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Global Top 10 Energy Companies
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GLOBAL TOP 10 ENERGYCOMPANIES INDUSTRY,FINANCIAL AND SWOT ANALYSIS
Reference Code: DBEN0735
Publication Date: June 2009
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Table of Contents
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TABLE OF CONTENTS
Table of Contents 2Executive Summary 6
Industry analysis 6Industry definition 6Research highlights 6
Market Value 7Value 7
Market Share 8Share 8
Market SegmentationProduct 9Product 9
Market SegementationGeography 10Geography 10
Five Forces Analysis 11Summary 11Buyer power 12Supplier power 14New entrants 16Substitutes 18Rivalry 19
Top 10 Companies Landscape 21TOP 10 COMPANIES LANDSCAPE 21Revenue analysis 25Financial performance analysis 26
Company Reports 31Exxon Mobil Corporation 31Royal Dutch Shell Plc 40BP Plc 49Chevron Corporation 60TOTAL S.A. 69
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ConocoPhillips 81China Petroleum & Chemical Corporation (Sinopec) 89Eni SpA 96PetroChina Company Limited 105OAO Gazprom 112
Financial Analysis 121Exxon Mobil Corporation 121Royal Dutch Shell Plc 124BP Plc 127Chevron Corporation 130TOTAL S.A. 133ConocoPhillips 136China Petroleum & Chemical Corporation (Sinopec) 139Eni SpA 142PetroChina Company Limited 145OAO Gazprom 148
APPENDIX 151
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TABLE OF FIGURES
Figure 1: Global energy industry, $ billion, 200408 7Figure 2: Global Energy Industry Shareby value, % share, 2008 8Figure 3: Global energy industry segmentationproduct, % share, 2008 9Figure 4: Global energy industry segmentationgeography, % share, 2008 10Figure 5: Forces driving competition in the global energy industry 11Figure 6: Drivers of buyer power in the global energy industry 12Figure 7: Drivers of supplier power in the global energy industry 14
Figure 8: Factors influencing the likelihood of new entrants in the global energy industry 16Figure 9: Factors influencing the threat of substitutes in the global energy industry 18Figure 10: Drivers of degree of rivalry in the global energy industry 19Figure 11: Turnover of global top 10 energy companies, $ million, FY2008 22Figure 12: Revenue growth of global top 10 energy companies, 200608 26Figure 13: Operating profit analysis, FY2008 27Figure 14: Net profit analysis, FY2008 28
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TABLES
Table 1: Global energy industry, $ billion, 200408 7
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Executive Summary
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EXECUTIVE SUMMARY
Industry analysis
The global energy industry, which consists of the oil, gas, coal and consumable fuels, and the energy equipment and
services industries, has witnessed strong growth between 2004 and 2008. The industry is set to decline in 2009. However,
fast recovery is predicted and the market is expected to stabilize towards 2013.
The global energy industry generated total revenues of $10,273 billion in 2008, representing a compound annual growth
rate (CAGR) of 25.5% for the period spanning 2004-2008. The Americas and Asia-Pacific industries reached respective
values of $3,424 billion and $2,771 billion in 2008.
Oil, gas, and consumable fuels sales proved the most lucrative for the global energy industry in 2008, generating total
revenues of $10,021 billion, equivalent to 97.6% of the industry's overall value. In comparison, sales of energy equipmentand service generated revenues of $251.6 billion in 2008, equating to 2.4% of the industry's aggregate revenues.
The performance of the industry is forecast to decelerate, with an anticipated compound annual rate of change (CARC) of
-0.5% for the five-year period 2008-2013, which is expected to drive the industry to a value of $10,040 billion by the end of
2013.
Industry definition
The global energy industry consists of the total revenues generated through the exploration, production, refining,
marketing, storage, and transportation of oil and gas; the provision of equipment and services to the oil and gas industry;
and the sale of coal for industry and power generation.
For the purpose of this report, the Americas comprise Brazil, Canada, Mexico, and the US. Europe comprises Belgium, the
Czech Republic, Denmark, France, Germany, Hungary, Italy, the Netherlands, Norway, Poland, Russia, Spain, Sweden,
and the UK. Asia Pacific comprises Australia, China, Japan, India, Singapore, South Korea, and Taiwan.
The global figure comprises the Americas, Asia Pacific, and Europe.
Research highlights
The global energy industry generated total revenues of $10,273 billion in 2008.
Oil, gas, and consumable fuels sales proved the most lucrative for the global energy industry in 2008, generating total
revenues of $10,021 billion.
An anticipated compound annual rate of change (CARC) of -0.5% for the five-year period 2008-2013 is expected to drive
the industry to a value of $10,040 billion by the end of 2013.
* Currency conversions calculated using constant 2008 annual average exchange rates.
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Market Value
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MARKET VALUE
Value
The global energy industry grew by 39.4% in 2008 to reach a value of $10,272.8 billion.
The CAGR of the industry over the period 2004-2008 was 25.5%.
Table 1: Global energy industry, $ billion, 200408
Year $ billion Growth (%)
2004 4,141.3 -
2005 5,589.1 35.0
2006 6,400.2 14.5
2007 7,366.8 15.1
2008 10,272.8 39.4
CAGR, 200408 25.5
Source: Datamonitor D A T A M O N I T O R
Figure 1: Global energy industry, $ billion, 200408
0
2,000
4,000
6,000
8,000
10,000
12,000
2004 2005 2006 2007 2008
Year
$
billion
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
Growth(%)
$ billion % Growth
Source: Datamonitor D A T A M O N I T O R
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Market Share
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MARKET SHARE
Share
Exxon Mobil Corporation accounts for 4.6% of the global energy industry's value.
Royal Dutch Shell holds a further 4.5% of the industry's value.
Table 2: Global energy industry shareby value, % share, 2008
Company Share (%)
Exxon Mobil Corporation 4.60
Royal Dutch Shell 4.50
BP 3.60
Others 87.30
TOTAL 100.00
Source: Datamonitor D A T A M O N I T O R
Figure 2: Global Energy Industry Shareby value, % share, 2008
Royal Dutch Shell
4.5%
BP3.6%
Others87.3%
Exxon MobilCorporation
4.6%
Source: Datamonitor D A T A M O N I T O R
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Market SegmentationProduct
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MARKET SEGMENTATIONPRODUCT
Product
Oil, gas, and consumable fuels is the largest segment of the energy industry, generating 97.6% of the industry's value.
In comparison, the energy equipment and services segment accounts for the remaining 2.4% of the industry's value.
Table 3: Global energy industry segmentationproduct, % share, 2008
Category Share (%)
Oil, Gas, and Consumable Fuels 97.6
Energy Equipment and Services 2.4
TOTAL 100.0
Source: Datamonitor D A T A M O N I T O R
Figure 3: Global energy industry segmentationproduct, % share, 2008
Oil, Gas andConsumable Fuels
97.6%
Energy Equipmentand Services
2.4%
Source: Datamonitor D A T A M O N I T O R
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Market SegementationGeography
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MARKET SEGEMENTATIONGEOGRAPHY
Geography
The Americas is the largest energy region, accounting for 33.3% of the global industry's value.
Asia-Pacific accounts for a further 27% of the global industry's value.
Table 4: Global energy industry segmentationgeography, % share, 2008
Category Share (%)
Americas 33.30
Asia Pacific 27.00
Europe 24.30
Rest of the World 15.40
TOTAL 100.00
Source: Datamonitor D A T A M O N I T O R
Figure 4: Global energy industry segmentationgeography, % share, 2008
Americas
33.3%
Asia Pacific27.0%
Europe24.3%
Rest of the World15.4%
Source: Datamonitor D A T A M O N I T O R
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Five Forces Analysis
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FIVE FORCES ANALYSIS
Summary
Figure 5: Forces driving competition in the global energy industry
Source: Datamonitor D A T A M O N I T O R
The global energy industry is fragmented with a substantial number of companies. The industry comprises large,
diversified international companies, which appear as both buyers and players within different sectors as their operations
are highly integrated. Buyer power is boosted by large size of buyers and their financial strength as well as lack of product
differentiation. However, the high importance associated with the usage of oil, gas, and coal tends to weaken buyers
strength. The companies could operate in one or more parts of the supply chain. The entry to the industry is limited by
existence of scale economies, and significant regulatory environment. Although alternative energy sources could act as
substitutes, the cost of switching towards those weakens the threat posed.
