Exxon Mobile And Noble Energy Case Study

Capstone Project The energy industry has experienced a plethora of challenges since 2000, and as a result volatility within the oil and gas sector is high. Since the industry is primarily driven by supply and demand, politics, natural disasters, geopolitical events and other factors contribute to the rise and decline of oil and gas prices. Consequently, businesses within this sector experience variable profits, causing greater financial strain on smaller companies. Noble Energy Inc. (NBL) is independent oil and gas company with a market capitalization is 15.176B and is considered one of the smaller organizations within the energy industry (Yahoo Finance, 2018a). Exxon Mobil (XOM) on the other hand has a market capitalization of $323.309B
Exxon Mobil was established in 1882 and is now considered one of the largest international oil and gas companies that is publicly traded. In 2017 XOM operations were throughout Asia, Europe, Africa, the Middle East, the Americas and the Asia Pacific. The organizations core business functions include the exploration and production of crude oil and natural gas, the sale and transportation of petroleum products, crude oil, and natural gas, as well as the production of petroleum products (Exxon Mobil Corporation, 2017). Noble Energy was established 1932 in Houston, Texas. In addition, Noble Energy business functions also include the exploration and production of natural gas and crude oil, as well as, the marketing of natural gas, crude oil, and natural gas liquids. Furthermore, NBL’s areas of operation include the United States, West Africa and the Eastern Mediterranean (Noble Energy, 2017). Similarly, XOM and NBL are strong international oil and gas
During this time range, the oil and gas industry experienced exponential growth from 2000 through 2013, however, with an overabundant supply and capped reserves, the price of oil quickly fell in 2014 offsetting any industry growth gained during the prior decade (Deloitte, 2017) (see Appendix 1). The volatility of XOM and NBL during this time can be calculated using the beta which measures the volatility of a security in comparison to the market (Investopedia, 2017a). The Beta for NBL and XOM was calculated using regression analysis with the S&P 500 as the independent variable. NBL’s beta was 1.074 indicating the company’s stock price is .074% more volatile than the market. Whereas XOM’s Beta was 0.8444 which indicates the firm’s stock is 15.56% less volatile than the market. Furthermore, the Capital Asset Pricing Model (CAPM) is used to determine an investor’s required rate of return from investing in a company’s common stock (Shapiro, 2014). Through using a risk free rate of return of 2.86% and a return on the market portfolio of 2.725%, as well as the beta for each firm, XOM’s required return is 2.746% and NBL’s is 2.715% (See Appendix 2). Moreover, NBL’s annual growth rate from 2000-2016 was 5.89% and XOM was lower at 3.35%. Since the growth rate exceeded both firms required rates of return, the Gordon growth model calculation resulted in a