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FINAL REPORT 1 ExxonMobil Final Report Elizabeth Jacobs Introduction to Microeconomics ECON210-F2WW Mary Garman September 20, 2023

FINAL REPORT 2 ExxonMobil Final Report Company Overview ExxonMobil, known as XOM on the stock market is the foremost publicly traded global oil and gas enterprise, and has demonstrated a dynamic evolution over its 140-year history in the United States. Operating across over 60 nations, the company provides a diverse range of products. This includes advancing industrial solutions through the exploration and extraction of crude oil, natural gas, and chemical resources. Furthermore, ExxonMobil contributes to modern living by producing materials like lightweight plastics for smartphones and high-powered fuels tailored for aircraft. (ExxonMobil, 2023) ExxonMobil operates in three primary businesses and has a strong focus on sustainability measures. Upstream: this segment involves the exploration and production of oil and natural gas resources. Product Solutions: the production of various products, including fuels, lubricants, and chemicals, that are essential for modern life. This segment indicates ExxonMobil's commitment to developing and offering technologies and solutions aimed at reducing carbon emissions. This is crucial in the context of global efforts to combat climate change (ExxonMobil, 2023). Elasticity Elasticity of demand pertains to how responsive the quantity demanded of a product or service is to changes in its price. ExxonMobil, the largest and most economically successful oil and gas company in the United States, faces competition from major players like Chevron Corp. (CVX), ConocoPhillips (COP), and Royal Dutch Shell (RDS.A) (Edwards, 2023). The demand for ExxonMobil's products tends to be inelastic because they are considered necessities for many consumers who are not highly sensitive to price fluctuations. People still need these products for essential activities like commuting to work, which isn't significantly influenced by minor price

FINAL REPORT 3 changes. It is worth noting that the demand elasticity could evolve over a more extended period due to advancements in fuel efficiency and the growth of the electric vehicle industry, potentially making it more elastic. ExxonMobil's supply elasticity reflects the degree to which the quantity of goods or services it supplies responds to shifts in price. It is important to note that within the context of this industry, increasing production takes time. Consequently, in the short term, the supply tends to be inelastic, signifying that it doesn't react substantially to price fluctuations. Nevertheless, in the long term, the supply becomes more elastic, indicating that it becomes more sensitive and responsive to changes in price. Cost Structure ExxonMobil, fixed costs are a total of $67,066,887,000. These fixed costs include real estate payments of their locations of oil extraction, factories, research facilities, current contracts, and any lease on machinery or research equipment. In the short run, fixed costs do not change regardless of your production supply. The total variable costs for the company range from $106,308,113,000 in 2020, to $153,687,113,000 to $228,541,113 in 2022 (Yahoo Finance, 2023). These variable costs include operating costs related to production and manufacturing such as exploration costs, administrative expenses, materials, supplies, and labor cost. These variables affect the rate of production. When production increases, variable cost increases and vice versa (Statista, 2023). See Table 1 below. Because ExxonMobil's fixed costs are significantly lower than its variable costs, the company has the capacity to operate at a loss in the short term and make necessary adaptations in response to shifting market conditions. Table 1

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FINAL REPORT 4 ExxonMobil's recent financial assessments reveal a decreasing trend in gross profits, dropping from $29.36 billion in Q3 2022 to $20.09 billion in Q2 2023, resulting in a cumulative reduction of $3.87 billion. During the same period, total revenue decreased from $106.51 billion in Q3 2022 to $83.79 billion in Q2 2023. The price of crude oil and its derivatives, including gasoline and other fuels, is primarily determined by the principles of supply and demand. When demand exceeds supply, prices rise, and when there is more supply than demand, prices fall. The current imbalance in the oil market can be traced back to the COVID-19 pandemic, which reduced fuel demand significantly due to reduced travel and shipping. This had widespread impacts, including financial losses for ExxonMobil, which lost 22 billion in 2020. As demand recovered, supply disruptions, such as restrictions on Russian oil due to the Ukraine invasion, further contributed to market imbalances in the oil industry (McKee, 2022). It is important to note that some decline in revenue can also be attributed to ExxonMobil's long-term growth strategy, as outlined in 2020. This strategy involves making investments throughout the commodity price cycle, allowing the company to seize high-value opportunities and enhance its potential for increased earnings and cash flow (ExxonMobil, 2020). However, these strategic investments can influence short-term profits and may not yield immediate returns, which could explain the slight continuous decline in revenue for the most recent quarterly date. Nevertheless, ExxonMobil's new strategic plan is showing promising results. It involves improving operational efficiency, expanding production capacity, diversifying

