ExxonMobil and the Petroleum Industry

EXXONMOBIL IN THE PETROLEUM INDUSTRY – THESIS 1
ExxonMobil in the Petroleum Industry
Thesis
Istvan Jambor
Master of Business Administration
September 9, 2013
Istvan Jambor – Project Manager - MBA / DoD TS/SCI
Virginia Beach, Virginia, United States
istvan.jambor@jtfgtmo.southcom.mil
http://www.linkedin.com/pub/istvan-jambor/7b/643/b35

Table of Contents
Abstract……………………………………………………...page 3
Part 1 – Introduction………………………………………..page 4
Part 2 – Strategic Initiatives (fracking, page 13)………….page 5
Part 3 – Financial Performance…………………………….page 16
Part 4 – Market Analysis……………………………………page 24
Part 5 – Global Strategy…………………………………….page 44
Part 6 – Mergers and Acquisitions…………………………page 49
Part 7 – Ethics at ExxonMobil………………………………page 51
Pat 8 – Summery / Conclusion……………………………....page 53

Abstract - Numerous books have been written about petroleum and its economic power as it
emerged from the industrial revolution originating from a few secluded corners of the Earth. The
unfolding story of gigantic oil companies has been made only more intriguing by the ever increasing
demand for oil, and oil equivalent products, driving global production to near a 100 million barrels per
day, a truly staggering volume of crude causing a person living on the Earth today believe that the world’s
cities, highways, and oceans are stretched over endless oil fields, embedded in the crust deep below the
surface. This matrix of complex international interests, watching over these fields, were carefully weaved
by the leading powers of mankind, which has recently been seen pursuing once more a common goal
pointing towards a renewed global marketplace; a place where the chase for favorable quarterly reports
has become no more significant than a single piece of a mosaic as it is held in isolation, away from other
colorful shapes and forms, all awaiting to be fitted according to their common purpose. The attempt to
connect these pieces has resulted in the discovery and alignment of information, which when properly
assembled paints a very new future for most of us who hoped to live under the blessings of green energy,
as it has been popularized by the oratory of extremist politicians and activists. This report invites the
reader to filter through the mountain of data reported on the topic, addressing only what is most relevant.

Part 1. Introduction – The controversial reputation of our biggest corporations are rarely
matched with more jumbled up histories than one would expect to find in the energy sector. Negotiating
their way through mergers and subsequent antitrust currents these companies have been receiving more
limelight than some of the best known celebrities in show business. ExxonMobil is known for such a
history, acquiring the company the undisputed right to pose as the prime
example, an excellent specimen sporting industry trend. ExxonMobil’s
current logo tells the story of such merger from 1999 when Exxon
absorbed Mobil for $81 billion (the second largest oil company in the
United States boasting a vast network of consumer gas stations). The deal
left the new company with a long list of divesting obligations conditioned by the Security and Exchange
Commission in its attempt for controlling the deal, and maintaining the illusion of an invisible leash
deemed necessary ever since the uneasy breakup of the Rockefeller family owned Standard Oil Co. in
1911. The parties of the merger were nearly equal heavy weights in their own
rights, each possessing powerful brands worth uncounted millions of dollars in
marketing investments. It only made sense to combine them into one brand name, Exxon first followed by
Mobil, ensuring to make known who bought whom. The new name and the company’s updated logo has
caught on quickly, fitting well with the sequence of success stories ExxonMobil was now destined to
follow. Amongst other things, its success is made visible to the public by the establishment of the
ExxonMobil Foundation in 2002, as the company was giving generously back to the community hundreds
of millions of dollars reaching the public through a number of charity programs. These philanthropy
projects include the “Save the Tiger” program which were designed to support efforts to preserve a rare
large cat specie before it completely disappears from the wild, while others promote educational programs

and generous internship opportunities, improving the teaching profession in a land where the institution
suffered severe degeneration following the reconstruction years of the 60s’. From seemingly unlimited
resources at the disposal of management, and an unwavering destiny for success, topped off with an
undisputable resolve for more
power, ExxonMobil has forged its
mission to be simple, clear, and
unmistakable, emphasizing the
company’s core business;
upstream exploration and
extraction of oil and natural gas.
Part 2. Strategic
Initiatives - A business’ strategic
plan is its blue print to what
exactly it needs to do in order to
comply with its vision statement.
The vision itself describes lofty
ideas, an imagined future state, usually the product of market opportunities perceived by top executives.
However a strategic plan applies to the present with more pragmatic steps and guidelines. It comprises
elements such as “setting objectives”, “crafting practical strategy”, and providing steps for the actual
implementation of directives issued for current and near future activities necessary to move forward in the
desired direction. Part of good implementation processes are the monitoring of current activities as the

company executes periodic self-assessments ensuring that no part of the business is sidetracking from its
mainstream policies without sufficient evaluation and approval.
A good strategy unifies a business bringing together all of its employees, managers, and outside
stakeholders in one common interest, providing direction with a purpose, brewed into a common
denominator for decision making, where nobody is above the rules, conveying that strategy which is
meant to last must also be all inclusive. Operating activities inherently invite disagreements prompting
management to choose from a handful of available options for tracking ahead. There could be financial
strains from a slowing down economy, new products or services can enter the market, developments in
technology can render existing successful products obsolete, or federal and state regulations can impact
otherwise promising operations. New opportunities can lead to entering unchartered regions in foreign
lands taking advantage of offshored projects where favoring local tax laws, low labor costs, convenient
locations to new markets, or lucrative economic spur and political stability are all pointing to more
offshore ventures. These are all major contributors to the decisions top managers face to make every year.
When managers are confronted with such choices they rely on the firm’s values, plans, and guidelines
quantified in the operating objectives guiding first and foremost middle management through the firm’s
strategy. Therefore strategy is planning, both at higher and low levels, offering clear directions to business
units distributed to each department and work center. While strategy making is synonymous with
planning, and the practices employed are interchangeable between them, strategy, like any good plans,
should never be designed or expected to be stagnant. Flexibility should be used to conform to new market
conditions, and also to unexpected needs of the company, and as such, good strategy is the one which is
most flexible in supporting managers with need for responding to internal or external changes affecting
their firm (Thompson, Strickland, & Gamble, 2009).

Strategic measures are the result of careful deliberations of top management constructed to ensure
that the company has a purpose expressed through practical methods for achieving its short and long-term
goals. If planning would not take place, companies would find themselves to be disorganized, wasting
resources through inefficient investing that do not support a common direction. Companies without a
consistent, well thought out strategy would waste their managerial talent to dispute, petty quarrels, and
contradicting decisions affecting operations on all scales. Such issues cannot be sustained, and usually
result in decreasing value. ExxonMobil Corporation is a highly diversified business requiring a relatively
complex strategy for moving the company forward among its competitors. Its business units range from
manufacturing petrochemicals to everyday plastics, independently operating divisions under brand names
such as ExxonMobil, Esso, Exxon, or just Mobil. Its products are widely used in the United States and
worldwide. While the company has aimed to diversify, its main operations are rooted in the exploration
and extraction of natural gas and crude oil, and more recently, in the processing and transportation of

Liquefied Natural Gas (LNG) (The New York Times, 2013).
Exxon’s strategy must support both the company’s vision and mission, which are also the image
by which ExxonMobil intends to be seen by the public. ExxonMobil’s strategy is also the method which
is to project the company’s character, its reputation, its values, and outlines its bylaws and practices. In
the bigger scheme of things this unseen and sometimes unwritten mix of directions sets the norm through
which the company responds to anticipated and unexpected events, reacting to environmental protection
initiatives, and managing its crises response in times of need. But most importantly, ExxonMobil is
defined through its fundamental strategy put to work for increasing shareholder’s value. Among its most

