strategic-management

company in the world in 2007. The 2008 earnings were $31.4 billion compared with $27.6
billion for 2007 with earnings per share increasing by 16 percent. Exploration &
Production earnings were over $20 billion compared to about $14.7 billion in 2007.
Sakhalin II, one of the world’s largest integrated oil and gas projects, began year-round oil
shipments in 2008 and is preparing to start exports of liquefied natural gas (LNG) in 2009.
Shell made 11 notable discoveries of potential resources and secured rights to some 40,000
km of new exploration acreage in 2008. In mid-2009, there will be a major change in leadership
when the former chief financial officer will step up into the role of CEO.
The ConocoPhillips Company (www.cop.com) headquarters are located in Houston,
Texas. It is the fifth largest private sector energy corporation in the world. Its fuel stations
are known under the Phillips 66, Conoco, and 76 brand names. It was created through the
merger of Conoco Inc. and the Phillips Petroleum Company in 2002. ConocoPhillips maintains
a balance in their portfolio of about 70 to 75 percent in Exploration & Production, and
about 20 to 25 percent in refining, marketing, and transportation. The capital program has
$12.5 billion slated for 2009. The debt ratio is above 30 percent, but the company plans to
put more cash toward debt reduction to get their debt ratio back to 20 to 25 percent.
ConocoPhillips is the smallest of the four, but the company spent $10 billion to repurchase
stock in 2008 and had earnings per share of $3.39 with 2008 revenues of $241 billion.
There is a contrast in dividends between ExxonMobil and Chevron. Chevron pays
2.60 percent annually, whereas ExxonMobil pays only 1.60 percent. Exxon paid out dividends
that totaled $1.55 per share in 2008. Chevron’s trailing 12-month dividend on the
stock was $2.53 at the end of 2008. BP had a trailing dividend totaling $3.30. The BP
dividend per share has grown on average 15 percent per year from 2001 to 2008.
ConocoPhillips had a trailing dividend totaling $1.88, which is high compared to its stock
price of $49.52. Shell announced an interim dividend in respect of the fourth quarter of
2008 of US $0.40 per A and B ordinary share, an increase of 11 percent over the U.S.
dollar dividend for the same quarter last year.
ExxonMobil is so strong financially that it is in a negative debt position, ending its
last quarter in 2008 with $38.43 billion in cash and debt of only $10.96 billion. The company
made its last significant acquisition when it bought Mobil Oil during the energy
downturn in 1998. Although not quite as strong as Exxon Mobil, BP also holds $6.1 billion
cash. British Petroleum acquired Amoco Corp. for $48 billion in 1998, which at the time
was the biggest foreign takeover of an American company. In 2008, Shell completed the
acquisition of Duvernay Oil Corp., providing the company with acreage containing significant
gas resources in western Canada. Royal Dutch Shell reported over $15 billion of cash
on hand as of year-end 2008. In March 2006, ConocoPhillips Corporation bought
Wilhelmshaven Raffiniegesellschaft and Burlington Resources. Although its market cap is
near $75 billion, ConocoPhillips held more than $1 billion in cash at the end of the third
quarter of 2008. Chevron was also in a negative net debt position with $11 billion in cash
and a debt of $7 billion in 2008. Many analysts are expecting a wave of acquisitions by the
Big Five as they eye some of the smaller companies such as Devon Energy Corporation
(DVD), Anadarko Petroleum Corporation (APC), or Apache Corporation (APA).
Membership in the Big Five does not protect these giants against political controversy.
BP faced spills in Alaska in both 2006 (oil) and 2007 (methanol). ExxonMobil is
still dealing with litigation surrounding the 1989 Valdez oil spill in Alaska. A court ruling
in June 2008 reduced the damages accessed against ExxonMobil from $2.5 billion to
$507.5 MM. In the same month Royal Dutch Shell was forced to shut down its largest oil
production unit in Nigeria when Nigerian separatists attacked the offshore facility. In 2007,
Friends of the Earth alleged that the damage caused by Shell’s oil activities to local communities
and the wider environment could be assessed at $20 billion. In 2006,
ConocoPhillips agreed to pay $2.2 MM to the federal government to cover costs of cleaning
up of a Puget Sound oil spill. In October 2007, Polar Tankers, a subsidiary of
ConocoPhillips, was fined $2.5 MM for an oil spill in the Pacific that occurred in 2004.
When comparing Chevron with its competitors from 2003 to 2007, Chevron had a
106 percent resource replacement through exploration ratio. This is approximately
40 percent higher than the nearest competitor, BP. This ratio is often difficult to compare
across the Big Five because each company defines it slightly differently. Not only has
CASE 29 • CHEVRON CORPORATION — 2009 289