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ExxonMobil Strategic Analysis
Group 4: Brendan Wise, Chujun Tan, Erik Jansa,
Gabrielle Herman & Randy Bialcik
May 5, 2017 MGMT 3004 - Sec 002
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Introduction
In 1870, John D. Rockefeller founded the Standard Oil Company Inc., headquartered in
Cleveland, Ohio. The Standard Oil Company Inc. was a major success in the late 19th century
implementing horizontal and vertical integration into its business and strategic plan. However, due to its
large success and large market share, in 1890 Congress passed the Sherman Antitrust Act forcing Mr.
Rockefeller’s Standard Oil Company to be divided into 34 separate entities. After the Sherman Antitrust
Act, many of Rockefeller’s unique entities preferred to develop into individual brand names. The
Standard Oil Company of New Jersey later became Exxon and the Standard Oil Company of New York
became Mobil. With the continued success of the oil and gas industry and post separation of the Standard
Oil Company, competitors started to emerge. One decade later, Exxon and Mobil merged in 1999, thus
creating ExxonMobil. In essence, the merger of ExxonMobil is a small revert to the once incredibly
dominant original Standard Oil Company.
Internal Analysis
As a leader in the oil and gas industry, ExxonMobil Corporation has garnered tremendous success
as a company due to its size, long-term investments, and competency in research and development across
its four business divisions: Upstream, Downstream, Chemical, and Natural Gas and Power Marketing.
ExxonMobil’s Upstream division participates in the exploration of resources and land across the globe,
while continuously innovating groundbreaking technologies through research and development.
ExxonMobil’s Upstream Research Company has leveraged technical knowledge and expertise in
developing and innovating their drilling, completions, and operations technologies.1 In addition, the
company’s presence across a variety of geographical environments through an extensive network of fuel
terminals, refineries, and pipeline operations in over 200 countries are crucial key resources for the
company’s success. Their global operations combined with their research and development and size
makes ExxonMobil an industry leader of land acreage through trades, farm-ins, and acquisitions; this
allows ExxonMobil to extend their product portfolio into next-generation energies while building upon
their Upstream division through natural gas, shale gas, and tight oil projects. These strengths have enabled
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ExxonMobil to reduce development costs, improve recovery, increase profitability, and increase
shareholder value, as well as put them at an advantage for increasing energy usage.2
ExxonMobil’s Downstream division focuses on strengthening and diversifying their product
portfolio. Along with a highly developed learning curve incorporating their past and present products,
ExxonMobil is working with approximately 80 university research facilities around the world to explore
next-generation technologies. This includes their commitment to contribute $5 million to the Princeton E-
ffiliates Partnership from 2015 – 2020 to sponsor the research of energies that are more environmentally
friendly such as their algae biofuels.3 Having such a prominent history of research and development has
allowed ExxonMobil to embrace the development of energy products that deliver environmental
excellence and energy efficiency as an effort to build the company’s sustainability presence and to move
with the global trend towards cleaner energy. Participating in the innovation of alternative energies would
not only grow ExxonMobil’s already diversified product portfolio, but it would also benefit
ExxonMobil’s entire value chain by reducing energy consumption, transportation and shipping costs,
emissions and waste, and energy costs in general.4
To address these innovations, ExxonMobil must capitalize on the resources and capabilities that
the company has built over the years, specifically incorporating the progress they have achieved through
their Chemical and Natural Gas and Power Marketing divisions, through economies of scope (Exhibit 1).
Their most important resources include their extensive research and development technologies and the
corresponding tangible and intangible assets that have resulted. For example, throughout the year of 2013,
ExxonMobil was issued 383 patent grants by the USPTO, placing 97th worldwide in terms of patents
issued.5 Along with this, their intellectual capital and 82,000+ human assets, 19,000 of which are
qualified scientists and engineers, continually add to the company’s overall growth, building skills and
expertise further through global integration and technological innovation.6 Furthermore, in ExxonMobil’s
existing Chemical and Natural Gas and Power Marketing divisions, they have utilized their pre-existing
capabilities to expand into the wind turbine lubricant market as a key supplier. Though a small sector of
ExxonMobil, Mobil lubricants are used in more than 40,000 wind turbines worldwide.7
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ExxonMobil’s internal history has consisted of many leveraged core competencies that continue
to add value to the company through their integration. As a result of continuously innovated technologies,
research and development projects, and a growing global presence, ExxonMobil has built an empire of
rare capabilities and strengths with a very low risk of being imitated by competitors due to the time and
money investments that ExxonMobil has put into its development to become the largest publicly traded
petroleum and petrochemical enterprise in the world. Refer to the Appendix (Exhibit 2) to review an
analysis of ExxonMobil’s strengths, weaknesses, opportunities, and threats in the industry.
