Energy Sector
Company Presentation
Nick Eyer
Julie Heigel
Renae Schlosser
May 29, 2012
Agenda
•
•
•
•
•
•
•
•
Overview
Schlumberger
Nabors
Halliburton
ConocoPhillips
Chevron
EOG Resources
Final Recommendations
Overview
as of 4/30/2012
SIM Weight by Sector
S&P 500 Weight by Sector
Consumer Discretionary
Consumer Staples
3.45 2.91 0
0.08
0
3.5
Energy
3.93
11.22
3.83
1.02 3.47
10.04
Financials
10.85
20.29
10.95
Health Care
11.22
Industrials
21.91
10.42
Information Technology
10.51
11.39
14.68
Materials
Telecommunication Services
7.37
13.36
13.61
Utilities
Cash
Dividend Receivables
Energy will remain
approx. 80 bps
underweight
Final Recommendations
Potential
Upside
Price Target
(USD)
Current Weight
Change
Recommended
Weight
Schlumberger
72.21
174 bps
Sell 75 bps
99 bps
7.3%
Nabors
26.82
199 bps
Buy 75 bps
274 bps
88.1%
Halliburton
38.37
0 bps
Hold
0 bps
22.3%
ConocoPhillips
64.71
290 bps
Sell 290 bps
0 bps
24.2%
Chevron
125.47
379 bps
Buy 80 bps
459bps
26.8%
EOG Resources
133.11
0 bps
Buy 210 bps
210 bps
30.8%
Company
Final recommendations based on analysis included and goal to maintain same
exposure to specific energy industries
Schlumberger Limited
• One of worlds largest oilfield
service companies
• Full range of services:
–
–
–
–
Seismic surveys
Formation evaluation
Cementing
Well construction and
completion
– Project management
• Acquisition of Smith
International – 2010
– $11 B deal
– Drilling services and equipment
• 113,000 employees in 85
countries
Stock Data
Ticker: SLB
Current Weight: 174 bps
52 Week Range: 54.79 – 95.53
Market Capitalization: 88.12 B
Diluted Shares Outstanding: 1.33 B
Dividend Yield: 1.7%
Historic Beta: 1.2
Industry: Oil & Gas Equipment
Services
Schlumberger Limited
• Worthy to Note
– $4.02 B capex in 2011,
increase of 38% YOY
– Invests more in R&D every
year than all other oilfield
services companies combined
• 25 R&D centers around the
world
• HiWAY Fracturing Technique
– In June 2012, secured first 3
year contract to drill at Badra
oil project in Iraq
– Geographical and product
diversification
HiWAY fracturing incorporates proprietary fibers
that ensure flow-channel stability
Competition
Oil Field Service Companies by Market Cap
Market
Capitalization ($B)
(as May 21)
Number of
Employees
2011 Annual
Sales ($B)
Schlumberger Ltd. (SLB)
89.03
113,000
39.67
Halliburton Co. (HAL)
28.77
68,000
24.83
National Oilwell Varco Inc.
