Exxon Mobil Corporation- Financial and Strategic Analysis Review

Transcription

1 Exxon Mobil Corporation - Financial and Strategic Analysis Review Publication Date: Jun-2016 Company Snapshot Key Information Exxon Mobil Corporation, Key Information Web Address Financial year-end December Number of Employees 73,500 NYSE XOM Key Ratios Exxon Mobil Corporation, Key Ratios P/E EV/EBITDA Return on Equity (%) 9.45 Debt/Equity 0.23 Operating profit margin (%) Dividend Yield 0.03 Note: Above ratios are based on share price as of 01-Jun-2016 Company Overview Exxon Mobil Corporation (ExxonMobil) is an energy company that explores for and produces crude oil and natural gas; manufactures petroleum products; and transports and sells crude oil, natural gas and petroleum products. It is a major manufacturer and marketer of commodity petrochemicals including olefins, aromatics, polyethylene and polypropylene plastics and a wide variety of specialty products. It also refines and markets chemicals, and has interests in power generation facilities. SWOT Analysis Exxon Mobil Corporation, SWOT Analysis Strengths Weaknesses Low Cost Upstream Operations Integrated Business Operations Leading North American Refiner Net Working Capital Deficit Refinery Availability Share Data Opportunities Threats Exxon Mobil Corporation, Share Data Price (USD) as on 01-Jun Globally Available Natural Gas Reserves Variation in Crude Slate Quality EPS (USD) 3.85 Book value per share (USD) Shares Outstanding (in million) 4,196 Increasing Demand: Oil & Petroleum Products Upstream & Downstream Growth Initiatives Exploration Production & Development Risks Lower Oil Price Performance Chart Exxon Mobil Corporation, Performance Chart ( ) Financial Performance The company reported revenues of (US Dollars) US$259,488 million for the fiscal year ended December 2015 (FY2015), a decrease of 34.2% over FY2014. In FY2015, the company s operating margin was 5%, compared to an operating margin of 8.6% in FY2014. In FY2015, the company recorded a net margin of 6.2%, compared to a net margin of 8.3% in FY2014. Page 1

2 Key Information Exxon Mobil Corporation, Key Information Corporate Address 5959 Las Colinas Blvd, Irving, TX, , United States Ticker Symbol, Stock Exchange Telephone No. of Employees 73,500 Fax Fiscal Year End December URL Revenue (in USD Million) 259,488.0 Industry Locations XOM [New York Stock Exchange] Chemicals, Energy and Utilities, Metals and Mining Angola, Argentina, Australia, Austria, Bahamas, Belgium, Brazil, Cameroon, Canada, Chad, Chile, China, Colombia, Czech Republic, Democratic Republic of the Congo, Denmark, Egypt, Finland, France, Germany, Guyana, Hong Kong, Hungary, India, Indonesia, Iraq, Ireland, Italy, Japan, Kazakhstan, Kenya, Kuwait, Liberia, Luxembourg, Malaysia, Mali, Mexico, Netherlands, New Zealand, Nigeria, Norway, Pakistan, Papua New Guinea, Philippines, Poland, Portugal, Qatar, Romania, Russia, Saudi Arabia, Singapore, Slovakia, South Africa, South Korea, Spain, Sudan, Sweden, Switzerland, Tanzania, Thailand, Turkey, Ukraine, United Arab Emirates, United Kingdom, United States, Uruguay, Venezuela, Yemen Company Overview Exxon Mobil Corporation (ExxonMobil) is an energy company that explores for and produces crude oil and natural gas; manufactures petroleum products; and transports and sells crude oil, natural gas and petroleum products. It is a major manufacturer and marketer of commodity petrochemicals including olefins, aromatics, polyethylene and polypropylene plastics and a wide variety of specialty products. It also refines and markets chemicals, and has interests in power generation facilities. The company s divisions and affiliates operate or market products in North America, Europe, Asia-Pacific, Latin America and Middle East/Africa. ExxonMobil is headquartered in Irving, Texas, the US. Page 2