fundamental strategic layouts there are plans for expanding operational areas and for better utilizing
existing resources (oil or natural gas fields). These methods on implementing cost saving measures
without jeopardizing future operations are practical steps outlining directions for making the company’s
various components work better responding with increased efficiency to competition. Examples for
strategic objectives can include increasing market share by either overtaking competitors using mergers
and acquisitions, or opening new markets by investing new capital, increasing revenues on assets, and last
but not least improving the quality of the company’s customer relations. Therefore setting quantifiable
goals is a vital part in strategy building as this gives directions and marks milestones along the way (The
New York Times, 2013).
ExxonMobil has shaped its strategy for its oil exploration unit in order maximize risk management
for high operational outputs while maintaining relative safety. The identification and acquisition of high
quality resources; exceptionally well-orchestrated cost management and the development and application
of state-of-the-art technologies has led to very high profitability for ExxonMobil’s operations preparing
the stage for entering the attractive LNG market (ExxonMobil, Upstream Operations, 2012).
Russia - Russia is vast and most of its oil and natural gas reserves were left untapped during the
Soviet era despite the old regime’s existence was dependent on crude oil
extraction. The landscape is much different today; new companies
emerged from the ruins of the old ones as they are channeling power to
Putin which he has managed to wield as the Russian Federation has
become the EU’s primary supplier of natural gas. The Russian prime minister is making ever more
realistic plans to become a key player in helping to quench the world’s 83 million barrel per day thirst for
crude oil. However, much of the upstream potential remains undeveloped and the capital does not seem to

be coming from within the ailing economy of the Russian Federation. ExxonMobil certainly has cash to
invest, and it might be just the right amount the Russians need. Modeling the workings of a regular
corporation which trades equity for much needed capital, the Russians are quick to give away large
portions of future benefits from this large potential in order to get the required developments underway.
The ongoing negotiations between ExxonMobil and Rosneft are currently outlining projects at the Arctic
regions well to the North from Siberia, while preparing similarly large deals in the Russian Far East and
in the Black Sea (Media Relations, 2013). As such the real value that ExxonMobil can muster for the
Russian joint venture is capital with a special boost; the proven adaptation of new technology.
The recent discovery of hydro-fracture applications “fracking” in drilling for natural gas and oil has
simply revolutionized the industry much like using mud for securing well walls has done throughout the

oil boom years, transforming the 20’s to some of the most exciting times in America (Kashi, 2013). In
fact fracking is so effective that it has already reduced the price of gas in the U.S. by three forth when
compared to global gas prices (increasing LNG transportation is slowly restoring equilibrium) (Louisiana
Oil and Gas Association, 2013). More importantly for ExxonMobil, the Russians are not capable to use
this technology yet, which quite upsetting for Putin who already nervously tracking the number of LNG
shipments heading for Europe. As European natural gas consumption is becoming less and less dependent
on Russian supply (mostly due to a continuous flow of LNG shipments) the Russians are forced to
reevaluate their global strategy (the Russian prices of over 12 USD per Mcf -1000 Cubic Feet- cannot be
expected to compete against prices improved through fracking in the ballpark of 4 USD per Mcf).
Many of the topics presented in this thesis benefit from the use of visual aids. One such concept is
the process of fracking mentioned above (image inserted is depicting fracking using horizontal wells,
page 13). While the concept is still unknown to many both in the US and around the world, it is by far the
most promising innovation discovered in America, looking to be possibly the most important invention
welcomed by mankind since the advent of computers. American engineers in 2011 developed this
process, and soon they put it to successful use in California and Pennsylvania. The image on page 13
illustrates how engineers modified an already successful drilling method called “horizontal drilling”
applying explosive charges to the horizontal segment of the well, blasting holes into the shale, then filling
the well with over a million gallons of liquid which they suddenly put placed under extreme pressure.
This pressurized liquid in turn immediately expend the cracks from the earlier explosion effectively
cracking and opening the shale containing the bulk of the oil or natural gas left inaccessible through
regular drilling (Louisiana Oil and Gas Association, 2013). The new technology does present a number of
risks however which is much debated in the media along with its spectacular success (More, 2012).
Recently fracking has been seen as the cause of smaller earthquakes, and it is also suspected that the use

of toxic fracking liquid is responsible for water table contamination, the layer in the strata from which
most residential potable water is obtained from.
Once this fracking liquid is recovered (over a million gallon per well) it is subject to a whole charade of
additional environmental scandals. The liquid is usually kept in open artificial ponds from where it slowly
evaporates into the atmosphere making the locals seriously concerned. Some of them will eventually join
the camp of those who already oppose the process. Nevertheless the new technology works and it seems
to be extremely profitable. While at the present the biggest and most popular opposition to fracking is no

other but the Russian Prime Minister Putin himself (seeing his European gas operations disturbed by low
U.S. gas prices), there is no doubt that he plans to use fracking in the Arctic as he expects ExxonMobil
bringing the technology to the Russian negotiating tables (The Wall Street Journal, 2012).
It can be speculated that successful completion of such Russian American joint venture can lead to
significant change in the way oil is supplied around the world today (change of such kind is most
certainly undesirable from the perspective of OPEC countries as it leads to diluted markets and
anticipated decrease in energy prices). ExxonMobil’s largest and immediate competitor in the United
States is British Petrol PLC (BP), led by its CEO Bob Dudley, who is certainly looks to be on the losing
end of these developments after being replaced by ExxonMobil as far as the Russian deals go. BP’s

interest, which was tied to its financial
capabilities, has dwindled in Russia following
the aftermath of the Deep Water Horizon oil
spill as the ordeal was unfolding in the Gulf of
Mexico a year earlier. If the diagnosis is right
the company has given in to pressure from its
investors who have been preferred to see the oil
giant refocusing on upstream operations, an
often recommended remedy prescribed to ailing oil companies (The Wall Street Journal, 2012). The more
inroads ExxonMobil makes in Russia, the more the company secures its future leading role among its
U.S. competitors, whereby BP is heading to the opposite direction reducing operations, and thereby
giving up market share to ExxonMobil. Moreover, successful joint ventures in Russia combined with new
oil discoveries in America has a serious potential to undermine OPEC’s already fading role as a global
industry leader, moving BP backwards in the catching up game.
While here in America our budget has been
dramatically reduced by large payments coming due on our
national debt, and where companies left and right lose their
customers and thus go out of business regardless of their
size or past track record, ExxonMobil has embraced the
new technology hydraulic fracturing, and with it a
promising way to navigate through the recession. By
showing Washington that the new technology is the chief
cause of their new success (Royal Dutch Shell has quickly followed suit in promoting the new process)

they imply that the new drilling technique might also be the cure for our ever weakening domestic
economy. Their lobbying is slowly paying off as many Americans on Capitol Hill, including the
president, see eye-to-eye with ExxonMobil, and have already pledged their support for fracking. As the
harms caused by fracking are steadily negated by the excitement for a potential economic boom, similar
maybe to what our country has experienced in the 1920’s, ExxonMobil’s long term goals are brought in
alignment with much
bigger national
strategies and political
campaigns. As the
march for fracking
continues and the
difficulties are shored
up with strong quarterly
reports promising a
brighter future for more and more Americans, ExxonMobil is expected to be receiving a steady supply of
support from Washington. A perfect strategy brought about by brilliant engineering seemingly arrived just
in time to help our oil companies redefine American economic power as the country slowly turns back
from the recession. Furthermore, cheap oil and gas from the United States and Russia will eventually
reduce global energy prices plunging below sustainable levels for many state-owned OPEC producers,
making them book losses and thus rendering them inefficient beyond the point where they can no longer
honor their obligations for supporting their country’s social programs, feared that it can lead to worldwide
unrest if left unchecked. Most OPEC producers, African, South American, and Middle Eastern companies
fall into this prediction, companies who will have little more options but to seek less than favorable deals

with ExxonMobil and its future partners. In less than a decade new synergies will be making inroads into
OPEC territory (causing many state-owned oil producers in OPEC to operate far below the current crude
prices, while they are struggling to cover expenses at 90 – 80 USD BBL) (Administration, 2013),
(Helman, 2012).
Part 3
Financial Performance – Public corporations are obligated to issue annual reports which includes
a detailed balance sheet, income statement, statement of cash flows, and retained earnings statement.
These reports are developed and published quarterly and
made available to anyone as “quarterly reports”. What
makes them interesting is not whether a company meets
its forecasted expectations from a period earlier but to see
how changes from within or outside the company
influence these reports. In the case of ExxonMobil these
changes took effect in joint ventures developing with the Russian oil company Rosneft. ExxonMobil
aimed to infuse at least $40 billion capital into oil / natural gas explorations in Russia. The three pronged
venture is relying on investments intended to be used in the Kara Sea near the Arctic Circle, deep water
drilling in the Black Sea, with drilling ops more underway using fracking on Sakhalin Island. When we
compare ExxonMobil’s market capitalization from 2010 (the most devastating year for businesses
impacted by the recession) with
more recent data, we can observe a
rebound followed by stable influx of
common stockholder’s equity. It is

obvious that mergers are in part responsible for the boost, but it is also hard to argue that ExxonMobil
needed (and found) additional investor capital in the wake of readying the company for the new Russian
American era (Yahoo Finance , 2013). From the perspective of ExxonMobil’s investors the company is
offering moderate risk / moderate return investments for the foreseeable future. The question remains how
far into this future an average investor is able to see. From what is available today investors and company
analysts are tempted to deduct that ExxonMobil might just become the type of power that was wielded
110 years earlier by the Rockefeller family through their ownership of Standard Oil Co.
Comparing market capitalization with cash flow per share also reflects an impressive recovery and
growth; looking back to 2009 this index was $6.20, which dramatically increased to $13.10 by 2012
faithfully mirroring the company’s EPS growth $7.95 (NASDAQ, 2013).

