Download - The Most Profitable Oil Company in the World

The Most Profitable Oil Company in the World

Or is it????

Who is ExxonMobil?

• World’s largest publicly traded petroleum and natural gas company

• Industry leader in almost all aspects of energy and petrochemical business

• Involved in exploration, production, and transportation of its products:– Crude Oil– Natural Gas– Petroleum

• Operate on six continents under the brand names Exxon, Esso and Mobil

What does ExxonMobil do?

• Upstream– Exploration and Production

• Holdings in 36 countries

• Downstream – Manufacturing, transportation and distribution

• 38 refineries in 21 countries• In 2007, refinery throughput averaged 5.6 million

barrels per day, and petroleum product sales were 7.1 million barrels per day

What does ExxonMobil do?

• Chemical– Petrochemicals

• More than 90 % of chemical capacity is employed in businesses where we ExxonMobil ranks first or second in worldwide market position.

• Technology– Innovation

• $3.5 billion spent over last 5 years on research• Focus on maximizing performance in remote

areas/difficult operating environments

Current Factors affecting the ExxonMobil and the Oil Industry

• Volatility

• Market uncertainty

• Rising costs

• Skill shortages

Current Factors affecting ExxonMobil and the Oil Industry:

• Volatility

• Market uncertainty

• Rising costs

• Skill shortages

Current Factors affecting ExxonMobil and the Oil Industry:

• Biofuels

• Energy allocation

• Environmental issues

• Global Energy Demand

Current factors affecting ExxonMobil:

Offshore drilling


Outrage associated with record profits


Windfall Profit Tax

Hugo ChavezI am going halt

crude oil shipments to ExxonMobil refineries!


Exxon Valdez Case


2007 Financial Performance

• Sales: $390.3 billion– 94.28% increase from 2002

• Gross Margin: 42.8% (Industry: 46.2%)

– 55.5% in 2002

• Operating Margin: 17.42% (Industry: 5.1%)

– 8.71% in 2002

• Net Profit: $40.6 billion– 254% increase since 2002

FYE 2007 Financial Ratios

• Dividend Yield: 1.60%– Industry Avg. of 1.60%

• Price / Earnings: 12.73– Industry Avg. of 13.5

• ROE: 33.35%– Industry Avg. of 28.7%

• Beta*: .95

Net Profit

*From the 2007 ExxonMobil Annual Report

Shareholder Return

*From the 2007 ExxonMobil Annual Report

Future Financial Health

• Analysts expect the company to grow at a steady rate of 11% over the next five years– Hoovers, Goldman-Sachs, Merrill Lynch

• The earnings are expected to grow at 8%

• This will put the earnings per share over $9 a share in 2010

Growth rate of earningsAll in $ millions:

6/30/2008 12/30/2008 12/30/2009 12/30/2010 12/30/2011 12/30/2012

NET INCOME $ 29,774 $ 22,570 $ 44,942 48,537$ 52,420$ 56,614$

EPS: $ 8.40 $ 9.07 $ 9.79 $ 10.58

FV= $56,614

Assumptions: Growth rate of 8%

Lower growth rate than in the past due to uncertanties in the market

Production is down compared to past – there is some cash flow uncertainty since recent cash flows have been bolstered by commodities trading

Analysis

• This is a respectable growth

• However, not the immense growth that the company has recently had

• Future forces such as shareholder’s concern with the environment, political turmoil, and oil commodity pricing will effect Exxon

• This combined with forecast of the company will support investing at ‘weight’

Forecast

• Relaxed prices

• Decreased Domestic Demand (20%)

• Increased Global Demand (80%)

• Energy Information Association

Washington

• Windfall Profit Tax-Highly Unlikely

• Conservative vs. Liberal

• Off shore Drilling?

Energy Cycle

Cracking Towers

Hold At Weight

• Buy Vanguard VDE

• Production Life Cycle

• Cracking Spread

• Market Weighted

Top Holdings

Exxon vs. Market

• Diversified• Service Sector• Segmented

Stock Re-Purchase

• Stakeholder Theory

• Board of Directors

• Myopic Management?

• Best Option?

• EPS Management