(NOV)
28.63
49,975
14.66
Baker Hughes Inc. (BHI)
18.41
57,700
19.83
9.8
61,000
12.99
Company
Weatherford International
Ltd. (WFT)
Competition
2011 Profitability Ratios
0.3
Schlumberger
Baker Hughes
0.25
Halliburton
Weatherford International
0.2
Industry Median
0.15
0.1
0.05
0
Gross Profit Margin
Net Profit Margin
ROE
ROA
Return on Invested
Cap
Schlumberger Limited
Performance Measures
2006
2007
2008
2009
2010
2011
TTM
13.5
14.7
12.6
12.9
Profitability
Net Margin (%)
19.3
22.2
19.7
Operating
ROA (%)
18.1
20.4
18.2
9.6
10.0
9.3
9.8
ROE (%)
41.2
40.9
34.3
17.4
16.9
16.0
16.8
0.23
0.18
0.27
0.26
Liquidity
Debt/Equity
0.45
ROE vs. S&P 500
0.26
0.20
ROE vs. Industry
Schlumberger Limited
12 Month Stock Performance
Schlumberger Limited
QTD Stock Performance
Schlumberger Limited
DCF Analysis
Analyst: Nick Eyer
Date: 5/23/2012
Year
2011E*
Revenue
39,669
% Grow th
Operating Income
Operating Margin
Interest and Other
Interest % of Sales
Taxes
Tax Rate
Terminal Discount Rate =
Terminal FCF Growth =
2012E
45,619
15.0%
6,636
9,489
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
Capex % of sales
Free Cash Flow
% Grow th
10,679
10.0%
11,746
61,823
10.0%
12,365
2016E
67,387
9.0%
12,804
2017E
72,778
8.0%
13,828
2018E
78,601
8.0%
14,148
2019E
84,103
7.0%
14,297
2020E
89,990
7.0%
14,398
2021E
95,389
6.0%
15,262
20.9%
20.9%
20.0%
19.0%
19.0%
18.0%
17.0%
16.0%
16.0%
(298)
(342)
(383)
(422)
(464)
(505)
(546)
(590)
(631)
(675)
(715)
-0.8%
-0.8%
-0.8%
-0.8%
-0.8%
-0.8%
-0.8%
-0.8%
-0.8%
-0.8%
-0.8%
1,545
24.4%
1,921
21.0%
-68.8%
5,013
% Grow th
% of Sales
12.0%
56,203
2015E
20.8%
% Grow th
Add Depreciation/Amort
51,094
2014E
16.7%
Income Attributable to Noncontrolling16Interests 5
Net Income
2013E
11.25%
3.0%
7,221
44.0%
3,281
8.3%
(1,027)
-2.6%
4,016
10.1%
3,568
3,878
2,162
21.0%
5
0.0%
8,128
12.6%
4,343
2,378
21.0%
5
0.0%
8,942
10.0%
4,777
2,499
21.0%
5
0.0%
9,407
5.2%
5,255
2,583
21.0%
5
0.0%
9,721
3.3%
5,728
2,789
21.0%
5
0.0%
10,498
8.0%
6,186
2,847
21.0%
5
0.0%
10,716
2.1%
6,681
2,870
21.0%
5
0.0%
10,802
0.8%
7,149
2,882
21.0%
5
0.0%
10,847
0.4%
7,649
3,055
21.0%
5
0.0%
11,497
6.0%
8,108
8.5%
8.5%
8.5%
8.5%
8.5%
8.5%
8.5%
8.5%
8.5%
8.5%
234
(766)
(715)
(309)
(303)
(291)
(314)
(294)
(315)
(286)
0.5%
5,474
12.0%
6,104
71.1%
-1.5%
6,131
12.0%
6,034
-1.2%
-1.3%
6,744
12.0%
6,742
11.7%
-0.5%
7,419
12.0%
7,379
9.4%
-0.5%
7,413
11.0%
8,090
9.6%
-0.4%
7,278
10.0%
9,364
15.7%
-0.4%
7,860
10.0%
9,492
1.4%
-0.4%
7,569
9.0%
10,215
7.6%
-0.4%
7,649
8.5%
10,588
3.6%
-0.3%
8,108
8.5%
11,262
6.4%
Schlumberger Limited
Sensitivity Analysis – Implied Equity Value/Share
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
46,551
48,419
94,969
4.32%
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
16.5
18.9
9.2
10.4
Shares Outstanding
Terminal FCF
Growth Rate
11.4
13.2
6.8
7.7
Free Cash Yield
10.2
11.7
6.0
6.9
140,609
8.01%
Terminal P/E
12.2
Terminal EV/EBITDA
6.4
1,263
Current Price
Implied equity value/share
Upside/(Downside) to DCF
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
Terminal Value
49%
51%
100%
$
$
10.50%
75.25
77.62
80.29
83.32
86.77
90.76
95.42