3 Exxon Mobil Corporation - SWOT Analysis SWOT Analysis - Overview Exxon Mobil Corporation (ExxonMobil) is an integrated oil and gas company. Its integrated operations coupled with market leading operations strengthened its business. Net working capital deficit is a cause for concern to the company. In view of the increasing demand for oil and petroleum products, growth initiatives across the value chain could provide the company opportunities for growth. However, lower oil price and variation in crude slate quality could affect its operations. Exxon Mobil Corporation - Strengths Strength - Low Cost Upstream Operations ExxonMobil focused on minimizing its upstream operational costs in FY2015, which enabled the company to secure leadership in upstream earnings. In FY2015, the company s average production costs per barrel of oil equivalent declined 16% to US$10.56 from US$12.55 in In 2015, its close competitors such as Chevron Corporation and Royal Dutch Shell reported production costs per unit of US$14.60/ bbl and US$13.42/boe. Lower operating costs per unit enabled the company to strengthen its upstream earnings as compared with its competitors. Strong upstream margin reflects its strategic choices to improve the production mix such as major projects and work programs, reduced exposure to lower margin barrels, operating and capital cost savings, and steps to improve fiscal conditions and certain terms. In FY2015, the company reported upstream earnings per boe of US$4.6, which was higher than that of its competitors. In 2015, Royal Dutch Shell, Chevron Corporation and BP p.l.c reported negative earnings from their upstream segments. Strength - Integrated Business Operations ExxonMobil is an integrated oil and gas company. The company is active in every facet of the oil and gas industry right from upstream through midstream to downstream. Integrated business operations enabled the company to mitigate its dependence on third party operators. Integrated operations enable the company to respond more effectively to changes in the business environment. ExxonMobil explores for, develops and produces oil and natural gas from its international upstream asset base. The company produces petroleum products, and transports and sells crude oil, natural gas and petroleum products. Its investments span the oil and gas value chain to optimize upstream and downstream returns. Through its integrated portfolio, it identifies and captures value along the value chain at every step of the way, from the wellhead until it reaches the consumer. Approximately 80% of its refining operations are integrated with chemical and lube manufacturing. Such integration provides ExxonMobil significant flexibility in producing gasoline, diesel, jet fuel, chemicals, lubricants, and other products based on the market conditions. Its logistics division ensures cost-efficient delivery throughout operations. The company s global services division tracks product demand across regions, which leads to efficient value chain investments. Strength - Leading North American Refiner ExxonMobil is one of the largest integrated refiners, a premier marketer of fuels and lubes, the largest manufacturer of lubricant base stocks, and one of the largest chemical companies in the world. The company has the industry's largest refining capacity in the Mid-Continent and Gulf Coast regions in the US. As of December 2015, the company had interests in six refineries with total crude distillation capacity of approximately 1.85 MMbbl/d in the US; three in Canada with 421 Mbbl/d capacity. Its closest refining competitors are Marathon with distillation capacity of 1.7 MMbbl/d; Valero with 1.7 MMbbl/d in the US Gulf Coast and 0.48 MMbbl/d in Mid-Continent; and Phillips 66 with 0.74 MMbbl/d in Gulf Coast. For the FY2015, its refinery throughput volume in the US stood at 1,709 Mbbls/d, which accounted for approximately 38.5% of its global throughput. Strength - Capital Efficiency ExxonMobil reported the highest return on capital employed (ROCE) compared to its peers in ROCE measures the efficiency of utilization of its capital. In FY2015, the company reported ROCE of 4.2%, which was higher than that of its nearest competitor. Higher capital returns highlight its strengths such as integrated portfolio, project management, and application of technology. For the FY2015, ROCE for Chevron and Shell stood at 2.5%, and 1.9% respectively. Over the past five years, from , ExxonMobil s ROCE averaged approximately 18%, which was higher than that of its competitors. Exxon Mobil Corporation - Weaknesses Weakness - Net Working Capital Deficit ExxonMobil reported deficit in its current assets in meeting its short-term obligations in FY2015. Working capital deficit coupled with limited cash reserves could affect its short-term business operations. For the FY2015, the company reported net working capital deficit of US$11,353 million, which was due to 19.4% decline in its total current assets, which fell to US$42,623 million. The company reported net working capital deficit in 2014 as well, which stood at US$11,723 million. In FY2015, its current ratio and cash ratio stood at 0.79 and 0.06 respectively. In FY2015, its non-cash current assets including total receivables and total inventory accounted for 91.3% of its total current assets. Its cash reserves accounted Page 3

