Research Paper On Exxon Mobile Corporation Analysis

Type of paper: Research Paper

Topic: Company, Market, Oil, Industry, Business, Gas, Products, Demand

Pages: 8

Words: 2200

Published: 2020/11/22

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Abstract

Industry factors are crucial in determining an organization’s operations, strategies and performance. In that respect, the analysis sought to demonstrate the factors’ operations with reference to Exxon Mobil as a firm in Oil and gas industry. The analysis focused on analyzing factors such as supply and demand effects, production costs, elasticity, market structure, competitive advantage as well as the company’s market share.
EXXON Mobil has been identified as a leading corporation in the oil and gas industry and has operations across the globe. The company’s products include crude oil and gas as well as related products. The Company’s products have an inelastic demand, and the production cost is high in the UR region compared to other production regions. Further, the company has been found to have a leading share in terms of reserves and sales compared to its direct competitors. The competitive advantage driving the company’s performance have been identified as advanced technology’s application and its global network that enhances market reach.
In terms of market structure, the oil and gas industry has been classified as an oligopolistic market that have few and dominant firms. In addition, the market has been identified to have substitutes that are gaining ground as consumers seek for alternative energy sources. Finally, the market has been identified to have entry barriers hence the existing firms being protected from new entrants’ threat. In view of the industry and the firm’s position, recommendations have been made for the company to focus its operations on emerging markets and exploration of alternative energy sources.

Introduction

Industry operations are subject to various factors that influence individual firm’s operations. Such factors include market structure, the cost factor, competition, and substitutes all which determine a firm’s performance, as well as its relative competitiveness. In that respect, the analysis seeks to demonstrate an industry’s operations with reference to a firm. To achieve the objective, the analysis refers to the Oil and Gas industry and uses the case of Exxon Mobil. The company’s overview is provided including identification of its products and production costs. Further, the report presents an explanation of the product’s elasticity, the company’s markets share and competitive advantage. In addition, there is a description of industry’s market structure, substitute products as well as possible market entry barriers.

Analysis

Exxon Mobil Overview
Exxon Corporation Company was founded in 1870 and has its headquarters in Texas. It produced and explored natural gas and crude oil and had approximately 31823 net and 37661 gross operated wells by December 2013. . It also manufactures as well as markets petrochemical commodities including aromatics, olefins, and polyethylene and specialty products. The Company also has an interest in electric power generation facilities. Its operations are in US, Europe, Africa, Asia, South America and Australia. (Yahoo Finance, 2015a)

Supply and demand conditions impact on the firm in recent years

In the past decade, the emerging economies including the BRIC 9Brazil, Russia, India, and China) have been great drivers of energy demand. In addition, the recovering demand as well as the increasing petroleum prices, there has been an increase in the Company’s profit margins that is also anticipated to continue in the future. The demand is also credited with increasing industry employment and the consequent increase in production over the past five years top the year 2014. (Exxon, 2013)
On the other hand, oils production and supply reflects a geographical distribution pattern for the accessible gas and oil resources. The region's production importance varies over time as reserves as reserves are discovered, and others depleted. However, some regions like the US and Middle East has accounted for bulk gas and oil production over a long period. Middle East has been the dominant in oil and gas production accounting for about 34.5% of the global production in the year 2014. The region also has the world’s largest oil reserves. In that view, the Company’s operations in US where it has significant reserves have been key to enhancing production hence its sustainable performance over time. (IBISWorld, 2015)
However, the industry’s supply and demand aspects have dramatically shifted over time with the industry forecast being different today from the past look. That owes to the change in the industry’s fundamentals such as the traditional structural discipline that has been replaced by an imbalance in high supply and receding growth in demand. The cause of the receding demand has been the global economic weakness and the tougher energy and fuel regulations in addition to increased search for alternative energy sources. (PWC, 2015)That is the cause of the company’s increased R&D costs and operations as it seeks more efficiency production means as well as venture into alternative energy such as Shale gas exploration. (Exxon, 2013)