Presently the market mean for this index is
below $2, indicating that ExxonMobil’s
management has wasted no time to rebuild the
cash reserves of the company, much of which
were used up during the recession. In addition,
ExxonMobil’s current total number of shares
outstanding are 4.40B, well above the market
average of 600 million, giving us no reason to worry about investor interest (ft.com, 2013). Revenues are
also moving
upwards $482
billion far above
the market’s
average which is
barely over $20
billion
(NASDAQ,
2013).

Operating expenses are stable indicating a conscious effort for cutting costs, but also a much
more conscious effort to be ready for the negotiating tables. And doing so, ExxonMobil has gained a
tremendous momentum. Company leaders predicted that what they needed for effective negotiations are
to be found in straightforward financial reports, all supporting the effective use of technology Putin wants
to acquire at any
cost. As we see in
the next section
numbers do tell a
story and
ExxonMobil’s
story seems to
start promising.
The ratios reflect
more than just a
healthy condition,
something that
could be
compared to the pre-war Germany’s war industry preparing for over a decade to be in perfect shape and
strength for its ultimate showdown, operation Barbarossa, the invasion of the Soviet Union. While today
this monumental struggle is not meant to be unfolded on WWII battlefields, the sides representing their
historical interest are real, the stake is similarly high, and the trust meant to be lubricating the gears of this
enterprise is as dry as an old rusty wheel.

Ratios –
XOM’s
capital
intensity
ratio (total
assets / sales)
is 0.69
(333B / 482B)
in 2012. This
ratio in 2011
was 0.68 and
0.78 in 2010
indicating that ExxonMobil needs less than a dollar asset for every dollar of revenue it generates.
Controlling this number effectively assures management that projects selected by the company have high
to very high NPV.
Return on Equity - (Net Income / Revenue x Revenue / Total Assets x Total Assets / Equity) or
(net income / shareholder’s equity) is increasing. From the data ExxonMobil’s 2010 net income was 30B
responsible for a healthy ROE of 20.43%, 2011 ROE further increased to 26.55% (41B / 154.4B), and
kept on rising to 27.02% (44.8B / 165.8B) in 2012 (Yahoo Finance , 2013).
In comparing ExxonMobil’s net income with its revenues we see that the index in 2010 is 9.29%
(44.8B / 482.2B), decreasing to 8.42% in 2011 (41B / 486.5B), and further declining in 2012 down to
7.94% (30.46B / 383.2B). ExxonMobil’s profit margin confirms the story of a multinational oil

powerhouse successfully going through the recession years and gearing up to take on a new round of
major investments. The largest impact on revenues are from operating cost, 63% (303.6B / 482.2B),
selling and general admin expenses 17% (81.8B / 482.2B), which were followed by other not specified
expenses 3.27% (15.8B / 482.2B) in 2012 (Yahoo Finance , 2013).
During this analysis ExxonMobil’s upstream business is
assumed to be operating at full capacity since it is difficult to get
detailed operation records for each oil well and exploration unit.
Dividends – ExxonMobil has been paying steady
dividends to its investors throughout the course of the last
decade, using a yield rate that is reliable, while causing no undue
stress on the company, and most importantly appeal to most
investors. Those who prefer to receive their earnings in capital gains can see this as compromise with
ExxonMobil’s dividend policy. Others who do not mind paying a little more tax can also find the terms
acceptable due to high reliability of the
stock and it’s POR (payout ratio). From
the charts posted on this page dividend
rates are just under 3%, which converts
just over $2 per share in 2012.
The company’s current ratio
(current assets / current liabilities) or
(64.4B / 64.13B) is 1.0, just balancing on
top of the liability fence. This number was under 1.0 both in 2011 and 2012 telling us that ExxonMobil
has faith in its operations and boldly applied the debt shield against corporate tax liability. This index

without inventory is dangerously low; 0.78% (64.14B – 14.5B / 64.13B) which would normally put most
investors into an uneasy state. While the alarmingly high rate of debt is usually translates into debt
holders competing with stock holders for attention, the truth is that as long as ExxonMobil is able to
maintain strong quarterly reports nobody really pay attention to this aspect of the company. Moreover, in
the case of ExxonMobil, high debt is often seen as value due to its inherent tax benefits. In fact, the total
asset turnover ratio 1.445 (Total Revenue / Total Assets) ensures investors that debt has been put to
good use at ExxonMobil, generating 44.5 cents on the dollar (debt and equity combined). Similarly,
management’s ability to churn out 13.42% ROA (Net Income / Total Assets) or (44.8B / 333.8B) further
reassures ExxonMobil’s investors.
Stock analysis – ExxonMobil’s stock price is influenced by
a number of key ratios which we take a closer look at below.
Revenue per share (“ttm” or twelve months tracking) is 109.5 for
2012, a healthy number by any standards. The index is calculated
from total sales over shares outstanding. This metric indicates that 1.
ExxonMobil’s revenues are strong, 2.that ExxonMobil has no reason
to hesitate not to take advantage of the tax benefit debt inherently
offers, and 3. That ExxonMobil, as most other oil exploration
companies has almost continuous asset utilization and rapid
inventory turnover.
Earnings per share (EPS) is 10.18 (ttm) for 2012 as
calculated from net income minus dividends on preferred stock (if there is any) over average outstanding
shares (44.8B – 0 preferred stock / 4.4). ExxonMobil’s impressive 10.18 EPS index indicates that the

company is using unusually large amount of liabilities (167.9 billion are liabilities out of 333.8 billion
assets), which is a major contributor for above average stock performance.
If we intend to take a closer look into ExxonMobil’s financial statements, we must not leave out
the book value of shares or we would do no justice for the stockholder. The index here serves one
important purpose; it suggests the true liquidation value of the stock that can be paid out to stockholders
in the event the company would ever go under, provided claims from debt issuers have been satisfied
previously. ExxonMobil’s $37.63 book value for 2013 is far below the current share price $87
(September, 2013) (market value added) suggests that book value, while less than half of market value, is
still significant while most likely never be used for compensation purposes.
The debt ratio of ExonMobil’s captial structure normally would magnify risk for most firms.
However distress from potential bankruptcy can be negated with strong and stable earnings, in which case
high levearage only boosts investor returns. As acceptable debt levels vary from industry to industry, most
would agree that the pretroleum industry is at the more forgiving end of the debt tolerance spectrum
despite fluctuating oil prices. As such ExxonMobil is committed to maximize stockholder value, and it is
inevitable that one of the ways to achieve that is through the use of debt. Nevertheless, too much debt,
even for a company like ExxonMobil, will tend to cause competition between stockholders and
debtholders, which can be a conflict stockholders cannot win. In order to negate liquidation related losses
stockholders tend to increase cost of equity in their attmept to compensate for substantial debt financing,
which in turn has a direct effect on the weighted average cost of
capital (WACC), a scenerio ExxonMobil’s
management is well aware of.

Part 4
The Petroleum market - The petroleum industry is huge and extremely complex to say the least.
The factors that influence the fate of any company in oil business has to do with a number of things,
among them, there is one that stands out; the position of the company as it ranks in the marketplace. The
energy sector, within which the oil and natural gas industry takes the biggest segment, is by far the most
significant component of modern civilization as it
was defined from the early years of the twentieth
century. The most recent formation of energy
companies dotting the landscape of the world vary
from small corporations providing drilling services
to the largest heavy weight giants usually dubbed as
“Big Oil” in the United States (a name popularized
through the mergers of the 70’s and 80’s) (Helman,
2012). These mega corps are jealously defending
their positions and reluctant to let newcomers ascend to their heights. In the present the companies
comprising this group are ExxonMobil, British Petrol (BP), Chevron (formed from Texaco, Standard Oil
Co, and Gulf Oil), Royal Dutch Shell (Shell), and a recently joined member of the group; ConocoPhillips
(These companies are listed further down in this thesis as they rank among their global peers, arranged by
production per day ranging from the maximum of 12.0 to 1.4 million barrel of crude oil). We will focus
on this group from the perspective of ExxonMobil Corporation, the company which is primarily looked at
in this writing.

