Apache & Schlumberger Pitch

Transcription

1 Apache & Schlumberger Pitch

2 Apache & Schlumberger Sector Manager: Mark McGeough Senior Analyst: Brian Fleming Analysts: Will Von Behr, Eoin McQuaid, Paddy Orr, Mary Kelleher, Loman Begly, Cian O Hara TRINITY SMF Investment Thesis

3 Summary of Investment Thesis Apache Industry as a whole hammered by oil prices good management of debt efficient business model Schlumberger still gold standard for oil companies reputation as best to hold during downturn

4 Company Overview

5 Business Overview Apache Apache Corporation is an American independent oil and gas corporation. After the MW Petroleum acquisition in 1992, Apache moved its headquarters to Houston, the center of the global oil and gas industry. Apache advanced the acquire and exploit methodology to add value to properties acquired from Texaco and others. Apache is only involved in the Upstream sector: Global oil and gas explorer, from conventional fields, light rock, shale and coal formations.apache has become a large multinational company, with regional offices and operations in the United States, Canada, Egypt and UK North Sea. Upstream active in: US, Canada, UK, Eygpt & Australia Apache continuously reviews and optimizes its portfolio of assets in response to changing industry and economic conditions. Over the last several years, Apache has taken action to monetize certain nonstrategic international assets, and enhance and streamline our North American onshore portfolio through a series of divestitures of noncore assets.

6 Business Overview Schlumberger Schlumberger is the world s leading supplier of technology, integrated project management and information solutions to oil and gas exploration and production industries across the globe. Schlumberger boasts an impressive range of products and services, from exploration through to production, including the invention of wireline logging Additionally, Schlumberger holds 40% equity ownership in OneSubSea, as part of a join venture with Cameron International Corporation. Through this joint venture, Schlumberger manufactures and develops products, systems and services for the subsea oil and gas markets. In order to maximise customer satisfaction, Schlumberger manages its operation in each of the major oilfield service markets through three Groups: Reservoir Characterization Group- Consists of the principal technologies involved in finding and defining hydrocarbon resources Drilling Group- Consists of the principal technologies involved in drilling and positioning of oil and gas wells Production Group- Consists of principal technologies involved in lifetime production of oil and gas reservoirs

7 Industry & Competitive Positioning Apache outlook is bleak, very low oil prices therefore why better to hold than competitors Competitors: Conoco Philips ConocoPhillips Co. is an American multinational energy corporation with its headquarters located in the Energy Corridord istrict of Houston, Texas in the United States. It is the world's largest independent pureplay exploration and production company and is a Fortune 500 company. ConocoPhillips was created through the merger of American oil companiesconoco Inc. and Phillips Petroleum Co. on August 30, In 2012, ConocoPhillips' spun off its downstream assets as a new, and separate company, Phillips 66. China National Offshore Oil Corporation (CNOOC Ltd ADR) major national oil company in China. It is the third-largest national oil company in the People's Republic of China, after CNPC and China Petrochemical Corporation. The CNOOC Group focuses on the exploitation, exploration and development of crude oil and natural gas in offshore China. Market Cap: 53,755 mil

8 Industry & Competitive Positioning Schlumberger Halliburton Co (HAL) American multinational corporation, and one of the world's largest oil fieldservices companies, with operations in more than 80 countries. It owns hundreds of subsidiaries, affiliates, branches, brands, and divisions worldwide and employs approximately 70,000 people. The company has dual headquarters located in Houston and in Dubai Market cap: 31,933 mil National Oilwell Varco Inc (NOV) American multinational corporation based in Greater Sharpstown, Houston, Texas.[3][4] It is a leading worldwide provider of equipment and components used in oil and gas drilling and production operations, oilfield services, and supply chain integration services to the upstream oil and gas industry. The company conducts operations in more than 1,200 locations across six continents. Market cap: 14,960 mil

9 Financial Overview

10 Income Statement Annual TTM Income Statement Revenue ,851 16,054 17,078 Operating Income -2,776 4,216 5,042 EBITDA ,388 11,113 12,161 Net Income ,403 2,232 2,001 Earnings Per Share Diluted Average Shares

11 Income Statement Income Statement (in millions of $'s) 12 months 12 months TTM Dec Dec Sep USD USD USD Revenue 46,459 48,871 40,598 Gross Profit 11,128 11,473 8,880 EBITDA 12,748 12,102 9,221 Net Income 6,732 5,438 3,390 EPS Payout Ratio

12 Balance Sheet & Cash Flow Statement Cash Flow Annual TTM Net Income Cash From Operations ,461 9,835 8,504 Cash From Investment ,804-7,116-13,424 Net Change in Cash ,137 1, Cash From Financing ,785 Free Cash Flow ,911-1,385-1,027 Balance Sheet Annua l Quarterl y Current Assets 6,415 6,366 4,962 4,079 4,426 Non Current Assets Total Assets 49, , , , , ,733 56,564 60, ,812 60,990 Current Liabilities 3,664 4,700 5,536 2,167 4,307 Total Liabilities 30, , , ,003 30,172 Stockholders' Equity 25, , ,33 1 9,809 30,818