65.33
75.19
15.1%
10.75%
72.99
75.19
77.65
80.43
83.60
87.23
91.45
Terminal Discout Rate
11.00%
11.25%
11.50%
70.85
68.82
66.90
72.89
70.72
68.66
75.17
72.83
70.62
77.73
75.19
72.81
80.63
77.86
75.27
83.95
80.90
78.06
87.78
84.39
81.25
11.75%
65.08
66.72
68.54
70.56
72.84
75.40
78.32
12.00%
63.34
64.87
66.56
68.45
70.55
72.91
75.59
Schlumberger Limited
Valuation Analysis
Relative to Industry
High
Low
Median
Current
P/Trailing E
1.4
1.0
1.2
1.2
P/Forward E
1.4
.98
1.1
P/B
1.8
1.0
P/S
1.8
P/CF
1.5
Absolute Valuation
High
Low
Median
Current
P/Trailing E
2.1
.75
1.4
1.3
1.2
P/Forward E
1.8
.82
1.3
1.2
1.4
1.3
P/B
3.9
1.2
1.8
1.3
1.3
1.6
1.3
P/S
4.2
1.8
2.8
1.8
.9
1.2
1.1
P/CF
2.2
.8
1.5
1.2
Low
24.3
10.2
19.2
14.9
16.95
4.32
73.22
P/S
5.7
1.7
3.3
2.1
2.9
32.29
93.63
P/B
11.9
2.5
3.8
2.7
3.5
24.26
84.30
18.47
4.87
11.50
8.45
9.8
6.7
66.10
24
5.9
13.2
10.4
11.3
7.85
89.31
P/EBITDA
P/CF
Current
Target Multiple
Target E, S, B
/Share
High
P/Forward E
Median
Relative to S&P500
Target Price
Schlumberger Limited
Price Target Calculation
Value Drivers
DCF
.65(75.19)
48.87
P/Forward E
.07(73.22)
5.13
P/S
.07(93.63)
6.55
P/B
.07(84.30)
5.90
P/EBITDA
.07(66.10)
4.63
P/CF
.07(89.31)
6.25
Total
•Absolute competitive
R&D edge
•Geopolitical risk
especially in Russia
•Comprehensive
offering of products
•Sustained fall in
natural gas price
•Strong relationship
with the largest
integrated oil and gas
companies
•Environmental
regulation
$72.21
Recommendation: SELL 75 bps
Price Target: $72.21
Current Price (May 25): $67.19
Upside Potential: 7.3%
Risks
•Industry leader in
Russia
Nabors Industries Ltd.
•
•
•
•
•
World’s largest land drilling
contractor
• 501 land-drilling rigs
• 743 land workover and servicing
wells
Offshore operations
• 39 platform rigs
• 12 jack ups
• 4 barge drilling rigs
Provides hydraulic fracturing,
cementing and pressure pumping
services
Manufactures top drives and drilling
instrumentation systems
Oilfield services
• Hauling, engineering, facilities
maintenance
Stock Data
Ticker: NBR
Current Weight: 199 bps
52 Week Range: 11.05 – 28.50
Market Capitalization: 4.06 B
Diluted Shares Outstanding: 290.3 M
Dividend Yield: N/A
Historic Beta: 2.3
Industry: Oil & Gas Drilling
Nabors Industries Ltd.
• Worthy to Note
– New CEO Anthony
Petrello’s commitment to
streamline operations
• Drilling and rig services
• Completion and production
services
– Asset disposition from oil
& gas operations estimated
near $800M
– Actively switching over
from gas to oil rigs
• Extremely expensive 
lowers productivity
October, 2011
Nabors Industries Ltd.
Performance Measures
2006
2007
2008
2009
2010
2011
TTM
-2.4
2.2
4.0
4.5
Profitability
Net Margin (%)
20.7
18.8
10.4
Operating
ROA (%)
12.5
9.7
5.4
-0.8
0.8
2.0
2.4
ROE (%)
28
23.1
12
-1.7
1.8
4.5
5.2
0.58
0.78
0.77*
Liquidity *as of 3/2012
Debt/Equity
1.13
ROE vs. S&P 500
0.73
0.83
0.76
ROE vs. Industry
Competition
2011 Profitability Ratios
0.5
Nabors Industries
Helmerich & Payne
0.4
Paterson-UTI Energy
Industry Median
0.3
0.2
0.1
0
Gross Profit
Margin
-0.1
Net Profit Margin
ROE
ROA
Return on
Invested Cap
Nabors Industries Ltd.
