strategic-management

288 LINDA HERKENHOFF
The American Petroleum Institute (www.api.com) divides the petroleum industry
into five sectors: Upstream (exploration, development and production of crude oil or
natural gas), Downstream (oil tankers, refiners, retailers, and consumers), Pipeline,
Marine, and Service and Supply.
During the 1960s, multinationals had access to more than 80 percent of global oil
and natural gas reserves. In 2007, Western multinationals controlled just over 10 percent of
the world’s oil, and NOCs exercised exclusive control over roughly 78 percent, according
to a November 2007 paper by Doug Young at Rice University’s James Baker Institute.
According to Petroleum Intelligence Weekly (vol. 47, no. 48), in 2007, roughly 78 percent
of total world oil was produced by 50 companies, and of that production, 70 percent was
produced by national oil companies.
The oil industry experienced a hiring surge in the late 1970s and early 1980s followed
by an extended period of decline. The recent hiring activity has not remedied the issue that
over half of today’s workforce will be eligible for retirement within the next 10 years. This
workplace shortage is affectionately referred to in the industry as “the big crew change.”
Competition
Chevron is considered as one of the Big Five along with ExxonMobil (XOM), BP (BP), Shell
(RDS), and ConocoPhillips (COP). The Big Five are big in many ways, one of which
happens to be their sheer size in terms of number of employees. This may seem like a good
comparative statistic, but in actuality the head count statistic is a bit tricky. Some companies
count contractors in different ways, and the head count at the best of times is a moving target.
But Chevron came in as somewhere between 58,000 and 66,000 employees in the first
quarter of 2009. ExxonMobil has approximately 80,700 employees; Royal Dutch Shell
checks in at over 100,000 employees. BP has close to 98,000 employees, and ConocoPhillips
has only about 30,000 employees. All of the Big Five have extensive overseas operations.
ConocoPhillips operates in more than 30 countries, and the rest of the Big Five companies
each operate in over 100 countries.
ExxonMobil (www.exxonmobil.com), the largest publicly traded energy company in
the world, earned a record net income in 2008 of $45.2 billion ($8.69 per share). The Exxon
Mobil Corporation global headquarters are located in Irving, Texas. ExxonMobil markets
products around the world under the brands of Exxon, Mobil, and Esso. It also owns
hundreds of smaller subsidiaries such as Imperial Oil (69.6 percent ownership) in Canada.
ExxonMobil accounts for only approximately 3 percent of world production. The 2008
ROCE was 34 percent with a cash flow from operations and asset sales about $66 billion.
The upstream division dominates the company’s cash flow, accounting for approximately
70 percent of revenue with more than 50 percent return on average capital employed.
British Petroleum (www.bp.com) is the third largest global energy company, with
headquarters in London. In 2008, BP retained 50 percent ownership in its Russian joint venture.
BP’s replacement cost profit for the year was a record $25.6 billion, with a return on
average capital employed greater than 20 percent. BP spent $50 billion on share buybacks
in 2008. It was also a good year in 2008 for BP exploration with major new discoveries in
Algeria, Angola, Egypt, and the Gulf of Mexico. BP gained new access to oil sands in
Canada and shale gas in the United States, as well as gaining licenses to explore in the
Canadian Arctic. BP reports a resource replacement of 283 percent and a reserve replacement
of 121 percent. About 50 percent of BP’s capacity is in the United States, compared
with about 33 percent for the rest of the Big Five. BP has between $5 billion and $6 billion
of bond maturities to refinance in 2009. BP’s 2008 solar sales were up by 41 percent. BP has
the third largest wind portfolio in the United States.
Royal Dutch Shell (www.shell.com) has Dutch and British origins. It is the second
largest private sector energy corporation in the world. The company’s headquarters are in
The Hague, Netherlands, with its registered office in London. The company’s main business
is in the exploration and production, processing, transportation, and marketing of oil
and gas. Oil and gas, accounted for just over 90 percent of Shell’s revenue in 2008. Shell
markets oil products in more countries than any other oil company. Shell also has a significant
petrochemicals business. Forbes Global 2000 ranked Shell the eighth largest