13 Balance Sheet & Cash Flow Statement Balance Sheet (in millions of $'s) 12 months 12 months TTM Cash Flow Dec Dec Sep (in millions of $'s) 12 months 12 months TTM USD USD USD Dec Dec Sep Total Cash and Equivalents 3,472 3,130 3,172 Total Current Assets 26,225 24,694 21,532 Total Assets 67,100 66,904 63,342 Total Current Liabilities 13,525 14,176 14,010 Total Liabilities 27,631 28,855 25,163 Total Equity 39,469 37,850 38,179 Shares Outstanding 12,192 12,495 12,642 USD USD USD Net Income 6,774 5,506 3,443 Cash from Operations 9,788 11,195 10,540 Cash from Investing (5,977) (5,580) (4,653) Total Dividends Paid (1609) (1,968) (2,303) Cash from Financing (2,199) (5,896) (5,526) Net Change in Cash 1,597 (336) 287

14 Debt Analysis Apache Apache has made good progress toward deleveraging its balance sheet. It has paid nearly $2.5 billion of its debt so far in In fact, its net debt is now under two times the annualized adjusted EBITDA for In addition, the company has extended the term of its nearest long-term debt maturity to It now has only $700 million in debt maturing before All in all, its total debt now stands at $8.7 billion, a decrease of 22% as compared to the same quarter last year, which should ultimately lead to lower interest expenses. Looking forward, Apache plans to reduce its debt further by disposing of non-core assets. The company plans to sell two of its non-upstream assets for approximately $500 million. It has already signed an agreement and plans to close the transaction in early This will help Apache reduce the pressure on its balance sheet further, and is a smart move when we consider that the company is focused on increasing production from its non-core assets. Apache s debt-to-equity, or leverage, was 73.3% in 3Q15, up from 54.5% in the previous quarter. It has been rising significantly since 2Q14 when commodity prices began falling. Despite this, Apache s net debt has actually declined, indicating that equity has been eroded by falling crude oil prices. This is also the case for Apache s competitors and it remains well placed within the industry with lower D/E ratios than Anadarko and Conoco Philips.

15 Valuation

16 Valuation

17 Valuation

18 Risk

19 Quantitative Risk Apache Exp. Daily Return % Volatility % Skewness Kurtosis

20 Quantitative Risk Apache

21 Quantitative Risk Schlumberger Exp. Daily Return % Volatility % Skewness Kurtosis

22 Quantitative Risk Schlumberger

23 Qualitative Risk Apache Sector Specific Risk Crude oil and natural gas price volatility, including the recent decline in prices for oil and natural gas, adversely affect operating results and the stock price. Revenues, operating results, and future rate of growth depend highly upon the prices received for crude oil and natural gas production. Historically, the markets for crude oil and natural gas have been volatile and are likely to continue to be volatile in the future. Geographical Risk International operations have uncertain political, economic, and other risks. Apache s operations outside North America are based primarily in Egypt, Australia, and the United Kingdom. Deterioration in the political, economic, and social conditions or other relevant policies of the Egyptian government, such as changes in laws or regulations, export restrictions, expropriation of assets or resource nationalization, and/or forced renegotiation or modification of existing contracts with EGPC, or threats or acts of terrorism by groups such as ISIS, could materially and adversely affect business, financial condition, and results of operations. Operational Risk Apache s operations are subject to hazards and risks inherent in the drilling, production, and transportation of crude oil and natural gas. Failure or loss of equipment as the result of equipment malfunctions, cyberattacks, or natural disasters such as hurricanes, could result in property damages, personal injury, environmental pollution and other damages for which they could be liable.

24 Qualitative Risk Schlumberger Sector Specific Risk Demand for the majority of Schlumberger s services is substantially dependent on the levels of expenditures by the oil and gas industry for the exploration, development and production of oil and gas reserves. A substantial or extended decline in oil and gas prices such as has occurred in recent months results in lower expenditures by the oil and gas industry, which has a material adverse effect on their financial condition, results of operations and cash flows resulting in a reduction in demand for oilfield services. Geographical Risk Schlumberger operates and does business in each of approximately 85 countries outside of the United States. This is a significant portion of their revenue and exposes them to risks inherent in doing business internationally, such as uncertain political and economic conditions in certain areas, exposure to possible expropriation of assets or other governmental actions and deprivation of contact rights. Operational Risk The technical complexities of Schlumberger s operations exposes them to a wide range of significant health, safety and environmental risk which could lead to substantial liability claims, adversely affecting their financial condition, results of operations and cash flows. Their offerings involve production-related activities, radioactive materials, chemicals explosives and other equipment and services that are deployed in challenging exploration, development and production environments. Any accident involving these services or equipment could cause personal injury, loss of life, damage to or destruction of property etc. as well as having a negative effect on insurance premiums.

25 Summary of Investment Thesis Schlumberger over Apache, both however best in class Oil prices could stay low beyond original 2017 estimate Iranian and US oil will make another impact

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