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Buyer power
Figure 6: Drivers of buyer power in the global energy industry
Source: Datamonitor D A T A M O N I T O R
Energy firms, national petroleum companies, and independent operators appear on buyers side within the global energy
equipment and services industry. The buyer power is strong within the global oil and gas exploration and production
sector. Amongst buyers there are individuals as well as institutional end users able to make large purchases.
Commodities such as crude oil or natural gas are relatively undifferentiated products. The set price of these commodities
effectively ameliorates buyer power. Buyer power with respect to the global oil and gas refining and marketing sector is
moderate.
The sheer number of buyers, both individual and institutional and the importance of oil and gas product to end-users
weaken the buyer power within the sector.
Buyers within the global oil and gas storage and transportation sector are in the majority large diversified oil and gas
companies, which often incorporate gas transportation and storage activities. Such independence tends to boost buyer
power. However, pipeline infrastructure is such that in certain regions, oil and gas producers have no option but to use a
particular pipeline, which lowers buyer power.
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The power generation companies which are major buyers of coal are also large sized and have strong financial muscle.
The buyers could easily switch to a different provider due to lack of product differentiation and brand loyalty. These factors
tend to strengthen buyer power to some extent. However, the importance of the product offered within the market to the
success of the buyers' businesses dilutes this power somewhat. Overall buyer power with respect to the global energy
industry is assessed as strong.
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Supplier power
Figure 7: Drivers of supplier power in the global energy industry
Source: Datamonitor D A T A M O N I T O R
Major suppliers to the global energy industry are oil and gas equipment and services providers, landowners, as well as
those who provide the raw materials used in the construction of rigs. Typically, oil and gas equipment and services
providers are large, highly diversified companies and this therefore affords them greater bargaining power within the
sector. Baker Hughes, for example, has a wide product portfolio catering to the worldwide oil and natural gas industry.
Such suppliers are small in number, which combined with high demand from the oil and gas industry, enhances their
supplier power. Amongst the suppliers within the global coal and consumable fuels market there are specialist equipment
providers, human resources providers, as well as landowners or governments. Some of them may exert strong bargaining
power due to their size.
Some energy industry inputs (like steel) can be sourced from numerous suppliers and supplier power will therefore be
proportionately weakened. However, other inputs are more specific to the industry and suppliers will have greater power inthe sense that fewer companies will deal in these materials (for example, suppliers of industrial diamonds). While there are
a sheer number of companies providing specialist equipment, it may be more difficult to assure adequate reserves, as coal
and metal ores are nonrenewable. This means that major landowners, governments, and similar bodies can be viewed as
suppliers, and these may be in a strong position.
The year 2008 experienced increased demand for specialist equipment and services as commodity prices went sky high
which pushed drilling companies to explore commodities deposits previously deemed too costly, boosting suppliers
revenues. However, many larger oil and gas companies have backward integrated oil and gas services operations, and
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use third-party services companies to supplement their own activities. This, combined with the high importance of the oil
and gas industry to supplier revenues, reduce the supplier power of oil equipment and services companies. Overall
supplier power with respect to the global energy industry is assessed as strong.
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New entrants
Figure 8: Factors influencing the likelihood of new entrants in the global energy industry
Source: Datamonitor D A T A M O N I T O R
Analysis of the threat of new entrants into the global energy industry is complicated by the fact that it is possible for
companies to operate in one or more parts of the supply chain. Within the oil, gas and consumable fuels industry, the
leading players are oil companies, namely: Exxon Mobil Corporation, Royal Dutch Shell, BP, or Chevron Corporation -
typically large, highly vertically-integrated, multinational companies, which use the large scale of their production and
distribution networks to reduce costs and enhance profitability. The energy equipment and services industry is dominated
by players such as Schlumberger, Halliburton, Baker Hughes or Transocean who appear as suppliers to oil, gas, and
consumable fuels industry. Such players have invested heavily in their fleets of drilling rigs, other equipment, and
technology, including product innovation.
The presence of such powerful incumbents acts as a significant barrier to entry and the need for substantial initial
investment to set up facilities such as drilling rigs also reduces the threat of new companies establishing themselves in this
sector. There is also a significant regulatory environment within the oil and gas industry, which is restrictive to the entry of
players into the industry. Permission to explore new fields and extract oil and gas is generally depended on national
governments, and obtaining it may be a lengthy process. There are also regulations surrounding taxation and restrictions
regarding environmental impact.
Good sector growth however, lures new players to enter. The 2008 experienced the biggest rally in fuel prices in eight
years. The strong recovery in gas and oil prices has prompted producers to accelerate their drilling activities.
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The gas refining and marketing sector in many countries is unbundled, with companies typically involved either in
production, supply infrastructure, or marketing. Gas production and refining is typically integrated with that of oil and
therefore has equivalent barriers to entry. With respect to gas marketing, the lack of switching costs for end-users,
combined with the increasing popularity of energy provider switching, increases opportunities for the entrance of new
companies.
Major players within the coal and consumable fuels sector are large multinational mining companies. Such companies can
leverage the large economies of scale found in bulk coal production to minimize the per unit selling price for coal. Smaller
companies within the market may therefore struggle to compete with them successfully, which promotes consolidation
within the industry.
The assets required for coal mining are also considerable including a large amount of specialized machinery, which
constitutes a considerable barrier to entrance. In addition, the logistics of coal mining including the prohibitive start-up
costs for a mine and the relative rarity of viable coal provide further barriers to entry. Overall the threat of new entrants is
assessed as moderate within the global energy industry.
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Substitutes
Figure 9: Factors influencing the threat of substitutes in the global energy industry
Source: Datamonitor D A T A M O N I T O R
The alternative energy sources (those other than oil and gas such as nuclear, solar, coal, and wind) can be considered as
substitutes in the global energy industry. Such substitutes can be seen to offer notable benefits in terms of environmental
impact and sustainability. Shifting to renewable energy sources is costly and will take time, which is in short supply the
world must reduce its output of carbon dioxide (CO2) by 50 to 85% by 2050.
However, currently, the majority of the worlds energy production takes place with the use of non-renewable sources,
primarily oil, gas, and coal, and the consequently high cost of switching weakens the threat posed by the substitutes.
There are no apparent direct substitutes for oil and gas storage and transportation. However, if oil and gas resources are
developed nearer to target markets, then the requirement for storage and transportation services will be reduced.
There are several substitutes for coal and consumable fuels within the power generation market like nuclear fuels and
other alternative energy sources. However, while power companies can alter their primary energy mix to a small extent
without incurring many costs, a thoroughgoing transition to these substitutes would require investment in different
generation facilities, which constitutes a very high switching cost. Overall, the threat of substitutes within the global energy
industry is weak but still growing.
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Rivalry
Figure 10: Drivers of degree of rivalry in the global energy industry
Source: Datamonitor D A T A M O N I T O R
The threat of competition is strong within different sectors of the global energy industry. Major players are large verticallyintegrated multi-national companies such as BP, Exxon Mobil Corporation, and Royal Dutch Shell with respect to oil, gas,
and consumable fuels industry; and Schlumberger, Halliburton, Baker Hughes, and Transocean with respect to energy
equipment and services industry. Such companies have large scale operations, with few activities in alternative industries,
high fixed costs, and high exit barriers. These combine to produce a high level of rivalry.
Industry players are similar in the way that they operate and services they provide. However, some companies have
specialized in particular locations: SaudiAramco, for example, has a monopoly over upstream oil development in Saudi
Arabia. Players like Exxon Mobil Corporation try to diversify scope of their operations, engaging not only in exploration and
production, but also refining and marketing of oil and natural gas. The company is also engaged in the production of
chemicals, commodity petrochemicals, and electricity generation, and this fact tends to ease variation of operating
performance within sole sector.