4 for 8.7% of its total current assets. Weakness - Refinery Availability ExxonMobil reported decline in its refinery throughput volume which affected its total petroleum product sales volume. In 2015, the company reported refinery availability of approximately 88% which was lowest as compared to its peers. In 2015, BP, Chevron and Shell reported refinery availability of 94.7%, 89.8% and 90% respectively. In FY2015, the company reported 1% decline in its total throughput volume to 4,432 Mbbl/d as against 4,476 Mbbl/d in The decline was visible in its North American refineries. Declining throughput volume affected its sales volume by 2% which stood at 5,754 Mbbl/d in In FY2015, the company s downstream earnings stood at US$3.1/bbl which was lowest as compared to its peers. In 2015, BP, Chevron and Shell reported downstream earnings of US$3.7/bbl, US$4.8/bbl and US$4.3/bbl respectively. Exxon Mobil Corporation - Opportunities Opportunity - Globally Available Natural Gas Reserves ExxonMobil is a leading explorer and producer of natural gas. The company could strengthen its operations further by harnessing its global natural gas reserves. According to EIA, the global natural gas reserves amount to around 1.3 trillion boe with the Middle East and Eurasia (mainly Russia) accounting for 72% of the total. Proven gas reserves in Russia amount to approximately 330 billion boe, the world s largest by far. According to EIA, there is another 1 trillion boe of technically recoverable, undiscovered conventional natural gas. Russia also ranks highest in this category at over 40 billion boe. Opportunity - Increasing Demand: Oil & Petroleum Products ExxonMobil could strengthen its business with the expected increase in demand for oil and petroleum products across the world. According to World Oil Outlook (WOO), long term oil demand is expected to increase 20 Mbbl/d, reaching Mbbl/d by Of this increase, developing Asia would account for 88%, while the demand in China, India and other developing countries in Asia would reach 94% of that of the OECD countries by According to WOO, the global demand for petroleum products is expected to increase to Mbbl/d by The demand for diesel and gasoline is expected to grow to 36.1 Mbbl/d and 26.7 Mbbl/d, respectively, by By 2040, the demand for middle distillates is expected to increase by 12.5 Mb/d. This represents around 60% of the overall growth in demand for all liquid products. This trend is most pronounced in the Asia-Pacific region where gasoline demand is projected to increase by more than 3 Mb/d by Opportunity - Upstream & Downstream Growth Initiatives ExxonMobil strives to strengthen its operations through new investments in upstream and downstream projects. In December 2015, the company announced the successful startup of the onshore central processing facility at the Banyu Urip field in Indonesia, which increased production to more than 130,000 bbl/d of oil. In October 2015, the company announced plans to expand the hydrocracker unit at its Rotterdam refinery to upgrade heavier by-products into cleaner, higher-value finished products. In August 2015, ExxonMobil entered into two agreements to obtain horizontal development rights in 48,000 acres in the core of the Midland Basin. In the same month, the company announced plans to expand the US domestic crude processing capacity at Beaumont refinery. As of December 2014, the company started the construction of a 50,000 bbl/d delayed coker at its Antwerp Refinery in Belgium, which is expected to be online by This refinery is on a site with substantial cost advantage in Western Europe. ExxonMobil Chemical announced capacity expansion initiatives at its facilities in Singapore (synthetic rubber