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Exxon Mobil Corporation

Exxon Mobil Corporation - Financial and Strategic Analysis Review Reference Code: GDGE1203FSA

Publication Date: 06-Apr-2015

Company Snapshot

Company Overview

Key Information

Exxon Mobil Corporation (ExxonMobil) is an integrated oil and gas company. It is active in each and every facet of the oil and gas industry right from upstream to downstream. ExxonMobil explores for, develops and produces oil and natural gas from its international upstream asset base. The company manufactures petroleum products, transports and sells crude oil, natural gas and petroleum products. ExxonMobil is a major manufacturer and marketer of commodity petrochemicals including olefins, aromatics, polyethylene and polypropylene plastics and a wide variety of specialty products. It also has interests in electric power generation facilities.

Exxon Mobil Corporation, Key Information Web Address www.exxonmobil.com Financial year-end December Number of Employees 75,300 NYSE XOM Source : GlobalData

Key Ratios Exxon Mobil Corporation, Key Ratios P/E

11.10

EV/EBITDA Return on Equity (%)

5.58 18.65

SWOT Analysis

Debt/Equity

0.17

Exxon Mobil Corporation, SWOT Analysis Strengths Weaknesses

Operating profit margin (%)

8.65

Upstream Profitability

Working Capital Deficit

Dividend Yield

0.03 Integrated Business Operations

Business Performance: Downstream

Note: Above ratios are based on share price as of 02-Apr-2015 Source : GlobalData

Leading North American Refiner

Share Data Exxon Mobil Corporation, Share Data Price (USD) as on 02-Apr-2015 EPS (USD)

84.30 7.59

Book value per share (USD)

41.51

Shares Outstanding (in million)

4,282

Opportunities

Threats

Globally Available Natural Gas Improvement in Vehicle Reserves Technology Limiting Demand Increasing Demand: Oil & Petroleum Products

Exploration Production & Development Risks

Alaska LNG project

Declining Oil Prices

Source : GlobalData

Performance Chart Exxon Mobil Corporation, Performance Chart (2010 2014)

Source : GlobalData

Financial Performance

Source : GlobalData

Exxon Mobil Corporation- Financial and Strategic Analysis Review

The company reported revenues of (US Dollars) US$394,105 million for the fiscal year ended December 2014 (FY2014), a decrease of 6.4% over FY2013. In FY2014, the company’s operating margin was 8.6%, compared to an operating margin of 9.6% in FY2013. In FY2014, the company recorded a net margin of 8.3%, compared to a net margin of 7.7% in FY2013.

