MGMT 619: Capstone

Spring 2011
Prof. Darrel Mank

Prepared by:
Kannan Ananthanarayanan
Pranav Bhajiwala
Foram Gandhi
Kristine Garner
Rajesh Goudar
Venkat Iyer

i
1. WALLSTREETJOURNALARTICLEANDTHEEXECUTIVESUMMARY............................................................................ 1
WALLSTREETJOURNALARTICLE......................................................................................................................................................1
EXECUTIVESUMMARY ...................................................................................................................................................................2
MajorIssues ........................................................................................................................................................................2
KeyAnalysis.........................................................................................................................................................................3
FinalRecommendation .......................................................................................................................................................4
2. EXTERNALANALYSIS................................................................................................................................................ 5
INDUSTRYDEFINITION...................................................................................................................................................................5
SIXFORCESANALYSIS....................................................................................................................................................................5
Level3IndustryAttractiveness ...........................................................................................................................................5
Level2Analysis ...................................................................................................................................................................6
Upstream ........................................................................................................................................................................................... 6
DownstreamOil ................................................................................................................................................................................. 8
Chemical............................................................................................................................................................................................. 9
Level1Analysis .................................................................................................................................................................10
MACROENVIRONMENTALFORCESANALYSIS,ECONOMICTRENDSANDETHICALCONCERNS .....................................................................10
UpstreamandDownstreamOilandNaturalGas ............................................................................................................................. 10
PetrochemicalIndustry .................................................................................................................................................................... 14
COMPETITORANALYSIS ...............................................................................................................................................................15
FirmsCompetitors.............................................................................................................................................................15
OilIndustry....................................................................................................................................................................................... 15
NaturalGasIndustry ........................................................................................................................................................................ 16
ChemicalIndustry............................................................................................................................................................................. 16
PrimaryCompetitors .........................................................................................................................................................16
Oil ..................................................................................................................................................................................................... 16
NaturalGas....................................................................................................................................................................................... 17
Chemicals ......................................................................................................................................................................................... 17
PrimaryCompetitorsBusinessLevelandCorporateLevelStrategy.................................................................................17
HowCompetitorsAchieveTheirStrategicPosition...........................................................................................................18
ValueCostProfile ...........................................................................................................................................................19
INTRAINDUSTRYANALYSIS...........................................................................................................................................................19
StrategicGroupOverview.................................................................................................................................................20
StrategicGroupAnalysis ...................................................................................................................................................20
Technology&Innovation ................................................................................................................................................................. 21
IndustryKeySuccessFactors(KSFs) ..................................................................................................................................22
SWOTAnalysis...................................................................................................................................................................24

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OilIndustry....................................................................................................................................................................................... 24
NaturalGasIndustry ........................................................................................................................................................................ 25
COMPARATIVEFINANCIALANALYSIS...............................................................................................................................................26
SUMMARYOFEXTERNALANALYSIS ................................................................................................................................................29
3. INTERNALANALYSIS .............................................................................................................................................. 30
BUSINESSDEFINITION/MISSION....................................................................................................................................................30
ORGANIZATIONSTRUCTURE,CONTROLANDVALUES .........................................................................................................................31
OrganizationStructure......................................................................................................................................................31
Controls .............................................................................................................................................................................31
Values................................................................................................................................................................................31
EthicalStandardsandpractices ........................................................................................................................................32
STRATEGICPOSITIONDEFINITION ..................................................................................................................................................33
BusinessPortfolio..............................................................................................................................................................33
CorporateStrategy............................................................................................................................................................33
BusinessPortfolioPerformance ........................................................................................................................................33
Acquisitions .......................................................................................................................................................................34
Divestiture.........................................................................................................................................................................35
JointVentureandAlliances...............................................................................................................................................35
BCGMatrix........................................................................................................................................................................36
BusinessStrategyMix .......................................................................................................................................................36
BUSINESSLEVELSTRATEGY...........................................................................................................................................................37
GrowthStrategy................................................................................................................................................................37
ImplicationsofStrategicmoveonBusinessandGrowthStrategy....................................................................................37
ImplicationsofStrategicmoveonBusinessInvestment ...................................................................................................38
RESOURCEANDCAPABILITIES ........................................................................................................................................................38
VRIOAnalysis: ...................................................................................................................................................................39
ValueDrivers: ....................................................................................................................................................................39
CostDrivers .......................................................................................................................................................................40
ImplicationsofStrategicmoveonValueCostProfile .......................................................................................................41
ValueChainSynergies .......................................................................................................................................................41
Customerretention ...........................................................................................................................................................42
Segmentation,TargetingandPositioning.........................................................................................................................42
ValuetoCustomers ...........................................................................................................................................................42
MarketingMix...................................................................................................................................................................42
FINANCIALANALYSIS ...................................................................................................................................................................43
ValuationofExxonMobil ...................................................................................................................................................44

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ForecastingModelforScenarioAnalysis ..........................................................................................................................45
ScenarioAnalysis...............................................................................................................................................................46
ScenarioAnalysisDetails...................................................................................................................................................46
SensitivityAnalysis ............................................................................................................................................................47
4. ANALYSISOFTHEEFFECTIVENESSOFSTRATEGY .................................................................................................... 48
GOODNESSOFFITTEST ...............................................................................................................................................................48
COMPETITIVEADVANTAGETEST....................................................................................................................................................48
PERFORMANCETEST ...................................................................................................................................................................48
5. RECOMMENDATIONS ............................................................................................................................................ 49
SHORTTERMRECOMMENDATION..................................................................................................................................................49
LONGTERMRECOMMENDATIONS..................................................................................................................................................52
6. CONCLUSION......................................................................................................................................................... 54
COMPANYPROSPECTS.................................................................................................................................................................54
INVESTMENTADVICE...................................................................................................................................................................54
7. MAINAPPENDIX.................................................................................................................................................... 55
8. FINANCIALBACKGROUNDAPPENDIX..................................................................................................................... 83
9. GLOSSARYOFTERMS........................................................................................................................................... 108
10. ENDNOTES...................................................................................................................................................... 110

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1. WallStreetJournalArticleandtheExecutiveSummary
WallStreetJournalArticle
The strategy analysis of ExxonMobil is based on two Wall Street J ournal articles: Exxon
Sees Burgeoning Demand for Natural Gas, dated 27 J anuary 2011, and Exxon Tilts Again
Toward Oil Production, dated 10 March 2011.
ExxonMobilSeesBurgeoningDemandforNaturalGas
ExxonMobil raised market expectations for its revenue growth when it stated that the
demand for natural gas in heating homes and businesses and for generating electricity will grow
by two percent annually between now and the year 2030. This statement, along with the
companys recent acquisition of XTO Energy for $25 billion, shows the companys belief in and
commitment to its energy outlook.
ExxonMobilTiltstoOilAgain
The political turmoil in the Middle East, particularly in Libya, has limited the current supply
of oil, resulting in oil prices topping $100 per barrel, whereas the price for natural gas has
slumped, due to an abundance of new reserves. An article from March 2011 relays
ExxonMobils decision to reverse course from its J anuary position, and throw more weight
towards oil production, stating that the majority of the companys production over the next five
years will be heavily oil. This position is seemingly in contradiction to the article mentioned
previously, dated 27 J anuary 2011, in which ExxonMobil announced its increased focus on
natural gas. More specifically, ExxonMobil plans to boost its capital spending in 2011 by six
percent, of which eighty percent of the new production will come from crude oil, bucking the
recent industry trend of increasing production in natural gas.
1

The strategic move outlined in both the articles warrants an analysis on ExxonMobils short-
term and long-term strategy, and associated competitive, operational and financial implications.

2

ExecutiveSummary
Energy is the most fundamental resource that fuels the entire globe. The Energy sector is of
international importance and is widely followed by many national and international
organizations. ExxonMobil, the worlds largest public company in market capitalization, is the
benchmark for companies operating in the Oil & Gas Industry. The actions of industry leaders
like ExxonMobil are closely watched by the entire global Oil & Gas Industry ecosystem.
ExxonMobil recently announced that, the vast majority of its new production over the next
five years will be oil, and that it will increase capital spending on finding and refining energy
to $34 billion this year.
2
This announcement came within months after spending $25 billion in
acquiring XTO, a leading natural gas player.
Given the companys recent energy outlook report predicting natural gas to be the number
two global energy source by 2030
16
and its recent acquisition of XTO, ExxonMobils tilt towards
oil appears to be a significant strategic move.
MajorIssues
ExxonMobils strategic move raises a set of critical questions, including the obvious ones:
Are the recent moves of betting big on natural gas and immediately committing to pour a vast
amount of resources to produce oil in the next five years strategically consistent?; Should
ExxonMobil increase its investment in oil, or should it step up its commitment to natural gas
more than ever?; Is ExxonMobils action going to help it maintain its leadership, or will this
move give its competitors an opportunity to overthrow ExxonMobils dominance?
With rising oil prices and an oversupplied natural gas market, current economics clearly
favors oil production over natural gas production. However, conventional oil reserves are
dwindling, with companies struggling to find new oil; this is recently illustrated by the
unfavorable spotlight that was thrown on ExxonMobil regarding its dubious reserve replacement
ratio. This raises more questions needing to be address: How will ExxonMobil be able to
successfully execute on its mission to produce more oil?; What type of new technological
innovations and infrastructure and process improvements are required to succeed?; What
geopolitical, regulatory and environmental challenges must ExxonMobil overcome to profitably
execute its commitment?

KeyAnalysis
Global energy demand is expected to increase 35 percent by 2030.
16
The demands for
transportation, residential and commercial use are all expected to rise in the next two decades;
however, the growth rate of the current energy supply is not expected to keep pace with
increasing demand, calling for investment in the discovery and production of energy from all
types of sources.
The natural gas market is currently oversupplied, keeping the price of natural gas low,
resulting in a lower level of sustained profitability. Additionally, the adoption of natural gas
across the globe is part of a very long-term strategy. As the adoption of natural gas increases, it
should drive the prices for natural gas up, making the investment more financially attractive in
the long run.
The energy industry is a mature industry with conventional, fossil-fuel-based energy sources,
such as oil and coal, dwindling slowly. While the supply of conventional light crude oil is
declining, there is still an estimated three trillion barrels of heavy crude oil in the world, equaling
approximately 100 years of global consumption at current levels
3
. Current technology allows
only a fraction of heavy crude oil (400 billion barrels) to be recovered cost effectively
3
.
Therefore, boosting investment in unconventional oil exploration and processing technology is
important to building a sustainable competitive advantage. The total cycle for producing oil is
between two and five years for already developed fields, and seven to twelve years in unproven
fields
4
, so investments in technology need to be far in advance. Currently, the technologies to
extract oil from unconventional sources are not yet fully developed.
Though the goals of supermajor oil companies are essentially the same, there is a sharp
contrast in strategy. ExxonMobil made less investment to grow organically and has relied on its
XTO acquisition to boost its reserves; whereas Chevron has spent a significant amount in capital
projects with unwavering commitments to oil. ConocoPhillips, on the other hand, is divesting its
non-core assets to build necessary capital to invest in liquids. Competitors are stepping up their
oil investments, and ExxonMobil should not see itself at a competitive advantage by not acting
swiftly.
ExxonMobil is a long-term oriented company, and as such, it is not unusual for ExxonMobil
to invest in a long-term prospect like XTO, where it can acquire growth cost effectively,
especially in light of the companys strategic intent to be the leading supplier of global energy.

4
Our analysis suggests that the recent move of focusing on oil for next five years is well aligned
with ExxonMobils energy outlook and investments in natural gas. They both are part of a well-
balanced strategy that caters to short-term as well as long-term strategic needs.
FinalRecommendation
We recommend the following short-term actions:
1. Increase investments in oil exploration, production and refining
2. Expand chemical operations, especially in emerging markets
3. Focus on increasing commercial sales and retrenching retail sales

We also recommend the following long-term actions:
A. Increase investments in natural gas exploration and production
B. Invest in technology that would enable the company to explore, produce and refine heavy
crude efficiently
C. Invest in renewable energy sources to assert its corporate and social responsibility
D. Continue to improve ethical operating standards to be the recognized leader in the industry

5

2. ExternalAnalysis
IndustryDefinition
ExxonMobil (XOM) is a major integrated Oil & Gas (O&G) company with operations in oil
and gas exploration & production, refining, and marketing oil and chemicals.
The Oil & Gas industry value chain
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is as follows:

The entire Industry value chain is broken into three main sections: Upstream, Mid-stream and
Downstream.
Upstream: This part of the value chain is also called Exploration & Production (E&P). The
global E&P market is focused on searching and exploration of oil and gas reserves around the
planet.
Mid-Stream: Oil and gas produced from E&P operations is collected and delivered to a
processing plant, where it is further refined and processed. The midstream industry stores and
transports the finished products to the Downstream industry.
Downstream: The Downstream oil sector industry refines the crude and distributes and sells the
end products in the market.
SixForcesAnalysis
Level3IndustryAttractiveness
Upstream is a moderate to highly attractive industry with a low threat of substitutes, low
threat of new entrants, and moderate supplier and buyer powers. Competition in this industry is
high.

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Downstream is moderately attractive with a low threat of substitutes, low threat of new
entrants, moderate buyer power, and high competition. Vertical integration (i.e. backward
integration) can enable Downstream manufacturers to have a constant supply of crude oil. The
industry attractiveness is higher for integrated oil and gas manufacturers compared to non-
integrated companies due to the role of complements.
Chemical is moderately attractive with a low threat of new entrants, moderate buyer power,
and moderate competition. As stated previously, vertical integration (backward integration) can
enable Downstream manufacturers to have a constant supply of crude oil, and the industry
attractiveness is higher for integrated oil and gas manufacturers compared to non-integrated due
to the role of complements. Exhibit 1 summarizes the industry attractiveness for all business
segments.
Level2Analysis
Upstream
Firms in this industry operate and develop oil and gas fields. Activities include: the
exploration and production of crude petroleum; the mining and extraction of oil from oil shale
and oil sands; the exploration and production of natural gas; sulfur recovery from natural gas;
and recovery of hydrocarbon liquids. Firms may operate oil and gas wells on their own account
or for others on a contract or fee basis.
6

Supplier Power:
Suppliers are mining and drilling equipment manufacturers. They provide support services
on a fee or contract basis. The demand for oil drilling rises as the price of crude oil rises. As the
demand rises, suppliers can charge a higher price per hour; hence, supplier power is cyclical. In
an up cycle, the suppliers have power; in a down cycle, suppliers see their power lesson.
7

Pipe and tube supplier for oil and gas transportation: New oil and gas drilling requires new
pipelines for transporting oil and gas.
7
However, since domestic and international competition is
high and the industry is heavily regulated, pipe manufacturers do not exert any pricing pressure
on the oil and gas drilling companies
7
.
Pumping equipment: Pumping equipment is used to extract oil from the ground.
8

Compressors are used to prepare gas for storage and transportation
8
. These manufacturers do not
exert pricing power on the drilling companies due to high competition and fluctuating demand.



7
Buyer Power:
About 65 percent of output goes to refiners and 14 percent goes to the natural gas distribution
industry, making refiners the key buyers of crude oil.
6

Oil Refiners: Since crude oil is a globally traded commodity, buyers favor the provider which
is closest since they have to bear the shipping costs.
6
The buyer cannot force the Upstream
supplier of crude oil to reduce the price unless the global demand for oil and gas goes down.
However, the price also depends on the grade of oil (heavy versus light) and impurities
(governed by the amount of sulfur in oil). A lower level of impurities translates into the lower
operating costs for petroleum refiners and also makes complying with environmental regulations
easier. Light crude is easier to refine into gasoline and can be used to make a greater variety of
products; therefore, light crude is naturally more expensive than heavy crude. Refiners have
fixed capacity and are cost-wise better off running their plants at fixed capacity than by keeping
the plant idle and not buying crude in a high business cycle;
6
as such, refiners cannot put too
much pressure on drilling companies.
Cyclical demand: If the price is high to the extent that demand goes down, then price goes
down. During a down cycle, the buyer has power and vice versa.
Natural Gas Distributors: The firms in the Natural Gas Distribution industry provide
transport (via pipelines)
6
. They have to buy gas from the drilling companies at the market price.
Competition in the industry is moderate and does not give these distributors any bargaining
power.
Cyclical demand: If the price is high to the extent that demand goes down, then price goes
down. During a down cycle, the buyer has power; during an up cycle, the buyer experiences less
power. Currently, supply is up, bringing prices down.
Threat of New Entrants:
Risks involved in oil and gas exploration: Out of all the oil fields an oil company researches,
only 10 percent go into production
9
.
Capital required to bring fields into production: This depends on the price of an oil rig
rental (per day basis). Deep-water drilling rates are around $420,000 a day; for 100 days, the
cost can be around $420 million
10
.
Regulation: Environmental regulations force companies to reduce emissions, which can be
very expensive. The oil spill in the Gulf of Mexico resulted in the U.S. Government issuing an
order to stop any kind of oil drilling in the area. A new entrant should be able to absorb this
sudden stoppage in drilling activity, and would need to look for newer avenues for exploring.

8
Undertake sensitive negotiations with governments: Major oil and gas companies have
operations globally, and need to be in constant negotiations with the governments of those
countries in which they operate in order to continue doing business in those regions
6
.
Threat of Substitutes:
In 2009, nuclear energy accounted for about 9 percent of energy supply and renewable
energies accounted for 8 percent of the supply.
11
In 2035, the nuclear energy use is expected to
go down to 8 percent, and renewable energies are expected to provide 10 percent of the total
energy consumption.
11
As fossil fuels still make up the vast majority of energy supply, the threat
of substitutes to fossil fuels is low.
Competition:
The industry has a high level of competitive rivalry. Based on the commodity nature of oil
and gas, there is little product differentiation that can be achieved. Customers generally prefer
purchasing oil from the oil company which is geographically closest to them since shipping costs
are paid by the customers
6
. There are five major players in oil (ExxonMobil, British Petroleum,
Shell, ConocoPhillips, and Chevron) and share nearly equal market share (2.7 percent for
ExxonMobil and 10.3 percent for Chevron)
6
. The major players in natural gas are Chesapeake
Energy, Anadarko, Devon, BP, EnCana, ConocoPhillips, Chevron and Shell.
Complements:
Any integration that Upstream can achieve in its value chain is a good complement in terms
of having a market ready to process the supplies when oil prices are high.
12

DownstreamOil
Petroleum refiners manufacture a number of products from crude oil, the two most important
of which are gasoline and diesel.
6

Supplier Power:
The suppliers in Downstream are the Oil and Gas drilling companies, who explore and
produce crude oil. Their biggest cost is the cost of obtaining crude oil, and they tend to keep their
production at the same level to utilize maximum capacity. Suppliers have high-moderate power
since they can control their production to some extent.
6

Cyclical supplier power: If the price is high to the extent that demand goes down, then price
goes down. The suppliers power moves with demand and price, increasing as demand and price
go up.



9
Buyer Power:
Key buying industries are households, commercial transportation, international and domestic
airlines in the U.S., and Marine.
6

Cyclical Demand: Buyers have no bargaining power in an up cycle and will have to pay the
price that refiners demand. In a down cycle, buyers have power and can bargain on price since
demand is low; refiners have to reduce output which will make inefficient use of their plants,
causing losses.
Threat of New Entrant:
The refining industry is capital intensive due to the costs to meet environmental regulations
and to construct and maintain refineries. The low returns and government regulation act as
deterrents to new entrants.
6

Threat of Substitutes:
There really is no substitute for refineries. Although large refiners have operations overseas,
domestic production is processed in local refineries.
6

Competition:
There is intense competition in the refining industry. The Nelson Complexity Iindex, a
broad-based tool to measure the value-added nature of a refinery, assigns higher values to
refineries that can process undesirable fuels into high-quality end products. There are five major
competitors (Chevron, Marathon Oil, Valero, ExxonMobil and ConocoPhillips). They have
nearly equal market share and dominate the industry.
6

Complements:
For Integrated Oil companies, vertical integration lets them sell their Upstream product
directly Downstream without involving distributors. This reduces cost and increases profit
margin. Thus, having a vertically integrated Downstream sub-segment ensures a steady supply of
oil.
Chemical
Supplier Power:
Petrochemical manufacturers use crude oil, refined oil and natural gas to produce
petrochemicals, and are affected by high prices in general.
Cyclical: Petrochemical manufacturers form a very small percentage of the output of the
refiners, crude oil producers and natural gas producers. However, when the business cycle is
high, the supplier has power and when the cycle is low, the supplier does not have power in
controlling price.

10
Buyer Power:
Buyers of petrochemicals are plastic, rubber, and resin manufacturers, as well as other
petrochemical manufacturers who use the intermediate products. Petrochemical manufacturers
pass on their oil costs to buyers. Since demand goes down considerably during a downturn,
Petrochemical manufacturers suffer with excess capacity.
13

Cyclical: During an up cycle, plastic and rubber manufacturers cannot bargain for price since
demand is high. However, during a down cycle, buyers get bargaining power.
Threat of New Entrants:
The chemical business is capital intensive. For example, a world-class ethylene plant can cost
more than $1 billion to construct.
13
The thin profits margins discourage new entrants. However,
internationally, China, Korea and Saudi Arabia are trying to enter the market
13
since they can
have higher margins due to lower labor costs.
Threat of Substitutes:
Environmental awareness amongst consumers to use environmentally friendly products
instead of plastic may also influence the level of demand.
13

Competition:
There are two major U.S. chemical manufacturers: Dow Chemicals and ExxonMobil. The
highest threat is the movement of production facilities overseas out of the U.S.
13
Dow Chemicals
has 2.7 percent market share and ExxonMobil has 3.2 percent market share; BASF, DuPont, and
SBAIC are other chemical players in the international arena.
13

Complements:
Many of the established players are part of integrated oil companies operating in integrated
oil refining and petrochemical complexes, a position that gives them a significant competitive
edge over potential stand-alone newcomers.
13

Level1Analysis
A detailed Level 1 analysis can be found in Exhibit 2.
MacroEnvironmentalForcesAnalysis,EconomicTrendsandEthicalConcerns
UpstreamandDownstreamOilandNaturalGas
Economic:
Historically the profitability of the oil and gas companies is tied to the strength of the
economy. The demand for petroleum products (and, by extension, for crude oil) is linked to the

11
overall level of activity in the economy. A regression analysis spanning the past twenty years
indicates that the level of real gross domestic product (GDP) can explain about 95 percent of the
demand for crude oil in the United States
6
.
The natural gas price has historically moved very little. From 1984 to 2010, the price of
natural gas has gone from $3.95 to $6.16.
14

Global:
Oil can be analyzed in terms of demand, supply and geopolitical factors. Oil is an
internationally traded commodity. Historically, OECD countries drive the demand for oil. North
America has historically had the largest demand for oil; in 2010 North America consumed 23.9
million barrel of oil per day. The second largest consumer is Europe with 14.4 million barrels
per day, and China and other Asian countries accounted for 9.4 and 10.4 million barrels per day,
respectively.
15

On the supply side, OPEC is the highest supplier of crude oil with 40 percent of the worlds
daily supply coming from OPEC countries. Although the demand for oil is expected to increase,
the supply from non-OPEC countries is expected to remain constant
16
.
In 2005, domestic conventional supplies of natural gas made up for 80 percent of demand. It
is expected to change to 30 percent in 2030. In the future, unconventional gas extraction is
expected to grow to meet the growing demand in gas for electricity generation across the globe
and in North America and China
16
.
As the U.S. has been the major consumer of energy, a downturn in the U.S. economy sould
result in an oil price decrease. However, in future, non-OECD countries are going to drive the
demand for energy.
11
By 2030, energy demand in non-OECD countries will be about 75 percent
higher than OECD demand. This will result in the U.S. no longer being able to put downward
pressure on oil in case they have an economic meltdown like the one in 2008. Therefore, the
drivers of oil price are going to change in the future.
Social/ Environmental:
Due to diminishing U.S. domestic supplies, oil companies resorted to deep water drilling.
Following the B.P. oil spill in the Gulf of Mexico, the U.S. Government put a ban on deep sea
drilling in the Gulf of Mexico.
16
Since local oil companies rely heavily on local oil production,
this affects their ability to produce oil. Industry participants are subject to extensive federal, state
and local regulations and environmental laws that govern discharge of materials into the
environment including the emission of air pollutants and the discharge of water pollutants.

12
Industry participants are also subject to regulations governing the manufacture, storage, handling
and disposal of hazardous substances and waste and other toxic materials.
6

Regulation in Oil and Gas Drilling: The Oil Drilling and Gas Extraction Industry is highly
regulated, with the federal and state governments being involved in all stages of production.
State governments determine which areas are open to oil exploration and extraction, issue
exploration and production leases, and enforce environmental legislation. The federal
government also maintains the Strategic Petroleum Reserve (SPR). This was established in 1977
in response to upheaval in the Middle East. The purpose of the reserve is to provide a stock of oil
that can be drawn down in the event of a major upheaval in the market.
In 2007, Congress passed the Energy Independence and Security Act, which contains
standards relating to producing a certain amount of renewable fuel (the renewable fuel standard
or RFS) and automotive standards to increase fleet gas mileage to 35 mpg by the year 2020.
6

Political:
The geopolitical turmoil around the world affects the U.S. because although the U.S. is the
third largest crude oil producer, about half of the petroleum the U.S. uses is imported.
11
(Canada
23.3 percent, Venezuela 10.7 percent, Saudi Arabia 10.4 percent, Mexico 9.2 percent, Nigeria
8.3 percent)
6
. Tensions sparked by perceived successful government transitions in Tunisia and
Egypt have caused a ripple effect throughout the Middle East. Oil prices rose substantially as
these tensions spread to other countries including Libya, Bahrain and Yemen. Speculation has
largely been behind the sharp crude oil price increase as traders believe that unrest in countries
near major oil producers may lead to actual supply disruptions. For instance, if Saudi Arabia
experiences significant unrest and its oil supply is threatened, prices may rise quickly as the
country is a major producer and exporter of crude oil.
6

In the U.S. the major oil companies are vertically integrated and they control the oil prices.
The high profits are due to the mergers in the oil industry, which also has reduced competition
17
.
Technological:
New shale gas extraction technology enables oil and gas drilling companies to get new
regions to extract gas from. This has resulted in a U.S. shale gas production increase 14-fold over
the last decade, with reserves tripling over the last few years. Thirty percent domestic gas
production growth has outpaced the sixteen percent consumption growth, leading to declining
imports and declining prices of natural gas in the short term. China has obtained a stake in
Chesapeake in Texas, U.S. in order to gain access to explore shale gas drilling technology.
18

Natural gas price projections are significantly lower than past years due to an expanded shale gas

13
resource base. Technology will continue to evolve and play a key role in increasing efficiency,
expanding supplies and mitigating emissions
16

Since oil from conventional sources is diminishing, oil companies need to look at
unconventional and hard-to-extract locations to get oil. This has triggered technology innovation
in the Arctic regions, as well as deep-water drilling technology. There has been progress in
safety measures taken as well to prevent oil spills and corresponding environmental damage.
16

Demographic:
The world population is growing and has grown from about 1 billion people in 1800 to
approximately 7 billion today. By 2030, world population is likely to grow to 8 billion. A
century ago, wood and coal were the most prominent sources of energy. Today, access to
modern technology contributes to growth in demand and supply of oil and natural gas. Another
factor that contributes to the growth in demand for energy is the standard of living of people
across the globe. As standard of living improves, the demand for energy per capita increases.
Since global population growth is greater in non-OECD countries, the growth in standard of
living is an important factor in determining the growth of demand for energy.
16

Ethical:
Various theories hold that burning fossil fuels like oil and gas have large environmental
impacts due to resulting emissions. Emissions from burning fossil fuel can also cause air
pollution, which may have harmful effects on peoples health through breathing impure air.
19

Although natural gas burns cleaner, the technology used to extract natural gas can cause more
greenhouse-gas emissions than the use of coal or oil.
20

Forecasted Oil demand:
The U.S. Energy Information Administration (EIA) projects that net imports of U.S. crude oil
and petroleum products will only slightly increase in 2035 in spite of the growth in demand.
U.S. petroleum import dependence falls from 51 percent in 2009 to 45 percent by 2035 in EIA's
reference case projection.
11

Non-OECD demand for oil is expected to raise above the OECD countries.
11

Total global energy use in 2010 has been 500 quadrillion BTUs with oil being the major source
of energy. Forecasted U.S. energy consumption in 2030 is 650 quadrillion BTUs, with oil still
dominating as a source of energy. Energy efficiency gains reduce consumption by 13 percent
from where it would otherwise be.
11
Please see Table 1 for a summary of the forecasts of energy
demand by energy source.


