Business

ExxonMobil ExxonMobil is an American multinational petroleum (oil) corporation. It is a direct descendant of the Standard Oil Company founded by John D Rockefeller. It was formed on 30 November 1999, by the merger of Exxon and Mobil. Its headquarters are in Texas in the USA. It is affiliated with Imperial Oil, which operates in Canada. ExxonMobil is one of the largest publicly traded companies by market capitalisation in the world, having been ranked either No.1 or No. 2 for the past 5 years. ExxonMobil’s oil reserves were 72 billion oil-equivalent barrels at the end of 2007 which, at the then (2007) rates of production, are expected to last over 14 years. The corporation has 37 oil refineries in 21 countries constituting a combined daily refining capacity of 6.3 million barrels. ExxonMobil is the largest refiner of petroleum in the world. ExxonMobil is the largest of the six oil super majors with daily production of 3.921 million BOE (barrels of oil equivalent). In 2008, this was approximately 3% of world production, which is less than several of the largest state-owned petroleum companies. When ranked by oil and gas reserves it has the14th largest reserves in the world but with less than 1% of the total reserves. ExxonMobil operates in three main divisions. These are upstream, downstream and chemicals. Upstream Encompasses the basic operations of ExxonMobil. These are exploration, extraction, shipping, and production of oil and gas. Based in Houston, Texas in the USA. Downstream Covers the activities concerned with marketing, refining and retail operations. Based in Fairfax, Virginia in the USA. Chemicals Involves the production of chemicals from petroleum products for use in manufacturing industries such as technology and automotive (vehicles). The division is based in Houston, Texas in the USA. Table 1 Earnings (Profit) by Operating Division Millions of US Dollars (US$) 2007 2008 2009 2010 2011 Upstream 26,497 35,402 17,107 24,097 34,439 Downstream 9,573 8,151 1,791 3,567 4,459 Chemicals 4,563 2,957 2,309 4,913 4,383 Table 2 Return on Average Capital Employed (%) by Operating Division 2007 2008 2009 2010 2011* Upstream 41.7 53.6 23.4 23.3 25.2 Downstream 37.8 31.8 7.1 14.8 16.9 Chemicals 34.0 20.4 13.9 26.3 21.8 * based on increases in capital and exploration expenditures in 2011 6IBCS0612 4 ExxonMobil History Standard Oil was established in 1870 and it grew by a series of takeovers and mergers to such an extent that it dominated the market in the U.S. In 1911 the Supreme Court of the U.S. ruled that Standard Oil must be dissolved and split into 34 companies. Two of these companies were Jersey Standard, which eventually became Exxon, and Socony (Standard Oil Company of New York), which eventually became Mobil. Also in 1911, the US’s kerosene output was eclipsed for the first time by gasoline (petrol). The growing car market inspired the product trademark Mobiloil, which was registered by Socony in 1920. Over the next few decades, both companies grew significantly. Jersey Standard became the largest oil producer in the world. It acquired a 50% stake in Humble Oil & Refining Co, a Texas oil producer. Socony purchased a 45 percent interest in Magnolia Petroleum Co., a major refiner. In the Asia-Pacific region, Jersey Standard had oil production and refineries in Indonesia but no marketing network. Socony had Asian marketing outlets supplied remotely from California. In 1933, Jersey Standard and Socony merged their interests in the region into a 50-50 joint venture. The new company, known as Standard-Vacuum Oil Co. operated in 50 countries, from East Africa to New Zealand, before it was dissolved in 1962. The Mobil Chemical Company was established in 1950. Its principal products included basic chemical compounds such as ethylene, polyethylene, olefins and aromatics. The company produced synthetic lubricant base stocks as well as lubricant additives, propylene packaging films and catalysts. Exxon Chemical Company (first named Enjay Chemicals) became a global organisation in 1965 and in 1999 was a major producer and marketer of olefins, aromatics, polyethylene and polypropylene along with many specialty lines such as plasticisers, solvents and adhesive resins. In 1955, Socony-Vacuum became Socony Mobil Oil Co. and in 1966 simply Mobil Oil Corp. A decade later, the newly incorporated Mobil Corporation absorbed Mobil Oil as a wholly owned subsidiary. Jersey Standard changed its name to Exxon Corporation in 1972 and established Exxon as a trademark throughout the United States. In other parts of the world, Exxon and its affiliated companies continued to use its Esso trademark. On 24 March 1989, the Exxon Valdez oil tanker struck a reef in Prince William Sound, Alaska and spilled more than 11 million U.S. gallons (42,000 m3) of crude oil into the ocean. The oil spill was the second largest in U.S. history, and in the aftermath of the incident, the U.S. Congress passed the Oil Pollution Act of 1990. An initial award of $5 billion in damages was reduced to $507.5 million by the U.S. Supreme Court in June 2008, and distributions of this award have commenced. In 1998, Exxon and Mobil signed a $73.7 billion agreement to merge and form a new company called Exxon Mobil Corporation. The merger of Exxon and Mobil was unique in American history because it reunited the two largest companies of John D. Rockefeller’s Standard Oil trust, Standard Oil Company of New Jersey (Exxon) and Standard Oil Company of New York (Mobil), which had been forcibly separated in 1911. This reunion resulted in the largest merger in U.S. corporate history. 