10/17/2016
ExxonMobil
Strategic Analysis
Examining Business Strategies
and Concerns of the World’s
Biggest Company
BUS.478
GROUP1
Dirk Van Ommen
Patrick Walkowski
Jaspreet Chand
Aliyah Ali
Jingyi Lu
1) History
ExxonMobil was started in 1870 when John D. Rockefeller and partners formed the Standard Oil Company. In
eight years, Standard Oil grew to control 95% of the US refining capacity, essentially giving them a monopoly on
oil production in the US. In 1882 the Standard Oil Trust was formed in order to circumvent Ohio laws that
banned ownership of companies outside the state. However, in 1889 company officials were indicted for
violating state anti-monopoly laws. As a consequence, the Supreme Court of America broke up the trust into 34
different companies; two of the spin-off companies being Standard Oil of New Jersey and Socony, the
predecessors of Exxon and Mobil respectively (ExxonMobil, 2006).
Notably during the 1930s and 40s, Standard Oil of New Jersey CEO Walter C. Teagle formed extensive
corporate ties with Germany’s Nazi government. Teagle worked with and supported the Nazi party before
America entered the war (ExxonMobil, 2006).
By the 1960s, Socony changed their name to Mobil Oil Corp, and Jersey Standard adopted their trademark of
Exxon. They continued their expansion of the Middle East, the Gulf of Mexico, Africa, and Asia (ExxonMobil,
2006).
In 1998, after escalated exploration, and a large public scandal of Exxon known as the Exxon Valdez oil spill,
Exxon and Mobil signed an agreement to merge and create ExxonMobil Corporation. (ExxonMobil, 2006)
2) Environment
The oil and gas industry includes the mining and extraction of oil, the production of natural gas, and the
production of crude petroleum. A great number of laws and regulations related to protecting the environment
present an obstacle for Exxon. Regulatory standards have been constricted in recent years, due to an increased
awareness of the damage oil production and use can do to the environment. Exxon must invest significant
amounts into refining infrastructure and technology as well as monitoring greenhouse gas emissions. Oil and gas
supply levels can potentially be affected by OPEC production quotas, the occurrence of wars, natural disasters,
and unexpected events. (Holditch and Chianelli, 2014)
Global natural gas demand is expected to rise by 65% by 2040, with demand for crude oil rising by 30% due to
increased commercial transportation activity (Holditch and Chianelli, 2014). Commercial transportation is
expected to rise in developing countries, however worldwide gasoline demand is expected to remain stable due to
fuel economy improvements in OECD countries offsetting the growth in developing nations (ExxonMobil,
2016). This growing demand for energy allows Exxon the opportunity to increase profits.
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3) Porter’s Five Competitive Forces
3.1) Threat of Entry
Exploration in this field is highly risky and involves high capital costs due to the acquisition of product
machinery, equipment, and production permits. Because negotiations with governments often need to be
undertaken, the larger firms tend to have established relationships with governments and customers which
discourage smaller corporations from entering (IBISWorld, 2016).
3.2) Threats from Suppliers
ExxonMobil has a Supplier Diversity program, allowing suppliers that meet the standard qualification
requirements to register with ExxonMobil. This not only allows Exxon to deliver goods at a lower cost,
but also allows them to have a diverse set of suppliers, which decreases the risk of suppliers exerting
power over the company (ExxonMobil, 2016).
3.3) Threat of Substitutes
The main substitutes for oil and gas include hydro, wind, solar, and nuclear power generation, and ethanol
fuel. Although there is a considerable amount of public support for these methods, they are as of yet less
efficient, are geographically constrained, or require large capital investments. While solar and wind energy
production is relatively cheap, they are very weather dependant and still a budding technology, and
ethanol needs a large amount of energy in order to be produced (Madson and Monceaux, 2003).
3.4) Threats from Buyers
There is a low threat from buyers. Buyers typically are interested in the price and quality, and because oil
prices are determined by global oil benchmarks, buyers cannot affect prices. Energy is also a relatively
inelastic good, and demand is only growing worldwide.
3.5) Competitive Threats
There is a low level of market concentration in this industry. Because it is large and diverse, major oil
companies have a hard time controlling more than a small proportion of the global output, resulting in high
competition. The largest player in this industry is the Saudi Arabian Oil Company, with a market share of
16.8% (IBISWorld, 2016).
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4) Forces in the General Environment
4.1) Global
International trade is extremely important to the fossil-based energy industry, and as a result globalization
in this industry is high. About 50% of oil output and 30% of gas output is traded internationally. Oil
companies pursue potential oil and gas finds around the world, working with local governments to procure
drilling rights. The gas segment is less globalized because of the limited transport options available
(IBISWorld, 2016).