14

Table 1: Energy Demand in past and forecast
11

Source Percentage demand in 2010 Percentage demand in 2030
Petroleum 32% 30%
Natural gas 22% 25%
Coal 25% 22%
Nuclear 8% 10%
Hydro 2% 2%
Other Renewable 1% 2%
Biomass Waste 10% 9%

Forecasted Natural Gas Demand:
Natural gas consumption is driven by Industrial use (35 percent) and central electric power
(29 percent).
11
Hence, any increase in demand for electricity will result in increase in demand
for natural gas. Currently, coal dominates as the major supplier of electricity. By 2030, natural
gas is expected to outstrip the use of coal.
16

PetrochemicalIndustry
Petrochemicals play an important role in the U.S. economy since many of the goods
produced by petrochemical manufacturers are fundamental building blocks used in the
production of a variety of consumer and industrial products. Therefore, petrochemicals are
affected by their production volatility, as well as the prices of oil and gas, which are used as raw
materials to produce the intermediary.
13

Economic:
The same factors that affect oil and gas are those that affect petrochemical.
Global:
U.S. producers are being adversely affected by the development of large-scale, low-cost
export-oriented plants located in the Middle East; Saudi Arabias ethylene capacity alone more
than doubled between 1990 and 2001 to 5.4 million metric tons, and by 2005 had increased again
to reach 7.7 million metric tons. South Korea and China have also invested considerable
resources in growing their petrochemical industries to become significant petrochemical
exporters.
13

Social/Environmental:
The same factors that affect oil and gas are those that affect petrochemical.
Political/ Regulatory:
The same factors that affect oil and gas are those that affect petrochemical.


15
Technological:
The technology used in this industry has been fairly static over the past ten years. Most of the
technological development has been aimed towards increasing the efficiency of the production
process and the manufacturing assets of the participant.
13

Ethical:
The same factors that affect oil and gas are those that affect petrochemical.
Demographic:
The same factors that affect oil and gas are those that affect petrochemical.
Forecasted demand:
In the five years from 2011 to 2016, the Petrochemical Manufacturing industry demand is
expected to grow by an estimated 4 percent per year.
21

CompetitorAnalysis
ExxonMobil operates in three major industries: oil, natural gas, and chemicals. Since the
dynamics, opportunities, and challenges in each are very different, the competitors in each
industry are analyzed separately.
FirmsCompetitors
OilIndustry
The world oil market is dominated by government-controlled companies that actually control
the majority of both current production (more than 52 percent in 2007) and proven reserves (88
percent in 2007).
22
The companies operating in the world oil market can be broadly classified
into three categories:
National oil companies that function as corporate entities but have strategic and
operational autonomy and support of national governments. Examples are: Petrobras
(Brazil), Statoil (Norway), PetroChina (China), and ONGC (India).
National oil companies that operate as an extension of the government Saudi Aramco
(Saudi Arabia), Pemex (Mexico), and PDVSA (Venezuela). They support their respective
governments programs like subsidizing fuels to domestic consumers.
Investor-owned oil companies (ExxonMobil, Shell, and BP) form a relatively smaller
segment of the world oil market and sell their output in competitive markets.
ExxonMobil is the largest among the six big non-state owned, vertically integrated oil
companies, popularly known as Big Oil (or supermajors) companies; the others in this

16
category are Royal Dutch Shell, BP, ConocoPhillips, Chevron, and Total S.A. In addition, there
is increasing competition from national oil companies like Saudi Aramco, Gazprom and China
National Petroleum Corporation (CNPC). Though the big oil companies have the technological
know-how and large assets at their disposal, they are at a disadvantage when it comes to access
to oil reserves, as OPEC controls the majority. Access to high growth markets in non-OECD
countries is difficult as these markets are already served by incumbent, local, state-owned
companies like Petrobras in Brazil, Oil and Natural Gas Corporation (ONGC) in India, and
PetroChina in China.
NaturalGasIndustry
Though the oil business has been dominated by the Big Oil companies, the natural gas
business in the U.S. was, until recently, managed by small, independent, non-integrated
companies.
23
With replacement ratios for oil dropping and the oil-rich regions becoming more
politically unstable, Western oil companies are scrambling to find new ways to address growing
energy demand. Big Oil companies started foraying into natural gas, an adjacent market.
Globally, there are big state-owned companies. Gazprom, of Russia, has 17 percent of the
worlds natural gas reserves.
24
ONGC is an Indian state-owned oil and gas company that
contributes 81 percent of India's natural gas production.
25
The Chinese market is dominated by
three local companies: China National Offshore Oil Corporation (CNOOC), CNPC (parent of
PetroChina), and China Petrochemical Corporation (parent of Sinopec). The natural gas market
is highly fragmented, with dominant players in each region and no single company having
control over multiple geographies.
ChemicalIndustry
ExxonMobil also manufactures and sells commodity petrochemicals and a wide variety of
specialty products. The competitors for ExxonMobil in this market are: BASF (Germany), Dow
Chemical, Ineos (UK), Saudi Basic Industries Corporation, DuPont and Chevron Phillips
Chemical Company LLC (CPChem).
26

PrimaryCompetitors
Oil
The primary competitors for ExxonMobil in the oil industry are the other Big Oil companies:
Shell, BP, ConocoPhillips, Chevron, and Total S.A. See Exhibit 3 for a detailed comparison of
competitors. The common trend across all competitors is the rise in production of natural gas.

17
This indicates that the Big Oil companies are now adjusting their energy portfolio to account for
the depleting oil reserves. ExxonMobils jump in production of natural gas in 2010 is attributed
to the acquisition of XTO. ConocoPhillips, in particular, is seeing its overall replacement ratios
falling and a drop is seen both in oil and natural gas.
NaturalGas
The primary competitors for ExxonMobil are Chesapeake Energy, Anadarko, Devon, BP,
EnCana, ConocoPhillips, Chevron and Shell (see Exhibit 4). Rapid consolidation in the natural
gas industry is occurring of late, with large oil companies snapping up companies or resources
from smaller and mid-sized companies. More details can be found in Exhibit 5.
Chemicals
BASF is the worlds largest chemical company. In addition to a wide variety of chemical
products, BASF also has interests in oil and gas through its subsidiary Wintershall AG and joint
ventures with Gazprom.
27
Dow Chemical is the second largest chemical company worldwide.
28

ExxonMobil Chemical ranks first or second in the production of many petrochemicals. It is
active in all aspects of hydrocarbon industry, has integrated plants with its refineries and has
high-level joint ventures making it highly competitive.
29
Ineos, the U.K.s largest chemicals
company, is formed from divested assets from BP, Dow Chemical, BASF, and Unilever.
Privately held, it is also known to have a lean management team.
30
Saudi Basic Industries
Corporation (SABIC) is owned 70 percent by the Saudi government and processes the huge
amount of Saudi Arabian oil byproducts into chemicals.
31
DuPont was one of the most
diversified chemicals company and is now slimming down to focus on biotech, safety and
protection products. Chevron Phillips Chemical Company LLC (CPChem) is owned 50/50 by
ConocoPhillips and Chevron and is one of the worlds top producers of specialty chemicals.
32

PrimaryCompetitorsBusinessLevelandCorporateLevelStrategy
Since oil and gas are commodities, companies have focused on an overall low-cost strategy
and are leveraging their size to achieve larger economies of scale. Here are more specific
strategies that are more likely to be seen applied across all companies:
Vertical integration from production to refining to distribution
Grow in size to accumulate huge assets, as the oil and gas business needs substantial
capital investment
Relationships with players in oil-rich regions (e.g., Saudi Arabia and Kuwait)

18
J oint ventures with other oil & gas companies like the joint oil exploration in Arctic
33

The business dynamics vary remarkably between oil and natural gas industries. Success in
the gas industry depends more on how quickly a company can seize an opportunity and buy into
a new concept or technology. Also, gas wells last for a much shorter period of time than oil
wells, forcing companies to keep chasing new reserves. This will require the companies to
optimally leverage their economies of scale for natural gas compared to oil.
34
Mid-sized
companies no longer see a high barrier to enter the gas market because of the abundance of
natural gas deposits.
HowCompetitorsAchieveTheirStrategicPosition
Since success in the oil and gas industry depends largely on access to reserves and the
technology to harness it, it is very important to have access to a huge capital base, to build strong
relationships with organizations and countries where the reserves are located, and to efficiently
transport crude fuel to refineries. For example, ExxonMobil has joined with Qatar Petroleum and
other partners to further develop the worlds largest non-associated natural gas field.
35

Chevron has landed a massive multi-billion dollar deal in the Wafra oil field of Saudi Arabia
where it is experimenting ways to extract heavy oil economically amidst challenges unique to the
Arabian desert.
36
This means competitors leverage their technical expertise, strong relationships
and huge capital investments to take big risks. In return, they reap huge rewards if things work
out.
Shell is the second largest oil and gas company and its strategy has been to enhance their
worldwide Upstream portfolio for profitable growth, through exploration and focused
acquisitions, and through divestment of non-core positions. Shell agreed to buy most of East
Resources for $4.7 billion to expand its holdings of the promising U.S. shale gas deposits. Shell
has also been following a joint acquisition strategy it jointly acquired Australias Arrow
Energy Ltd. for $3 billion along with PetroChina. Shell expects its share of natural gas to be
more than half of its total energy production in 2012.
37

BP is the third largest energy company in the world, having a very diverse portfolio including
oil, natural gas, wind, solar, and bio-fuels.
38

ConocoPhillips is the fourth largest oil and gas company, and the sixth-largest reserves
holder among non-state controlled companies. ConocoPhillips is known worldwide for its
technological expertise in reservoir management and exploration, 3-D Seismic technology, high-
grade petroleum coke upgrading and sulfur removal.
39


19
Total S.A. is the fifth largest and highly diversified energy company in the world. Total
engages in all aspects of the petroleum industry (Upstream and Downstream), petrochemicals,
coal mining, solar, biomass, and nuclear.
40

ValueCostProfile
While running its business, a firm invests capital (called cost drivers) and creates value for its
shareholders through value drivers. The common value drivers in the oil and gas industry are
proven reserves (oil and gas), production of oil and gas to meet the demand, financial health,
geographical diversification, diversification beyond oil and gas and its brand image. The cost
drivers are refinery utilization, marketing and distribution costs, operational excellence, safety,
and economies of scale. The value and cost drivers are weighted based on their relative
contribution towards a companys performance.
The Value Cost analysis was done for ExxonMobil and its competitors (See Exhibit
24A). The analysis shows that ExxonMobils value drivers are significant compared to its
competitors, while there is scope for improvement in the areas of refinery utilization and
marketing and distribution. It should be noted that our financial analysis shows that
ExxonMobils Downstream business has lower profit margin that its other two segments
(Upstream and Chemical). The effect of cost drivers is more than the value drivers in the case of
ConocoPhillips, making its Value Cost profile negative.
IntraIndustryAnalysis
The oil and gas industry is a mature and declining industry.
41
Most of the major producing
conventional oil fields were discovered decades ago and are in decline
42
, the world conventional
oil reserves are depleting,
43
and the relative finding of newer fields and deposits is slow.
44
As a
result, the industry is consolidating, primarily through asset acquisition and through mergers. In
2010, there were 947 deals announced with the value of $270 billion, a 35 percent increase over
2009.
45
The mobility barriers to entry remain the same as identified previously. Although there
were few innovative technologies recently discovered or invented,
46
none of these were
significantly disruptive other than the fracking process and horizontal drilling that XTO
brought to ExxonMobil for increased production from shale rocks
47
.

20
StrategicGroupOverview
ExxonMobils peers for the strategic group analysis are Royal Dutch Shell (RDS), British
Petroleum (BP), Conoco Phillips (COP) and Chevron Corp (CVX). These five major integrated
O&G are public-owned companies. See Exhibit 31 for detailed strategic group maps.
StrategicGroupAnalysis
In this section, all the five companies are evaluated and their performance is identified. The
data used for analyzing the strategic group analysis is provided in Exhibit 30.
ExxonMobil (XOM): ExxonMobil is the leader in the strategic group. All of its core lines of
business are doing well. ExxonMobil is able to generate high revenue in both the product lines of
oil and gas. In Downstream, ExxonMobils refineries are performing well to their production
and capacity. ExxonMobils resources are well deployed.
The company has the largest natural gas reserves, but is second to BP for oil reserves. Due to
the nature and state of the industry, ExxonMobil has to consider ways to increase its oil reserves
in order to maintain its leadership position. In the Downstream, ExxonMobil is doing well with
its refining business. In Downstream marketing, ExxonMobil is transitioning out of the retail
network (i.e., dealer or company-operated) in the U.S. and moving to a branded distributor
model.
48
ExxonMobils accidents (seventy-five in 2011) are rated medium in the strategy group
compared to the companys production. These incidents can significantly impact business and
brand value. (For example, BP paid up to $10 billion for environmental damages
49
and fines,
excluding a loss of $101 billion in its market capitalization within the span of two weeks (See
Exhibit 29)). The companys days of inventory is medium compared to its peer group.
ExxonMobil is also financially stable with the second lowest total debt among the peer group.
Royal Dutch Shell (RDS): Royal Dutch Shell is one of the largest competitors in the
strategic group for natural gas reserves. However, it has low oil reserves compared to the group.
It is able to generate considerable amount of revenue. In Downstream activities, RDS has good
production capacity and refineries to handle the capacity, but refineries are under utilized for oil
production. RDS has more than 25,000 retail outlets worldwide and, like the rest of the peer
group, RDS is trying to exit direct retailing business to focus on profitable Upstream activities.
In operations, RDS has significant human capital and is aligned with strategic group leaders.
Although RDS does not have significant oil production in the strategic group, the number of
accidents is higher than its peers. RDS Days of Inventory is high compared to its peer group and
has the highest total debt.

21
British Petroleum (BP): BP is one of the largest competitors of ExxonMobil from the
strategic group, with high oil reserves. Despite high oil reserves, BP is unable to generate a
considerable amount of revenue. This is attributable to the major oil spill in April 2010 that was
caused at BPs oil well, one of the largest marine oil spills in the history of the petroleum
industry.
50
This event has significantly impacted BPs ability to generate revenue. In the
Downstream, BP is limited in its production due to its refining capacity constraints. In future,
BP will need a considerable amount of refining capacity to be able to handle the reserves. BP has
more than 22,400 retail outlets worldwide. In operations, BP has significant human capital but is
not performing as well compared to the strategic leaders XOM and RDS. BP, apart from its 2010
oil spill, has similar safety accident records compared to its peer group. The days of inventory for
BP is the highest among the peer group, and its total debt is the second highest in the peer group.
Chevron (CVX): Chevron, although low, has sizable oil reserves. Chevron is the oil
production leader in the strategic group. Its production is about 30 percent of the entire peer
group put together. In the Downstream, Chevron is low on capacity and refining capability. It
also has more than 20,000 retail outlets worldwide. From operations, Chevrons human capital
of 62,000 is not performing as well compared to XOM and RDS. Chevron is the worst performer
within the group based on safety accident records, with 129 accident or safety issues in 2011.
Chevrons large production output is well supported by its low days of inventory. Chevron also
has the lowest debt in the peer group.
ConocoPhillips (COP): COP is the laggard in the strategic group. It does not report its oil
and gas reserves. In order to perform the analysis, its reserves were computed using barrels-of-
oil-equivalent (BOE), an industry term to describe combined oil and gas reserves. It was in the
poorest quadrant for all the strategic map analysis, with the exception of lower debt and
accidents compared to the group. It has the smallest reserves to revenue. In Downstream, COP
has limited capacity and less refining power compared to the group leaders. In 2011, COP had
the lowest number of accidents compared to the group, which could be due to its low production
levels. It has higher total debt than XOM and CVX, and its low production is supported well
with its low days of inventory.
Technology&Innovation
In the oil and gas industry it takes about five to seven years to extract oil from a viable oil
well to get into the supply chain. (See Exhibit 13.) The technological innovations in the oil and
gas industry are primarily around discovering, exploring, refining, transportation and storing.
These new technological innovations expedite discovering oil and gas and exploring in very

22
difficult conditions, dramatically bringing down costs of production and bringing products to
markets quicker to meet the growing energy demand. A sample of recent technological
innovations include:
High-End Geological Exploration An application
51,52
that can explore large geologic
formations, identify blocks of rock 20 kilometers on a side, and then pan or zoom in to
see if it holds oil. The ability to explore on another corner of the world without leaving
the office and directly playing it on a large computer screen with an array of high-end
computers significantly reduces the costs of exploration. This technology has
dramatically reduced the exploration costs, while increasing the success rate of finding
new wells.
Horizontal Drilling
53
This innovation is typically used for natural gas exploration,
and is a method to drill thousands of feet vertically and then drill a thousand feet
horizontally along targeted reservoir, which allows well bore to contact a larger cross
section to increase productivity rates. ExxonMobil acquired XTO, which had a
significant expertise level with this complex technology needed. XTOs technology and
assets helped ExxonMobil drive a 24 percent increase gas output during first-quarter of
2011.
54

Deepwater Exploration Technology like deepwater spar
55
and Floating LNG
56

provide a stable floating platform to support drilling operations in deepwater oil and gas
fields. This helps the discovery and capture of oil and natural gas in high seas where
common on-shore infrastructure cannot be deployed.
Other notable innovations include: Hydro processing Catalysts,
57
a refining technology that
improves refinery operations; Cryogenic Liquid Energy Transfer, a technology
58
that can
transfer and off-load liquefied natural gas from tankers at an offshore terminal facility in isolated
coastlines with no natural harbors; and Gas Storage technology,
59
that helps store massive
amounts of gas by improving operating performance and reduced maintenance.
The typical industry Research and Development spending on these types of innovations is $1
billion annually
60
.
IndustryKeySuccessFactors(KSFs)
For the oil and gas industry, the five main Key Success Factors (KSFs) are: Exploration and
Oil discovery, Manufacturing, Financial, Technology and Marketing & Distribution. See Exhibit
32 for additional details on key success factors.

23
Exploration & Oil discovery: This is a critical KSF for the oil and gas industry (30 percent).
The critical nature of oil and gas production companies should be able to continuously and
consistently discover and explore to increase its reserves. ExxonMobil has ample projects
planned in the short-term
61
to successfully execute this KSF. In the longer term, ExxonMobil
has to find ways to increase oil reserves.
Manufacturing & refining is an equally critical KSF for the oil and gas industry (30 percent).
The ability to get proven oil and gas resources into the supply chain for production and
manufacturing by refining and processing will enable the companies to monetize its reserves. If
the manufacturing is unable to create the required output, customers can easily switch to other
suppliers due to the commodity nature of the products. ExxonMobil with its refinery capacity
61

and production efficiency has the ability to successfully execute this KSF. However, the
company must also ensure the safety of its workers and its assets. This can otherwise lead to
significant legal and state fines as seen in connection to BPs 2010 oil spill in the Gulf of
Mexico.
Financial and Manufacturing are the next leading KSFs for the oil and gas industry, both with
a weight of 20 percent. The oil & gas industry is a very capital-intensive business. These fixed
assets, like refineries, are expected to scale to significant levels from one specific location. Apart
from these fixed assets, newer fields exploration and the ability to bring a well to production
take considerable amount of time, as stated previously. (See Exhibit 13.) This delay in the
ability to bring products to market, along with heavy capital expenditure, requires a significant
amount of financial backing. Apart from capital intensive manufacturing and assets, the
industrys accident prone nature requires companies to be prepared for the worst (BP was fined
$10B for the Gulf oil spill
62
). ExxonMobil has significant financial stability to execute this KSF
successfully.
Technology is the immediate second KSF for the industry (10 percent). As the oil and gas
wells deplete, the industry is increasingly trying to find new hydrocarbon sources in
unconventional areas like tar sands and deep water in a way that is safe and economically
profitable. Disruptive technological innovations and applications help companies gain advantage
in the industry. ExxonMobil with its current resources compared to industry and financial
backing should address this KSF.
Marketing & Distribution plays a critical role for oil & gas companies (10 percent). The
commodity products need to be brought to the right markets at the right prices, need to increase
customer loyalty and retention and finally need to increase brand awareness to attract new

24
customers. This critical KSF is a significant contributor to oil & gas companies. While
ExxonMobil is ahead of its competitors, this KSF should focus on more profitable segment
customers like states and commercial airlines.
The other KSFs that were considered and placed lower were Skills and Capability; although
critical since the oil and gas industry employs more than 50,000 employees and many more
contractors, this received a lower rating than the other KSFs. The supply chain KSF was rolled
into manufacturing and manufacturing operations, and inventory and storage was rolled into the
financial KSF.
SWOTAnalysis
OilIndustry
Strength: ExxonMobil is a well-established company and a market leader in the oil and gas
industry and it has been in existence for over a century. It has a strong brand name and industry
presence that gives its customers a sense of security. The company has diversified into many
different areas of the energy industry and is performing consistently in revenue generation.
ExxonMobil is vertically integrated and operationally very efficient, which is evident from its
industry leading profit margins. ExxonMobil has 40.6 million acreage combined in: North
America with ten year leases, in Africa with twenty-five to fifty year leases, and in Asia with
twenty to thirty year leases.
60
It has highest number of refineries compared to its peer group (See
Exhibit 30). Exxons 27 percent of production from North America is expected to grow to 35
percent in 2015, with contributions from both established operations and new projects.
60
It has
the largest natural gas reserves and the lowest debt in its strategic group (See Exhibit 31).
Weakness: The key weakness confronting ExxonMobil is the decline in its oil reserves and
its low replacement rate for oil reserves. In Downstream, ExxonMobil generates about 12
percent revenues (See Exhibit 5). This is partly due to its 26,000 retail outlets and declining
inflation-adjusted margins. This weakness might be mitigated by a branded distributor model.
60

ExxonMobil has not been able to handle environmental and social group issues effectively.
63

Threats: There are several threats to ExxonMobil in the oil industry. ExxonMobil, along with
other Western oil companies, are at the mercy of OPEC since OPEC controls most of the oil
reserves in the world. The reserves are concentrated in politically unstable regions making oil
business tricky and unpredictable. Most companies are seeing the replacement ratios declining
for oil. In contrast, large natural gas reserves are being discovered in easier to access regions like
the U.S. and newer technologies (like hydraulic fracturing) have made extracting natural gas

25
more feasible now. Substitute power from natural gas is getting stronger, which will increasingly
grab energy market share from oil. The oil industry, in general, will see more competition from
natural gas, as the barrier to enter the natural gas industry is much lower than that for the oil
industry. Incumbent large oil companies will see their dominant position threatened if they dont
diversify soon as natural gas will gain in prominence going forward.
Opportunities: The oil industry will continue to offer opportunities even in the long term. Oil
business is more profitable than natural gas due to the low price of natural gas. As per
ExxonMobils energy outlook, oil is projected to remain the number one source of energy
through 2030. Incumbent large companies are favored in the oil industry owing to inherent
advantages of economies of scale and access to huge capital. They can leverage their existing
contracts and relationships to block new entrants. The number of vehicles is projected to grow
(especially in non-OECD countries) and this is good news for the oil industry because oil-based
products will continue to be the primary fuel (gasoline & diesel).
See Exhibit 33 for additional details on the SWOT analysis for the oil business segment.
NaturalGasIndustry
Strength: The acquisition of XTO, the technology leader in efficient natural gas exploration,
has helped ExxonMobil fortify its position for natural gas exploration. As mentioned above,
ExxonMobil has strong financials, industry presence and brand name in the energy industry.
ExxonMobil has several large commercial contracts for both the short-term and the long-term
(20 years or above) for its natural gas supply.
64, 65

Weakness: In the natural gas industry, profit margin is very low compared to the oil industry.
The capital investment for natural gas is less than oil, and this leads to a large number of small
players in the natural gas industry, keeping the price of natural gas low. ExxonMobil cannot
leverage its oil infrastructure for gas exploration and refining. Also, as mentioned in the
competitive analysis, natural gas wells get depleted faster than oil wells. Therefore, ExxonMobil
needs to ensure that it finds the right amount of reserves for natural gas at a faster rate than oil.
Threats: A lower price (as compared to oil) makes natural gas businesses less profitable.
Hydraulic fracturing is a promising technique to extract vast deposits of shale gas in the U.S. but
it is prone to environmental issues like water contamination, leading to many problems for
natural gas companies. The economies of scale desired by large companies is difficult to achieve
as gas wells have a relatively shorter life.
Opportunities: As per ExxonMobils energy outlook, global energy demand will grow by 1.2
percent per year through 2030 and natural gas is projected to become more relevant, largely

26
because it burns clean. Strategically, it is a good idea to have natural gas in addition to oil in a
companys energy portfolio for the long-term. One estimate puts the reserves in North America
alone to last for the entire century. OPEC controls less than half of natural gas reserves, giving
more room for investor-owned companies like ExxonMobil to grow in this sector. Hydraulic
fracturing (also known as fracking), a breakthrough technology, is now viable and the production
costs for natural gas have fallen.
See Exhibit 33 for additional details on SWOT analysis.
ComparativeFinancialAnalysis
Five companies were chosen as competitors to ExxonMobil
66
for the competitive financial
analysis: Chevron
67,
ConocoPhillips
68
, Royal Dutch Shell Company
69
, British Petroleum
70
, and
Total S.A
71
. These five companies, like ExxonMobil, are all integrated and produce both oil and
natural gas.
Revenue Growth:
Financial Exhibits 2 and 3 detail the trends in revenue growth for 2003 through 2010;
Financial Exhibit 2 looks at Total Revenues, including revenues from equity affiliates and non-
controlling minority interests. Financial Exhibit 3 strips these additional revenues out, and
looks at just those sales and operating revenues directly attributable to each individual company.
Financial Exhibits 2A and 3A show how closely revenues follow the rise and fall of crude oil
prices
72
, with ExxonMobil the clear leader in sales throughout most of the time span. However,
what is also noticeable is how Shell has managed to close the gap in revenues with ExxonMobil
over the years, despite the uncertainty inherent in predicting oil prices; by 2010, Shell is neck-in-
neck with ExxonMobil and poised to take over as the leading company in revenues. With an
industry that is moving more towards consolidation, any potential loss of market share needs to
be defended.
Financial Exhibits 2B and 3B display the compounded annual growth rates for revenues for
the six companies, using 2004 as the base year. Of particular note is that despite rising oil prices
from 2004 to 2007, the compounded annual growth rate is steadily declining and at a substantial
rate; only record oil prices in 2008 kept the CAGR for that year from slipping, and held it close
to the 2006 rate. However, even with oil prices beginning to rise again in 2010, the CAGRs for
revenues remains at a much slower growth rate than was experienced at the beginning of the
decade. Also of note is ExxonMobils position against its competitors; ExxonMobil is just above
or equal to the average Revenue CAGR of the six companies, consistently growing slower than