High fixed costs and the high exit barriers created by the need to divest industry specific equipment on leaving the industry
both mean that competition within this industry is substantial. Within the storage and transportation sector, however, many
pipelines are effectively local-monopolies for oil and gas transportation between particular regions and therefore
geographical separation of companies within the sector may lessen r ivalry.
The coal and consumable fuels market is fragmented with companies such as China Shenhua Energy, Xstrata, BHP
Billiton, and Peabody benefiting from scale economies. The mining sector is capital intensive, which constitutes a
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significant barrier to entry, and also raises exit costs. There is a tendency towards concentration, with a few multinationals
dominating in several segments.
Major buyers in this sector are electricity generators. These companies will be on the lookout for cheaper and more
effective substitutes for coal and metals, such as oil and gas in the energy industry and players in this sector are therefore
constantly contending with the threat of substitutes. Overall, the thereat of competition is strong within the global energy
industry.
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TOP 10 COMPANIES LANDSCAPE
TOP 10 COMPANIES LANDSCAPE
The global energy industry is set to decline in 2009. Price increases is likely to be muted by the substantial surplus
production capacity held by members of the Organization of the Petroleum Exporting Countries (OPEC), along with very
high level of inventories among members of the Organization for Economic Cooperation and Development (OECD). World
oil consumption is also expected to remain weak because of the global economic downturn. However, fast recovery is
predicted and the market is expected to stabilize towards 2013. In 2008, Exxon Mobil Corporation was the leading player
(based on revenues), followed by Royal Dutch Shell and BP.
Table 5: Turnover of global top 10 energy companies, $ million, FY2008
Ranking Company name Revenue ($ million) Country
1 Exxon Mobil Corporation 459,579.0 US
2 Royal Dutch Shell Plc 458,361.0 The Netherlands
3 BP Plc 361,143.0 UK
4 Chevron Corporation 264,958.0 US
5 TOTAL S.A. 264,805.9 France
6 ConocoPhillips 240,842.0 US
7China Petroleum & Chemical Corporation(Sinopec)
204,739.3China
8 Eni SpA 188,107.9 Italy
9 PetroChina Company Limited 154,405.7 China
10 OAO Gazprom 142,130.8 Russia
Source: Datamonitor D A T A M O N I T O R
* Currency conversions calculated using constant 2008 annual average exchange rates.
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Figure 11: Turnover of global top 10 energy companies, $ million, FY2008
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
ExxonMobilCorporation
RoyalDutchShellPlc
BPPlc
ChevronCorporation
TOTALS.A.
ConocoPhillips
C
hinaPetroleum&
Chemical
Corporation(Sinopec)
EniSpA
P
etroChinaCompanyLimited
OAOG
azprom
Revenue($million)
Source: Datamonitor D A T A M O N I T O R
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Exxon Mobil Corporation
Exxon Mobil Corporation (Exxon Mobil) is engaged in exploration and production, refining, and marketing of oil and natural
gas. The company also manufactures and markets commodity petrochemicals and specialty products, and generates
electricity. It operates worldwide through three segments: upstream, downstream, and chemicals.
Royal Dutch Shell Plc
Royal Dutch Shell (Shell) is a holding company which owns direct and indirect investments in a number of companies
comprising the group. It engages in oil and gas exploration and production, transportation and marketing of natural gas
and electricity, and marketing and shipping of oil products and chemicals. Shell has extensive operations in more than 100
countries around the world. It operates through five business segments: oil products, chemicals, gas and power,
exploration and production, and oil sands.
BP Plc
BP is one of the largest vertically integrated oil and gas companies in the world, with presence in more than 100 countries
across six continents. The company engages in the exploration and production of gas and crude oil, and marketing and
trading of natural gas, power, and natural gas liquids. It operates through two reportable business segments: exploration
and production; and refining and marketing.
Chevron Corporation
Chevron Corporation (Chevron) is engaged in every aspect of the oil and natural gas industry, including exploration and
production, refining, marketing and transportation, chemicals manufacturing and sales, geothermal, mining operations, andpower generation. It has operations in more than 100 countries including the US. Chevron operates through four business
divisions: upstream, downstream, chemicals, and all others.
TOTAL S.A.
TOTAL is engaged in all aspects of the petroleum industry, including upstream and downstream operations. It is also
involved in the chemicals, coal mining, and power generation businesses. The company has operations in more than 130
countries. TOTAL operates through three business segments: upstream, downstream, and chemicals.
ConocoPhillips
ConocoPhillips is an international, integrated energy company which owns assets and businesses in nearly 40 countries.
The company is engaged in the exploration and production of petroleum, natural gas, chemicals, and polymers
businesses. It operates through six segments: exploration and production (E&P), midstream, refining and marketing
(R&M), LUKOIL Investment, chemicals, and emerging businesses.
China Petroleum & Chemical Corporation (Sinopec)
China Petroleum & Chemical Corporation (Sinopec) is a vertically integrated energy and chemical company which
operates through more than 80 subsidiaries and branches mainly located in China. It is primarily engaged in the upstream,
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midstream, and downstream operations. Sinopec primarily operates through five principal business segments: exploration
and production, refining, marketing and distribution, chemicals, and the corporate and others segment.
Eni SpA
Eni, an integrated energy company, engages in the oil and gas exploration and production, refining and marketing,
electricity generation, natural gas distribution, petrochemicals, oilfield services, and engineering industries. The company
operates in about 70 countries. It generates revenues through seven segments: exploration and production, refining and
marketing, gas and power, engineering and construction, petrochemicals, corporate and financial companies, and other
activities.
PetroChina Company Limited
PetroChina engages in a range of activities related to petroleum and natural gas, including exploration, development, and
production and sales of crude oil and natural gas; and refining, transportation, storage, and marketing of crude oil and
petroleum products. The company is controlled by China National Petroleum Corporation (CNPC). It operates through five
business segments: exploration and production, refining and marketing, chemicals and marketing, natural gas and
pipeline, and others.
OAO Gazprom
Gazprom, a vertically integrated energy company, is one of the largest gas producing companies in the world. The
companys core activities include exploration, production, transportation, processing, and marketing of natural gas, as well
as refining and production of crude oil and gas condensate. The company which has strong presence in Europe operates
through six business segments: production of gas, transportation of gas, distribution of gas, refining, production of crudeoil and gas condensate, and other.
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Revenue analysis
Table 6: Revenue growth of global top 10 energy companies, 200608
Revenues ($ million)
Company name 2006 2007 2008 CAGR (200608) (%)
Exxon Mobil Corporation 365,467.0 390,328.0 459,579.0 12
Royal Dutch Shell Plc 318,845.0 355,782.0 458,361.0 20
BP Plc 265,906.0 284,365.0 361,143.0 17
Chevron Corporation 204,892.0 214,091.0 264,958.0 14
TOTAL S.A. 226,295.0 233,578.2 264,805.9 8
ConocoPhillips 183,650.0 187,437.0 240,842.0 15
China Petroleum &
Chemical Corporation(Sinopec)
149,179.1 169,213.2 204,739.3 17
Eni SpA 155,347.0 156,596.2 188,107.9 10
PetroChina CompanyLimited
99,316.0 120,560.3 154,405.7 25
OAO Gazprom 86,923.8 97,874.9 142,130.8 28
Source: Datamonitor D A T A M O N I T O R
* Currency conversions calculated using constant 2008 annual average exchange rates.
The top 10 global energy companies have witnessed a robust revenue growth during 200608. Gazprom recorded the
highest revenue growth, at a CAGR of 28%. The increase in revenues was primarily due to increase in revenues from all
of its business segments. Similarly, the revenues of PetroChina increased at a CAGR of 25%. However, the revenues of
TOTAL increased only at a CAGR of 8% during the same period, primarily due to decline in production of gasoline.
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Figure 12: Revenue growth of global top 10 energy companies, 200608
12
20
17
14
8
1517
10
25
28
0.0
5.0
10.0
15.0
20.0
25.0
30.0
ExxonMobilCorporation
RoyalDutchShellPlc
BPPlc
ChevronCorporation
TOTALS.A.
