When thinking of oil companies, industry giant Exxon Mobil Corporation (NYSE:XOM) probably comes to mind. Not only is Exxon one of the four AAA-rated American companies, (the other three are ADP, Microsoft Corporation (NASDAQ:MSFT) and Johnson & Johnson), but it has consistently remained one of the largest companies in the world by market capitalization since 1999 and is completely integrated into all three production segments: upstream, downstream and chemical.
In 1999, exploration and production giants Exxon and Mobil merged to form Exxon Mobil Corporation (NYSE:XOM). Both companies had been industry leaders in innovation, creating revolutionary products like 3-D seismic well-finding technology, synthetic auto lubricant, and the first motor oil that could be used in both summer and winter.
In 2004, when Rex Tillerson took over as CEO, this innovative tradition continued with the Kearl Project in Canada’s oil sands and the acquisition of XTO Energy in June 2012, which gave Exxon Mobil Corporation (NYSE:XOM) access to the emerging natural-gas market.
Clearly, Exxon Mobil Corporation (NYSE:XOM) is a powerful energy company. But what remains for them to do in the future? Well, improving profit margins is one thing that comes to mind. For Exxon, upstream production comprises a vast amount of revenue, as shown by the following graph representing the 2011 fiscal year:
Downstream revenue dominates Exxon’s income statements, providing more than $373 billion of the total $467 billion in revenue that the company saw last year. The revenue numbers associated with downstream oil production are impressive, but before you go put your money into a downstream oil company look at the margins. Exxon’s $41 billion in last year’s profits came from practically everywhere BUT downstream. The graph below represent’s the company’s 2011 profit allocation:
These charts look absolutely nothing alike. Despite the huge dollars coming from Exxon’s downstream segments as revenue, downstream goes almost unnoticed as an earnings driver. So what does this mean to us as investors?
For comparison, we will look to integrated oil company and industry peer ConocoPhillips (NYSE:COP). Conoco’s financial statements experienced many years looking very similar to Exxon’s, with downstream operations bringing in large revenue numbers but lacking in profits.
In 2011, Conoco brought in $186 billion in revenue, which turned into just $3.7 billion of profit. This was the case until April 2012, when Conoco Phillips spun off its downstream segment into a separate company called Phillips 66 (NYSE:PSX), which specializes in the refining and marketing of the oil.