27
half of its competitors. This trend continues in Exhibits 2C-D and 3C-D, suggesting that the
industry may be reaching a plateau in revenue growth, with ExxonMobil growing at an even
slower rate than the average of its competitors. Given this, ExxonMobil needs to implement a
growth strategy in order to survive the intense competition and increasing pressure of depleting
reserves.
Profitability:
Financial Exhibits 4 through 6 display the various profit margins for ExxonMobil and its
competitors, both as a percentage of sales and in terms of growth rates over the decade. In terms
of Gross Margin, ExxonMobil is the leader among the six companies analyzed, suggesting that
the company is more efficient at keeping its Cost of Goods Sold lower as oil prices fluctuate, and
is able to better absorb some of the volatility inherent in changing oil prices; Total S.A.
experiences the most volatility in Gross Margin. However, Financial Exhibit 5A shows that by
2010, ExxonMobil has lost its position as leader for Income Before Interest and Taxes as a
percentage of sales. This also holds true for Net Income as a percentage of sales, as shown in
Financial Exhibit 6A; ExxonMobil led the group of six companies in the early part of the
decade, but saw a decline in Net Income as a percentage of sales in 2006 through 2008, despite
rising oil prices, and by 2009 was no longer the leader. Of particular interest is the drop in Net
Income as a percentage of sales almost across the board in 2008, with the exception of Chevron,
despite the growth in revenues during this same period.
These three profit margins in general throughout the industry fluctuate as a percentage of
sales as oil prices rise and fall. In order to stabilize this effect, the rolling three year growth rates
were computed for the three, and the annual compounded growth rate was calculated for Net
Income, using 2004 as a base year. These can be found in Financial Exhibits 4B, 5B, 6B, and
6C. Based on a rolling three year growth rate, ExxonMobils gross margin as a percentage of
sales has been slowly declining over the last eight years. ConocoPhillips is also declining, but
the other four companies have shown an increase in their gross margins from 2003 to 2010, with
the European companies (Shell, British Petroleum, and Total S.A.) making the biggest increases.
As Financial Exhibit 6B shows, however, all companies in the industry are experiencing
significantly slower growth in net income, in some years despite rising oil prices. This evidence
supports the fact that the oil and natural gas industry is mature, and perhaps reaching saturation;
any company in this industry must be more operationally efficient and technologically innovative
to find ways to grow profitability. Chevron and ConocoPhillips are able to experience a greater
growth rate in income than ExxonMobil, steadily gaining ground over ExxonMobil over the last

28
couple of years. However we believe this is mainly due to the XTO acquisition and repayment of
assumed debt.
Operational Efficiency and Resource Management:
Financial Exhibit 7 compares each of the six companies to each other in their ability to
generate cash flow from their operations, therefore their ability to pay their debts and run their
business without outside financing. In this category, ExxonMobil is in a very strong cash
position relative to its closest competitors; at the peak of oil prices in 2008, ExxonMobils
closest competitor, Shell, still fell almost $20 billion short of ExxonMobils operating cash flow
position. One thing to note is that in those years where oil prices were below $60 a barrel,
ExxonMobil lost that strong edge in operating cash flow over its competitors. All six
companies cash positions were affected by the trend in oil prices, some more than others.
British Petroleum has been unable to recover its operating cash flow from the drop in 2009,
although this is likely due in large part to the Gulf Oil Spill in 2010.
Clearly, ExxonMobil is the leader in Return on Equity, which is mainly attributed to
excellent efficiency in operations, asset utilization, and high equity returns. The higher ROE
numbers in the DuPont analysis (Financial Exhibit 8) support ExxonMobils decision to expand
into new markets while focusing on its strength as a vertically integrated company.
Financial Exhibit 9 compares ExxonMobil with its competitors using various other key
financial metrics; current and quick ratio, debt-to-equity ratio, return on assets, inventory
turnover, and days of inventory. Chevron, Total S.A., and ConocoPhillips have the best ability
to cover their short term liabilities and demands according to the Current Ratio. When Inventory
is taken out of the equation, only Chevron and Total S.A. are able to keep their Quick Ratio
above 1.0 in the last couple of years. This suggests that the oil and gas industry rely heavily on a
quick turnaround of inventory in order to cover short term liabilities. ExxonMobil is especially
in a troubling position, as the company used to have very good current and quick ratios, but have
seen significant deterioration since 2008. The first year that ExxonMobil saw the drop in its
current and quick ratios was 2009, also a year that saw a drop in Operating Cash Flow for the
company, again highlighting ExxonMobils dependence on oil prices staying about $60 a barrel
in maintaining a competitive edge. In 2010, ExxonMobil had a large increase in its financing
activities, likely due to the assumption of debt from XTO. Interestingly, the U.S. companies
(ExxonMobil, Chevron, ConocoPhillips) experience significantly higher inventory turnover than
the European companies (Shell, British Petroleum, Total S.A.). Conversely, the European
companies have higher Days in Inventory; the European companies hold their inventory for three

29
to four times more days than their U.S. counterparts. ExxonMobil falls at the bottom of the
grouping of U.S. companies in terms of inventory turnover and days of inventory, but still
offloads its inventory twice as fast as the European companies. Lower inventory turnover could
also be indicative of a lower reserve replacement ratio, and could reflect the difficulty of finding
new reserves for a particular company. Given the consolidation and commodity nature of the oil
and gas industry, and ExxonMobils low current and quick ratios, this should be an area that
ExxonMobil should focus on.
ExxonMobil, along with Chevron, is the leader in generating a return on the companys
assets. A possible link could exist between the inventory turnover and the return on assets; if a
company is already producing at full capacity in its refineries, or does not have many new
reserves in waiting, then the inventory turnover could be lower for that company. With the
exception of Chevron, the companies in this analysis are highly leveraged, as shown in the Debt-
to-Equity Ratios in Financial Exhibit 9. ExxonMobil is the most balanced of the six companies,
keeping just above and below 1.0.
Return on Capital Employed is a ratio highly used in the oil and gas industry as a benchmark.
The ratio looks at the return for a company by taking its income from continuing operations,
adjusted for after-tax expense and minority interests and dividing it by the yearly average of total
debt, stockholders equity, and minority interests. In terms of ROCE, ExxonMobil has
consistently been the leader, which is partly attributable to the companys ability to consistently
maintain the life of its plants for a couple years longer than its competitors. Chevron, British
Petroleum, and Total S.A. are clumped together a few percentage points below ExxonMobil, and
ConocoPhillips and Shell comprise the third tier of ROCEs among the six competitors.
Overall, based on the ratios detailed in Financial Exhibit 9, Chevron appears to be in the
strongest financial position of the six companies, and the U.S. companies as a whole appear to be
in better financial health than their European counterparts.
SummaryofExternalAnalysis
The oil and gas industry is highly profitable, but is a mature industry, and is dominated by
large public and even larger state-owned corporations. The current economic growth in
developing nations has increased overall demand for oil and gas. The oil & gas industry is
heavily dependent on oil for short-term and long-term profitability, but natural gas is viewed as a
core component for long-term profitability. The value chains for oil and natural gas share many
common aspects, but are also somewhat dissimilar for example, Downstream and Chemical are

30
excellent value chain complements for oil, but the same cannot be said for natural gas. Like any
mature industry, the industry is consolidating as described in the Intra-Industry section.
An industry players profitability is largely dependent on its reserves. The oil industry is very
difficult for new entrants to enter due to significant levels capital expenditure needed. On the
other hand, lower cost expenditure and disruptive technologies in natural gas are attracting
smaller entrants in the gas industry. Overall, the industry is under pressure with increasing
regulations and competitive pressure from state-owned oil companies, notably those belonging to
OPEC. The industrys ability to find new sources economically has dramatically improved due to
newer technologies. Technological innovation is likely to continue to shape the future of the
industry.
In the short-term, the industry is focused on increasing oil reserves and production,
especially from conventional resources. In the long-term, the industry needs to increase both its
oil and natural gas reserves, considering the energy demands projected by energy agencies.
22

ExxonMobil stands out as a highly efficient, financially sound, and strong energy portfolio
company. It has an edge over its U.S. rivals ConocoPhillips and Chevron in terms of capacity
and efficiency. However, ExxonMobil needs to address its diminishing oil reserves. The
acquisition of XTO has provided ExxonMobil with the technology to find and access more
natural gas that previously was not possible. BP and Shell are significant rivals to watch for;
with their vast reserves and their investments in natural gas, they can impact ExxonMobil in both
the oil and gas businesses.
3. InternalAnalysis
BusinessDefinitionandMission
ExxonMobils primary business is the exploration and production of oil and natural gas, the
refining and manufacturing of petroleum products, and the sale of crude oil, petroleum products
and natural gas. ExxonMobil also transports oil and has interests in electric power generation
facilities. ExxonMobil is the worlds largest publicly traded international oil and gas company,
and the worlds largest refiner and marketer of petroleum products. The companys chemical
business ranks among the worlds largest.
Meeting the rising demand for energy safely and with minimal environmental impact is
ExxonMobils mission.
73
The companys corporate slogan is Taking on the worlds toughest
energy challenges."
74
ExxonMobils guiding principle is we must continuously achieve superior
financial and operating results while simultaneously adhering to high ethical standards.
75


31
OrganizationStructure,ControlandValues
OrganizationStructure
ExxonMobil was incorporated in New J ersey in 1882 and head quartered at Houston, Texas
with offices worldwide, employing over 83,000 employees globally.
82
ExxonMobil distinguishes
itself through a unique, functionally based organizational structure, which consists of ten core
companies that oversee individual businesses worldwide. (See Exhibit 6 for Functional
Operating Companies of ExxonMobil). Rex Tillerson is ExxonMobils CEO and Chairman of
the board. Including the Chairman, the companys board currently consists of eleven members,
all of whom are accomplished business leaders and visionaries.
76

Each of ExxonMobils business-line companies stewards a focused portfolio of operations
globally, with a president at the helm with significant autonomy. The details of the corporate
officers who head these units can be found in Exhibit 7.
Controls
The ExxonMobil System of Management Control Basic Standards, commonly referred to
as the Red Book, is a comprehensive manual that describes ExxonMobils formal system of
management control. It describes a series of management control including: Delegation of
Authority Guide and Review Procedures (DOAG), Planning and Performance Monitoring
Processes, Contracting Controls and Standards, Capital Budgets Procedures, Credit and
Collection Procedures, Banking Procedures, Cash Disbursements and Receipts Controls,
Financial Accounting Procedures and Reporting Guidelines, and Major Project Controls.
77

ExxonMobil has a clearly written policy for all major areas of operation. For example, the
company has written policies covering ethics, gifts and entertainment, political activities,
international operations, and auditing, in order to guide employee behavior and measure actions.
ExxonMobils Anti-Corruption Legal Compliance Summary
78
lays out policies that govern its
anti-corruption compliance program. ExxonMobil also has written Corporate Governance
Guidelines
79
aimed at steering the conduct of the board, directors and employees of the company.
Values
ExxonMobils organizational values commitment includes conducting business in a manner
that is compatible with the environmental and economic needs of the communities in which
ExxonMobil operates, and that protects the safety, security, and health of its employees, those
involved with its operations, its customers, and the public.

32
Culture: Exxons corporate culture focuses on long-term viability using a disciplined
approach that requires large investments in a diverse set of projects that take many years to
develop, but are expected to deliver sustainable competitive advantage for decades.
Safety: Having learned from the Valdez disaster, ExxonMobils safety record has improved
tremendously to become one of the safest energy producers. ExxonMobil has instituted
Operations Integrity Management System, the cornerstone of its commitment to managing risks
to safety, security, health, and the environment
80
. It guides the activities of each of its employees
and contractors around the world.
ExxonMobils commitment to safety is unparalleled in the industry. The company operates
with the view that the more you spend on safety, the more profitable operations tend to be. For
example, ExxonMobil learned from its oil-field blow-out in Indonesia years ago which was
due to employees using powerful machinery unsuitable for the type of oil-well that they were
drilling.
4
The cost of a blow-out like this is orders-of-magnitude more than the cost of
operational safety measures. Employees are trained constantly on operational safety and the
company observes and incorporates best practices from various industry players.
Standards of Business Conduct Training programs: ExxonMobil provides regular and
detailed training on various standards of business conduct to ensure that its employees behave
ethically and comply within the legal and company-specific guidelines.
Business Conduct Audit and Violation Reporting: ExxonMobil conducts comprehensive
internal audits of one-third of corporate operating units and business activities each year. Also,
the company provides a number of mechanisms to employees for reporting suspected violations
of company policies, including a 24-hour hotline phone number and mailing address.
EthicalStandardsandPractices
ExxonMobil is a conservatively operated firm and is tough on employees who violate the
code of conduct. ExxonMobil employees are required to annually confirm they have read the
policies set forth in its Standards of Business Conduct. ExxonMobils conduct in practice reflects
its stated values. ExxonMobil is extremely serious about bribery and other such misconducts.
Its managers are ethical and enforce the operation guidelines rigorously. Even in countries where
side agreements also referred as squeeze agreements in China are common, ExxonMobil
conducted itself extremely ethically and professionally.
4
Overall, ExxonMobils organizational
values and its actual behavior are in alignment.


33
StrategicPositionDefinition
BusinessPortfolio
The business portfolio of ExxonMobil consists of geographically diverse, highly cyclical
Upstream and Downstream businesses, and a less-cyclical Chemical business. Additionally,
ExxonMobil operates a global services company and owns subsidiaries such as XTO.
ExxonMobils portfolio of assets provides advantages in scale, geographic diversity, and
business mix that mitigate risk arising from changes in commodity prices, product margins, and
business cycles. The combination of global scale and integration across its businesses gives
ExxonMobil a competitive advantage.
Both the Upstream and Downstream business are fundamentally commodity businesses,
affected significantly by changes in oil and gas prices. The Upstream business is a capital
intensive business dealing with exploration, development and production of crude oil and natural
gas. The Downstream business is large and diversified; it deals with refining and marketing
across the globe. Unlike the Upstream business, the Downstream business is a low margin
business where operational efficiency and cost reduction makes a difference. In order to obtain
the most economical feed stocks, the companys major petrochemical plants are integrated
with its refineries. ExxonMobils chemical business has a number of less-cyclical business lines
that help reduce the volatility and deliver consistent results. For example, there is no real impact
to earnings from the chemical business between 2008 and 2009. However, in 2010 earnings
doubled due to improved margins.
CorporateStrategy
ExxonMobil is a narrowly diversified company with few lines of related business that
operate in global markets. At the core of ExxonMobils corporate strategy is related business
diversification. The Upstream business segment is the largest one with more than 70 percent of
earnings coming from that segment. The Chemical operation is a distant second in profit
generation at 16 percent, followed by the Downstream business segment at 12 percent. The
average capital employed by the Upstream business segment is four to six times that of other
segments. Clearly, the Upstream business is ExxonMobils center of gravity.
BusinessPortfolioPerformance
ExxonMobils business is fundamentally a commodity business where performance is
affected significantly by changes in oil and gas prices. For example, in 2008 oil and gas prices

34
soared and so did ExxonMobils Upstream and Downstream segments earnings to $6.2 billion
and $1.65 billion, respectively. Whereas in 2009 when oil and gas prices dropped, the earnings
of the Upstream and Downstream segments plummeted to $2.9 billion and a loss of $153
million, respectively. The price sensitivity of business segments is depicted in Exhibit 21.
A key measure of performance that ExxonMobil and the oil & gas industry uses is Return on
Capital Employed (ROCE), as stated earlier in the External Analysis. In this regard, the
Chemical business is the leading segment with 26 percent ROCE, followed by the Upstream
business at 23 percent and the Downstream business at 14 percent. This is noteworthy
considering that the Capital and Exploration expenditure on Chemical is the lowest. Strong cash
flow from operations and asset sales is more than sufficient to fund a growing level of
investments in the business. (See Exhibit 8 for Business Segment Performance.) The overseas
(Non-U.S.) operations of the Upstream and Downstream businesses contribute to roughly 80
percent of the total earnings for these business segments, whereas the earnings impact for the
Chemical segment is well balanced. (See Exhibit 9 for a breakdown of earnings by U.S. and
Non U.S operations.)
Acquisitions
ExxonMobil acquired XTO Energy for $24.6 billion in J une 2010, motivated by its energy
outlook that suggests a growing need for natural gas in the next several decades. Another key
factor is that most of the companys Upstream assets are abroad, and the merger represents a
move toward the U.S. market. This strategic move enabled ExxonMobil to build its natural gas
reserves and assets, as XTO complemented ExxonMobils vast liquid reserves with substantial
gas reserves. Exhibit 12 shows how ExxonMobils natural gas reserves are boosted by the
acquisition of XTO, necessary for it to be a strong contender in natural gas and a leader in total
reserves.
Value Chain Synergies of XTO Acquisition: The acquisition enhanced shareholder value by
capturing cross-business synergies such as: (1) transferring competitively valuable expertise and
technological know-how from its oil exploration and production to the natural gas exploration
and production businesses of XTO, (2) sharing of exploration facilities and resources to reduce
the costs of finding, discovery and development, (3) leveraging ExxonMobils leading brand
name to deliver XTO products, and (4) Combining the value chain activities of XTO and
ExxonMobil to improve operational efficiencies in marketing, shipping and distribution.

35
Divestiture
ExxonMobil has a long standing divestment program, wherein $40 billion of assets were
divested over the last few decades. ExxonMobil divestments are opportunistic and are consistent
with overall corporate strategy. For example, in the first quarter of 2011, the company divested
assets in Western Canada and the Gulf of Mexico. The company has been managing
Downstream assets carefully, as the refining industry is in a declining phase with low margins
and profitability is heavily dependent on the oil price. In 2010, ExxonMobil sold its interest in a
lube oil refinery in France and restructured its retail activities to convert to a more efficient
branded wholesaler model as in the United States.
6

JointVentureandAlliances
The oil and gas exploration and production activity is lengthy and capital intensive. It
typically it takes between seven to twelve years before a company realizes profit from new
exploration and production. See Exhibit 13 for details on the length of time it takes to explore
and how returns are valued. Producing oil from proven fields take three to five years
4
to generate
profits. To mitigate the risks and the costs of exploration and production, oil companies normally
form alliances. For example, years ago, ExxonMobil and Chevron could have operated alone in
the North Sea oil fields, but chose to form a joint venture in order to reduce risk.
4

ExxonMobil often seeks foreign partners to surmount tariff barriers and import quotas. The
foreign partner also provides local knowledge about customs and cultural factors and access to
distribution outlets. Governmental regulations and political pressures also very often force
companies to share their energy stakes. For example, BP was the only company in Iran for a
considerable length of time. However due to governmental intervention, BP was forced to share
their stake with other companies.
4
Many of the rigs and plants that ExxonMobil and its
competitors operate in the Middle-East is part of a joint venture.
The Downstream business is highly competitive and risky with tight margins. Any unused
refining capacity would result in reduced margin. To deal with this problem, many oil companies
form alliances to optimize the plant utilization, thereby improving margins. ExxonMobils
Downstream alliances are characterized by the economics outlined above. A list of significant
alliances and equity stakes in those alliances are depicted in Exhibit 14.

36
BCGMatrix
The exploration and production (E&P) business is a star. It is the leading business segment
and generates plenty of cash. (See Exhibit 8 and 9 on segment financials.) E&P also uses large
amounts of cash. More specifically, conventional oil E&P has been a star, though growth rate
has been declining compared to that of natural gas.
ExxonMobils Chemical operation has been generating a proportionally high profit with
relatively low investment, typical characteristics of a cash cow. Unlike a typical cash cow
business that tends to show low growth, the Chemical business has been growing at a healthy
pace. However, as it is a distant second to E&P in revenue contribution, it cannot be labeled a
star, and cash cow is the better fit.
Though the entire industry has recently seen a major uptick in refinery profits and margin, it
is mainly due to surging oil prices. The refinery and manufacturing business is fundamentally a
narrow margin business. Factoring in the low growth rate makes this segment a dog. The coal
operation and the oil transportation businesses are not as attractive as the rest of the businesses.
The unconventional E&P (e.g. shale oil and gas E&P) is capital intensive and time
consuming with technology risks abounding. The gas E&P is not as profitable as the oil E&P due
to lower natural gas prices. The innovations in E&P technology would make unconventional oil
and gas production more affordable in the next few decades, but for now it is not cost effective.
For these reasons, non-conventional E&P and gas E&P are classified as question mark. (See
Exhibit 15 for BCG matrix.)
BusinessStrategyMix
Of the industries that ExxonMobil operates in, the Exploration & Production, and the
Chemical Industries are the most attractive ones where ExxonMobil has key strengths, making
these segments the most lucrative ones for future investments. See the nine-cell matrix in
Exhibit 16 that depicts the business strategy mix.
Though ExxonMobil is strong in the Downstream refinery business, the segment industry-
wide has a low margin, warranting a cautious approach and minimal capital investment.
The unconventional E&P business segment is interesting in that there are a number of
uncertainties at this time requiring a cautious approach, but it holds significant promise,
especially if technological innovation makes it cost effective. For now, ExxonMobil should
proceed carefully by maintaining its investments to be competitive.

37
The transportation and coal businesses are not core strengths of ExxonMobil and these
businesses are growing at a very slow rate. ExxonMobil should consider a phased withdrawal
from these businesses.
BusinessLevelStrategy
A diversified company like ExxonMobil operating in multiple industries generally employs a
multi-business strategy. See Exhibit 17 for details on ExxonMobils business strategy as stated
in its 2011 Financial and Operating Report.
ExxonMobil operates as a broad low-cost-provider in the Upstream and Downstream
businesses. This is an appropriate strategy given the companys primary products are
commodities; as such, any differentiation among competing products is difficult, and there are
low switching cost for buyers. Therefore, the company must compete on the basis of cost and
efficiency. It achieves its cost leadership by competing through technological and operational
efficiencies in the areas of exploration, extraction, and refining.
ExxonMobils Chemical division employs a best-value strategy to leverage its leadership in
production, costs and proprietary chemical and polymer offerings. Its chemical products, like
Esso. is a leading brand in industrial and automotive sectors and is sufficiently differentiated
from competitors. The company achieves cost leadership through synergies gained by combining
refining and chemical production operations. See Exhibit 17 for details on ExxonMobils
business strategy as stated in its 2011 Financial and Operating Report.
GrowthStrategy
ExxonMobils two largest divisions, Upstream and Downstream, both employ market
penetration growth strategies. This is due to the fact that the consumption of petroleum products
is ubiquitous, so there are essentially no new markets in which to employ a market development
strategy. Additionally, the products themselves are standardized, so a growth strategy centered
on product development is unfeasible. In contrast, the Chemical division employs a product
development strategy, focusing on creating new chemical products through the development of
proprietary technology.
ImplicationsofStrategicmoveonBusinessandGrowthStrategy
The integrated oil & gas industry is capital intensive and the players typically make long-
term investments. Nevertheless, the strategy chosen by different competitors in this commodity
business could not be more different. For example, ExxonMobil has focused on acquiring

38
resources (e.g. XTO acquisition), whereas Chevron is investing heavily in internal growth, and
ConocoPhillips has been divesting assets to improve its business mix and using the proceeds to
obtain faster production growth.
ExxonMobils recent tilt towards oil, despite acquiring the leading natural gas player XTO
for more than $25 billion in 2010, is a strategic move that is aligned with its long-term strategy.
The recent tilt towards oil will not materially alter the companys strategy, and the move is
focused on the short-term. The corporate strategy still remains the same; related diversification
and becoming the broad low-cost provider for Upstream and Downstream.
ImplicationsofStrategicMoveonBusinessInvestment
The strategic move of increasing investment in oil exploration and production could mean
the following in the near-term:
Capital projects related to oil exploration and production are likely to receive significant
funds, especially those related to conventional oil production from proven field reserves
XTO integration may take a backseat, given that XTO is rich with natural gas and
unconventional oil reserves
Technology investments in unconventional and shale oil exploration and production
might get increased attention, as the technology breakthrough is critical to produce oil
from unconventional sources efficiently
ExxonMobils focus on alternative energy research may take a backseat
ExxonMobil will likely form new alliances and joint ventures in oil exploration and
production
Assets with promising oil reserves might be purchased.
Resourceandcapabilities
ExxonMobil through its years of operation in the oOil and gas industry have accumulated a
number of resources and capabilities that enable it to be operationally and financially effective.
Following are the key resources and capabilities that feed into the companys value and cost
drivers (See Exhibit 18 for additional details):
Skills, Expertise and Competence Global integration, operational excellence,
technological innovation
Valuable physical asset Oil and gas acreage, reserves (proven and unproven), balanced
mix of portfolio, long-term oil and gas field rights, diversity and geographic coverage

39
Rock-solid financial base
Valuable human assets and intellectual capital Proven managerial know-how,
experienced and capable work force
Valuable intangible assets Great brand name, disciplined investment with long-term
focus
Alliances Partnerships, joint ventures.
VRIOAnalysis:
Please see Exhibit 23 for the VRIO analysis of the firms resources and capabilities.
ValueDrivers:
The core set of value drivers that help ExxonMobil build a competitive advantage include the
magnitude of proven and unproven reserves, the net acreage available for future exploration, the
mix of energy reserves (e.g. conventional vs. unconventional; oil vs. gas), exploration rights and
alliances (e.g. partnerships and joint-ventures), oil and gas exploration expertise, technological
innovation, geographical reach, marketing power, disciplined investment and a leading brand.
Exhibit 24B discusses the strength of the various value drivers and Exhibit 24A gives the
competitive value-cost profile.
Operational know-how: Exploring for oil & gas is a long-term, capital intensive activity on
unforgiving terrains such as the Arctic, in deserts or in the deep waters of the Pacific Ocean.
Over the years, ExxonMobil has built an incredible base of operational know-how in the
exploration and production of conventional and unconventional oil & gas in a wide range of
terrains. This is a structural advantage that is difficult for competitors to easily replicate. For
example, if ExxonMobil chooses to do so, it has the know-how to take on even the most tricky,
expensive and unproven exploration projects, like the one in Wafra
3
.
Technological Innovation: Technological innovations is critical to production of oil and gas
resources located in challenging environments such as oil sands, deep water, and arctic regions.
ExxonMobil invests nearly $1 billion in research and development, and this has helped over the
years in ExxonMobil becoming the leader in the industry with its pioneering technology.
Leading Brand: The trusted brands, global reach and high quality products of ExxonMobil
help the company stand out as a reliable vendor to whole and retail customers. Exxon, Esso and
Mobil are well recognized global brands owned by ExxonMobil. For example, Mobil is a
coveted brand in Chemicals and a well known brand in the auto industry.