ConocoPhillips
C
hinaPetroleum&
Chemical
Corporation(Sinopec)
EniSpA
P
etroChinaCompanyLimited
OAOG
azprom
CAGR%(2006-08)
Source: Datamonitor D A T A M O N I T O R
Financial performance analysis
Table 7: Key financials of global top 10 energy companies, FY2008
Company name Operating profit ($ million) OPM (%) Net profit ($ million) NPM (%)
Exxon Mobil Corporation 84,070.0 18.29 45,220.0 10.20
Royal Dutch Shell Plc 50,989.0 11.12 26,277.0 5.78
BP Plc 36,347.0 10.06 21,157 6.00
Chevron Corporation 43,057.0 16.25 23,931.0 9.07
TOTAL S.A. 34,851.6 13.16 15,581.5 6.09
ConocoPhillips 32,241.0 13.39 (16,998.0) -7.03
China Petroleum &Chemical Corporation(Sinopec)
4,053.9 1.98 4,291.2 1.84
Eni SpA 27,427.2 14.58 12,984.6 7.48
PetroChina CompanyLimited
22,963.1 14.87 16,495.2 11.82
OAO Gazprom 50,903.8 35.81 30,006.9 21.92
Source: Datamonitor D A T A M O N I T O R
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* Currency conversions calculated using constant 2008 annual average exchange rates.
Operating profit analysis
Figure 13: Operating profit analysis, FY2008
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Operating margin is a measurement of what proportion of a company's revenue remains after paying for variable costs of
production such as wages, raw materials, and so on. A healthy operating margin is required for a company to be able to pay
for its fixed costs, such as interest on debt. Gazprom recorded the highest operating margin of 35.81% in FY2008. In
contrast, China Petroleum & Chemical Corporation (Sinopec) recorded an operating margin of only 1.98% during the same
period. A low operating margin indicates scope for improving cost structure.
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Net profit analysis
Figure 14: Net profit analysis, FY2008
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Source: Datamonitor D A T A M O N I T O R
The net profit margin indicates how much profit a company makes for every $1 it generates in revenue. Gazprom recorded
the highest net profit margin of 21.92% in FY2008. A higher profit margin indicates a more profitable company that has
better control over its costs compared to its competitors. On the other hand, ConocoPhillips recorded a negative net margin
of 7.03% during the same period. A low net profit margin suggests need for optimizing capital structure.
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Ratio analysis
Table 8: Key industryspecific ratios
Company name Current ratio ROA (%) D/E ratio Inventory turnover
Exxon Mobil Corporation 1.47 19.24 0.08 25.41
Royal Dutch Shell Plc 1.10 9.52 0.18 15.51
BP Plc 0.95 9.11 0.36 13.66
Chevron Corporation 1.15 15.44 0.10 28.37
TOTAL S.A. 1.37 9.14 0.49 9.47
ConocoPhillips 1.05 -10.60 0.50 39.03
China Petroleum & ChemicalCorporation (Sinopec)
0.60 3.97 0.50 12.24
Eni SpA 1.05 8.09 0.46 13.20
PetroChina Company Limited 0.85 10.12 0.16 6.52
OAO Gazprom 1.63 10.64 0.29 3.52
Source: Datamonitor D A T A M O N I T O R
Current ratio
Current ratio indicates a company's ability to meet short-term debt obligations. If the current assets of a company are more
than twice the current liabilities, then the company is generally considered to have good short-term financial strength. This
implies that in the short-term, Gazprom, which recorded a current ratio of 1.63 times in FY2008, is financially much
stronger when compared to the other players in the industry. PetroChina and China Petroleum & Chemical Corporation
(Sinopec), meanwhile, which recorded current ratios of 0.85 and 0.60 times, respectively, may have problems meeting
their short-term obligations.
Return on assets (ROA)
ROA gives an indication as to how efficient management is at using its assets to generate earnings. A higher ROA
indicates the effectiveness of the company to generate profits from the assets employed. Exxon Mobil Corporation
recorded the highest ROA of 19.24% in FY2008. This implies that the company is better at converting its investment into
profit. In contrast, ConocoPhillips recorded the negative ROA of 10.6% in FY2008 among the top players in the industry. A
weak ROA indicates the need for utilizing the assets of the company more effectively to generate income.
Debt/equity ratio (D/E ratio)
D/E ratio is a measure of a company's financial leverage. It indicates what proportion of equity and debt the company is
using to finance its assets. Both Sinopec and ConocoPhillips had the highest D/E ratio of 0.5 times in FY2008. A high
debt/equity ratio generally means that a company has been financing its growth with debt. This can result in volatile
earnings as a result of the additional interest expense. In comparison, Exxon Mobil Corporations D/E ratio was 0.08 times
in FY2008, indicating that the company is exposing itself to a large amount of equity.
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Inventory turnover ratio
Inventory turnover ratio represents how many times a company's inventory is sold and replaced over a period. Gazprom
recorded the lowest inventory turnover ratio of 3.52 times in FY2008, implying poor sales and, therefore, excess inventory.
As inventories are the least liquid form of asset, a high inventory turnover ratio is generally positive. However,
ConocoPhillips unusually high inventory turnover ratio compared to the industry average could mean ineffective buying.
High inventory levels are unhealthy because they represent an investment with a rate of return of zero. It also opens the
company up to trouble should prices begin to fall.
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COMPANY REPORTS
Exxon Mobil Corporation
Company overview
Exxon Mobil Corporation (Exxon Mobil) is an integrated oil and gas company based in the US. It is engaged in exploration
and production, refining, and marketing of oil and natural gas. The company is also engaged in the production of
chemicals, commodity petrochemicals, and electricity generation. The company operates across the globe. It is
headquartered in Irving, Texas and employs about 80,000 people.
The company recorded sales and operating revenues of $459,579 million (includes sales-based taxes of $34,508 million)
in the financial year ending December 2008 (FY2008), an increase of 17.7% over the financial year ending December
2007 (FY2007). The operating profit of the company was $84,070 million in the FY2008, an increase of 17% over FY2007.The net profit was $45,220 million in the FY2008, an increase of 11.4% over FY2007.
Business description
Exxon Mobil Corporation (Exxon Mobil) is engaged in exploration and production of crude oil and natural gas, manufacture
of petroleum products, and transportation and sale of crude oil, natural gas, and petroleum products. The company also
manufactures and markets commodity petrochemicals and specialty products. Exxon Mobil is also engaged in electric
power generation. The company operates across the globe.
Exxon Mobil operates through three segments: upstream, downstream, and chemicals.
The upstream segment explores for and produces crude oil and natural gas. The company's upstream business has
operations in 36 countries and includes five global companies. These companies are responsible for the corporation's
exploration, development, production, gas and power marketing, and upstream-research activities. The company's
upstream portfolio includes operations in the US, Canada, South America, Europe, the Asia-Pacific, Australia, the Middle
East, Russia, the Caspian, and Africa.
At the end of FY2008, the company had net reserves of 7,576 million barrels of oil and 31,402 million cubic feet of natural
gas. The company had 16,558 of crude oil and 9,387 of natural gas net production wells at the end of FY2008. Exxon
Mobils net exploration acreage totaled 73 million acres in 33 countries at the end of the same period.
The company is also engaged in power generation. Exxon Mobil has interests in electric power generation facilities with
total capacity of 16,000 megawatts (MW).
The company's downstream activities include refining, supply, and fuels marketing. The company's refining and supply
business focuses on providing fuel products and feedstock. Exxon Mobil manufactures clean fuels, lubes, and other high-
valued products. At the end of FY2008, the company had interests in 37 refineries across 20 countries, with distillation
capacity of 6.2 million barrels per day and lubricant basestock manufacturing capacity of 140 thousand barrels per day.
The company has interests in 12 lubricant refineries and manufactures three brands of finished lubricants (Exxon, Mobil,
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and Esso) through interests in over 31 blending plants. In FY2008, Exxon Mobil's refinery throughput was 5.4 million
barrels per day.
