ExxonMobil is enormous by any measuring stick: revenues of $400 billion, profits of $32 billion, 75,000+ employees, production of 4 million oil-equivalent barrels (BOE) per day, and reserves base of more than 92 billion BOE (1). With a colorful 145 year history dating back to Rockefeller’s Standard Oil, how has ExxonMobil managed to last so long? I argue that it has been to a regimented operating model that complements its business model.
ExxonMobil is the world’s largest publicly traded international oil and gas company. The oil and gas industry is not for the faint of heart. Spending $200 million to drill a 6″ hole in the ground multiple miles underground in hopes of penetrating an elusive reserve of oil. Then, spending billions of dollars over 10 years to design and build a facility to get the oil out of the ground. It is extremely capitally intensive, and returns need a long time horizon.
Its business model is an integrated oil and gas company designed to meet long-term global energy and petrochemical demand with a disciplined approach and long-term planning basis. The integrated value chain goes from exploration for resources to commercialization of the commodity products. ExxonMobil divisions include (2):
- Exploration: finds new oil and gas reserves
- Development: designs and builds major capital projects to extract the oil and gas
- Production: operates and manages the extraction of the oil and gas
- Downstream: refines crude oil and natural gas raw material into fuels and other products
- Chemicals: manufactures chemical products
The company is able to create value throughout the value chain by turning undiscovered resources into valuable commodities used globally from fuel for transportation to plastics for water bottles.
ExxonMobil relies on disciplined investing, a balanced portfolio, and robust management systems to balance the capital intensity industry with long term value creation. It invests systematically in Upstream, Downstream, and Chemicals, regardless of current market environments, to ensure long term value creation. The time horizon is typically decades and enables ExxonMobil to capture value during cyclical times where other companies cannot.
The balanced portfolio consists of diversification in each of the three business units. It has successfully replaced the reserves it consumed for 21 straight years; without new resources the company can not be sustainable in the long run (3). It consistently spends $20 billion+ annually on new capital investments to enable production of these resources (4). It maintains and upgrades the midstream and downstream operations to turn the raw material into marketable commodities such as gasoline, lubricants, plastics, and chemicals. Even within the business units, it has major balance. The size, location, and type of resources, projects, and assets enables economies of scale and flexibility.
ExxonMobil brings all of this together with rigorous management systems. These systems allow for consistent expectations worldwide across the balanced portfolio to maintain standards, maximize value, and enhance efficiency. A pillar of these systems is a disciplined management framework called Operations Integrity Management System (OIMS).
OIMS starts with and is driven by the Management and Leadership within the company. It then sets a framework for the entire business from risk management, facilities design, personnel, maintenance, and management of change. These operations are then evaluated through assessments and further improved. OIMS establishes the basis for ExxonMobil’s Capital Project Management System to ensure that projects deliver assets that achieve commercial success through meeting safety, quality, cost and schedule requirements (5).
ExxonMobil strong operations that are guided by a fundamental business model consistently deliver value to the corporation, and ultimately, its shareholders. It is a leader in using rigorous management systems along with disciplined investing and a balanced portfolio to find and create usable energy. Whether it is oil, gas, nuclear, solar, or new energy source, I believe ExxonMobil will continue to champion products that meet the global energy demand.
- EXXON MOBIL CORPORATION Form 10-K. Google Finance. March 21, 2015.
- Investor Toolkit: Business Model and Competitive Advantages. Investor Relations. ExxonMobil. Accessed 05 Dec 2015.
- “ExxonMobil 2014 Reserves Replacement Totals 104 Percent.” ExxonMobil news release. 23 Feb 2015.
- 2014 Financial and Operating Review. ExxonMobil.
- Operations Integrity Management Systems. ExxxonMobil. Accessed 05 Dec 2015.
- 2007 Financial and Operating Review. ExxonMobil.