ExxonMobil

Brought to you by the TFG Energy Analysts

Outline

• Industry overview– Oil & Natural Gas

• Intro to company• Ongoing & future projects• Catalysts for growth• Competition• Financials• Risk• Management• 5 reasons to invest• Price Target

Oil and Natural Gas Industry Overview

•National Companies vs. “Super-Majors”•Oil is used mostly for transport fuel and petrochemical production- competes with biofuels and potentially, electric/hybrid cars•Natural Gas is used for electricity production and heating and competes with coal (to some degree with nuclear and hydro)•Oil accounts for 1/3 of world’s energy use and growing•Natural Gas accounts for ¼ word’s energy use and growing

Industry Sectors

– Upstream• Exploration, development, production, and marketing

of energy sources (oil, natural gas, etc)– Downstream

• Refining, marketing, distribution and transport of fuels ( producing, transporting and selling of gasoline, jet fuel, etc)

– Chemical• Production of various petrochemicals (plastics,

lubricants, electronic equipment parts, lots more)

• Some companies are Integrated (ExxonMobil, Shell, Chevron)

• Some companies are specialized (AnaDarko) , transport firms

Future Outlook• Demand for Natural Gas and Oil will rise –

especially in developing world (China, India, etc)

• Oil and Gas prices will rise with recession’s end

• Demand for petrochemicals will rise- also mostly in the developing world

• Supply of oil is more closely related to the dollar than it is to demand

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Projected world energy demand

Company Background

• ExxonMobil emerged in 1999 from a merger between Exxon and Mobil. Both companies descendant from Rockefeller’s Standard Oil.

• Currently the largest publicly traded petroleum and petrochemical company worldwide.

• Engaged in the exploration for and production of crude oil and natural gas (upstream), the manufacture of petroleum products, and the transportation and sale of crude oil, natural gas, and petroleum products (downstream).

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Company Background

• In addition, ExxonMobil markets and manufactures commodity petrochemicals (chemicals).

• Partake in operations on every continent

• Ideology of the company- 5 principles– Portfolio quality– Global integration– Discipline and consistency– Value maximization– Long term perspective

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Downstream Business Lines

• Retail: 29,000 service stations worldwide (e.g. your local gas station)

• Industrial & Wholesale: serves transportation fleets, power generation companies, the agriculture sector manufacturers, and mining operations (e.g. your local utility company)

• Aviation: serves airports, commercial airlines, general aviation, and military aviation.

• Marine: provides fuel to the shipping industry fleet (container carriers, tankers, ferries, and cruise ships)

Ongoing Projects-Upstream-Downstream-Chemical

Upstream- New Projects• ExxonMobil well positioned

to capitalize on emerging growth in oil, natural gas markets (N. America, Western Europe, Asia-Pacific)

• Example Projects:1) Qatar Gas- biggest private gas field2) Papua New Guinea LNG3) Pinecone Basin – Colorado

• Comparative Advantages: superior return on capital, superior technology, jumpstart due to host country relations and capital

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Downstream and Chemical Projects

• Increasing efficiency and thus profit margins (through technology R&D)

• Competitive Advantages in Downstream and Chemical: Brand Recognition and Trust, Strategic Global Alliances (Car companies, rubber companies, etc.), growth in emerging markets

• New Refineries and Petrochemical Facilities in China, Singapore, Qatar

• Recently announced joint venture with Toray Industries to produce separator films for lithium ion batteries

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Revenue/profit breakdown

This shows that although Downstream operations account for most of the revenues, the margins for upstream revenues are much higher.

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Geographical revenue/profit breakdown and CAPEX

Margins are slightly better for the non-US arm of their business

In response to larger margins from upstream operations, a majority of CAPEX for 2008 was invested for upstream purposes

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Diversification of investments

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Catalysts for Growth

• Industry Growth– Transportation

– Energy Production

• Asset Acquisition and Development• Technological Advancement

– Efficiency

– Green Tech

• Legislative Action

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Projected production by region

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Outperforming their competitors

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Competitors

Return on EquityP/FCF

XOM CVX Shell BP Conoco Philips

Profit Margin 10.64 9.38 2.79 5.97 -7.54Debt/Equity 8.34 10.27 18.28 36.38 49.775 YR Av ROE 33.69 27.94 25.34 24.77 12.54%Price to Free Cash Flow

9.21 15.59 43.47 71.1 22.21

P/E Ratio 16.85 9.48 23.2 20.61 8.76

Financial Comparison

Net Income Comparison

Financials

• 5 year revenue CAGR: 14.8%• 5 year net profit CAGR: 16.02%• Price/FCF: 9.21*• Net profit margin: 10.64%*• Cash: $15.73B*• Debt: $9.27B*• 5 year avg. ROE:33.69%*• ROA: 19.24%* * indicates industry leader

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Revenue 2004-present Net Income 2004-present

EPS 1989-present ROE 1989-present

Risks

• Industry & Economic Risks• Change in economic conditions or consumer

demographics or preferences• Supply disruptions: weather, supply development• Member adherence to OPEC quotas

• Legal & Political Risks• Changes in regulation or taxation• Political unrest• Restrictions on exploration

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Management

• Rex Tillerson was CEO & Chairman of Exxon Corporation prior Exxon Mobil merger in 1999

• Business Philosophy: investing in long-term success rather than reacting in short-term market fluctuations

• ExxonMobil does not base long-term investment strategy on short-term trends in commodity pricing

• Continues heavily invest in innovation

– $126B over the 5 next years

Reasons to Invest• Pristine balance sheet/well capitalized• Best project management team in the industry• Great upstream operations• Increasing demand for oil/natural gas

worldwide out of recession• Only share buyback program in industry, as

well as a consistently growing dividend• Future estimates are among the best in the

industry

Price Target• Current price: $72.54• EPS 2010 (est.): $5.97• EPS 2011 (est.): $6.68• 5 year historical P/E ratio: 13.7• (Historical P/E multiple) X (2010 EPS estimate)

= 2010 Price Target• 13.7 x 5.97 = $81.79 (12.75% return)• 2011 Target• 13.7 x 6.68 = $91.51 (~13% annual return)

source: Bloomberg