The fuels marketing business operates throughout the world. The Exxon, Mobil, Esso, and On the Run brands serve
motorists at nearly 29,000 service stations and provide over one million industrial and wholesale customers with fuel
products. Fuel products and services are provided to aviation customers at more than 630 airports and to marine
customers at more than 180 marine ports around the world. The company supplies lube base stocks and markets finished
lubricants and specialty products.
The chemicals division manufactures and sells petrochemicals. Exxon Mobil Chemical is an integrated manufacturer and
global marketer of olefins, aromatics, fluids, synthetic rubber, polyethylene, polypropylene, oriented polypropylene
packaging films, plasticizers, synthetic lubricant base stocks, additives for fuels and lubricants, zeolite catalysts, and other
petrochemical products.
SWOT analysis
Strengths
Leading market position
Exxon Mobil is the worlds largest publicly traded integrated petroleum and natural gas company with market capitalization
of $337,236.8 million as on May 15, 2009. The company operates in more than 200 countries under the names Exxon
Mobil, Exxon, Esso, and Mobil.
The company holds exploration and production acreage in 36 countries and production operations in 24 countries around
the world. In 2008, eight major upstream projects started production. The total oil and gas production available for sale
averaged 3.9 million oil-equivalent barrels per day in 2008.
Exxon Mobil has interests in 37 refineries located in 20 countries and markets its products through more than 29,000 retail
service stations. In 2008, refinery throughput averaged 5.4 million barrels per day, and petroleum product sales were 6.8
million barrels per day. Exxon Mobil is the leading global supplier of lube basestocks and marketing finished lubricants,
asphalt, and specialty products. Exxon Mobil leads the petrochemical industry with interests in 49 wholly-owned and joint-
venture facilities around the world. Leading market position across key product lines gives the company a competitive
edge with a strong brand image.
Diversified revenue stream
Exxon Mobil has wide presence across various regions. The companys revenue stream is diversified in terms of
geographies. Exxon Mobil divides its geographic divisions as US and non-US. The non-US region covers the countries of
Japan, Canada, the UK, Germany, Belgium, Italy, Norway, and France.
In FY2008, the company generated 29.9% of the total sales and operating revenues from the US, its core market.
Revenues from Canada accounted for 7.3%, revenues from Japan accounted for 6.6%, and revenues from the UK
accounted for 6.5% of the total revenues. Belgium contributed 5.5% to the total revenues, Germany 4.5%, France 4%,
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Italy 3.9%, and the revenues from Norway accounted for 2.7%. Other countries accounted for 31.3% of the remaining
revenues. The companys global operations and regional brand identity gives it competitive advantage over its competitors
and also indicates that the company has a wider scope in increasing its revenues by utilizing its global presence. Further,
its world wide presence reduces exposure to economic conditions or political stability in any once country or region.
Steady financial performance
Over the years, Exxon Mobil has delivered consistent financial results. The sales and other operating revenues of the
company have increased at a CAGR of 12% during FY2004-FY2008 from $291.2 billion in FY2004 to $459.6 billion in
FY2008. Further, the revenues increased at a rate of 17.7% in FY2008 over FY2007.
The companys profits have followed a similar trend. The net profit of the company increased at a CAGR of 16% during
FY2004-FY2008, from $25.3 billion in FY2004 to $45.2 billion in FY2008. The net profit increased by 11.4% in FY2008
over FY2007. Steady financial performance enables the company to manage its operations well and also increases the
financial flexibility of the company.
Strong R&D capabilities
Exxon Mobil has strong research and development (R&D) capability. The company conducts research to develop new
products and improve existing products, as well as to enhance manufacturing and production methods and improve
service. It spent $847 million on R&D in FY2008. R&D expenses in previous years were $814 million in FY2007, $733
million in FY2006, $712 million in FY2005, and $649 million in FY2004. Because of its strong R&D capabilities, the
company, for instance, in April 2008 introduced Metallyte UBW-ES, a new OPP film for flexible packaging. This sealant
technology is a breakthrough for oriented polypropylene (OPP) films as it provides excellent seal strength (1500 g/2.5cm),
seal integrity, and the ability to seal through product contamination in the seal area, as compared to traditional OPP films.
Further in 2008, Exxon Mobil Chemical Company introduced a new product, Enable mPE, with the potential to significantly
reduce waste and energy consumption across a wide variety of film applications. Enable mPE makes packaging easier for
shipping and storing bottled water, beverages, canned goods, hand soaps, detergents, health products, and beauty aids.
In April 2009, ExxonMobil Chemical applied its proprietary catalyst hydrogenation technology to produce ultra-low aromatic
(ULA) fluids that comply with the most stringent environmental and regulatory requirements. In the following month,
ExxonMobil Chemical developed two new grades of V series co-extruded battery separator films, which enhanced safety
for hybrid and electric vehicles, power tools and electronic devices including laptop computers.
The company's strong R&D capabilities provide it with a competitive advantage and help it to innovate and launch new
products.
Weaknesses
Legal proceedings
Exxon Mobil is involved in many legal proceedings. In October 2008, the company was fined by the European Commission
along with eight other petrochemical companies for price fixing of paraffin wax. Exxon Mobil was fined E83.6 million
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(approximately $123 million). In June 2008, Exxon Mobil was sued by the attorney of San Francisco. The company faced
an allegation that it failed to clean up hazardous pollutants from a fueling depot at Fisherman's Wharf. Mobil Oil operated a
fueling facility at Fisherman's Wharf between 1938 and 1992. The suit alleges that Exxon Mobil's neglect has
contaminated the soil, groundwater, tidal water, and sediment of San Francisco Bay. The suit demands that Exxon clean
the site and pay the damages.
In another incident, a resident of Linden claimed to contract a rare form of stomach cancer as a result of conditions at the
Bayway Refinery in Linden. This refinery was formerly owned by Exxon Mobil. The jury found Exxon Mobil responsible for
the cancer called peritoneal mesothelioma. The company paid $7.5 million as damages. Such cases result in huge
penalties and can have adverse effects on the companys profitability.
Employee unrest
The workers of Mobil Producing Nigeria (MPN), an affiliate of Exxon Mobil, went on a strike in April 2008 over pay and
working conditions.
Exxon Mobil, the largest oil producer in Nigeria, produces about 800,000 barrels per day in a joint venture with the state.
The company's equity share is around 427,000 bpd. The eight day strike by workers resulted in the stoppage of the full
production of 800,000 barrels per day and forced the company to declare force majeure on its shipments. Therefore, the
company could not fulfill contractual obligations to clients. The strike resulted in a decline of the Exxon Mobils oil
production by more than half.
Further, in May 2008, port workers of Exxon Mobil carried out a strike at the Los Angeles-area refinery in Torrance,
California. Such employee actions adversely affect the operations of the company and result in decline in the productivity.
Declining production in the US
The upstream division in the US has recorded a consistent decline in its production volumes. The crude oil and natural gas
liquid production volumes in the region have been declining since FY2004. The net liquid production has declined at a
CAGR of 10% from 557,000 barrels per day in FY2004 to 367,000 barrels per day in FY2008. The company recorded a
6.4% decline in its net liquid production in FY2008 compared with FY2007.
A similar trend is noticed in the natural gas production volumes. The natural gas production has declined at a CAGR of
11% from 1,947,000 barrels per day in FY2004 to 1,246,000 barrels per day in FY2008. The company recorded a 15.1%
decline in its natural gas production in FY2008 compared with FY2007. A continuation of this trend is likely to have an
adverse impact on the company's revenue growth rates.
Opportunities
Increasing demand for refined products in Asia
Over the next 10 years, the company expects about 60% percent of the worlds petrochemical demand growth to occur in
Asia, with more than one-third in China alone. The demand for refined petroleum products in China is expected to rise
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sharply in the coming decades. China, despite substantial additions to refining capacity over the next three decades, is
expected to remain a net importer of refined products in 2030. The refining capacity in China is forecast to increase from
6.2 million barrels per day in 2006 to 14.6 million barrels per day in 2030.
