such as India and China and new markets such as Thailand, Singapore contributing to the increase in global LNG demand. ExxonMobil can exploit this increase in global LNG demand through increasing its projects with respect to LNG production globally and subsequently meeting this demand.

Unconventional Energy Sources: With the increasing sensitivity of governments and the global climate forums such as United National Framework convention on climate change (UNFCC) towards cleaner unconventional energy sources, Exxon can leverage its strong existing R&D capabilities to explore such energy sources and be at the forefront of this radical change. One such opportunity exists in the form of Canadian oil sands with an estimated capacity of 175 bn. Barrels.

Delving into new projects: Addition of new projects would enable the company not only to increase its resource portfolio but also enhance its business performance. The company in FY 2014, planned to start numerous new projects with the goal of adding 300,000 net oil equivalent barrels per day.

Threats

Economic Conditions: The demand for petrochemicals and energy correlates strongly with general economic growth conditions. Major adverse fluctuations in the economic conditions

such as a sustained global recession could heavily impact the company’s results. Other factors such as political disturbances, exchange rate fluctuations, periods of public unrest etc. could also influence the demand for petrochemicals.

Natural disasters: Natural disasters can significantly impede ExxonMobil’s operations. For example, Hurricanes could devastate oil production, gas pipelines, refineries and other equipment. One such example is the loss of earnings in the fourth quarter of FY 2008, when the company lost around $570 million on account of reduced production and repair expenses due to Hurricane Gustavo.

Stricter Environmental Compliance Norms: Exxon’s business is subject to various rules and regulations pertaining to disrupt environmental sanctity. Regulatory institutions have become increasingly concerned about the operations of petrochemical firms in the light of increasing awareness among the public regarding the damage caused to environment by these firms through recent horrid incidents such as the 2010 BP oil-spill in the Gulf of Mexico. This increased concern would inevitably translate into stringent environmental norms and compliances. These imposed guidelines may require higher expenses from Exxon and thereby affect its financial and commercial flexibility.

Natural gas as a Substitute for Oil: In addition to declining replacement ratios being faced by oil companies such as Exxon, most of the reserves are situated in politically unstable nations with majority falling under the control of OPEC. As a cleaner substitute, natural gas seems a more promising alternative to Oil and is therefore set to grab market share from Oil. However, in the natural gas space, large players like Exxon are unable to enjoy economies of scale and scope due to the relatively shorter life of the gas wells. This in turn could lead to lower profitability for the company.

Internal factor evaluation matrix (IFE Matrix)

Key Internal Factors Weight Rating Wtd. ScoreSTRENGTHSLeading market position & strong brand reputation in oil industry 0.20 4 0.80Diversified operations across geographies 0.10 4 0.40Robust research & development capabilities 0.15 3 0.45Vertically integrated operations 0.10 3 0.30WEAKNESSESLawsuits & Litigations 0.20 1 0.20Declining financial performance 0.10 2 0.30Decline in Oil reserves 0.10 3 0.30Health & safety issues of employees 0.05 2 0.10TOTAL 1.00 2.95

External factor evaluation matrix (EFE Matrix)

Key External Factors Weight Rating Wtd. ScoreOPPORTUNITIESRise in global energy demand 0.20 4 0.80Increased LNG demand 0.15 3 0.45New projects 0.10 4 0.40Alternate energy sources 0.05 2 0.10THREATSEconomic conditions 0.20 2 0.40Natural disasters 0.05 2 0.10Stricter environmental compliance norms 0.10 1 0.10Increasing emergence of substitutes for Oil 0.15 3 0.45TOTAL 1.00 2.80

Present Business Strategy

Business definition & Mission

ExxonMobil is operating in the business of production and exploration of oil and natural gas. It is also involved in the sale of crude oil, natural gas and other different petroleum products. It also deals in the refining and manufacturing of petroleum products. Its’ mission is “Meeting the rising demand for energy – safely and with minimal environmental impact”. The company’s slogan speaks of “Energy lives here” and therefore communicates a strong message of positioning itself at the heart of the global energy business and ready to take on the world’s toughest energy challenges.

Business Portfolio

ExxonMobil’s business portfolio comprises geographically diverse upstream and downstream business along with a chemicals business. This portfolio of assets provides it a distinctive advantage in establishing economies of scale and avoid business risks which arise out of changes in margins, business cycles and fierce competition. The amalgamation of globally diversified operations along with integration across business units provides Exxon a competitive advantage. The upstream and the downstream businesses are both essentially commodity businesses which are subject to changes in the prices of oil and gas. The Upstream business is a capital intensive business involving huge costs associated with the exploration and development of natural gas and crude oil. The downstream business on the other hand deals with the refining and marketing of the products. The downstream business therefore is more concerned with operational efficiency to achieve cost reduction unlike the upstream business. The chemicals business unlike the petroleum and energy business has relatively lesser cyclical fluctuations and therefore helps the company to reduce volatility in the overall portfolio and deliver results consistently.

Corporate Strategy

ExxonMobil operates in a global context with a narrowly diversified business portfolio. It employs related business diversification at the core of its corporate strategy which is clear from the current business portfolio f the company. The major driver of business for the company is the Upstream business that more than 70% of the earnings alone. The chemicals business is at 16% and the downstream business at 12% in generation of earnings for the company. The upstream business being extensively capital intensive in nature employs four to six times the average capital employed by the other segments and is therefore at the centre of ExxonMobil’s operations.

Business Level Strategy

Given the multiple business operations Exxon is engaged in, it employs a multi-business strategy. Exhibit – 4 provides a detailed insight into the strategies adopted by Exxon for its various business segments.

Exhibit – 4: Business Strategy (Adopted from ExxonMobil’s Financial and Operating review 2013)

Upstream Business Strategies Identifying and selectively pursuing the highest quality exploration opportunities

Investing in projects that deliver superior returns, maximizing profitability of existing oil and gas production

Capitalizing on growing natural gas and power markets, using Joint-venture to mitigate exploration cost and risk, integrating the supply chain of Upstream and Downstream businesses

Downstream Business Strategies Maintaining best-in-class operations in all aspects of the business

Maximizing value from leading-edge technologies Capitalizing on integration across ExxonMobil businesses Selectively investing for resilient, advantaged returns Leading the industry in efficiency and effectiveness Providing quality, valued products and services to customers

Chemical Business Strategies Capitalizing core competencies to build proprietary technology positions, Capture full benefits of integration across ExxonMobil operations

Consistently deliver best-in-class performance Selectively invest in advantageous projects

References:

http://nasdaqomx.mobular.net/nasdaqomx/7/3395/4842/

http://en.wikipedia.org/wiki/ExxonMobil

http://corporate.exxonmobil.com/

http://marketplace.publicradio.org/display/web/2007/12/12/oil_sands/

http://finance.yahoo.com/q/bs?s=BP+Balance+Sheet&annual

http://finance.yahoo.com/q/bs?s=CVX+Balance+Sheet&annual

http://finance.yahoo.com/q/bs?s=COP+Balance+Sheet&annual .

http://finance.yahoo.com/q/bs?s=RDS+Balance+Sheet&annual

http://corporate.exxonmobil.com/en/energy/energy-outlook

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