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Oil industry effect on the environment
Oil drilling and pollution
Oil drilling and pollution
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Introduction In every industry, there are a lot risks that cause many uncertainties regarding the financial security of different corporations; risks in the short run and in the long run. For that reason, large corporations often allocate a large amount of capital into competent risk managers who are tasked to identify the different risks faced by the company, and to develop efficient risk managing or hedging techniques to handle them. In this report, the risks faced by energy companies will be studied. More specifically, this report will focus on the world's largest publicly traded international oil and gas company: ExxonMobil. First, the main risks faced by ExxonMobil will be outlined, and then the risk management and hedging techniques of the company will be briefly explained. Finally an evaluation and recommendations for ExxonMobil will be provided as a conclusion to the report. Risks Faced by the Company The financial and operating results of every company in the oil and gas industry, including ExxonMobil, are subject to a variety of risks. The first risk factor to consider is supply and demand. The oil and gas businesses are fundamentally commodity businesses, which means they can be significantly affected by changes in oil, gas and petrochemical prices (ExxonMobil, 2014). ExxonMobil is also exposed to risks such as economic conditions: it is found that the demand for energy and petrochemicals is closely related to economic growth rates (ExxonMobil, 2014). Therefore, recessions or other periods of low or negative economic growth will generally have a direct adverse impact on the company’s performance (ExxonMobil, 2014). In addition, due to concern over the risk of climate change, a number of countries have adopted, or ar... ... middle of paper ... ...ging goals. Creating a proper risk management policy should be consistent with the company’s hedging objectives (Corley, 2010). Moreover, the senior managers should fully understand the company’s hedging strategies. Hull (2012) mentioned that many nonfinancial companies admit to not understand their trading strategies, which leads to a big loss. Thus, companies must have their own capability to value a hedging instrument, which is a method to make sure that instrument has been understood. Another important recommendation to ExxonMobil should be to continue avoiding speculations. Nonfinancial companies should never consider a hedging strategy as a source of income (Corley, 2010). Last but not least, oil companies should reconsider some of their hedges to avoid over-hedging, which we mentioned before, in order to avoid the extra risk brought by their excess contracts.
In 1985, after federal deregulation of natural gas pipelines, Enron was born from the merger of Houston Natural Gas and InterNorth, a Nebraska pipeline company. In the process of the merger, Enron incurred a lot of debt and, as the result of deregulation, no longer had exclusive rights to its pipelines. In order to survive, the company had to come up with a new and innovative business strategy to generate profits and cash flow. Kenneth Lay, CEO, hired McKinsey & Co. to assist in developing Enron’s business strategy. It assigned Jeffrey Skilling to the task. Skilling, who had a background in banking and asset and liability management, proposed a revolutionary solution to Enron’s credit, cash, and profit worries in the gas pipeline business: create a “gas bank” in which Enron would buy gas from a network of suppliers and sell it to a network of consumers, contractually guaranteeing both the supply and the price, charging fees for the transactions and assuming the associated risks. Thanks to the young consultant, the company created both a new product and a new paradigm for the industry—the energy derivative. Lay was so impressed with Skilling’s ...
This decline in its earnings is driven by weakness in the commodity market that impacted its upstream business significantly. XOM’s average realized crude as well as gas prices for the U.S operation fell 46% and 52% respectively for the quarter as compared to the fourth-quarter of 2014. As a result, its upstream earnings
Exxon Mobil is world’s largest publicly traded integrated oil company serving companies in more than 200 countries worldwide. Standard and Poor’s stock report for Exxon Mobil indicates that Exxon’s global functional organization and substantial diversification helps mitigate its exposure to business risk and margin volatility.