12 Month Stock Performance
Nabors Industries Ltd.
QTD Stock Performance
Nabors Industries Ltd.
DCF Analysis
Nabors Industries Ltd. (NBR)
Analyst: Julie Heigel
Date: 4/10/2012
Year
Revenue
Operating Margin
Interest and Other
Interest % of Sales
Taxes
Tax Rate
Net Income
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
6,883,308
7,824,271
8,922,670
9,636,484
10,214,673
10,725,407
11,100,796
11,433,820
11,719,665
12,012,657
12,312,973
13.67%
14.04%
8.00%
6.00%
5.00%
3.50%
3.00%
2.50%
2.50%
2.50%
1,269,354
1,409,156
1,616,879
1,734,567
1,736,494
1,769,692
1,831,631
1,886,580
1,933,745
1,982,088
2,031,641
18.4%
18.0%
18.1%
18.0%
17.0%
16.5%
16.5%
16.5%
16.5%
16.5%
16.5%
(292,541)
(332,532)
(379,213)
(409,551)
(434,124)
(455,830)
(471,784)
(485,937)
(498,086)
(510,538)
(523,301)
-4.3%
-4.3%
-4.3%
-4.3%
-4.3%
-4.3%
-4.3%
-4.3%
-4.3%
-4.3%
-4.3%
312,580
344,520
396,053
424,005
416,759
420,436
435,151
448,206
459,411
470,896
482,669
32.0%
32.0%
32.0%
32.0%
32.0%
32.0%
32.0%
32.0%
32.0%
32.0%
32.0%
664,233
732,105
841,612
901,011
885,612
893,426
924,696
952,437
976,248
1,000,654
1,025,671
10.2%
15.0%
7.1%
-1.7%
0.9%
3.5%
3.0%
2.5%
2.5%
2.5%
1,138,431
1,298,249
1,011,831
1,072,541
1,072,541
1,054,576
1,029,044
937,573
900,949
738,778
% Grow th
Add Depreciation/Amort
% of Sales
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
Capex % of sales
Free Cash Flow
% Grow th
11.50%
2.50%
2012E
% Grow th
Operating Income
Terminal Discount Rate =
Terminal FCF Growth =
1,001,521
14.6%
14.6%
14.6%
10.5%
10.5%
10.0%
9.5%
9.0%
8.0%
7.5%
6.0%
(259)
(145,849)
(170,252)
(182,708)
(145,253)
(127,096)
(92,081)
(81,294)
(69,439)
(71,175)
(72,954)
0.0%
-1.9%
-1.9%
-1.9%
-1.4%
-1.2%
-0.8%
-0.7%
-0.6%
-0.6%
-0.6%
1,514,328
1,721,340
1,962,988
1,782,750
1,634,348
1,555,184
1,443,103
1,029,044
996,172
840,886
738,778
22.0%
22.0%
22.0%
18.5%
16.0%
14.5%
13.0%
9.0%
8.5%
7.0%
6.0%
334,896
264,314
305,630
288,877
431,749
502,034
616,193
900,254
894,061
993,522
978,841
-21.1%
15.6%
-5.5%
49.5%
16.3%
22.7%
46.1%
-0.7%
11.1%
-1.5%
Nabors Industries Ltd.
Sensitivity Analysis – Implied Equity Value/Share
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
3,079,632
3,753,573
6,833,205
8.18%
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
6.2
10.3
3.6
4.8
Shares Outstanding
5.6
9.3
3.2
4.3
Free Cash Yield
4.9
8.1
2.8
3.7
11,147,913
8.78%
Terminal P/E
10.9
Terminal EV/EBITDA
5.5
292,484
Current Price
$
Implied equity value/share
$
Upside/(Downside) to DCF
Terminal
FCF Growth
Rate
Terminal Value
45%
55%
100%
1.25%
1.75%
2.25%
2.75%
3.25%
14.00
23.36
66.9%
10.50%
24.67
25.52
26.45
27.52
28.73
Terminal Discout Rate
11.00%
11.50%
12.00%
23.12
21.72
20.47
23.84
22.35
21.01
24.65
23.05
21.61
25.55
23.82
22.28
26.57
24.69
23.03
12.50%
19.33
19.8
20.33
20.91
21.55
Nabors Industries Ltd.