40
Disciplined Management: ExxonMobil is known for its conservative and long-term
approach, as well as for its fiscal discipline. ExxonMobil operates conservatively and generally
does not take huge risks, unlike its competitors Chevron (e.g. engaged in a risky oil & gas play in
Russia) or BP (e.g. operational practices at the blown-out Mondo Well at the Gulf of Mexico.)
Also, ExxonMobil will not fund projects if the rate of return does not meet its high standards;
there are instances in the companys history where assets failing to meet these standards have
been sold off to other industry players. In fact, the company has divested over $40 billion in the
last ten years.
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CostDrivers
The structural cost drivers that enable ExxonMobil to distinguish itself from most of its
competitors include economies of scale, integrated operations and economies of scope, learning,
and technology. The cost drivers that ExxonMobil exploits to the fullest include refinery
utilization, operational safety, and operational expertise.
Global Integration and Economies of Scope: The level of integration by ExxonMobil is
unmatched. The global scale of such integration brings structurally competitive advantages that
are hard to replicate. While some of ExxonMobils competitors are moving away from an
integrated business model, ExxonMobil has been able to build a significant competitive
advantage through global integrated operations. For example, more than 75 percent of
ExxonMobils refining capacity is integrated with Chemicals, and over 90 percent of its
Chemical operation is integrated with oil refineries and gas processing plants, resulting in
significant cost reduction and margin improvements, especially in a competitive Downstream
business.
90
By sharing the many aspects of manufacturing between oil refineries and chemical
production, ExxonMobil is able to achieve unparalleled economies of scope.
Operational Excellence: ExxonMobil is known in the industry for its high quality project
management processes and its ability to consistently derive industry leading returns from its
projects. ExxonMobil integrates its extensive drilling data results and production histories in
shale gas opportunities to identify and optimize further development opportunities. The
institutional know-how helps ExxonMobil take on complex projects that competitors could not
do many times, and also deliver profitable results faster. The company has a good program to
ensure that skills and experiences gained by senior staff in research and development is passed
on to next generation of scientists and engineers.

41
Economies of Scale: ExxonMobils Downstream business can rely on high refinery
utilization and economies of scale as it is vertically integrated with its supplier, ExxonMobil
Upstream business for crude oil. Utilization of the companys refineries is also boosted
consistently as it refines crude for a number of smaller oil companies who do not have their own
refineries.
Learning: The learning that ExxonMobil shares between oil and gas exploration and refinery
and chemical manufacturing has been a great source of competitive advantage for ExxonMobil
over non-integrated oil companies. For example, the natural gas exploration division of
ExxonMobil benefited through a number of technological innovation and know-how that XTO,
one of the leaders in natural gas, brought to the company upon acquisition.
Operational and Safety Issues: Operational issues, such as downtime in production or
refinery, will have a huge impact on the financial performance of the company. Any operational
safety issues, such as a refinery blowout, will have extended negative consequences on the
company. Therefore, a significant amount of resources are needed for the maintenance of plants
and equipments, and to ensure safe operational practices. ExxonMobil leads the industry in
operational safety.
ImplicationsofStrategicMoveonValueCostProfile
Overall the strategic move is going to positively impact the value drivers in many areas
involving oil and technology. It may not improve the value drivers on the natural gas front
significantly. The strategic move will improve the cost drivers across the board. Exhibit 25
depicts the impact of the strategic move on the value-cost profile.
ValueChainSynergies
ExxonMobils Upstream focus is to sustain output of oil and natural gas via development and
exploration. ExxonMobils Downstream strategy is to maintain a diversified business that
includes marketing and refining complexes across the globe. ExxonMobil has successfully
integrated its businesses to take advantage of the economies of scale and economies of scope.
See Exhibit 11 for details on ExxonMobils Value Chain Synergy.
The strength from the vertical integration is further evident from the intersegment business
activities captured in the form of intersegment revenue. For example, the Upstream business
generates nearly $47 billion, the Downstream business generates $66 billion, and the Chemical
business generates $18 billion in intersegment revenues, as stated in the companys 2010 Annual
Report.

42
Customerretention
The products (oil, gas, chemical and other by-products) produced by ExxonMobil is used in
wide variety of industries by wholesale and retail customers. (See Exhibit 22 for Sales
segments.) In the oil & gas industry, companies retain the wholesale customers through a
guaranteed supply, contracts and reliable service, and a geographically diverse and well-
integrated sales and distribution network. In the retail business, the company retains the
customers through competitive pricing and an expansive network of retail gas stations. In the
chemical business, in which ExxonMobil is a leader, ExxonMobil retains the customer through
high quality products, superior service and brand name.
Segmentation,TargetingandPositioning
ExxonMobils energy outlook for 2030 predicts that power generation will continue to grow
to account for 40 percent of all energy demand. Though nuclear and renewable energy are
projected to fill in 40 percent of this demand, the recent earthquake in J apan, and the ensuing
cutback of nuclear power by governments across the world in response to it, will likely change
the energy mix considerably. For example, Germany, the fourth largest economy in the world,
announced that they will shut down all of their nuclear reactors by 2022 resulting in the share of
nuclear power in that country to go from 23 percent to 0 percent in eleven years. The other
components in German power production mix -- coal (42.4 percent), Natural gas (13.6 percent),
Renewable energy (16.9 percent) and Other (4.5 percent) stand to benefit.
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Natural gas will
definitely grab a decent share of the pie. ExxonMobil should be aware of such opportunities
elsewhere in the world and target its attention accordingly. It should position itself as a reliable
and capable provider of clean energy.
ValuetoCustomers
ExxonMobils oil and gas products are commodities, so it is difficult to differentiate its
products from competitors. Exhibit 19 highlights the value the companys products bring to
retail and commercial customers.
The Chemical products, especially specialty chemical, provide an opportunity to differentiate
through quality and range of products. Exhibit 20 highlights that value to customers.
MarketingMix
Product: Balance the portfolio between oil, natural gas and chemicals with a tilt towards
oil.

43
Price: Since oil and natural gas are commodities and especially since oil price largely
depends on the supply-demand equilibrium in the market, a change in pricing for oil and
natural gas is not recommended. ExxonMobils brand recognition and its leadership in
specialty chemicals will offer a potential for a price premium for specialty chemical
products, especially in Asia Pacific and the Middle East where the demand is strong.
Promotion: In the wake of the recent Gulf oil spill and the earthquake in J apan, a shift to
cleaner energy is expected. ExxonMobil should position itself as the promise for a new
world whose growing energy needs are served more by clean-burning natural gas and oil
extracted by cleaner technologies.
Place: Place is very important of the marketing mix for both Upstream (partnerships) and
Downstream (retailing, messaging at retail outlets etc.) operations. ExxonMobil should
increasingly look for opportunities in the emerging economies of Asia and Africa.
FinancialAnalysis
Please refer to Section II.G, Comparative Financial Analysis, for the main analysis of
ExxonMobils financial performance and operating ratios against its closest competitors. This
section analyzes some of those aspects of financial performance in greater detail as it relates to
ExxonMobil, as seen throughout Financial Exhibit 10.
Approximately eighty percent of ExxonMobils sales and operating revenues come from its
Downstream operations; however, its Upstream operations are the most profitable (see Financial
Exhibit 10A). In 2010, ExxonMobils Upstream division accounted for only 9.4 percent of its
operating revenue, yet generated 79.1 percent of the companys net income. Since 2003, the
Upstream division has averaged 8.8 percent of operating revenue and 73.3 percent of net income.
A year by year examination since 2003 shows that a mere 1 percent increase in operating
revenue for the Upstream division can generate almost a 13 percent increase in net income.
Much of this is due in large part to the unprecedented rise in oil prices in 2008, but even in 2009
with oil prices at a steep drop from their 2008 levels, the Upstream division was able to generate
88.7 percent of net income, even though it had dropped to 8.2 percent of sales from a 2008 level
of 8.5 percent. As the Upstream division is by far the most profitable for ExxonMobil, any
strategic moves from the company should take this into account.
Financial Exhibit 10B displays key financials and key expenses of ExxonMobil as a
percentage of sales. Please refer to Section II.G, Comparative Financial Analysis, for an analysis
of the Gross, Operating, and Net Incomes. As expected, crude oil and product purchases (a.k.a.

44
Cost of Goods Sold) follows the rise and fall of crude oil prices. The biggest take-away from
this graph is the inability of ExxonMobil to quickly adjust its expenses to match falling oil
prices. In 2009, when oil prices hit $40 a barrel, ExxonMobils Selling, General, and
Administrative Expenses, Production and Manufacturing Expenses, and Exploration Expenses
(including dry holes) jumped significantly as a percentage of sales. (This is also seen in 2003
and 2004, which saw very low oil prices). Rising oil prices in 2010, and especially in the first
quarter of 2011, have brought these two expenses down to more acceptable levels. This is
generally an industry-wide problem, due to the nature of oil prices to shift very quickly, but it
does highlight an area of potential concern for ExxonMobil, as this inability to quickly adapt its
costs to macroeconomic conditions impacts its profitability.
Financial Exhibit 10C focuses more narrowly on ExxonMobils financial performance in
the first quarter of Fiscal Year 2011. Compared to the first quarter of 2010, ExxonMobil has
experienced large growth in its revenues and profit margins, including a 56 percent increase in
operating income and a 69 percent increase in net income, throwing support behind
ExxonMobils decision to focus strategically on oil in the short term.
ExxonMobil has greatly increased its capital and exploration expenditures over the last three
years, and has stated that it will continue to spend between $33 and $37 billion in capital
expenditures for the next several years.
82
Beginning with 2008, coinciding with the record oil
prices, ExxonMobil has decreased the level of capital expenditures for its Downstream and
Chemical divisions and has instead chosen to direct its resources to its Upstream division. The
majority of expenditures relate to development products, and the increase in expenditures to the
Upstream division relate primarily to projects in Canada, Australia, and Papua New Guinea,
while the decrease in the Downstream and Chemical divisions are driven by the completion of
various projects.
84

ValuationofExxonMobil
To determine the valuation of ExxonMobil, both prior to the companys strategic move and
as a result of any recommendations, the Discounted Cash Flow (DCF) methodology was used.
Information needed to calculate the DCF valuation for ExxonMobil was pulled from the
companys 10-K Annual Reports from 2008, 2009, and 2010, and the following assumptions
were made:
ExxonMobil is rated as an AAA company (Standard & Poors) in regards to its lease
obligations.
83


45
Adjustments were made to ExxonMobils NOPAT and Change in Net Capital Expenditures
in order to establish a baseline year for projections, and to account for statements made by
ExxonMobils Management in its 2010 10-K and First Quarter 2011 Earnings Call.
84

ExxonMobils growth is treated as a three stage growth process: 1) Growth in the first initial
years as projected by analyst reports and ExxonMobils management; 2) Convergence to
industry projected growth rate; 3) Convergence to Nominal GDP growth rate, as reported by
the Congressional Budget Office.
85

ExxonMobils WACC is based off of the average of various analyst estimates. The
sensitivity analysis in the Baseline DCF (prior to any strategic moves) takes into account the
individual WACCs from these sources, including the industry average.
As the majority of ExxonMobils long-term debt and capital lease obligations are set to
mature within ten years, the corporate bond spread for an AAA bond with maturity of ten
years was used to calculate the cost of debt.
86

A period of five years was used to amortize the Research and Development expenditures.
87

The Change in Net Capital Expenditures for Stage 2 represents a slight decrease from Stage
1, as ExxonMobil slows down its growth to eventually mirror the Nominal GDP growth rate
Based on the above, ExxonMobil is valued at approximately $386,626 million; this
represents the baseline valuation for the company (the valuation prior to the strategic move, as
of 31 December 2010). A sensitivity analysis for the weighted average cost of capital (WACC)
and revenue growth rate was conducted, and indicates that the WACC is the more sensitive of
the two variables, and has a greater impact on the valuation. Please see Financial Exhibit 12A
for the DCF calculations and sensitivity analysis for the baseline valuation.
ForecastingModelforScenarioAnalysis
A core element of the scenario analysis is modeling the risk factors inherent in the oil & gas
industry, especially with respect to exploration and production. A glimpse of risks, exploration
time and the likely valuation implication is outlined in Exhibit 13. The modeling is based on a
Monte Carlo simulation. Risks are categorized into three broad categories: dry hole risk,
production risk, and risk of fluctuating oil prices (See Financial Exhibit 11)
88
. Each risk is
analyzed based on the industry data and the probability of success rate was determined. For each
risk, information was put into the forecasting model to generate a predicted future cash flow at
different oil prices.

46
ScenarioAnalysis
The scenario analysis provides a framework to estimate the impact of different strategic
decisions on the financial positions of the firm. The possible scenarios analyzed are:
1. No strategic move and an increase in investments in natural gas
2. No strategic move and higher oil prices influence the status quo
3. No strategic move and the oversupply in the oil market leads to lower crude prices
4. Implement Strategic move and low oil prices negatively impact the strategic decision
5. Implement Strategic move with high oil prices and cost synergies due to technological
and other value chain advancements.
We analyzed the financial impact of these different scenarios using the DCF methodology,
using our baseline DCF as a starting point. Table 2 below summarizes the outcomes with
followed by a summary of the impacts each scenario would entail.
Table 2: Financial impact of different scenarios analyzed
Base line newscn1 newscn2 newscn3 newscn4 newscn5
Revenue Enhancement 0% -2% 2% -2% -4% 5%
Change in CAP EX 0% 2% 0% 0% 2% 2%
Cost Reductions 0% -1% 0% 0% 2% 2%
PV CF 145,731 $ 135,162 $ 156,087 $ 143,776 $ 137,182 $ 164,882 $
PV Terminal Value 240,895 $ 224,145 $ 256,900 $ 237,231 $ 226,846 $ 271,103 $
Enterprise Value 386,626 $ 359,307 $ 412,987 $ 381,006 $ 364,028 $ 435,985 $
ScenarioAnalysisSummary

ScenarioAnalysisDetails
1. No strategic move and an increase in investments in natural gas - This scenario assumes
there is no increase in oil production and reserves, positioning the company poorly against
competitors like Chevron and ConocoPhillips, which are increasing spending on oil. This
also means that ExxonMobil is not capitalizing on the projected upward trend in oil prices.
An increase in natural gas exploration and production in an oversupplied market and subdued
natural gas prices further means increased capital expenditure spending and reduced cost
synergies. The increase in gas spending coming at the expense of oil spending which would
result in a fall in oil production, further reducing the revenue and earnings. Overall, this
contributes a $10 billion decrease in discounted free cash flow (FCF) and a $27 billion
decrease in enterprise value. See Financial Exhibit 12B for details.

47
2. No strategic move; Higher oil prices influence the status quo - Similar to the previous
scenario, this scenario assumes no increase in oil production and reserves, positioning the
company poorly against competitors increasing their oil exploration and production. Unlike
the previous scenario where the revenue decreases, in this case there will be an increase in
commodity prices which would help in revenue improvement but competitors would outpace
ExxonMobil in revenue growth. Overall, this contributes a $20 billion increase in discounted
FCF and a $53 billion increase in enterprise value.
3. No strategic move; Oversupply in the oil market leads to lower crude prices - This scenario
essentially means that there is no increase in oil production and reserves over already planned
levels of growth. Since the commodity prices are lower there will be a negative impact to the
revenue but the magnitude will be less compared to that of competitors who are increasing
their oil spending. Nevertheless, the company is not getting impacted adversely by low
commodity prices. Overall, this contributes a $12 billion decrease in discounted FCF and a
$32 billion decrease in enterprise value.
4. Implement strategic move; Low oil prices negatively impact the strategic decision - This
scenario reflects an increase in oil production and reserves. Such an increase in oil
exploration and production, with current oversupply and subdued oil prices would likely lead
to lower revenue and increased capital spending, and less opportunities to capitalize on the
synergies. Overall, this contributes a $6 billion decrease in discounted FCF and a $17 billion
decrease in enterprise value.
5. Implement Strategic move; High oil prices; Improved cost synergies due to technological and
value chain advancements - In this scenario, increased oil production and reserves help the
company capitalize on the increasing oil prices, and positions the company well against its
competitors. Cost synergies further improve the bottom-line. Overall, this contributes a $27
billion increase in discounted FCF and a $71 billion increase in enterprise value. See
Financial Exhibit 12C for details.
SensitivityAnalysis
A sensitivity analysis of each scenario was done by adjusting the various parameters (COGS,
WACC, GDP etc.) in the calculations to account for possible input variations. Clearly COGS and
operating revenue have the largest impact on the revenue of ExxonMobil for each scenario;
WACC and GDP have considerable impact as well (See Financial Exhibit 13).


48
4. AnalysisoftheEffectivenessofStrategy
GoodnessofFitTest
Oil is the number one energy source and expected to remain that way for years to come. Oil
prices have been on the rise recently and projected to stay high due to increasing demand.
ExxonMobil increasing the investment in oil in the next five years is a sound choice.
ExxonMobil has a number of proven conventional basins with high-quality, low-risk oil and
a number of moderate-risk new plays and unconventional oil sources, such as oil sands. It also
has the resources and capabilities, such as the technological prowess and the years of exploration
and production experience and expertise in exploring for oil in demanding terrains, to
successfully execute on this strategy. The proven operational excellence and a well-integrated
value chain will further help ExxonMobil achieve the industry-leading cost efficiency needed to
generate profits.
CompetitiveAdvantageTest
As a part of executing the strategic move, ExxonMobil will need to invest not just in
conventional oil but also in unconventional oil. There is an estimated three trillion barrels of
heavy oil in the world, equaling 100 years of global consumption at current levels. Only a
fraction of it (400 billion barrels) can efficiently be recovered using current technology.
3

To capitalize on this vast source of energy, ExxonMobil will need to invest in infrastructure
and technology needed to explore and process unconventional oil. The technological
development, learning and the exploration rights that it would acquire in the process would
provide a sustainable competitive advantage to ExxonMobil for years to come.
ExxonMobil should seize this opportunity to increase its competitive edge against its nearest
competitors; BP, with large reserves, is still reeling under pressure due to the massive oil spill;
Chevron has been taking significant risks to increase its limited reserves; and Shell is staking out
a leadership position in natural gas, driven by its low oil reserves.
PerformanceTest
ExxonMobil spent $32 billion in exploration and production in 2010. (See Financial
Exhibit 10D.) The company has planned to spend $34 billion to $37 billion in capital spending
in the next five years, according to the companys 2010 Annual Report. The scenario analysis
described above suggests that with a conservative one percent increase in capital expenditure and

49
a one percent additional revenue growth improvement projection, ExxonMobil would have an
additional cash flow of $14.2 billion discounted to present value.
Overall, the strategic move ExxonMobil has undertaken is well-aligned with its energy
outlook and long-term investments in the relatively high-growth area of natural gas.

5. Recommendations
To maintain its position as the leading energy producer, ExxonMobil must be willing to take
on the worlds toughest energy challenges, as its slogan suggests, beginning with growing its
diverse portfolio of high-quality resources of all types conventional and unconventional oil,
natural gas liquid, natural gas, and shale gas. To do this profitably in a mature commodity
industry, ExxonMobil must focus on sharpening its operational excellence. Finally, to achieve
sustainable competitive advantage, ExxonMobil must invest in technological innovation and in
building distinctive competencies that will help the company distance itself from its competition.
The following paragraphs provide a description of short-term and long-term
recommendations. The impact of these recommendations on the value-cost profile is outlined in
Exhibits 27 and 28.
Shorttermrecommendation
1. Increase investments in oil exploration, production and refining.
Rationale:
Oil is the number one energy source and expected to remain that way for years to come.
16

In 2010, the revenue per unit of sale of oil is $71 versus $4 for natural gas.
89
ExxonMobil spent
$32 billion in exploration and production in 2010. (See Financial Exhibit 10D.) By increasing
the capital expenditure by 3 to 5 percent to invest in oil, ExxonMobil stands to gain
competitively and financially, extending its leadership in the industry.
Execution Strategy:
To successfully execute this recommendation, ExxonMobil should step up its investment in
conventional oil from both proven fields and new oil plays. The production from low-risk proven
fields will help increase the near-term revenue. The exploration and production activities
associated with moderate-risk new plays would propel the growth subsequently.
On thedomestic front, ExxonMobil should purse opportunities in conventional basins with
high quality prospects with low to moderate risk exposure. ExxonMobil has nearly 2.1 million

50
net acres in the Gulf.
90
The company also discovered a large oil reserve at the Hadrian complex.
These would be good opportunities to invest in oil near-term.
On the international front, ExxonMobil should expand activities on the basin where the
company was successful in the past e.g. Indonesia, Gulf of Mexico, and Angola, Africa.
ExxonMobil recently discovered new basins in the Black Sea where it now holds nearly 6.3
million net acres.
90
ExxonMobil should step up investments in these attractive opportunities that
have a moderate risk profile.
Implementation:
A key determinant of implementation is the technology and expertise to discover and develop
oil in unproven fields. Investing in developing the know-how and technology will reduce the
risks associated with these activities and can extend the companys lead, as it can turn its core
competencies into distinctive competencies.
Industry Impact:
A stepped-up investment in this area, a star business segment based on the BCG matrix
profile (See Exhibit 15) would have a positive impact on the entire ecosystem surrounding oil
exploration and production, including oil rig operators, equipment suppliers, and oil service
companies. This may drive the cost of operation due to higher service costs, but the revenue
increase and other synergies will outweigh this concern.
Value-Cost Impact:
This recommendation is expected to improve both the value drivers and cost drivers. The
details of the value-cost profile impact are outlined in Exhibits 26, 27 and 28.
Organizational Impact:
This recommendation may prompt doubts among the XTO business team on ExxonMobils
plans and commitment towards the recently acquired natural gas player. This can be addressed
by articulating the need for and the alignment between the long-term strategic importance of
XTO and the short-term need for oil investment. In addition, integrating XTO, which is a
separate division now, into the existing Upstream division would help share a common goal of
producing high quality energy reserves of all types, and make the XTO team feel that it is an
integral part of the company.
Operational Impact:
Cost effectiveness is critical to profitably executing this recommendation. A formalized,
centralized and tighter operation is critical for success. To this end, ExxonMobil should create
operational and financial benchmarks to measure itself internally and against the industry.

51
Financial Impact:
Please see the writeup on Scenario Five discussed in the previous financial analysis section
for the cost and benefit implications of executing this recommendation.
Shareholder Impact:
Investors would likely welcome this strategic move; however, some investors might be
concerned about the impact that it might have on dividends. ExxonMobil should continue to
maintain its current dividend payout ratio and should instead consider reducing the size of the
share buy-back and perhaps slightly increase the leverage (debt-equity ratio) to capitalize on a
low-interest environment and the companys strong credit rating.
2. Expand chemical operations internationally. Target emerging markets.
The Chemical segment of ExxonMobil is the number two in earnings, and number one in
profit earned relative to capital invested. With few major players and many smaller players,
ExxonMobil with its best-value provider status has a very good opportunity to use its marketing
and geographical presence to introduce its product development strategy to emerging markets.
This recommendation would help the company improve both the cost drivers and value
drivers. See Exhibits 26, 27, and 28 for additional details. This would also increase the
intersegment revenue for Downstream, as Downstream business is the supplier to Chemical
businesses.
3. Focus on increasing supply (wholesale) sale and retrenching retail sale
Operational efficiency and cost reductions are key to improving the margins in Downstream.
With over 26,000 service stations and 600,000 commercial customers in the retail operation,
82

the retail outlet is one of the big cost components in the Downstream business.
There is an opportunity to increase the commercial (wholesale) customer base through long-
term contracts that are indexed to crude oil prices. Exhibit 22 shows how fuel sales are
segmented between wholesale (38 percent), retail (47 percent) and others (15 percent),
suggesting a potential for improvement. ExxonMobil can attempt to leverage current commercial
customers as a reference to penetrate further into this segment.
By implementing this recommendation, the company can sell products quickly to increase
inventory turnover. This would in turn improve the liquidity ratios, which have been on the
decline until the last quarter, when it saw a slight uptick.
ExxonMobil can also save costs through reducing its retail stores through divesting retail
gasoline stations in strategically less significant locations, avoid renewing leases and transfer

52
leases on less profitable (e.g. bottom 10 percent) retail stations, and reduce opening new retail
gasoline stations.
These are value generating activities that would improve the value-cost profile of
ExxonMobil. See Exhibits 26, 27 and 28 for impact to the value-cost profile due to this
recommendation.
Longtermrecommendations
1. Invest in natural gas exploration and production
Increasing awareness and focus on the environment would favor the use of natural gas as a
preferred source compared to coal or oil. The natural gas adoption across the globe, though
certain to happen, will take time to materialize as the technology, regulations and infrastructure
used in the manufacturing, power generation and transportation need to change significantly to
utilize natural gas compared to utilizing a current source of energy. Additionally, natural gas
prices are still too low for ExxonMobil to make an aggressive investment that could prove highly
profitable. For the price of natural gas to increase, the demand for and adoption of natural gas
needs to increase. The Wall Street J ournal article titled, Big Dogs of the Oil Patch Tangle Over
Gas Subsidies
91
highlights the increased awareness and tenuous nature of the need to maintain
oil-gas equilibrium and the importance of regulations in promoting natural gas adoption.
Given how long it takes to explore and produce energy profitably and the valuation of long-
term exploration projects (See Exhibit 13), ExxonMobil should consider a persistent and a long-
term investment in natural gas exploration and production to sustain its leadership position and
reap the rewards in the decades to come.
2. Invest in unconventional oil and gas plays
Rationale:
As the conventional light crude supply shrinks, the oil industry needs to rely on abundantly
available but hard to process heavy crude oil to meet demand.
3
The unconventional sources are
going to be the predominant source of energy reserves in the long-term. ExxonMobil should
make a long-term commitment towards unconventional plays. Chevron has been successful in
unconventional energy by taking necessary and calculated risks, as evident from its recent oil
finds in Wafra
3
. There is an opportunity for ExxonMobil to establish a commanding position by
acting early, but cannot wait so long to do so that Chevron is able to build a significant
advantage.


