Exxon Mobil Performance in The US Petroleum Industry (2016)
- ardybad
- Nov 17, 2016
- 6 min read
Original Title: Quantitative Analysis: Exxon Mobil Performance in The US Petroleum Industry
Author: Achmad B. Djauhari
Course: Applied Managerial Economics
Instructor: Ryan Gunhold
Date: November 17, 2016
Introduction
Most countries watch the petroleum industry either as exporters or importers. Recently, the oil price was forecasted to increase from the lowest price point per barrel due to the excessive amount of crude oil supply. Exxon Mobil, PetroChina, and Royal Dutch Shell are some leading global oil producers that were affected by the plummeted petroleum price worldwide in the last five years. Exxon Mobil is one of the biggest international oil and gas company that explore, produce, and manufacture natural gas, crude oil, and petroleum products in America, Europe, Africa, Middle East, and the Asia Pacific.
The firm market position around the globe allows it to take advantage of various both business and geographic environments as well as maximizing the profit throughout dynamic business cycles (MarketLine, 2016a). Dealing with fluctuated resources and global economic circumstances, Exxon Mobil successfully became the leader in the US petroleum industry. The business acquired more than 16 % market share in 2016 followed by Valero Energy, Marathon Petroleum, Phillips 66 Company, and Chevron at 14%, 13%, 12%, and 11% respectively (Witter, 2016).
Collectively, this study examined the US petroleum industry performance towards the global oil market. How Exxon Mobil productively utilized its business operations based on its financial performance related to economic principle including supply and demand, marginal cost, and competitive advantage along with SWOT analysis that excels the company to be the leader in both worldwide and the US petroleum industry will also be covered in this study thoroughly.
SWOT Analysis
According to MarketLine report (2016b), Exxon Mobil built 23 refineries in 14 countries by providing around 5 million barrels a day in 2015. Table 1 showed that the company has a strong market around its value chain, handles including Shales gas, Deepwater, tight gas, Liquefied Natural Gas (LNG), Arctic and Sour gas. EXXON Mobil allows enlarging the resource and business, lightening wavering market as well as capitalize the market, which has brought the firm into the top market position followed by the extensive upstream and downstream operations. In fact, the upstream business income does not only come from the US market but also from the variety of geographical areas.
Exxon Mobil Research and Development (R&D) is robust and vigorous that evolves and improves the production and manufacturing process for both current and new products. By spending approximately $1,000 million, it utilized advanced management technology processes in the factories to maintain its hydrocarbon molecule value and decrease the energy consumption, which creates the company’s competitiveness (MarketLine, 2016b).
The US Petroleum Industry Overview
Gasoline product was the highest segment of oil products followed by diesel fuel oil, liquefied petroleum gasses, and jet fuel, respectively. Figure 1 shows that the low price of gasoline cut down the distribution channels and increased the US oil exports due to high supply and low demand on the international market. Witter (2016) projected that oil prices would plummet throughout 2016. The oil industry is expected to improve since oil prices increase, and consumption rises. Plant improvement will also be a significant factor leading player companies to invest in infrastructure that can produce more raw oil.
Additionally, the growing economic condition will keep the demand for oil. Nevertheless, the rise in oil consumption was anticipated to slow as consumers increasingly adopt a fuel-efficient technology. Therefore, the income was predicted to grow over $500 billion in 2021.
The oil processing industry depends on crude oil and other petroleum product values. However, the profit margins on higher oil prices might go down when the oil price is higher than the end-product prices (Witter, 2016). Moreover, over 40% of growth regarding global transportation demand to 2040 was predicted having a contribution from the heavy-duty industry, air travel, maritime, and global trading. Lower price gas, for transportation, would be more marketable due to its financial attractiveness particularly for long-haul trucking (Snow, 2012).
Financial Performance
Although its oil refining income sharply rose in the last five years, Morningstar, in Table 2, reported that the plummeted oil prices dropped the company revenue in 2012 and 2015. Witter (2016) also forecasted the income will still plummet in 2016 despite stable volume sales. Also, Figure 2 revealed that the revenue problem impacted Exxon Mobil’s market value in which the value continued to drop from $438,000 to $323,000 billion in the past three years.
Responding to the issue of global oil prices, CEO and chairman of Exxon Mobil, Rex Tillerson, believed that petroleum price should not exceed $70 per barrel when the price was examined by primary supply and demand. Nonetheless, Targeted News Service (2011) reported that even though the petroleum price was drop under 6% in 2011, one barrel of petroleum price was sold for $98. The steady raw oil price and gas were $70 per barrel and $2.7 per gallon in 2009, respectively. Consequently, if supply and demand factors calculated the current petroleum market, consumers would fill up the gas tanks with $1.5 below the regular price per gallon (Targeted News Service, 2011).