External Analysis
After a shortage in supplies and a downward plunge in prices over the past few years, the oil and
gas industry is facing a period of recovery. However, the industry confronts great opportunities and
challenges during this period, such as the unstableness in the Middle East region, the spiking demand for
energy across the globe, and decisions made by OPEC that directly influence the price and production
quantity of fuel worldwide. Considering ExxonMobil’s large presence in the oil and gas industry, it is
important to analyze the external environment of the industry in order to form our recommendations for
the future.
Considering the oil and gas industry profitable and the technology used for offshore drilling is
constantly improving, many companies are trying to enter the industry due to its attractiveness, but face
challenges in doing so.8 One of these challenges includes the incredible amount of sunk costs that new
entrants must incur to first enter the industry, such as investments in land, technology, and infrastructure.
In addition, rivalry in the industry is considerably high since OPEC controls the majority of the world’s
oil production. According to the OPEC homepage, more than 80% of the world’s proven crude oil
reserves are located in OPEC member countries, giving OPEC significant power as a competitor and a
major influence on the worldwide price of oil.9 Also, internationally, Gazprom is a major competitor
located in Russia that accounts for 11% of the world’s natural gas global output.10 Furthermore, there are
many competitors located domestically that directly compete with ExxonMobil in the energy market,
including Chevron, BP, and Royal Dutch Shell. Overall, competition is steep both internationally and
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domestically for the oil and natural gas industries. However, there are many more facets and substitutes in
the energy market, such as the increasing production of solar, wind, hydro, geothermal, and other
initiatives. Socially, there has been increasing demand and a positive public sentiment around renewable
energy and sustainability movements. Finally, buyer power is relatively low in this industry because most
buyers are everyday consumers of energy. Buyers do not have the ability to negotiate with the decision
makers regarding the price of energy.
Despite all the competition in the energy market, the overall consumption and demand of energy
are increasing globally, creating new opportunities for current players. According to ExxonMobil News,
energy usage is expected to grow 35% over the next 25 years due to a growing world population and an
uprising of the middle class in both developed and developing countries.11 According to the US Energy
Information Administration, the United States used 35.4 quadrillion British Thermal Units (BTUs) of
petroleum and 28.3 quadrillion BTUs of natural gas in 2015. Renewable energy only took up 10% of the
whole consumption, which was 9.7 quadrillion BTUs.12 In 2016, natural gas accounted for 33.8% of the
United States energy consumption by source while coal, nuclear, and renewable accounted for 30.4%,
19.7%, and 14.9% respectively. However, by 2040, the global demand for natural gas specifically is
estimated to rise by 45%, which will account for 25% of the world’s electricity, 10% of marine
transportation, and 5% of total transportation.13
Furthermore, the social environment of the energy industry is pursuing more efficient ways of
energy consumption. On one hand, customers use energy more efficiently because the advanced
technologies in their home and workplace. On the other hand, resource producers are increasingly able to
deploy a range of technologies in their operations. This includes putting mines and wells that were once
inaccessible within reach, raising the efficiency of extraction techniques, shifting to proactive
maintenance, and using sophisticated data analysis to identify, extract, and manage resources.14
In conclusion, the energy market will continue to grow globally and domestically. Along with
this, there is an increasing demand for cleaner and more efficient forms of energy. Moving forward,
natural gas and renewable energy will account for the majority of the growth in this industry.
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Historical Performance
Our process for examining ExxonMobil’s historical performance followed two key parts.
Primarily, analyzing the company's financial performance over the last few years and secondly, looking at
the company's performance in their internal divisions.
