ExxonMobil (XOM) Reorganizing Business to Compete with Rivals and Increase Profits
By ExxonMobil (NYSE:XOM) is taking steps to reorganize its business with the aim of reducing costs and competing more effectively with rivals like BP Plc (NYSE:BP) and Shell Plc (NYSE:SHEL), as well as commodity trading houses like Glencore (GB:GLEN) and Trafigura. The company's plans entail the creation of a global trading division to capture additional profits through energy derivatives.
According to Bloomberg, the company announced the formation of a new division that will bring together Exxon's crude, natural gas, power and petroleum-product desks.[0] Additionally, the company will establish a global business hub to manage finance and procurement, and a new supply-chain unit.[1] The new trading division will be formed later this year and is expected to enhance Exxon’s commercial intensity and “deliver outstanding trading results”.[2]
Exxon had long shied away from derivatives trading and was less active in using derivatives compared to its oil and gas rivals like Shell and BP.[2] However, in 2018, the company made a tentative entry, hiring several seasoned oil traders for essential trading and hedging strategies. The company has been aiming to save $9 billion in annual costs by the end of this year, compared with 2019. So far, it has achieved nearly $6.9 billion in structural cost savings compared to 2019 and is on track to meet its goal.
Last week, The Wall Street Journal reported that the energy giant plans to form three new organizations under which it will combine several smaller units including its financial-services, procurement and customer-service groups.[3] The reorganization will likely result in a limited number of job cuts over time as some positions become redundant and some workers are reassigned, according to people familiar with the matter.[4]
Investors were cautiously optimistic on Thursday about ExxonMobil's plans to reorganize its operations. The company's stock was up by 0.4% on the day, while the benchmark S&P 500 index's declined by 0.9%. Analysts on Wall Street have a somewhat positive outlook on Exxon, displaying a Moderate Buy consensus rating derived from 11 Buys, 7 Holds, and 1 Sell. The XOM stock price target of $125.28 on average implies a potential increase of close to 10%.[5]
ExxonMobil's new Global Trading division is expected to be launched later this year.[5] Specific details such as hiring targets and capital commitments have not yet been disclosed.[1]
0. “Exxon Unveils New Trading Division To Compete With Shell And BP” OilPrice.com, 9 Feb. 2023, https://oilprice.com/Latest-Energy-News/World-News/Exxon-Unveils-New-Trading-Division-To-Compete-With-Shell-And-BP.html
1. “Exxon to launch new Global Trading division in bid to boost profits” Quantum Commodity Intelligence, 9 Feb. 2023, https://www.qcintel.com/article/exxon-to-launch-new-global-trading-division-in-bid-to-boost-profits-11670.html
2. “Exxon plans to challenge Glencore and Trafigura in commodity trading business – report” Proactive Investors UK, 10 Feb. 2023, https://www.proactiveinvestors.co.uk/companies/news/1005798/exxon-plans-to-challenge-glencore-and-trafigura-in-commodity-trading-business-report-1005798.html
3. “Why ExxonMobil Stock Topped the Market on Thursday” The Motley Fool, 9 Feb. 2023, https://www.fool.com/investing/2023/02/09/why-exxon-mobil-stock-topped-the-market-on-thursda/
4. “Exxon unveils plans to merge business units to reduce costs” Offshore Technology, 10 Feb. 2023, https://www.offshore-technology.com/news/exxon-merge-business-units/
5. “Exxon (NYSE:XOM) to Create Trading Unit to Compete with Rivals” TipRanks, 10 Feb. 2023, https://www.tipranks.com/news/exxon-nysexom-to-create-trading-unit-to-compete-with-rivals