Valuation Analysis
Relative to Industry
High Low
Median
Current
Relative to S&P500
High Low
Median
Current
P/Trailing E
3.1 0.47
0.89
0.61
P/Trailing E
3.7
.28
1.1
0.59
P/Forward E
2.3 0.58
0.89
0.66
P/Forward E
2.2 0.36
0.99
0.52
P/B
2.2
0.4
0.8
0.7
P/B
1.3
0.3
0.8
0.4
P/S
1.2
0.3
0.7
0.4
P/S
3.3
0.5
1.6
0.5
P/CF
1.6
0.5
0.9
0.5
P/CF
2.1
0.2
0.8
0.3
Median
Current
Absolute Valuation
Low
37.6
4.8
14.9
6.3
12.4
2.28
28.18
P/S
4.9
0.5
2.1
0.6
1.7
23.6
40.11
P/B
3.7
0.6
2.4
0.8
1.95
17.72
34.55
15.98
1.81
7.41
2.11
6.0
4.35
26.15
21.6
1.8
8.1
2.8
6.5
5.7
37.15
P/Forward E
P/EBITDA
P/CF
Target Multiple
Target E, S, B
/Share
High
Target Price
Nabors Industries Ltd.
Price Target Calculation
Value Drivers
DCF
.65(23.36)
1.97
P/Forward E
.07(28.18)
2.81
P/S
.07(40.11)
2.42
P/B
.07(34.55)
1.83
P/EBITDA
.07(26.15)
2.61
P/CF
.07(37.15)
15.18
Risks
•CEO Anthony Petrello
refocus
•Geopolitical risk
especially in Middle
East markets
•Young rig fleet 
higher daily rates
•North America,
Nabors’ largest market,
is extremely saturated
Recommendation: BUY 75 bps
•Positioned well for
success in Middle East
•Sustained fall in prices
of natural gas
Price Target: $26.82
•Improving
international margins
•High switching costs in
North America
Total
$26.82
Current Price (May 28): $14.26
Upside Potential: 88.1%
Halliburton Company (HAL)
Oil & Gas Equipment & Services
• Oil field service company
• Operates in two segments:
• Drilling and evaluation
• Completion and production
• Worthy to Note
– $2.95B in capex in 2011, a
43% YOY
– Signed strategic agreement
early 2012 with Russian gas
company Gazprom
– Young workforce relative to
industry average
– Innovation initiatives
Stock Data
Ticker: HAL
Current Weight: 0 bps
52 Week Range: 27.21 – 57.77
Market Capitalization: 29.95 B
Diluted Shares Outstanding: 922 M
Dividend Yield: 1.1%
Historic Beta: 1.7
Industry: Oil & Gas Equipment
Services
Halliburton Company (HAL)
Performance Measures
2006
2007
2008
2009
2010
2011
TTM
Profitability
Net Margin (%)
10.4
22.9
8.4
7.8
10.2
11.4
11.2
Operating
ROA (%)
14.8
23.4
11.2
7.4
10.5
13.5
13.5
ROE (%)
34.2
49.1
21.1
13.9
19.2
24.1
23.9
.37
.37
.35
Liquidity *As of 3/2012
Debt/Equity
.38
ROE vs. S&P 500
.38
.33
.44
ROE vs. Industry
Halliburton Company (HAL)
DCF Analysis
Halliburton Company (HAL)
Sensitivity Analysis – Implied Equity Value/Share
Halliburton Company (HAL)
Valuation Analysis
Relative to Industry High Low Median Current
Relative to S&P500 High Low Median Current
P/Trailing E
1.1
.45
.83
.63
P/Trailing E
1.8
.46
1.3
.65
P/Forward E
1.2
.49
.82
.72
P/Forward E
1.6
.56
1.0
.73
P/B
1.3
.5
1.0
1.0
P/B
2.8
.4
1.5
1.0
P/S
.9
.4
.6
.7
P/S
2.4
.3
1.1
.9
P/CF
1.5
0.5
1.0
.7
P/CF
2.4
.5
1.3
.7
Absolute
Valuation
P/Forward E