To analyze ExxonMobil’s financial performance, we looked at their operating profit margin and
net profit margin versus the industry and versus their key competitors. In general, the oil and gas industry
has been decreasing over the past five years, dropping 15% in operating profit margin and 10% in net
profit margin.15 We can conclude that the reason for this drop in the industry can be attributed to lower
demand, decreasing oil prices, and the sustained cost of production relative to other forms of energy,
therefore creating slimmer margins for the oil industry. In addition, the increase in demand for alternative
energy sources outside of oil has damaged the margins in the oil industry. Despite ExxonMobil’s
operating and net profit margins being continuously above average over the past three years, the oil
industry is in the late maturity stage of its life (Exhibit 3 & 4). Hence, potential implications and risks
include slowing of total industry sales, less profitability, fierce price competition, and stronger effects of
external forces.
The innovation of ExxonMobil’s research and development department has driven the company
over the last few years as well. Compared to BP and Royal Dutch Shell, ExxonMobil has spent $1,024.6
million on research and development on average over the last five years, while their competitors have
spent $572.4 and $1,190.8 million respectively.16 However, a trend to note is that ExxonMobil has been
increasing its research and development spending, while the competitors have been cutting the expenses.
In respect to our key recommendations, we examined the development in ExxonMobil’s Chemical
division and Natural Gas and Power Marketing division. ExxonMobil’s Chemical division is one of the
company’s greatest performers, boasting an 18% return on capital employed and accounting for 58.9% of
ExxonMobil’s earnings after income tax in 2016 (Exhibit 5).17 Within ExxonMobil’s Chemical division,
it’s lubrication products are very high quality products that their competitors have yet to imitate. For
example, ExxonMobil provides a lubricant for wind turbines that lasts about seven years. This lubricant
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has given ExxonMobil a competitive advantage, as well as a foot-in-the-door with the wind energy sector.
ExxonMobil is also diversifying into natural gas and power marketing, which we see as a strategic move
for the company. At year end in 2016, ExxonMobil had produced 3,078 million cubic feet of natural gas
per day in the United States, making it the number one natural gas producer in the nation. The next closest
competitor in the United States, Chesapeake Energy, was producing only 2,866 million cubic feet per day
(Exhibit 6).18
Key Issues
ExxonMobil’s Natural Gas and Power Marketing division faces fierce competition within the
natural gas industry. The top ten natural gas producers in the world account for 30% of the natural gas
mining market.19 The main competitor within this industry is Gazprom, a Russian gas-producing
“champion” that was incorporated in 1989 when the Soviet Ministry of Gas Industry became a public
corporation.20 Because of Russian gas fields, Gazprom accounts for 17% of global natural gas
production.21 The output of Gazprom is forty-three billion cubic feet of natural gas a day, whereas
ExxonMobil’s global output is about eleven billion cubic feet of natural gas a day.22
ExxonMobil’s Natural Gas and Power Marketing division also competes with companies in
industries outside of the natural gas market because of how power markets and grids function. Power
plants within each market forecast the amount of energy they can produce and create bids for the cost, as
well as forecast the demand needed for periods throughout the day.23 Because of this, power plants
produce fuels that can be produced and consumed at the lowest cost, in comparison to more costly forms
of energy. Natural gas particularly is an expensive option as a fuel for a power plant, considering 85% of
the cost to run a natural gas power plant is incurred from the fuel.24 Natural gas power plants consistently
have a higher cost than wind, hydroelectric, and nuclear power plants according to the Energy
Information Administration (eia). Together, nuclear and renewable sources of energy account for about
35% of the United States energy production, and these power plants produce the cheapest bids for
electricity. When combined with coal power plants, this number reaches 65%.25 This leaves a small
margin for the use of natural gas.
