Oil & Gas Market overview
The demand for oil and gas is strongly linked to the strength of the global economy. For that reason, projected economic growth is considered an indicator of the future demand for our products and services. The global economy continued to recover in 2010 from the recession of late 2008 and early 2009 that was triggered by the severe financial Crisis in the USA and Europe.
The contours of the global recovery, however, have differed significantly across countries. Most emerging markets weathered well the global downturn and grew robustly in 2010, with output in China and India growing by 10.3% and 9.7% respectively. In contrast, the USA and the euro area saw output grow by 2.8% and 1.8%, respectively; this was not sufficiently rapid to bring down high unemployment rates
Introduction: Company history & main Structure
| Royal Dutch Shell plc| Exxon Mobil| Company History| Is a public limited company registered in England and Wales and headquartered in The Hague, the Netherlands. Shell is one of the world’s largest independent oil and gas companies in terms of market capitalization, operating cash flow and oil & gas production.
The Royal Dutch Shell Group was created in February 1907 when the Royal Dutch Petroleum Company and the "Shell" Transport and Trading Company Ltd of the United Kingdom merged their operations.
The terms of the merger gave 60% ownership of the new Group to the Dutch arm and 40% to the British.In November 2004, it was announced that the Shell Group would move to a single capital structure, creating a new parent company to be named "Royal Dutch Shell plc.", with its primary listing on the London Stock Exchange, a secondary listing on the Amsterdam Stock Exchange, its headquarters and tax residency in The Hague, Netherlands and its registered office in London. The unification was completed on 20 July 2005. Shares were issued at a 60/40 advantage for the shareholders of Royal Dutch in line with the original ownership of the Shell Group|
The world's largest publicly traded international oil and gas company, providing energy that helps underpin growing economies and improve living standards around the world.Worldwide, ExxonMobil markets fuels and lubricants under three brands: Esso, Exxon and Mobil.Over the last 125 years ExxonMobil has evolved from a regional marketer of kerosene in the U.S. to the largest publicly traded petroleum and petrochemical enterprise in the world.
Today we operate in most of the world's countries and are best known by our familiar brand names: Exxon, Esso and Mobil. We make the products that drive modern transportation, power cities, lubricate industry and provide petrochemical building blocks that lead to thousands of consumer goods. Learn more by using the slider or the arrows below to browse our history over time| Main Business Structure| Upstream International:
Explores for and extracts crude oil & natural gas outside the Americas. Upstream Americas: Explores for and extracts crude oil & natural gas in North and South America. Upstream Americas also extracts bitumen from oil sands that is converted into synthetic crude oil. Downstream : Refines, supplies, trades & ships crude worldwide, manufactures & markets a range of products, & produces petrochemicals for industrial customers.Projects & technology : Manages delivery of Shell’s major projects & drives research & innovation to create technology solutions|
Upstream In the Upstream, we continue to build on the seismic and reservoir modeling technologies that we pioneered, which today enable us to identify new resource opportunities, drill more accurately, and improve recovery.Downstream The Downstream business uses our advanced Molecule Management technology to run lower-cost crudes, maximize the value of every hydrocarbon molecule, and optimize overall refinery utilization.Chemical Our Chemical business has developed technologies that can make vehicles more fuel efficient,including advanced polymers that help tires maintain proper inflation, lightweight plastics for automotive parts, andbase stocks for advanced lubricants.| Revenue by segment(Us Million)| | 2010| 2009| 2008|
Upstream| 15,935| 8354| 26506| Downstream| 2,950| 258| 35309| Corporate| 91| 1310| (69)| * Its clear that the both companies depend mainly on the upstream * And the loses per segment was very clear| | 2010| 2009| 2008| Upstream| 24,097| 17,107| 35,402| Downstream| 3567| 1781| 8151| Chemicals| 4913| 2309| 2957| Corporate| (2117)| (1917)| (1290)| | | The Company has two classes of ordinary shares, Class A shares and Class B shares. The principal trading market for the Class A shares is Euronext Amsterdam and the principal trading market for the Class B shares is the London Stock Exchange| On June 25, 2010, ExxonMobil acquired XTO Energy Inc.