53
Execution Strategy:
To successfully execute this recommendation and operate profitably, ExxonMobil must
secure an attractive position early through its technological prowess and then achieve economical
cost of production and yield through its operational excellence.
Investing in only exploration and production is not enough, as the infrastructure and
technology needed to transport and process heavy crude and unconventional gas is much
different. This might require the company to reshape certain value chain activities with newer
technology and efficiency processes. (See Exhibits 27 and 28 for details on value-cost profile
impacts due to this recommendation.) This may also require the company to locate or relocate
processing plants closer to production activities as heavy crude transportation has been a
contentious issue, as evident from a Wall Street J ournal article titled Oil-Sands Pipeline Fuels
Concerns.
92

Organizational Impact:
ExxonMobil is a company with long-term vision, and is much more conservative than its
competitors, as evident from the type of risks that Chevron assumes (e.g. early mover in Russian
oil fields and early mover to Wafra) versus the type for risk that ExxonMobil avoids. Executing
this recommendation would require the company to take calculated risks which in turn would
require leadership commitment and an organizational and cultural mind shift.
Implementation approach:
Since unconventional play is risky due to geological, operational and technological
unknowns, ExxonMobil should seek joint ventures where possible. This would help balance the
conservative internal culture and the need to take a measured risk to be competitively strong.
Financial Impact:
ExxonMobil has the financial strength (See Financial Exhibit 7 on operational cash flow)
and strong management discipline on its side to make this happen. By carrying out this
recommendation, ExxonMobil stands to improve its reserve replacement ratio, which would
influence the overall valuation of the company.
3. Invest in renewable energy sources
The growth in renewable energy is projected to be the fastest among various energy sources.
(See Exhibit 10). However, even with government subsidies, increasing investment on
renewable energy is not likely to be profitable. Keeping in mind the corporate social
responsibility and shareholder interest, ExxonMobil must make an incremental and meaningful
investment in entrepreneurial ventures and academic research. This will also help ExxonMobil

54
stay competitive and will ensure that it will not be left behind due to technological innovation or
blindsided by any disruptive innovation in renewable energy.
4. Improve ethical operating standards
ExxonMobil has a comprehensive set of ethical, anti-corruption and other operating
standards as discussed earlier. Continuing to invest in educating, monitoring and strictly
enforcing these standards would improve the companys operational and financial strength.
6. Conclusion
CompanyProspects
ExxonMobil has a long-standing reputation as the industry leader with a long-term
orientation. Disciplined management, a globally well-integrated value chain, and operational
excellence are the hallmarks of ExxonMobil.
As the industry leader, ExxonMobil is poised to take on the challenges of the world energy
needs for decades to come. The magnitude of its reserves, strong technology orientation, and its
financial strength gives it a commanding position in the industry.
For ExxonMobil to extend the competitive advantage, a well-balanced strategy that caters to
the short-term as well the long-term is critical. ExxonMobils recent move of focusing on oil for
next five years is well aligned with its energy outlook and long-term investments in relatively
high-growth area of energy (i.e. natural gas).
InvestmentAdvice
The oil & gas industry is cyclical and its profits are highly correlated to global supply and
demand dynamics and political stability in major oil producing nations. Nevertheless, improving
global economic growth prospects and ever increasing energy demand bodes well for the
industrys profit outlook. With an internationally diversified business portfolio, industry leading
oil & gas reserves, envious financial strength and solid dividend yields, ExxonMobil is one of
the best long-term investment plays in the energy sector and integrated oil & gas industry. We
rate ExxonMobil as a BUY for long-term investors.

55

7. MainAppendix
Exhibit1:Industryattractiveness
Upstream
External Factors Power Power Attractiveness
business cycle high business cycle low
Supplier Power high low moderate
Buyer Power low moderate moderate
Threat of new
Entrants
low low High
Threat of Substitutes low low High
Competition high high Low
Compliments moderate moderate moderate
Overall moderate-high
Downstream
External Factors Power Power Attractiveness Attractiveness
Business Cycle High Business Cycle Low Integrated Non-Integrated
Supplier Power high moderate High Low
Buyer Power low high moderate moderate
Threat of new
Entrants
low low High High
Threat of Substitutes low low High High
Competition high high Low Low
Compliments High high High Low
overall moderate Low
Chemical
External Factors Power Power Attractiveness Attractiveness

Business Cycle
High
Business Cycle
Low
Integrated Non-Integrated
Supplier Power High moderate High low
Buyer Power Low high moderate moderate
Threat of new
Entrants
Low low High high
Threat of
Substitutes
moderate-high moderate-high Low low
Competition Moderate Moderate moderate moderate
Compliments High high High low
overall moderate low

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Exhibit2:SixforceanalysisLevelOne
Legend:
A1 =Industry Attractiveness for Integrated Oil and Gas Companies.
A2 =Industry Attractiveness for Non-Integrated Oil and Gas Companies
Sc =Score =score gives the importance of the 6 forces for the business unit analyzed. Range being 1-5 with 5 being
the highest score.
Rank gives the strength of the force. The range is 1-10 with 10 being the most powerful force.
R1 =Rank during up-cycle.
R2 =Rank during down cycle.
mod=moderate


57
Upstream
6,8,7

Factors A1 A2 Sc R1 R2 Reasoning
Is theproduct
Differentiated? low low 5 1 1
Neither Oil nor Gas is differentiated. Thesearecommodity products which areheavily traded in global markets. The
only differentiation is between grades of oil which is again industry defined and lot of producers is ableto provide
thesamegrades of oil.
Does theBuyer earn
low profits
Buyers areoil refineries and natural gas distributors. They both havelow profit margins and arehighly price
sensitivesincecrudeoil/ natural gas forms thebiggest portion of their cost component
refiners high high 1 2 8 13% profit margin
natural gas
distributors high high 1 2 8 13.5% profit margin
Is theproduct
significantly important
to thebuyer high high 5 5 5
Yes. Crudeoil forms theinput based on which theoil refineries can generategasoline. Natural gas distributes are
essentially pipelines which transfer gas to retail consumers. Henceproduct is significantly important to thebuyer
Is theproduct a
significant portion of
thebuyers' cost Thesinglemost cost component of both oil refineries and natural gas distributors is thecost of crudeoil
refiners mod mod 1 8 8 81% of thetotal revenuegoes in obtainingoil
natural gas
distributors mod mod 1 8 8 67.5% of thetotal revenuegoes in obtaininggas
Buyer concentration
for each buyer group
buyers arejust pricesensitiveand go with thecompany that gives themthebest priceand aregeographically located
closeto themto saveshippingcosts
refiners high high 4 2 2 Marathon Oil-12.1%, Chevron - 13.2%, Valero Energy - 14.9%, Exxon Mobil-18%, ConocoPhilips - 19%
natural gas
distributors mod mod 4 2 2 SempraEnergy - 4%, NiSource- 3.2%, PG&E - 3%
Is thebuyer
strategically important
to thefirm? high high 3 2 2 Crudeoil and natural gas can besupplied to any refinery or natural gas distributor.
Aretherebuyer
switchingcosts? low low 4 2 2
Pipelines areshared between different oil and gas suppliers. So thereshould beno switchingcosts in switching
buyers
Does buyer havefull
information? low low 1 1 1 buyers havefull information with regard to thegradeof oil
Is thereathreat of
backward integration? high high 1 1 1
No exploration and production arevery different businesses than refiningand natural gas distribution. Also thethreat
of entry into thebusiness is high dueto capital requirements. So thereis littlethreat of backward integration
% volumesold to the
buyer low low 1 1 1
All of theoutput is sold to refineries to refineoil. Almost all of thenatural gas is given to natural gas distributors.
Thesedistributors distributenatural gas amount electricity generators and to retail customers.
Overall mod mod 5 2 8 TheBuyer power is moderate
Are the supplier
product
differentiated? high high 5 1 1 Non-differentiated products. They render services/equipment or pipes for transport of oil and gas.
Do the suppliers
earn low profits?
Highly cyclical. Hence they have to make up for the down cycle in up cycle of business when the drilling
activity increases.
mining and
drilling
equipment
manufacturers low low 1 8 2 38% profit margin
pipe and tube
suppliers high high 1 8 2 24% profit margins
pumping
equipment high high 1 8 2 4.2% profit margins
Buyer Power
Supplier Power


58
Are there
substitutes for
Suppliers'
products/services? low low 5 8 8
There are no substitutes for the suppliers' products. Since drilling equipment and pipes are must-haves
for the entire value chain to function.
Is the supplier
strategically
important to the
firm? mod mod 3 1 1
oil companies present request for quotation fromvarious suppliers and choose the supplier with the most
effective terms . Hence no particular supplier is important to the firm
Size and
concentration of
suppliers or
supplier groups Competition is high with 3-4 major players in each supplier group.
mining and
drilling
equipment
manufacturers high high 5 1 1
major players with market share are: Patterson-UTI Energy - 1.7%, Helmerich & Payne -1.8%, Nabors
Industries - 2.5%, Halliburton Company - 9.7%
pipe and tube
suppliers low low 3 5 5 major players with market share are: Northwest Pipe Company-4.3%, Evraz Inc 4.0%, Tenaris 39.2%
pumping
equipment low low 3 5 5 major players with market share are: Flowserve Corp-5.8%, Atlas Copco-3.1%, ITT Corp - 8.9%
Are there
switching costs for
the supplier? high high 4 2 2 there are no switching costs to suppliers
What is the
supplier industry
growth rate?
mining and
drilling
equipment
manufacturers mod mod 1 3 3 Annual growth rate (last 5years)-14.3%. Project growth rate (next 5 years) - 3.8%
pipe and tube
suppliers mod mod 1 3 3 Annual growth rate (last 5years)-(0.1)%. Project growth rate (next 5years) - 2.6%
pumping
equipment mod mod 1 3 3 Annual growth rate (last 5years)-(0.5)%. Project growth rate (next 5years) - 4.2%
% volume sold to
the industry
mining and
drilling
equipment
manufacturers high high 3 3 3 94%
pipe and tube
suppliers mod mod 3 3 3 48%
pumping
equipment mod mod 3 3 3 20.20%
Is the firm
strategically
important to the
supplier? mod mod 3 3 3 large oil drillers would be important to the suppliers to get long termcontracts
Do the suppliers
pose a forward
integration threat? high high 1 3 3
The suppliers are small entities compared to big oil companies. However this may be threat for smaller oil
companies.
Overall mod mod 3 8 2
Are there
economies of
scale? high high 5 2 2
Yes. There is certain amount of fixed cost involved in oil exploration which involves obtaining a site and
permit to drill with government of various nations. The ability to obtain maximumoutput fromone well is
the best case scenario to obtain profitability
Are capital
requirements high? high high 5 2 2 Capital requirements are high.
Is there product
differentiation? high high 5 2 2 there is no product differentiation
Are there cost
advantages
independent of
scale? Proprietary
product technology high high 2 2 2 No. Efficiency can be obtained by operations.
Barriers to Entry


59
Is there access to
distribution
channels? high high 3 2 2
The value chain requires the access to distribution channel i.e. middle streamrelationships to transport oil
and gas
Is there a high
chance of
retaliation by
competitors and
contrived
deference? high high 4 2 2
The major oil and gas companies called the 'seven majors' have strong political connections which would
prevent the entry of any new entrant.
Are there
government
barriers to entry? high high 2 2 2
Government regulation in terms of environmental impact forms significant portion of the expenses born
by the drilling companies.
Overall high high 5 2 2
Competitors are
numerous or are
roughly equal in
size and power low low 5 8 8 competitors are numerous and equal in size
Industry growth
rate is slow? low low 5 8 8
industry growth rate is slower than in the past due to energy efficient transport mechanismand
government mandate
High fixed costs? low low 5 8 8 there are high fixed costs in finding a site and obtaining government approval to drill
the products/
services lacks
differentiation or
switching costs low low 5 8 8 products lack differentiation since both oil and gas are commodity products
Capacity is
normally
augmented in large
increments? low low 3 5 5 oil drilling and extraction is a slow process and cannot be augmented rapidly
Competitors are
diverse in
strategies? low low 3 8 8
competitors aggressively pursue oil drilling activities as the price of oil goes up and previously
unprofitable wells start becoming profitable
High Strategic
Stakes? low low 3 8 8
No. pursuing oil is the safe bet when the prices of oil are rising. Diversification into natural gas definitely
helps the oil companies during the times when oil prices are declining since volatility in natural gas is a lot
less compared to volatility in oil prices.
Exit Barriers are
high? low low 3 8 8 exit barriers are not too high
Overall low low 5 8 8
Do buyers have
high propensity to
substitute? high high 5 2 2 buyers would love to substitute oil with anything environmentally friendly
Is the price
performance of
substitutes high? high high 5 2 2
No. the price performance of substitutes is low. Solar power, wind power are not still commercially viable
alternatives to oil. In transport too some buses use natural gas instead of oil. However the reach of
replaceable has not grown and it is still in R&D phase awaiting commercialization.
Overall high high 5 2 2
Relative
concentration of
complement
products/services mod mod 3 4 4 highly concentrated and tightly integrated positions
relative supplier or
buyer switching
costs mod mod 3 4 4 switching costs are low
Ease of bundling mod mod 3 4 4
There is no bundling. However, vertical integration eases the sale of oil and gas for the upstream
producers
differences in pull
through mod mod 3 4 4
vertically integrated companies helps the upstreamproducers to reduce their marketing expense as well as
reduced inventories and hence operational efficiencies
threat of vertical
integration mod mod 3 4 4 vertical integration acts as a compliment instead of threat
rate of growth mod mod 3 4 4 Cyclical.
Overall mod mod 3 4 4
Power of Complements
Rivalry
Threat of Substitutes


60
Downstream
6

Factors A1 A2 Sc R1 R2 Reason
Is the product
Differentiated?
high high 5 1 1
All oil refineries produce the same oil with standard grades.
Does the Buyer earn low
profits
low low 3 8 2
The buyers are the households and commercial transportation. They are price
sensitive.
is the product
significantly important
to the buyer
low low 3 2 2
Transportation is essential to households and commercial transportation
industry. Hence product is significantly important to the buyer. Electricity and
household use of natural gas too is important to households
Is the product a
significant portion of the
buyers' cost
low low 5 5 5
With the rising oil prices, households are increasingly paying out of their
noses.
Buyer concentration for
each buyer group
low low 3 5 5
no such grouping exists
Is the buyer strategically
important to the firm?
low low 3 2 2
Yes. Households forma major portion of their sales. They have over 1 million
industrial and wholesale customers
Are there buyer
switching costs?
high high 5 8 2
there are no switching costs in going to competitor for the same oil
Does buyer have full
information?
low low 2 2 2
buyer has grade of oil information
Is there a threat of
backward integration?
low low 1 2 2
No. since exploration is highly competitive industry with high cost of capital
and high barriers to entry.
% volume sold to the
buyer
high high 1 2 2
Households get 47% of the output of refineries. 24% of output goes for
commercial transportation
Overall
mod mod 5 8 2
Are the supplier product
differentiated?
high high 5 2 2
Supplier products are not differentiated. Although high quality light crude
demand higher cost than heavy crude
Do the suppliers earn
low profits?
Mod low 5 8 2
Suppliers can control their supply and wait for the up-cycle to sell. So they
dont earn low profits. Profit margin for drilling companies is 48%
Are there substitutes for
Suppliers'
products/services?
low low 5 8 8
there are no substitutes for crude oil
Is the supplier
strategically important
to the firm?
mod low 5 7 7
crude oil is same fromall suppliers with a particular grade so suppliers are not
strategically important to the firm
Size and concentration
of suppliers or supplier
groups
mod mod 4 2 2
major players with market share: ExxonMobil -2.7%, Shell - 5.6%, BP - 7%,
ConocoPhilips - 7.7%, chevron - 10.3%
Are there switching
costs for the supplier?
high high 4 2 2
since there is little product differentiation, there are no supplier switching costs
What is the supplier
industry growth rate?
mod mod 3 4 4
Annual growth rate (last 5 years)-3.1%. Project growth rate (next 5 years) - 5.5%
% volume sold to the
industry
mod mod 3 4 4
65% of the output goes to refineries
is the firms strategically
important to the
supplier?
mod mod 3 4 4
Refiners can obtain crude oil fromany players in the industry
do the suppliers pose a
forward integration
threat?
high low 1 4 4
There are lot of vertically integrated oil companies which see a good control in
market by entering in refining business
Overall
high low 5 8 5
Supplier Power
Buyer Power


61

Are there economies of
scale?
high high 4 2 2
There are economies of scale as in any manufacturing facilities
Are capital requirements
high?
high high 5 2 2
Huge investments are required to set up a refinery and meet government
regulation standards as well as environmental guidelines
Is there product
differentiation?
high high 4 2 2
there is no differentiation in products produced by different refineries
Are there cost
advantages independent
of scale? Proprietary
high high 4 2 2
cost advantages can be achieved by use of technological breakthroughs
Is there access to
distribution channels?
high high 4 2 2
Refined oil is sold to retailers using contracts. So the distribution channel is
accessible to new entrant
Is there a high chance of
retaliation by
competitors and
high high 4 2 2
Competitors are not making fresh moves in refining industry except
outsourcing to reduce their costs. So there would not be retaliation from
industry.
Are there government
barriers to entry?
high high 4 2 2
Government regulations in terms of environment safety act as deterrent to the
new player.
Overall
high high 5 2 2
Competitors are
numerous or are roughly
equal in size and power
low low 5 8 8
Competitors are equal in size and numerous.
Industry growth rate is
slow?
low low 5 8 8
Annual growth rate (last 5 years)-4.6%. Project growth rate (next 5 years) - 3.1%
High fixed costs?
low low 5 8 8
involves cost in setting up a plant, getting past environmental regulation, tie-
ups in obtaining crude oil and contracts with buyers
the products/ services
lacks differentiation or
switching costs
low low 5 8 8
products lack differentiation and switching costs are low
Capacity is normally
augmented in large
increments?
low low 3 5 5
Capacity can be improved by operational efficiency, technology improvements
or by setting up new refining capacity.
Competitors are diverse
in strategies?
low low 3 8 8
competitors are not diverse in its strategy
High Strategic Stakes?
low low 3 8 8
Strategy direction can be in terms for technology improvements to refine oil so
stakes are not high.
Exit Barriers are high?
low low 3 8 8
Exit barriers are not high.
Overall
low low 5 8 8
Do buyers have high
propensity to
substitute?
high high 5 2 2
There is no substitute for oil whose major buyers are households and
commercial transport.
is the price performance
of substitutes high?
high high 5 2 2
Substitutes in transport industry act in the formof electric and gas driven
vehicles. Their price performance is high compared to oil.
Overall
high high 5 2 2
Barriers to Entry
Rivalry
Threat of Substitutes




62
Relative concentration
of complement
products/services
mod low 3 4 4
highly concentrated and tightly integrated positions
relative supplier or
buyer switching costs
mod low 3 4 4
switching costs are low
Ease of bundling
mod low 3 4 4
There is no bundling. However, vertical integration eases the sale of oil and gas
for the upstreamproducers
differences in pull
through
mod low 3 4 4
vertically integrated companies helps the upstreamproducers to reduce their
marketing expense as well as reduced inventories and hence operational
efficiencies
threat of vertical
integration
mod low 3 4 4
vertical integration acts as a compliment instead of threat
rate of growth
mod low 3 4 4
Cyclical.
Overall
mod low 3 4 4
Power of Complements

Chemical
13,6
Factors A1 A2 Sc R1 R2 Reason
Is the product
Differentiated? high high 5 1 1 Commodity product. So no differentiation
Does the Buyer earn low
profits low low 3 2 8 Buyers are plastic and rubber manufacturers. They earn low profits.
is the product significantly
important to the buyer low low 3 2 2
Plastic and rubber manufacturers cannot function without
petrochemicals. Petrochemicals act as intermediaries for other
petrochemical manufacturing as well.
Is the product a significant
portion of the buyers' cost low low 5 5 5 Petrochemicals forma significant portion of the costs
Buyer concentration for
each buyer group low low 3 5 5 no such grouping exists
Is the buyer strategically
important to the firm? low low 3 2 2
Plastic, resin and synthetic rubber manufacturers and other
domestic chemical manufacturing industries are key buyers
Are there buyer switching
costs? high high 5 2 8
there are numerous plastic, rubber and other chemical manufactures
so switching costs within industry are not high
Does buyer have full
information? low low 2 2 2
Buyers are large manufacturing corporations so they have full
information.
is there a threat of
backward integration? low low 1 2 2
Petrochemicals succeed with tie-ups with further backward
integration. So there is no threat of back-ward integration
% volume sold to the buyer high high 1 2 2
Plastic, resin and synthetic rubber manufacturers - 47%, other
domestic chemical manufacturing industries - 43.4%, polystyrene
foammanufacturers - 7%, exports -2.6%
Overall mod mod 5 2 8
BuyerPower


63
Are the supplier product
differentiated? high high 5 2 2 oil and gas have no differentiation among different suppliers
Do the suppliers earn low
profits? mod low 5 8 2
Suppliers can control their supply and wait for the up-cycle to sell.
So they dont earn low profits. Profit margin for drilling companies
is 48%
Are there substitutes for
Suppliers'
products/services? low low 5 8 8 there are no substitutes for oil and gas
is the supplier strategically
important to the firm? mod low 5 7 7
crude oil is same fromall suppliers with a particular grade so
suppliers are not strategically important to the firm
Size and concentration of
suppliers or supplier
groups mod mod 4 2 2
Major players with market share: ExxonMobil -2.7%, Shell - 5.6%,
BP - 7%, ConocoPhillips - 7.7%, chevron - 10.3%.
Are there switching costs
for the supplier? high high 4 2 2
since there is little product differentiation, there are no supplier
switching costs
What is the supplier
industry growth rate? mod mod 3 4 4
Annual growth rate (last 5 years)-3.1%. Project growth rate (next 5
years) - 5.5%
% volume sold to the
industry mod mod 3 4 4 4% of the output goes to petrochemical manufacturing
is the firms strategically
important to the supplier? mod mod 3 4 4 Refiners can obtain crude oil fromany players in the industry
so the suppliers pose a
forward integration threat? high low 1 4 4
There are lot of vertically integrated oil companies which see a
good control in market by entering in refining business
Overall high low 5 8 5
Are there economies of
scale? high high 4 2 2 there are economies of scale as in any manufacturing industry
Are capital requirements
high? high high 5 2 2
a world-class ethylene plant is thought to cost more than $1 billion
to construct
Is there product
differentiation? high high 4 2 2 there is no product differentiation
Are there cost advantages
independent of scale?
Proprietary product high high 4 2 2
cost advantages can be obtained by operational efficiency and
technological breakthrough in manufacturing process
is there access to
distribution channels? high high 4 2 2
access to distribution channel is not easy with need to have tie-ups
with other petrochemical manufacturers
is there a high chance of
retaliation by competitors
and contrived deference? high high 4 2 2
the existing players in the industry are not making fresh moves to
gain additional market share instead they are moving their
operations overseas to save cost. So no retaliation is expected.
Are there government
barriers to entry? high high 4 2 2
government regulation in terms of environmental issues act as
deterrents for new entrants
Overall high high 5 2 2
Supplier Power
Barriers to Entry




64
Competitors are numerous
or are roughly equal in size
and power low low 5 8 8 There are just two major players - Dow Chemicals and ExxonMobil.
Industry growth rate is
slow? low low 5 8 8
Annual growth rate (last 5 years)-1.8%. Project growth rate (next 5
years) - 3.8%
High fixed costs? low low 5 8 8
involves cost in setting up a plant, getting past environmental
regulation, tie-ups in obtaining crude oil and contracts with buyers
the products/ services lacks
differentiation or switching
costs low low 5 8 8 products lack differentiation and switching costs are low
Capacity is normally
augmented in large
increments? low low 3 5 5
Capacity can be improved by operational efficiency, technology
improvements or by setting up new refining capacity.
Competitors are diverse in
strategies? low low 3 8 8 competitors are not diverse in its strategy
High Strategic Stakes? low low 3 8 8
Strategy direction can be in terms for technology improvements to
refine oil so stakes are not high.
Exit Barriers are high? low low 3 8 8 Exit barriers are not high.
Overall low low 5 8 8
Do buyers have high
propensity to substitute? high high 5 2 2
Environmentally friendly consumers would require that
petrochemicals be substituted with more environmentally friendly
chemicals. However this is a very small segment.
Is the price performance of
substitutes high? high high 5 2 2
the environmentally friendly products do not have high price
performance since they do not have wide acceptance
Overall high high 5 2 2
Relative concentration of
complement
products/services mod low 3 4 4 highly concentrated and tightly integrated positions
relative supplier or buyer
switching costs mod low 3 4 4 switching costs are low
Ease of bundling mod low 3 4 4
There is no bundling. However, vertical integration eases the sale
of oil and gas for the upstreamproducers
differences in pull through mod low 3 4 4
vertically integrated companies helps the upstreamproducers to
reduce their marketing expense as well as reduced inventories and
hence operational efficiencies
threat of vertical integration mod low 3 4 4 vertical integration acts as a compliment instead of threat
rate of growth mod low 3 4 4 Cyclical.
Overall mod low 3 4 4
Rivalry
Threat of Substitutes
Power of Complements


65

Exhibit3:ExxonMobilsCompetitorsReservesandProduction*
2010 2009 2008
ExxonMobil
93

Reserves Oil 8,890 8,905 7,576
Reserves - Natural Gas 78,815 68,007 31,402
Production - Oil 2,240 2,202 2,219
Production - Natural Gas 12,148 9,273 9,095
Royal Dutch Shell
94

Reserves Oil 4,528 4,031
Reserves - Natural Gas 47,135 49,055
Production - Oil 1,174 1,144 1,259
Production - Natural Gas 6,244 5,957 6,109
BP
95

Reserves - Oil 10,709 10,511 10,353
Reserves - Natural Gas 42,700 45,130 44,900
Production - Oil 2374 2535 2401
Production - Natural Gas 8,401 8,485 8,334
ConocoPhillips
96

Reserves - Oil
Reserves - Natural Gas
Reserves - Combined (BOE) 8,310 10,326 9,975
Reserve replacement ratio, 5-year average 75% 145% 155%
Production - Oil 913 968 923
Production - Natural Gas 4,606 4,877 4,847
Chevron
97

Reserves - Oil 6,503 6,973 7,350
Reserves - Natural Gas 24,251 26,049 23,075
Production - Oil 2,763 2,678
Production - Natural Gas 5,040 4,989
Total S.A.
98

Reserves - Oil 4,014 4,041 4,410
Reserves - Natural Gas 19,143 19,384 19,617
Production - Oil 1,340 1,381 1,456
Production - Natural Gas 5,648 4,923 4,837

66
Exhibit4:USNaturalGasProducers
99

Company Production 1Q 2011

(million cubic feet per
day)
RP
Ratio*
2010 Reported US
Net Proved
Natural Gas
Reserves
US Gas Rigs
Drilling on
5/6/11
ExxonMobil 3904 18 26111 54
Chesapeake 2703 16 15455 91
Anadarko 2412 9 8117 20
Devon 1964 13 9065 49
BP 1905 20 13743 5
EnCana 1801 11 7477 28
ConocoPhillips 1589 18 10479 10
Southwestern 1277 11 4930 14
Chevron 1270 5 2472 4
Williams 1155 10 4272 17

*RP Ratio: Reserves-to-Production Ratio, indicates remaining amount of natural gas reserves
expressed in years

Exhibit5:ConsolidationintheUSNaturalGasIndustry
100

Company Acquisition
ExxonMobil Acquired XTO Energy Inc. for $25B
Acquired Ellora Energy Inc. for $695 million
Deal with Petrohawk Energy Corp. for $575 million
Royal Dutch Shell Purchased East Resources Inc. for $4.7 billion
BP & Statoil Separate joint ventures with Chesapeake, purchasing gas assets
in two major shale plays, the Fayetteville and the Marcellus
Total S.A. Purchase of assets from Chesapeake for $2.25B
Chevron $4.3B deal to buy natural gas fields in the Northeast
CNOOC Invested $2.16B in oil and gas fields owned by Chesapeake



67
Exhibit6:ExxonMobilsFunctionalOperatingCompanies

Exhibit7:ExxonMobilCorporateOfficers
R.W.Tillerson ChairmanoftheBoard
M.W.Albers Senior Vice President
M.J.Dolan Senior Vice President
D.D.Humphreys Senior Vice President
A.P.Swiger Senior Vice President
S.J.Balagia Vice President and General Counsel
L.J.Cavanaugh Vice President-Human Resources
K.P.Cohen Vice President-Public and Government Affairs
W.M.Colton Vice President-Corporate Strategic Planning
T.M.Fariello Vice President-Washington Office
P.T.Mulva Vice President and Controller
O.K.Owen Vice President-Safety, Security, Health and Environment
D.S.Rosenthal Vice President-Investor Relations and Secretary
R.N.Schleckser Vice President and Treasurer
J.M.Spellings,Jr. Vice President and General Tax Counsel
S.K.Stuewer Vice President-Environmental Policy & Planning

Exploration Company
S. M. Greenlee - President
Develoment Company
N. W. Duffin - President
Production Company
R. M. Kruger - President
Gas and Power Marketing
T. R. Walters - President
Upstream Research Company
S. N. Ortwein - President
Upstream Ventures
R. S. Franklin - President
Upstream
Refining and Supply Company
S. J . Glass, J r. - President
Fuels Marketing Company
H. R. Cramer - President
Lubricants & Specialties Company
A. J . Kelly - President
Research & Engineering
T.J . Wojnar, J r. - President
Intl. Marine Transportation
SeaRiver Maritime
Downstream
ExxonMobil Chemical Company
S. D. Pryor - Presiden
Chemical
Information Technology
Real Estate and Facilities
Global Procurements
Business Support Services
Global Services
B.W. Milton - President
XTO
J . P. Williams, J r. - President
Imperial Oil
ExxonMobil
Rex Tillerson - CEO

68
Exhibit8:FunctionalBusinessUnitEarningsandPerformance

ExxonMobils 2010 business segment performance. All numbers are in dollar value reported here
is in million dollars
$24,097
$103,287
$27,319
$3,567
$24,130
$2,505
$4,913
$18,680
$2,215
EarningsAfterTaxes AverageCapital Employed Capitaland Exploration
Expenditure
BusinessSegmentExpenditureandEarnings
Upstream Downstream Chemical
23.33%
113%
14.78%
70%
26.30%
45%
ROACE(Returnon AverageCapital Employed) Capitaland Exploration Expenditureas a % ofearnings
ExpenditureandReturnonCaptialEmployed
Upstream Downstream Chemical

Exhibit9:BreakdownofearningsbyU.SandNonU.Soperations

BusinessSegments
EarningsAfter
Taxes
%ofearning
contributedby
thesegment
Average
Capital
Employed
ROACE(Return
onAverage
Capital
Employed)
Upstream $24,097 79% $103,287 23.33%
Downstream $3,567 12% $24,130 14.78%
Chemical $4,913 16% $18,680 26.30%
FY2010datainMillionsofdollars


Upstream
$4,272
43%
Downstream
$770
8%
Chemical
$4,913
49%
EarningsfromU.SBusiness
Upstream
$19,825
72%
Downstream
$2,797
10%
Chemical
$4,913
18%
EarningsfromnonU.S
business





69
Exhibit10:ExxonMobilsEnergyOutlookGlobaldemandbyfuel
The projected average growth rate per year between 2005 and 2030 for oil is 0.7%, for natural
gas is 2.0%, for Biomass/waste is 0.4%, for nuclear is 2.3%, for Hydro is 2.1% and Wind, Solar and
Biofuels is 9.9%.


