However, they are worth considering on the long haul. Since the oil and gas reserves are suffering from a chronic shortage, a major company such as Exxon should think strategically and expand into this area. The discussion is more complex, in the sense that intensive research and development efforts are needed to both improve the above mentioned alternatives and to discover new sources of energy.
Exxon Financial Results
Due to the high crude-oil and natural gas prices, in the context of a busy hurricane seasons in the Gulf of Mexico, Exxon has reported record figures for 2005, mounting up to $36 billion in net income and 31% return on average capital.
Source: Exxon Mobil 2005 Company Report
The results Exxon reported for the 2005 fiscal year are impressive:
record earnings of $36 billion, up 46%;
net income per common share of $5.76;
net income to average shareholders equity of 339% (Annual Report 2005).
The outstanding financial results have led to a wave of public concern, especially in the context of the not so old Enron scandal. Exxon is now likely to appear before a Congressional committee to investigate its pricing and other operations. The worries relate to the accuracy of the numbers, as well as to the high oil products and energy prices.
The company has taken action to defuse public, media and congressional concern. As far as the public is concerned, its biggest fear is a rise in the energy price. This fear should be cast away. The medias interest is to have scandal coverage, so it is expected that the Exxon communication at least limit the negative perspective on the matter. A special segment is formed by the Exxon shareholders. They should be reassured of the companys stability and of their shares financial security. The Congressional committee is interested in popular support. From the Exxons point-of-view this means that the company should make its position heard and reduce the tensions through open communication.
Some pessimistic forecasts predict harsh times for Exxon in the following decade. Most of the worries focus on the companys approach to the existing challenges that the energy market is facing. Exxon is characterized by a rather rigid culture that has difficulties in adapting to rapid change. The best description for the company is gigantic, with a tradition of authority situated at the top of the pyramid.
Changes are essential elements of the business world and everyone has to change unless it is too late. The pace of change today, because of globalization, technological innovation, and information access, is both dizzying and dazzling. Companies are forced to adapt or they lose. This is even more so at Exxons level. It is significant to find out the types of change required to keep up the pace with the dynamic energy market. Organizations do not stay stagnant. They are constantly facing external factors such as market or customer demands and internal factors such employee or stakeholder demands. Internal changes can be influenced by external factors. In this case, the circumstances of the market should translate into reactive and proactive strategies. Organizations have planned strategies that are revised based on short-term and long-term goals. Each planned strategy needs a change initiative. According to Armstrong (2003), there are two main types of change in a business environment: strategic and operational. The scholar believed that strategic change is concerned with organizational transformation, which deals with broad, long-term, and organization issues. It is not a simple or linear process. It is an ongoing continual assessment and requires multiple adjustments. On the other hand, operational change is related to new systems, procedures, structures or technology. Exxon undergoes both types of change. And its history of excellent management has shown that when times are difficult the company can find the good path out.
The question is the following: why, in the context of real challenges of the energy market, hasnt Exxon shown more interest to alternate exploitation methods? Apparently, while its competitors rushed to lease rigs and to invest into developing other exploitation techniques, Exxon is not taking on any leases for deep-water drilling after 2008. Could it be the action of a careful player holding an ace up his sleeve or is it simple inertia? The answer to this question could have significant consequences on the global energy market. Critics say that the giant company is drunk on its overwhelming success of the last year and fails to seize an opportunity.
What is of special interest in this paper is the relation between the financial results of the largest player and the development of the overall energy market. The overall energy market is characterized by good opportunities for the short-term, but also by great threats for the long-term. In the short-term all players are enjoying large profits, due to high oil and natural gas prices, as well as a consequence of natural hazards (busy hurricane seasons). Exxon follows this trend of impressive returns, using its expertise and market position to make the best out of the present opportunity. The market goes well, and so do the major energy producers.
However, as discussed before, the longer term is threatened by a dark perspective of overwhelming demand and limited offer, leading to high costs and low profits. Exxon has to find a solution to exploit alternative sources of energy in order to protect its position on the long haul. The companys competitors have already taken action toward developing deep-water drilling techniques or other alternatives. At this point the giant seems to show inertia in its business actions and strategies, but the dice are not yet cast. Should the pessimistic forecast come true, in the following decade Exxon will face the imperative need to adapt and, if not fast and efficient in reactive measures, will start to lose business.
Another aspect to be discussed is the relationship between energy and politics. First of all, the degree of political stability affects directly the price of energy, determining fluctuations that can translate into great wins or losses for a company the size of Exxon. Because a large part of the global oil reserves are concentrated in areas characterized by political instability, this becomes an aspect of utmost importance. Another issue is represented by the emerging economies that demand larger quantities of energy, threatening the equilibrium on the market. Political power is largely determined by financial power, hence countries like India or China are predicted to play a significant role in the energy equation.
To sum up, the energy market is extremely dynamic. At present it is an extremely fertile business environment, presenting opportunities for high profits. The future is however uncertain due to the limitation of natural gas and oil resources. Predictions are confident in the power of technological progress, that could discover or invent the solution to this problem. But before these energy solutions of the future are reached, the companies that operate in this market have to live in the present and develop strategies according to the available means.
Both governments and private companies (Exxon being a representative example) have to work together in order to meet the energy needs of todays lifestyle. Developed and developing countries alike rely completely on energy, and fluctuations in the energy price affect their economies fully. Official policies should encourage and support efficiency and responsiveness in the energy market, and should be enforced by private funding. Exxon, as the largest energy supplier, has the interest and responsibility to cooperate with government in designing frameworks that should ensure investor attractiveness of the energy market. The higher goal is meeting the worlds growing demand for energy (Raymond 2004).
At the level of Exxon, as a leader of the energy industry, the stakes are not only commercial. Of course that the company aims primarily profit, but the implications are far deeper. Any strategic decision that the management of Exxon reaches has the potential to affect the U.S. And the global economy. Energy stands at the core of the present day civilization engine. Progress, as we know it, is inconceivable without energy, and the limited resources of oil and natural gas require strong efforts focused on finding alternatives. Exxon has to reinvent itself in order to keep its market position.
Armstrong, M. 2003, Human resource management practice, (9th ed.), Kogan Page Limited, London
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Maxwell C. And Feshbach B., Energetic Discussion, Retrieved Online from URL: http://www.weedenco.com/welling/archive/li/v06i04lilogo.asp
Raymond L.R. 2004, Realistic Choices in Future Energy Investments, International Energy Business Forum, Retrieved Online from URL: http://www.exxonmobil.com/Corporate/Newsroom/SpchsIntvws/Corp_NR_SpchIntrvw_LRR_220504.asp
Exxon Mobil Annual Report 2005, Retrieved Online from URL: http://www.exxonmobil.com.