(XTO) by merging a wholly-owned subsidiary of ExxonMobil with and into XTO (the “merger”), with XTO continuing as the surviving corporation and wholly-owned subsidiary of ExxonMobil. XTO is involved in the exploration for, production of, and transportation and sale of crude oil and natural gas. XTO’s asset base, technical capabilities and operating expertise, together withExxonMobil’s extensive research and development expertise, project management and operational skills, global scale and financial capacity, should enable effective development of additional supplies of unconventional oil and gas resources.
At the effective time of the merger, each share of XTO common stock was converted into the right to receive 0.7098 shares of common stock of ExxonMobil (the “Exchange Ratio”), with cash being paid in lieu ofany fractional shares of ExxonMobil stock. Also at the effective time, each outstanding option to purchase XTO common stock was convertedinto an option to purchase a number of shares of ExxonMobil stock based on the Exchange Ratio, and each outstanding restricted stock award and performance stock award of XTO was converted intoa restricted stock award or performance stock award, as applicable, ofExxonMobil stock based on the Exchange Ratio|
Vertical Analysis for Royal Dutch Shell plc
1- Income Statements for the years 2008, 2009 & 2010 – ( In Million US Dollars )
Comments It’s very clear that world financial crisis in the last quarter 2008 affecting by negative in 2009 in spite that the company recovered strongly in 2010 We will fine that most of the % increase or decreased in 2009 due to overall decreased in the total revenue from 458361, 278188 & 368056 respectively in 2008, 2009 & 2010
1- Total revenue decreased by (-39.3) in 2009 vs. 2008 but the good was that it increased by 32.2% in 2010 vs. 2009 2- Net income also decreased by (52.3%) in 2009 vs. 2008 but shell recovered strongly by increased its net income by 60.7% in 2010 vs. 2009 3- Company has almost the same % of cost of purchase (cost of goods sold) within the 3 years meaning that the company takes a corrective action to face the world crises 4- Interest expense restored to nearly normal situation in 2008 after the double increase in 2009 due to finical crises 5- I see a positive thing in the R&D cost % which in spite the financial crisis and big reduction in total revenue between 2009
Vs. 2008 but the total percent in R&D still positive and the value not reduced by any significant manner 6- As per shell report (page 6) “In 2010, we reduced our costs by $2 billion, or around 5%, and both acquired and divested assets of $7billion. These actions helped improve returns and capital efficiencies. They also reflect the priority we give to continual improvement along all fronts within our organization. I am indebted to the more than 93,000 Shell employees who bring about these improvements, sometimes under trying circumstances” “No cost reduction in Mobile was happened in 2010 vs. 2009)
2 Balance Sheets for the years 2009 & 2010 – ( In Million US Dollars )
In General there is an improvement in the ratio from 2009 to 2010 due to increase the prices and demand in 2010
1- Cash and cash equivalent increased from 3.33 to 4.17 (38.5%) which may was due to increase Demand and as reflected in the increaser in the account receivable as well (18%)
2- overall increase in Total Assets of around 10% was witnessed in 2010 over 2009 (fixed assets remained representing around 45% of the total assets, which is the norm in the oil & gas industry to have such a high proportion of fixed assets)
3- The % of shareholder equity decreased from 47.28 to 46.43 and that may due to increased short term bowering from 0.51 to 1.81 (more than 3 times increased vs. last year) and so, the liabilities increased due to decreased in shareholder equity
Over all comments on vertical analysis
The general increase in global Crude Oil & Natural Gas selling prices and increased the market Demand due to the improvement and recovery in market after the world finical crisis in last quarter 2008 and 2009 2010 was a relatively good year for Shell, profits were enhanced resulting in an increase in "Net Income: Revenues" by around 1% over 2009 (increased from 4.57% to 5.56%)
Horizontal analysis for Royal Dutch Shell plc
Comments Again we will find the significant impact of the financial crisis on the negative reduction in 2009 vs. 2008 and in spite of the good improve for 2010 vs. 2009 but still it not recovered totally and return to 2008 averages 1- Revenue in 2010 still around (– 20)% vs. that in 2008 in spite of its 32% growth vs. 2009 2- Company succeed to reduced its selling and administrative expense in 2010 vs. 2008 by 10% 3- Total net income still (-23.4%) in 2010 vs. 2008 in spite of the big jump that achieved by the company in 2010 vs. 2009 (60.2%) growth
