Porter’s Five Forces Analysis of ConocoPhillips
|Industry||Oil & Gas Operations|
|Headquarters||Houston, Texas, USA|
|Revenues||US$ 48.828 (All Revenues) US$ 45.82 (Net Revenues) billion FY 2021
US$ 82.15 billion FY 2022 US$ 78.49 (Net Revenues) billion FY 2022
|Profit||US$ 8.08 billion FY 2021
US$ 18.68 billion FY 2022
|Competitors||Petrobras, Phillips 66, TotalEnergies SE ADR, Exxon Mobil Corp., Marathon Oil Corp., Chevron Corp., Shell PLC ADR|
ConocoPhillips is one of the leading American oil multinational giant that engages in exploration and refining of oil and gaswith a global presence in 15 countries with US, Norway and Canada being the largest base of operations. The company is ranked 77th on Fortune 500 (2022) and 128th on Forbes Global 2000 (2022) lists.
The Company generated a record revenue of — with a value of Net Assets of US$ 94 billion. The Company has an employee count of 9500.
Porter’s Five Forces Analysis
Porter’s Five Forces Analysis of Oracle is used to determine the company’s competitive position reference to it’s Industry for better strategizing the companies’ operations for higher profits and less competition.
ConocoPhillips Rivalry among Existing Competitors
- ConocoPhillips Business : The Company reported revenues of USD 45.83 billion (Only Revenues from Operations) in CY21, up 1.44x from USD 18.78 billion in CY20 as a result of volumetric increase post Covid-19 pandemic when the world resumed towards normalcy.
The Company reported a record recovery revenue of US$ 78.49 billion (Only Revenues from Operations in FY 2022 which 72% up from FY 2021.While the total revenues including other revenues are US$ 82.15 billion.The Net Income for FY 2022 is US$ 18.6 which is an increase of almost 130% from FY 2021 with a Net Income of US$ 8.07 billion.
The company produced 1.57 million bpd oil and made some strategic acquisitions during the years. The company also turned a loss of USD 2.66 billion in CY20 to a profit of USD 8.08 billion in CY21.
- ConocoPhillips Business Segmentation & Highly Perfect Competitive Market
The Company deals in Crude Oil, Natural Gas Liquids, Natural Gas and Bitumen.The Company produced 1.7 MMBOED (Million Barrels of Oil Equivalent) in FY 2021 while it went to 1.6MMBOED.
The Company is present in Alaska, Canada, Lower 48, Colombia, Norway, Libya, Qatar, Malaysia, China and Australia with exploration and production facilities.
The energy business is one of the most gruesome sector in the world with heavy competition and applicability of local and international regulations. ConocoPhillips engages in exploration and production of oil and gas and then operates refineries that convert the crude barrels in to usable fuel. There is extreme price competition and prices locally are mostly dominated by international energy prices which is an additional.
Petrobras is a Brazilian SOE and one of the major oil players in the world with a production of 2 million bpd. The company has a wide network in 16 countries ranging from Americas to Africas and far spread Europe. Petrobras has expertise in ultra-deep water exploration and the company operates a large oil reserve.
Petrobras reported revenues of USD 83.97 billion, up 56% YoY in CY21 on account of increasing volumes as seaports and airports open and people resumed to work stations. Moreover, the net profit increased to USD 19.99 billion by almost 20x as the oil prices soared amid issues caused by the Russia-Ukraine war.
Petrobras is on 15th number amongst global market capitalization of leading oil companies with a US$ 67.98 billion as of March 2023.
Phillips 66 is a middle and downstream company with operations to refine and finally sell to end users. Phillips 66 reported revenues of USD 114.85 billion, up 75% YoY in CY21 amid increasing costs and improving margins. The company reported Net Income of USD 1.59 billionin CY21 against a Net Loss of USD 3.71 billion during same period last year.
ConocoPhillips Threat of New Entrants
- Global Oil Market-Leading Companies by Market Capitalization-High Initial Investment required
The Global Market as per Market Capitalization is leading by Exxon Mobil, US by a market capitalization of US$ 454.36 billion as of March 2023 declared by Statista. The 2nd largest company is Chevron, US with market cap of US$ 312.75 billion, the 3rd largest is Shell,UK with US$ 216.34 billion while 4th and 5th largest are Reliance Industries, India and TotalEnergies ,France with a market cap of 193.24 and 156.91 billion.
The ConocoPhillips is on 7th number with a US$ 131.2 billion market capitalization following after Petro China on 6th with a market capitalization of US$ 143.88 billion.
The energy business is extremely painful startup with large capital expenditures to set up exploration units, fields, transport machinery and another in the form of setting up large refineries that adheres to the best environmental standards. The initial investment is so high that major players require a lot of financing from the governments to even reach production stage.
- Highly Regulated-High Research and Development Costs
The oil and gas business is immensely regulated with both local and international laws. Moreover, environmental pressures from activists also keeps the companies under pressure to watch their step.
These oil and gas ventures face great risks of penalties and embargoes.ConocoPhillips was ranked in the top 20 as the most polluting companies in the world because of industrial greenhouse gases emissions.