While these companies certainly look gigantic with staggering revenues and seemingly unlimited
cash reserves, they are not the biggest players of the industry, and certainly their cash inflows are well
matched with nearly as high expenses. Civil litigation is always a major set-back for most of them,
environmental and social issues ranging from the Exxon-Valdez oil spill and Texaco’s dumping 18 billion
gallons of toxic sludge into the Amazon in the South American country Ecuador, to recent ones as the
Deepwater Horizon oil spill caused by BP settling between 25 - 40B USD. The cost to BP was not just the
company’s entire cash
reserve but also some
of its most important
joint ventures were
doomed to go awry in
other parts of the world.
BP is discussed in more
detail later in this work
as ExxonMobil’s direct
competitor. However
there are other factors
which tend to keep members of Big Oil on their toes. In a world where international trade of all kinds
connect producers and buyers through well-established trade routes (LNG and oil tankers moving natural
gas and oil across the seas, pipelines providing a constant flow of oil and gas over land) ExxonMobil do
not operate in a vacuum of space and time. Amongst its peers ExxonMobil is compared with similar
publically traded companies while this entire group is barely more than the 15% of total oil and natural
gas business if global state oil companies are also added to the mix (Helman, 2012). These state owned

giants are under the control of governments, kings, and other potentates mostly located in developing
countries. The oil industry is one where the movement of interest and the formation of companies tend to
be more stable and predictable. These firms are fewer in numbers than those making up the retail or
manufacturing sectors, and because of that, this so called simplicity can be credited to the fact that most
assets (estimated to be 85%) in the sector, are under the control of their state owned counterparts. This
85% is split among Russian companies headed by Gasprom and Rosneft (known for their hardliner
leadership) , Statoil (Norway), and many other nationalized companies throughout the OPEC countries
such as Iran, Iraq, Kuwait, Saudi Arabia and Venezuela followed by a longer but more recent list of
member states with lesser capacities (under 1 million barrel per day) (OPEC, 2013). Some other larger
players outside OPEC (Organization of the Petroleum Exporting Countries) significantly contributing to
the global supply of oil and natural gas include companies from Mexico, South America, Africa, and
Indonesia. The world map for oil companies is relatively consistent. The steady existence and slow
moving activities of well-known industry members seem to guarantee stability for the world’s energy
needs which also reflected in the key player’s ability to identify dominant controls among themselves.
Expenses of vast explorations and drilling operations are often seen to be offset by long-term partnerships
in joint ventures designed to trade access oil and gas shale formations for investment in capital and
technology. Such joint ventures have the potential for tipping the balance in the existing oil markets,
though results come slow and progress is not always assured. The business-community tracking this
sector is currently focusing on 10 to 15 relevant developments worldwide. Some of these are in Mexico
promising reforms for Pemex where the country’s current government invests heavily in attempting to
prepare this nationalized behemoth to invite a new wave of foreign capital. Other developments can be
seen across the Ural Mountains, where Vladimir Putin’s influence seems to dictate the pace for Rosneft, a
Russian oil company built from the expropriation of Yukos which was known to be an immediate

predecessor for many of the newest oil and gas companies in modern Russia. Yukos Oil Company
represented significant western interest at the time of its expropriation putting Rosneft today in an uneasy
state when attempting to find effective defense against still lingering western claims. This protectionist
thinking materialized in a most unexpected form when British Petrol decided to form partnership with
Rosneft (and on equal bases with the Russians as for sharing predicted benefits). It seemed to matter little
that this deal have gone awry in merely two years after BP infused no less than $20B capital into the
venture. BP’s misfortune in the Mexican Gulf set off a series of events which eventually lead to severing
the partnership and left BP with no choice but to leave without a proper exit strategy. Its costly
withdrawal was conditioned on ploughing back 1/5 of the sale from assets already on the ground into
Rosneft through purchasing shares making Rosneft all of a sudden technically immune to annoying
western claims chasing long expropriated private capital (The Wall Street Journal, 2012). In the mind of
Putin, this new BP interest vested in Rosneft is the trump card that the Russians needed for making much
larger plans with ExxonMobil, the most prominent global competitor to BP. Putin is making the new
ExxonMobil / Rosneft partnership attractive by not only offering a bargain in Russia’s vast upstream
opportunities but also weakening ExxonMobil’s competition, an opportunity that ExxonMobil’s CEO Rex
Tillerson must have seen as a perk that could not be completely ignored (Media Relations, 2013). The
deal is largely supported by the inclusion of the second largest Russian state-owned oil and gas company;
Gasprom. Lukoil, third in rank, while operating under private ownership is very close to the Kremlin
suggesting that the reins of these three companies can be traced back to one source. The risk is certainly
high as this was hard learned by western capital both in the past and the present, but the stakes are just too
high to ignore, or worse, allow the deal to be picked up by the competition. In the recent past we have
seen British Petrol and ExxonMobil making a number of deals with Rosneft and its subsidiaries aiming to
undertake large number of projects in Russia. Some of these new explorations are stretching from the

Arctic Circle around the Kara Sea; while more project open up in West Siberia and the Russian Far East.
Part of this initiative new technology is enabling deep water drilling in the Back Sea. As these events are
unfolding we should note that the losses BP has suffered are measured in billions of dollars which are not
far behind the losses attributed to BP’s Deepwater Horizon oil spill. Such an investment environment can
be seen quite controversial to many observers and participants alike. ExxonMobil has quantified the risk
and stacked the associated benefits making the decision for moving ahead in Russia (Media Relations,
2013). The company is currently financing much of the preliminary exploration costs in the ballpark of
3.2B USD which was invested in accordance with drafting and subsequent signing of new contracts (the
deals are split between 33.33% for ExxonMobil and 66.67% for Rosneft) (Media Relations, 2013). These
deals promising yields on newly surveyed shale formations unheard of
until now; the business have already been referenced as the world’s largest
untapped oil and gas reserve exploration with far bigger potential than the
combined estimated yield from the newly discovered North American
Bakken shale formation and the current yield from ongoing operations in
the Saudi oil fields.
Competitors - Large corporations inherently have long and complex histories often highlighted
with mergers with major brands each representing their unique perspective of their sector. The way we
recognize British Petrol today is an excellent example for this industry trend. The oil giant’s current logo
and name is the recent variant derived from large mergers in 1999, when the company had taken on
Amoco (American Oil Co.). The magnitude of the change was large enough to both divert BP from its
core business (which it will regret later) and also influence the company’s branding. In euphoric
excitement BP has tried out several variants for a new name including the word “Amoco” in order to

indicate the newly gained network of U.S. gas stations when the company finally reverted back to the
original form and set out to strengthen the old name with a new logo. BP’s advertising agency Ogilvy &
Mather and PR Consultants designed and popularized the two letters “b” and “p” above BP’s new green
and yellow sunflower logo recognized around the world when displayed on the company’s endless
number of oil wells, off-shore facilities, transportation and storage assets, refineries, gas stations, and
administrative offices (BP PLC Case Study, 2012).
BP was originally founded by William Knox, a British entrepreneur who successfully searched for
oil in Persia (Iran) in the early 1900s. The company was first known as Anglo-Persian Oil, suggesting
power and influence. This heavy weight member of “Big Oil” has spent its first 50 years of existence
representing significant western interest in the Middle East. By 1935 Anglo-Persian oil was exclusively
controlled by the British government having operations not only in the Middle East but also in Europe,
Africa, Canada, South America, and Papua New Guinea. Since large and successful businesses are not
without their enemies coveting their attractive revenues, the early BP could not remain an exception.
Surviving the war and the turmoil that followed it in England, the company was caught off-guard when its
largest assets were nationalized in Iran in 1951, a loss of no less but England’s largest overseas
investment causing a shockwave that reverberated not only throughout the company’s business units but
also across England’s post war economy. The events were seen controversial as Iran received its first
democratic Prime Minister Mohammad Mosaddegh who sincerely wanted to help his people (became
enormously popular in Iran). Unfortunately for Mosaddegh (and his country) the nationalization of oil
companies could not be tolerated by the western powers and they promptly called for a regime change
allowing the Shah (Reza Khan) controlling power who after returning ruled the country as a ruthless
dictator for the next several decades helping westerners shipping more oil out of Iran. While this was
happening in the Middle East in 1954, BP (or rather British Petroleum Company at the time) began new

