TOP CONTRIBUTORS

Amit Amin

Avinash Gandhi

Isaac Middendorf

ExxonMobil (NYSE: XOM) is the largest of the vertically integrated oil majors, as well as the largest publicly-traded corporation in the world by market cap and revenue.^[1] The company was valued at over $500 billion at its peak, and had a 2008 net income of $45.2 billion, the highest in the world's corporate history.^[2] ExxonMobil's successes stemmed from a steady rise in oil prices due to increasing energy consumption worldwide, a decreased oil supply because of heated geopolitical conflict in oil-rich regions, and a persistent lack of widely adopted mass-market alternatives to petroleum energy. The Financial Crisis of 2008 and ensuing recession has turned the picture upside down, with demand growth for petroleum falling and oil prices plummeting. Nevertheless, ExxonMobil pumped out its oil at an average cost of $8.72 per barrel in 2008, which is well below 2009 prices of around $40-60 a barrel.^[3]

ExxonMobil generated the majority of its earnings from upstream exploration and production (E&P) activities, producing 3.92 million barrels of oil equivalent (MMBOE) every day in 2008.^[4] The geographical diversity of ExxonMobil's E&P activities makes it less vulnerable to the regional production uncertainties that plague the industry. The company is also an international leader in the downstream refining industry, with 10,516 retail stations^[5] and over 6.2 million barrels per day of refining capacity.^[6]

ExxonMobil leads a pack of six global "supermajor" petroleum companies which explore for, produce, refine, and market oil and gas. Of these six (including BP (BP), ChevronTexaco (CVX), Total (TOT), ConocoPhillips (COP), and Royal Dutch Shell), ExxonMobil has consistently produced the highest revenue, income, and returns on capital employed (38.53%).^[7]

Despite these strengths, ExxonMobil remains at the mercy of market maker OPEC, an organization of petroleum-producing nations that controls global oil prices by holding about 40% of the world's crude oil supply.^[8] And while oil & gas hold a monopoly over the world's supply of energy, alternative energies such as biofuels pose a long-term threat to the industry. Nevertheless, forecasts that fossil fuels will account for 70% to 80% of global energy supply in 2100 ensure the short to medium-term profitability of ExxonMobil's business model.^[9]

Business and Financials

Fourth Quarter 2009 Summary

Earnings for the fourth quarter of 2009 were $6.1 billion down $1.8 billion as compared to the fourth quarter in 2008.This was due primarily to reductions in the downstream segment.^[10]

Full year 2009 earnings were $19.3 billion, which was down $25.9 billion as compared to the full year of 2008. The decrease in earnings were due to lower commodity prices, weaker margin and lower demand from the weak economy. Earnings included a charge of $140 million related to Valdez litigation.^[10]

Third Quarter 2009 Summary

Revenue for the third quarter of 2009 was $82.3 billion and earnings were $4.7 billion, down 65% as compared to the same period in 2008. Earning were negatively impacted by weak margins and lower commodity prices. During the quarter two liquefied natural gas facilities commenced production with annual production of 7.8 million tons each and are two of the largest LNG facilities in the world. Additionally, ExxonMobil formed an alliance with Synthetic Genomics Inc. to develop biofuels from algae. If milestones are met ExxonMobil expects to spend more than $600 million under the program.^[11]

Second Quarter 2009 Summary

Total revenue for the second quarter of 2009 was down 47% to $74.5 billion and earnings were down 66% to $3.95 billion as compared to the same period in 2008. The drop in earnings were primarily due to reduced demand, volatility of commodity prices and charges related to Valdez litigation.^[12]

First Quarter 2009 Summary

With oil prices half what they were in 1Q08, quarterly income fell 58% YOY. Higher margins in the company’s downstream segment boosted earnings by $700 million, but was not enough to counteract the loss of $4.4 billion from lower crude oil prices and $500 million from lower natural gas prices in its upstream segment, and $300 million from lower margins and volume in the company’s chemicals segment. Further, increased CapEx increased expenses by about $300 million. ^[13]

Fourth Quarter 2008 Summary

With oil prices at levels half that in 3Q, quarterly income fell 33% YOY and 47% QOQ, to $7,820 billion.^[14] Low oil prices boosted downstream earnings by about $800 million, but damage repairs and lower volume due to hurricanes Gustav and Ike cost the company $570 million.^[14] That, in tandem with falling margins pushed down quarterly income in ExxonMobil's chemicals segment 86% YOY, and 31% YOY in ExxonMobil's upstream segment.^[14] Production volume as a whole fell 3% YOY.^[14]

Oil prices averaged around $100 in 2008.^[15] That's why, despite falling production, net income for ExxonMobil rose $4,610 million from 2007 to 2008. Income for 2008 was $45.2 billion.^[4] The company is involved in producing, refining, and transporting oil, natural gas, and petrochemicals, although the bulk of its revenues come from international drilling and exploration. Earnings included a gain of $1.6 billion from the sale of a German gas transportation business and a charge of $460 million related to Valdez litigation.^[10]

Third Quarter 2008 Summary

For the third quarter of 2008, net income rose $5.42 billion year-on-year, to $14.8 billion.^[16] The high price of oil continued to increase downstream expenses, 41% higher than in Q3 2007, as well as increase upstream revenues, 74% higher over the same time period.^[16] Production decreased 8% year-on-year.^[17]

