Chevron and Exxon: 2005 Annual Reports

Chevron and Exxon: 2005 Annual Reports

Introduction:

    Any individual who purchases gas at a Chevron, Texaco or CalTex is making an investment in the same company: Chevron. Exxon and Mobil joined together to form ExxonMobil.  Chevron and Exxon are two of the largest gas corporations worldwide. Both have experienced significant growth from 2004 to 2005, but the clear leader is Exxon, whose financial resources are twice that of Chevron.

    The 2005 annual report for both companies offer similar features; primarily to assure their shareholders of their continued success. Both explain the company’s philosophies and history. Both reports offer detailed financial statements explaining the revenue, costs and expenditures required in order to maintain a level of success. They also look to the future and explain the strategies and goals on which they plan to focus.

Comparison:

    Chevron and Exxon both open their annual reports by mentioning the tragedy of Hurricane Katrina and its global impact. Both companies use the terms upstream and downstream. Upstream refers to exploration, development, production, and gas and power marketing. Downstream refers to the refining and marketing of petroleum products such as motor fuels and lubricants.

    Chevron and Exxon both experienced significant financial growth from the years 2004 to 2005. While Exxon is considerably more profitable than Chevron, both experienced a comparable amount of growth. Chevron’s net income increased by $7.71 million, while Exxon’s increased by just over $10 million. This was mainly due to an increase in sales revenue, which for Chevron was nearly $43 million. Exxon’s increase in sales revenue amounted to nearly $68 million. Chevron increased its total assets by approximately $33 million, while Exxon increased its assets by $13 million. In spite of being more profitable, Exxon’s asset growth was only a third of Chevron’s.

    This amount of growth leads to benefits for the shareholders. Chevron shareholders, as a whole, received $3.8 million in dividends at the end of 2005, which was a $500,000 increase from 2004. As for Exxon, their shareholders (as a whole) received over twice as much as Chevron’s shareholders, for a total of $7.2 million. Most similar between the two corporations was its share price at year’s end. Consumers could buy Chevron stock for $54.80 per share at the end of 2005. Similarly, one could buy stock in Exxon for $56.17 per share. Both experienced a rise in stock price from 2004 to 2005. Chevron’s increase was $12.81, while Exxon’s increase in share price was $4.91.

    Chevron and Exxon both participated in quite a bit of exploration in 2005. Worldwide, they’ve tapped every oil resource they can find. As such, Chevron increased its store of oil reserves by nearly 4 billion cubic feet. Exxon also increased its reserves by 6.5 billions of cubic feet. Clearly, both corporations are planning to be around for years to come.

    Both companies express similar goals in regard to the future. Both companies plan to participate in more exploration worldwide, invest in their employees to ensure their growth, and to cut costs wherever possible.

    A disturbing similarity between Chevron and Exxon lies in the makeup of the Board of Directors. Both boards consist primarily of white men. Chevron has two African-American men on its board, and both achieved this status in 2001. There are no women on its board, and no other members of the board are anything but white. Exxon has a similar lack of diversity on its board. It has one African-American, who is a woman, and one other woman, who is white. Other than having two women and one African-American on its board, there are no other minorities.

Contrast:

    Chevron and Exxon differ in the way they open their annual reports. Chevron begins with a vision statement as well as a list of financial highlights and accomplishments in exploration, production and other major products. Exxon’s report first refers to less-specific “values”, which are: consistency, integrity, discipline, reliability and ingenuity. Exxon directs its statements directly to the shareholders, reaffirming their faith in the company by discussing accomplishments and the fact that they recently invested another $18 million back in the company.

    The largest difference between Chevron and Exxon is in the size of the corporations. Chevron includes three gas companies: Chevron, Texaco and CalTex. It is not unusual to find both a Chevron and a Texaco station in the same area. Exxon, however, operates on seven brand names, which explains the advantage Exxon has over Chevron when it comes to sales. In regard to sales for 2005, Exxon surpassed Exxon’s sales nearly twice over. Exxon has a similar advantage in net income. Chevron’s net income in 2005 was $14 million, while Exxon’s was just over $36 million.

    Most of Chevron’s other ventures are exploratory. Exxon’s, however, involve the sale of products to any industry that uses fuel. One large difference between the two annual reports is that of the inclusion of exploration expenditures. These costs are important as exploration will allow both companies to discover more oil reserves. Chevron spent just over $11 million on exploration in 2005, and this was an increase from $8 million in 2004. Exxon’s exploration expenditures, however, were significantly larger. In 2005, Exxon spent nearly $18 million on exploration, and this was up slightly from almost $15 million in 2004.

Exxon: The Leader

    Exxon has proven itself to be superior in every aspect of the 2005 annual report. Exxon is twice the size of Chevron in terms of sales revenue, net income and dividends to shareholders. They spend more money on exploration and have larger oil reserves, which are increasing as a more rapid rate than that of Chevron. In addition, they mention right away in the report that they made a large investment of $18 billion in the company. While there is plenty of other information in the report, the one item that is missing is this investment amount. This boast is the kind of thing that shareholders want to see. They want to know that the company is doing everything possible to maximize the shareholder’s return on investment.

    As long as Exxon continues to manage costs and reinvest profits, it is clear that they will continue to be the leader in the future.

Conclusion: Basis for Agreement

    Chevron and Exxon made the following statements in their annual reports:

                           Our vision: To be the global energy company most

  admired for its people, partnership and performance

                                      –Chevron 2005 Annual Report

                   Our long-term view allows us to focus on shareholder value

                   and business fundamentals rather than trying to react to

                   short-term trends in the energy markets

                                      –Exxon 2005 Annual Report

    The annual reports for Chevron and Exxon agree wholeheartedly on these points:

      We can expect a fifty percent increase in energy demand by the year 2030; this will be driven both by economic progress and population growth. Access to resources will be key for any corporation that wishes to compete in the future;

      The world will become more energy-efficient;

      Oil, gas and coal will continue to represent more than 80 percent of the total energy consumed;

      In spite of our rapid consumption of oil resources, there are still abundant resources available to consume;

      Technology is the key to meeting future energy demands.

    As long as both companies are looking toward the future and making plans to meet those needs, both will succeed, even if Chevron isn’t in the level to compete with Exxon just yet.

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