Exxon Mobil Corporation, 2013

Headquartered in Irving, Texas, ExxonMobil is by some measures the largest corporation in the world. ExxonMobil produces and markets crude oil, natural gas, petroleum products, chemicals, plastics, and much more under brand names that include Exxon, Mobil, Esso, and in Canada, Imperial Oil. Exxon produces about 6.3 million barrels of oil daily by operating more than 37,000 oil wells in 21 different countries, but the firm also has huge interests in electric power generation. With more than 77,000 employees worldwide, ExxonMobil has annual revenues of about $500 billion. In 2012, Apache Corp. acquired ExxonMobil’s North Sea Limited assets including the Beryl field. Exxon has ownership interests in 32 refineries in 17 countries.

In August 2013, ExxonMobil released its estimated second quarter 2013 results saying its total revenues and other income would be down 16.4 percent year-over-year to $106.5 billion; the company’s Q2 2013 net income will be down 56.9 percent to $6.9 billion. Weaker refining margins and volumes associated with planned refinery turnaround and maintenance activities negatively impacted the company’s Downstream earnings.

Copyright by Fred David Books LLC. (Written by Forest R. David)

History

ExxonMobil began when John D. Rockefeller’s Standard Oil was established in 1870. The name Standard was used to denote high, uniform quality. The federal government forced Standard Oil to separate into 34 companies in 1911, and two of these companies eventually became Exxon and Mobil. The Mobil Oil trademark was first used in 1920 when gasoline eclipsed kerosene production because the automobile industry was growing. In 1972, Jersey Standard changed its name to Exxon Corporation. The worst company accident in Exxon’s history occurred on March 24, 1989, when the tanker Exxon Valdez ran aground in Prince William Sound in Alaska.

Exxon acquired Mobil in 1998 for $73.7 billion and formed a new corporation called Exxon Mobil Corporation. The merger reunited the two largest companies of Rockefeller’s Standard Oil after nearly a century of operating independently. In 2005, ExxonMobil passed General Electric as the largest company in the world based on market capitalization and reported record profits of $36 billion the same year, up 42 percent from 2004. ExxonMobil announced in 2008 plans to transition out of company-owned gas stations, but the brand names Exxon and Mobil are still be used by operators, who compensate ExxonMobil for use of its name. A complete, elaborate interactive history of ExxonMobil is provided on the corporate website.

Internal Issues

Vision and Mission

Exxon does not report a mission or vision statement, but the company has a statement of guiding principles:

· 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.

Organizational Structure

ExxonMobil appears to operate from a strategic business unit (SBU) organizational structure, with the groups being Upstream, Downstream, Chemical, and Other. Upstream is the term that refers to the search, recovery, and production of crude oil and natural gas, also commonly called oil exploration. Underground and underwater drilling for oil and gas is an upstream activity. Downstream operations include the refining, selling, and distribution of natural gas and products derived from crude oil such as gasoline, diesel, asphalt, plastics, antifreeze, and by-products such as sulfur. There are literally thousands of products that derive from oil that the consumer can purchase in retail stores.

As indicated in Exhibit 1 , there apparently is no chief operations officer (COO) or chief accounting officer (CAO) in the Exxon hierarchy, nor an SBU head for each group. In addition, note that ExxonMobil has virtually zero women, Hispanics, or African Americans among its top corporate executives. Perhaps that is why the company’s Form 10K lists executives’ names only by first and middle initials, rather than providing first names, which would more clearly reveal the lack of diversity.

Exxon Oil Spills

Exxon has had several notable spills over its history with the worst being the Exxon Valdez, an oil tanker that spilled more than 11 million gallons of crude oil into Prince William Sound, Alaska. The spill resulted in Congress passing the Oil Pollution Act of 1990 and initially rewarded $5 billion of punitive damages, although that amount was later reduced. Exxon endured criticism to its slow response time to the spill and the use of single-hull ships. As of 2009, Exxon still employed more single-hull oil tankers than the next 10 largest oil companies combined. In 2007, there was a major Exxon oil spill in Brooklyn, New York, that spilled 17 to 30 million gallons of petroleum. In 2011, Exxon was responsible for a spill in the Yellowstone River that leaked up to 40,000 gallons of oil before the refinery was shut down. In 2012, a crude pipeline in Baton Rouge, Louisiana, burst and spilled around 80,000 gallons into the nearby rivers and creeks.

Environmental Record

Exxon’s Sakhalin-I oil and gas project in eastern Russia has been claimed by scientists to threaten the western gray whale population, and they have called for a moratorium on all oil activities in the area. Scientists claimed Exxon’s activities discouraged the whales in their summer and fall feeding areas and sighted a decline in whales as evidence. Similarly, Exxon’s Alaskan pipeline is oftentimes criticized for possibly harming migration routes of Alaskan animals, especially caribou. Exxon also endures criticism at times regarding its impact on global warming and climate change. ExxonMobil was recently accused of paying for TV advertisements and programs that generate skepticism that global warming is principally the result of greenhouse gasses caused by burning of coal and petroleum-based fuels. Mother Jones Magazine says Exxon has paid more than $8 million to 40 different organizations that challenge the scientific evidence of global warming. Exxon was a member of the Global Climate Coalition, a skeptic group on the possible destructive nature of greenhouse gasses.

Segments

The oil and gas industry is commonly divided into two segments: (1) upstream and (2) downstream. Exhibit 2 reveals ExxonMobil’s earnings broken down by source and geographic location. Note that the vast majority of Exxon’s earnings derive from upstream processes outside the USA.

Upstream

ExxonMobil’s upstream business accounted for 67 percent of all earnings after tax in 2012, down from 84 percent from 2011. Exxon continues to expand its diverse portfolio in this segment through global exploration, development, production, and marketing activities. Between now and 2016, oil and natural gas output in North America is expected to increase dramatically. About 30 percent of Exxon’s production comes from North America, but by 2016 this number is expected to grow to 35 percent. Arctic technology, deepwater drilling, and oil sands recovery are expected to grow from 45 percent to 50 percent also by 2016. Melting of the Artic ice cap as a result of global warming is spurring additional drilling as well as rising disputes among Russia, Canada, and the USA regarding even ownership of new “unfrozen” areas.

In 2013, ExxonMobil and its partners began developing the Herbron oil field offshore of Newfoundland on Canada’s east coast. The gravity-based structure used is expected to cost $14 billion and to recover 700 million barrels of oil or 150,000 barrels per day. Production is expected to begin toward the end of 2017. Exxon operates the Herbron facility but controls only a 36 percent interest. Chevron and Suncor control 27 and 23 percent respectively, and two other firms control the remaining 14 percent.