Second Quarter 2008 Summary

On April 11th, 2008, ExxonMobil announced that it would join a partnership with ConocoPhillips and Chevron to build a pipeline that would span from the North Slope of Denali in Alaska through Canada and into the U.S. The total cost of the project is estimated at $20 billion, and will require over 1000 government permits in both countries, but the returns will likely be massive if the project is successful, as the gas shipped by the line has the potential to meet 8% of total U.S. gas demand.^[18]

Upstream: ExxonMobil’s upstream segment is involved in the exploration & production (E&P) of oil and natural gas, and earned 78% of the company’s net income in 2008.^[4] The majority of its reserves are in the U.S. and Russia and Caspian Sea region, with 28% of the company’s total reserves each.^[19]

Downstream: ExxonMobil’s downstream segment is involved in the refining and marketing of oil and natural gas, and earned 18% of the company’s net income in 2008.^[4] The company had a refining capacity of 6.2 million BPD,^[6] which it uses to turn crude oil into gasoline, which is sold through 10,516 owned or leased retail stations and 18,158 distributors and resellers using one of ExxonMobil’s brands.^[5] The company also produces diesel oil, jet fuel, and heating oil.

Chemicals: ExxonMobil’s chemicals segment uses oil to manufacture and market commodity petrochemicals, like plastics, and earned 6.5% of the company’s net income in 2008.^[4]

Exxon Strengthens it Presence in Shale with Acquisition of XTO Energy

On December 14, 2009 Exxon announced a deal to acquire XTO Energy through an all-stock transaction valuing XTO at $41 billion. It is the largest U.S. petroleum takeover since 2006 and highlights Exxon’s continual move into shale based oil and natural gas. XTO has a strong hold in shale plays in America, including the Marcellus, the Haynesville and the Bakken basins. The acquisition will boost the company’s resource base by 10%, leveraging the fact that XTO is one of the nation's largest independent oil and gas producers.^[20]

XTO is among companies that have driven a surge in U.S. fuel output by exploiting so-called shale plays, where rock formations are fractured with water and sand to make gas flow.^[20] This may begin a wave of acquisition as major producers look to exploit resources from shale formations. Other players such as Anadarko Petroleum Corp., Ultra Petroleum and Chesapeake Energy Corp. are among companies that have demonstrated the ability to exploit shale and may be prime candidates for acquisition. This demonstrates that oil companies are trying to boost production through takeovers. Declines in gas prices have changed the overall landscape ,favoring acquisitions over joint ventures, due to lower company values.^[21]

The acquisition will compliment Exxon’s presence in other shale areas such as the Piceance Basin in Colorado. The company has been producing natural gas from the basin for more than 50 years and in June 2009 completed new facilities with the capacity to handle 200 million cubic feet per day of natural gas. The Piceance Basin has an estimated 1.525 trillion barrels of in-place oil shale resources.^[22]

Working in shale additionally involves working with the U.S. government. Over 70% of American oil shale is on federal land, primarily in Colorado, Utah and Wyoming. The National Environmental Policy Act (NEPA) requires that exploration and production on federal lands be thoroughly analyzed for environmental impacts and is tightly regulated by federal or state organizations. In October 2009 the Department of the Interior stated it would offer additional opportunities for energy companies to conduct oil shale research, development and demonstration (RD&D) projects on public lands.^[23] This signals that the government understands the value of shale deposits, but also that they must be handled carefully. The results of continued research on shale projects and the success of current methods to safely extract hydrocarbons will have a dramatic effect on Exxon’s investments in these areas.

Exxon is Making Large Investments, Despite Falling Profits

Despite the falling price of oil, the company intends to increase its capital expenditures (investment spending) by 11% in 2009, to $29 billion, and will spend up to $150 billion over the next 5 years.^[24] In the first quarter of 2009 alone, when earnings fell 58% YOY, the company increased CapEx by 5%, to $5.8 billion.^[13]

In the beginning of January 2010, Exxon announced it was looking to sign a $1 billion contract with Transocean to build and rent a rig that is capable of drilling in the Arctic. The price represents a daily rate close to the record high that Transocean signed in mid-2008 when oil was near its peak.^[25]

Large Expansion into Natural Gas to Further Diversify Revenues

In an effort to explore new opportunities ExxonMobil has begun to place more and more investments in natural gas. As of August 2009 the company was nearing completion of a $30 billion project to develop the world's largest natural gas field, deemed the North Field. The field is located in the Persian Gulf state of Qatar. It is expected to boost the company's gas production 12% to 9.9 billion cubic feet per day, making ExxonMobil the world's largest natural gas producer. It will also boost total oil and gas output to an equivalent of 4.3 million barrels a day. The North Field is expected to contain 900 trillion feet of natural gas.^[26]

Comparison of Carbon Emissions^[26]

ExxonMobil has increased its investments in natural gas because it has lower carbon emissions than coal and petroleum and because of its plentiful deposits. This particular opportunity is appealing because of its proximity to the port of Ras Laffan. The port is a large industrial zone for natural gas with 145,000 workers devoted to production of natural gas.^[26]