and adhesives), the US Gulf Coast (ethylene and polyethylene), and Saudi Arabia (synthetic rubber and elastomer). Its capacity expansion is expected to be online by Such new investments could provide the company growth opportunities. Opportunity - Major Projects under Pipeline ExxonMobil has interests in several major projects across the world under various execution phases, which could benefit the company. Its major projects include Alaska LNG project, Julia project in the Gulf of Mexico, Liza project of Guyana, Ca Voi Xanh (Blue Whale) offshore project and Sakhalin-1 project. The Alaska LNG project could be among the world s largest natural gas-development projects once production commences. Its participants include affiliates of BP, ConocoPhillips, and ExxonMobil; and Alaska Gasline Development Corporation (AGDC). The project is anchored by the Prudhoe Bay and Point Thomson fields, which are expected to produce approximately 3.5 bcf of gas per day. As of December 2015, the project was in the pre-front-end engineering and design (pre-feed) phase. The Julia project in the Gulf of Mexico is an ultra-deepwater reserve. The company has interests in five blocks, namely, WR-584, WR-627, WR-628, WR-540 and WR-583 with an estimated six billion barrels of resource. The project s start up is scheduled in It plans to commence production from its deepwater Liza project in Guyana by ExxonMobil plans to commence gas production from Ca Voi Xanh (Blue Whale) offshore project by Ca Voi Xanh projected is expected to have 3-10 tcf of natural gas resource. In 2015, the company s joint venture Exxon Neftegas Limited commenced production at the Arkutun-Dagi field in the Sakhalin-1 project. Page 4

5 Exxon Mobil Corporation - Threats Threat - Variation in Crude Slate Quality ExxonMobil is a major North American refiner. Variation in crude slate quality could affect its operations. Since 2005, when the quality was at 32.8 API, the global average crude lightened and this trend is set to continue, driven in large part by US tight crude. According to WOO 2015, it is expected to reach 33.7 API by around However, it is expected to fall substantially to 33.1 API range by the late 2030s. According to WOO 2015, the US tight crude supply is expected to reach 4.16 Mbbl/d in 2040 from 3.81 Mbbl/d in Global growth in condensate supplies also supports the lightening of the worldwide crude slate until According to WOO 2015, from 4.5 Mbbl/d in 2014, global condensate supplies are projected to increase to around 5.2 Mbbl/d by Threat - Exploration Production & Development Risks Future oil and gas exploration and production may involve unprofitable efforts, not only from dry wells but also from producing wells, when they are not commercially viable. In FY2015, the company drilled five dry exploratory wells and nine dry development wells. The combination of technology and recovery cost may be higher than revenue earned from production. Drilling hazards and environmental damage could lead to well shut down. Operational risks such as unexpected formations or pressure, bow-outs and fire, which could result in loss of life and damage to properties, would cause production delay and permanent well shut downs. The company faces challenges related to future exploration development and production uncertainties. This could affect its revenue. Threat - Lower Oil Price ExxonMobil s crude oil realization is dependent on the global crude oil prices. Oil prices are dependent on various factors beyond the company s control, including supply of and demand for oil; weather conditions; and political influences, among others. According to EIA, North Sea Brent crude oil prices averaged US$38/bbl in December 2015, a US$6/bbl decrease over that in November 2015, and the lowest monthly average price since June Brent crude oil prices averaged US$52/bbl in 2015, which shows a decline of US$47/bbl over the average in The decline was due to higher global inventories. According to EIA, Brent price is expected to average US$40/bbl in 2016, while WTI is expected to average US$2/bbl lower than Brent in 2016 and US$3/bbl lower in In 2015, lower price realization affected its earnings by US$18.8 billion. NOTE: The above strategic analysis is based on in-house research and reflects the publishers opinion only Page 5