SWOT Analysis

Strengths

Well established brand with a strong reputation: One of the major

strengths of Exxon Mobil is its huge scale of operations. It currently is
involved in exploration activities in six continents across the globe. The
companys existence in the energy and petrochemical business for over a
century now provides it with formidable economies of scale and scope in the
space. It has the largest crude capacity and the highest number of refineries
in its peer group (Exhibit-1). As a result of all these factors Exxon Mobil has
been able to carve out a strong brand image for itself in the competitive
energy and petrochemicals landscape that provides a sense of security to its
stakeholders. In the natural gas industry through the acquisition of XTO which
was the leading technology provider in natural gas exploration, it has been
further able to capitalize its stronghold in the industry.
Exhibit 1: Key operational information of major players in the
Petrochemical Industry (2013)

Crude Cap. (bn.

barrels/day)
Natural Gas Reserves
(1000s)
No. of Retail Outlets
(1000s)
No. of Refineries
Revenues ($bn.)
Net Income ($ bn.)

Exxo
n
(XO
M)
5.8

Royal
Dutch
Shell
(RDS)
4.8

Chevron
Corp.
(CVX)

ConocoPhi
llips (COP)

BP

2.75

2.77

3.32

78.8
15
26

47.135

24.251

10.740

42.7

25

20

2.94

22.4

37
438.
26
32.5
2

30
451.235

16
200.5

11
52.5

14.87

19.24

6.869

7
353.
57
3.78

(Source: Yahoo Finance)

Diversified operations across geographies: One of the major strengths

of Exxon Mobil is the vast scale of its diversified operations across
geographies. Even though the main source of revenue stream for the
company comes from the US, the non US regions such as France, Belgium,
Germany, Singapore, Japan, Italy and many other countries are also a
significant source of revenue (Exhibit -2). The diversified geographic presence
enjoyed by the company provides it with the discretion of managing its global
revenues in accordance with the varying economic and political conditions
across various geographies and therefore minimize risk with respect to its
operations. Furthermore, it has operations in a vast number of Non OECD
countries, which is again a source of advantage as the major growth in
demand is expected from these countries in the near future. This vast scale of
operation across geographies therefore provides Exxon with a competitive

advantage by providing it with wider flexibility and scope in increasing its

revenues through leveraging its global presence.

Exhibit 2: Revenue breakup of Exxon Mobil region wise (2013)

Revenue (%)
26%

US Canada

36%
UK Belgium Italy France Germany Singapore

Other Countries

4%
4%
4%
5%
5%

9%
8%

(Source: Exxon Mobil)

Robust Research and Development: With its extensive experience in the

energy and petrochemicals business, Exxon Mobil has been able to garner
strong R&D capabilities. The company focuses on deriving a strong
competitive advantage through continued investment in R&D (around $1bn in
FY 2013) and explore more efficacious drilling and resource exploration
techniques. Through a strong focus on R&D activities the company looks for
opportunities in new product development, improve existing products and
enhance customer service through optimization of existent manufacturing
and production capabilities. This therefore provides Exxon the advantage to
establish itself at the forefront of radical innovations associated with the
industry in which it operates.

Vertically integrated operations: Being an integrated Oil and gas

company provides Exxon with the expertise to focus on all the aspects of the

value chain of the business rather than focusing on a particular

compartmentalized activity such as refining or production. By exercising
operational discretion and control in each and every step of the oil and gas
process, the company is able to optimize the entire value chain to minimize
costs and maximize process efficiencies.

Weaknesses

Lawsuits and Contingencies: The conduct of Exxons business has led it to

accumulate a number of litigations and other legal proceedings leading to
damages, penalties and fines on account of environmental degradation.
Recently, in January 2014, the company for its facility in Louisiana, settled
with the Louisiana Department of Environmental Quality which involved a fine
of $300,000 and an agreement to undertake on-site improvement projects
worth $1 million. The settlement also included the firm to undertake
beneficial environmental projects worth $1.029 million along with a stipulated
penalty to address future environmental non-compliances. Such lawsuits,
penalties and damages accrued at the cost of environmental degradation
would adversely affect the strong brand reputation that Exxon enjoys before
its stakeholders.

Health and Safety: The employees of Exxon are one of the critical
stakeholders for the company. It is therefore the key responsibility of the
company to ensure their health and safety given the physically challenging
and risky nature of the job they are involved in. However numerous safety
accidents with respect to employees reported across locations and sites
indicate the fact that the health and safety of its employees still remains to
be an issue for Exxon. The failure to meet these requirements could be
detrimental to the company in several ways, the most important being the
renouncing of faith in the company by the employees.