4.2) Technological
Technology can change the relative costs of oil and gas location and production. Luckily, Exxon is
progressing with a number of patented technologies. One example includes wavefield inversion
technology, which allows its geoscientists to construct high-definition images of the subsurface to provide
insight about geological structures and the physical characteristics of rocks. This method is less costly,
more environmentally friendly, and allows for more efficient resource production and development
(ExxonMobil, 2016).
5) Current Company State
While ExxonMobil is considered the world’s largest publicly traded international Oil and Gas Company, its stock
price has dropped incrementally due to the decline in the price of oil. Compared to prices in 2014, oil prices have
dropped by more than half. Despite the steep decline in oil prices, ExxonMobil’s stock earnings have maintained
profitability while other leading competitors are struggling. In today’s market, Exxon has continuously proven to
generate industry leading returns on capital, a strong balance sheet, and stability within the oil and gas industry
(ExxonMobil, 2016).
In 2015, ExxonMobil earned $16.2 billion and had an industry-leading return on average capital employed of 7.9
percent. However, both of these figures dropped dramatically compared to their values over the past five years.
Additionally, cash flow from operations and asset sales reached $32.7 billion, which is also lower than that of
recent five years, but it demonstrated the resilience of their integrated business, as ExxonMobil continued to
distribute its earning as dividend to shareholders and also invested in various attractive business activities.
Dividends per share increased 5.8 percent in the second quarter of 2015, the 33rd consecutive year of dividendper-share increases. Its overall share performance is better than S&P 500 and its competitors in the long run.
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ExxonMobil also completed six major Upstream projects with working interest production capacity of almost
300 thousand oil-equivalent barrels per day, highlighted by two deep water projects offshore West Africa and
expansion of the Kearl development in Canada (ExxonMobil, 2016).
In 2014 ExxonMobil was a founding member of the MIT Energy Initiative for research and development of lowcarbon technologies, which was created to support both faculty and student research at Massachusetts Institute of
Technology. This was created to support energy technology innovations on specific topics such as electric power
systems, energy bioscience, energy storage, nuclear fusion, and solar energy. This also enabled ExxonMobil to
collaborate with students within the community and create a positive image for the company. In addition, this
collaborative program allowed students to and discover opportunities within ExxonMobil and gain hands on
experience through sponsored research projects and internships (MIT Energy Initiative, 2016).
6) Current Strategy
6.1) Business Level Strategy: Cost Leadership
ExxonMobil maintains a competitive advantage through a cost leadership strategy. They keep costs low
primarily by superior capital allocation, investment in long-life assets, and by maintaining their status as a
technology leader in the industry. Long-life assets allow ExxonMobil minimize depreciation and
maintenance expense resulting in greater free cash flow and lower procurement costs. Further, its next
generation seismic imaging, reservoir modeling and surveillance technology allow them to lower drilling
and completion costs while maximizing recovery (ExxonMobil, 2016).
6.2) Corp. Level Strategy: Dominant Business & Market Penetration
ExxonMobil groups its operations into three main categories: Upstream activities, Downstream activities,
and Chemicals. Upstream activities are those associated with oil extraction, exploration, and shipping.
Downstream activities are those associated with refining and retail operations (ExxonMobil, 2016). Its
upstream activities account for approximately 70 percent of its revenue, making it ExxonMobil’s
dominant business (ExxonMobil, 2016).
The market for crude oil is a mature market based on an existing product. Due to this, ExxonMobil
employs a market penetration strategy in an attempt to capture market share from its competitors. This
corporate-level strategy is complimented by ExxonMobil’s cost-leadership through technology and
efficient capital allocation. By creating economies of scale greater than its competitors, ExxonMobil has
the ability to survive and capture market share from competitors during times of low oil prices. Further, its
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centralized headquarters in Houston allows for greater transfer of knowledge, thus contributing to their
efficiencies (ExxonMobil, 2016)
6.3) International Strategy: Global Strategy
Given that crude oil is standardized across global markets, ExxonMobil employs a global strategy. As
mentioned, they emphasize economies of scale through investment in long-life assets, industry leading
technology and a centralized headquarters in Houston, TX. ExxonMobil’s downstream activities (refining
and retail) are dependant on a supply of crude oil from their upstream activities. This forward integration
from upstream to downstream activities allows ExxonMobil to pass on cost efficiencies to end consumers.
6.4) Cooperative Strategy: Oligopolistic Competition
There is a degree of tacit cooperation common among firm in the oil and gas industry. This occurs
primarily in ExxonMobil’s downstream activities, including the sale of gasoline. ExxonMobil sells
gasoline under the brands of Exxon, Mobil, and Esso (Wikipedia, 2016). This industry is different from
many others driven by supply and demand due to the efforts by the Organization of the Petroleum
Exporting Countries (OPEC) to maintain a stable petroleum market. (OPEC, 2016).
7) Strategic Challenges
Energy production is one of the most critical problems facing the world today. With an ever growing population,
and newly-industrialized nations, energy demand promises to only expand now and into the future. Being a
leading energy production company, one would surmise that this is a wonderful opportunity for ExxonMobil.
