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Exxon strategic analysis Exxon strategic analysis Presentation Transcript

  • Group 4: Anish Bengeri (5) Anirudh Jindal (22) Sachin Mittal (35) ExxonMobil ~ Strategic Analysis
  • Company’s History  ExxonMobil is the world’s largest publicly traded international oil and gas company. They are the world’s largest refiner and marketer of petroleum products, and their chemical company ranks among the world’s largest.  They operate in most of the world's countries and are best known by their familiar brand names: Exxon, Esso and Mobil. They make the products that drive modern transportation, power cities, lubricate industry and provide petrochemical building blocks that lead to thousands of consumer goods.  ExxonMobil uses innovation and technology to deliver energy and petrochemical products to meet the world’s growing demand. Extensive research programs support operations, enable continuous improvement in each of business lines, and
  • Business Portfolio  Upstream business - It is a capital intensive business dealing with exploration, development and production of crude oil and natural gas.  Mid-Stream - Oil and gas produced from E&P operations is collected and delivered to a processing plant, where it is further refined and processed. The midstream industry stores and transports the finished products to the Downstream industry  Downstream business - It is large and diversified; it deals with refining and marketing across the globe.
  • Business Portfolio Continued..  Unlike the Upstream business, the Downstream business is a low margin business where operational efficiency and cost reduction makes a difference.  In order to obtain the most economical feed stocks, the company’s major petrochemical plants are integrated with its refineries.  ExxonMobil’s chemical business has a number of less-cyclical business lines that help reduce the volatility and deliver consistent results.
  • BCG Matrix
  • BCG – Star (Exploration and production (E&P) business)  It is the leading business segment and generates plenty of cash.  E&P also uses large amounts of cash. More specifically, conventional oil E&P has been a “star,” though growth rate has been declining compared to that of natural gas.
  • BCG – Cash cow (Chemical operation)  ExxonMobil’s Chemical operation has been generating a proportionally high profit with relatively low investment, typical characteristics of a “cash cow”.  Chemical business has been growing at a healthy pace
  • BCG – Dog (Refinery and manufacturing business)  The refinery and manufacturing business is fundamentally a narrow margin business.  Factoring in the low growth rate makes this segment a “dog.”  The coal operation and the oil transportation businesses are not as attractive as the rest of the businesses.
  • BCG – Question Mark (E&P)  E&P (e.g. shale oil and gas E&P) is capital intensive and time consuming with technology risks abounding.  The gas E&P is not as profitable as the oil E&P due to lower natural gas prices.  The innovations in E&P technology would make unconventional oil and gas production more affordable in the next few decades, but for now it is not cost effective.  For these reasons, non-conventional E&P and gas E&P are classified as “question mark.”
  • GE/Mckinsey Portfolio Matrix
  • Corporate Strategy  ExxonMobil is a narrowly diversified company with few lines of related business that operate in global markets.  The Upstream business segment - Largest one (>70 percent of earnings).  The Chemical operation – 2nd in profit generation at 16 percent  Downstream business segment - 12 percent.  The average capital employed by the Upstream business segment is four to six times that of other segments.  Clearly, the Upstream business is ExxonMobil’s center of gravity.
  • Business Portfolio Performance  Performance is affected significantly by changes in oil and gas prices.  A key measure of performance - Return on Capital Employed (ROCE).  Chemical business - 26 percent ROCE  Upstream business - 23 percent ROCE  Downstream business - 14 percent ROCE.  Capital and Exploration expenditure on Chemical is the lowest.  Strong cash flow from operations and asset sales is more than sufficient to fund a growing level of investments in the business.
  • Acquisitions ExxonMobil acquired XTO Energy for $24.6 billion in June 2010 for the following strategic rationales:  Growing need for natural gas in the next several decades.  Most of the company’s Upstream assets are abroad, and the merger represents a move toward the U.S. market.
  • Value Chain Synergies of XTO Acquisition: The acquisition enhanced shareholder value by capturing cross-business synergies such as:  Transferring competitively valuable expertise and technological know-how from its oil exploration and production to the natural gas exploration and production businesses of XTO  Sharing of exploration facilities and resources to reduce the costs of finding, discovery and development  Leveraging ExxonMobil’s leading brand name to deliver XTO products  Combining the value chain activities of XTO and ExxonMobil to improve operational efficiencies in marketing, shipping and distribution.