In addition to the benefits of natural gas the field has an abundance of propane and butane. These are expected to supply 300,000 barrels per day and will generate $5.8 billion a year, at current prices. These molecules will also be much cheaper than natural gas to move ~$350 million a year as compared to $3.3 billion a year for natural gas.^[26]

To further expand its portfolio in natural gas, in September of 2009 ExxonMobil agreed to a joint venture with Royal Dutch Shell and Chevron to construct a liquefied natural gas facility on Barrow Island off the coast of Australia. Chevron will own 50% of the facility while Shell and Exxon will each have 25%. The facility will almost double Australia's liquefied natural gas output with an annual capacity of 15 million tonnes per year.^[27]

Shell has already signed a 20 year deal with PetroChina to buy two million tonnes per year of LNG directly from the facility.^[27] While Chevron already has interest in the facility from suppliers in Japan and Korea. It has already agreed to supply 3 million tons per year of LNG to Osaka Gas, Tokyo Gas and GS Caltex from Korea. Additionally Chevron has finalized a 15 year deal with Kora Gas to provide 1.5 million tons per year.^[28]

With the deposits of natural gas ExxonMobil expects to keep consumer demand steady through plentiful supply and low prices. It will also leverage the ability to restrict supply to increase prices or rely on the additional revenue from propane and butane deposits if needed.^[26]

Exxon Likes Buybacks

ExxonMobil spent $29 billion of its cash flow on repurchases in 2006, $28 billion in 2007,^[29] and $32 billion in 2008,^[30] which when added to past purchases puts it's treasury stock at almost $150 billion.^[31] Buybacks have two purposes:

1. Reducing the number of shares in circulation improves per share ratios, like earnings per share (EPS). Executive Compensation is often tied to measures like that.
2. When a firm believes that it is unable to return more value to its investors in the form of additional spending for things like E&P over what its shareholders could earn by themselves.

The second is true for ExxonMobil, as it hasn't given out stock options since 2001.^[32] At the same time, buybacks are preferable over dividends because they can be used with more flexibility. Once the level of dividend payouts have increased, investors expect similar or higher payouts in the future. At the other end, buybacks are regarded as one-time actions, so if cash flows are weak the company doesn't have to sacrifice retained earnings to maintain expectations. Further, dividend earnings are taxed twice, while buybacks are only taxed once.^[32] Nevertheless, it's true that money spent on buybacks is money unavailable for investment spending, like for boosting production or researching alternative energy. Short term or not, the buybacks are considered a factor in buoying the company's share price during oil's collapse in Q408.^[33]

Trends and Forces

U.S. to Propose at the G-20 Summit to End Fossil Fuel Subsidies Within Five Years

At the end of September 2009 the G-20 summit will be held in Pittsburgh, Pennsylvania. It has been reported that the U.S. contingent will ask the G-20 to eliminate worldwide fossil fuel subsidies in five years. Currently G20 countries spend $335 billion every year for subsidies on oil, gas and coal.^[34] The U.S. will argue that the subsidies distort oil product markets and artificially raise fuel demand. It will also argue for more transparency of oil markets with more timely and accurate information about inventory levels and positions held in future markets.^[35] According to the White House's deputy national security adviser for international economic affairs, the elimination of subsidies will also improve energy security and fight climate change through conservation and the freeing up of additional funding for cleaner technologies.^[36]

Growing support against fossil fuels may have a negative impact on ExxonMobil, especially if there is further support by the G-20. Ending of subsidies will affect all areas of its business, especially in rapidly expanding markets such as India and China, which have currently offset loses due to drops in demand elsewhere in the world.

Oil Prices

ExxonMobil’s E&P revenues depend on how much oil it produces, and for how much it can sell it. At the same time, ExxonMobil’s refining and chemicals improve their bottom-line when the price of their greatest input, oil, goes down. As a whole, ExxonMobil benefits when oil prices increase, as it makes more from E&P than it does from refining and chemicals, and a drop off in oil prices is often caused by a slowdown in economic growth, which causes demand destruction for all of its products. Factors affecting demand include:

• Economic growth, especially in underdeveloped economies like China
• Economic contractions, like the global recession that began in 2008
• Development of oil-substitutes, like electric cars and ethanol, which is itself driven by high oil prices

Factors effecting supply include:

• Production cuts, like those made by OPEC to buoy falling oil prices
• Peak oil, which means that oil production has reached a plateau or is declining
• Technological developments, which can increase the amount of economically recoverable oil

Light sweet crude oil futures (US$/barrel) with an August, 2009 delivery date:

Demand Growth Forces Prices Up

Demand for oil, as well as demand for energy in general, is closely tied to the global economic cycle. In periods of economic growth, new factories consume energy, shipping companies transport more goods and consumers take more trips. Burgeoning underdeveloped economies like China are expected to make the Asia Pacific natural gas market grow faster than any other regional gas market in the world. China's demand for oil is lower than other countries' at 2 barrels per person per year (bpy)—America’s is 25 bpy and Japan’s 16 bpy.^[38]

The long-term trend is clear – energy consumption is going to increase. However, these projections were made in June of 2008; a slight downward revision is likely in the next release in May of 2009.