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The last key issue we identified for ExxonMobil's Natural Gas and Power Market division was
government regulations. With the concerns of global climate change, countries around the world have
been passing regulations on the emission of carbon dioxide and other greenhouse gasses. Since natural
gas is a greenhouse gas, it releases carbon dioxide when burned.26 Because of this release of carbon
dioxide, natural gas is not considered a clean form of energy, even though natural gas power plants
release about 30% less carbon dioxide than coal power plants. This classifies natural gas as a reduced-
carbon form of energy.27 Government regulations, like the Clean Power Plan, stressed the importance of
using reduced-carbon methods for energy production. This plan was put into place by President Obama
and paved the way for additional research and investments into natural gas power plants.28 This plan was
later put under review by President Trump with the Executive Order on Promoting Energy Independence
and Economic Growth.29 This executive order puts the future of natural gas research into question
because it is cheaper for the government to continue the operation of coal power plants rather than
funding natural gas research. Another form of regulation that puts the future of natural gas into question is
the Paris Agreement, which calls for investment into carbon free energy sources like renewable and
nuclear energies.30 This is a threat to ExxonMobil’s Natural Gas and Power Marketing division,
specifically, because natural gas does not fit the “carbon free” description. To conclude, ExxonMobil is
caught in between the worldwide trend of net zero energy and the United States’ trend of cheaper energy
options.
Recommendations
From our analyses on the natural gas and power production industries, along with ExxonMobil’s
core competencies, we have decided on three main recommendations for ExxonMobil’s Natural Gas and
Power Marketing Division. These recommendations were made on the premise that governments around
the world are starting to aim for renewable and reduced-carbon forms of energy production and that the
United States will eventually follow suit. Our recommendations include (1) further developing company
strategy into cleaner forms of natural gas power plants, (2) lobbying for regulations supporting cleaner
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energy, and (3) expanding company research and development scope towards more sustainable forms of
energy.
ExxonMobil should further develop company strategy into the cleaner forms of natural gas power
plants because of the growing demand for cleaner energy throughout the world. By investing funds into
the research and development of natural gas power plants, ExxonMobil can strive to more efficiently
produce reduced-carbon energy. Discovering more efficient ways to convert natural gas into power will
reduce the price associated with natural gas power plants. This reduced price will make natural gas power
plants more competitive with current low-cost sources, such as nuclear energy. Being able to compete
with the lowest cost forms of energy will allow natural gas power plants to produce energy throughout
full days as opposed to only being able to run the factory during peak electricity use periods.
Lobbying for regulations and supporting cleaner energy would seem counterintuitive, but it
would ultimately benefit ExxonMobil while debilitating its competitors. If regulations were implemented
that raised the standard of energy from carbon-free to reduced-carbon, ExxonMobil would be able to
compete in the market at a higher advantage because of their dominant domestic presence in the natural
gas sector and looser regulations on natural gas. However, their competitors, such as Royal Dutch Shell
and Chevron, would be negatively affected. Additionally, lobbying for these regulations may lead
ExxonMobil to receiving government grants or funds purposed for research and development into the
efficiencies of the reduced-carbon natural gas power plants. To accomplish this, ExxonMobil would have
to contact and persuade government officials to favor cleaner energy. This would be a strategic move as
the current global social climate is favoring reduced-carbon energy production.
Expanding company research and development scope towards more sustainable forms of energy
would benefit ExxonMobil because of their pre-existing lubricant technologies in the wind turbine
industry. By allocating ExxonMobil’s highly extensive research and development capabilities into wind
energy, the company would have the opportunity to backwardly integrate as a supplier of both wind
turbines and their existing lubricants. This is critical in considering the social and political movement
towards clean energies, while also taking into account that ExxonMobil already has some experience with
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wind turbines. In addition to this, when wind turbine energies are not steadily available from mother
nature, ExxonMobil can utilize their developed natural gas sector to provide reliable power.
There are a few potential repercussions to note with the implementation of our recommendations,
however. First, the current political state in the United States is not in step with the rest of the world in
terms of forward-thinking environmentally-friendly initiatives. Under President Trump, there have been
movements to revert to oil and coal as the main energy sources due to their cheaper production costs.
Thus, if ExxonMobil were to focus on natural gas and sustainability exclusively, they could miss out on
the short-term benefits to produce at a cheaper cost. Furthermore, there are less governmental pressures to
pursue sustainability efforts like wind, solar, hydro, or geothermal, which, again, could cause
ExxonMobil to spend money researching cleaner forms of energy at a higher cost.