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Exxon Mobil Corporation Exxon Mobil Corporation - SWOT Analysis SWOT Analysis - Overview Exxon Mobil Corporation (ExxonMobil) is an integrated oil and gas company. Its integrated operational structure coupled with market leading operations strengthened its operations. Declining performance in contributing segment is a cause for concern to the company. Growth initiatives across the value chain in view of increasing demand for oil and petroleum products could provide the company various growth opportunities. However, declining oil prices and advancement in vehicle technologies could affect its operations. Exxon Mobil Corporation - Strengths Strength - Upstream Profitability In upstream profitability, ExxonMobil was ahead of its competitors in FY2014. For the FY2014, the company reported upstream earnings of US$19.5/ boe, showing an increase of approximately US$1.4/boe over FY2013. Higher upstream margin reflects its strategic choices to improve the production mix such as major projects and work programs, reduced exposure to lower margin barrels, operating and capital cost savings, and taking steps to improve fiscal conditions and certain . Its upstream earnings led the industry in FY2014. For the FY2014, its close competitors, namely, Chevron and Shell, reported upstream earnings of US$18/boe, US$14.1/boe respectively. For the FY 2014, ExxonMobil’s recycle ratio stood at 1.56 as compared to 1.08 of Chevron and 0.65 of Shell. Recycle ratio suggests its focus on remaining a low cost operator compared to its peers. Strength - Integrated Business Operations ExxonMobil is an integrated oil and gas company. The company is active in every facet of the oil and gas industry right from upstream through midstream to downstream. Integrated business operations enabled the company to mitigate its dependence on third party operators. Integrated operations enable the company to respond more effectively to changes in the business environment. ExxonMobil explores for, develops and produces oil and natural gas from its international upstream asset base. The company produces petroleum products, and transports and sells crude oil, natural gas and petroleum products. Its investments span the oil and gas value chain to optimize upstream and downstream returns. Through its integrated portfolio, it identifies and captures value along the value chain at every step of the way, from the wellhead till it reaches the consumer. Approximately 75% of its refining operations are integrated with chemical and lube manufacturing. Such integration provides ExxonMobil significant flexibility to produce gasoline, diesel, jet fuel, chemicals, lubricants, or other products based on the market conditions. Its logistics division ensures cost-efficient delivery throughout its operations. The company’s global services division tracks product demand across regions, which leads to efficient value chain investments. Strength - Leading North American Refiner ExxonMobil is one of the largest integrated refiners, a premier marketer of fuels and lubes, the largest manufacturer of lubricant base stocks, and one of the largest chemical companies in the world. The company has the industry's largest refining capacity in the Mid-Continent and Gulf Coast regions in the US. As of December 2014, the company had interests in seven refineries with total crude distillation capacity of approximately 1.95 MMbbl/d in the US; and three in Canada with 421 Mbbl/d. Its close refining competitors are Marathon with distillation capacity of 1.7 MMbbl/d; Valero with 1.7 MMbbl/d in the US Gulf Coast; and Phillips 66 with 1.2 MMbbl/d. For the FY2014, its refinery throughput volume in the US stood at 1,809 Mbbls/d, which ed for approximately 40.4% of its global throughput. Strength - Capital Efficiency In return on capital employed (ROCE), ExxonMobil outperformed its peers in FY2014. In FY2014, the company reported ROCE of 16.2%, which was more than 5 percentage points higher than that of its nearest competitor. Higher capital returns highlight its strengths such as integrated portfolio, project management, and technology applications. For the FY2014, ROCE for Chevron, Shell, and Total stood at 10.9%, 7.1%, and 6.1% respectively. Over the past five years, from 2010-2014, its ROCE averaged 21% which was five percentage point higher than that of its closest competitor. Strength - Strong Reserve Replacement Ratio ExxonMobil continued to focus on reserve replacement initiatives in FY2014. For the FY2014, the company’s organic reserve replacement ratio (RRR) stood at 104%. Reserve replacement ratio indicates the company’s focus on strengthening its proved reserve base. The company continuously replaced its production volume for the last 21 years. For the FY2014, the company added approximately 1.5 billion barrels of oil-equivalent to its reserves. Its liquid RRR stood at 162% with the addition of approximately 1.2 billion barrels in FY2014. Its average RRR for the last 10 years stood at 123%, including 124% average liquid replacement; and 121% average natural gas replacement. As of December 2014, ExxonMobil's proved reserves totaled 25.3 billion barrels of oil-equivalent, which consisted of 54 % liquids and 46% natural gas.