However, a shift in the public mindset towards sustainability, coupled with several recent political scandals perch
ExxonMobil in a somewhat precarious position within the long-term energy production environment.
7.1) Changing Public Values
Sustainability is becoming more and more important within the public consciousness. Sustainability is
defined as the ability to reproduce resources once they have been consumed. Simply due to the nature of
fossil fuels, this directly puts ExxonMobil’s current largest revenue source and the cornerstone of their
business at odds with this shifting public consciousness. Specifically, global warming has become a huge
issue in the minds of the public, and fossil fuel refinement and use contributes massively towards it. This
has lead to many governments instituting control measures on carbon emissions, such as implementing
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carbon taxes and restricting commercial and industrial gas use. There has also been a research push to find
and develop alternative sources of energy that are more sustainable than fossil fuels. This changing public
ideology has started having an effect on ExxonMobil’s bottom line.
In response, ExxonMobile has engaged in heavy lobbying in America and other countries in order to
protect their interests. They have positioned themselves as flat-out deniers of global warming, and until
recently have been pessimistic with regards to alternate energy production. This correlates to their
relatively poor public image, and new projects proposed by ExxonMobil have received considerable
backlash from both environmental activists and local governments. One example of such backlash is the
liquified natural gas (LNG) terminal being built in northern British Columbia. While ExxonMobile has
been diligent in working with the local first nations and environmentalists, they are still experiencing
opposition to this LNG expansion. (Hoekstra, 2015)
7.2) Falling Oil Prices
Though ExxonMobile has managed so far to weather the decrease in oil prices considerably better than
their competitors, many current projections on oil prices have it either recovering very slowly, or
maintaining its current price well into the year 2025 (Knoema, 2016). These projections will slow any
ideas ExxonMobil has of expanding their operations, something critical to their strategy of cost-leadership.
Though ExxonMobil still remains profitable with oil at its current price point, they are heavily invested in
long term projects, that could be harshly affected by lower oil prices. However, the core to ExxonMobil’s
cost leadership strategy is developing new and innovative ways to extract oil. Should they implement
strategies that keep the cost of producing oil lower than the price per barrel, ExxonMobil should weather
the storm better than their competition.
7.3) Scarcity
Due to the very nature of oil extraction, they are drawn up from a limited reserve, and one of the largest
concerns of many oil companies is the aging population of many of the existing reserves. In order to stay
ahead of these depleting reserves, and to keep up with demand, ExxonMobile is forced to seek out new
products and opportunities. This leads to fierce competition with their direct competitors when negotiating
with governments on potential products. This problem will only continue to compound, as energy
reserves are depleted at a larger and larger rate. This scarcity will make oil extraction techniques more
important than ever, as previously untouchable sources may become workable with more modern
techniques.
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8) References
ExxonMobil. (2016). 2016 Annual Meeting Presentation. Retrieved from:
http://ir.exxonmobil.com/phoenix.zhtml?c=115024&p=irol-eventDetails&EventId=5223785
ExxonMobil. (2016). Dividend Information. Retrieved from:
http://corporate.exxonmobil.com/en/investors/stock-information/dividend-information/overview
ExxonMobile. (2016). ExxonMoble Corporation. Retrieved from:
exxonenergy.com.yeslab.org/html/ourcoAboutHistory.htm
ExxonMoble (2006). History. Retrieved from: http://exxonenergy.com.yeslab.org/html/ourcoAboutHistory.htm
Hoekstra, G. (2015). Exxon Mobil could begin construction of B.C. LNG facility as early as 2017. Retrieved
from: http://www.vancouversun.com/Exxon+Mobil+could+begin+construction
+facility+early+2017/10722395/story.html
Holditch, S. A. and Chianelli, R. R.. (April 2008). Factors That Will Influence Oil and Gas Supply and Demand
in the 21st Century. Published in MRS Bulletin
IBISWorld. (2016). Global Oil & Gas Exploration & Production. Retrieved from:
http://clients1.ibisworld.com.proxy.lib.sfu.ca/reports/gl/industry/majorcompanies.aspx?entid=190#MP1
0249
Knoema. (2016). Crude Oil Price Forecast: Long Term 2016 to 2025. Retrieved from:
https://knoema.com/yxptpab/crude-oil-price-forecast-long-term-2016-to-2025-data-and-charts
Madson, P. W. and Monceaux, D. A. (Aug 28, 2003). Fuel ethanol production. Published for KATZEN
International, Inc., Cincinnati, Ohio, USA
MIT Energy Initiative. (Oct 13, 2016). ExxonMobil joins MIT Energy Initiative’s low-carbon technology R&D
program. Retrieved from: http://news.mit.edu/2016/exxonmobil-joins-mit-energy-initiative-low-carbontechnology-program-1013
OPEC. (2016). Our Mission. Retrieved from: http://www.opec.org/opec_web/en/about_us/23.htm
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