Conclusion
In conclusion, ExxonMobil is a phenomenal company that has stood the test of time since 1870
when it was founded by John D. Rockefeller. Today, considering domestic and global pressures, we
believe that there are two choices for ExxonMobil; these being to capitalize on the short-term benefits of
the US government’s regression back into coal and oil, or to focus on the global trend of carbon-reduced
and sustainable energy efforts. We suggest to go with the latter, to focus on longevity of the company in
the changing energy and political climate, to utilize technologies to create cost-effective ways to produce
and use energy, and to uphold our corporate responsibility in the eyes of our consumers by being an
innovative and ethical industry leader.
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Appendix
Exhibit 1
Exhibit 2
Strengths
• Brand reputation as a leader in the
industry
• Strong research and development
• Geographical and product portfolio
diversification
• Extensive network of fuel
terminals, refineries, and pipelines
• Intellectual and human capital
Weaknesses
• Weak revenue growth compared to
competition
• Not viewed as environmentally friendly
by stakeholders and environmental
interest groups
• Relies a lot on oil rather than using its
capabilities to develop alternative
energies
Opportunities
• Rising demand for shale gas
• Global energy usage is expected to
grow
• Increasing energy demands in
many developing economies
• Improving its environmental image
by focusing more on efficient
energies
Threats
• Declining oil prices
• Environmental government regulations
• Competitors are developing alternative
energy sources faster
• Economic recessions decrease energy
demand
• Natural disasters
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Exhibit 3
Exhibit 4
12
Exhibit 5
Exhibit 6
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Endnotes
1 http://cdn.exxonmobil.com/~/media/global/files/financial-
review/2016_financial_and_operating_review.pdf
We used this website for information about ExxonMobil’s Upstream Research Company and their
technology uses.
2 http://cdn.exxonmobil.com/~/media/global/files/financial-
review/2016_financial_and_operating_review.pdf
We used this website for information on ExxonMobil’s land acreage ownership and the resulting
profitability and costs that have occurred.
3 http://web.b.ebscohost.com.ezp1.lib.umn.edu/ehost/detail/detail?vid=16&sid=25f20b46-d57d-4715-
89f2-
39aed62c8594%40sessionmgr104&hid=101&bdata=JkF1dGhUeXBlPWlwLHVpZCZzaXRlPWVob3N0
LWxpdmU%3d#AN=bizwire.c71129887&db=keh
We used this website for information about ExxonMobil’s investment into research and development
through universities across the country.
4 http://corporate.exxonmobil.com/en/company/news-and-updates/speeches/moving-down-the-value-
chain
We used this website for information about ExxonMobil’s diversifying product portfolio and how it has
affected their value chain.
5 http://www.ipwatchdog.com/2015/01/28/exxonmobil-flexes-patent-muscle-in-offshore-drilling-
monetizing-remote-gas/id=54189/
We used this website for information regarding patents and patent ranks that ExxonMobil has acquired.
6 http://web.b.ebscohost.com.ezp1.lib.umn.edu/ehost/detail/detail?vid=16&sid=25f20b46-d57d-4715-
89f2-
39aed62c8594%40sessionmgr104&hid=101&bdata=JkF1dGhUeXBlPWlwLHVpZCZzaXRlPWVob3N0
LWxpdmU%3d#AN=bizwire.c71129887&db=keh
We used this website for information assessing the tangible and intangible assets within ExxonMobil and
their contribution to the company.
7 http://corporate.exxonmobil.com/en/community/corporate-citizenship-report/managing-climate-change-
risks/developing-solutions-reducing-ghg-emissions-for-customers
We used this website for information on ExxonMobil’s presence in the wind turbine and lubricant
industry.
8 http://smallbusiness.chron.com/competitive-forces-offshore-oil-gas-industry-76822.html
We used this website for information regarding offshore drilling and new entrants of the industry.
9 http://www.opec.org/opec_web/en/data_graphs/330.htm
We used this website for information on OPEC and the pressure that it puts on ExxonMobil as a large
competitor and force in the oil industry.
10 http://www.gazprom.com/about/
We used this website for information regarding Gazprom, another major competitor for ExxonMobil.
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11 http://news.exxonmobil.com/press-release/exxonmobils-outlook-energy-sees-global-increase-future-
demand We used this website for information on future projections of energy usage due to the increase in the
global population and how this affects ExxonMobil’s future.