Exhibit11:ExxonMobilValueChainSynergies


70
Exhibit12:GasReservesbyLeadingcompaniesasof2009
101

Dataasof2009 LiquidReserves
(MillionBarrels)
NaturalGas
Reserves
(BillionCubic
Feet)
TotalReserves(In
OilEquivalent
Barrels,Million
Barrels)
ExxonMobil 9215 12502 15103
BP 5658 40388 12562
Shell 4031 49055 12416
Chevron 6973 26049 11426
Total 5689 26318 10188
ConocoPhillips 3859 18965 7101
XTO 388 3442 2525
In the following chart the ExxonMobils reserves include the XTO reserve as well.
0
10000
20000
30000
40000
50000
60000
TotalReservesofMajorIntegratedOil&GasCompanies
2009
LiquidReserves
(MillionBarrels)
Natural Gas Reserves
(BillionCubicFeet)
TotalReserves(InOil
EquivalentBarrels,
MillionBarrels)

Exhibit13:ExplorationTimelineandValuation
102

71
Exhibit14:ExxonMobilsPartnershipAlliances
82

AlistofsignificantequitycompaniesasofDec31,2010togetherwithExxonMobil'sOwnershipInterest
BusinessSegment Percentage
Ownership
Interest
BusinessSegment Percentage
Ownership
Interest
Upstream Downstream
AeraEnergyLLC 48% ChalmetteRefining,LLC 50%
BEBErdgasundErdoelGmBH 50% FujianRefining&PetrochemicalCo.Ltd. 20%
CameroonOilTransporationCompany
S.A
41% SaudiAramcoMobilRefineryCompanyLtd. 50%
CastlePeakPowerCompanyLtd 60%
GoldenPassLNGTerminalLLC 18% Chemical
NederlandseAardolieMattschappijB.V 50% AlJubailPetrochemicalCompany 50%
QatarLiquefiedGasCompanyLtd 10% InfineumHoldingsB.V 50%
QatarLiquefiedGasCompanyLtd2 24% SaudiYanbuPetrochemicalCo. 50%
RasLaffanLNGCompanyLtd 25% TorayTonenSpecialtySeparatorGodo
Kaisha
50%
RasLaffanLNGCompanyLtdII 31%
RasLaffanLNGCompanyLtdIII 30%
SouthHookKNGTerminalCompanyLtd 24%
Tengizchevroil,LLP 25%
TerminaleGNL,AdriaticoS.r.l 69%

Exhibit15:BCGMatrix




72

Exhibit16:9cellMatrix

Exhibit17:ExxonMobilBusinessStrategy
82

Upstream
business
strategies
Identifying and selectively pursuing the highest quality exploration opportunities
Investing in projects that deliver superior returns, maximizing profitability of
existing oil and gas production
Capitalizing on growing natural gas and power markets, using J oint-venture to
mitigate exploration cost and risk, integrating the supply chain of Upstream and
Downstream businesses.
89

Down
stream
business
strategies
Maintaining best-in-class operations in all aspects of the business
Maximizing value from leading-edge technologies
Capitalizing on integration across ExxonMobil businesses
Selectively investing for resilient, advantaged returns
leading the industry in efficiency and effectiveness
Providing quality, valued products and services to customers.
89

Chemical
business
strategies
Capitalizing core competencies to build proprietary technology positions, Capture
full benefits of integration across ExxonMobil operations
Consistently deliver best-in-class performance
Selectively invest in advantageous projects.
89


73

Exhibit18:Resourcesandcapabilities
Resources and Capabilities Description
Skills, Expertise
Global Integration
Operational Excellence
Technological innovation
In the Upstream, ExxonMobil uses seismic and reservoir
modeling that it pioneered to explore oil and gas resource and
drill accurately to enhance recovery potential. For example,
ExxonMobils FastDrill technology and drill string vibration
management allowed it to increase the drilling speed and reach.
ExxonMobil has integrated a wide variety of technology with
XTO to improve shale gas exploration and production. For
example, 3D imaging of shale pore networks, seismic methods,
new fracturing methods etc., allow it enhance the efficiency and
effectiveness of oil and gas production
In the Downstream, ExxonMobil employed sophisticated
molecular technology to optimize refining of varying quality
crude oil.
Valuable physical Assets
Oil and gas Acreage
Reserves
Balanced mix of portfolio
Long-term Oil and gas
rights
Geographic coverage
The proved reserve base of ExxonMobil is 47% in liquids
and 53% in natural gas.
ExxonMobil in 2010, increased its reserves by 209% of its
production or 3.5 BOEB, taking the total reserves to 24.8
BOEB. The liquid additions were 102% replacement ratio and
gas additions were 328% reserve replacement ratio.
Financial base
Because ExxonMobil's product is a pure commodity, it is very
difficult to find an energy company that earns consistent,
attractive returns on invested capital over time because of the
inherent capital intensity and unpredictability of the sector.
Upstream operations require excellent capital discipline and
exploration skill. On the Downstream side of the business, the
only hope of earning a decent returns on invested capital comes
from scale. ExxonMobil check both boxes in a unique way. The
AAA balance sheet gives credence to its financial strength.
Valuable human assets and
intellectual capital
ExxonMobil employs over 16,000 scientists and engineers and
many of them are distinguished scholars in their field of

74
Proven managerial
know-how
High safety rating
Experienced work force
expertise. Their expertise range from geology, physics,
chemistry, oceanography, high technology and environmental
sciences.
ExxonMobil invests more than $1B annually in R&D to safely
explore and produce energy to meet demands
Valuable Intangible Assets
Great brand name
Disciplined investment with long-term focus
Alliances
Partnerships
Joint-ventures
See section Joint Venture and Alliances in the main write-up for
details. Also see Exhibit 14.

Exhibit19:Oil&GasValuetoCustomers
Oil & Gas Oil & Gas
Value Drivers for
Retail users
Importance Weight
Normalized
Weight ()
Value drivers for
commerical users
Importance Weight
Normalized
Weight ()
Comments
Price 1 1.00 0.22 Supply guarantee 1 1.00 0.17
Accessibility (being
able to energy source
from a given vendor)
2 1.00 0.22
Competitive contract
(price)
2 1.00 0.17
Quality 3 0.75 0.16 Range of products 3 0.90 0.15
Quality of Service 4 0.75 0.16 Quality of Service 4 0.80 0.14
Range of products 5 0.65 0.14 Product Quality 5 0.80 0.14
Important in the case of
aviation and marine fuel
Brand name 6 0.50 0.11
Accessibility (how easily
the vendor can supply
energy to a company)
6 0.70 0.12
Brand name 7 0.70 0.12
Total Value to the
customers
4.65 1.00
Total Value to the
customers
5.90 1.00


Exhibit20:ChemicalValuetoCustomers
Chemical
Value to customers Importance Weight
Normalized
Weight ()
Range of Products 1 1.00 0.20
Product Quality 2 1.00 0.20
Accessibility 3 0.80 0.16
Brand name 4 0.70 0.14
Quality of service 5 0.70 0.14
Price 6 0.70 0.14
Total Value to the customers 4.90 1.00


75

Exhibit21:PriceSensitivityofExxonMobilproducts

Exhibit22:ExxonMobilGlobalFuelSaleSegments

Exhibit23:VRIOAnalysis
Resource/Capabilities Value
Rare/
Scarce
Easyto
Imitate
Organized
toExploit
OPERATIONALEXCELLENCE 10 3 3 9
GEOGRAPHICACCESSTOMARKET 10 3 3 10
SELLINGPOWERMARKETING 9 8 10 7
PRODUCTPRICE 9 3 3 8
REFINIERIES 9 3 4 9
TECHNOLOGYTOFINDRESERVES 8 6 5 9
STORAGETRANSPORTATION 8 4 3 3
OIL/WELLRESERVES 5 5 10 8

76

Exhibit24A:ValueCostProfileforExxonMobilanditsCompetitors
Exhibit24B:ExxonMobilValueandCostDriverStrength

77
ExxonMobil Profile
(pre-strategic move)
Notes
Value Drivers
Magnitude of proven oil reserves High
Magnitude of proven gas reserves Moderate
Magnitude of proven unconventional reserves Moderate
net acreage available for oil exploration High
net acreage available for gas exploration Moderate High in US only
mix of energy reserves (oil vs. gas) Balanced
Exploration rights Moderate Chevron and BP has more rights
Oil exploration expertise Very High
Gas exploration expertise Moderately High
Unconventional oil & gas exploration expertise Moderately High
Geographical coverage/Global Reach Very High
Marketing Power Very High
Technological Innovation Very Good
Alliances (parternship & J oint-venture) High
Leading Brand High
Disciplined Management Very Good
Financial base Very Good
Cost Drivers
Economies of Scale Very High
Global Integration (Economies of Scope) Very High
Learning High
Operational Excellence Very High
Operational Safety High
Except for Valdez almost 20 years
ago; Greatly improved recently

Exhibit25:ExxonMobilValueCostDriverChangeduetoStrategicMove
ExxonMobil Profile
(pre-strategic move)
Impact of Strategic
move
Value Drivers
Magnitude of proven oil reserves High Increases
Magnitude of proven gas reserves Moderate No meaningful change
Magnitude of proven unconventional reserves Moderate Increases
net acreage available for oil exploration High Might decrease
net acreage available for gas exploration Moderate No meaningful change
mix of energy reserves (oil vs. gas) Balanced More oil in the short-term
Exploration rights Moderate No meaningful change
Oil exploration expertise Very High Increases
Gas exploration expertise Moderately High No meaningful change
Unconventional oil & gas exploration expertise Moderately High Increases
Geographical coverage/Global Reach Very High Might improve
Marketing Power Very High No meaningful change
Technological Innovation Very Good Increases
Alliances (parternship & J oint-venture) High Increases
Leading Brand High Might improve
Disciplined Management Very Good No meaningful change
Financial Strength Very Good Increases
Cost Drivers
Economies of Scale Very High Increases
Global Integration (Economies of Scope) Very High Increases
Learning High Increases
Operational Excellence Very High Increases
Operational Safety High Might improve
Refinery and Plant utilization High Increases

Exhibit26:RecommendationSummary

78
Recommendation Description Recommendation Type Recommendation Code
1. Increase investments in oil exploration, production and refining short-term; Global ST-1
2. Maintain investment in natural gas proportional to growth rate short-term ST-2
3. Expand chemical operations internationally. Target emerging markets short-term; Global ST-3
A) Invest in natural gas exploration and production long-term; Global LT-1
B) Invest in unconventional oil and gas plays long-term; Global LT-2
C) Invest in renewable energy sources Social Responsibility SR-1
D) Improve ethical and operational standards Ethical Responsibility ER-1


Exhibit27:Qualitativeimpactofrecommendationsonoverallvalue
Please refer to Exhibit 26 on recommendations and associated recommendation code used here.
Value of Recommendation
ST-1 ST-2 ST-3 LT-1 LT-2 SR-1 ER-1
Value Drivers Improves Improves No major change Improves Improves No major change No major change
Cost Drivers Improves Improves No major change Improves Improves No major change No major change
Competitive Stature Improves Improves No major change Improves Improves Improves No major change
Financial Strength Improves Might improve Improves Might improve Might decrease Might decrease Might improve
Value Chain Synergy Improves Might improve Improves No major change Improves No major change No major change
Brand value No major change Might improve Improves No major change No major change Improves Might improve
Market Capitalization Improves Might improve Improves Might improve Might improve Might improve Might improve

Exhibit28:Impactofrecommendationonvaluecostprofile
Please refer to Exhibit 26 on recommendations and associated recommendation code used here.

79
ST-1 ST-2 ST-3 LT-1 LT-2 SR-1 ER-1
Value Drivers
Magnitude of proven oil reserves Increases No major change No major change No major change No major change No major change No major change
Magnitude of proven gas reserves No change No major change No major change Increases No major change No major change No major change
Magnitude of proven unconventional reserves Increases No major change No major change Increases Increases No major change No major change
net acreage available for oil exploration Might decrease No major change No major change No major change Might decrease No major change No major change
net acreage available for gas exploration No major change No major change No major change Might decrease Might decrease No major change No major change
mix of energy reserves (oil vs. gas vs. other) More Oil More Chemical No major change More Gas More Oil More renewable No major change
Exploration rights Might increase No major change No major change Might increase Might increase No major change No major change
Oil exploration expertise Increases No major change No major change No major change No major change No major change No major change
Gas exploration expertise No major change No major change No major change Increases No major change No major change No major change
Unconventional oil & gas exploration expertise No major change No major change No major change Might increase Increases Might increase No major change
Geographical coverage/Global Reach Might improve Increases Might improve Might improve Might improve Might improve No major change
Marketing Power No major change Might improve Increases No major change No major change Increases Increases
Technological Innovation Increases Might improve No major change Might increase Increases Increases No major change
Alliances (parternship & J oint-venture) Increases Might increase Increases Might increase Increases Might increase No major change
Brand value Might improve Might improve Increases No major change No major change Increases Increases
Cost Drivers
Economies of Scale Increases Might improve No major change Might improve No major change No major change No major change
Global Integration (Economies of Scope) Increases Might improve No major change No major change No major change No major change No major change
Learning Increases No major change Might improve Might improve Might improve Increases Might improve
Operational Excellence Increases No major change No major change Might improve No major change No major change Might improve
Operational Safety Might improve No major change No major change Might improve No major change No major change No major change
Refinery and Plant utilization Increases No major change No major change No major change No major change No major change No major change

Exhibit:29BPMarketCaplostby$100B
103

Dates & information BP Stock Price
April 16 2010 $59.88
June 25th 2010 $27.72
Outstanding shares 3.14 billion
Market cap lost in 2 weeks $100.98 Billion =($59.88 - $27.72)x3.14B

Exhibit30:StrategicGroupanalysisdata
104, 105, 106, 107, 108, 109, 110, 111, 112, 113, 114

XOM RDS BP COP CVX
TOTAL
(100%) XOM RDS BP COP CVX
CrudeCapacity(100sbbl/d) 5783.00 4509.00 3325.00 2778.00 2756.00 19151.00 30.20% 23.54% 17.36% 14.51% 14.39%
Revenue($billion) 383.00 368.00 308.90 198.66 205.00 1463.56 26.17% 25.14% 21.11% 13.57% 14.01%
NetIncome($billion) 31.40 20.50 3.70 11.36 19.10 78.66 39.92% 26.06% 4.70% 14.44% 24.28%
FullTimeEmployees(1000s) 83.60 93.00 79.70 35.60 62.00 353.90 23.62% 26.28% 22.52% 10.06% 17.52%
AccidentssinceJan2011 75.00 84.00 89.00 50.00 129.00 427.00 17.56% 19.67% 20.84% 11.71% 30.21%
OilReserves 8890.00 4528.00 10709.00 8310.00 6503.00 38940.00 22.83% 11.63% 27.50% 21.34% 16.70%
NaturalGasReserves(1000s) 78.815 47.135 42.700 10.740 24.251 203.641 38.70% 23.15% 20.97% 5.27% 11.91%
OilProduction 2240.00 1174.00 2374.00 913.00 2763.00 9464.00 23.67% 12.40% 25.08% 9.65% 29.19%
NaturalGasProduction 12148.00 6244.00 8401.00 4606.00 5040.00 36439.00 33.34% 17.14% 23.05% 12.64% 13.83%
TotalDebt($B) 12.227 34.381 30.710 22.66 11.003 110.977 11.02% 30.98% 27.67% 20.42% 9.91%
#ofretailoutlets(1000s) 26.00 25.00 22.40 2.94 20.00 96.34 26.99% 25.95% 23.25% 3.06% 20.76%
#refineries 36.00 30.00 7.00 11.00 16.00 100.00 36.00% 30.00% 7.00% 11.00% 16.00%
Outstandingshares(B) 4.93 3.10 3.13 1.41 2.01 14.58 33.81% 21.26% 21.47% 9.67% 13.79%
DaysofInventory 23.93 37.83 44.26 13.97 17.21 137.20 17.44% 27.57% 32.26% 10.18% 12.54%

NOTE: For Strategic group analysis information was collected across various lines of business (oil and gas), internal information
(number of employees, number of recent report accidents), Upstream information (reserves, production), Downstream information
(refineries, retail outlets) and financial information (revenue, net income, outstanding shares, Days of inventory).

80

Exhibit31:StrategicMaps





81

Exhibit32:IndustryKeySuccessFactors
Key Success Factors
(KSF)
KSF Overview Weight Industry
Score
(1-10)
Weighted
Average
Exploration & Oil
discovery
Exploration and discovery increases
- oil and gas reserves
- increases competitive and market advantage
- the reserves provides stability for long-term contacts
30% 9 2.70
Manufacturing Smarter manufacturing enables for optimal output
- achieve high degree of economies of scale
- much better quality than competitors
- optimal utilization of assets
- safety and hazard prevention
30% 9 2.70
Financial In the capital intensive industry, ability to have financial
resources is critical
- strong financial fundamentals to secure and procure loans
and guarantees
- strong controls in different phases of the value chain to avoid
fund leaks
20% 9 1.80
Technology Technology enables to beat the competitor
- Enable to find more in depleting wells
- Enable to find new sources quicker than competitors
- Enable to success rate & estimate the reserves quicker
- Enable to bring the products to shore and market quicker
- Strong pipelines of patents to safeguard the leading edge
25% 8 2.00
Marketing &
Distribution
Marketing will enable to
- ability to fulfill and manage market demand
- a strong retail network to bring goods to the market
- Brand recognition and retaining customers through various
programs
15% 6 0.90
Total 100% 10.10

82
Exhibit33:SWOTAnalysisOil&NaturalGas
SWOTforOIL Weight Rating W.Score Weight Rating W.Score
STRENGTH OPPORTUNITIES
LeadingmarketpositioninOilIndsutry 30% 4 1.2 Oil will #1 source of energy through2030 35% 3 1.05
Diversifiedrevenuestream&operational
Efficiency 30% 4 1.2
Demand for Gasoline will contiue to grow
(esp. innonOECD countries) 30% 4 1.2
Steadyfinancialperformance 20% 3 0.6
Large companies favored owingto inherent
economies of scale 20% 2 0.4
Worldwidepresenceforexplorationand
retail 20% 3 0.6
Canleverage existingcontracts and
relationships to block new entrants 15% 3 0.45
Total 100% 3.60 Total 100% 3.10
WEAKNESS THREATS
Not able to replenishoil reserves 45% 4 1.8 OPEC controls most of the oil reserves 40% 4 1.6
HandlingEnviornmental and Social
issues 35% 4 1.4
Reserves concentrated inpolitically unstable
regions 35% 4 1.4
Weak Downstreamperformance 20% 3 0.6 Replacement ratios falling 25% 3 0.75
Total 100% 3.80 Total 100% 3.75

SWOTforNATURALGAS Weight Rating W.Score Weight Rating W.Score
STRENGTH OPPORTUNITIES
LeadingmarketpositioninEnergy
Industry 30% 4 1.2
NaturalGaswillreplaceCoaltotake#2position
asenergyproviderby2030 30% 1 0.3
Diversifiedrevenuestream&operational
Efficiency 25% 4 1
AbundanceofuntappedreservesinNorth
America&acrossworld 25% 3 0.75
Worldwidepresenceforexplorationand
retailforLNGintegration 25% 3 0.75
OPECcontrolslessthanhalfofnaturalgas
reserves 20% 2 0.4
LongtermContractwithAsianenergy
supplier 20% 3 0.6 Productioncostshavefallen 15% 4 0.6
4 0 Breakthroughinaviabletechnology(fracking) 10% 4 0.4
Total 100% 3.55 Total 100% 2.45
WEAKNESS 0 THREATS
Profit Marginver low compared to Oil 45% 4 1.8
Lowprice(ascomparedtooil)makesbusinesses
bettingonnaturalgasvulnerable 45% 4 1.8
Higly Competitive due to low entry of
barrier 35% 3 1.05
Economyofscaledesiredbylargecompaniesis
difficulttoachieve 35% 4 1.4
Depletionof LNG wells faster thanOil 20% 2 0.4 Environmentissueslikewatercontamination 20% 3 0.6
Total 100% 3.25 Total 100% 3.8



83

8. FinancialBackgroundAppendix
FinancialinformationforShellpriorto2004isunavailable,as2005isthefirstyearfinancial
statementswerefiledwiththeSecuritiesandExchangeCommission(SEC);forthosefinancial
exhibitswhichrequiredatafrom2003,includinggrowthrates,anN/AisenteredforShell.
Financialsforallcompanies,exceptTotalS.A.,arereportedindollars.FinancialsforTotalS.A.
arereportedinEuros;forcomparisonsinabsoluteamounts(nonpercentages),thehistorical
eurotodollarconversionrateforDecember31ofeachyearwasappliedtoTotalS.A.sfinancial
data
115
.SeeFinancialExhibit1foratableoftheconversionratesused.
WestTexasIntermediate(WTICushing)AcrudestreamproducedinTexasandsouthern
Oklahomawhichservesasareferenceor"marker"forpricinganumberofothercrudestreams
andwhichistradedinthedomesticspotmarketatCushing,Oklahoma.Usedinthefollowing
financialexhibitstomarkthemonthlyoilpricesfromJanuary2003toMarch2011.
116

EuropeBrentAblendedcrudestreamproducedintheNorthSearegionwhichservesasa
referenceor"marker"forpricinganumberofothercrudestreams.
116

AlldollarsareinMillions,exceptforcrudeoilspotpricesandearningspershare.