  • Divestiture  The company has been managing downstream assets carefully, as the refining industry is in a declining phase with low margins and profitability is heavily dependent on the oil price.  In 2010, ExxonMobil sold its interest in a lube oil refinery in France and restructured its retail activities to convert to a more efficient branded wholesaler model as in the United States.
  • Joint venture & alliances ExxonMobil often seeks foreign partners to:  Surmount tariff barriers and import quotas.  Gain local knowledge about customs and cultural factors and access to distribution outlets.  Overcome governmental regulations and political pressures. For example, BP was the only company in Iran for a considerable length of time. However due to governmental intervention, BP was forced to share their stake with other companies.  The Downstream business is highly competitive and risky with tight margins. Any unused refining capacity would result in reduced margin. To deal with this problem, many oil companies form alliances to optimize the plant utilization, thereby improving margins.
  • Resources & Capabilities (Path Dependence & Dynamic View of Resources) ExxonMobil through its years of operation in the oil and gas industry have accumulated a number of key resources and capabilities that enable it to be operationally and financially effective:  Skills, Expertise and Competence – Global integration, operational excellence, technological innovation  Valuable physical asset – Oil and gas acreage, reserves (proven and unproven), balanced mix of portfolio, long- term oil and gas field rights, diversity and geographic coverage  Rock-solid financial base  Valuable human assets and intellectual capital – Proven managerial know-how, experienced and capable work force  Valuable intangible assets – Great brand name, disciplined investment with long-term focus
  • SWOT AnalysisStrengths Capturing the highest-quality exploration Opportunities Strong research and development Capabilities Diversified revenue stream (Geographical diversification) Integrated refining & chemical operations Weakness Declining net liquids production and oil Reserves Litigation and contingencies Opportunity Demand for shale gas Rising global energy demand Strategic cooperation with Rosneft Threats Risks concerning instability in some oil-producing regions Environmental regulations Economic conditions
  • Strengths  Capturing the highest-quality exploration Opportunities: The company uses its geosciences capabilities and understanding of the global hydrocarbon potential to identify, evaluate, and prioritize the highest quality resource opportunities.  Strong research and development Capabilities: Seismic and reservoir modeling technologies enable it to identify new resource opportunities, drill more accurately, and improve recovery. Advanced molecule management technology optimize the value of every hydrocarbon molecule, while minimizing energy use. Currently focusing on the use of solvents to access undeveloped resources, improve bitumen recovery, lower water use, and reduce greenhouse gas emissions.  Diversified revenue stream (Geographical diversification): The company’s revenue stream is diversified in terms of geographies. Exxon Mobil divides its geographic divisions as US and non-US. The non-US region covers Canada, the UK, Belgium, France, Italy, Germany, Singapore, and Japan, among other countries. Its worldwide presence reduces exposure to economic conditions or political stability in any one country or region.
  • Weakness:  Declining net liquids production and oil Reserves: The upstream division of Exxon has been recording a consistent decline in its production volumes. The production has declined at a CARC of 3%, from 2.6 million barrels per day in FY2007 to 2.2 million barrels per day in FY2012  Litigation and contingencies: The company is involved in various lawsuits, claims, and legal proceedings arising out of the conduct of its business. Claims - Damages, fines, or penalties in substantial amounts or remediation of environmental contamination.
  • Opportunities: Demand for shale gas: • The production of shale gas is expected to form a large component of petroleum production. • Shale gas production (expected to grow by 113% from 2011 to 2040), is the greatest contributor to natural gas production growth. Its share of total production is expected to increase from 34% in 2011 to 50% in 2040. • ExxonMobil, during FY2012, completed 1,142.7 net exploration and development wells in the inland lower 48 states. • Exxon Mobil is well positioned to leverage the increasing demand for shale gas in the US and to exploit opportunities for further market penetration in other countries.
  • Opportunities continued..  Rising global energy demand: Energy demand in developing nations (Non OECD) will rise 65% by 2040 compared to 2010, reflecting growing prosperity and expanding economies. While overall global energy demand will grow 35%. As economic progress drives demand higher, increasing penetration of energy-efficient and lower-emission fuels, technologies, and practices are expected to contribute to significantly lower levels of energy consumption and emissions per unit of economic output over time. Exxon Mobil continues to expand and diversify its resource base promote efficiency, and develop new energy technologies.
