2000 Global Competitive Assessment

Abstract The bottom line, and most important measure of a company’s success, is shareholder return. Shareholders are the most important constituency senior management of a company work for. In return for a shareholder’s investment, companies are compelled to attempt to provide the shareholders with competitive returns. If they do not, shareholders sell their stock and the stock price drops. There are many factors that lead to good and poor shareholder return. Some of the key ones will be discussed in this article. Different companies approach their businesses from different perspectives and with different strategies, resulting in highly varied performance. How have large oil and gas company shareholder returns varied in the last few years? What forces are causing such a wide range of outcomes in shareholder return? How are companies addressing these forces? Getting down to the personal, individual level, how does this effect professionals in the oil and gas industry? These are questions that will be discussed in this paper. Majors’ Shareholder Return Fig. 1 shows shareholder returns for a peer group of the largest publicly reported oil and gas companies – the majors. The peer group shown is as it existed January 1, 2000. Transactions closed prior to that are restated (i.e. Exxon and Mobil now ExxonMobil), deals not yet closed at that date are not yet restated (i.e TOTAL FINA and ELF not yet TOTAL FINA ELF). Shareholder return takes into account both share appreciation and dividends (if any). The bars in the graph indicate average yearly shareholder return for the past five years. Table 1 is the legend of the stock tickers for the majors. In Table 1, the return for the past twelve months is also shown (ending June 1, 2000 when this article was submitted for publication). The five-year return indicates how companies have done over a long time period and actually through one oil price cycle (which will be discussed later). The twelve-month return is shown to demonstrate which companies did well and which did not do well during the oil price recovery begun in the second half of 1999 and the first half of 2000. The majors are an important peer group to examine because of their size and their influence on the worldwide energy business. The actions they take effect the rest of the business. While they own relatively little of the worldwide reserves because of the massive reserves owned by national oil companies and governments, they are able to leverage their position to have great influence on the business. Though they probably wish they could have more influence over the price of oil! Oil price continues to be influenced by worldwide supply and demand issues and other groups - such as OPEC and some large non-OPEC oil producing countries - control a substantial portion of total production. The largest majors (now being called the "mega-majors") are also some of the largest companies in all industries in the public markets. They have a great number of employees, therefore they have the biggest impact on trends in the industry and, of course, the biggest impact on individuals. This is true whether the individuals work within a major company or outside of it for a service company or other service provider. Because the majors are publicly traded, their results are readily available and are reported consistently. They live squarely "in the market". The results of the actions they take are examined every day and reported on every quarter by the analysts. By analyzing the large amount of data available, trends in the industry can be extrapolated based upon the actions and results of the majors.