Decline in Financial Performance: Recent years have shown declining

financial performance by Exxon. Company revenues declined by around 7% in
the financial year 2013 as compared to the previous year. The company also
witnessed a decline of 27.4% in net profits and a 26.7% reduction in its
operating profits. Downstream business, which is the largest contributor of
revenues for the company also experienced a decline of 8.4% in revenues
during the same period. Such kind of sustained decline in financial
performance would lead to concerns amongst shareholders regarding the
health of the company which is detrimental to the value of the firm.

Declining Oil Reserves: One of the key weaknesses facing Exxon is the
declining oil reserves that it owns. The issue is further aggravated by the low
replacement rate of Exxon for oil reserves. It generates around 12% of
revenues from its downstream business which might be at risk because of the
issue of declining oil reserves. Coming to the natural gas industry where the
depletion of reserves occurs at a much faster rate compared to the oil
industry, Exxon needs to ensure availability of adequate level of reserves to

meet the required demand. Low prices due to a large number of players in
the natural gas industry further puts pressure on margins for Exxon.

Opportunities

Rising demand of Global Energy: Following ExxonMobils energy outlook

report (Exhibit 3), global demand for natural energy is supposed to grow to
1.2 percent every year till 2030. This demand is expected to be sustainable
given the fact that natural energy burns clean. This would give more room for
exploration to Exxon since more than half of the natural energy reserves are
outside the control of OPEC. With the advent of fracking and other viable low
cost drilling technologies, this presents a huge opportunity for Exxon. The
huge demand growth is also expected from Asian nations such as China and
India which present huge opportunities for the oil sector of Exxon as these
nations follow oil based products such as diesel & gasoline as the primary
fuel.

Exhibit 3: Global demand for fuel (ExxonMobils Energy Outlook)

ExxonMobil's Energy Outlook - Global Energy Demand

Oil

Coal

Biomass
2005

Nuclear

Hydro

2030

Increasing LNG demand: LNG global demand is expected to grow at a rate

of 5% per year till 2025 resulting in an additional demand of 200 million tons
per annum. Asia pacific is the largest LNG market which accounts for around
67% of the global trade. Countries such as Japan, South Korea and Taiwan

have the major market for LNG with emerging nations such as India and China
and new markets such as Thailand, Singapore contributing to the increase in
global LNG demand. ExxonMobil can exploit this increase in global LNG
demand through increasing its projects with respect to LNG production
globally and subsequently meeting this demand.

Unconventional Energy Sources: With the increasing sensitivity of

governments and the global climate forums such as United National
Framework convention on climate change (UNFCC) towards cleaner
unconventional energy sources, Exxon can leverage its strong existing R&D
capabilities to explore such energy sources and be at the forefront of this
radical change. One such opportunity exists in the form of Canadian oil sands
with an estimated capacity of 175 bn. Barrels.

Delving into new projects: Addition of new projects would enable the
company not only to increase its resource portfolio but also enhance its
business performance. The company in FY 2014, planned to start numerous
new projects with the goal of adding 300,000 net oil equivalent barrels per
day.

Threats

Economic Conditions: The demand for petrochemicals and energy

correlates strongly with general economic growth conditions. Major adverse
fluctuations in the economic conditions such as a sustained global recession
could heavily impact the companys results. Other factors such as political
disturbances, exchange rate fluctuations, periods of public unrest etc. could
also influence the demand for petrochemicals.

Natural disasters: Natural disasters can significantly impede ExxonMobils

operations. For example, Hurricanes could devastate oil production, gas
pipelines, refineries and other equipment. One such example is the loss of
earnings in the fourth quarter of FY 2008, when the company lost around
$570 million on account of reduced production and repair expenses due to
Hurricane Gustavo.

Stricter Environmental Compliance Norms: Exxons business is subject to

various rules and regulations pertaining to disrupt environmental sanctity.
Regulatory institutions have become increasingly concerned about the
operations of petrochemical firms in the light of increasing awareness among
the public regarding the damage caused to environment by these firms
through recent horrid incidents such as the 2010 BP oil-spill in the Gulf of
Mexico. This increased concern would inevitably translate into stringent
environmental norms and compliances. These imposed guidelines may
require higher expenses from Exxon and thereby affect its financial and
commercial flexibility.

Natural gas as a Substitute for Oil: In addition to declining replacement

ratios being faced by oil companies such as Exxon, most of the reserves are
situated in politically unstable nations with majority falling under the control

of OPEC. As a cleaner substitute, natural gas seems a more promising

alternative to Oil and is therefore set to grab market share from Oil. However,
in the natural gas space, large players like Exxon are unable to enjoy
economies of scale and scope due to the relatively shorter life of the gas
wells. This in turn could lead to lower profitability for the company.