  • Opportunities continued..  Strategic cooperation with Rosneft: In August 2011, entered strategic cooperation agreement to undertake joint exploration and development of hydrocarbon resources in Russia, the US, and other countries, and commence technology and expertise sharing activities. Signed an agreement to jointly develop tight oil production technologies in Western Siberia. Both agreed to conduct a joint study on a potential LNG project in the Russian Far East . Will help Exxon Mobil to expand its geographic reach and also help the company to take advantage of Rosneft’s technology
  • Threats:  Risks concerning instability in some oil-producing regions: Political instability in the exploration and production areas of interests including Africa, the Middle East, and South America. Company’s investments in the Egypt, Libya, and other countries could be adversely affected by heightened political and economic environment risks. Political unrest in Middle Eastern and North African countries is likely to have an impact on Exxon Mobil's production capacity. This is because the company derives the majority of its revenue from production of crude oil and natural gas liquids, and the Middle East and North Africa regions account for a sizable portion of its portfolio.
  • Threats continued..  Environmental regulations: Exxon Mobil’s businesses are subject to numerous laws and regulations relating to the protection of the environment. In 2005, the US Environmental Protection Agency (EPA) issued a Clean Air Interstate Rule (CAIR), to reduce the emission levels. Significant investment in refining infrastructure and technology to manufacture clean fuels as well as projects to monitor and reduce nitrogen oxide, sulfur oxide, and greenhouse gas emissions and expenditures for asset retirement obligations.
  • Threats continued..  Economic conditions: Occurrence of recessions Changes in population growth rates, periods of civil unrest, government austerity programs, currency exchange rate fluctuations Sovereign debt downgrades, defaults, inability to access debt markets due to credit or legal constraints, liquidity crises, the breakup or restructuring of fiscal, monetary, or political systems such as the European Union, and other events or conditions that impair the functioning of financial markets and institutions also pose risks to Exxon Mobil, including risks to the safety of the company’s financial assets and to the ability of the partners and customers to fulfill their commitments to Exxon Mobil. Strict regulation for offshore drilling Water contamination concerns
  • Porter’s 5 Forces Model Threat of new entrants (LOW) •High capital cost •Economies of scale •Distribution channels •Proprietary technology •Environmental regulation •Geopolitical factors •High levels of industry expertise needed to be competitive in the areas of exploration and extraction •Fixed cost levels are high Degree of Rivalry (HIGH) •Commodity-based nature of the business •Competition with other industries that supply chemical, energy, and fuel for both industrial and individual consumers •Ability to produce products at a lower cost via operational efficiencies •ExxonMobil, BP, Chevron, Conoco Philips, and Royal Dutch Shell Bargaining power of Buyer (Industrial consumers and individual consumers) (LOW) Bargaining power of Supplier (oil mining and extraction firms) (HIGH) •OPEC controls 40% of world’s supply of oil and, thus, has a strong influence on the price of oil •Unstable countries that host Exxon oil reserves can seize Exxon’s assets at any time Threat of substitutes (LOW) •Photovoltaic sources are limited by technological issues and geothermal sources are limited by geographic availability
  • SBU Unit : Exxon Mobil PetroChemicals  ExxonMobil Chemical is among the top three global petrochemical companies with earnings of $4.6bn and sales volumes of 27m tonnes in 2007. It has manufacturing locations in more than 20 countries and products are marketed in more than 150 countries.  Leadership positions in some of the largest-volume and highest- growth commodity petrochemical products in the world.  Largest global manufacturer of aromatics, including paraxylene and benzene.  Largest producers of olefins, such as ethylene and propylene, and polyolefins, including polyethylene and polypropylene.  Global leadership positions in butyl polymers that help tires maintain proper pressure resulting in improved fuel economy.  Hydrocarbon fluids with high-performance characteristics for applications such as water treatment, coatings, and oil drilling fluids. In addition, our synthetic base stocks are key components for advanced lubricants.  The company says its competitive advantage is derived from a combination of low-cost feedstocks, proprietary technology and application expertise. A key component is the emphasis on petroleum integration in which much of its manufacturing capacity is located in large integrated refining and chemical complexes.