To capture the rising demand, the company has been making investments in Asia and the Middle East in projects in with
long-term competitive advantages, including integration with other operations, advantaged feedstocks, proprietary process
and product technology, and market access.
Exxon Mobil is currently working on an integrated refining and petrochemical facility located in Quanzhou, Fujian Province,
China. This project includes an 800,000-ton per year ethylene steam cracker and integrated polyethylene, polypropylene,
and paraxylene units. The company is building a world-scale petrochemical complex at its integrated refining and chemical
facility in Singapore. This project includes a one-million ton per year ethylene steam cracker; and polyethylene,
polypropylene, specialty elastomer, and benzene units. The project, which is scheduled to start-up in FY2011, also covers
the expansion of the existing oxo alcohol and paraxylene units.
Furthermore, ExxonMobil has signed an agreement with Saudi Basic Industries Corporation (SABIC) and is conducting
detailed studies at its petrochemical joint ventures in Saudi Arabia, Kemya and Yanpet, to supply synthetic rubber,
thermoplastic specialty polymers, and carbon black. The company is also carrying out studies in cooperation with Qatar
Petroleum for a world-scale petrochemical complex in Ras Laffan Industrial City, Qatar. The ethylene steam cracker would
utilize feedstock from gas development projects in Qatars North Field. The project involves deployment of ExxonMobils
proprietary steam-cracking furnace and polyethylene technologies.
These investments would enable the company to export refined products or establish fresh refining capacity and take
advantage of the increasing demand for refined products in Asia.
Increasing demand for liquefied natural gas (LNG)
The demand for liquid fuels is expected to increase to 108 million oil-equivalent barrels per day by 2030, an increase of
30% from 2005. The company forecasts the global liquefied natural gas (LNG) demand to more than triple in volume from
2005 to 2030, driven by the demand in North America, Europe, and Asia Pacific markets.
ExxonMobil is currently participating in building the Golden Pass LNG regasification terminal on the US Gulf Coast, with a
planned capacity of about 2 billion cubic feet per day. The company has also applied for regulatory approval for a new
LNG regasification terminal, BlueOcean Energy, 20 miles off the coast of New Jersey.
In Europe, the South Hook LNG terminal in Milford Haven, Wales, and the Adriatic LNG terminal offshore Italy, both
developed by ExxonMobil and its partners, would be operational in 2009. These terminals would have a combined
capacity of nearly 3 billion cubic feet of gas per day.
In Asia-Pacific, the companys LNG operations in Indonesia and Qatar are major exporters to Japan, South Korea, India,
and Taiwan. ExxonMobil is also one of the largest suppliers of pipeline gas to markets in Australia and Malaysia, and
provides pipeline gas supplies to markets in Thailand, Far East Russia, and Qatar. The company has been pursuing
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Environmental regulations
Exxon Mobils businesses are subject to numerous laws and regulations relating to the protection of the environment. With
rising awareness of the damage to the environment caused by industry, especially regarding global warming, regulatory
standards have been continuously tightened in recent years. One of the most important developments in this area has
been the introduction of the Kyoto Protocol for the reduction of greenhouse gases. The protocol calls on industrialized
countries to reduce their greenhouse gas emissions level by 5.2% on an average annual basis during the 2008-12 period,
compared with 1990 emissions levels.
Further, in 2005, the US environmental protection agency (EPA) issued a clean air interstate rule (CAIR), to reduce the
emission levels. According to the rule, the states have to reduce the allowable sulfur dioxide (SO2) emissions by 70% and
reduce nitrogen oxide (NOX) emissions by 60%, by 2015 compared with the 2003 levels. The company is governed by
these regulations which could impose new liabilities on the company. This could result in a material decline in Exxon
Mobils profitability in the short term.
Recent developments
Exxon Mobil Chemical announced the start-up of a new $20 million compounding facility in January 2008, to supply high-
performance polymers to the automotive, appliance, and specialty consumer products industries. The facility had an initial
annual capacity of 40,000 tons of specialty compounded product.
In March 2008, Exxon Mobil Exploration and Production Malaysia, a subsidiary of Exxon Mobil, signed a 25-year
production sharing contract with the Malaysian national oil company PETRONAS for sustainable energy supplies to
Malaysia.
In the following month, Exxon Mobil Exploration and Production Hungary, a subsidiary of Exxon Mobil, signed an
agreement with MOL Hungarian Oil and Gas for a joint exploration program in southeast Hungary. Further in April 2008,
Exxon Mobil announced plans to sell Esso filling station chain in Brazil to sugar and ethanol producer Cosan. In the same
month, Exxon Mobil entered into an agreement to sell Esso Espanola and Exxon Mobil Portugal Holdings to Galp Energia
SGPS.
In May 2008, Exxon Mobil signed an agreement with Newfield Exploration to jointly explore and develop approximately
87,000 gross acres in south Texas.
Exxon Mobil announced an investment of about $100 million in offshore oil exploration in Philippines, in June 2008. In the
same month, the company announced its plans to exit the retail gas business by selling 2,220 branded service stations in
the US due to rising gasoline prices and intense competition.
ExxonMobil Production Company awarded contracts for work in support of the first well of a multi-well drilling program at
Point Thomson, in July 2008. Subsequently, Exxon Mobil announced an investment of $1.1 billion by the Gippsland Basin
Joint Venture, which included its subsidiary, Esso Australia, to develop more than 270 million oil-equivalent barrels from
the Turrum field in the Bass Strait, offshore southeast Australia. Further in July 2008, the companys affiliate, Mobil
Producing Nigeria commenced operations of a $1.3 billion project in Nigeria to produce and sell natural gas liquids.
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In August 2008, ExxonMobil Chemical completed a major expansion to increase the halobutyl manufacturing capacity at
its plant in Baytown, Texas. The Baytown plant increased its capacity to produce EXXON bromobutyl rubber (brominated
butyl rubber) by 60%. Subsequently, the companys subsidiary, Esso Exploration Angola (Block 15) (Esso Angola),
commenced production from the Saxi and Batuque fields, as part of the development progression of the Kizomba C
project.
In the same month, ExxonMobil Chemical announced the start-up of a manufacturing facility at its existing site in
Pensacola, Florida. The facility provided new capacity for the production of a new tire material technology Exxcore
dynamically vulcanized alloy (DVA), which improved vehicle fuel efficiency.
ExxonMobil Chemical announced an agreement with Resin & Pigment Technologies (R&P), a subsidiary of EnGro
Corporation, in September 2008. Under the agreement, R&P would manufacture a broad range of ExxonMobil Chemicals
specialty compounds for use in automotive interior and exterior applications, appliances, and consumer products. In the
same month, ExxonMobil Aviation introduced HyJet V, a fire-resistant aviation hydraulic fluid with higher stability and
longer service life than type IV fluids.
ExxonMobil Research and Engineering Company (EMRE) entered into an agreement with Synthesis Energy Systems
(SES), in September 2008, under which SES would execute up to fifteen methanol to gasoline technology licenses in its
global operations.
In October 2008, ExxonMobil Chemical completed a 130,000 tons per year capacity expansion at its Exxsol hydrocarbon
fluids plant in Jurong Island, Singapore, increasing capacity at this site to more than 500,000 tons per year. Subsequently,
Exxon Mobil entered into an agreement with Pratt & Whitney Rocketdyne to develop next-generation technology to convert
coal, coke, or biomass to synthesis gas (carbon monoxide and hydrogen). Further in October 2008, Exxon Mobil sold its
terminal in South Wilmington, North Carolina to Koninklijke Vopak, the terminals operator since 1991.
The films business of ExxonMobil Chemical announced Multi-Plastics and Plastics Canada as its national distributors, in
November 2008, for its affiliates' oriented polypropylene (OPP) film products in the US and Canada. In the same month,
ExxonMobils Vistamaxx specialty elastomers and resins products targeted at flexible and rigid food packaging
applications received approval from the US Food and Drug Administration (FDA) under the food contact notification
process. Subsequently, the companys affiliate, ExxonMobil Exploration and Production Turkey, signed an agreement with
the Turkish national oil company, Turkiye Petrolleri Anonim Ortakligi (TPAO), to explore in two large deepwater blocks
offshore Turkey.
