ExxonMobil Announces Restructuring

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ExxonMobil announced yesterday that it will restructure its businesses in an effort to streamline existing operations while also setting itself up to transition to cleaner energy. The changes will combine downstream, oil products and petrochemicals into a single division, ExxonMobil Products Solutions Co., which will include its lubricant business.

Effective April 1, the company will be organized along three business lines – the others being ExxonMobil Upstream Co. and ExxonMobil Low Carbon Solutions – supported by a single technology organization, ExxonMobil Technology and Engineering., and other centralized service-delivery groups.

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Among the products that the new ExxonMobil Product Solutions Co. will supply are lubricants and plastics for traditional and electric vehicles. “ExxonMobil Product Solutions will be the market leader in sales of polyethylene and other high-value chemical products and hold the number two market position in aromatics, lubricants and fuel additives,” the company stated. Karen McKee, formerly president of ExxonMobil Chemical Co., was appointed to lead ExxonMobil Product Solutions.

Observers predicted the change will have little impact on the lubricants business, at least in the near term. Geeta Agashe, of consulting firm Geeta Agashe & Associates, noted that the restructuring comes after a shareholder revolt last year resulted in the election of three directors who want ExxonMobil to transition faster to clean energy and to improve its profitability.

Agashe said she expects the impact of the restructuring on ExxonMobil’s finished lubricant and base oil businesses to be “not very significant at the unit level, though of course there will be a continued focus on building efficiencies and cost-cutting.” The greater potential impact will come in future years, she said, and be due to redirection of the capital budget on new areas of business.

“In my mind, a portion of the cash generated by their traditional businesses will have to support the new Low Carbon Solutions business at least until this unit starts generating the cash profits that have traditionally been associated with ExxonMobil,” she said. “In doing so, if the capital allocated to the Product Solutions division is compromised, we will see a trickle-down effect on the lubricants and base oils businesses. ExxonMobil Lubes will continue reviewing their product and geographic portfolios and get rid of non-performing or low-performing assets. Efficiencies will continuously be worked on, and costs including manpower will be under deeper scrutiny.”

ExxonMobil’s current structure dates to 2017 when it combined fuels, lubricants and chemicals under downstream refining. The purpose then was to give managers flexibility, as chemical and refining plants are in the same location, allowing managers to shift production between fuels or chemicals, or lubes based on demand and profits generated.

The company said the new move is a further evolution of its business model and part of its strategy to build globally competitive businesses that lead industry in earnings and cash flow growth, operating performance and the energy transition.

Historically, the company’s chemical and downstream businesses have been well coordinated, Chairman and CEO Darren Woods said yesterday in a Q&A conference call with analysts. “I would say though there’s a difference between coordinating between two owners and then having a single owner,” he added. “We really see the opportunity as to have one set of management overlooking those businesses, and making sure we’re prioritizing across those businesses and those resources. Making sure we’re prioritizing not only the investments that we’re making in facilities, but the allocation of the resources – our technical resources, our engineering resources – and pursuing the highest priority payout opportunities across those two.”

According to Woods, the company does not see headcount reduction as driving this week’s restructuring announcement. “That’s not what we see driving this improvement opportunity,” he said. “We made those tough decisions in 2020, and we recognized how hard that would be on our organization. We stressed ourselves to make sure when we put together our plans for that, we best as possible comprehended what was to come, and made this a one-time deal as much as we can.”

He said the company has stretched itself to move its organization to a level of efficiency it needs to support at a lower staffing. “As attrition has occurred within our company and the industry more broadly and the economy as a whole, we’ve been very thoughtful and cautious about what positions we fill and how we manage that attrition,” Woods said. “Put all that together, and we feel like we’re in a fairly good position to execute this and not have the kind of one-off large redundancy programs that we went through in 2020.”

According to ExxonMobil, it is on track to exceed $6 billion in structural cost savings by 2023, compared to 2019, driven by savings from the new business structure and measures such as centralizing procurement, digital transformation of processes and right-sizing programs that were announced in 2020.

To improve collaboration and integration, the company also said it will relocate its corporate headquarters from Irving, Texas, to its campus north of Houston. The move is expected to be completed by mid-year 2023.

– Tim Sullivan contributed to this report.

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