Demand Destruction

Demand for oil, as well as demand for energy in general, is closely tied to the global economic cycle. During periods of economic contraction such as recessions, demand for oil and other types of energy tends to fall, leading to reductions in price. Demand destruction - primarily in the United States - is likely responsible for most of the drop in oil prices that occurred during the third quarter of 2008^[40]

In 2008 world oil consumption of liquid fuels was 85.45 million barrels per day (bbl/d),^[41] 3% less than forecasts made by the International Energy Agency at the end of 07.^[42] World oil consumption was forecasted in April of 2009 by the EIA to fall 1.35 million bbl/d in 2009.^[43]

Much of this demand destruction is likely rooted in the 2007 Credit Crunch, the 2008 Financial Crisis, and the resulting recession; when unemployment rises, people stop spending and start saving. When people stop spending, companies stop producing. When companies stop producing, demand for energy falls. When demand for energy falls, the price of oil falls. Hence, it is likely that oil prices will remain lower than before until the world economy recovers from its recession.

Production Cuts

The global oil supply is dependent on the ability of oil companies to produce and the willingness of oil-exporting countries to export. Historically, periods of oil price spikes have been caused by oil-exporting countries placing embargoes on certain countries. In 1973, for example, the world's largest oil cartel, OPEC, placed an embargo on oil exports to the Netherlands and the United States, in response to the countries' support of Israel in the Yom Kippur War; the price of oil acquired by refiners increased by approximately 100%, and the U.S. experienced widespread shortages.^[44] In 2007, however, despite a 57% increase in prices, the amount of oil exported by the world's top exporters fell 2.5%. Demand for oil in the world's six largest exporters (Saudi Arabia, United Arab Emirates, Iran, Kuwait, Iraq and Qatar) increased by more than 300,000 barrels, while their exports fell by over half a million barrels.^[45] In this case, growing demand in each company acted as a natural embargo, forcing them to meet their own needs before exporting to the rest of the world.

The Financial Crisis of 2008 has laid waste to oil prices, by causing a recession so deep even expectations of large supply cuts can't force prices up. In December 2008, OPEC announced a production cut of 2.2 million barrels - it's largest ever - and oil futures actually fell, as traders ignored decreasing supply and focused on decreasing demand.^[46]

Peak Oil – Falling Production

Peak oil refers to the "peak" on the graph of global oil production. Oil must first be discovered, then produced, and will eventually be depleted. Oil production has already peaked in the USA and more than 50 other oil producing countries.^[47] Once the halfway point "peak" has been passed, production begins to fall and oil prices will rise. This is not good for Exxon. Although oil prices will rise, production costs will also rise, as traditional oil producing basins dry and reliance on expensive deepwater reserves increases. Production will also likely fall for Exxon, just like with any other oil company. Worse, as demand further outstrips supply and oil prices skyrocket, alternative energies will become increasingly competitive.

Production Costs

ExxonMobil’s bottom line depends on how much it costs to produce the oil that it eventually refines and/or sells. About 30% of its oil came from expensive, nonconventional reserves in 2008. As its traditional oil-basins mature, that percent is expected by the company to rise to 40% by 2013.^[48]

Nonconventional Reserves

Nonconventional reserves include arctic and deepwater reserves, heavy oil, tight gas, and liquefied natural gas.^[48] Even in the low price environment of 2008 and 2009, producing from nonconventional reserves makes sense for ExxonMobil, as does increasing its CapEx. For new projects it can take up to 10 years for actual production to begin, meaning that the future price of oil determines profitability, not the current price. Also, ExxonMobil is locked into many long-term contracts with rig operators, under which terms it costs almost as much to idle as it does to produce. ^[49] However, if ExxonMobil spends billions on setting up new production and oil prices do not rise as expected, the company’s margins will shrink.

Deepwater Oil E&P

ExxonMobil expects that by 2010, deepwater oil and gas will account for more than 20% of its total production.^[50] New deepwater production costs $95 a barrel or more.^[51] The higher cost of production comes predominantly from the $20-50 million plus that must be spent on drilling and setting up a new well.^[52]

Oil Sands

One-third to half of the world’s petroleum reserves may rest in the form of oil sands.^[53] ExxonMobil’s leases in the Kearl oil sands, located in Alberta, Canada, have proven reserves of 1,137 million barrels,^[54] which represents 15% of the company’s total oil reserves^[55], but will, with the development of better extraction and refining technology, double or triple into reserves of two to four billion barrels.^[56] The leases are part of a joint venture with Imperial Oil Limited. Imperial holds 71% of the interest and ExxonMobil Canad Properties holds the other 29%. Notably, ExxonMobil Corporation holds a 70% interest in Imperial Oil and 100 percent of ExxonMobil Properties. In addition to a strong position in the Kearl oil sands, the majority ownership enables Exxon to leverage the fact that Imperial has 140 years worth of proven oil and natural gas preserves without additional drilling.^[57]

However, oil from sand deposits is very thick, and must be highly processed before it can flow and be distributed for use. These nonconventional reserves cost, on average, $35/barrel to pump and convert into synthetic fuel, as compared to $3 a barrel in Saudi Arabia and release three times as much CO2 as during conventional production.^[58][59] That means that the implementation of a carbon tax or carbon trading scheme would make oil sands production even more expensive. More troubling for the company, the cost of new production can exceed $75 a barrel, as production in easy to reach places has already been set up. At the same time, ExxonMobil has taken a long-term perspective on its CapEx. It expects oil prices to be higher in 2012, by which time production from its expanded program will begin. ^[56]

Global Presence: Blessing or Burden?