Witter (2016) figured out that supporting the company cut engineering costs, Exxon Mobil's chemicals and lubricant manufacturing process was incorporated with its petroleum refining operators. This procedure helps the company utilizing the marginal cost more efficiently. He discovered that to take advantage of plentiful natural gas supply in 2010, Exxon Mobil acquired XTO Energy, Inc. for $25 billion. XTO Energy was a company that experienced in natural gas and raw oil exploration for transportation fuel. Exxon Mobil, with the current acquisition, entered the US natural gas market when the market price was low. This strategy brought Exxon Mobil to overtake the US gasoline market in this current state while the firm can control the cost production and margin before the demand, and the price rose.
The CEO indicated that the firm remains to be aware of the challenging industry along with making improvements to operational performance, as well as creating margin raise. He believed that company cash flow has a competitive advantage and strategy implementation (Chandrasekaran, 2016). The company claimed to ensure uninterrupted progress on the refinery investments while adding new additional plants that escalate liquid production by over 260,000 barrels a day. Additionally, exploration and capital expenditure were cut down into $5 billion (Chandrasekaran, 2016).
As the company introduced the Global Energy Management System (GEMS) in 2000, the firm has upgraded the energy efficiency, which was three times quicker than the industry average, at its manufactures. The plants with bigger capacity helped Exxon Mobil produced fewer operation costs as well as feedstock, and distributed high-quality crude oil seamlessly (Skjærseth, 2013).
Figure 3. Top 10 Oil and Gas Companies worldwide based on market value in 2015 (Financial Times)
Long-term investment on Greenhouse Gas (GHG), to reduce emission along with gasification, biofuels, hydrogen and Carbon Capture and Storage (CCS), has been made by Exxon Mobil. As a result of competitive products and investment on the market, Exxon Mobil, according to Figure 3, reached the largest market value worldwide in 2015.
Conclusion
Exxon Mobil is one of the top oils and gas producers that successfully dominates the industry by acquiring market value over $500,000 billion. The company appropriately manages its refineries that contribute to the high capability to produce high-quality oil and gas. Although the current decreasing demand and growing excessive supply worldwide, the oil industry is expected to regain in the next five years due to increasing demand for fuel transportation in emerging markets recently.
In addition to the refinery management, Exxon Mobil has been successfully utilizing its robust research and development to cut the manufacturing and distribution costs which retain the company profit margin since it acquired XTO Energy, Inc. in 2010. In summary, Exxon Mobil is a successful company that runs its competitive advantage, which includes handling the high-technology petroleum engineering and adapting economic principles.
The company should be able to retain its triumph by always controlling its quality crude oil manufacturers and efficient distribution line, catching up with opportunities in the petroleum market, and involving in other science and technology organizations.
References
Chandrasekaran, R. (2016). Benzinga: Exxon mobil Q1 results top expectations. Chatham: Newstex. Retrieved from ProQuest database.
Exxon Mobil. (n.d.). Market value of ExxonMobil from 2001 to 2015 (in million U.S. dollars). In Statista - The Statistics Portal. Retrieved November 2, 2016, from Statista database.
Financial Times. (n.d.). Top 10 oil and gas companies worldwide based on market value in 2015 (in billion U.S. dollars). In Statista - The Statistics Portal. Retrieved November 2, 2016, from Statista database.
MarketLine. (2016a). Exxon Mobil: Company Profile. Retrieved from Business Source Complete database.
MarketLine. (2016b). Exxon Mobil: SWOT Analysis. Retrieved from Business Source Complete database.
Morningstar. (2016). Exxon Mobil: Financials. Retrieved November 6, 2016, from Morningstar Investment Research database.
Skjærseth, J. (2013). Governance by EU emissions trading: resistance or innovation in the oil industry?. International Environmental Agreements: Politics, Law & Economics, 13(1), 31-48. doi:10.1007/s10784-012-9201-2
Snow, N. (2012, Dec 17). ExxonMobil sees gas displacing coal as world's no. 2 energy source. Oil & Gas Journal, 110, 22. Retrieved from ProQuest database.
Targeted News Service. (2011, May 12). Under questioning by Cantwell, Exxon CEO estimates oil should cost $60-70 per barrel. Targeted News Service: Washington, DC. Retrieved from ProQuest database.
Witter, D. (2016). IBISWorld Industry Report 32411. Fueled up: improving global economic conditions will sustain demand for petroleum products. Retrieved November 4, 2016 from IBISWorld database.
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