6IBCS0612 5 [Turn over In 2005, ExxonMobil’s stock price surged in parallel with rising oil prices, surpassing General Electric as the largest corporation in the world in terms of market capitalisation. At the end of 2005, it reported record profits of $36 billion in annual income, up 42% from the previous year (the overall annual income was an all-time record for annual income by any business, and included $10 billion in the third quarter alone, also an all-time record income for a single quarter by any business). The company and the American Petroleum Institute (the oil and chemical industry’s lobbying organisation) put these profits in context by comparing oil industry profits to those of other large industries such as pharmaceuticals and banking. On 12 June 2008, ExxonMobil announced that it was exiting the retail fuel business, citing the increasing difficulty of running petrol stations under rising crude oil costs that lead to reducing profitability. The process will gradually phase the corporation out of the direct market, and will affect 820 company-owned stations and approximately 1,400 other stations operated by dealers distributing across the United States. The sale has not resulted in the disappearance of Exxon, Esso and Mobil branded stations. The new owners will continue to sell ExxonMobil gasoline and license the appropriate names from ExxonMobil, who will in turn be compensated for use of the brands. In 2010, ExxonMobil acquired XTO Energy, a company that focuses on development and production of unconventional energy resources. In terms of potential future developments, many gas and oil companies are considering the economic and environmental benefits of Floating Liquefied Natural Gas (FLNG). This is an innovative technology designed to enable the development of offshore gas resources that would otherwise remain untapped, because environmental or economic factors make it unviable to develop them via a land-based LNG operation. ExxonMobil is waiting for an appropriate project to launch its FLNG development. The only FLNG facility currently in development is being built by Royal Dutch Shell and is due for completion in 2017. On 30 August 2011, ExxonMobil announced a $3.2 billion joint venture with Russian oil company Rosneft to develop two offshore oil fields in Russia. (see APPENDIX 1). 6IBCS0612 6 ExxonMobil Corporate Strategy - company-originated information ExxonMobil are aware of the need to change and are committed to continuous innovation. They believe that the following points from their annual report are key to achieving this. World Class People One reason for ExxonMobil’s success is their ability to attract and retain the brightest minds. Their goal is to develop their employees to have the highest technical and leadership capabilities in the industry. ExxonMobil employs more than 16,000 scientists and engineers, more than 1,000 of them with PhDs. Their expertise is not only in geology, chemistry and physics, but also oceanography, palaeontology and microbiology, as well as computer, environmental and medical science. Investing in their people creates a sustainable source of competitive advantage. Technology Leadership ExxonMobil’s ongoing commitment to technology is also a competitive advantage and they are recognised as an industry leader. For example, they continue to build on the seismic and reservoirmodelling technologies that they pioneered, which today enable them to identify new resource opportunities, drill more accurately and improve recovery. They use their advanced Molecule Management technology in their plants to optimise the value of every hydrocarbon molecule, while minimising energy use. ExxonMobil has developed technologies that can make vehicles more fuelefficient, including polymers that help tyres stay inflated longer, lightweight plastics for automotive parts and advanced lubricants. Financial Strength ExxonMobil’s financial position remains unparalleled in industry. In today’s challenging economic environment, this represents a unique competitive advantage. Moody’s and Standard & Poor’s both recognise ExxonMobil’s superior financial strength by assigning the highest credit rating to their financial obligations. ExxonMobil is one of very few public companies that have maintained this credit rating consistently for decades. ExxonMobil’s financial strength gives them the flexibility to pursue and finance attractive investment opportunities throughout the business cycle. In 2010, ExxonMobil invested $32.2 billion to develop new projects to help meet growing global demand safely, efficiently, and in an environmentally responsible manner. 