While ExxonMobil is less at risk than some of its US competitors from restrictive legislation because ExxonMobil is not focused only in the US, this global presence brings problems from foreign politics and exchange rate risk as well. About 60% of the world’s supply of oil comes from geopolitically unstable countries including Saudi Arabia and Venezuela.^[60] High oil prices in 2007 and 2008 gave these oil exporting countries greater power to demand contract changes and tax raises, and greater incentives to nationalization private oil holdings, like Venezuela did of Exxon's holdings in 2007.^[61] In 2009, with oil prices back to historical levels, many countries are providing more favorable contracts in hopes of attracting much needed development money.^[62]

• Note to socially responsible investors: The company's operations in politically unstable countries often force Exxon to hire mercenaries or request a country's soldiers to guard refineries and oil fields. The actions these mercenaries or soldiers take while working for Exxon sometimes come under fire by human rights groups, as in 2001 when Indonesian mercenaries allegedly kidnapped, tortured/abused, and killed separatists on the grounds of the company's natural gas plant in the Aceh province of the country. Exxon is being sued in U.S. federal court by public interest groups for its role in these human rights violations, and in June 2008 the Supreme Court rejected an appeal that will allow the case to go forward.

Exchange Rate Risk Looms Large

Whenever a company does business in multiple countries, it is subject to exchange rate risk - the risk that exchange rates will change in the future. For Exxon, cashflows going back to its headquarters in the U.S.A. need to be converted into dollars. In 2007, when the dollar was weak, more favorable exchange rates allowed the company to gain $1.8 billion.^[63] In 2008, as the dollar strengthened against other currencies, the company lost $2.5 billion.^[63] The company does not hedge away this risk because it feels that, on average, the net gain or loss will be small.

Venezuela and Nationalization of Exxon's Assets

In 2007, Hugo Chavez of Venezuela nationalized Exxon's holdings in the country.^[61] The company has filed for international arbitration of the dispute, but the process will be costly and time-consuming.

On February 7th, 2008, a U.K. court ordered the freezing of $12 billion worth of assets currently owned by Petroleos de Venezuela SA, that were previously owned by Exxon.^[64] This followed a similar, $12 billion freeze-order by a Netherlands court, as well as a $300 million freeze by a U.S. court.^[65] Then, in late March, a British judge canceled the freeze order, setting Exxon's efforts back.^[66]

On February 10th, Venezuelan President, Hugo Chavez, publicly stated that if Venezuelan assets were frozen and the Venezuelan business was harmed, he would freeze oil exports to the United States; given that Venezuela accounts for 12% of the United States' oil imports^[67], this threat appears to have very sharp teeth - though the idea that Chavez would halt sales to his biggest customer is one that many analysts scoff at. In another retaliatory move, on February 13th, Petroleos de Venezuela SA cut off crude sales to Exxon, in an attempt to stop the oil giant from pushing its case in other courts; with so much of its business focused on exploration and production, however, and with an international crude purchasing arm that buys oil in 35 different varieties^[68], no one expects any negative effects to Exxon from Chavez's embargo.

In early 2009 Venezuela invited tender offers to develop over 10 billion barrels of oil in a minority stake with a joint-venture with PDVSA. Exxon did not participate.^[69]

Environmental Legislation

Fossil fuels, though highly cost-efficient forms of energy, are heavy polluters when burned. Increasing environmental concern over environmental degradation and global climate change is fueling a consumer-driven push away from dirty forms of energy toward cleaner forms like wind energy and solar power. These concerns are also causing political movements, which are leading to increased regulation in the fossil fuels market. Government regulations like emissions caps, renewable energy subsidies, and carbon trading schemes all facilitate transitions away from dirty, nonrenewable fuels.

Carbon Trading

An increasingly popular response to global warming is carbon trading. Markets have been implement in the EU and through the Kyoto Protocol, and may soon find a home in the U.S. How much do they cost Exxon? The average barrel of oil that passes through U.S. refineries produces about 100kg of CO2 emissions.^[70] The cost of permits for polluting one ton of CO2 in Europe has ranged from €30/tonne to €0.03/tonne. ^[71]That translates into only $.004/barrel to $4/barrel. In a properly functioning carbon trading market (or tax equivalent) it’s estimated that the cost/tonne should hover around $20-$40 dollars, which is $2/barrel - $4/barrel.^[72] Only a portion of that cost was and will be borne by Exxon, although the resulting higher price of oil does reduce demand (which translates into lower revenues). Taking the hypothetical case that Obama is able to push through Congress to create a carbon trading market in the U.S., Exxon’s largest market, the company would lose a couple billion dollars a year.^[73]

Access to ANWR

The quantity of economically recoverable oil underneath the Arctic National Wildlife Refuge (ANWR) is estimated to be at around 10 billion barrels.^[74] Concerns over the area’s wildlife has prevented competitor Shell from drilling in its ANWR blocks. Gaining control of even one-tenth of the area’s oil would boost Exxon’s oil reserves by 14%.^[74][55]

The Future for Fossil Fuels Remains Bright

Alternative energy challenges like low production volume, low production efficiency, and lack of infrastructure (some new fuels require distribution infrastructure separate from existing oil pipelines) all have yet to be overcome. That in mind, Nature forecasts that fossil fuel use will increase 45% by 2030.^[9] That’s more than enough to keep Exxon running.