explorations in the surrounding regions quickly making a name in Kuwait, Libya, and Iraq followed by
newer operations in the United States, and in and around the British North sea. During the last years of the
cold war Margaret Thatcher’s England ended socialist ideas and privatized much of the country’s
businesses. BP became a solely privately owned company once again, shedding its government shares and
embarked on a journey undertaking ambitious goals. This is the BP we know today, a British energy giant
often listed among the world’s 10 largest companies (within the petroleum industry), a company with
operations in over 80 countries and estimated crude production of 2 million barrels per day (in 2000).
BP’s crude production boosted throughout the first decade of the 21st century reaching 4.1 million barrels
per day, which is about 4.9 % of the daily required global supply of crude oil and oil equivalent products
(of 82.2 + million barrels per-day global consumption) primarily provided by 21 dominant energy
companies (mostly state owned). While these other suppliers will not be discussed here in detail, it is
important to mention their names together with a short reference for their size in daily production of crude
oil or oil equivalents (millions of barrel); Saudi Aramco – 12.5, Gazprom (Russia) – 9.7, National Iranian
Oil Company – 6.4, ExxonMobil – 5.3, Petro China – 4.4, BP – 4.1, Royal Dutch Shell - 3.9, Pemex
(Mexico) - 3.6, Chevron – 3.5, Kuwait Petroleum - 3.2, Abu Dhabi National Oil Company – 2.9,
Sonatrach (Algeria) – 2.7, Total (France) – 2.7, Petrobras (Brazil) – 2.6, Rosneft (Russia) – 2.6, Iraqi Oil
Ministry – 2.3, Qatar Petroleum – 2.3, Lukoil (Russia) – 2.2, Eni (Italy) – 2.2, Statoil (Norway) – 2.1,
Conoco Philips (United States) – 2.0 (Helman, 2012).

Operations – The majority of BP’s upstream assets are water-flooded oil and gas reservoirs in
North and South America, the North Sea, Australia, Asia, and a number of other lesser known regions of
the world (Fryar & Looney, 2011). Recently the North American sector received attention due to large
scale environmental disaster in the Mexican Gulf, and the Asian sector due to BP’s subsequent loss of
strategic deals in Russia.
This thesis will focus on the upstream (exploration and extraction) segment of this sector, using
secondary research
in introducing BP
as ExxonMobil’s
primary competitor,
while also
reflecting on the
company’s current
position in the
marketplace. The
data used have been
extracted from multiple reports describing the performance of BP in the year 2012 and first quarter of
2013.
BP’s vulnerability - Following the boom years of the 2000s, British Petrol has become one the
flagships of the economy not only in the UK but also in the United States. It had vast global operations,
mostly in the upstream sector of the company. As the world’s economies cycled through the deepest
points of the 2008 / 2009 recession oil companies seemed to be less affected. While during the recession

the slowing of the economy lead to decreasing interest rates (making borrowing easier). Unfortunately
easy borrowing came too late and the demand for energy decreased which resulted in plummeting crude
oil prices, a double edged sword which caused stagnation for oil companies like BP and ExxonMobil.
While a raging recession is equally bad for most players of the economy, it is reasonable to conclude that
the boom years’ high demand tend to drive prices up earning billions of dollars for energy companies but
eventually these high energy prices slow down economic activity in other sectors contributing to the
trouble that leads to recessions like the one we saw culminating in 2008 / 2009. From the perspective of
oil and gas producers the more important question is how much wealth these companies were able to save
up during the boom years, and will it be enough to help them across the recession years avoiding distress
to their own operations, and consequently to the recovering global economy. Carefully managed publicly
traded (privately owned) oil companies are able to estimate these cycles and use their cash reserves to get
through them without too much loss of revenue to shareholders. On the other hand state companies like
Petrobras, Pemex and others in smaller OPEC countries operate with the help of large government
subsidies and enjoy benefits of tariff and taxation exemption. However these state companies are also
weighed down with heavy social obligations. In short, these companies are unable to save earnings as
they are required to give up their net income indirectly supporting social programs and government
services, many of them vital in maintaining the status quo between social unrest and relative stability. If
oil prices were to fall and stay low for an extended period due to either prolonged recessions and / or slow
economic activity (strong competition can also push prices down) then it is still possible to rebound for a
short period through the application of new technologies like hydro-fractioning (fracking) allowing for
more efficient extraction of natural gas and oil if it were to spread around the globe (however, the larger
supply of cheap energy would drive prices downward even further). If newly found oil reserves do not
come to the rescue either, then the failure of these more vulnerable oil producers can easily tip the balance

in the favor of those who came prepared in taking part (and control) of the first part of the 21st century.
(Association, L. O., 2013). Peak Oil and the Recessionary Cycle theory predicts that one day we will pass
the mark where we need more oil than we can produce, from which point onward increasing energy prices
will lead to irreversible socioeconomic degradation. So as it might seem too high oil prices carry the
danger for destabilizing businesses providing jobs to billions of people worldwide while too low energy
prices endanger a multitude of smaller oil companies supporting the social fabric in many third world
(and some industrialized) nations. These state-owned energy companies are badly in need for high oil
prices floating at least above $80 per barrel. The recent invention of fracking in the energy upstream
sector (largely contributing to cheap natural gas and its worldwide distribution as LNG) and the addition
of gigantic new fields in projects jointly undertaken by ExxonMobil and Rosneft in Russia is one example
and will most likely result in decreasing prices, a serious challenge for OPEC, which the organization will
soon have to deal with if the unfolding events in Russia turn out to be successful (Association, L. O.,
2013). However, BP, ExxonMobil, Royal Dutch Shell, a few others who own the right and the know-how
for the new technology have not bagged victory just yet. As time
pass from the 2011 discovery of the revolutionary technology
responsible for causing billions of fractures in the oil and gas shale
barely a mile under the surface is not fully cleared yet. Studies
show extreme toxic exposure from the use of fracking fluids making its way up and contaminating the
ground water tables (the most common source of potable water), other research shows alarmingly high
level of poison content in the air around open storage ponds sustaining airborne fumes evaporating from
millions of gallons of highly poisonous hydraulic fluids recovered from each well (also leaking back into

ground water), and finally
studies show artificially
induced earth quakes, a
new addition to the list of
serious environmental
hazards blamed on the use
of fracking (Lucas , 2011).
The issue of fracking has divided the nation from its inception, where one camp is eager to support the
potential for a true economic revival, while the other is in opposition and cannot accept compromise until
the environmental problems have been resolved. Fracking is a technology that has managed to amplify
production for companies which own it and able to apply it. As such ExxonMobil and British Petrol’s
upstream business has completely been
revamped to accommodate its use, making
the company dependent on the outcome of
various current litigations concerning the use
of fracking. Fracking is an American
invention and most of us, including President
Barrack Obama, are proud of it. It has
managed to drive down gas prices to ¼ from
global prices making the United States an increasingly important LNG supplier to Europe (next to Qatar
Gas).

Safety - Oil trading, and consequently making bets on the industry for the most part meant
gambling in the most common use of the term until just recently when the forming trends have become
easier to interpret. In 2010 BP understood this trend and correctly suggested that oil and natural gas prices
will be falling in the coming years. Responding to this pressure in a desperate attempt for piling up cash
reserves which would be used to offset low crude and gas prices, the oil giant has given green light to the
use of numerous unsafe procedures relaxing, violating, or simply contradicting its own safety standards
that inevitably lead to the known Deepwater Horizon oil spill in April of that year (the company had a
long history of violations that raised public concern prior to the spill). As a result BP almost immediately
lost its cash reserves to a $20 billion trust fund which had to be set up for claims, was forced to spin off
many mid and downstream operations, and sold many of its global assets including oil fields and
refineries to support the clean-up and related costs in the Gulf eventually moving towards a staggering
total of near $40 billion. Last but not least its weakened position was taken advantage of by its Russian
partners as BP had to back out from deals drawn for exploring the Russian Arctic, Russian Far East, and
the Black Sea. BP was replaced by ExxonMobil (the Russian condition for BP was tied to reinvesting $4
billion worth of shares in Rosneft, helping the Russians to buffer against western court ruling for the
Russian expropriation of the Yukos’ western capital, which served as the foundation for Rosneft with
Putin at the controls as mentioned earlier). In the aftermath, BP was able to muster enough cash to pay for
the Gulf but left with no choice but to submit to investor pressure and restructure the company focusing
on its upstream segment. Today BP has gone from being a vastly diversified company to one that is
strictly focused on exploration and extraction, a new beginning for this energy giant, which recently have
started paying healthy dividends and boasting of current and forecasted increased earnings. The next
section will show how BP, as ExxonMobil’s global competitor, is doing today and where the new capital
structure has taken the company.