In December 2008, Exxon Mobils affiliate, ExxonMobil Exploration and Production Romania, signed an agreement with
Petrom to explore deepwater portions of the Neptun Block offshore Romania. In the same month, ExxonMobil Refining
and Supply announced an investment of more than $1 billion in three refineries to increase the supply of cleaner burning
diesel by about six million gallons per day. The company would construct new units and modify existing facilities at its
Baton Rouge in Louisiana, Baytown in Texas, and Antwerp in Belgium, refineries.
Exxon Mobil, in March 2009, announced an investment between $25 billion and $30 billion annually over the next five
years to meet expected long-term growth in world energy demand. In the same month, the company announced its plans
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to build a technology center in Shanghai, China to provide product applications support for its growing business in the
Chinese and Asian markets.
ExxonMobil inaugurated its newest cogeneration plant at its Antwerp refinery in Belgium, also in March 2009. Besides
generating 125 MW, the new plant would reduce Belgium's carbon dioxide emissions by approximately 200,000 tonnes
per year.
In April 2009, ExxonMobil Chemical applied its proprietary catalyst hydrogenation technology to produce ultra-low aromatic
(ULA) fluids that comply with existing environmental and regulatory requirements. Subsequently, Exxon Mobil announced
the sale of its On the Run convenience store franchise system in the US, and 43 of its company owned and operated sites
in the Phoenix, Arizona to Couche-Tard.
In the following month, ExxonMobil Chemical developed two new grades of V series co-extruded battery separator films,
which enhanced safety for hybrid and electric vehicles, power tools, and electronic devices including laptop computers.
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Royal Dutch Shell Plc
Company overview
Royal Dutch Shell (Shell) is engaged in oil and gas exploration and production, transportation and marketing of natural gas
and electricity, and marketing and shipping of oil products and chemicals. The company also has interests in renewable
sources of energy such as wind and solar and hydrogen. The company has extensive operations in more than 100
countries around the world. It is headquartered in The Hague, the Netherlands and employs about 102,000 people.
The company recorded revenues of $458,361 million in the financial year ended December 2008 (FY2008), an increase of
28.8% over the financial year ended December 2007 (FY2007). The operating profit of the company was $50,989 million
in the FY2008, an increase of 1.1% over FY2007. The net profit was $26,277 million in the FY2008, a decrease of 16.1%
compared with FY2007.
Business description
Royal Dutch Shell (Shell) is engaged in the aspects of the oil and natural gas industry worldwide. It is a holding company
which owns direct and indirect investments in a number of companies comprising the group. The company also has
interests in chemicals, power generation, and renewable energy. The company has extensive operations in more than 100
countries around the world.
Shell generates revenues through five business segments: oil products, chemicals, gas and power, exploration and
production, and oil sands.
The oil products segment conducts its operations in more than 100 countries and territories. The segment comprises thedownstream businesses of manufacturing which includes refining and supply and distribution; marketing which includes
retail, business to business (B2B), lubricants, and future fuels and carbon dioxide (CO2) business; Shell Trading; and
Shell Global Solutions.
The manufacturing portfolio of Shell's oil products segment includes interests in over 40 refineries, with a capacity of more
than 4 million barrels per day. The distribution network includes more than 300 distribution facilities, 3,000 storage tanks,
and 9,000 kilometers of pipeline in about 70 countries.
Shell is one of the largest single branded retailers with more than 45,000 service stations spanning 90 countries. The
company sells 350 million liters of fuel to approximately 10 million customers every day. Shell Lubricants sells lubricant
products to customers across the transport sector in passenger cars, trucks and coaches, as well as in manufacturing,
mining, power generation, and agriculture and construction industries in around 120 countries.
The B2B business of Shell sells fuels and special products to a broad range of commercial client base through six
separate businesses: Shell Aviation, Shell Marine Products, Shell Gas (LPG), Shell Commercial Fuels, Shell Bitumen, and
Shell Sulphur Solutions. The Future Fuels and CO2 business manages the companys emerging businesses or functions
to support the development of new transport fuels until the business is integrated into Shells mainstream businesses.
These include gas to liquids (GTL) products, biofuels, and hydrogen. Future Fuels and CO2 is also responsible for leading
energy conservation and CO2 management activities across Shell.
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Shell Trading, engaged in trading and shipping activities, trades about 15 million barrels of crude oil equivalent per day.
Shell Global Solutions provides business and operational consultancy, technical services, and research and development
expertise to Shell companies and the energy and processing industries across the world. It supports the oil products, gas
and power, and chemicals businesses of Shell.
The chemicals segment, a part of the companys downstream business, produces and sells petrochemicals to industrial
customers worldwide. These products are used in manufacturing plastics, coatings, and detergents; which in turn are used
in items such as fibers and textiles, thermal and electrical insulation, medical equipment and sterile supplies, computers,
paints, and biodegradable detergents.
The segment produces base chemicals such as ethylene, propylene, and aromatics; and intermediates chemicals such as
styrene monomer, propylene oxide, solvents, detergent alcohols, and ethylene oxide. The chemicals portfolio of the
company includes several joint ventures: Infineum, Saudi Petrochemical Company (SADAF), and Shell Petrochemicals
Company (CSPCL).
Infineum is a 50:50 joint venture between Shell and Exxon Mobil. It formulates, manufactures, and markets high-quality
additives used in fuel, lubricants, and specialty additives and components. Infineum has manufacturing centers in seven
countries: the US, Mexico, Brazil, Germany, France, Italy, and Singapore. SADAF produces base and intermediate
chemicals for international markets. It is a 50:50 joint venture between Shell and Saudi Basic Industries Corporation
(SABIC). CSPCL is a 50:50 joint venture between Shell and CNOOC Petrochemicals Investment. The company produces
a variety of petrochemicals for the Chinese market.
The gas and power segment forms a part of Shell's upstream business. It works closely with the exploration and
production segment. The gas and power segment liquefies and transports natural gas, develops power plants, and
markets gas and electricity on a worldwide scale for consumption by industry, commerce and business establishments,
and residential and government consumers. The company's gas and power business operates in 35 countries around the
world. Shell develops, owns, and operates wind power projects in Europe and North America together with its joint venture
participants, and has an interest in a thin-film solar pilot plant in Germany. The company also owns interests in operational
gas liquefaction ventures in five countries. It is also involved GTL and coal conversion technologies.
The exploration and production (E&P) segment, a part of Shell's upstream business, explores for and recovers oil and
natural gas around the world. The segment's activities are spread across 37 countries, and conducted along with joint
venture partners. In FY2008, the company's total hydrocarbon production (excluding production from oil sands) totaled
3,170 thousand barrels of oil equivalent (boe) per day. During FY2008, the company participated in 224 successful
exploratory wells in Algeria, Australia, Brunei, Cameroon, Canada, Denmark, Egypt, Malaysia, the Netherlands, Nigeria,
Oman, Russia, Kazakhstan, and the US. In FY2008, proved developed and undeveloped reserves of Shell subsidiaries
totaled 7,090 million boe.
The E&P segment is supported by the exploration and production research and development (R&D) directorate which is
engaged in application of technology to enhance the cost-efficiency and performance of the company's exploration and
production activities. The directorate has two main research and development laboratories, one in the Netherlands and
another in the US. Additional technology facilities are in Oman, Qatar, Norway, Canada, France, Germany, Singapore, the
UK, and India.
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The oil sands business, which is a part of Shells downstream operations, produces synthetic crude oils for use as refinery
feedstocks. The business activity of this segment constitutes two steps: the extraction of bitumen from the oil sands at the
Muskeg River Mine in north-eastern Alberta; and upgrading the bitumen to synthetic crude oil at the Scotford Upgrader
near Edmonton, Alberta. Shell holds 60% of interest in the existing oil sands mining interest through a joint venture with
Chevron Corporation (20%) and Marathon Oil (20%).
Shell also reports a non-operating segment, corporate, which represents the functional activities supporting the whole
group. This segment consists of the following functional activities: holdings and treasury, headquarters and central
functions, and Shell insurance operations.