Exxon’s Response to Renewable Energy

Exxon has traditionally focused on rising costs in the form of carbon trading or taxation, rather than in demand being stolen by renewable energy. However, in the middle of 2009 the company announced renewed investments in biofuels.

Prior investments included:

1. The investement of more than $100 million in Controlled Freeze Zone (CFZ) technology, which can make carbon capture and storage more affordable.^[75] That would reduce the environmental impact of oil and gas.
2. The company has developed a lithium-ion battery for use in electric and hybrid cars^[75]
3. Hedging against the development of a hydrogen economy, the company has developed an on-vehicle hydrogen generation system^[75]

In July of 2009 Exxon announced a $600 million investment in producing biofuels from algae. The investment involves a partnership with a biotechnology company, Synthetic Genomics. $300 million will be used for in-house studies, while the additional $300 million will be allocated to Synthetic Genomics based off meeting research and development milestones.^[76]

Large scale commercial plants to produce algae-based biofuels are reported to be at least 5 to 10 years away, but have the potential to yield more than 2,000 gallons of fuel per acre of production each year. In comparison: palm trees produce 650 gallons, sugar cane 450 gallons and corn yields just 250 gallons per acre a year.^[76]

Natural Disasters

Natural disasters can significantly disrupt Exxon’s oil production operations. For instance, hurricane activity can damage and destroy refineries, oil rigs, pipelines, and other equipment. In 2005, production declined 15% and Exxon lost 33 MBOED (million barrels oil equivalent per day) of production due to the impact of Hurricanes Katrina and Rita on Gulf Coast oil production operations owned by the company.^[77] In 2008, production declines and repair expenses attributed to the damage caused by Hurricanes Gustav and Ike lowered fourth quarter earnings by $570 million.^[78]

Competitors

Exxon Mobil is the biggest of the supermajors, the six largest public energy companies in the world - Royal Dutch Shell, Chevron, BP, Total S.A., and ConocoPhillips. Exxon's efficiency is attributable to several advantages over its competitors:

• Production operations and reserves are large, diverse, and firmly established in the major petroleum basins (North America, Europe, West Africa, the Middle East, and Asia Pacific).
• Exxon has one of the largest E&P portfolios, allowing the company to selectively choose investments and lower technical and political risks.
• Technological advances increase efficiency and allow the development of resources such as tight gas, heavy oil, and liquified natural gas.

But unlike some of its foreign competitors, the American ExxonMobil is constrained by economic sanctions that ban it from doing business with some of the world's largest oil states, including Iran, estimated to have the second largest reserves of conventional crude oil in the world.

Another growing concern for public energy companies worldwide is the increasing competition coming from national oil companies like Saudi Aramco and NIOC of Iran.^[79]