6IBCS0612 7 [Turn over Risk Management Operational Risk Risk cannot be eliminated, but it can be managed. ExxonMobil manages risk through a capable and committed workforce with clear accountability, well-developed and clearly defined policies and procedures, high standards of design, rigorously applied management systems, employee and contractor training, and a systematic approach to assessing performance that drives continuous improvement. As events in 2010 made clear, the energy industry faces multiple risks and challenges. The Deepwater Horizon oil spill in the Gulf of Mexico spurred governments and consumers to ask what the industry can do to ensure that meeting future energy needs does not come at the expense of safety or the environment. ExxonMobil asked itself a similar question after the 1989 Exxon Valdez oil spill. They realised that just a commitment to safety and operational excellence was not enough. What was also needed was a system that put commitment into action. They introduced their Operations Integrity Management System (OIMS). OIMS is the cornerstone of their commitment to managing risks to safety, security, health and the environment. It guides the activities of each of their employees and contractors around the world. Through OIMS, ExxonMobil has achieved industry-leading safety performance and continues to improve environmental performance. Climate Change Risk Meeting growing demand while addressing climate change risk is the global challenge that shapes ExxonMobil’s activities and investments. Since 2005, they have invested $1.6 billion in activities that improve energy efficiency and reduce greenhouse gas (GHG) emissions. They have also invested more than $5 billion in projects to reduce natural gas flaring. As a result, they have reduced their GHG emission by 11 million tonnes in 2010 compared to 2005. They have also been active in developing applying carbon capture and storage technology to store carbon dioxide (CO2) in underground geological formations. In addition, their substantial natural gas portfolio has the potential to help reduce GHG emissions because natural gas has lower CO2 emissions per unit of energy. They are also investing in research programmes into algae biofuels and technologies that help consumers use energy more efficiently. External Criticism Contrary to their internal statements there has been widespread criticism aimed at ExxonMobil. For example, ExxonMobil has been accused of paying funds to oppose the widely held belief that an increase in the temperature of the earth’s atmosphere is due to the greenhouse effect, caused primarily by increased levels of carbon dioxide released in the burning of coal and petroleum-based fuels. According to the environmental pressure group, Greenpeace, ExxonMobil have invested more than $50 million in spreading awareness of research which discredits global warming. 6IBCS0612 8 The Petroleum Industry Significant Events 1895 - 2011 1884 saw the invention of the combustion engine and in 1896 Henry Ford made the first motorcar. In 1901 the first oil well was drilled in East Texas - this was the birth of Texaco Oil Corporation. In 1907 Shell (British) and Royal Dutch merged to form Royal Dutch Shell. In 1908 oil was discovered in Persia and the Anglo Persian Oil Company formed (in 1954 it became British Petroleum (BP)). Oil was discovered in Bahrain in 1932, which lead in 1933 to Saudi Arabia granting oil concessions to Standard Oil of California that became California Arabian Standard Oil Company (Casoc) In 1936. Texaco took a 50% share in Casoc. In 1944 Casoc became Aramco - Arabian American Oil Company. In 1938 Mexico nationalised its foreign oil companies. Oil was also discovered in Kuwait and Saudi Arabia. In 1948 the largest oil field in the world (about 80 billion barrels) was discovered in Saudi Arabia. Oil was discovered in Algeria and Nigeria in 1956. Natural gas was discovered in Groningen Field, Netherlands in 1959. Also in this year the Arab Oil Congress in Cairo - a ‘gentleman’s agreement’ for oil-producing countries to have a greater influence on oil production and marketing - led to the formation in 1960 of OPEC (Organisation of Petroleum Exporting Countries) in Baghdad. The five founding members were Saudi Arabia, Venezuela, Kuwait, Iraq, and Iran. In 2010 the member countries were Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela. Oil was discovered in Alaska in 1968. There was also an oil spill in 1969 in Santa Barbara, California, 6 miles offshore from Summerland, California. This created a major backlash against the industry. Oil was then discovered in the North Sea in 1969 and the first oil was brought ashore in 1975. Libya, Saudi Arabia, Algeria and Iraq negotiated a price increase from $2.55 to $3.45 per barrel in 1971 and OPEC countries began nationalising oil assets. In the same year Libya nationalised the BP concession and U.S. oil production peaked. In 1972 Iraq nationalised the Iraq Petroleum concession, and in 1973 they nationalised all oil assets. The Saudi Government acquired a 25% interest in Aramco. The 1973 Arab oil embargo on oil exports to the U.S. for siding with Israel in the Yom Kippur War caused oil prices to rise from $2.90 to $11.65 per barrel. In 1975 the Venezuelan oil industry was partially nationalised. In March of 1979, a nuclear meltdown at the Three Mile Island nuclear plant in Pennsylvania in the US marked the end of large scale nuclear power investment in the US. The years 1979-1981 saw oil prices rise from $13.00 to $34.00 per barrel but in 1986 price collapsed to around $12 per barrel as a result of a glut in supply and reduced demand from developed countries. In 1986, a major accident at the Chernobyl nuclear power plant in Ukraine (at that time part of the USSR) highlighted the potential long-term risks associated with this form of power generation. On 6 July 1988 an explosion occurred at the Piper Alpha Rig oil and gas production platform operated by Occidental Petroleum (Caledonia) Ltd in the North Sea, off the UK coast. The explosion and resulting fire destroyed the platform, killing 167 men, with only 59 survivors. At the time of the disaster the platform accounted for approximately 10% of North Sea oil and gas