ENERGY COMPANY PRESENTATION

Transcription

1 NOVEMBER 30TH S T U D E N T I N V E ST M E N T M A N A G E M E N T P R O G R A M T H E O H I O S T A T E U N I V E R S I T Y ENERGY COMPANY PRESENTATION David Clark-Joseph Felice Green Jiri Woschitz

2 SECTOR OVERVIEW NATIONAL OILWELL VARCO CHEVRON MURPHY OIL NEW ADDITION SUMMARY OF RECOMMENDATIONS

3 SECTOR OVERVIEW

4 SIM: Energy overweight 60 bps S&P Sector Breakdown SIM Sector Breakdown 3.1% 3.4% 3.7% 4.0% 2.1% 4.2% 19.1% 10.6% 11.7% 19.8% 13.0% 12.3% 15.6% 10.7% 12.2% 10.7% 11.2% 11.0% 11.6% 10.2%

5 Energy Sector 1.27 Trillion in Market Capitalization 3rd Largest Sector in S&P SIM holds 3 S&P Companies SIM Energy Holdings Symbol SIM Weight Industry Chevron CVX 463 bps Murphy Oil NOV 369 bps National-Oilwell Varco NOV 383 bps Oil & Gas Integrated Oil & Gas Integrated Oil & Gas Equipment Services

6 S&P Energy Sector Industry Makeup of Energy Sector 1% 2% 2% 3% Year to Date Performance: Energy Sector Oil & Gas Refining & Marketing 25.00% Oil & Gas Drilling 20.00% 16% Coal & Consumable Fuels 15.00% 59% 16% Oil & Gas Storage & Transportation Oil & Gas Equipment & Services Oil & Gas Exploration & Production 10.00% 5.00% Integrated Oil & Gas 0.00% -5.00%

7 Recommendation From Sector Presentation Reduce SIM weight of the energy sector by 110bps (1.1%). Stock SIM Weight Upside Recommendation Final SIM Weight NOV 463 bps 13.78% Hold 463 bps CVX 369 bps 14.80% Reduce 110 bps 259 bps MUR 383 bps (1.60%) Reduce 383 bps 0 RIG % Increase 383 bps 383 bps Sector 1215 bps 1105 bps

8 NATIONAL OILWELL VARCO

9 National Oilwell Varco National Oilwell Varco specializes in providing equipment for on-shore and offshore oilrigs and drilling. It also provides maintenance services, customer solutions, and supplies as it relates to drilling for oil. NOV operates in 825 countries across 6 continents. Business Segments: Rig Technology Petroleum Services & Supplies Distribution Services NOV Information: Market Cap: $25.8 Billion 52-Week Range: $ $63.88 Current Stock Price: $61.52 Competitors: Baker Hughes Cameron International FMC Technologies Halliburton National Oilwell Varco Schlumberger Current SIM weight: 463 bps NOV 52-Week Stock Price Range

10 NOV vs. Competitors 11 Acquisitions from and stake in one firm Acquisitions: Ambar Lone Star Fluid Svcs LLC Advanced Production and Loading PLC (to be completed EOY) Q Gross Margin 35.6% 31.7% 32.0% 30.5% 26.8% 23.0% Operating Margin 19.8% 17.5% 20.4% 20.3% 15.3% 10.3% Net Profit Margin 13.4% 11.6% 14.5% 13.7% 9.7% 6.2% ROA 7.3% 6.8% 11.6% 12.7% 8.7% 6.2% ROE 10.9% 11.0% 20.2% 22.9% 14.8% 10.5% Q3 BHI CAM FTI HAL NOV SLB Gross Margin 29.0% 31.3% 27.3% 25.0% 35.6% 31.5% Operating Margin 10.2% 13.4% 11.6% 17.5% 19.8% 15.5% Net Profit Margin 6.3% 9.7% 8.4% 10.4% 13.4% 25.3% ROA 2.5% 6.4% 10.2% 8.1% 7.3% 8.1% ROE 5.4% 14.0% 32.8% 12.6% 10.9% 16.1%

11 NOV vs. S&P Year: Lagging S&P 500 by -19.8% 3 Month: Ahead of S&P 500 by 46.7%

12 DCF Model

13 Terminal Growth Rate Terminal Growth Rate DCF Sensitivity Analysis Terminal Discount Rate 10.0% 10.5% 11.0% 11.5% 12.0% 3.0% $73.21 $68.37 $64.13 $60.38 $ % $76.95 $71.53 $66.82 $62.69 $ % $81.32 $75.17 $69.89 $65.31 $ % $86.48 $79.42 $73.43 $68.30 $ % $92.94 $84.67 $77.78 $71.94 $66.93 Terminal Discount Rate 10.0% 10.5% 11.0% 11.5% 12.0% 3.0% 19.0% 11.1% 4.2% -1.8% -7.3% 3.5% 25.1% 16.3% 8.6% 1.9% -4.0% 4.0% 32.2% 22.2% 13.6% 6.2% -0.4% 4.5% 40.6% 29.1% 19.4% 11.0% 3.8% 5.0% 51.1% 37.6% 26.4% 16.9% 8.8%

