ExxonMobil (Exxon) has just published its annual report for 2003 and it makes for interesting reading— particularly in the context of the return on investment debate. Up in the front of the report is something of a boast: a comparison of Exxon’s return on capital employed (ROCE) with a peer group consisting of BP, Shell and ChevronTexaco. In 2003, Exxon turned in a healthy 21% ROCE against 15% for the peers. Over the last five years, average ROCE for Exxon was 17% compared with 12% for the peers.
How is this performance achieved? While Exxon isn’t exactly giving away all of its secrets for success, the annual report does give a hint—in the form of 92 references to ‘technology’ in the 94 page document. In fact, ‘developing and deploying cutting-edge proprietary technology’ is the subject of a whole chapter in the report.
Unlike some of its peers, Exxon appears to eschew the ‘buy not build’ mantra—and has maintained ‘a long tradition in technology development’ in the form of R&D focused on developing ‘next-generation’ breakthrough technologies that have a ‘significant potential to provide a step change to the company’s competitive position and financial performance’. To achieve this, Exxon has filed 10,000 patents over the last ten years.
Exxon maintains what it claims is the industry’s largest proprietary upstream technology R&D effort with a $200 million plus annual budget. Coverage is broad—from basin analysis through seismic acquisition, processing and interpretation to reservoir modeling, drilling and production and sales.
Exxon’s proprietary basin modeling tool ‘Stellar’ features as a predictor of reservoir fluids ahead of the bit—with a claim for reduced risk in Exxon’s West African deepwater plays. Exxon is also investing in training, with a new 100,000 sq ft upstream training center to be opened mid-year 2004.
The company places great importance on its globally-operated functional organization. Global opportunities are ranked and personnel deployed to ‘ever changing’ business conditions. This helps prioritize ‘high impact technology needs’ and facilitates ‘sharing best practices and ideas across the organization’ . The functional approach has delivered $1 billion pre-tax operating cost savings in 2003.
‘Technology is the lifeblood of our business. It allows us to maximize value by increasing recoverable resources, reducing costs and creating new markets for our products. We manage technology with the same disciplined approach we use in making all of our business decisions. Technology is and will continue to be fundamental to our business success.’
Exxon’s Global Enterprise Management System (GEMS) investment continued through 2003. GEMS is ‘a global IT platform which supports a broad range of business processes, strengthens global operations and enables common practices around the world in support of consistent service delivery to global customers’.
New technology has contributed to Exxon’s average of 662 million barrels per year over the last five years of upward revisions to reserves. Even Groningen, Exxon/Shell’s jointly developed Dutch gas supergiant, got an upward revision—some irony there surely!
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