Week 4 Team

Week 3 Team Assignment

RISK FACTORS

ExxonMobil’s financial and operating results are susceptible to several risks related to the global oil, gas, and petrochemical businesses. A good number of these risk factors are beyond the Company’s control and could adversely affect businesses, financial and operating results, or financial positions. These risk factors include:

Inventory related risk

This is the chance the company will be unable to sell its produce or rather, sales and supply will deteriorate. It pegged on several factors;

There are other factors that may impact oil, gas, and petrochemicals demand consequently impacting results, technological advancements in energy efficiency; seasonal weather patterns, which affect the demand for energy related to heating and cooling; increased competition for alternative sources of energy that have so far been incompetent with oil and gas less the benefit government subsidies or mandates; and reforms in technology or consumer preferences that tempers with fuel choices, such as toward fueled electric vehicles as an alternative

The prices of commodity and margins also fluctuate based on a several factors affecting supply. For example, an increase in supply owing to the development of more oil and gas supply sources and technologies to initiate recovery from existing sources tend to lower prices of commodity to the extent such supply increases are not offset by commensurate growth in demand. Parallel to that, industry refining or petrochemical manufacturing capacity increases appear to reduce affected products margins. Supply levels of world oil, gas, and petrochemical can also be affected by that lowered available supplies, such as incidences of war and subjection by member countries to OPEC production quotas, competitors’ operations disruptions, hostile actions, disasters, or sudden unavailability of distribution channels that may temper with supplies. Technological issues can also influence the relative costs for competitors to find, produce, and refine oil and gas and to manufacture petrochemicals.

Viable operation of certain facilities or projects may be tempered by civil unrest, terrorism or sabotage, and local security issues. Such issues may call on the company to incur greater security costs or to cease operations for some duration.

Another factor is supply and demand. The oil, gas, and petrochemical businesses are basically commodity businesses. This implies that the company’s operations and earnings may significantly be impacted by changes in prices of oil, gas, and petrochemical and by changes in margins on refined products. Oil, gas, petrochemical, product prices and margins in turn rely on local, regional, and global events or affect supply and demand determinants for the relevant commodity. Any material deterioration in oil or prices of natural gas could have a material adverse consequence on part of the Company’s operations, especially in the upstream segment, proved reserves and financial conditions. On the other hand, an increase in material in oil or natural gas prices could have a material adverse on certain of the Company’s operations, especially in the chemical and downstream and segments.

Economic conditions also affects inventory significantly. The demand for energy and petrochemicals and the general economic growth have a very close correlation. When the economy is experiencing recessions or other periods of downward economic growth, this will typically have a direct adverse impact on the company’s results. Alternative factors that that impacts the well-being of the company are the global economy like, population growth rate changes, times of civil unrest, government austerity programs, or fluctuations in currency exchange rate can also influence energy and petroleum chemicals demand. Sovereign debt lowers, defaults, liquidity crises, inability to access debt markets due to credit or legal constraints, the disintegration or restructuring of fiscal, monetary, or political systems such as the European Union, and conditions that deter financial market and institutions functioning also pose risks the company, including safety of the company’s financial assets risks and risks to the ability of the company’s partners and customers to fulfill their commitments.

The company also may be greatly affected by the result of litigation, especially in nations such as the U.S in which very large and unexpected punitive destruction awards may take place, or by government enforcement contacts alleging non-compliance with applicable laws or regulations.

Lastly, the results of the company are also vulnerable to possible negative influences as a result of inflation, changes in rates of interest, currency exchange rates, and other regional or local market conditions. Market exposures are generally not hedged using financial instruments.

Warehouse related risks

This is a risk which the house is subject to. As such damage on the warehouse may risk inventory. The risk incorporates several factors. First, we look at legal uncertainty. There is usually lack of a well-established legal system in some countries where the company contacts its proceeds. Alternatively, some of them have not yet adopted clear regulatory for oil and gas development framework. This exposes the company to increased risk of adverse or unforeseeable actions of government officials; furthermore, it makes it harder for the company to enforce its contracts. Sometimes, these risks can be partially offset by agreements arbitrate disputes in an international forum, but the sufficiency of this solution may still rely on the local legal system to enforce an award.

Payment risk

This are risks that will affect the company’s earnings. First we look ta climate change and emission of greenhouse gas restriction. A number of countries have resorted on restricting the emission of greenhouse gases due to climate change concerns. The requirements they adopt could make the company’s products more costly, lengthened duration for project implementation, and lower hydrocarbons demand. It may also raise company’s compliance costs like monitoring

ExxonMobil is subject to laws and sanctions put in place by the U.S. government or by other jurisdictions in business platforms which may deter the company or its affiliates from contacting business in particular countries, or limiting the type of business that may be carried out. Such restrictions may hand the competitors a competitive advantage that may not be subject to such limitations.

Several countries restrict access to their oil and gas resources, or may place resources off-limits from development altogether. During high commodity prices, limitations on foreign investment in the oil and gas sector tend to increase, when national governments may less require of external sources of private capital. Most countries also limit the import or export of particular products basing on origin

The company remains vulnerable to law reforms that could greatly its results even in countries with well-developed legal systems. The reforms incorporate those that are as result international treaties and accords. They include:

· rises in taxes or royalty rates of the government;

· Price controls;

· Reforms in regulations regarding environment or other laws that rises the company’s cost of compliance or lowers available business

Chances incorporating reforms in laws relative to water use, offshore drilling operations, or hydraulic fracturing;

· Adoption of laws mandating the use of alternative fuels or fuel components that is uncompetitive;

· Compulsion of disclosure of competitively sensitive information due to the adoption of the government’s payment transparency regulations, or result to violation of non-disclosure laws of other countries;

· The actions of the government expropriate assets, terminate contracts, renounce or default on obligations, re-denominate the official currency, or renegotiate unilaterally.

Legal solutions available to pay the company for expropriation or other takings may be insufficient.

References

Alvin A. Arens, R. J. (2014). Auditing and Assurance Services: An Integrated Approach (15th ed.). Upper Saddle River, NJ: Pearson Education, Inc.

Exxon Mobil 2015 form 10-K. (). Retrieved from http://www.xom10k2015.htm (8,002k)

ExxonMobil 2014-2015 Financial Reports - Information retrieved from: file:///xom10k2015.htm&http://cdn.exxonmobil.com/~/media/Global/Files/Summary-Annual-Report/2014_Summary_Annual_Report.pdf

Publications Summary Annual Reports (2015 Summary Annual Report PDF). (2016, February 24). Retrieved from Exxon Mobile: http://ir.exxonmobil.com/phoenix.zhtml?c=115024&p=irol-reportsAnnual