Exxon Mobil Corporation- Financial and Strategic Analysis Review

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Exxon Mobil Corporation

Exxon Mobil Corporation - Weaknesses Weakness - Working Capital Deficit ExxonMobil reported deficit in its current assets for meeting its short term obligations in FY2014. Working capital deficit coupled with limited cash reserves could affect its short term business operations. For the FY2014, the company reported net working capital deficit of US$11,723 million, which was due to 11% decline in its total current assets to US$52,910 million. In FY2014, its current ratio and cash ratio stood at 0.82 and 0.07 respectively. In FY2014, its non-cash current assets including total receivables and total inventory ed for 91.3% of its total current assets. Its cash reserves ed for 8.7% of its total current assets. Weakness - Business Performance: Downstream ExxonMobil reported decline in the performance of its major revenue contributing segment in FY2014, which could affect its operations. For the FY 2014, the company reported 7% decline in its revenue from Downstream operations to US$318,747 million. The decline in downstream revenue was due to lower refinery throughput volume and lower product sales. For the fiscal year ended December 2014, the company’s refinery throughput volume stood at 4.5 MMbbl/d as compared to 4.6 MMbbls/d in 2013. In FY2014, the company reported 0.5% decline in throughput volume in the US; 7.5% in Canada; and 19.4% decline in Asia-Pacific regions. Decline in downstream revenue affected the company’s downstream margins. In FY 2014, the company reported 12% decline in its downstream earnings to US$3,045 million from US$3,449 million in FY2013. Its ROCE from downstream activities also declined to 12.7% from 14.1% in FY2013. Exxon Mobil Corporation - Opportunities Opportunity - Globally Available Natural Gas Reserves ExxonMobil is a leading explorer and producer of natural gas. The company could strengthen its operations further while harnessing the globally available natural gas reserves. According to EIA, the global shale gas reserves amount to around 1.3 trillion boe. Of the total, China s for 15%, Argentina 11%, Algeria 10%, the US 9%, Canada 8%, Mexico 7%, Australia 6%, South Africa 5% and Russia 4%. Brazil, Venezuela, Poland, and Libya are the other countries with significant resource potential. Globally, conventional natural gas reserves are also plentiful, with the Middle East and Eurasia (mainly Russia) ing for 72% of the total. Proven gas reserves in Russia amount to approximately 330 billion boe, the world’s largest by far. For 2013, conventional global natural gas reserves are reported in the OPEC Annual Statistical Bulletin (ASB) 2014 at approximately 1.3 trillion boe. According to EIA, there is another 1 trillion boe of technically recoverable, undiscovered conventional natural gas. Russia also ranks highest in this category at over 40 billion boe. Opportunity - Increasing Demand: Oil & Petroleum Products ExxonMobil could strengthen its business operations further with the expected increase in demand for oil and petroleum products across the world. According to World Oil Outlook (WOO), long term oil demand is expected to increase 20 Mbbl/d, reaching 108.5 Mbbl/d by 2035, up from 107.3 Mbbl/d. Of this increase, developing Asia s for 88%, while demand in China, India and other developing countries in Asia reaches 94% of that of the OECD countries by 2035. This increase in demand for oil was projected following new IMO regulations related to efficiency for new and existing ships; marginal increase in the rate of economic growth, which adds 3% to global GDP by 2035; and a re-evaluation of car ownership possibilities in China, where transport infrastructure is in step with stronger growth in the vehicle stock. According to WOO, the global demand for petroleum products is expected to increase to 111.1 Mbbl/d. The demand for diesel and gasoline is expected to grow to 36.1 Mbbl/d and 26.7 Mbbl/d by 2040. Between 2013 and 2040, the demand for middle distillates is expected to increase by a total of 12.5 Mb/d. This represents around 60% of the overall growth in demand for all liquid products. This trend is most pronounced in the Asia-Pacific region where gasoline demand is projected to increase by more than 3 Mb/d by 2040. Opportunity - Alaska LNG project ExxonMobil focuses on LNG projects to tap opportunities in the growing natural gas market. In October 2013, under its Alaska Gasline Inducement Act (AGIA) framework, which was signed in 2012, ExxonMobil, BP, ConocoPhillips and TransCanada selected a site in the Nikiski area on the Kenai Peninsula as the lead site for the proposed Alaska LNG project’s natural gas liquefaction plant and terminal. In February 2015, the company submitted a series of draft environmental and socioeconomic reports for the Alaska LNG Project to the Federal Energy Regulatory Commission (FERC), which is responsible for conducting the environmental review of the project. In September 2014, the company submitted a formal request to the Federal Energy Regulatory Commission (FERC) to start the pre-file process for its Alaska LNG project. In July 2014, the company submitted an application to the US Department of Energy for the export of LNG from its Alaska LNG project. The application includes permission for export of up to 20 MMTPA of LNG for a period of 30 years to countries that have existing free trade agreements with the US, and to non-free trade agreement countries. The company expects to complete this project by 2016.