12 https://www.eia.gov/energyexplained/?page=us_energy_home
We used this website for information from the US Energy Information Administration on the number of
BTUs emitted by different energy sources in the United States.
13 http://corporate.exxonmobil.com/en/energy/energy-outlook/natural-gas
We used this website for information from ExxonMobil’s prediction of the future global demand growth
for natural gas energy.
14 http://www.mckinsey.com/business-functions/sustainability-and-resource-productivity/our-
insights/how-technology-is-reshaping-supply-and-demand-for-natural-resources
We used this website for information on the social environment of the energy industry and its pursuit of
energy-efficient technologies.
15 https://www.stock-analysis-on.net/NYSE/Company/Exxon-Mobil-Corp/Ratios/Profitability#Operating-
Profit-Margin
We used this website for financial information on ExxonMobil, including their operating profit margin
and net profit margin within the industry and to compare with their competitors.
16 https://www.statista.com/topics/1109/exxonmobil/
We used this website for information in comparing ExxonMobil’s investment in research and
development to their competitors’ investments.
17 http://cdn.exxonmobil.com/~/media/global/files/summary-annual-
report/2016_summary_annual_report.pdf
We used this website for information about ExxonMobil’s Chemical division and its financial
performance in the past year.
18 http://www.ngsa.org/wp-content/uploads/2017/03/Top-40-2016-4th-quarter.pdf
We used this website for information about natural gas production statistics in the United States to
compare ExxonMobil with their competitors in year 2016.
19 http://www.investopedia.com/articles/markets/030116/worlds-top-10-natural-gas-companies-xom-
ogzpy.asp
We used this website for information about the key competitors in the natural gas industry, along with
facts about natural gas production.
20 https://www.oxfordenergy.org/wpcms/wp-content/uploads/2015/09/NG-102.pdf
We used this website for information about the history of Russia’s natural gas industry, which led to the
creation of Gazprom, one of ExxonMobil’s strongest competitors.
21 http://www.gazprom.com/about/
We used this website for information about Gazprom’s historical background and their amount of global
natural gas production.
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22 http://www.investopedia.com/articles/markets/030116/worlds-top-10-natural-gas-companies-xom-
ogzpy.asp
We used this website for information about Gazprom’s production of natural gas per day versus
ExxonMobil’s production of natural gas per day.
23 https://www.energymanagertoday.com/wholesale-electricity-markets-explained-0109432/
We used this website for information about how power markets and grids function and how they forecast
energy costs from demand and production.
24 https://www.eia.gov/electricity/annual/html/epa_08_04.html
We used this website for information about the major components to the price of energy per type of
power plant, specifically natural gas and the expensive costs that natural gas power plants incur.
25 https://www.eia.gov/tools/faqs/faq.php?id=427&t=3
We used this website from the United States Energy Information Administration for information on the
percent of U.S. energy produced by each type of power plant.
26https://ay16.moodle.umn.edu/pluginfile.php/1138998/mod_resource/content/0/04_Energy_Balance_%2
B_Circulation.pdf
We used this slide deck from Daniel Griffin, PhD, a biology professor, for information about greenhouse
gases and the solar cycle.
27 https://www.eia.gov/tools/faqs/faq.php?id=73&t=11
We used this website for information on how much carbon dioxide is released by different types of fossil
fuels, specifically natural gas.
28 https://www.federalregister.gov/documents/2015/10/23/2015-22842/carbon-pollution-emission-
guidelines-for-existing-stationary-sources-electric-utility-generating
We used this website for information about the Clean Power Plan, which allowed for reduced-carbon
methods for energy production, and the advantage this regulation gave ExxonMobil.
29 https://www.whitehouse.gov/the-press-office/2017/03/28/presidential-executive-order-promoting-
energy-independence-and-economi-1
We used this website for information on the White House’s executive order for removal of the Clean
Power Plan in the recent year and how this has affected ExxonMobil’s Natural Gas and Power Marketing
division.
30 http://unfccc.int/files/meetings/paris_nov_2015/application/pdf/paris_agreement_english_.pdf
We used this website for information on the Paris Agreement and how this regulation for carbon-free
energy affects ExxonMobil.