(1) Latest data is for 2007 (2) Does not include reserves of equity affiliates

(1) Latest data is for 2007

Global Oil Industry Operational Data

Notes

1. ↑ Social Picks - Index of Market Cap Leaders by Nation Posts Decline
2. ↑ France 24 - Exxon claims world's highest annual profits for 2008
3. ↑ XOM 2008 10-K, Item 15, Page 88
4. ↑ ^{4.0 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8} XOM, 2008 10-K, Item 6, Page 36
5. ↑ ^{5.0 5.1 5.2} XOM 2008 10-K, Item 2, Page 25
6. ↑ ^{6.0 6.1 6.2 6.3} XOM 2008 10-K, Item 6, Page 43
7. ↑ Yahoo! Finance - XOM: Key Statistics
8. ↑ Wien International - OPEC – 40 Years in Vienna
9. ↑ ^{9.0 9.1} Peak oil, peak coal, peak gas and projected fossil fuel use
10. ↑ ^{10.0 10.1 10.2} Exxon Mobil Q4 Earnings Call Transcript, 123jump.com, February 2, 2010
11. ↑ "Exxon Mobil Corporation Announces Estimated Third Quarter 2009 Results," Reuters.com, October 29, 2009
12. ↑ ExxonMobil 2Q 10Q 2009 Pg. 16
13. ↑ ^{13.0 13.1} ExxonMobil – Investor Relations: 1Q'09 Press Release
14. ↑ ^{14.0 14.1 14.2 14.3} XOM 4Q08, Quarterly Report
15. ↑ St. Louis Fed - OILPRICE, Spot Oil Price: West Texas Intermediate
16. ↑ ^{16.0 16.1} XOM, 3Q08 10-Q, Item 1, Page 3
17. ↑ XOM, 3Q08 10-Q, Item 1, Page 10
18. ↑ MarketWatch: "BP, Conoco team up on major Alaska gas pipeline"
19. ↑ ^{19.0 19.1} XOM 2008 10-K, Item 2, Page 6
20. ↑ ^{20.0 20.1} Shute, Toby, “Why ExxonMobil Took the Nat Gas Plunge Now,” December 16, 2009
21. ↑ Resnick-Ault, Jessica, “Big Oil Seen in ‘Race to the Altar’ After Exxon Deal,” December 15, 2009
22. ↑ “ExxonMobil Expands Natural Gas Processing Capacity in Piceance Basin,” Businesswire.com, June 22, 2009
23. ↑ "Salazar Reforms U.S. Oil Shale Program," DOI.gov, October 20, 2009
24. ↑ Topix - ExxonMobil plans to invest $29 billion in 2009; announces 5-year plan of as much as $150B
25. ↑ Transocean Looks to Sign $1B Contract with Transocean January 8, 2010
26. ↑ ^{26.0 26.1 26.2 26.3 26.4} Helman, Christopher, "ExxonMobil: Green Company of the Year," Forbes.com, August 24, 2009
27. ↑ ^{27.0 27.1} Harper, Paul, "Shell commits to Gorgon LNG project," Mystockvoice.com, September 16, 2009
28. ↑ Harper, Paul,"Full Steam Ahead for Chevron, Shell and ExxonMobil," Seeking Alpha.com, September 16, 2009
29. ↑ Oil Watchdog - Exxon: 'Pumping Cash, Not Oil'
30. ↑ iStockAnalyst - Exxon (NYSE: XOM) And Chevron ( NYSE: CVX): Available Alternatives
31. ↑ Yahoo! Finance - XOM: Balance Sheet
32. ↑ ^{32.0 32.1} Seeking Alpha - Why Exxon Still Denies Peak Oil
33. ↑ Seeking Alpha - Exxon Continues to Make the Best of a Bad Situation
34. ↑ Rickman, James, "The Economic Impact of the G20 Ending Oil Subsidies," SeekingAlpha.com, September 17, 2009
35. ↑ "US wants G20 to axe fuel subsidies, tighten rules-source," Reuters.com, September 4, 2009
36. ↑ Geman, Ben, "White House Wants Fuel Subsidy Cuts on G-20 Agenda," New York Times, September 16, 2009
37. ↑ Energy Information Administration - Oil Price Projections to 2011
38. ↑ Oil Crash - Oil prices, economic growth and adjustment
39. ↑ Energy Information Administration - International Energy Outlook 2008
40. ↑ IU: "Crude Oil Prices: Are "Oily Characters" Behind the Move?"
41. ↑ Energy Information Agency - World Liquid Fuels Consumption
42. ↑ [ http://www.forbes.com/feeds/afx/2007/11/13/afx4331657.html Forbes - IEA lowers 2007, 2008 world oil demand forecast UPDATE]
43. ↑ Energy Information Administration - Short-Term Energy and Summer Fuels Outlook
44. ↑ Wikipedia: "1973 oil crisis"
45. ↑ The Wall Street Journal: "Oil Exporters Are Unable To Keep Up With Demand"
46. ↑ SeekingAlpha: "OPEC's Power to Influence Oil Price Slips Away"
47. ↑ Future Pundit - Will Sun Cooling And Oil Depletion Prevent Global Warming?
48. ↑ ^{48.0 48.1} [ http://www.sec.gov/Archives/edgar/data/34088/000119312509040966/d10k.htm#tx91974_07 XOM 2008 10-K, Item 15, Page 43]
49. ↑ Seeking Alpha - Deepwater Drillers: Not in a Very Deep Hole
50. ↑ ExxonMobil - Newsroom: ExxonMobil’s world of deepwater exploration & production
51. ↑ CNNMoney - Why oil won't fall below $100
52. ↑ Energy Plan USA - Drilling Deep in the Gulf of Mexico
53. ↑ [ http://en.wikipedia.org/wiki/Tar_sands#cite_ref-8 Wikipedia – Oil Sands]
54. ↑ [ http://www.sec.gov/Archives/edgar/data/34088/000119312509040966/d10k.htm#tx91974_01 XOM 2008 10-K, Item 2, Page 23]
55. ↑ ^{55.0 55.1 55.2 55.3} XOM 2008 10-K, Item 1, Page6
56. ↑ ^{56.0 56.1} Government of Alberta - Kearl Oil Sands Project Description