Price elasticity of demand for Exxon’s products

The oil and gas products have an inelastic price elasticity of demand. That is marked by relatively less proportionate change in demand given a change in the product’s price. That owes to the product’s importance to the market as well as the great market control by the producers. In addition, there are no close substitutes that can effectively substitute for the products. Thus, consumers have limited alternatives hence the inelasticity for the Company’s products that enables it increases product prices without significant adverse effect on its revenues. (Exxon, 2013)
The partial rebound in prices after the global recession and lack of significant demand decrease demonstrated that in oil prices increase do not result in a significant decrease in demand as was also experienced in early 2015. The rebound followed a 60% crash in June 2014 and suggested that the industry participants have grown confident that the producers spending cuts would lead to the market recovery. Thus, the company’s products have an inelastic price elasticity of demand as the period has not been marked by significant demand shift that can be associated with the price change. (IEA, 2015)
However, the products have an elastic price elasticity of supply given the significant shift in supply that results from the price change. That had been marked by the steep drop in the US rig count when the market experienced a price decrease. That can also be attributed to the market power that the producers have and their ability to vary supply given the market price and conditions. (IEA, 2015)

Costs of production for the firm.

The upstream costs present a good measure of producing oil and gas products. The costs include the finding and lifting costs with lifting costs being those that involve operating and maintaining gas and oil wells as well as related equipments that bring gas and oil to the surface. On the other hand, the finding costs are those associated with developing and exploring reserves of gas and oil as well as the costs of purchasing properties or leasing properties that might have gas and oil reserves. (IEA, 2015b) The industry estimates the costs and variation depending on the Company’s operations, and locations are as shown in the following table.

Source: (IEA, 2015b)

The table shows that production costs are high in the US compared to other regions. In that respect, the company’s operations that are mainly in US are high-cost operations hence the company requires reconsidering its key operation locations. That would entail seeking for reserves elsewhere to reduce reliance on the US reserves.

Firm’s primary competitive advantage

The industry is competitive as there are significantly large producers as well as other competing energy sources that supply the market for chemical and fuels needs to both individual and industrial customers. In that view, Exxon competes with other organizations in purchase or sale of the industry goods and services in international and local markets. (Exxon, 2013) Thus, the company employs various competitive strategies that offer it advantage relative to the competitors. The strategies include resource planning, technology application as well as supply chain management. In addition, the Company’s strength in global operations allows it to explore for oil and gas across all geographical, and geological environments enabled by its industry-leading capabilities and technologies. (Exxon, 2015a)

Source: (Yahoo Finance, 2015b)

In view of the table figures, the company is highly competitive relative to its competitors gave its size in terms of market capitalization, revenues as well as operating margin and Net income. (Yahoo Finance, 2015b)

Entry barriers for firms in the industry

Being a highly competitive industry, the oil and gas industry have its dominant firms applying strategic measure to enhance their competitiveness and protect their market share and power. In that respect, the industry is marked by high entry barriers that protect existing firms. Such barriers are summarized as follows.
Licensing: The industry is highly regulated owing to its significance to economic operations as well as due to its operations sensitivity. Thus, there are stringent requirements for entrants that discourage potential businesses.
Economies of scale: The existing firms’ market power and large scale operations lowers their average cost hence making it less attractive for new entrants who would have to invest heavily in the industry before achieving the existing firms average cost levels.
High cost: The high cost of equipments, exploration, and other operations discourages new entrants as they require a lot of funds to begin and sustain operations in the industry.
Advanced technology: Existing firms depend on advanced technology and skills to enhance operations, as well as Research and Development. The requirement discourages potential entrants who could have limited industry knowledge or the necessary technology.
Key resource ownership: Then existing firms have a significant control of the available oil and gas resources hence new firms could have challenges accessing the resources for their operations.
Predatory pricing: The industry is marked by predatory pricing and operations the dominant firms collude to determine market rice. That could discourage new entrants as they could suffer losses if the firms colluded to lower the market price given their low production costs. (Exxon, 2013)

Substitutes are available for your product

Alternative sources of energy are substituted for the Company’s products that include crude oil and products. Those substitutes include wind power, solar energy, oil sands, coal mine methane, nuclear energy as well as geothermal energy and hydrogen fuel cells. In addition, shale gas is becoming a significant source of energy hence being a key substitute for crude oil and gas. However, crude oil has been the key source of energy for a long time, and the substitutes do not count as major sources of energy. In that respect, the substitutes do not present significant competition to the oil and gas industry. However, given the substitutes qualities of providing clean and more efficient energy source, they are gaining ground and may present a threat to the crude oil producers in the future. (PWC, 2015)

