Exxon Mobil (XOM) Financial Analysis
In the Sub-Industry of Integrated Oil and Gas, consumers are relatively price sensitive
due to the nature of the market. High-energy prices decrease consumers’ purchasing
power and force budget-conscious consumers to change their habits to reduce oil use.
Although many corporations cannot limit their use of energy, they are also trying to
minimize their cost by using energy efficient products since the days of cheap gasoline
are over, according to Standard & Poor’s (S&P), and that prices are likely to increase
over the long term (Pg.3).
In facing the rapid increase of oil prices, Exxon Mobil (XOM), the world’s largest
publicly held corporation, saw a 2.4% decline in oil production from year 2006 to 2007.
This is due to the production limits set by Organization of Petroleum Exporting
Countries (OPEC) where Exxon Mobil operates. In response to the decline in
production, Exxon has decided to get out of the retail gasoline business and sell their
low-margin stations to gasoline distributors. About 75% of Exxon Mobil's, roughly
12,000 stations in the U.S., are owned by branded distributors, who buy Exxon Mobil
products and pay to use the name (Exxon Sells US Gas Stations to Distributors).
Similar to that of Exxon Mobil, the oil production of Chevron (CVX), the world’s fifth
largest non-governmental oil company, is also affected by the high-energy prices. Its
oil output fell to the lowest level since 2005 due to the reduction of its share of output
in countries like Nigeria and Indonesia. As a consequence, Chevron must increase
output by 190,000 barrels a day, or 7.5 percent, for the rest of this year to meet its 2008
production target of 2.65 million barrels a day (
Chevron Reports Oil Output Slips
As the global demand for energy continues to grow rapidly, local demand tends to
decline as a result of high prices and a slowing U.S. economy. As of July 2008, Energy
Information Administration (EIA) projected that U.S. gasoline demand would decline
about 0.97% in 2008 and 0.11% in 2009, versus growth of 0.65% in 2007. The EIA
also estimated that U.S. distillate demand would decline 1.66% in 2008 and remain near
this level in 2009, versus a gain of 1.68% in 2007 (S&P Pg.8). Additionally, the demand
growth over the next five years in the Organization for Economic Co-operation and
Development (OECD) countries is expected to rise only slightly, and this oil demand