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Exxon Mobil Corporation Opportunity - Upstream & Downstream Growth Initiatives ExxonMobil strives to strengthen its business operations through new investments in upstream and downstream projects. As of December 2014, the company started construction of a 50,000 bbl/d delayed coker at its Antwerp Refinery in Belgium, which is expected to be online by 2017. This refinery is on a site with substantial cost advantage in Western Europe. ExxonMobil Chemical announced capacity expansion initiatives at its facilities in Singapore (synthetic rubber and adhesives), the US Gulf Coast (ethylene and polyethylene), and Saudi Arabia (synthetic rubber and elastomer). Its capacity expansion activities are expected to be online by 2017. In September 2014, the company entered into a non-monetary exchange agreement with LINN Energy, LLC to add 17,800 net acres in the Permian Basin to its US oil and natural gas portfolio managed by XTO Energy Inc. In September 2014, the company’s , Esso Norge AS, announced plans to install a new processing unit at the Slagen refinery to enable production of high quality vacuum gas oil. Such new investments could provide the company various new growth initiatives. Exxon Mobil Corporation - Threats Threat - Improvement in Vehicle Technology Limiting Demand ExxonMobil’s integrated business operations are dependent on the demand for petroleum products. WOO expects an average of 2% per annum global decline in oil use per vehicle till 2035. Beyond volume patterns, demand for oil in the road transportation sector is determined by the efficiency of the vehicle fleet using internal combustion engines (ICE), and the pace of development and penetration of vehicle technologies, including hybrids and non-petroleum-based engines. The efficiency of ICE vehicles will be determined by policies, technological developments and consumer preferences, besides scrappage rates, the choice between gasoline and diesel for enger cars, and possible changes in the scope for efficiency improvement in commercial vehicles. Possibilities for alternative technologies in the transportation sector include hybrids (seen as the most likely to emerge over the projection period to 2035), plug-in hybrid electric vehicles (with their high price remaining a major challenge), battery electric vehicles (though they also have a high price, significantly shorter vehicle range and long charging time) and natural gas vehicles (which are limited by the availability of refueling infrastructure, despite growth in some markets). Threat - Exploration Production & Development Risks Future oil and gas exploration and production may involve unprofitable efforts, not only from dry wells but also from producing wells, when they cease to be commercially viable. In FY2014, the company drilled seven dry exploratory wells and 11 dry development wells. The combination of technology and recovery cost may be higher than the revenue earned from production. Drilling hazards and environmental damage could lead to well shut down. Operational risks such as unexpected formations or pressure, bow-outs and fire, which could result in loss of life and damage to properties would cause production delays and permanent well shut downs. The company faces huge challenges related to future exploration, development and production uncertainties. This could affect its revenue. Threat - Declining Oil Prices ExxonMobil’s revenue, profitability, and rate of growth are substantially dependent on the prices of oil. With the commencement of crude oil export by the US, global oil prices have declined over the past few months. The export of crude by the US is at record levels. According to the US Census Bureau, 389,000 bbl/d of crude oil was exported in August 2014. This was almost the highest level of exports in 57 years. In August 2014, 378,000 bbl/d of crude oil was exported to Canada and 11,000 bbl/d to Switzerland. The crude oil prices in the global market declined over the past few months. The price of WTI declined from over $90/bbl in September 2014 to US$61/bbl in December 2014. Price of Brent crude declined from approximately US$100/bbl in September 2014 to US$64/bbl in December 2014. For the FY2014, ExxonMobil’s average worldwide crude oil and NGL price realization declined 10.3% to US$87.4/bbl from US$97.5/bbl in FY2013. With the decision of OPEC to continue with the current production levels coupled with Saudi Arabia’s decision to cut the selling price by $1.9/bbl for Asian importers, prices of crude oil are expected to remain volatile in the short term. According to the US EIA, Brent crude oil prices will average US$68/bbl and WTI will average $63/bbl in 2015.

NOTE: * Sector average represents top companies within the specified sector The above strategic analysis is based on in-house research and reflects the publishers opinion only

Exxon Mobil Corporation- Financial and Strategic Analysis Review

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