Internal factor evaluation matrix (IFE Matrix)

Key Internal Factors
STRENGTHS
Leading market position & strong brand reputation
in oil industry
Diversified operations across geographies
Robust research & development capabilities
Vertically integrated operations
WEAKNESSES
Lawsuits & Litigations
Declining financial performance
Decline in Oil reserves
Health & safety issues of employees
TOTAL

Weig
ht

Rati
ng

Wtd.
Score

0.20

0.80

0.10
0.15
0.10

4
3
3

0.40
0.45
0.30

0.20
0.10
0.10
0.05
1.00

1
2
3
2

0.20
0.30
0.30
0.10
2.95

External factor evaluation matrix (EFE Matrix)

Key External Factors
OPPORTUNITIES
Rise in global energy demand
Increased LNG demand
New projects
Alternate energy sources
THREATS
Economic conditions
Natural disasters
Stricter environmental compliance norms
Increasing emergence of substitutes for Oil
TOTAL

Weig
ht

Rati
ng

Wtd.
Score

0.20
0.15
0.10
0.05

4
3
4
2

0.80
0.45
0.40
0.10

0.20
0.05
0.10
0.15
1.00

2
2
1
3

0.40
0.10
0.10
0.45
2.80

Present Business Strategy

Business definition & Mission
ExxonMobil is operating in the business of production and exploration of oil and
natural gas. It is also involved in the sale of crude oil, natural gas and other
different petroleum products. It also deals in the refining and manufacturing of
petroleum products. Its mission is Meeting the rising demand for energy
safely and with minimal environmental impact. The companys slogan speaks of
Energy lives here and therefore communicates a strong message of positioning
itself at the heart of the global energy business and ready to take on the worlds
toughest energy challenges.
Business Portfolio
ExxonMobils business portfolio comprises geographically diverse upstream and
downstream business along with a chemicals business. This portfolio of assets
provides it a distinctive advantage in establishing economies of scale and avoid
business risks which arise out of changes in margins, business cycles and fierce
competition. The amalgamation of globally diversified operations along with
integration across business units provides Exxon a competitive advantage. The
upstream and the downstream businesses are both essentially commodity
businesses which are subject to changes in the prices of oil and gas. The
Upstream business is a capital intensive business involving huge costs
associated with the exploration and development of natural gas and crude oil.
The downstream business on the other hand deals with the refining and
marketing of the products. The downstream business therefore is more
concerned with operational efficiency to achieve cost reduction unlike the
upstream business. The chemicals business unlike the petroleum and energy
business has relatively lesser cyclical fluctuations and therefore helps the
company to reduce volatility in the overall portfolio and deliver results
consistently.
Corporate Strategy
ExxonMobil operates in a global context with a narrowly diversified business
portfolio. It employs related business diversification at the core of its corporate
strategy which is clear from the current business portfolio f the company. The
major driver of business for the company is the Upstream business that more
than 70% of the earnings alone. The chemicals business is at 16% and the
downstream business at 12% in generation of earnings for the company. The
upstream business being extensively capital intensive in nature employs four to
six times the average capital employed by the other segments and is therefore
at the centre of ExxonMobils operations.
Business Level Strategy
Given the multiple business operations Exxon is engaged in, it employs a multibusiness strategy. Exhibit 4 provides a detailed insight into the strategies
adopted by Exxon for its various business segments.
Exhibit 4: Business Strategy (Adopted from ExxonMobils Financial and
Operating review 2013)

Upstream Business
Strategies

Downstream Business
Strategies

Chemical Business
Strategies

Identifying and selectively pursuing the highest

quality exploration opportunities
Investing in projects that deliver superior
returns, maximizing profitability of existing oil
and gas production
Capitalizing on growing natural gas and power
markets, using Joint-venture to
mitigate exploration cost and risk, integrating
the supply chain of Upstream and Downstream
businesses
Maintaining best-in-class operations in all
aspects of the business
Maximizing
value
from
leading-edge
technologies
Capitalizing on integration across ExxonMobil
businesses
Selectively investing for resilient, advantaged
returns
Leading
the
industry
in
efficiency
and
effectiveness
Providing quality, valued products and services
to customers
Capitalizing
core
competencies
to
build
proprietary technology positions, Capture full
benefits of integration across ExxonMobil
operations
Consistently deliver best-in-class performance
Selectively invest in advantageous projects

References:
http://nasdaqomx.mobular.net/nasdaqomx/7/3395/4842/
http://en.wikipedia.org/wiki/ExxonMobil
http://corporate.exxonmobil.com/
http://marketplace.publicradio.org/display/web/2007/12/12/oil_sands/
http://finance.yahoo.com/q/bs?s=BP+Balance+Sheet&annual
http://finance.yahoo.com/q/bs?s=CVX+Balance+Sheet&annual
http://finance.yahoo.com/q/bs?s=COP+Balance+Sheet&annual.
http://finance.yahoo.com/q/bs?s=RDS+Balance+Sheet&annual
http://corporate.exxonmobil.com/en/energy/energy-outlook