BP Financial Performance - While the Gulf spill was truly tragic in many ways for all who were
affected by it, the event did not cause irreversible damages to either the region or to BP. When we
compare BP’s market capitalization in 2010 being close to $200 billion, and the company’s total assets
which were valued to be $272.262 billion, BP’s loss affixed to the Gulf looks manageable (BP PLC Case
Study, 2012). BP’s current market cap is $129,008 billion, comfortably in the category for “too big to
fail” judged by most wielding a much more humble portion of the market. In the aftermath of the Gulf
crisis BP has certainly become a more focused company, and most of this focus was directed towards its
spill related obligations, which we can say with certainty, BP has overcome and paid its dues in full.
Furthermore, not long after its market cap and its stock price plummeted in 2010 the company managed to
stabilize both, and by now moving ahead for new increased earnings (Yahoo Finance, 2013).
From the standpoint of BP’s investors the company is offering moderate risk / high return
investments backed by strong cash flows well above the market mean. Its cash flow per share was $1.30
in 2012, which increased to $12.36 by Assessments & Analysis Based on August 22, 2013 (NASDAQ,
2013). At this time the market mean for this index was $1.53, far below BP’s, showing that company

management is wasting no time to rebuild the cash reserves which dwindled for almost a year in the
aftermath of the spill. In addition, BP’s total number of outstanding shares are currently 3,185 million,
well above the market average of 600 million, indicating that the company is still able to attract a large
investor base (ft.com, 2013). BP’s sales are also moving upwards $395 billion far above the market’s
average which is barely over $20 billion (NASDAQ, 2013).
BP’s cost of goods sold is rising with the implementation of its new investments, interesting
enough, also in the Gulf. Determined to get a fresh start in the region BP has just initiated its new oil
project dubbed “Mad Dog Phase 2” is more than promising as it is built over a 4 billion barrel oil field.
The costs from this project is embedded in BP’s 2012 operating cost proving that oil exploration /
extraction could be many things but not cheap. The result shows BP’s relatively stable revenues ending up
yielding a relatively thin net income. Since the expansion costs in the upstream sector can be seen as a
positive signal by most who follow BP’s rising path closely, the prediction for BP’s future growth is not
without merit (ft.com, 2013).
Key Ratios – BP’s capital intensity ratio (current assets / current sales) is 0.77 (300B / 388B) in
2012. This ratio in 2011 was 0.76, and in 2010 0.88 indicating that BP is attempting to massage this
number to be as low as possible in order to help the upstream business, where cost of new additions can
be staggering if left unchecked.
Return on Equity (or net income / shareholder’s equity) was negative in 2010, upwards in 2011,
and reflecting new investments and the change of direction in 2012. Illustrating this with data BP’s 2010
net income was $-3,7B, but 2011 ROE increased to 23.05% (25B / 111B), and just recently ROE fell back
again due to new reinvestments of capital 9.78% (11B/118B) (ft.com, 2013).

BP’s profit margin spells out a trend showing the company managing cost during the restructuring
period. In comparing BPs net income with its revenues we see that the index is not measurable in 2010 (-
3B / 308B), increasing to 6.65% in 2011 (26B / 386B), and declining again in 2012 down to 2.98% (12B /
388B). BP’s profit margin and asset structure clearly tells the story of how BP is funding its crisis
management efforts in the Gulf, and how the company was able to find new purpose in realigning with its
core business in the upstream sector. The shedding of BP’s seemingly endless array of assets is paving the
way from the abyss of environmental recovery and lost Russian deals as the company has been able to sell
off refineries and oil fields reducing its worth from close to 300 billion in 2010 to barely over 100 billion
in 2012 and in 2013 (it would be interesting to see a track record compiled for the migration of these
assets). Hence profitability ratios are lower than expected with interest charges kept at bay. Currently the
largest impact on revenues are from operating cost, 84.2%, selling and general admin expenses 5.54%,
which were followed by depreciation and amortization of 3.21% tracked in the year 2012 (ft.com, 2013).
BP’s business units overall operate at full capacity, especially after selling off its Texas City
refinery, which was representing the segment of the business being
more prone to operate under less than full capacity. Since it is difficult
to get detailed operations reports for each oil well and exploration unit,
we are going to assume that most of BP’s upstream segment is utilized
at near or full capacity.
BP’s dividends were frozen during the crisis, and its stock
market capitalization has witnessed a steep dive from near 200 billion
to around 100 billion. From this low point BP has not only managed to recover its POR (Payout Ratio)
but ranked as one of the star companies paying the largest dividends in 2013. Dividends were down (but

paid) in 2011, 17.4% (4,4B / 25,7B), up in 2012 50.12% (5,8B / 11.5B), indicating a steady climb for the
foreseeable future (ft.com, 2013).
The company’s current ratio (current assets / current liabilities) is 1.43 (110,9B / 77,5B) indicates
a better than average liquidity hinting
that BP is far from running into
problems paying its obligations. This is largely due to
BP’s selling off assets in order to fix the Gulf rather than
acquiring exclusively debt (the option of acquiring any
more debt has already been exhausted if WACC is to be
maintained at its current level). While the selling of assets
was making the current ratio fall, it is still maintaining the
number well above 1.0. This index without inventory is
somewhat lower; 1.071 (110,9B – 27,8B / 77,9B) still
keeping BP’s head above the water. Emerging from the
mountain of compensation claims, BP has dedicated all of its attention, know-how, and resources, under a
unified effort which saved the company from losing much more than it already has. In fact, the total asset
turnover ratio (1.293) were one of the first signs of this new revival pointing to generating 29.3 cents on
every invested dollar in the company (388,2B / 300,2B), a staggering number in oil industry perspective.
Similarly the management’s ability to churn out 3.86% ROA (11,5B / 300,2B) after all the excitements of
the last few years gives us clear insight that this giant is not ready to throw the towel in.
Stock analysis – BP’s stock price is driven by some additional key ratios described in this section.
Revenue per share (ttm or twelve months tracking) is currently 117.85, a number unusually high for any

company. The number is derived from total sales divided by average shares outstanding. This metric
indicates that 1. BP’s has strong and stable sales, 2. That the company capital budget has a more than a
healthy infusion of debt shoring up the value of its stock price, and 3. that BP is a very active company,
which is no surprise to anybody who is familiar with BP’s history in the Gulf.
Diluted earnings per share (EPS) is 8.23 (ttm), is a good measure to use if investors want to see the
worst case scenario for their investments since it includes all possible stock conversions from debentures
to preferred stock and all in between. Since it is very unlikely that all convertibles will be exercised
together, while certainly a good measure, the index is not meant to reflect actual earnings for each share.
BP’s 8.23 index simply indicates that
the company is using a large amount of debt (181 billion are liabilities out of 300 billion assets), which
largely responsible for the strong stock indexes. While over 50% of debt can be alarming for many
companies, BP might just get away with it due to its strong and reliable revenues. Earnings per share is
calculated from BP’s profit divided by its number of shares, and in this area BP is strong.
It is worth listing the book value for shares from which investors derive a feeling of security. BP’s
40.87 index tells its investors that just in case things go wrong (common stockholders are last to get paid)
their compensation will be worth the book value of their shares, a figure almost equal to BP’s current
stock price $41.82.
Overall BP’s leaverage magnifies both risk and returns. Its high debt is certainly responsible for
confident numbers for stock holders while driving up the cost of equity together with BP’s beta and
WACC exposing the company to bankrupty risk if any more deals like the Russian endevour with Rosneft
would go awry. BP is definatelly playing with fire, moving fast and sometimes bold at the same time. The
captain of the ship Bob Dudley seemingly has no other option but navigate its ship to far out the ocean
where high expected returns go together with bold moves and increased risk. BP has survived the Gulf for

now. It has emerged from the conflict as a much riskier investment while able to pomise matching returns
offseting this risk. While remains powerful, BP is no more a serious threat to ExxonMobil, but this notion
can only be sustained if the future holds no more suprises for any of these two companies.
Market revisited - We base our notions on the premise that applicable demand for our natural gas
investments are clearly identified in the European segment of the market. The EU’s number one goal in
recent years has become the stabilization of this market orchestrating a forming synergy among its largest
natural gas suppliers. Furthermore the EU has clearly chosen its position concerning the issue of global
warming recognizing that natural gas is the cleanest fossil fuel available, an obvious choice for best
meeting future environmental standards. This choice
has turned out to be been quite a vision due to
dramatic fall in natural gas prices, large improvements
in LNG shipping, and the widespread popularity of
natural gas fracking. By 2013, gas is the number one
energy source in every sector within the EU’s
economy, which is supplied predominantly from
Norway, Russia, and increasingly from the United States. We look at the EU as a test market, a sort of
pilot project, much like a springboard for reaching world-
dominance in the industry. There is much to learn and
much to predict. The world is not standing idle either and
as Asian competition (PetroChina) rising in the Far East
with increasing tempo ExxonMobil is treading ahead in
North America, Europe, and in the Russian Federation.