  • Porter’s 5 Forces Model Threat of new entrants (LOW) petrochemical industry is capital-intensive by nature Degree of Rivalry (LOW) Competition within the domestic market is limited, as there are only a handful of players with world-class capacities. Low import duties, there is threat of imports from Middle East and the Asia Pacific region. Refineries are getting integrated, reducing the industry concentration in terms of market share and in turn fuel competition Bargaining power of Buyer (Industrial consumers and individual consumers) (MODERATE TO LOW) , the downstream user industry is fragmented, which reduces their Bargaining power of Supplier (oil mining and extraction firms) (MODERATE TO LOW) This is due to the fact that the suppliers are concentrated Threat of substitutes (LOW) Huge investments required for substitute production
  • Strategic Group Overview The companies which are in the strategic group of ExxonMobil Chemical SBU:  Royal Dutch Shell (RDS)  British Petroleum (BP)  Conoco Phillips (COP)  Chevron Corp (CVX)  These five major integrated O&G are public-owned companies.  ExxonMobil is the leader in the strategic group. All of its core lines of business are doing well. ExxonMobil is able to generate high revenue in both the product lines of oil and gas. In Downstream, ExxonMobil’s refineries are performing well to their production and capacity. ExxonMobil’s resources are well deployed.
  • Chemical Business Strategy  Capitalizing core competencies to build propriety technology positions, Capture full benefits of integration across ExxonMobil operations  Consistently deliver best-in-class performance  Selectively invest in advantageous projects  ExxonMobil’s Chemical division employs a best-value strategy to leverage its leadership in production, costs and proprietary chemical and polymer Offerings. The Company achieves cost leadership through synergies gained by combining refining and chemical production operations.
  • Industry Overview  Petrochemicals are fundamental building blocks used in the production of a variety of consumer and industrial products.  Petrochemicals are affected by their production volatility, as well as the prices of oil and gas, which are used as raw materials to produce the intermediary.  U.S. producers are being adversely affected by the development of large-scale, low-cost export-oriented plants located in the Middle East  South Korea and China have also invested considerable resources in growing their petrochemical industries to become significant petrochemical exporters.
  • Industry Key Success Factors ( KSFs) For the oil and gas industry, the five main Key Success Factors (KSFs) are:  Exploration and Oil discovery  Manufacturing  Financial  Technology  Marketing & Distribution
  • Recommendations  Short term Recommendations  Increase investments in oil exploration, production and refining.  Expand chemical operations internationally. Target emerging markets.  Focus on increasing supply (wholesale) sale and retrenching retail sale  Long-term recommendations • Invest in natural gas exploration and production • Invest in unconventional oil and gas plays
  • • Organizational Impact • ExxonMobil is a company with long-term vision, and is much more conservative than its Competitors. • Executing this recommendation would require the company to take calculated risks which in turn would require leadership commitment and an organizational and cultural mind shift • Invest in renewable energy sources • The growth in renewable energy is projected to be the fastest among various energy sources. • This will also help ExxonMobil stay competitive and will ensure that it will not be left behind due to technological innovation or blindsided by any disruptive innovation in renewable energy
  • Major Strategic Problem  Major Investment decisions which are like Should ExxonMobil increase its investment in oil, or should it step up its commitment to natural gas more than ever?  Is ExxonMobil’s action going to help it maintain its leadership, or will this move give its competitors an opportunity to overthrow ExxonMobil’s dominance?
  • Recommendations  The natural gas market is currently oversupplied, keeping the price of natural gas low, resulting in a lower level of sustained profitability.  Additionally, the adoption of natural gas across the globe is part of a very long-term strategy  The energy industry is a mature industry with conventional, fossil-fuel-based energy sources, such as oil and coal, dwindling slowly  Therefore, boosting investment in unconventional oil exploration and processing technology is important to building a sustainable competitive advantage
  • Conclusion  ExxonMobil is a long-term oriented company, and as such, it is not unusual for ExxonMobil to invest in a long-term prospect ,where it can acquire growth cost effectively, especially in light of the company’s strategic intent to be the leading supplier of global energy.  Hence the strategic decision of Boosting investment in unconventional oil exploration and processing technology is important to building a sustainable competitive advantage