Exxon Mobil's Riches: Fueling Controversy?


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Case Details:

Case Code : BECG064
Case Length : 23 Pages
Period : 2004-2006
Pub. Date : 2006
Teaching Note :Not Available
Organization : Exxon Mobil Corporation
Industry : Oil and Natural Gas
Countries : USA

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"Exxon's attitude is that they're the big boys on the block, and they don't have to bend for anybody. But there is no question there is a new phase of scrutiny for Exxon. If I were giving them advice, it would be, 'Get used to it and prepare for it.' They have a self-righteousness that sooner or later will catch up with them." 1

- Charles Schumer, Senator, New York State, in 2006.

"People don't understand the time frame that we operate in. We operate in terms of 10-, 20-, 30-, 40-year cycles and to put that in context, that's 20 (U.S.) Congresses. A single quarter or a single year, which may mean everything from a political circus point of view, is not really all that significant in the time frame that we operate in." 2

- Lee Raymond, Ex-CEO and Chairman of Exxon Mobil Corp., in 2006.

Exxon's Problem of Riches

According to the Fortune 500 list,3 released in April 2006, Exxon Mobil Corp. (Exxon) had replaced Wal-Mart Stores, Inc.4 as the largest company in the US (Refer to Exhibit I (A) for the top 10 companies by revenue and Exhibit I (B) for the top 10 companies by profits in the Fortune 500 list for 2006).

With a market capitalization of US$ 375 billion, Exxon had replaced General Electric Co.5 to become the most valuable company in the US in 2005. Even more impressive were the company's profits for 2005, which stood at US$ 36.1 billion - much higher than any other company in the corporate history of the US.

Its revenues for 2005 were US$ 339.9 billion (Refer to Exhibit II for Exxon's financials for 2003, 2004, and 2005). Its revenue and profit levels in 2004 were US$ 291.25 billion and US$ 25.33 billion respectively. The previous record for the highest profits was also set by Exxon - at US$ 25.33 billion in annual net income in 2004 (Refer to Table I for Exxon's revenues and profits - 2000-2005).

Exxon's profits continued to soar in 2006. It posted a profit of US$ 8.4 billion in the first quarter of 2006. "Higher crude oil and natural gas realizations and improved marketing margins were partly offset by lower chemical margins. Net income for the first quarter was up 7% from 2005,"6 said Rex W. Tillerson (Tillerson), Exxon's chairman and CEO.

Tillerson had taken charge from Lee R. Raymond (Raymond) on January 1, 2006. In the first quarter of 2006, Exxon returned US$ 7 billion to shareholders in the form of dividends and share buybacks. However, despite the improved earnings results for Q1 2006 and the huge dividend payout to its shareholders, analysts and the general public were less than thrilled.

While market analysts opined that the earnings were below their expectations, the huge profits earned by Exxon made it suspect in the eyes of US lawmakers and the general public. Exxon's profits came at a time when consumers in the US were feeling the increased pressure of high gasoline prices, with prices touching US$3 per gallon of gasoline.

Exxon Mobil's Riches: Fueling Controversy? - Next Page>>


1] Nelson D. Schwartz, "The Biggest Company in America... is Also a Big Target," www.money.cnn.com, April 3, 2006.

2] Robert Campbell, "Former Exxon Boss: Critics 'Don't Understand' Oil," www.today.reuters.com, April 19, 2006.

3] The Fortune 500 is a ranking of the top 500 US public companies as measured by their gross revenue. Fortune magazine compiles and publishes the list annually.

4] Wal-Mart Stores Inc. was founded by Sam Walton in 1962. It is the largest retailer in the world and one of the largest companies in the world based on revenue. For the fiscal year ending January 31, 2006, its revenues were US$ 316 billion.

5] General Electric Company, headquartered at Fairfield, Connecticut, USA, is a multinational technology and services company.

6] "Exxon Mobil Corporation Announces Estimated First Quarter 2006 Results," www.home.businesswire.com, April 27, 2006.

 

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