The EU market is particularly well suited to be an ideal target for ExxonMobil. The region is the
leading proponent in the advocacy for global warming, and most of the energy sector has been rebuilt for
gas consumption, while its own gas reserves are known to be dry or near exhausted. Its history for
overwhelming reliance on Russian monopoly has driven prices up from the 90’s making global warming
and clean energy the best money maker for Putin’s government. The EU is ready to participate in a more
transparent, balanced, and interconnected market which promising to provide a more stable financial
platform better suited to steer clear the world’s developing economic crisis already plaguing a number of
its member states (European Commission Public Relations, 2013). As such, ExxonMobil seems to be the
right company to help complete the European socioeconomic transfer, arriving at the right time, and
initiating its new operations at the right place. European gas market has never seen to be this volatile and
the task for bringing peace and stability fell in the lap of ExxonMobil and its strategic partners. The
company’s LNG operations so far has proven without doubt that even relatively small amount of LNG
shipments are capable to disturb the current equilibrium leading to the quick formation of low priced spot
markets. The popularization of LNG was born out of the global recession in 2008 / 2009 and has been
seen to be responsible for increasing demands for natural gas. Plummeting prices are further intensified
by dwindling U.S. gas imports due to revolutionary work in the American upstream natural gas industry.
As a result timing and place for ExxonMobil cannot be any better; Russian ambition in oil exploration
requiring ExxonMobil’s capital combined with the EU market up for grab in the wake of American (much
technology comes from Qatar) LNG advances has been seen to offer ExxonMobil a prime opportunity for
success (Qatargas, 2012). Qatargas must be mentioned as one of the first large scale developers of LNG
shipping and regasification techniques (Exponent Public Relations, 2013).

“There is almost a century's worth of natural gas in shale rock formations all over the United States,
enough to make a significant change in the debate about America's energy future. Gas locked into dense
rock deep beneath Pennsylvania, New York, West Virginia and Ohio could supply the entire East Coast
for 50 years. But freeing it requires hydraulic fracturing, or
"fracking," with toxic chemicals that may pollute water, deplete
aquifers and perhaps endanger health and the environment.”
Risks associated with fracking - No undertaking with
large return is without risk, though the risk associated with ExxonMobil’s strategy in dramatically
expanding its domestic and global gas operations is seemingly minimal and largely technical in nature.
Apart from the uncertainty in working together with foreign partners with questionable track record, the
foundation for the gas revolution itself, natural gas fracking has been challenged. As earlier described, the
process comes from the United States; it has been tested there, and by now is in widespread use,
Pennsylvania, Ohio, and California being some the first states to receive attention. While the majority of
the U.S. population is firmly
opposing the process there is a
widespread support among
industrialists and regular
citizen alike (Grace
Communication, 2013).
Movements have been started
to publically denounce the
harmful effects fracking

carries within itself. The groups are clearly divided by those who immediately benefit from quarterly
earnings and long-term strategic gains (ExxonMobil and other oil and natural gas companies) who
support the process, and the public who do not derive immediate profits but is forced to bear the
consequences of toxic chemicals entering water tables, and the harmful effects of the fluid which is
brought back from the wells and stored in hastily made open surface ponds allowed to evaporate into the
atmosphere or slowly seep back underground causing further damage to ground water. The proceedings
underlying fracking are closely monitored by the investor community, the companies relying on the
technology and the public attempting to make their case against the new polluter. One amazing response
emerging from much of the debates is most surprising to any who are just coming through it. Our
engineers did not stop at one miracle but proved worthy in satisfying the environmental aspect of the
mater by negating the toxic characteristics of fracking liquid, the number one culprit causing most of the
chaos. The improvement has been advertised to be so effective that Halliburton Oil and Natural Gas
Exploration Company went so far to have one of their workers publicly drink from the fluid in their
campaign rallying for reevaluation of the environmental impact their drillings effect on their area of
operation. The outcome is yet to be tested by time, but it is certain
that such improvements are welcome by both the public and
industrialists alike (Bush , 2011).
Part 5

Global strategy in ExxonMobil’s mission and vision statements - The mission and vision
statements discussed in this section are word for word excerpts from ExxonMobil’s official website where
it was available for public viewing at the time this thesis was written. In them ExxonMobil sees one
underlying mission for all of its upstream activities, a statement that is easy to understand, easy to agree
with, and worthy to rely on. The following is the mission statement for the company’s fundamental
business activity; the oil and natural gas exploration and extraction unit.
“The disciplined execution of ExxonMobil’s Upstream strategies, underpinned by a relentless focus on
operational excellence, drives delivery of our competitive advantages and superior results” (ExxonMobil,
Upstream Operations, 2012)
As we see from the upstream exploration unit’s mission statement, its main focus is a deliberate
pointing to the importance of executing the unit’s strategy which largely deals with quantifiable
deliverables. These deliverables are the lifeline for the upstream exploration unit and as such the unit’s
mission is verbalized on the lines which is most likely to
stimulate performance pointing all stakeholders toward
practical steps emerging to be evident when put in context
with executive directives.
Similarly the vision statement offers a clear
agreement matching the drive for success, a fundamental
building block from the earliest years of the company, with a hint that success should be attainable only if
ethical standards were simultaneously upheld;
"Exxon Mobil Corporation is committed to being the world's premier petroleum and petrochemical
company. To that end, we must continuously achieve superior financial and operating results while
simultaneously adhering to high ethical standards." (ExxonMobil, Upstream Operations, 2012)

From this statement several facts can be quickly refined; 1. ExxonMobil is intending to remain
one of the world’s largest and most powerful oil and natural gas exploration, processing, and
transportation company; 2. It intends to achieve this goal by focusing on profitability, shareholder’s value,
and operating excellence while not forgetting about upholding ethical standards. ExxonMobil directly
addresses the following groups;
To Shareholders
“We are committed to enhancing the long-term value of the investment dollars entrusted to us by our
shareholders” (Farfan, 2013).
The purpose of corporate management is to maximize shareholder’s value. This rule of business is
no different in the case of ExxonMobil, though the company finances its operations (339B) largely
through debt (172B) (due to high tax benefits and the inherent bankruptcy risk being negated by steady
earnings), and an almost equally
large part of equity (167B) (Y-
Charts, 2013).
To Customers
“Success depends on our ability to
consistently satisfy ever changing
customer preferences” (Farfan,
2013).
No legit company can exist without reliable customers and growing markets. ExxonMobil
understands this premise propelling the company to own and control the largest portion of the market
within the private sector.
To Employees

“The exceptional quality of our workforce provides a valuable competitive edge” (Farfan, 2013).
Happy employees make successful companies. ExxonMobil recognizes this by attempting to treat
all of its employees fairly by fostering quality training and operating environments where knowledge,
learning, and communication receive priority over entrenched incompetence, contributing to cost-saving
initiatives, profitable projects, and overall company success. Recently some of these achievements have
been questioned through a series of employee unrest, exposing management’s true nature and in some
cases their shortsighted practices.
To Communities
“We commit to be a good corporate citizen in all the places we operate worldwide" (Farfan, 2013).
No company can operate in a vacuum. The physical environment, the communities, and the host
countries say as much about any business as the press releases and executive statements. Good public
relations have the power to influence stock prices, so if not
for any other reason, ExxonMobil’s best long-term interest
remains to become a good corporate citizen.
To Local Governments and Legislative Bodies
“We are committed to comply with the laws of the United
States and all other countries where we conduct our
operations”
Finally complying with standing laws and regulations
is the primary focus of any corporation’s legal team.
ExxonMobil is most exposed to antitrust laws in the United States, and pending environmental and human
rights cases world-wide.

