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Integrated Oil Companies

Exxon Mobil. Integrated Oil Companies. Industry Overview and Analysis. Petroleum Industry structure: 5 sectors of operations (Upstream, downstream, marine, pipeline, and service/supply) Extremely high barriers to entry allowing for sustainable profits in the long run

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Integrated Oil Companies

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  1. Exxon Mobil Integrated Oil Companies

  2. Industry Overview and Analysis • Petroleum Industry structure: • 5 sectors of operations (Upstream, downstream, marine, pipeline, and service/supply) • Extremely high barriers to entry allowing for sustainable profits in the long run • Major Supply of oil is controlled by a cartel regime (OPEC) • Economic market form is close to Oligopoly • Few large sellers dominate industry • High barriers to entry, competitors cannot enter to reduce profits of participating firms • Standardized product • Oil and Gas industry is described well by Cournot-Nash Models of competition ( Two equally positioned firms competing on quantity, not price) - Major Players (Integrated): • Exxon, Chevron, Royal Dutch Shell, British Petroleum

  3. Outlook: Future of Oil and Gas • S&P Net Advantage: Our fundamental outlook for the integrated oil & gas sub-industry for the next 12 months is positive. With their solid dividend yields and huge businesses diversified internationally, we look for the equity values of U.S.- based supermajor oil & gas companies to rise alongside our forecasts for improved global economic growth and crude oil prices. Global GDP expanded 4.1% in 2010 and should continue to grow 3.7% in 2011 and 3.9% in 2012. • Global supply for 2010 to 2012 will increase by 5.29 million barrels per day but will be outpaced by global demand growing at 5.59 million barrels per day

  4. Outlook: Future of Oil and Gas • The driving factor in the oil industry is crude oil prices. For the past seven years the sales and crude oil prices have an 86% correlation to sales revenue and a 58% correlation to net income. • Factors that drive the price of crude oil (Supply side -- production from the OPEC countries, other world producers and Demand side -- in developing countries and increasing demand in developed countries) will have a major impact on Exxon-Mobil as well as other oil companies. • Be able to maintain gross margins and profit margins • Be able to maintain strong cash flow from operations

  5. Exxon Mobil Valuation Operates as an Integrated Oil Company: -Global exploration, extraction, refinement, transportation and marketing of petrol and chemical Products Some Market Statistics -Market Cap (S&P Net Advantage):$410.0 B -Market Value Debt: $10.54 B -Trailing P/E (12 month): 11.8 -Sales Growth Rate last year: 23.39%

  6. Key Financial & Economic Data • Financial Data • Exxon Mobil Net Income $19,280 for 2009 vs. $30,460 for 2010 (58% increase) – recovering to pre 2009 levels • Prior to recession highest net income was $45,219 in 2008 and with crude oil prices rising should see continued increase in next income for coming year • ROE (last year vs. 8 year average) 20.7% vs. 28.4% • Profit Margin (last year vs. 8 year average) 9.2% vs. 8.2% • Treasury Stock Holdings; $157 B (source of funding for expansion or acquisition)

  7. Five Year Price Movements

  8. Exxon Mobil Valuation Statistics DCF Analysis Results: • DCF Valuation $483,170 million • Market Price or Enterprise Value (DCF minus Cash): $483,170 - $7,825 = $475,345 million • Shares Outstanding 4,979 million • Per Share Price Approximate for Enterprise Value $ 95.47 • Current Share Price $82.00

  9. Exxon Mobil Valuation Statistics • Analysts Recommendations (total 19) Buys (4.0): 5 Buy/Hold (3.0): 3 Hold (2.0): 11 Weak Hold (1.0): 1 Sells (0.0): 0 Aggregated Score 2.74 out of 4.00 • S&P Net Advantage • Strong Buy • Quality Ranking A+ • Scored higher than 100% of all firms reported on by Standard & Poor’s

  10. Recommendation – Strong Buy • Buy Exxon Mobil current price $82 (as of 5/11) • High price over past three years is $93 (April 2008) and it should head back to that level within the next 6 months with the economic recovery for a 13% gain or 29% annual return…12 month target price is $103 or 26% annual return. • Futures (Crude Oil) selling at $100 per barrel versus current spot price of $95 per barrel indicates continued increase in oil prices • Large cash holdings ($8+ B) • Treasury stock($157 B)

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