Nafeesa Fathima, Joe Gangaram, Marshal Getz, Carl Ghandhi

Transcription

1 Nafeesa Fathima, Joe Gangaram, Marshal Getz, Carl Ghandhi

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4 Telecommunicati on Services 4% Materials 3% Utilities 3% Cash 4% Dividend Receivables 0% Consumer Discretionary 9% Consumer Staples 12% Tech 22% Industrials 9% Health Care 12% Financials 10% Energy 12.41%

5 Chevron 4.24% ConocoPhillips 3.20% Murphy 1.83% Transocean 3.15%

6 Factors HOLD Oil prices continue to Rise ROE has always been above the S&P Future Demand for Crude will increase greater than Supply But, Volatile markets, volatile oil prices, and European uncertainty Arbitrage opportunity between Brent and WTI Brazilian Oil Spill

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8 Key Statistics Market Cap = B Beta = yr Av Div Yield = 3.1% Current Stock Price = wk range = to wk change = 12.98% S&P wk change= -2.45% 12 month stock performance Current SIM weight 4.24%

9 Segments Upstream Downstream 14% Revenue 86% 93% Earnings 7% 64% Profit Margins 1.5% Chevron is 4 th largest company by sales and 4 th largest constituent in S&P 500

10 Oil Prices Increasing capital and exploratory expenditures Exploring new oil fields in Australia, Asia and US Great international presence and well-diversified Actively streamlining its downstream business to increase profitability Selling off its fuel marketing and aviation units in some countries

11 Brazilian Oil Spill Volatility of Oil Arbitrage opportunities between Brent and WTI Slow economy Euro Crisis

12 Big spill during deepwater drilling 2400 barrels of oil into the Atlantic Ocean $28 million fine by the Brazilian government Temporary ban from Brazil Needs to brief US regulators Still not a major risk for Chevron because More than 80% of the spill was cleaned-up Other recent incidents of oil spill by Petrobas Risk of drilling down in Brazilian deepwaters Brazil represents about 1% of total oil production and less than 3% of productive wells for Chevron

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14 Terminal Discount Rate = 11.5% Terminal FCF Growth = 3.0% Current Price $ Implied equity value/share $ Upside/(Downside) to DCF 25.2%

15 Absolute Valuation High Low Median Current #Your Target Multiple *Your Target E, S, B, etc/share Your Target Price (F x G) A. B. C. D. E. F. G. H. G. P/Forward E $12.58 $ % P/S $ $ % P/B $60.7 $ % P/EBITDA $25.21 $ % P/CF $20.24 $ % Price = % weight

16 Current Stock Price = $95.77 Target Stock Price (40% multiples and 60% DCF) = $ Upside = 20.4% Recommend a HOLD strategy *BBL

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18 Key Statistics Market Cap = B Beta = yr Av Div Yield = 3.1% Current Stock Price = wk range = to wk change = 12.98% S&P wk change= -2.45% World s largest offshore drilling contractor Currently operates off the coasts of 6 continents Operates a fleet of 139 different types of rigs Aker drilling acquisition Current SIM weight 4.24% 12 month stock performance

19 Current SIM Weight 3.15% 7% 64% Profit Margins 1.5% Chevron is 4 th largest company by sales and 4 th largest constituent in S&P 500

20 Oil Prices Transocean Valuation - Relative to Industry Increasing capital and exploratory expenditures Relative to Industry High Low Median Current Status P/TE Undervalued P/FE Fairly Valued P/B Fairly Valued P/S Overvalued P/CF Fairly Valued Exploring new oil fields in Australia, Asia and US Great international Transocean presence Valuation and - Relative well-diversified to S&P 500 Relative to S&P 500 High Low Median Current Status Actively P/TE streamlining 9.10 its downstream business 1.30to Fairly increase Valued P/FE Undervalued P/B Undervalued profitability P/S Undervalued P/CF Undervalued Selling off its fuel marketing and aviation units in some countries

21 Brazilian Oil Spill Transocean - Absolute Valuation Volatility of Oil P/FE $ $ 3.10 $ $ P/S $ 7.00 $ 1.30 $ 2.60 $ Arbitrage P/B opportunities $ 4.10 $ 0.40between $ 1.20 $ Brent 0.80and WTI 1.10 P/EBITDA $ $ 2.20 $ 8.21 $ Slow P/CF economy $ $ 2.50 $ 9.40 $ Euro Crisis Absolute Valuation High Low Median Current Target MultipleTarget/Share Target Price Summary Implied Value $ Current Price $ Upside 43% $ $ 3.59 $ $ $ $ $ $ $ $ $ 6.24 $ $ $ 8.11 $ 68.90