The objectives above ensure that long-term operations will be sustained, which is the underlying
reason for all mission, vision, and strategic statements for any company wishing to remain in business.
These five objectives are designed to strengthen strategic practices, which in turn, support the company’s
mission, and ultimately its vision. The company had ambitious goals, most of them have already been
achieved. ExxonMobil’s current key objectives are designed to reinforce existing practices indicating no
need for restructuring the company for the foreseeable future. This reassures investors that the company’s
current management intends to make only the necessary changes deemed necessary for staying ahead of
competition. One exemption from the mainstream strategy is the newly developing LNG line of the
company.
Where not to diversify - It is clear that
diversification into alternative energy would be a 180
degree turn and as such cannot be recommended in
any form or shape for oil companies or a nation
gearing up for winning the war on energy. Renewable
energy projects fail en masse; it is common economic
sense today to avoid them much like avoiding
dependency on the earnings of airlines or even worse
going into business with airlines. Renewable energy
was a push from the turn of the new century, mostly fueled from the panic over greenhouse effects and
global warming, the fears over limited fossil fuels, and the craving for energy independence. These

factors together seemed to be insufficient to win the argument against fossil fuels as high cost and low
ROI discouraged investors and businesses alike. Renewables proved to be economically inefficient, their
high cost design, difficult placement, and permit related issues killed many projects before they could take
off, while those who did make it through their implementation phase are struggling to survive without
their government subsidies. With hindsight we can
look back and report on renewable energy and see the
remaining supporters grasping for air. The myriad of
fancy innovations have seen their time, and just as
many other exciting ideas caused momentarily
change in the course of normal business from as early
as the first years of the industrial revolution, the
sector is quietly dying. Fossil fuels have reemerged
victorious from the wake of this intermission
promising to stay with us for another long stretch of
human history (Noon, 2013).
Part 6
Mergers and Acquisitions - Oil business can be extremely risky for those who dare to undertake
trading in crude oil, and when such trading does improve over a steady course, the measure of this
improvement can be painstakingly slow. The momentum behind upstream operations can be likened to an
oil tanker trying to accelerate from 0 to 60 attempting to achieve such a feat with the speed of a sports car.
The possibility of success is no better than our chances would be for speeding up the tempo in closing

strategic deals with the Russians over Arctic explorations, where much of our promised opportunities
depend on currently ongoing explorations of vast regions, mostly no man’s land, an undertaking requiring
virtues like patience, blind guesses, and tedious diplomatic relations warning us to endless toxic
consequences. Such defining
attributes are not of those our
investors appreciate. After seeing
the global markets crash the second
time in barely two decades, today’s
investors do not intend to plan
further than a few years ahead. The community’s mentality changed, and we should identify with this
change if we wish to stay in step with this new world, as ExxonMobil has most always done in the past. In
short, ExxonMobil’s stockholders need faster returns on their investments than the company can sustain if
it uses resources overwhelmingly in favor to oil exploration and extraction (Patel, 2013).
What has happened in 2010 during the merger of XTO Energy and ExxonMobil were just a
precursor for the events which are now reshaping the energy industry. The world’s demand for energy is
increasing at an unprecedented pace and it is only natural to align supply with demand. It was well known
to most market watchers that the global energy landscape is emerging, continuously resetting long-held
expectations in the most important areas of the sector; oil, natural gas, coal, and nuclear power (exception
are renewables). By carefully analyzing past trends and present data, we can relatively safely predict this
demand for the next couple decade. While the demand for energy may be chartered with relative
precision, predicting how it will be met is a much more subjective research. The currently developing
agreements among the world’s leading energy providers forming synergies and strategic partnerships are
the most important inputs for drawing today’s global energy map, a guide for analysts attempting to

predict our not too distant future. Beyond the known factors, trends in Southeast Asia, the Middle East,
and in Brazil will be heavily contributing to much of the predictions yet to be published. The globally
emerging LNG transportation routes and ports is the other significant factor that most analysts will be
following closely. The more talented ones will understand how these drivers are intertwined and will
make their conclusions for the millions of investors to follow and consequently oil companies to receive
much needed capital, a task which inevitably carry enormous risk. Since ExxonMobil is in the business of
betting on the formation of these energy markets it owes its investors to reduce this risk to a minimum by
making aggressive advances in areas which can be forecasted with relative predictability. The NLG sector
is one such arena, in which ExxonMobil has already secured a more than prestigious position. The chart
inserted in the previous page depicts the immediate benefit ExxonMobil has gained through the merger
with the nation’s largest natural gas provider, XTO Energy, in 2010. This single act has put ExxonMobil
in a very respectable position allowing the company to bargain for the most lucrative deals among the
world’s synergies in the petroleum and natural gas
industry. As the industry participants continue to march
forward in the second decade of the 21st
century, it is
becoming increasingly clear that ExxonMobil’s forming
alliances with Russian (Rosneft and Gasprom) and
Norwegian (Statoil) oil will be bringing a rich infusion of
change to much of the sector (PenWell Corporation, 2010).

Part 7
Ethics - The promise of an economic revival is so timely and desired that many forget to listen to
lesser stakeholders who are asking to be heard on relevant matters but end up on the margins. Energy
business is plagued with alarming events (some
downright revolting), and many of them quite recent.
It seems that the larger the stake the more people are
willing to cross the line over ethical standards, the
fundamental building blocks of business itself. What is
the worth of a man’s life in Myanmar when billions of
dollars can potentially be at stake? When companies
get caught and get away with their mistakes (meaning they survive), we see expansive campaigns with
resounding slogans, doing all in their power trying to regain the trust of their customers, creditors, and in
the case of larger companies; public confidence and opinion. Classics here are Enron Corporation, the
rising star of Gas and Electricity Provider for almost 30 years, headed by their infamous CEO Jeff
Skilling, President and Chairman Ken Lay, and CFO Andy Fastow. A few decades ago Texaco has
shocked us in the South American country Ecuador when their illegal dumping of over 3 billion gallons of
toxic sludge came to light. ExxonMobil received its own share of attention in Myanmar when company
employees gunned down local villagers who were obstructing costly operations. Recent company-wide
employee unrest does not seem to help restoring brand image, something money cannot buy. British
Petrol’s long track record for violating its own safety standards has gained a controversial reputation for
the oil producer. By the occurrence of the Deepwater Horizon oil spill the company was well known for

exposing its workers to a strong likelihood of accidents (claiming numerous lives) dealing with possibly
the longest list of its kind containing court investigations most of them to this day clogging the system
which is insufficient to investigate them all. But in other areas, such as the controversies associated with
hydraulic-fracturing in the United States, and in Russia where British Petrol were locked into deals which
were perhaps designed from their beginnings to protect government expropriation of western capital,
which despite being ruled against by western courts, are considered unimportant in the course of
developing partnerships between ExxonMobil and its Russian counterpart Rosneft. The progress from
these deals can also be seen as an approval for overlooking not only ethical dilemmas but also legality. As
we research the known cases the question remains; can individuals made responsible for these acts or
their companies themselves are inherently responsible? What makes the perpetrators playing their parts in
these cases decide to follow unethical choices? Could ExxonMobil abandon its current deals with
Rosneft and in consequence possibly hurt millions of American shareholders? The answer must be a
resounding no, but ExxonMobil must play its part in these partnerships as we Americans would expect to
see ourselves represented outside our borders. If we just keep close those fundamental values which
earned our country the respect of so many nations in the past, then our corporations will earn the
reputation they so desire to attain through their recovery campaigns.
Part 8
Conclusion - Overall ExxonMobil seems to be the winner of this current age following the
misfortunes of BP and the Deepwater Horizon fiasco. The unfolding events of that tragic year caused a
chain reaction that is still unfolding today moving ExxonMobil towards wielding more power and market
share while forcing BP to continue surrendering its business. Hydraulic fracturing is definitely a game

changer causing smaller companies to report growth rates with earnings that the larger oil and gas giants
simply cannot follow and as such introducing new mechanics in the workings of stock markets in the
sector. Nevertheless the undisputed rulers of the arena remain the biggest behemoths who will inevitably
grow dangerously powerful in the near future. As demand for energy is growing with the industrialization
of the third world adding 3 billion people to the population by 2030, the energy companies possessing the
largest shale formations with adequate technology to tap them will dictate the direction for mankind,
which most likely will include more drilling, more fracking, and relatively low energy prices.

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