How does this company make money?
The company sells crude oil and natural gas at whatever the market price is on a given day. It also earns a refining margin — the gap between what it pays for crude and what it charges for gasoline and diesel — through wholesale and retail fuel networks. On top of that, it sells ethylene and polyethylene to chemical manufacturers like Chevron Phillips Chemical under contract pricing terms.
What makes this company hard to replace?
Exxon-branded service station dealers are locked into fuel supply agreements that include guarantees and cannot simply be transferred to a different fuel supplier. Petrochemical customers under contract for Baytown ethylene have quality specifications written around that product, and switching to a different supplier would require going through a requalification process. The Guyana government's Production Sharing Agreement gives the company exclusive rights to develop its deepwater blocks, so no competing supplier can offer the same resource.
What limits this company?
The coking units at Baytown set a hard ceiling on how much crude can be processed. Expanding them would require shutting down both the coking and cracking units at the same time, because they share the same heat-exchange circuit. During that shutdown, gasoline production would stop and the steam crackers would have no feed. Any extra Permian crude above the current ceiling has to be sold at plain commodity prices instead of being converted into higher-value ethylene.
What does this company depend on?
The company cannot run without hydraulic fracturing sand from Wisconsin mines that keeps Permian wells operating, Pipeline capacity on the Enterprise Products Partners ethane system to move product from the Permian to Mont Belvieu, Floating production storage offloading vessel leases for its Guyana deepwater production, Port Arthur LNG terminal capacity to liquefy natural gas, and Railroad Commission of Texas drilling permits that allow Permian Basin development to continue.
Who depends on this company?
Chevron Phillips Chemical relies on Mont Belvieu ethylene supply for its polyethylene plants and would face feedstock shortages if that supply stopped. American Airlines depends on gasoline-range blending components from the Baytown refinery to supply jet fuel at its Dallas-Fort Worth hub. Independent gasoline station networks across Texas and Louisiana would lose their Exxon-branded fuel supply.
How does this company scale?
Drilling new wells across the Permian Basin scales relatively easily because hydraulic fracturing techniques are standardized and the shale geology is similar from one location to the next. What does not scale is the Baytown refinery itself — the crude-to-ethylene conversion pathway cannot be copied or expanded quickly because it depends on decades of catalyst optimization and heat integration built up at that one specific site.
What external forces can significantly affect this company?
When the Federal Reserve raises interest rates, the cost of funding Permian drilling programs and the Guyana deepwater development rises, which can slow both. Environmental Protection Agency methane emission rules require leak detection equipment to be installed across Permian wellhead operations, adding compliance cost. Royalty negotiations with the Guyana government can change the economics of the deepwater project at any time.
Where is this company structurally vulnerable?
If the Railroad Commission of Texas cut back drilling permits in the Permian Basin, less heavy crude would reach Baytown's coking units. The coking and cracking units are thermally coupled, so if crude feed dropped below the level needed to keep the circuit running continuously, the whole crude-to-ethylene pathway would have to partially shut down. The cost advantage that makes the integration worthwhile would disappear.
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