57. ↑ Shaefer, Joseph, "O Canada! (Part III): Black Gold, Natural Gas and Growing Dividends Too," SeekingAlpha.com, October 11, 2009
58. ↑ Canada's National Energy Board - Canada's Oil Sands Opportunities and Challenges to 2015: An Update
59. ↑ National Geographic - The Canadian Oil Boom
60. ↑ Institute for the Analysis of Global Security - The Geopolitics of Oil
61. ↑ ^{61.0 61.1} XOM 2008 10-K, Item 2, Page 16
62. ↑ Alaska Journal of Commerce - Hard times mean new opportunities for big oil companies
63. ↑ ^{63.0 63.1} XOM 2008 10-K, Item, 15, Page 46
64. ↑ Seeking Alpha - Exxon Wins Battle to Freeze $12 Billion in Assets of Venezuela's Oil Company
65. ↑ Reuters - Courts freeze $12 billion Venezuela assets in Exxon row
66. ↑ Political Affairs - Exxon Must Undo False Accusations Against Venezuelan Oil Company
67. ↑ http://www.marketwatch.com/news/story/story.aspx?guid=D98A199D298543E6AC4154C9484ACA12&siteid=nbs
68. ↑ http://www.marketwatch.com/news/story/story.aspx?guid=E5856E8FBA1942258516C46BCB464C22&siteid=nbs
69. ↑ Petroleum World - Elio Ohep : Exxon-Conoco: Emotional or rational ?
70. ↑ [ http://numero57.net/?p=255 The Quiet Blog - Carbon dioxide emissions per barrel of crude]
71. ↑ Carbon Capital - Kyoto and Carbon Trading
72. ↑ Yale University - William Nordhaus: A Question of Balance
73. ↑ [3,607 million barrels/year x $2-4$/per barrel x 10%-100%(percent of costs borne by Exxon)]
74. ↑ ^{74.0 74.1} United States Geological Survey - Arctic National Wildlife Refuge, 1002 Area, Petroleum Assessment, 1998, Including Economic Analysis
75. ↑ ^{75.0 75.1 75.2} ExxonMobil – Newsroom: Global Climate and Energy Project Advances Energy Innovation
76. ↑ ^{76.0 76.1} Mouawad, Jad Exxon to Invest Millions to Make Fuel From Algae, The New York Times July 13, 2009
77. ↑ XOM 2005 10-K, Item 6, Page 34
78. ↑ XOM, 2008, November 4, XOM, 10-Q, Item 2, Page 16
79. ↑ Financial Times - The new Seven Sisters: oil and gas giants dwarf western rivals
80. ↑ COP 2008 10-K, Item 8,Page 149
81. ↑ COP 2008 10-K, Item 8,Page 152
82. ↑ ^{82.0 82.1} RDS’A 2008 20-F, Supplementary Information, Crude oil and natural gas liquids
83. ↑ ^{83.0 83.1} CVX 10-K 2009, Item 1, Page 7
84. ↑ ^{84.0 84.1} BP 2008 20-F, Item 1, Page 16
85. ↑ Lukoil Investor Relations – Fact Book 2008, Page 11
86. ↑ ^{86.0 86.1 86.2 86.3} ENI S.p.A. – Fact Book 2007, Page 11
87. ↑ ^{87.0 87.1} TOT 2008 20-F, Item 4, Page 10
88. ↑ COP 2008 10-K, Item 8, Page 151
89. ↑ ^{89.0 89.1} RDS’A 2008 20-F, Supplementary Information, Natural gas
90. ↑ Lukoil Investor Relations – Fact Book 2008, Page 12
91. ↑ ^{91.0 91.1} COP 2008 10-K, Item 6, Page 42
92. ↑ ^{92.0 92.1} CVX 2008 10-K, Item 1, Page 5
93. ↑ ^{93.0 93.1} BP 2008 20-F, Item 1, Page 14
94. ↑ Lukoil Investor Relations – Fact Book 2008, Page 13
95. ↑ ^{95.0 95.1} TOT 2008 20-F, Item 4, Page 12
96. ↑ Lukoil Investor Relations – Fact Book 2008, Page 14
97. ↑ E 2007 Annual Report
98. ↑ SUN 2008 10-K, Item 7, Page 35
99. ↑ ^{99.0 99.1} CVX 10-K 2009, Item 1, Page 24
100. ↑ VLO 2008 10-K, Item 1, Page 3
101. ↑ RDS’A 2008 20-F, Results, Refining Data
102. ↑ Sinopec Investor Relations, Operational Statistics for 2008
103. ↑ WNR 2008 10-K, Item 7, Page 34
104. ↑ ^{104.0 104.1} COP 2008 10-K, Item 1, Page 16
105. ↑ ^{105.0 105.1} BP 2008 20-F, Item 1, Page 29
106. ↑ Lukoil Investor Relations – Fact Book 2008, Page 15
107. ↑ Conversion factor is 1 BPD = 50 tonnes per year
108. ↑ ^{108.0 108.1 108.2} TOT 2008 20-F, Item 4, Page 36
109. ↑ SUN 2008 10-K, Item 1, Page 1
110. ↑ ^{110.0 110.1} VLO 10-K 2008, Item 1, Page 1
111. ↑ RDS’A 2008 20-F, Results, Manufacturing
112. ↑ Sinopec Refining Overview
113. ↑ WNR 2008 10-K, Item 1, Page 19
114. ↑ Lukoil Investor Relations – Fact Book 2008, Page 16
115. ↑ SUN 2008 10-K, Item 1, Page7
116. ↑ CVX 10-K 2008, Item 1, Page 25
117. ↑ CVX 10-K 2008, Item 1, Page 26
118. ↑ RDS’A 2008 20-F, Results, Marketing
119. ↑ Sinopec 2008 Annual Report, Business Review and Prospects, Page 20
120. ↑ WNR 2008 10-K, Item 1, Page 3
121. ↑ COP 2008 10-K, Item 1, Page 18
122. ↑ BP 2008 20-F, Item 1, Page 30
123. ↑ Lukoil Investor Relations – Fact Book 2008, Page 60

Energy Companies Anadarko Petroleum • BP • ChevronTexaco • Arch Coal • Cameco • ConocoPhillips • Enbridge • Consolidated Edison • Entergy • Exelon • Exxon Mobil • Frontier Oil • GE • Halliburton • Philips • Massey Energy • Occidental Petroleum • PG&E • Peabody Energy • Shell • Sasol • Schlumberger • Sinopec • Suncor • Sunoco • SunPower • Suntech • Suzlon • Toshiba • Valero • Xcel