22 RIG Terminal Discount Analyst: Carl Ghandhi Rate = 13.5% Brazilian Oil Spill Terminal FCF Date: 11/28/2011 Growth = 2.5% Volatility of Oil Arbitrage opportunities between Brent and WTI Slow economy Euro Crisis Year 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E Revenue 8,757 9,934 10,722 11,151 11,597 12,061 12,544 13,045 13,567 14,110 14,674 % Growth 13.4% 7.9% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% Operating Income 1,998 2,619 2,824 3,345 3,479 3,618 3,763 3,914 4,070 4,233 4,402 Operating Margin 22.8% 26.4% 26.3% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% Interest and Other (525) (695) (751) (781) (812) (844) (878) (913) (950) (988) (1,027) Interest % of Sales -6.0% -7.0% -7.0% -7.0% -7.0% -7.0% -7.0% -7.0% -7.0% -7.0% -7.0% Taxes Tax Rate 22.0% 22.0% 22.0% 22.0% 22.0% 22.0% 22.0% 22.0% 22.0% 22.0% 22.0% Net Income 1,148 1,500 1,617 2,001 2,081 2,164 2,250 2,340 2,434 2,531 2,633 % Growth 30.6% 7.8% 23.7% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% Terminal Value 31,904 Free Cash Yield 10.73% Terminal P/E 12.1 Terminal EV/EBITDA 6.0 Add Depreciation/Amor t 1,314 1,490 1,608 1,561 1,624 1,809 1,882 1,957 2,035 2,116 2,201 % of Sales 15.0% 15.0% 15.0% 14.0% 14.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% Plus/(minus) Changes WC 138 (206) (352) % of Sales 1.6% -2.1% -3.3% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% Subtract Cap Ex 1,314 1,192 1,287 1,227 1,276 1,327 1,380 1,435 1,492 1,552 1,614 Capex % of sales 15.0% 12.0% 12.0% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% Free Cash Flow 1,286 1,592 1,586 2,490 2,590 2,814 2,927 3,044 3,166 3,292 3,424 % Growth 23.8% -0.4% 57.0% 4.0% 8.7% 4.0% 4.0% 4.0% 4.0% 4.0% Current Price $ Implied equity value $ Upside/(Downside) to 51.6%

23 Implied Value: $67.45 Brazilian Oil Current Price: $45.71 Upside: ~48%

24 Catalysts Global GDP growth Increase in oil Brazilian price Oil Increase in utilization and day rates Middle East unrest Risks GDP remains stagnant Euro debt crisis Oil price drops Utilization decreases High amount of debt

25 Industry leader Brazilian Oil Specialization in harsh environment drilling Well-positioned to excel moving forward Recommendation: HOLD

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27 Current Stock Price: $ Week Range: $ ROE: 12.13% Market Cap: $9.57B Current Weight in SIM Portfolio: 1.83% 12 month stock performance

28 Engages in the exploration and production of oil and gas properties worldwide Explores for and produces crude oil, natural gas, and natural gas liquids Divestment strategy in the refinery segment Markets its refined products through a network of retail gasoline stations and branded and unbranded wholesale customers Partnership with Walmart and currently has 1,119 stations Current Plays in US, Canada, Malaysia, UK, Congo, Iraq

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30 New E&P attempts Over half of the 13 wells drilled this year haven't proven to be economical. Street s response of slashing earnings estimates

31 Drilling Success(failure) well below its historical average Street s increased confidence of operations Reinvestments in profitable plays as well as future E&P

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33 Absolute Basis High Low Median Current P/Forward E P/S P/B P/EBITDA P/CF Relative to S&P High Low Median Current 500 P/Trailing E P/Forward E P/B P/S P/CF

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35 Absolute Valuation High Low Median Current Target Multiple Target E,S,B/Share Target Price A. B. C. D. E. F. G. H. P/Forward E P/S P/B P/EBITDA P/CF Average $ % Multiples: $ % DCF: $59.74 Target Price: $ % Upside

36 Recommendation to Hold Relatively cheap, but closely aligned with the S&P 500. Although more than half of the 13 wells drilled this year were non economical, this is below Murphy s historical average. Continued Growth of production 300,000 BOE by 2015 Divestment of the Refinery business. Suitable for a smaller outfit such as MUR

37 Financial uncertainty in Europe and United States can affect economic growth and hinder oil prices Lower production per day due to required workover maintenance or more dry wells. Incorrect judgment of engineers regarding recoverable crude oil and natural gas Environmental risks Hurricanes, floods, earthquakes Drilling accidents

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39 Current Stock Price: $ Week Range: $ ROE: 16.45% Market Cap: $87.83B Current Weight in SIM Portfolio: 3.20%

40 Facts Third largest U.S. integrated energy company 75% of proved reserves located in politically stable countries Fourth-largest refiner worldwide 29,000 worldwide employees and assets of $160B Operations in over 35 countries Accomplishments In 2010, reduced debt by 18 percent to $23.6 billion In 2010, delivered total shareholder return of 39 percent Reduce refining capacity to improve returns and margins Recorded our safest year as ConocoPhillips

41 Core activities worldwide: Petroleum exploration and production Petroleum refining, marketing, supply and transportation Natural gas gathering, processing and marketing Chemicals and plastics production and distribution Investments in Emerging Businesses

42 Explore, produce, transports, and markets crude oil and natural gas Exploration activities in 17 countries and produced hydrocarbons in 14 countries Production for 2010 averaged 1.75 million BOE per day E&P activities contributed to 80% of Conoco s profit in 2010

43 Increase in oil prices Continued development of emerging nations contribute to an increase in demand of petroleum products and bi-products. Advances in technology (Horizontal Drilling, Directional Boring, etc.) allow access to previously untapped wells, and reduce the production costs as well.

44 Political uncertainty in the U.S. as well as abroad Turmoil and instability in the Middle East. Rapid decrease in the price of oil similar to August and September 2008

45 Absolute Basis High Low Median Current P/Trailing E P/Forward E P/B P/S P/CF Relative to S&P High Low Median Current 500 P/Trailing E P/Forward E P/B P/S P/CF

46 Absolute Valuation High Low Median Current Target Multiple Target E,S,B/Share Target Price A. B. C. D. E. F. G. H. P/Forward E P/S P/B P/EBITDA P/CF Average $79.41 Current Price $ Implied equity value/share $ Upside to DCF 6.9% 70% Multiples: $ % DCF: $70.72 Target Price: $ % Upside

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