FINANCIALEXHIBIT1
HistoricalEurotoDollarExchangeRates

Date
Conversion
Rate*
31Dec2001 $0.8858
31Dec2002 $1.0481
31Dec2003 $1.2552
31Dec2004 $1.3599
31Dec2005 $1.1843
31Dec2006 $1.3193
31Dec2007 $1.4719
31Dec2008 $1.4095
31Dec2009 $1.4332
31Dec2010 $1.3252
31Mar2011 $1.4098

*RaterepresentsamountofU.S.Dollarsfor1Euro
Source:http://www.oanda.com/currency/historicalrates/

84
FINANCIALEXHIBIT2
TOTALREVENUETRENDSINTHEOILINDUSTRY
(Includesequityaffiliatesandother)

2A:TOTALREVENUESFOR20032010PLOTTEDAGAINSTMONTHLYCRUDEOILPRICES$M)

$0
$20
$40
$60
$80
$100
$120
$140
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
2003 2004 2005 2006 2007 2008 2009 2010
TotalRevenues(incl.equityaffiliates&other)($M)
ExxonMobil
Chevron
ConocoPhillips
Shell
BritishPetroleum
TotalSA
Cushing,OKWTI SpotPriceFOB(Monthly
DollarsperBarrel)
EuropeBrentSpot PriceFOB(Monthly
DollarsperBarrel)

2003 2004 2005 2006 2007 2008 2009 2010

ExxonMobil $246,738.0 $298,035.0 $370,680.0 $377,635.0 $404,552.0 $477,359.0 $310,586.0 $383,221.0
Chevron 121,277.0 155,300.0 198,200.0 210,118.0 220,904.0 273,005.0 171,636.0 204,928.0
ConocoPhillips 105,097.0 136,916.0 183,364.0 188,523.0 194,495.0 246,931.0 152,390.0 198,655.0
Shell N/A 266,386.0 306,731.0 318,845.0 355,782.0 470,940.0 285,129.0 378,152.0
BritishPetroleum 232,571.0 285,059.0 245,486.0 274,316.0 291,438.0 367,053.0 246,138.0 308,928.0
TotalSA 130,028.7 169,816.2 163,174.0 203,951.9 202,383.3 226,506.7 188,667.9 212,913.3
TotalRevenues(incl.equityaffiliates&other)($M)

85
FINANCIALEXHIBIT2CONTD

2B:REVENUECOMPOUNDEDANNUALGROWTHRATESPLOTTEDAGAINSTMONTHLYCRUDEOIL
PRICES(BASEYEAR2004)

TotalRevenuesCAGRs(incl.equityaffiliates&other)
20.0%
10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
200405 200406 200407 200408 200409 200410
$60
$40
$20
$0
$20
$40
$60
$80
$100
$120
$140
Average
ExxonMobi l
Chevron
ConocoPhi l l i ps
Shel l
Bri ti shPetrol eum
Total SA
Cushi ng,OKWTISpotPri ceFOB(Monthl y
Dol l arsperBarrel )
EuropeBrentSpotPri ceFOB(Monthl y
Dol l arsperBarrel )

2004-05 2004-06 2004-07 2004-08 2004-09 2004-10

Average 16.3% 10.8% 8.3% 12.0% 0.8% 4.5%
ExxonMobil 24.4% 12.6% 10.7% 12.5% 0.8% 4.3%
Chevron 27.6% 16.3% 12.5% 15.1% 2.0% 4.7%
ConocoPhillips 33.9% 17.3% 12.4% 15.9% 2.2% 6.4%
Shell 15.1% 9.4% 10.1% 15.3% 1.4% 6.0%
BritishPetroleum 13.9% 1.9% 0.7% 6.5% 2.9% 1.3%
TotalSA 10.3% 11.3% 3.3% 6.5% 1.1% 4.3%
TotalRevenuesCAGRs(incl.equityaffiliates&other)

86
FINANCIALEXHIBIT2CONTD

2C:REVENUEANNUALGROWTHRATE(YOY)PLOTTEDAGAINSTMONTHLYCRUDEOILPRICES
$80
$60
$40
$20
$0
$20
$40
$60
$80
$100
$120
$140
60.0%
40.0%
20.0%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
2003 2004 2005 2006 2007 2008 2009 2010
RevenueAnnualGrowthRate(YOY)(includesequityaffiliates)
Average
ExxonMobil
Chevron
ConocoPhillips
Shell
BritishPetroleum
TotalSA
Cushing,OKWTI SpotPriceFOB(Monthly
DollarsperBarrel)
EuropeBrentSpot PriceFOB(Monthly
DollarsperBarrel)

2003 2004 2005 2006 2007 2008 2009 2010

Average 35.8% 24.4% 16.3% 6.4% 3.7% 24.0% 33.5% 25.6%
ExxonMobil 20.7% 20.8% 24.4% 1.9% 7.1% 18.0% 34.9% 23.4%
Chevron 23.1% 28.1% 27.6% 6.0% 5.1% 23.6% 37.1% 19.4%
ConocoPhillips 83.7% 30.3% 33.9% 2.8% 3.2% 27.0% 38.3% 30.4%
Shell N/A N/A 15.1% 3.9% 11.6% 32.4% 39.5% 32.6%
BritishPetroleum 50.8% 22.6% 13.9% 11.7% 6.2% 25.9% 32.9% 25.5%
TotalSA 0.8% 20.5% 10.3% 12.2% 11.1% 16.9% 18.1% 22.0%
TotalRevenues(incl.equityaffiliates&other)AnnualGrowthRate

2D:REVENUEGROWTHRATESROLLINGTHREEYEARS
50.0%
0.0%
50.0%
100.0%
150.0%
200.0%
250.0%
200305 200406 200507 200608 200709 200810
RevenueGrowthRates RollingThreeYears(includesequity
affiliates)
Average
ExxonMobil
Chevron
ConocoPhillips
Shell
BritishPetroleum
TotalSA

200305 200406 200507 200608 200709 200810

Average 99.2% 54.6% 27.7% 36.8% 15.2% 3.1%
ExxonMobil 81.3% 53.1% 35.7% 28.8% 17.8% 5.3%
Chevron 101.1% 73.3% 42.2% 37.7% 18.3% 7.2%
ConocoPhillips 220.6% 79.4% 42.1% 34.7% 19.2% 2.1%
Shell N/A N/A 33.6% 53.5% 10.6% 6.3%
BritishPetroleum 59.2% 17.9% 2.2% 49.5% 10.3% 6.0%
TotalSA 34.1% 49.2% 10.1% 16.6% 14.8% 16.8%
TotalRevenues(incl.equityaffiliates&other)RollingGrowthRate

87
FINANCIALEXHIBIT3
SALES&OTHEROPERATINGREVENUETRENDSINTHEOILINDUSTRY
(Excludesequityaffiliatesandotherreflectsonlyrevenuedirectlyattributableto
eachindividualcompany)

3A:SALES&OTHEROPERATINGREVENUEFOR20032010PLOTTEDAGAINSTMONTHLYCRUDEOIL
PRICES($M)

$0
$20
$40
$60
$80
$100
$120
$140
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
$500,000
2003 2004 2005 2006 2007 2008 2009 2010
Sales&OtherOperatingRevenue($M)
ExxonMobil
Chevron
ConocoPhillips
Shell
BritishPetroleum
TotalSA
Cushing,OKWTI SpotPriceFOB(Monthly
DollarsperBarrel)
EuropeBrentSpot PriceFOB(Monthly
DollarsperBarrel)

2003 2004 2005 2006 2007 2008 2009 2010

ExxonMobil $237,054.0 $291,252.0 $358,955.0 $365,467.0 $390,328.0 $459,579.0 $301,500.0 $370,125.0
Chevron 119,575.0 150,865.0 193,641.0 204,892.0 214,091.0 264,958.0 167,402.0 198,198.0
ConocoPhillips 104,246.0 135,076.0 179,442.0 183,650.0 187,437.0 240,842.0 149,341.0 189,441.0
Shell N/A 266,386.0 306,731.0 318,845.0 355,782.0 458,361.0 278,188.0 368,056.0
BritishPetroleum 232,571.0 285,059.0 239,792.0 265,906.0 284,365.0 361,143.0 239,272.0 297,107.0
TotalSA 131,359.2 166,859.7 138,630.6 175,056.6 201,391.2 225,986.5 160,737.7 186,158.8
Sales&OtherOperatingRevenue($M)

88
FINANCIALEXHIBIT3CONTD

3B:SALES&OTHEROPERATINGREVENUECOMPOUNDEDANNUALGROWTHRATESPLOTTED
AGAINSTMONTHLYCRUDEOILPRICES(BASEYEAR2004)

Sales&OtherOperatingRevenueCAGRs
20.0%
10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
200405 200406 200407 200408 200409 200410
$60
$40
$20
$0
$20
$40
$60
$80
$100
$120
$140
Average
ExxonMobi l
Chevron
ConocoPhi l l i ps
Shel l
Bri ti shPetrol eum
Total SA
Cushi ng,OKWTISpotPri ceFOB(Monthl y
Dol l arsperBarrel )
EuropeBrentSpotPri ceFOB(Monthl y
Dol l arsperBarrel )

2004-05 2004-06 2004-07 2004-08 2004-09 2004-10

Average 13.2% 9.2% 8.0% 11.7% 0.1% 3.8%
ExxonMobil 23.2% 12.0% 10.3% 12.1% 0.7% 4.1%
Chevron 28.4% 16.5% 12.4% 15.1% 2.1% 4.7%
ConocoPhillips 32.8% 16.6% 11.5% 15.6% 2.0% 5.8%
Shell 15.1% 9.4% 10.1% 14.5% 0.9% 5.5%
BritishPetroleum 15.9% 3.4% 0.1% 6.1% 3.4% 0.7%
TotalSA 4.6% 4.0% 3.7% 6.9% 1.8% 2.3%
Sales&OtherOperatingRevenuesCAGRs

89
FINANCIALEXHIBIT3CONTD

3C:SALES&OTHEROPERATINGREVENUEYOYGROWTHRATEPLOTTEDAGAINSTMONTHLYCRUDE
OILPRICES

$80
$60
$40
$20
$0
$20
$40
$60
$80
$100
$120
$140
60.0%
40.0%
20.0%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
2003 2004 2005 2006 2007 2008 2009 2010
Sales&OtherOperatingRevenueAnnualGrowthRate(YOY)
(excludesequityaffiliates)
Average
ExxonMobil
Chevron
ConocoPhillips
Shell
BritishPetroleum
TotalSA
Cushing,OKWTI SpotPriceFOB(Monthly
DollarsperBarrel)
EuropeBrentSpot PriceFOB(Monthly
DollarsperBarrel)

2003 2004 2005 2006 2007 2008 2009 2010

Average 36.2% 26.2% 12.6% 6.1% 6.0% 24.1% 36.9% 23.6%
ExxonMobil 18.0% 22.9% 23.2% 1.8% 6.8% 17.7% 34.4% 22.8%
Chevron 21.6% 26.2% 28.4% 5.8% 4.5% 23.8% 36.8% 18.4%
ConocoPhillips 83.7% 29.6% 32.8% 2.3% 2.1% 28.5% 38.0% 26.9%
Shell N/A N/A 15.1% 3.9% 11.6% 28.8% 39.3% 32.3%
BritishPetroleum 55.8% 35.1% 19.5% 9.2% 7.7% 28.9% 42.9% 16.0%
TotalSA 2.1% 17.2% 4.6% 13.4% 3.1% 17.2% 30.0% 25.3%
Sales&OtherOperatingRevenueAnnualGrowthRate

90
FINANCIALEXHIBIT3CONTD

3D:SALES&OTHEROPERATINGREVENUEGROWTHRATESROLLINGTHREEYEARS

50.0%
0.0%
50.0%
100.0%
150.0%
200.0%
250.0%
200305 200406 200507 200608 200709 200810
Sales&OtherOperatingRevenueGrowthRates RollingThree
Years(excludesequityaffiliates)
Average
ExxonMobil
Chevron
ConocoPhillips
Shell
BritishPetroleum
TotalSA

200305 200406 200507 200608 200709 200810

Average 93.2% 48.6% 26.6% 39.3% 15.5% 0.2%
ExxonMobil 78.6% 54.2% 34.0% 28.0% 17.5% 5.2%
Chevron 96.9% 71.4% 41.9% 36.8% 18.3% 7.4%
ConocoPhillips 216.2% 76.2% 38.8% 34.2% 18.7% 1.1%
Shell N/A N/A 33.6% 49.4% 12.8% 3.4%
BritishPetroleum 60.2% 14.3% 0.2% 50.6% 10.0% 4.5%
TotalSA 14.2% 26.8% 11.5% 37.0% 15.5% 2.7%
Sales&OtherOperatingRevenueRollingGrowthRate

91
FINANCIALEXHIBIT4
GROSSMARGINTRENDSINTHEOILINDUSTRY

4A:GROSSMARGINASAPERCENTAGEOFSALESPLOTTEDAGAINSTMONTHLYOILPRICES
$0
$20
$40
$60
$80
$100
$120
$140
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
2003 2004 2005 2006 2007 2008 2009 2010
GrossMarginas%ofSales
Average
ExxonMobil
Chevron
ConocoPhillips
Shell
BritishPetroleum
TotalSA
Cushing,OKWTI SpotPriceFOB
(MonthlyDollars perBarrel)
EuropeBrentSpot PriceFOB
(MonthlyDollars perBarrel)

2003 2004 2005 2006 2007 2008 2009 2010

Average 32.6% 29.1% 36.3% 37.2% 35.1% 33.1% 39.0% 36.7%
ExxonMobil 56.4% 53.3% 50.0% 51.7% 50.7% 47.7% 50.8% 48.3%
Chevron 41.2% 39.2% 35.4% 39.0% 39.7% 37.2% 41.9% 43.2%
ConocoPhillips 35.8% 34.1% 31.9% 36.9% 36.5% 31.7% 32.8% 31.7%
Shell* N/A 16.2% 17.6% 17.5% 16.6% 23.6% 28.8% 25.1%
BritishPetroleum 13.4% 12.7% 33.6% 31.8% 31.1% 27.3% 33.5% 30.0%
TotalSA 16.1% 19.0% 49.0% 46.1% 36.1% 30.9% 46.0% 42.0%
GrossMarginas%ofSales

4B:GROSSMARGINASAPERCENTAGEOFSALES
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
200305 200406 200507 200608 200709 200810
GrossMarginasa%ofSales RollingThreeYears
Average
ExxonMobil
Chevron
ConocoPhillips
Shell*
BritishPetroleum
TotalSA

200305 200406 200507 200608 200709 200810

Average 31.8% 34.2% 36.2% 35.1% 35.4% 35.9%
ExxonMobil 52.8% 51.5% 50.8% 49.9% 49.5% 48.8%
Chevron 38.1% 37.8% 38.1% 38.5% 39.2% 40.3%
ConocoPhillips 33.6% 34.4% 35.2% 34.8% 33.6% 32.0%
Shell* 17.0% 17.2% 17.2% 19.8% 22.7% 25.4%
BritishPetroleum 19.7% 25.6% 32.1% 29.8% 30.2% 29.8%
TotalSA 29.5% 38.9% 43.8% 37.7% 37.2% 39.2%
GrossMarginas%ofSales

92
FINANCIALEXHIBIT5
EBITTRENDSINTHEOILINDUSTRYExcludesminorityandnoncontrollinginterests

5A:INCOMEBEFOREINTERESTANDTAXESASAPERCENTAGEOFSALES
$0
$20
$40
$60
$80
$100
$120
$140
5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2003 2004 2005 2006 2007 2008 2009 2010
IncomeBeforeInterest&Taxesas%ofSales
(notincludingminorityinterests)
Average
ExxonMobil
Chevron
ConocoPhillips
Shell
BritishPetroleum
TotalSA
Cushing,OKWTI SpotPriceFOB
(MonthlyDollars perBarrel)
EuropeBrentSpot PriceFOB
(MonthlyDollars perBarrel)

2003 2004 2005 2006 2007 2008 2009 2010

Average 10.5% 11.9% 15.4% 16.0% 15.1% 11.5% 10.1% 10.5%
ExxonMobil 13.6% 14.4% 16.7% 18.6% 18.2% 17.9% 11.7% 14.4%
Chevron 11.0% 13.9% 13.3% 15.8% 15.1% 16.3% 11.1% 16.2%
ConocoPhillips 8.8% 11.0% 13.4% 16.0% 13.1% 0.8% 7.3% 11.1%
Shell N/A 12.3% 14.9% 14.4% 14.5% 11.3% 7.7% 9.8%
BritishPetroleum 6.7% 6.8% 13.6% 13.2% 11.4% 9.8% 9.4% 1.8%
TotalSA 12.2% 13.1% 20.6% 18.2% 18.5% 14.8% 13.5% 13.4%
IncomeBeforeInterest&Taxesas%ofSales(notinclminorityinterests)

5B:INCOMEBEFOREINTERESTANDTAXESASAPERCENTAGEOFSALESROLLINGTHREEYEARS
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
200305 200406 200507 200608 200709 200810
IncomeBeforeInterest&Taxesas%ofSales RollingThreeYears
(notincludingminorityinterests)
Average
ExxonMobil
Chevron
ConocoPhillips
Shell*
BritishPetroleum
TotalSA

200305 200406 200507 200608 200709 200810

Average 12.9% 14.5% 15.5% 14.0% 12.3% 10.8%
ExxonMobil 15.1% 16.7% 17.8% 18.2% 16.4% 15.1%
Chevron 12.9% 14.4% 14.8% 15.8% 14.5% 14.9%
ConocoPhillips 11.5% 13.7% 14.2% 8.5% 5.8% 5.2%
Shell* 13.7% 13.9% 14.6% 13.2% 11.4% 9.9%
BritishPetroleum 8.9% 11.0% 12.7% 11.3% 10.2% 5.8%
TotalSA 15.4% 17.3% 19.0% 17.0% 15.7% 14.0%
IncomeBeforeInterest&Taxesas%ofSales(notinclminorityinterests)

93
FINANCIALEXHIBIT6
NETINCOMETRENDSINTHEOILINDUSTRY

6A:NETINCOMEASAPERCENTAGEOFSALESPLOTTEDAGAINSTMONTHLYCRUDEOILPRICES

$60
$40
$20
$0
$20
$40
$60
$80
$100
$120
$140
8.0%
6.0%
4.0%
2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
2003 2004 2005 2006 2007 2008 2009 2010
NetIncomeas%ofSales
Average
ExxonMobil
Chevron
ConocoPhillips
Shell
BritishPetroleum
TotalSA
Cushing,OKWTI SpotPriceFOB
(MonthlyDollars perBarrel)
EuropeBrentSpot PriceFOB
(MonthlyDollars perBarrel)

2003 2004 2005 2006 2007 2008 2009 2010

Average 6.2% 7.3% 8.8% 8.8% 8.5% 5.0% 5.7% 5.9%
ExxonMobil 9.1% 8.7% 10.1% 10.8% 10.4% 9.8% 6.4% 8.2%
Chevron 6.0% 8.6% 7.1% 8.2% 8.5% 8.8% 6.1% 9.3%
ConocoPhillips 4.5% 6.0% 7.5% 8.5% 6.3% 6.8% 3.0% 6.0%
Shell* N/A 7.0% 8.3% 8.0% 8.8% 5.7% 4.5% 5.5%
BritishPetroleum 4.5% 5.5% 9.3% 8.3% 7.3% 5.9% 6.9% 1.3%
TotalSA 6.7% 7.8% 10.5% 8.9% 9.6% 6.6% 7.5% 7.5%
NetIncomeas%ofSales

94
FINANCIALEXHIBIT6CONTD

6B:NETINCOMECOMPOUNDEDANNUALGROWTHRATEAGAINSTMONTHLYCRUDEOILPRICES
NetIncomeCAGRs
20.0%
10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
200405 200406 200407 200408 200409 200410
$40
$20
$0
$20
$40
$60
$80
$100
$120
$140
Average
ExxonMobi l
Chevron
ConocoPhi l l i ps
Shel l
Bri ti shPetrol eum
Total SA
Cushi ng,OKWTISpotPri ceFOB
(Monthl yDol l arsperBarrel )
EuropeBrentSpotPri ceFOB
(Monthl yDol l arsperBarrel )

200405 200406 200407 200408 200409 200410

Average 36.8% 20.4% 13.8% 10.1% 5.1% 3.6%
ExxonMobil 42.6% 24.9% 17.0% 15.6% 5.3% 3.1%
Chevron 5.8% 13.4% 11.9% 15.8% 4.7% 6.1%
ConocoPhillips 66.4% 38.3% 13.5% NetLoss 11.5% 5.7%
Shell 36.5% 17.1% 19.1% 9.1% 7.6% 1.4%
BritishPetroleum 42.0% 18.3% 9.8% 7.7% 1.1% NetLoss
TotalSA 27.7% 10.6% 11.1% 2.5% 2.6% 1.6%
NetIncomeCAGR

6C:NETINCOMEASAPERCENTAGEOFSALESROLLINGTHREEYEARS
2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
200305 200406 200507 200608 200709 200810
NetIncomeas%ofSales RollingThreeYears
Average
ExxonMobil
Chevron
ConocoPhillips
Shell*
BritishPetroleum
TotalSA

200305 200406 200507 200608 200709 200810

Average 7.6% 8.3% 8.7% 7.2% 6.4% 5.5%
ExxonMobil 9.4% 9.9% 10.4% 10.3% 9.1% 8.4%
Chevron 7.5% 8.1% 8.1% 8.7% 8.2% 8.5%
ConocoPhillips 6.3% 7.5% 7.4% 1.8% 0.0% 0.1%
Shell* 7.7% 7.8% 8.4% 7.3% 6.4% 5.3%
BritishPetroleum 6.4% 7.6% 8.3% 7.0% 6.6% 3.8%
TotalSA 8.4% 9.0% 9.6% 8.3% 7.9% 7.2%
NetIncomeas%ofSales

95
FINANCIALEXHIBIT7
CASHFLOWFROMOPERATIONS($M)

$0
$20
$40
$60
$80
$100
$120
$140
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
2003 2004 2005 2006 2007 2008 2009 2010 1Q11
CashFlowFromOperations
ExxonMobil
Chevron
ConocoPhillips
Shell
BritishPetroleum
TotalSA
Cushing,OKWTI SpotPriceFOB
(MonthlyDollars perBarrel)
EuropeBrentSpot PriceFOB
(MonthlyDollars perBarrel)

2003 2004 2005 2006 2007 2008 2009 2010 1Q11

ExxonMobil $4,797.0 $21,515.0 $48,138.0 $49,286.0 $52,002.0 $59,725.0 $28,438.0 $48,413.0 $16,856.0
Chevron 12,315.0 14,690.0 20,105.0 24,323.0 24,977.0 29,632.0 19,373.0 31,359.0 9,814.0
ConocoPhillips 9,356.0 11,959.0 17,628.0 21,516.0 24,550.0 22,658.0 12,479.0 17,045.0 1,947.0
Shell N/A 26,537.0 30,113.0 31,696.0 34,461.0 43,918.0 21,488.0 27,350.0 8,621.0
BritishPetroleum 16,303.0 23,378.0 26,721.0 28,172.0 24,709.0 38,095.0 27,716.0 13,616.0 2,404.0
TotalSA 12,487.0 14,429.0 14,669.0 16,061.0 17,686.0 18,669.0 12,360.0 18,493.0 5,714.0
CashFlowFromOperations

96

FINANCIALEXHIBIT8
DUPONTANALYSIS

XOM BP
ROE = PM x TA Turnover x Equity Multiplier ROE = PM x TA Turnover x Equity Multiplier
2005 32.50% 11.01% 1.58 1.87 2005 27.66% 8.96% 1.21 2.56
2006 34.70% 11.79% 1.53 1.92 2006 26.11% 8.39% 1.22 2.55
2007 33.35% 11.32% 1.48 1.99 2007 22.25% 7.33% 1.20 2.52
2008 40.03% 10.64% 1.86 2.02 2008 23.17% 5.86% 1.58 2.50
2009 17.44% 7.00% 1.18 2.11 2009 16.31% 6.93% 1.01 2.32
2010 20.74% 7.95% 1.27 2.06 2010 -3.50% -1.10% 1.11 2.87
COP Shell
ROE = PM x TA Turnover x Equity Multiplier ROE = PM x TA Turnover x Equity Multiplier
2005 25.66% 8.33% 1.52 2.03 2005 27.84% 8.25% 1.40 2.41
2006 18.82% 9.28% 1.02 1.99 2006 24.06% 7.98% 1.36 2.23
2007 13.36% 6.93% 0.96 2.00 2007 25.28% 8.81% 1.32 2.17
2008 -30.81% -7.54% 1.58 2.59 2008 20.64% 5.73% 1.62 2.22
2009 7.78% 3.57% 0.89 2.44 2009 9.18% 4.50% 0.95 2.14
2010 16.57% 5.72% 1.27 2.28 2010 14.57% 5.47% 1.14 2.34
Total SA CVX
ROE = PM x TA Turnover x Equity Multiplier ROE = PM x TA Turnover x Equity Multiplier
2005 30.20% 10.01% 1.16 2.61 2005 22.50% 7.62% 1.47 2.01
2006 29.19% 8.87% 1.26 2.61 2006 24.86% 8.77% 1.47 1.92
2007 29.38% 9.63% 1.21 2.53 2007 24.24% 9.16% 1.37 1.93
2008 21.62% 6.61% 1.36 2.41 2008 27.62% 9.38% 1.58 1.86
2009 16.07% 7.53% 0.88 2.43 2009 11.41% 6.58% 0.97 1.79
2010 19.34% 8.32% 0.98 2.38 2010 18.10% 9.55% 1.08 1.76

97

FINANCIALEXHIBIT9
KeyIndustryFinancialRatios

1Q11 2010 2009 2008 2007 2006 1Q11 2010 2009 2008 2007 2006 2010 2009 2008 2007 2006
ExxonMobil 0.98 0.94 1.06 1.47 1.47 1.55 0.76 0.73 0.84 1.23 1.28 1.33 3.8% 4.7% 3.3% 3.7% 3.8%
Chevron 1.53 1.68 1.42 1.14 1.17 1.28 1.34 1.49 1.21 0.92 1.01 1.11 2.3% 2.6% 2.1% 2.7% 2.4%
ConocoPhillips 1.22 1.26 0.89 0.96 0.92 0.95 0.95 1.07 0.68 0.72 0.76 0.75 1.0% 1.2% 0.9% 1.2% 1.3%
Shell 1.15 1.12 1.14 1.10 1.22 1.20 0.85 0.83 0.81 0.92 0.89 0.89 4.1% 6.1% 3.6% 4.7% 5.2%
BritishPetroleum 1.15 1.08 1.14 0.95 1.02 0.99 0.82 0.77 0.76 0.71 0.68 0.74 4.1% 5.7% 4.2% 5.3% 5.3%
TotalSA 1.40 1.41 1.45 1.37 1.35 1.28 1.06 1.03 1.04 1.09 0.96 0.93
1Q11 2010 2009 2008 2007 2006 1Q11 2010 2009 2008 2007 2006 2010 2009 2008 2007 2006
ExxonMobil 1.03 0.98 1.02 0.94 0.99 0.92 13.4% 10.2% 8.5% 20.1% 16.9% 18.3% 21.7% 16.3% 34.2% 31.8% 32.2%
Chevron 0.76 0.75 0.78 0.86 0.93 0.92 12.8% 10.3% 6.4% 14.8% 12.7% 13.3% 17.4% 10.6% 26.6% 23.1% 22.6%
ConocoPhillips 1.26 1.26 1.43 1.57 0.98 0.98 8.2% 8.0% 3.7% 10.8% 7.4% 10.1% 10.0% 7.0% 18.0% 17.5% 18.0%
Shell 1.15 1.15 1.12 1.19 1.14 1.05 8.5% 6.5% 4.5% 9.7% 12.0% 11.3% 11.5% 8.0% 18.3% 21.7% 19.5%
BritishPetroleum 1.78 1.84 1.31 1.48 1.49 1.55 9.9% 1.0% 7.6% 9.7% 8.8% 10.1% 16.4% 12.9% 24.0% 18.5% 23.3%
TotalSA 1.36 1.35 1.39 1.37 1.48 1.56 10.9% 7.7% 7.0% 9.8% 13.2% 12.8% 16.0% 13.0% 26.0% 24.0% 23.0%
1Q11 2010 2009 2008 2007 2006 1Q11 2010 2009 2008 2007 2006 2010 2009 2008 2007 2006
ExxonMobil 14.88 15.26 13.23 21.42 17.99 17.04 24.53 23.93 27.60 17.04 20.29 21.42 25.7 21.9 22.9 22.7 23.4
Chevron 22.59 21.20 18.02 25.01 25.11 27.52 16.15 17.21 20.25 14.60 14.54 13.26 15.5 18.2 18.2 18.4 21.6
ConocoPhillips 21.34 26.12 20.74 33.10 29.23 23.07 17.11 13.97 17.60 11.03 12.49 15.82 13.8 11.4 13.8 13.7 17.8
Shell 10.09 9.65 7.41 18.59 9.42 11.33 36.19 37.83 49.27 19.63 38.76 32.22 18.8 17.1 17.9 17.4 15.9
BritishPetroleum 8.62 8.25 7.24 15.87 7.56 9.90 42.37 44.26 50.38 23.00 48.28 36.88 19.1 19.8 19.4 20.0 19.8
TotalSA 7.03 5.97 5.12 11.54 6.34 7.09 51.95 61.11 71.23 31.63 57.58 51.45 17.1 17.7 17.8 20.2 18.8
InventoryTurnover DaysofInventory
CurrentRatio QuickRatio
DebttoEquityRatio ReturnonAssets ReturnonCapitalEmployed
LifeofGrossPlant(years)
SG&AtoSales
SG&AnotbrokenoutfromOtherOperatingExpenses

*ValuesforReturnonAssetsandInventoryTurnoverfor1Q11wereannualizedinordertobettercomparewiththepreviousyearvalues.