Ratio analysis for Shell and Exxon Mobile
Comments on both companies ratios
1- As noticeable in a significant way that both of the companies have a strong management that take a corrective action that reflected in this big recovery in 2010 after the global financial crisis in last quarter in 2008 that affecting the whole oil and gas companies in world 2- The importance notice also that I didn’t read in the notes that any of the both companies had the intention to make downsizing like many others multinational companies trend due to financial crisis which reflected the wise and good management for both companies
3- As per seen in the ratio Profitability
Mobile management allocate and used its resources (assets ) efficiently much better than Shell managers (reurn on assets in mobile almost double that in Shell 11.4 Vs. 6.7)
Its clear that Exxon Mobil all ratios is better than Shell in this industry and from profitability point of view we found that Mobile has best return on sales and better turn over for its assets with lower risk (2 in mobile Vs 2.14 in Shell) and big return on its shareholder equity ( ROE is 22.73 Vs only 14.22 in shell)
Its clear that the profit margin of Mobil (vs the cost of good sold) is better in Mobil than Shell by almost double ( Double profitability)
Overall Profitability in Mobile is better than Shell
1- Both companies collected its receivable with a proper time regarding the day’s needs for its payable (30 day receivable Vs. 84 day payable) for Mobile. And (62 days payable vs. 93 days payable) which is good in spite it’s much better in Mobil
2- Ability to liquidate money and the and ability of the company to face any risk to cover any sudden current liabilities in shell is better than Mobil ( Current ratio is higher 1.12 vs. 0.94 in mobile)
1- Ability of the both companies to cover its liabilities from its assets is better in both of them in spite that is better in Mobile than Shell (49.53 Vs. 53.57) 2- Ability of Mobile to cover the interest is significantly better than that in shell (205 Vs. 36.5)
I found this ratio in Shell report and it seems it have some good impact about the company efficiency and I found its will add to the evaluation
Return on average capital employed “Page No 47”
Return on average capital employed (ROACE) is defined as annual income, adjusted for after-tax interest expense, as a percentage of average capital employed during the year. Capital employed is the sum Of total equity and total debt. ROACE measures the efficiency of Shell’s utilization of the capital that it employs and is a common measure of business performance (its improved in the both companies but still good and higher in Mobil than Shell)
Dividends paid It was very important notice that the company although the drastic reduction in the total revenue in 2009 Vs. 2008 but the dividend paid increased from 9841 to 10717 Mil $ which I see it’s a very smart managerial decision reflected the trust from the shareholder and investor to keep trust in big company like shell And on the other hand Exxon Mobil keep its dividend paid at the same level in 2009 (8023 Mil$) from (8058 Mil$) which also send the same message for the investor and shareholder and I qoaute this from Mobile attached PDF “page16”
“In 2010, ExxonMobil raised annual dividends to our shareholders to $1.74 per share, an increase of 5 percent versus the previous year. We have paid a dividend each year for more than a century and have increased annual dividends per share in each of the last 28 years” I think that reflect the investors trust in the company
Over all conclusion
As I was learned the sole ratios indicate nothing and we have to compare that ratio with other companies in the same field and the whole market if possible so I get a copy from Mobile Company which is one of the major companies in the same field of Shell (oil and gas production) And as a result from the comparison between these two companies’ ratios and notes I found that:
In spite of Shell report is good as individual and their management board led the company to recover well from the circumstances of the global financial crisis in last quarter 2008
Exxon Mobile over all when compared with that of Shell is better from investor and shareholder point of view
Management board of Exxon Mobile was much more effective in usage the company resources with efficient way better than others in Shell