The corporate segment accounts for the insurance underwriting results and the functional costs that have not been
allocated to the other segments. In addition, it also accounts for the interest and other income of non-operational nature,
interest expense, non-trading currency exchange effects, and tax on these items.
SWOT analysis
Strengths
Strong market position
Shell is one of the largest oil companies in the world. Its operations include upstream and downstream operations
spanning 100 countries. The company has interests in oil production operations in 37 countries and majority interest in 40
refineries worldwide. Shell operates the world's largest single-brand retail network, with more than 45,000 service stations.
The cornerstone of the company is its leadership position in various domains such as oil products, deep-water production,
LNG, and polyolefin. The company has established a strong brand image operating for over 100 years worldwide. Shell is
ranked second in 2009 Forbes Global 2000, up from sixth in 2008. It was ranked eight in 2007. The company is ranked
third in 2008 Fortune Global 500 ranking. The company's strong market position gives it significant bargaining power in the
global oil industry.
Vertically integrated operations
Shells business operations are vertically integrated with presence in both upstream and downstream businesses. In
upstream, the company is engaged in the exploration and production of oil and gas. In FY2008, the company's total
hydrocarbon production (excluding production from oil sands) totaled 3,170 thousand barrels of oil equivalent (boe) per
day. During 2008, the company participated in 224 successful exploratory wells. The company is also involved in the
natural gas supply, storage, transport, distribution activities, and marketing of natural gas and electricity. The company's
gas and power business operates in 35 countries around the world.
In downstream, the company produces and markets refined petroleum products. Its refining and marketing division
operates 40 refineries with an installed capacity of 4 million barrels per day. The company conducts its operations through
an extensive distribution network comprising 9,000 miles of pipeline in about 70 countries, over 300 distribution facilities,
and 3,000 storage tanks. Shell is one of the largest single branded retailers with more than 45,000 service stations
spanning 90 countries.
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The company's vertically integrated operations give it significant competitive advantage in the global market in terms of
economies of scale, synergies, and cross-marketing opportunities.
Steady financial performance
Over the years, Shell has delivered consistent financial results. The company had a strong asset base of $282.4 billion in
FY2008, an increase of 4.8% over FY2007. The revenues of the company have increased at a CAGR of 15% during
200408, from $266.4 billion in FY2004 to $458.4 billion in FY2008. Further, the revenues increased at a rate of 28.8% in
FY2008 over FY2007.
The companys profits have followed a similar trend. The operating profit of the company increased at a CAGR of 12%
during 200408, from $32 billion in FY2004 to $51billion in FY2008. Further, the operating profit increased at a rate of
7.1% in FY2008 over FY2007. The net profit of the company increased at a CAGR of 9% during 200408, from $18.5
billion in FY2004 to $26.3 billion in FY2008. Steady financial performance enables the company to manage its operations
well and also increases the financial flexibility of the company.
Strong exploration technological capability
Shell has strong exploration technological capabilities. The company has been making efforts towards enhancing its
exploration technology to locate new resources of oil and gas, to meet the rising global energy demand. Shell undertakes
airborne and satellite-based gathering of geophysical data and analyses it for better understanding of underground
formations, which helps in the accurate exploration drilling. In FY2008, these technologies helped in Shells participation in
45 successful exploration and appraisal wells.
The companys research and development (R&D) focuses on conducting research to access oil and gas in frontier
locations such as ultradeep water and the Arctic; to unlock hydrocarbon resources with complex compositions, such as oil
shale and very heavy oil; and to access heavy oil resources that are mined at the surface. Shell has also been working
towards increasing its access to contaminated gas resources by developing and applying technologies that lower the cost
of removal of contaminants such as CO2 and hydrogen sulphide. Through its Smart Fields technologies, Shell recovers
resources in locations considered to be difficult or too costly to extract. For instance, the company has been recovering oil
at the Champion West field in Brunei that had remained undeveloped for more than 25 years.
Shell is also implementing three advanced technology applications with its partners in Oman, across a number of fields for
enhanced oil recovery (EOR) to help increase oil recovery figures. In addition, the company is also pursuing the next
generation of EOR applications, such as hybrid thermal technologies in Canada, where it is looking to combine steam,
solvent, and heater techniques to optimize economic recovery. The companys strong exploration technological
capabilities provide it with a competitive advantage by strengthening its upstream operations.
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Weaknesses
Declining hydrocarbon production
The company has been witnessing a consistent decline in its hydrocarbon production in the recent past. The hydrocarbon
production (excluding production from oil sands) totaled 3,170 thousand boe per day in FY2008. This was 2% lower than
the production in FY2007 and 7% lower than in FY2006. The decline in production is attributed to field declines, divested
volumes, price impacts of production-sharing contracts (PSCs), the effects of the hurricanes in the US Gulf of Mexico, and
the planned maintenance turnarounds in the UK related to the shutdown of the St. Fergus gas processing facilities.
The field declines affected oil production in the Australia, Brunei, Denmark, Nigeria, Norway, the UK, and the US during
2008. In addition, natural gas production was affected by declining fields in Brunei, Germany, Malaysia, the US, and the
UK. Declining production would adversely affect the company's revenue growth.
Administrative action
Shell faced an administrative action in 2008. Shell was fined $109,600 by Washington's Department of Labor and
Industries, in June 2008.
The company was fined for multiple safety violations in its Anacortes refinery. The refinery is the second largest of the four
major facilities supplying gasoline and other petroleum products to the Puget Sound region. The Anacortes refinery
employs 400 people and several hundred contractors. It processes 145,000 barrels of crude everyday into gasoline,
aviation fuel, diesel, bunker oil and other products. The department cited 23 violations ranging from inadequately
instructing operators on how to deal with emergencies to faulty inspections.
The investigation by the department was conducted as part of a national inspection program following a lethal explosion at
BP's Texas City plant in 2005. Further such safety violations could result in severe administrative actions affecting the
companys credibility.
Legal proceeding
Shell agreed to pay $120 million in June 2008, to settle a class action lawsuit led by the Pennsylvania State Employees'
Retirement Board and the Public School Employees' Retirement Board. There was an allegation against Shell of
overstating oil and natural gas reserves and artificially inflating stock prices over a five-year period from April 1999 to
March 2004.
In 2004, Shell admitted to have overstated its oil reserves by about 20% (equivalent of 3.9 billion barrels). Many of the
companys executives lost their jobs, including chief financial officer Judy Boynton. In April 2007, Shell agreed to pay
$352.6 million, plus administrative costs, to settle a lawsuit with investors outside the US who purchased the companys
shares. Such huge penalties can have adverse effects on the companys profitability.
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Opportunities
Acquisition of Duvernay Oil Corp
Shell announced a proposal by its wholly owned subsidiary Shell Canada for the acquisition of all of the outstanding
shares of Duvernay Oil Corp (Duvernay), in July 2008. The acquisition was completed in August 2008.
Duvernay, based in Alberta, is engaged in the exploration and development of natural gas and crude oil in the deeper,
western portion of the Western Canadian Sedimentary Basin in Alberta and Northeastern British Columbia. The company
owns about 450,000 net acres in two large gas project areas, Sunset-Groundbirch in British Columbia, and the Alberta
Deep Basin. Duvernay owns and controls the natural gas processing and delivery infrastructure in both the project areas.
The company produces over 25,000 barrels oil equivalent per day (boe/d) predominantly in natural gas. The companyplans to increase production to about 70,000 boe/d by 2012.
Shell has a strong presence in North America tight gas activities. With the acquisition of Duvernay, Shell could strengthen
its portfolio through enhanced technology and scale. Duvernays acreage together with Shells operating expertise and
financing capabilities provide a strong platform for future growth.
Joint venture in China
Shell signed a letter of intent in June 2008 with China National Petroleum Corporation (CNPC) and Qatar Petroleum
International (QPI) to form a joint venture in China. This joint venture would build an oil refinery and petrochemical
products manufacturing complex in China. The three companies would conduct a joint evaluation regarding the feasibility
of the