Business Context and Reporting Period
Company: Exxon Mobil Corporation
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended December 31, 2007
Business Overview: ExxonMobil is a major integrated energy company engaged in the exploration, production, transportation, and sale of crude oil and natural gas (Upstream); the manufacture, transportation, and sale of petroleum products (Downstream); and the manufacture and marketing of petrochemicals (Chemical). The company operates globally with significant assets in the United States, Canada, Europe, Africa, Asia Pacific, and the Russia/Caspian region.
Key Financial Metrics
| Metric | 2007 | 2006 | Change |
|---|---|---|---|
| Sales and Other Operating Revenue | $390,328 million | $365,467 million | +6.8% |
| Net Income | $40,610 million | $39,500 million | +2.8% |
| Net Income Per Share (Diluted) | $7.28 | $6.62 | +10.0% |
| Cash Flow from Operating Activities | $52,002 million | $49,286 million | +5.5% |
| Total Assets | $242,082 million | $219,015 million | +10.5% |
| Long-Term Debt | $7,183 million | $6,645 million | +8.1% |
| Shareholders' Equity | $121,762 million | $113,844 million | +7.0% |
| Capital and Exploration Expenditures | $20,853 million | $19,855 million | +5.0% |
Segment Earnings (After Tax):
- Upstream: $26,497 million (2007) vs. $26,230 million (2006)
- Downstream: $9,573 million (2007) vs. $8,454 million (2006)
- Chemical: $4,563 million (2007) vs. $4,382 million (2006)
Material Changes vs. Prior Period
- Record Net Income: 2007 net income of $40.6 billion was the highest in the company's history, driven by higher realizations for crude oil and natural gas, despite higher operating expenses and net unfavorable tax effects.
- Production Volumes: Total oil-equivalent production decreased 1% to 4,180 thousand barrels per day. Liquids production fell 65 thousand barrels per day, while natural gas production increased slightly. Declines were attributed to mature field decline, divestments, and the expropriation of assets in Venezuela.
- Share Repurchases: The company purchased 386 million shares of its common stock for the treasury at a gross cost of $31.8 billion, reducing shares outstanding by 6.1%.
- Dividends: Cash dividends per common share increased to $1.37 in 2007 from $1.28 in 2006.
- Asset Expropriation: In June 2007, the Venezuelan government expropriated ExxonMobil's 41.67% interest in the Cerro Negro Heavy Oil Project. The net book investment at the time was approximately $750 million.
Guidance, Outlook, and Risks
- Capital Expenditure Outlook: The company expects annual capital and exploration expenditures to range from $25 billion to $30 billion for the next several years, up from $20.9 billion in 2007.
- Production Growth: Production capacity is expected to grow from 2008 to 2012, with a shift in geographic mix toward West Africa, the Caspian, the Middle East, and Russia. Nonconventional production (e.g., deepwater, LNG, heavy oil) is expected to grow from 30% to over 40% of output.
- Market Risks: Earnings are highly sensitive to commodity prices. A $1 per barrel change in the weighted-average realized price of oil would have an approximate $400 million annual after-tax effect on Upstream earnings.
- Legal Contingencies:
- Exxon Valdez: The U.S. Supreme Court granted certiorari regarding the punitive damages award (reduced to $2.5 billion by the Ninth Circuit). Oral arguments were held in February 2008.
- Venezuela: Arbitration proceedings are ongoing regarding the expropriation of the Cerro Negro project. The company does not expect a material effect on operations but cannot estimate the net financial impact.
- Alabama Royalty Dispute: The Alabama Supreme Court ruled in ExxonMobil's favor on the fraud claim, eliminating the punitive damage award and reducing the compensatory award to $52 million plus interest.
Investor Verification Checklist
- Venezuela Arbitration: Monitor the status of the International Centre for Settlement of Investment Disputes (ICSID) arbitration regarding the Cerro Negro expropriation and potential compensation.
- Exxon Valdez Litigation: Track the U.S. Supreme Court's decision on the punitive damages award, which could impact future liabilities.
- Capital Allocation: Verify the execution of the $25-$30 billion annual capital expenditure plan and the timing of major project start-ups (e.g., West Africa, Russia/Caspian).
- Commodity Price Sensitivity: Assess the impact of fluctuating oil and gas prices on Upstream earnings, given the company's high exposure to commodity realizations.
- Shareholder Returns: Confirm the sustainability of the dividend growth and the continuation of the aggressive share repurchase program.