98

FINANCIALEXHIBIT10
EXXONMOBILKEYFINANCIALS

10A:COMPOSITIONOFEXXONMOBILSSALESANDEARNINGS

0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
OperatingRevenuebySegment
Other
Chemical
Downstream
Upstream

20%
0%
20%
40%
60%
80%
100%
NetIncomebySegment
Other
Chemical
Downstream
Upstream

2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
Upstream 9.0% 7.9% 8.4% 9.0% 7.3% Upstream 67.4% 65.8% 67.4% 66.4% 65.2%
Downstream 82.5% 82.5% 82.9% 81.7% 83.2% Downstream 16.3% 22.5% 22.1% 21.4% 23.6%
Chemical 8.5% 9.5% 8.7% 9.3% 9.4% Chemical 6.7% 13.5% 10.9% 11.1% 11.2%
Other 0.0% 0.0% 0.0% 0.0% 0.0% Other 9.6% 1.9% 0.4% 1.1% 0.1%
2008 2009 2010 1Q11 Average 2008 2009 2010 1Q11 Average
Upstream 8.5% 8.2% 9.4% 11.1% 8.8% Upstream 78.3% 88.7% 79.1% 81.5% 73.3%
Downstream 83.1% 82.9% 81.0% 79.4% 82.1% Downstream 18.0% 9.2% 11.7% 10.3% 17.3%
Chemical 8.4% 8.9% 9.6% 9.5% 9.1% Chemical 6.5% 12.0% 16.1% 14.2% 11.4%
Other 0.0% 0.0% 0.0% 0.0% 0.0% Other 2.9% 9.9% 7.0% 6.0% 1.9%
ExxonMobilCompositionofNetIncome ExxonMobilCompositionofSales&OtherOperatingRevenues
ExxonMobilCompositionofNetIncome ExxonMobilCompositionofSales&OtherOperatingRevenues

99
FINANCIALEXHIBIT10CONTD

10B:EXXONMOBILKEYFINANCIALSASAPERCENTAGEOFSALESPLOTTEDAGAINSTMONTHLYCRUDE
OILPRICES

XOMKeyFinancialsas%ofSales
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
2003 2004 2005 2006 2007 2008 2009 2010 1Q11
$0
$20
$40
$60
$80
$100
$120
$140
CrudeOi l &ProductPurchases
Producti on&Manufacturi ng
SG&A
Expl orati onExpenses
GrossIncome
Operati ngIncome
NetIncome
Cushi ng,OKWTISpotPri ceFOB
(Monthl yDol l arsperBarrel )
EuropeBrentSpotPri ceFOB
(Monthl yDol l arsperBarrel )

2003 2004 2005 2006 2007 2008 2009 2010 1Q10 1Q11
CrudeOil&ProductPurchases 43.6% 46.7% 50.0% 48.3% 49.3% 52.3% 49.2% 51.7% 51.8% 53.1%
Production&Manufacturing 8.6% 7.8% 7.2% 7.8% 7.9% 7.9% 10.6% 9.3% 9.3% 8.4%
SG&A 5.4% 4.6% 3.9% 3.8% 3.7% 3.3% 4.7% 3.8% 3.9% 3.2%
ExplorationExpenses 0.4% 0.4% 0.3% 0.3% 0.4% 0.3% 0.7% 0.6% 0.8% 0.3%
GrossIncome 56.4% 53.3% 50.0% 51.7% 50.7% 47.7% 50.8% 48.3% 48.2% 46.9%
OperatingIncome 13.0% 14.1% 16.2% 18.0% 17.5% 17.3% 11.4% 13.9% 13.4% 16.6%
NetIncome 8.7% 8.5% 9.7% 10.5% 10.0% 9.5% 6.2% 7.9% 7.0% 9.3%
BasicEarningsperShare $3.24 $3.91 $5.76 $6.68 $7.36 $8.70 $3.99 $6.24
DilutedEarningsperShare $3.23 $3.89 $5.71 $6.62 $7.28 $8.66 $3.98 $6.22
ExxonMobilKeyFinancialsasaPercentageofTotalSales

100
FINANCIALEXHIBIT10CONTD

10C:EXXONMOBILFY11FIRSTQUARTERFINANCIALPERFORMANCE

1Q11 4Q10 1Q10 1Q11 4Q10 1Q10 Over4Q10 Over1Q10

TotalRevenues 114,004.0 $ 105,186.0 $ 90,251.0 $ 100.0% 100.0% 100.0% 8% 26%
CrudeOil&ProductPurchases 60,497.0 53,830.0 46,785.0 53.1% 51.2% 51.8% 12% 29%
GrossIncome 53,507.0 51,356.0 43,466.0 46.9% 48.8% 48.2% 4% 23%
Production&Manufacturing 9,520.0 9,999.0 8,435.0 8.4% 9.5% 9.3% 5% 13%
SG&A 3,627.0 3,855.0 3,514.0 3.2% 3.7% 3.9% 6% 3%
ExplorationExpenses 334.0 551.0 686.0 0.3% 0.5% 0.8% 39% 51%
OperatingIncome 18,946.0 15,437.0 12,123.0 16.6% 14.7% 13.4% 23% 56%
NetIncome 10,650.0 9,250.0 6,300.0 9.3% 8.8% 7.0% 15% 69%
As%ofSales 1Q11Growth
ExxonMobilFY11FirstQuarterPerformance($M)

10D:EXXONMOBILCAPITALANDEXPLORATIONEXPENDITURES($M)

U.S. NonU.S. U.S. NonU.S. U.S. NonU.S. U.S. NonU.S. U.S. NonU.S. U.S. NonU.S.
Upstream 6,349 20,970 3,585 17,119 3,334 16,400 2,212 13,512 2,486 13,745 2,142 12,328
Downstream 982 1,523 1,511 1,685 1,636 1,893 1,128 2,175 824 1,905 753 1,742
Chemical 279 1,936 319 2,829 441 2,378 360 1,422 280 476 243 411
Other 187 0 44 0 61 0 44 0 130 9 80 0
Total 7,797 24,429 5,459 21,633 5,472 20,671 3,744 17,109 3,720 16,135 3,218 14,481
2010 2009 2008 2007 2006 2005

101
FINANCIALEXHIBIT11
ForecastingModel

DryHole Risk OilPrice Risk ProductionRisk

ScenarioInput
ForecastingModel
FCF2 FCF3 FCF1
Hydrocarbon
Structure
ReservoirSeal
Demand&Supply
GrowthRate
GDP
Declinerate
DrillingCost
ProductionCost

DryHoleRiskFactor
1 Hydrocarbonmustbepresent
2 Areservoirmustbedevelopedintherockformationtoholdthehydrocarbon
3 Animpermeablesealmustbeavailabletotrapthehydrocarboninthereservoirandpreventthemfrommigratingsomewhereelse.
4 Astructureclosuremustbepresentthatwillcausethehydrocarbonstopoolinafieldwherethedrillbitpenetrate

102
Prob.OfSuccess Mean Stdev Min Max
Hydrocarbon 0.945162708 99% 5% 0% 100%
structure 1.000555944 99% 2% 0% 100%
Reservoir 1.040051753 90% 10% 0% 100%
Seal 0.955840839 100% 2% 0% 100%
NetProducingwellProb. 0.940131245

PRODUCTIONRISK
1 IP: Theinitialproductionratetestedfromthedrilledwell.
2 Anexponentiallydecliningproductionratethatdescribestheannualdecreaseinproductionfromthebeginningofthe
yeartotheendofthesameyear.ProductionratesinBOPDforourmodelarecalculatedby:
Decline
rate:

Mean Stdev
Price/BBI $51.06 53.75 24.67
DeclineRate 21.50%

Mean Stdev Min Max
DrillingCost 1,345,142 $ 1350000 200000 0 100 Lognormaldistribution
CompletionCost 290,097 $ 35000 0 100 NormalDistribution
ProfessionalOverhead 219,791 $ 30000 0 100 NormalDistribution
LeaseCosts/Well 550,000 $
SeismicCosts/Well 90,000 $
Total 2,495,029 $
Distribution
0 1 2 3 4 5 6 7 8 9 10
BOPD 442 347 272 214 168 132 103 81 64 50 39
NetBBLS/yr 143,987 113,030 88,728 69,652 54,677 42,921 33,693 26,449 20,763 16,299
Price/BBI $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00
NetRevenueInterest 77.4% 77.4% 77.4% 77.4% 77.4% 77.4% 77.4% 77.4% 77.4% 77.4% 77.4%
REVENUE 11,144,596 8,748,508 6,867,579 5,391,049 4,231,974 3,322,099 2,607,848 2,047,161 1,607,021 1,261,512
OperatingCosts($/Barre $7.20 (1,036,707) (813,815) (638,845) (501,493) (393,672) (309,032) (242,591) (190,434) (149,490) (117,350)
Severancetaxes($) 6.00% (668,676) (524,910) (412,055) (323,463) (253,918) (199,326) (156,471) (122,830) (96,421) (75,691)
NetSales 9,439,213 $ 7,409,783 $ 5,816,679 $ 4,566,093 $ 3,584,383 $ 2,813,741 $ 2,208,787 $ 1,733,897 $ 1,361,109 $ 1,068,471 $
EndOfYear

Year Cashflow
0 (2,495,029) $
1 4,312,298 $
2 3,385,154 $
3 2,657,346 $
4 2,086,017 $
5 1,637,523 $
6 1,285,456 $
7 1,009,083 $
8 792,130 $
9 621,822 $
10 488,130 $
NPV $10,195,379.40

103
FINANCIALEXHIBIT12
EXXONMOBILDISCOUNTEDCASHFLOWVALUATION

Financial Exhibit 12A: Discounted Cash Flow Valuation for ExxonMobil Prior to Strategic Move (As Of 31 Dec 2010)
Discounted Cash Flows Model (Prior to Strategic Move)
($ in millions)
Base TV
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 - Inf
Revenue $383,221 $490,906 $519,870 $549,444 $579,542 $610,064 $639,957 $668,883 $696,575 $722,766 $747,196
Adj. Op Income 29,250 $37,469 $39,680 $41,937 $44,234 $46,564 $48,845 $51,053 $53,167 $55,166 $57,031
Less: Net CAP EX 18,695 $19,817 $21,006 $22,056 $23,159 $24,317 $25,290 $26,302 $27,354 $28,174 $28,738
FCF 10,554 $17,652 $18,673 $19,880 $21,075 $22,247 $23,556 $24,752 $25,813 $26,992 $28,293 $539,660
Timing of CF 1 2 3 4 5 6 7 8 9 10 10
Discount Factor 0.92 0.85 0.79 0.72 0.67 0.62 0.57 0.52 0.48 0.45 0.45
Discounted FCF $16,284 $15,892 $15,608 $15,263 $14,863 $14,518 $14,073 $13,540 $13,061 $12,629 $240,895
PV of Cash Flows $145,731
PV of Terminal Valu $240,895
Enterprise Value $386,626
Free Cash Flow
$ (in Millions)
Free Cash Flow
Component Current Year Stage 1 (XOM) 5.90%
NOPAT 29,250 Op. Exp. Net Capex Stage 2 (Indstry) 5.90%
Net CAPEX 18,695 7.6% 4.9% TV (GDP) 3.00%
Free Cash Flow 10,554
WACC 8.40%
Revenue Growth Projections
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
28.10% 5.90% 5.69% 5.48% 5.27% 4.90% 4.52% 4.14% 3.76% 3.38% 3.00%
Sensitivity Analysis of ExxonMobil's Enterprise Value
$386,626 7.75% 7.90% 8.40% 8.67% 8.90%
2.00% 441,283 427,377 386,626 367,624 352,815
3.00% 441,283 427,377 386,626 367,624 352,815
5.90% 441,283 427,377 386,626 367,624 352,815
15.00% 441,283 427,377 386,626 367,624 352,815
28.00% 441,283 427,377 386,626 367,624 352,815
Growth by Stage
Stage 1 Stage 2
WACC
Stage 1 Growth
Rate
Percentages
Stage 1 Growth Stage 2 Growth
Terminal
Value

104
Financial Exhibit 12B: Discounted Cash Flow Valuation Scenario 1
Value Enhancing Synergies
Revenue Enhancement -2%
Add Inc/Dec in CAP EX 2%
Cost Reductions -1%
($ in thousands)
Base TV
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 - Inf
Revenue
ExxonMobil $383,221 $490,906 $519,870 $549,444 $579,542 $610,064 $639,957 $668,883 $696,575 $722,766 $747,196
Rec. Enhancement $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Revenue Enhancement Synergy
Add'l from Recomm. ($9,818) ($10,397) ($10,989) ($11,591) ($12,201) ($12,799) ($13,378) ($13,932) ($14,455) ($14,944)
$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Cost Reduction Synergy ($2,168) ($2,296) ($2,427) ($2,560) ($2,695) ($2,827) ($2,954) ($3,077) ($3,192) ($3,300)
Total Operating Expenses $169,271 $216,836 $229,629 $242,692 $255,986 $269,468 $282,672 $295,449 $307,681 $319,249 $330,040
OpEx as %of Revenue 44% 44% 44% 44% 44% 44% 44% 44% 44% 44% 44%
New Revenue $383,221 $478,920 $507,176 $536,029 $565,391 $595,168 $624,332 $652,551 $679,567 $705,119 $728,952
Adj. Op Income 29,250 36,554 38,711 40,913 43,154 45,427 47,653 49,807 51,869 53,819 55,638
Less: Net CAP EX 18,695 20,213 21,426 22,498 23,622 24,804 25,796 26,828 27,901 28,738 29,312
Baseline Net CAP EX 18,695 19,817 21,006 22,056 23,159 24,317 25,290 26,302 27,354 28,174 28,738
Add. Inc/Dec in CAP EX - 396 420 441 463 486 506 526 547 563 575
FCF 10,554 16,341 17,284 18,415 19,532 20,623 21,857 22,979 23,968 25,081 26,326 $502,136
Timing of CF 1 2 3 4 5 6 7 8 9 10 10
Discount Factor 0.92 0.85 0.79 0.72 0.67 0.62 0.57 0.52 0.48 0.45 0.45
Discounted FCF $15,074 $14,709 $14,457 $14,146 $13,779 $13,471 $13,066 $12,572 $12,136 $11,751 $224,145
PV of Cash Flows $135,162
PV of Terminal Value $224,145
Enterprise Value $359,307
Free Cash Flow
$ (in Millions)
Free Cash Flow Component Current Year Stage 1 (XOM) 5.90%
NOPAT 29,250 Op. Exp. Net Capex Stage 2 (Indstry) 4.90%
Net CAPEX 18,695 7.6% 4.9% TV (GDP) 3.00%
Free Cash Flow 10,554
WACC 8.40%
Revenue Growth Projections
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
28.10% 5.90% 5.69% 5.48% 5.27% 4.90% 4.52% 4.14% 3.76% 3.38% 3.00%
Terminal
Value
Stage 1 Stage 2
Growth by Stage
Percentages
Stage 1 Growth Stage 2 Growth



105
Financial Exhibit 12C: Discounted Cash Flow Valuation Scenario 5

Revenue Enhancement Synergies

Revenue Enhancement 5%
Add Inc/Dec in CAP EX 2%
Cost Reductions 2%
($ in thousands)
Base TV
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 - Inf
Revenue
ExxonMobil $383,221 $490,906 $530,179 $562,519 $590,083 $617,817 $648,090 $677,384 $705,427 $731,951 $756,691
Rec. Enhancement $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Revenue Enhancement Synergy
Add'l from Recomm. $24,545 $26,509 $28,126 $29,504 $30,891 $32,404 $33,869 $35,271 $36,598 $37,835
$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Cost Reduction Synergy $4,337 $4,684 $4,969 $5,213 $5,458 $5,725 $5,984 $6,232 $6,466 $6,685
Total Operating Expenses $169,271 $216,836 $234,182 $248,468 $260,643 $272,893 $286,264 $299,204 $311,591 $323,306 $334,234
OpEx as %of Revenue 44% 44% 44% 44% 44% 44% 44% 44% 44% 44% 44%
New Revenue $383,221 $519,788 $561,371 $595,615 $624,800 $654,166 $686,220 $717,237 $746,930 $775,015 $801,210
Adj. Op Income 29,250 39,673 42,847 45,461 47,689 49,930 52,376 54,744 57,010 59,154 61,153
Less: Net CAP EX 18,695 20,213 21,426 22,498 23,622 24,804 25,796 26,828 27,901 28,738 29,312
Baseline Net CAP EX 18,695 19,817 21,006 22,056 23,159 24,317 25,290 26,302 27,354 28,174 28,738
Add. Inc/Dec in CAP EX - 396 420 441 463 486 506 526 547 563 575
FCF 10,554 19,460 21,421 22,963 24,066 25,126 26,581 27,916 29,110 30,416 31,841 $607,334
Timing of CF 1 2 3 4 5 6 7 8 9 10 10
Discount Factor 0.92 0.85 0.79 0.72 0.67 0.62 0.57 0.52 0.48 0.45 0.45
Discounted FCF $17,952 $18,230 $18,028 $17,430 $16,787 $16,383 $15,873 $15,269 $14,718 $14,213 $271,103
PV of Cash Flows $164,882
PV of Terminal Value $271,103
Enterprise Value $435,985
Free Cash Flow
$ (in Millions)
Free Cash Flow Component Current Year Stage 1 (XOM) 5.90%
NOPAT 29,250 Op. Exp. Net Capex Stage 2 (Indstry) 4.90%
Net CAPEX 18,695 7.6% 4.9% TV (GDP) 3.00%
Free Cash Flow 10,554
WACC 8.40%
Revenue Growth Projections
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
28.10% 8.00% 6.10% 4.90% 4.70% 4.90% 4.52% 4.14% 3.76% 3.38% 3.00%
Terminal
Value
Stage 1 Stage 2
Growth by Stage
Percentages
Stage 1 Growth Stage 2 Growth

106

Financial Exhibit 13: Sensitivity Analysis

LOW HIGH LOW HIGH LOW HIGH

331,843 $ 338,547 $ 299,049 $ 314,625 $ 354,469 $ 372,371 $
179,746 $ 183,377 $ 163,671 $ 170,420 $ 192,002 $ 199,759 $
32,499 $ 33,156 $ 28,677 $ 31,423 $ 34,014 $ 37,169 $
32,152 $ 32,801 $ 29,880 $ 31,691 $ 33,997 $ 35,385 $
23,348 $ 23,820 $ 21,699 $ 23,233 $ 24,940 $ 25,444 $
13,332 $ 13,601 $ 12,015 $ 12,640 $ 14,097 $ 14,529 $
11,483 $ 11,715 $ 10,564 $ 10,887 $ 12,266 $ 12,514 $
PERCENTAGE OF REVENUE
WACC
Net Capex
SG&A
GDP
Manufacturing Expenses
SCENARIO # 2
CATEGORY
VALUATION (in million)
Operating Revenue
COGS
Manufacturing Expenses
SCENARIO: BASE LINE
CATEGORY
VALUATION (in million)
COGS
Operating Revenue
WACC
SG&A
GDP
Net Capex
PERCENTAGE OF REVENUE PERCENTAGE OF REVENUE
Operating Revenue
SCENARIO # 1
CATEGORY
VALUATION (in million)
COGS
WACC
SG&A
GDP
Net Capex
Manufacturing Expenses

107

LOW HIGH LOW HIGH LOW HIGH

317,110 $ 333,626 $ 299,823 $ 318,759 $ 374,208 $ 408,227 $
173,555 $ 180,712 $ 162,402 $ 172,659 $ 202,694 $ 221,120 $
30,409 $ 33,321 $ 28,127 $ 32,145 $ 35,908 $ 41,090 $
31,364 $ 32,645 $ 30,273 $ 31,802 $ 36,257 $ 38,088 $
23,009 $ 23,474 $ 21,984 $ 23,094 $ 26,329 $ 27,659 $
13,006 $ 13,404 $ 12,426 $ 12,933 $ 15,034 $ 15,945 $
11,316 $ 11,544 $ 10,812 $ 11,030 $ 12,949 $ 13,472 $
PERCENTAGE OF REVENUE
Manufacturing Expenses
WACC
Net Capex
SG&A
GDP
SCENARIO # 5
CATEGORY
VALUATION (in million)
Operating Revenue
COGS
SCENARIO # 4
CATEGORY
VALUATION (in million)
Operating Revenue
COGS
Manufacturing Expenses
WACC
Net Capex
SG&A
GDP
PERCENTAGE OF REVENUE PERCENTAGE OF REVENUE
Operating Revenue
COGS
Manufacturing Expenses
SCENARIO # 3
CATEGORY
VALUATION (in million)
WACC
Net Capex
SG&A
GDP

108
9. GlossaryofTerms
BOE: Barrel of Oil Equivalent. It is a unit on energy based on the approximate energy released
by burning one barrel (42 US gallons or 158.987 liters) of crude oil.
BOEB: Barrels of Oil Equivalent in Billions
BTU: British Thermal Unit. This is the amount of heat required to increase the temperature
of one pound of water by one degree Fahrenheit.
Downstream: Refers to oil and gas operations after the production phase and through to the
point of sale, whether at the gas pump or the home heating oil truck.
Dry hole: A well that is drilled but does not produce oil or gas in commercially worthwhile
amounts
EIA: US Energy Information Administration. It collects, analyzes, and disseminates independent
and impartial energy information to promote sound policymaking, efficient markets, and public
understanding of energy and its interaction with the economy and the environment.
Fracking: It is the process of initiating, and subsequently propagating a fracture in a rock layer,
employing the pressure of a fluid as the source of energy.
Heavy crude: It is any type of crude oil which does not flow easily.
Light crude: is liquid petroleum that has a low density and flows freely at room temperature
Light Sweet Crude: Petroleum is considered "sweet" if it contains less than
0.5% sulfur compared to a higher level of sulfur in sour crude oil.
OECD: The OECD (Organization for Economic Co-operation and Development) is an
international organization of countries with highly developed economies and democratic
governments.
Oil sands: They are a type of unconventional petroleum deposit. The sands contain naturally
occurring mixtures of sand, clay, water, and a dense and extremely viscous form of petroleum
technically referred to as bitumen.
OPEC: The Organization of Petroleum Exporting Countries is an intergovernmental
organization dedicated to the stability and prosperity of the petroleum market. OPEC
membership is open to any country that is a substantial exporter of oil and that shares the ideals
of the organization. OPEC has 11 member countries.

109
Proven Reserves: Quantity of energy sources estimated with reasonable certainty, from the
analysis of geologic and engineering data, to be recoverable from well established or known
reservoirs with the existing equipment and under the existing operating conditions.
Reserve: Reserves are those quantities of petroleum claimed to be commercially recoverable by
application of development projects to known accumulations under defined conditions
Reserve Replacement Ratio: The reserve-replacement ratio measures the amount of proved
reserves added to a company's reserve base during the year relative to the amount of oil and gas
produced.
Seven Sisters: The "Seven Sisters" was a term coined in the 1950s by Italian businessman
Enrico Mattei to describe the seven oil companies which formed the "Consortium for Iran" and
dominated the global petroleum industry from the mid-1940s to the 1970s. The group comprised
Standard Oil of New J ersey and Standard Oil Company of New York (now ExxonMobil);
Standard Oil of California, Gulf Oil and Texaco (now Chevron); Royal Dutch Shell; and Anglo-
Persian Oil Company (now BP).
In 1973 the members of the Seven Sisters controlled 85% of the world's petroleum reserves but
in recent decades the dominance of them and their successor companies has been challenged by
the increasing influence of the OPEC cartel and of state-owned oil companies in emerging-
market economies.
Shale rocks: Oil Shale. It is an organic-rich fine-grained sedimentary rock, contains significant
amounts of kerogen (a solid mixture of organic chemical compounds) from which liquid
hydrocarbons called shale oil can be produced. Shale oil is a substitute for conventional crude oil
Supermajor: This name commonly is used to describe the world's five (and sometimes six)
largest publicly owned oil and gas companies
Upstream: The grass root of the oil business, Upstream refers to the exploration and production
of oil and gas.

110
10. ENDNOTES

1
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http://online.wsj.com/article/SB10001424052748704132204576190373346589058.html.
2
Gold, Russell. Exxon tilts to oil again. Wall Street J ournal, Mar 10, 2011.
3
Casselman, Ben. Facing Up to End of 'Easy Oil'. Wall Street J ournal. Appeared on 24-May 2011.
4
Soane, Paul. Retired ExxonMobil UpstreamExecutive. Interview by ExxonMobil capstone team member, Kannan. On May 01,
2011.
5
Petrostrategies. Oil & Gas Value Chains 2011-27-April. Petrostratgies.
http://www.petrostrategies.org/Learning_Center/oil_and_gas_value_chains.htm
6
Molavi, J ustin. 32411 Petroleum Refining industry in the U.S. Industry Analysis Report. April 2011.
IBISWorld Industry Report 21111- Oil Drilling & Gas Extraction in the US. March 2011.
7
Bueno, Brian. Metal Pipe and Tube Manufacturing in the US. 2011 April . Mining Support in the US. dec 2010.
8
Hamilton, Taylor. Pump and compressor manufacturing in the US. march 2011 - IBISWorld. IBISWorld. IBISWorld
Industry Report 21111 2011 March: 10-11.
9
Freudenrich, Craig C. How oil drilling works. 2001 12-april. 2011 29-april http://www.encapgroup.com/drilling/
10
rigzone. offshore rig day rates. 2011 29-april http://www.rigzone.com/data/dayrates/
11
Newell, Richard. Annual Enery Outlook 2011. 2010 16-December. www.eia.gov. 2011 29-April
http://www.eia.gov/neic/speeches/newell_12162010.pdf
12
Pusenkova, Nina Nikolayevna. Nezavisimaya. 2008 16-01. 2011 27-05 http://en.ng.ru/energy/2008-01-16/5_oilcomp.html
13
Gotaas, Mary. Petrochemical Manufacturing in the US. Industry Report. february 2011.
Petrochemical Manufacturing in the US. IBISWorld Industry Report 32511. 2011.
14
U.S. Energy Information Administration. Natural Gas Navigator. 2011 29-March. U.S. Energy Information Administration
Independent statistics and analysis. 2011 15-April http://www.eia.doe.gov/dnav/ng/hist/n3050us3a.htm
15
International Energy Agency. Annual Statistical Supplement. 2009. omrpublic.iea.org. 2011 29-april
http://omrpublic.iea.org/omrarchive/sup2010.pdf.
16
ExxonMobil. 2010 The Outlook for Energy: A view to 2030. wwww.exxonmobil.com. 2011 23-may
http://www.exxonmobil.com/corporate/files/news_pub_eo_2010.pdf
17
Slocum, Tyson. No Competition: Oil Industry Mergers provide higher profits, leave consumers with fewer choices. 2001 31-
may. www.ftc.gov. 2011 27-may http://www.ftc.gov/bc/gasconf/comments/report53001.PDF
18
Sanati, Cyrus. What China Seeks in Chesapeake Shale Deal. 2010 11-october. 2011 21-april
http://dealbook.nytimes.com/2010/10/11/what-china-seeks-in-chesapeake-shale-deal/
19
Cohen, Bernard L. The nuclear energy option. 1990. university of pittsburg. 2011 25-may
http://www.phyast.pitt.edu/~blc/book/chapter3.html
20
Golden and Austin. The need to be clean. 2011 12-may. 2011 27-may http://www.economist.com/node/18682288
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