PetroStrategies is pleased to present the following strategic analysis of ExxonMobil Corporation prepared as the Capstone report at Santa Clara University.ï¿½
This paper that was researched and written by MBA students at the Leavey Business School of Santa Clara University as part of their Capstone Course requirements. This paper also received the Business Schoolï¿½s prestigious Belotti award for best paper in the Spring Quarter, 2011.
The team members were: Kannan Ananthanarayanan, Pranav Bhajiwala, Kristine Garner, Foram Gandhi, Rajesh Goudar and . The study was conducted under the direction of Professor .
The SCU MBA capstone courseï¿½s primary objective is to develop the ability to formulate competitive strategy from the perspective of the general manager. The course: 1] introduces a variety of analytical tools associated with the field of strategic management (primarily from the perspective of high technology companies), 2] applies conceptual and analytical frameworks introduced in the core curriculum, 3] focuses on in-depth analysis of industries and competition, 4] uses techniques for predicting industry and competitive evolution, and 5] includes how government, technology, and other environmental factors influence competition. Both business- and corporate-level strategy analyses are included.
Throughout the course, the focus is on the foremost issue in running a business enterprise: "What must managers do, and do well, to make the company a winner?" The answers that emerge, and which become the themes of the course, are that good strategy-making and good strategy-execution are the key ingredients of company success and the most reliable signs of good management.
Please contact Professor For further information on the Leavey Business School of Santa Clara University.
Energy is the most fundamental resource that fuels the entire globe. The Energy sector is of international importance and is widely followed by many national and international organizations. ExxonMobil, the worldï¿½s largest public company in market capitalization, is the benchmark for companies operating in the Oil & Gas Industry. The actions of industry leaders like ExxonMobil are closely watched by the entire global Oil & Gas Industry ecosystem.
ExxonMobil recently announced that, ï¿½the vast majority of its new production over the next five years will be oil,ï¿½ and that it will ï¿½increase capital spending on finding and refining energy to $34 billion this year.ï¿½ This announcement came within months after spending $25 billion in acquiring XTO, a leading natural gas player. Given the companyï¿½s recent energy outlook report predicting natural gas to be the number two global energy source by 2030 and its recent acquisition of XTO, ExxonMobilï¿½s tilt towards oil appears to be a significant strategic move.
ExxonMobilï¿½s strategic move raises a set of critical questions, including the obvious ones: Are the recent moves of betting big on natural gas and immediately committing to pour a vast amount of resources to produce oil in the next five years strategically consistent?; Should ExxonMobil increase its investment in oil, or should it step up its commitment to natural gas more than ever?; Is ExxonMobilï¿½s action going to help it maintain its leadership, or will this move give its competitors an opportunity to overthrow ExxonMobilï¿½s dominance? With rising oil prices and an oversupplied natural gas market, current economics clearly favors oil production over natural gas production. However, conventional oil reserves are dwindling, with companies struggling to find new oil; this is recently illustrated by the unfavorable spotlight that was thrown on ExxonMobil regarding its dubious reserve replacement ratio. This raises more questions needing to be address: How will ExxonMobil be able to successfully execute on its mission to produce more oil?; What type of new technological innovations and infrastructure and process improvements are required to succeed?; What geopolitical, regulatory and environmental challenges must ExxonMobil overcome to profitably execute its commitment?
Global energy demand is expected to increase 35 percent by 2030.16 The demands for transportation, residential and commercial use are all expected to rise in the next two decades; however, the growth rate of the current energy supply is not expected to keep pace with increasing demand, calling for investment in the discovery and production of energy from all types of sources.
The natural gas market is currently oversupplied, keeping the price of natural gas low, resulting in a lower level of sustained profitability. Additionally, the adoption of natural gas across the globe is part of a very long-term strategy. As the adoption of natural gas increases, it should drive the prices for natural gas up, making the investment more financially attractive in the long run.
The energy industry is a mature industry with conventional, fossil-fuel-based energy sources, such as oil and coal, dwindling slowly. While the supply of conventional light crude oil is declining, there is still an estimated three trillion barrels of heavy crude oil in the world, equaling approximately 100 years of global consumption at current levels. Current technology allows only a fraction of heavy crude oil (400 billion barrels) to be recovered cost effectively.ï¿½
Therefore, boosting investment in unconventional oil exploration and processing technology is important to building a sustainable competitive advantage. The total cycle for producing oil is between two and five years for already developed fields, and seven to twelve years in unproven fields, so investments in technology need to be far in advance. Currently, the technologies to extract oil from unconventional sources are not yet fully developed.
Though the goals of ï¿½supermajorï¿½ oil companies are essentially the same, there is a sharp contrast in strategy. ExxonMobil made less investment to grow organically and has relied on its XTO acquisition to boost its reserves; whereas Chevron has spent a significant amount in capital projects with unwavering commitments to oil. ConocoPhillips, on the other hand, is divesting its non-core assets to build necessary capital to invest in liquids. Competitors are stepping up their oil investments, and ExxonMobil should not see itself at a competitive advantage by not acting swiftly.
ExxonMobil is a long-term oriented company, and as such, it is not unusual for ExxonMobil to invest in a long-term prospect like XTO, where it can acquire growth cost effectively, especially in light of the companyï¿½s strategic intent to be the leading supplier of global energy.
Our analysis suggests that the recent move of focusing on oil for next five years is well aligned with ExxonMobilï¿½s energy outlook and investments in natural gas. They both are part of a well-balanced strategy that caters to short-term as well as long-term strategic needs.
We recommend the following short-term actions:
1. Increase investments in oil exploration, production and refining
2. Expand chemical operations, especially in emerging markets
3. Focus on increasing commercial sales and retrenching retail sales
We also recommend the following long-term actions:
1. Increase investments in natural gas exploration and production
2. Invest in technology that would enable the company to explore, produce and refine heavy crude efficiently
3. Invest in renewable energy sources to assert its corporate and social responsibility
4. Continue to improve ethical operating standards to be the recognized leader in the industry
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