14 NOV Valuation Analysis NOV Relative to the Industry High Low Median Current Status Trailing P/E Undervalued Forward P/E In line P/B In line P/S In line P/CF Undervalued NOV Relative to the Sector high low median current Status Trailing Undervalued Forward In line P/B In line P/S Overvalued P/CF Undervalued NOV Absolute Valuation and Target Prices High Low Median Current Target Multiple Target/Share Target Price Forward P/E $66.40 P/S $40.61 P/B $83.24 P/EBITDA $81.57 P/CF $91.70 Avaerage: $72.70

15 NOV Advantages & Risks Advantages Rising oil prices Contract Agreements GDP growth in developing countries Increased activity in the oil and gas industries Risks Lower oil Prices Slow US growth US government regulations Foreign currency exposure

16 NOV Recommendation Current Price: $61.52 Target Price: $70.00 Target Price = Total Upside: 13.78% Recommendation: HOLD at 463 bps

17 CHEVRON

18 Chevron Chevron is a major integrated oil and gas producer, currently the 3 rd largest energy company in the world, and 8 th largest company in the S&P Business Segments: Upstream (86%of Net Income) Downstream (13% of Net Income) Chemicals (1% of Net Income) CVX Information: Market Cap: $ Billion 52-Week Range: $ $86.19 Current Stock Price: $82.05 Competitors: Exxon Mobil Conoco Philips Royal Dutch Shell BP Current SIM Weight: 369 bps 12 Month Stock Performance

19 Chevron - Strong Performance relative to peers

20 Chevron vs. S&P 500 and Peers

21 Chevron vs. S&P 500 and Peers

22 Price Target: $94.17 (+14.8%) Valuation Ranges 52-week Trading Range $66.83 $86.19 Multiples Analysis $76.76 $ Sum of Parts Assets and Segment Comparables $92.53 $93.45 Discounted Cash Flow Analysis $ /26/10 Trading Range $81.70 $82.60 $60.00 $70.00 $80.00 $90.00 $ $ $ Illustrative WMT Price per Share

23 CVX Recommendation Current Price: $82.05 Target Price: $94.17 Total Upside: 14.8% Recommendation: Reduce by 110bps: from 369 bps to 259 bps

24 MURPHY OIL

25 Murphy Oil Corporation Murphy Oil Corporation conducts the business from the exploration of the raw material over the production and refining to the distribution and sales of the final products in the market Business Segments: Exploration and Production Refining and Marketing Stock Price MUR MUR Information: Market Cap: $12.6 Billion Diluted Shares Outstanding: M 52-Week Range: $ $68.91 Dividend Yield: 1.7% /24/ /24/2010 Current SIM Weight: 383 bps

26 Statistical Analysis Economic Factors Implied Price: $ % Price Range: [$48, $80] [-26.5%, 22.5%]

27 DCF Model

28 DCF Sensitivity Analysis Implied Price: $ % Price Range: [$52.70, $75.30] [-19.3%, 15.2%]

29 Multiples: Median vs. Current Murphy Oil too cheap in 13 out of 15 cases. BUT: Oil prices will not go beyond $90/barrel until end of March (assumption) Murphy Oil will not reach is median stock price in the near future

30 Multiple Valuation Implied Price: $ % Price Range: [$27.84, $103.05] [-57.4%, 57.8%]

31 MUR Recommendation Current Price: $65.74 Target Price: $64.23 Downside: -1.6% Recommendation: SELL 383 BPS Risk to Recommendation Main assumptions: 1) Oil prices remain on today s level 2) Economy will not strengthen in the near future If this is not true the recommendation fails. If the economy strengthens and oil prices increase, Murphy Oil s stock price can perform very well.

32 TRANSOCEAN (RIG)

33 Transocean (RIG) Transocean Ltd is an international provider of offshore contract drilling services for oil and gas, with 138 mobile offshore units. Transocean is the largest operator of these services, twice the size of the next largest competitor. It also has a backlog of $28B. Primary Business Contract Drilling RIG Information: Market Cap: $21.6 Billion 52-Week Range: $ $94.88 Current Stock Price: $67.77 Competitors: Noble Nabors Rowan Not a current SIM holding 1 Year Stock Performance

34 Transocean: Thesis We think that the impact on market capitalization to date resulting from the Gulf Oil spill is overblown, and impact to Transocean s balance sheet and future profitability are minimal. - Transocean received a $560M Insurance payout - The contract between Transocean and BP indemnifies Transocean for any liabilities related to discharges from the well or costs to control any cleanup. - Transocean is also best positioned to take advantage of integrated oil companies such as Chevron pushing upstream deepwater exploration.

35 Transocean vs. S&P 500 and Peers

36 Transocean vs. S&P 500 and Peers

37 RIG DCF Target: $94.90

38 RIG Recommendation Current Price: $67.77 Target Price: $94.17 Total Upside: 40.0% Recommendation: Initiate position of 383 bps.

39 SUMMARY OF RECOMMENDATIONS

40 RECOMMENDATIONS Stock SIM Weight Upside Recommendation Final SIM Weight NOV 463 bps 13.78% Hold 463 bps CVX 369 bps 14.80% Reduce 110 bps 259 bps MUR 383 bps (1.60%) Reduce 383 bps 0 RIG % Increase 383 bps 383 bps Sector 1215 bps 1105 bps