FINAL REPORT 5 its product and service portfolio, and strengthening its core revenue structure. These efforts are likely to contribute positively to the company's long-term growth and profitability. Market Structure The global oil and gas sector, with a revenue of approximately $5 trillion in 2022, is a major contributor to the world economy, influencing various sectors including transportation, heating, electricity generation, industrial production, and manufacturing (McClay, 2022). In 2022, ExxonMobil reported a total revenue of $398.7 billion, leading the way in revenue among U.S. O&G’s corporations. Following closely behind was Chevron Corporation (CVX) with $235.7 billion, and a nearly equal footing between Marathon Petroleum Corporations (MPC) at $177.5 billion and Valero Energy (VLO) at $176.4 billion, as reported by Yahoo Finance in 2023. The combined revenue of these companies approached nearly $1 trillion, solidifying their dominant position in the U.S. market. As of Q2 2023, their respective market shares were XOM at 20%, CVX at 12%, and VLO and MPC at 8%, (CSIMarket, 2023). ExxonMobil functions within the framework of an oligopolistic market structure, where a handful of major corporations wield control over the industry. This market arrangement, as described by Schiller and Gebhart in 2019, is characterized by limited competition, high market concentration, and a small number of dominant firms that command significant market shares. In such oligopolistic environments, intense competition is common, and these influential firms possess the capacity to impact both prices and market dynamics. Environmental Sustainability

FINAL REPORT 6 The EPA, U.S. Department of Justice, and Louisiana Department of Environmental Quality have reached a significant settlement with ExxonMobil, aimed at addressing environmental concerns. This agreement will lead to a substantial reduction in harmful air pollution generated by eight of Exxon's petrochemical manufacturing facilities in Texas and Louisiana. The settlement comes in response to allegations that ExxonMobil violated the Clean Air Act due to improper operation and monitoring of industrial flares at these facilities, resulting in excessive emissions of harmful pollutants (US EPA, 2023). The operations of the energy sector can potentially harm the environment and society. It is vital for industry participants to prioritize sustainable practices. ExxonMobil is firmly committed to supplying essential energy and chemical products required for modern life and economic advancement while placing paramount importance on the safety of individuals, the environment, and the welfare of communities (Woods, 2021). Recognizing the limitations of finite fossil fuel resources in the world, diversifying their energy sources is seen as a strategic move to address the impending scarcity of these resources. ExxonMobil is taking significant steps to address greenhouse gas emissions with an ambitious investment plan of over $15 billion. These investments target various initiatives, including carbon capture and storage, hydrogen, and biofuels, all aimed at making substantial contributions to global emissions reduction efforts. Notably, ExxonMobil leads in carbon capture, having captured more human-made CO2 than any other company. Additionally, they are developing "carbon capture and storage hubs" to facilitate emissions reductions in high-emission industries, which can lead to cost efficiencies. This expanded use of carbon capture and storage is expected to further enhance emission reductions associated with hydrogen and biofuels (ExxonMobil, n.d.).

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FINAL REPORT 7 Conclusion ExxonMobil, is a globally renowned oil and gas company, operates in over 60 countries with a diverse product portfolio, emphasizing sustainability and technological advancements, for the last 140 years. ExxonMobil has a longstanding commitment to providing products that contribute to people's well-being and prosperity in a constantly evolving world. Despite challenges, ExxonMobil's adaptability and strategic investments demonstrate its resilience in a continually evolving energy landscape. ExxonMobil is committed to sustainability by actively working to reduce emissions, investing in carbon capture and storage technologies, and exploring renewable energy opportunities. Their sustainability efforts reflect a commitment to addressing environmental and social challenges in the ever-changing energy landscape.

FINAL REPORT 8 References Edwards, J. (2023). Who Are Exxon Mobil's Main Competitors? Investopedia . https://www.investopedia.com/articles/markets/090715/who-are-exxons-main- competitors.asp#:~:text=This%20is%20a%20look%20at,A ). CSIMarket. (2023). Exxon Mobil Market share relative to its competitors, as of Q2 2023. https://csimarket.com/stocks/competitionSEG2.php?code=XOM ExxonMobil. (n.d.). Environment | Sustainability . https://corporate.exxonmobil.com/news/reporting-and-publications/sustainability- report/environment ExxonMobil . (2023, July) 2Q 2023 Earnings . ExxonMobil. https://corporate.exxonmobil.com/news/news-releases/2023/0728_exxonmobil- announces-second-quarter-2023-results McKee. (2022, June 24). The fundamentals of fuel prices and supply | ExxonMobil . ExxonMobil. https://corporate.exxonmobil.com/news/viewpoints/how-do-gas-prices-work Schiller, B., & Gebhart, K. (2019). Essentials of economics (11 ed.). New York, New York: McGraw -Hill. Statista. (2023, August 25). ExxonMobil’s costs and deductions by type 2021-2022 . https://www.statista.com/statistics/281184/costs-and-deductions-of-exxon-mobil-by-type/ US EPA, (2023, January 20) Exxon Mobil Corporation/ExxonMobil Oil Corporation Clean Air Act Settlement. US EPA. https://www.epa.gov/enforcement/exxon-mobil- corporationexxonmobil-oil-corporation-clean-air-act-settlement What we do. (2023). ExxonMobil. https://corporate.exxonmobil.com/what-we-do

FINAL REPORT 9 Yahoo Finance (2023, August 25). ExxonMobil. https://finance.yahoo.com/quote/XOM/financials?p=XOM

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