According to ExxonMobil, for future, the company will invest on exploration for oil and gas at around $34 billion annually. However, Exxon took criticism that investing on exploration for oil and gas affects to destroy climate by recklessly extracting and burning fossil fuel reserves. The company tried to rebuild its business image. Exxon’s recent investments have been in natural gas, which pollutes less CO2 than oil when it burned. The company spends about $6 billion a year for reducing pollute. Investing on exploration for oil and gas will generate revenue in
Prior to the year of 1999, Exxon and Mobil were the two largest American oil companies, which were direct descendants of the John D. Rockefeller’s broken up Standard Oil Company. In 1998 Exxon and Mobil signed an eighty billion dollar merger agreement in hope to form Exxon Mobil Corporation, the largest company ever created. Such a merger seems astonishing, not only because it reunited parts of Rockefeller’s Standard Oil Company, but also because it would be extremely difficult for the Federal Trade Commission (FTC) to approve this merger due to its size and importance in the oil market. In fact, it took the FTC an entire year after the merger was proposed to make a decision due to its rigorous analysis in the product and its geographic market, the concentration of the oil market, the potential anticompetitive effects of the merger, the effects towards their growth and labor force, and lastly, the likelihood of entry and the efficiencies that may affect anticompetitive concerns. Although all of these notions are played a role in the analysis of the merger, it is important to remember that the merger’s result efficiencies did outweigh the the anticompetitive risks that were involved, especially since the oil market was headed towards decreasing prices to expand production.
Exxon and Mobil were two big competitors in the oil industry. In the 20th century, Exxon and Mobil operated with relatively low-price, and in low-margin environments. The market in the United States and Europe have grown and matured, allowing them both to grow with great success. The competitiveness has tightened worldwide in the crude oil business. Both companies have continued to advance new technologies, introducing new marketing innovations. They have extend there reach into high-growth markets. The two companies became more efficient, reduced costs, and increased shareholder’s value by there merge.
America is dependent on other nations for their ability to create energy. The United States is the world’s largest consumer of oil at 18.49 million barrels of oil per day. And it will continue to be that way for the foreseeable future considering the next largest customer of oil only consumes about 60% of what the U.S. does. This makes the U.S. vulnerable to any instability that may arise in the energy industry. In 2011, the world’s top three oil companies were Saudi Aramco (12%), National Iranian Oil Company (5%), and China National Petroleum Corp (4%). The risk associated with these countries being the top oil producers is twofold. One, they are located half way around the world making it an expensive to transport the product logistically to a desired destination. And two, the U.S. has weak, if not contentious,...
Pratt, Joseph A. “Exxon and the Control of Oil.” Journal of American History. 99.1 (2012): 145-154. Academic search elite. Web. 26. Jan. 2014.
ExxonMobil has had nothing major in 2010 that could impair the low levels of control risk assessed by our a...
Roberts, MJ, Lassiter, JB & Nanda, R 2010, US Department of Energy & Recovery Act Funding: Bridging the “Valley of Death”, Harvard Business School, Cambridge, USA.
On April 20, 2011, an oil rig in the Gulf of Mexico exploded on British Petroleum’s (BP) Deepwater Horizon. As a result, of the 126 BP crew members aboard, 11-15 were reported missing. Six days later, underwater robots reveal at least two leaks are dumping 1,000 barrels of oil into the Gulf per day. Consequently, this would become one of the worst oil spills in the history of the United States and perhaps the petroleum industry. This recent Oil Spill portrays one of many dilemmas BP has faced as it scrambles to expand and globalize itself as a transnational corporation in the world economy against other oil and gas companies. Although this disastrous event has affected BP negatively, the company has found a way to overcome it, while still becoming the 6th largest in the world; it continues to do this by offshoring, outsourcing, and merging with other oil and gas companies, three key strategies BP has been using since its establishment in 1909.
With the current spike in oil prices, many American consumers have asked, 'what is going on?' In order to fully understand the current situation and how it is affecting the economy one must look at a variety of factors including: the history of oil crisis in the United States, causes of the current situation, and possible outcomes for the future. It is only after meticulous research in these topics that one is prepared to answer the question, 'what is the best possible solution to the oil crisis?'
Identify the potential risks which affect the company and manage these risks within its risk appetite;
As has been discussed before, risk identification plays an important part in the risk such as unique, subjective, complex and uncertainly. There are no two identical leaves in the world; similar, there are no two exactly the same risk either. Hence the best risk manger could not identify risk completely. Besides, risk identification assessment is done by risk analysts. As the different level of risk management knowledge, practical experience and other aspects between individuals, the result of risk identification may be difference. Furthermore, the process of identifying risk is still risky. Once risks have been identified, corporations have to take actions on limiting risky actions to reduce the frequency and severity of risky. They have to think about any lost profit from limiting distribution of risky action. So reducing risk identification risk is one of assessments in the risk
High and volatile oil prices affect economies at both a macro and micro level. For an Oil import dependent economy, the major direct effects at the macro level ar...