The firm’s market share in the industry

Exxon Mobil is the leading as well as the largest oil and gas Company that is publicly traded. The Company’s markets share is marked by its gas and oil reserves inventory as well as sales. It is also the world’s largest marketer and refiner of petroleum products. Further, its chemical business ranks as the world’ leader. That is enabled by its application of innovation and science in finding safer, better and cleaner ways of delivering energy to consumers. (Exxon, 2013)

Industry’s market structure

The industry is marked by few large firms that control oils and gas reserves hence being the major producers and sellers of the industry products. In that respect, the few firms have significant control over the market supply of oil and gas products. Thus, the industry can be classified as an oligopolistic market. That owes to the high concentration and dominance with other small firms that do not have control over the industry dynamics. The major firms include Exxon Mobil, BP, and Chevron. The few firms’ dominance is enhanced by the firms’ operations that are structured to include operations across the supply chain. That entails the firms being the explorers, producers, marketers and distributors of their products. (Barron & Lynch, 1989)

Recommendations based on the firm’s characteristics and prediction of their future.

Given the industry’s stiff competition, it is crucial for the Company to evaluate its portfolio and ensure that its operations are efficient and utilizes its core strengths while addressing possible weaknesses and market threats. Such strategies could also include consolidating the company’s key assets as a way of meeting market demand and improving its margins.
In addition, the continued shrink of key markets such as Europe and North America requires the business to look up for more markets. That can be addressed by venturing in the emerging markets where energy demand is increasing. That will also require the company to enhance its operations efficiency and lower production costs as a means of competing with the Middle East based producers who presents fierce competition for the Asian and other emerging markets. (PWC, 2015)
Thus, the company’s future growth is expected to come from the increasing global demand for energy. That owes to the expected increase in populations well as rising GDP in the developing countries. Further, there is broadening middle class that is expected to increase energy demand. In addition, the company is expected to gain from the advanced technologies efficiency. Finally, although the renewable energy is increasingly being adopted in the global market, the crude oil popularity is expected to continue in the foreseeable future. However, the company needs to address the threat in the long-run as the alternative energy’s demand is expected to grow by 6% per year compared to 2% for crude oil. (PWC, 2015)

Conclusion

In view of the analysis, Exxon Mobil Corporation is a leading producer and seller of crude oil products. The Company has also been identified to have operations across the globe as well as holding significant share of oil reserves. In that view and considering its technology, as well as Research and Development strategies, , Exxon is highly competitive compared to the other firms within the industry. It is further noted that the company’s and the existing firms are protected from new entrants’ threat by various barriers to the markets entry. In respect to the product’s elasticity, it has been identified that crude oil and its products has an inelastic demand and elastic supply. That owes to the lack of close substitutes as well as the Oligopolistic market structure that gives few firms the power to determine supply quantity. Finally, the market trends that include increasing search for alternative energy sources, possible new entries with advanced technology and decrease in reserves requires the company to enhance its competitiveness by venturing to explore alternative energy sources. In addition, the firm should embrace more integrated operations to increase its market reach and enhance its supply chain to increase competitiveness and sustain its leading industry position.

References

Exxon Mobil. (2013). Summary Annual Report Retrieved from, 2013.
http://cdn.exxonmobil.com/en/shareholder-archive/~/media/Reports/Summary%20Annual%20Report/2013_ExxonMobil_Summary_Annual_Report.pdf
Exxon Mobil. (2015). Exploration. Retrieved from,
http://corporate.exxonmobil.com/en/engineering/exploration
IBISWorld. (2015). Global Gas & Oil Exploration & Production: Market Research Report.
Retrieved from, http://www.ibisworld.com/industry/global/global-oil-gas-exploration-production.html
IEA. (2015a). World Oil Demand: Highlights. Retrieved from,
https://www.iea.org/oilmarketreport/omrpublic/
IEA. (2015b). Frequently Asked Questions. Retrieved from,
http://www.eia.gov/tools/faqs/faq.cfm?id=367&t=5
PWC. (2015). 2015 Oil and Gas Trends: Supply and Demand.Retrieved from,
http://www.strategyand.pwc.com/perspectives/2015-oil-gas-trends
Yahoo Finance. (2015a). Exxon Mobil Corporation Profile. Retrieved from,
https://finance.yahoo.com/q/pr?s=XOM+Profile
Yahoo Finance. (2015b). Exxon Mobil Corporation Competitors. Retrieved from,
https://finance.yahoo.com/q?s=XOM

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