ConocoPhillips reported Research and Development expenses of USD 62 million in CY21 and USD 75 million in CY20 because the company has to invest in energy efficient and environment friendly modes of energy substitutes. ConocoPhillips spent USD 71 million in CY22.
- Environmental Consideration-Due to Global Warming
This is an additional threat for a new entrant as due to global warming the environmental consideration is also very important even for the existing companies. As lower greenhouse gas (GHG) will be threatening for ConocoPhillips liquefied natural gas (LNG).
ConocoPhillips Bargaining Power of Suppliers
- Efficient Supply Chain
With the presence in 13 countries and facing high volatile market efficient supply chain is very important for CoconoPhilips success as for example as WTI Crude Oil prices average per barrel were $68 in 2021 which increased to $ 94 in 2022 which is an increase of 39% almost. The price hike is result of COVI-19 recovery phase and Ukraine Russia invasion.
- Aggregate Oil and Gas Demand / Supply Mechanics
There are a few countries (like KSA, Russia, US and Canada) that produce a major chunk of global oil needs and control oil and gas reserves. Moreover, the demand is linked to overall economic activity globally. The world is facing a recession scenario these days with major Central banks increasing the interest rates to counter inflationary pressures. The US Federal Reserve has hiked interest rates after BoE and ECB which led to temporary slump in international oil prices.
- Supplier Dependence
Large energy players like ConocoPhillips have their internal standards of selecting a supplier due to highly sensitive nature of the business and imposition of major international laws. These laws also applies on suppliers like adhering to better environmental standards, check all safety and health protocols among others. These suppliers also have to obtain some certifications so that they are allowed license to operate in the energy mix.
The Company spend US$ 7.9 billion with 7,812 suppliers in FY 2021 in different categories including Drilling & Well Constructions with 18% of the total amount, Oilfield Services also with 18% and Project /Facilities/Pipelines with 14% respectively.
ConocoPhillips Bargaining Power of Buyers
- Pricing Controls
The energy chain is extremely fast to pass on price increases as the prices fluctuate regularly with international commodity prices. However, these prices that are determined by demand supply factors by major oil nations are also impacted by exchange gains and losses, changes in regulatory environment, international GRMs and availability of inventories.
- Ability to pass on Cost-push inflation
ConocoPhillips can easily pass the impact of price hikes due to vast global footprint and availability of large oil reserves. The company can easily manage its quantities with shortage and surplus areas.
- Vast Global Presence
ConocoPhillips has presence in more than 15 countries where consumers are priced differently because of legal complications and demand supply and transportation factors. The company has production facilities in US (49%), Norway (10%), Canada (5%), and Australia (12%) among others. Moreover, major US (33%) is located in Alaska. The company has 1,035 million barrels reserves in Alaska (2,487 in US), 10 million in Canada, 161 million in Europe, 122 million in Asia/ME and 184 million in Africa as at December 31, 2021.
- Benefits of being vertically integrated
ConocoPhillips operates in exploration (upstream) and refinery (middle-stream) which not just provides better economies of scale but also significant inventory management. The prices fluctuate on regular intervals with government regulation overseeing fairness. The end users are mostly price takers with no control over pricing power.
ConocoPhillips Threat of Substitute Products or Services
- Low Switching Cost
The fuel being an essential everyday use item and extremely homogenous is one of the top repeated purchase of everyone’s life. Since the product is homogenous in nature, people mostly do not care where they get it from, in fact, most people look for gas stations when they are low on gas or they are expecting a long ride ahead. This means that there is no preference for a particular brand or company, hence, there is no brand loyalty.
- Climate Hazards
One of the emerging fields of investment is environmental focused. Investors across the globe are moving towards ESG preferred companies to protect the planet. The oil companies like ConocoPhillips are also investing heavily in underwater energy sources, hydro and other means that are more efficient and cause less damage to the world.
- Annual Financial Statements, Reports and Presentations (CY21 and 9MCY22), Company Website [Online], Available at: ConocoPhillips
- ConocoPhillips Annual Report 2022
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- Forbes, (2022), ConocoPhillips [online], Available at: Forbes
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- Katherine Dunn, (2021), Shell to sell major U.S. shale operation to ConocoPhillips, accelerating its departure from fracking [Online], Available at: Fortune
- Andreas Cornet, (2021), Why the automotive future is electric [Online], Available at: Mckinsey
- Katie Fehrinbacher, (2016), Exxon, ConocoPhillips Top List of Methane Polluters [Online], Available at: Fortune
- Tristan Bove, (2022), Fossil fuel companies like Shell and BP are raking in massive profits, and this could be just the beginning [Online], Available at: Fortune
- Jason Disterhoft, (2022), Banks have to stop financing oil expansion. If they don’t, their net-zero commitments are greenwash [Online], Available at: MarketWatch
- Dan DeLorenzo, (2023), Russia’s War on Ukraine Changed Global Oil Trade. Here Is What It Looks Like Now [Online], Available at: The Wall Street Journal
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- Statista,)(March 8 2023) Leading Oil & Gas Companies worldwide based on market capitalization as of March 2023 (in billion U.S. dollars).Available at Statista
- ConocoPhillips, Supply Chain Sustainability