High Low Median Current
Target
Multiple
Target E, S, B
/Share
Target
Price
25.3
6.3
16.6
8.8
14
3.64
51
P/S
3
.4
1.4
1.1
1.15
28.56
32.84
P/B
7.7
1.2
4.1
2.1
3.37
11.80
39.83
P/EBITDA
29.97
3.37
9.76
4.29
8.16
5.72
46.62
P/CF
25.9
4.1
12.5
5.9
10.4
2.65
27.56
Halliburton Company (HAL)
Price Target Calculation
Value Drivers
DCF
.65(37.73)
24.52
P/Forward E
.07(52.02)
3.57
P/S
.07(32.84)
2.29
P/B
.07(39.83)
2.78
P/EBITDA
.07(46.62)
3.26
P/CF
.07(27.56)
1.92
Total
$38.37
Recommendation: HOLD
Price Target: $38.37
Current Price (May 28): $31.37
Upside Potential: 22.3%
Risks
•Well diversified – fully
integrated product
offering
•Geopolitical risk –
especially Russia
•Strategic relationships
in Russia
•Sustained fall in prices
of natural gas
•Lawsuits filed by BP
for negligence in
Deepwater Horizon
incident
ConocoPhillips & Phillips 66
History:
• Conoco founded in 1875 & Phillips
founded in 1905
• Two Companies merged in 2001 to form
3rd largest U.S. integrated oil company
12 Years later:
COP split into 2 publicly traded companies
(on May 1, 2012)
• ConocoPhillips – Exploration &
Production
• Phillips66 – Refining & Marketing,
Midstream, Chemicals, & Emerging
Businesses
2 for 1 stock split:
• Shareholders in COP gained an extra
stock in Phillip66 for every 2 stocks
owned
• Now: 5000 shares of COP & 2500 of PSX
Stock Data
Ticker: COP
Current Weight: 290 bps
Market Capitalization: $86.7B
Diluted Shares Outstanding: 1.92B
Dividend Yield: 5.1%
Historic Beta: 1.08
Industry: Oil & Gas Integrated
Historical Data on Separate
Companies NOT fully available
(NWC, Debt, CapEx, Taxes)
• DCF not accurate for valuation
• Sum of Parts Analysis Instead
ConocoPhillips: Independent E&P
Stock Data
Ticker: COP
Current Weight: 290 bps
Adjusted 52 Week Range:
46.49- 59.63
Market Capitalization: $66.7B
Diluted Shares Outstanding: 1.28B
Dividend Yield: 5.1%
Historic Beta: 1.08
Industry: Oil Exploration & Production
Split makes COP one of the largest
independent E&P firms in the world
• E&P segment has high Operating
Margins
• Split enables more Available Cash
to Invest in Exploration
• Potential to further grow Proved
Reserves
8.4 billion BOE in Proved Reserves
• EV/Proved Reserves = $10.71
Adjusted Stock History
(76% of previous stock prices accounting for split)
ConocoPhillips: Independent E&P
Valuation Analysis
Relative to Industry
High
Low
Median
Current
Relative to S&P500
High Low Median
Current
P/Trailing E
0.59 0.32
0.45
0.46
P/Trailing E
0.67 0.24
0.47
0.45
P/Forward E
0.75 0.30
0.44
0.75
P/Forward E
0.71 0.28
0.45
0.69
P/B
0.9
0.4
0.5
0.7
P/B
0.6
0.4
0.5
0.5
P/S
0.2
0.1
0.1
0.1
P/S
0.5
0.2
0.3
0.2
P/CF
0.7
0.4
0.6
0.6
P/CF
0.5
0.2
0.4
0.4
Absolute Valuation
High
Low
Median
Current
Target Multiple
P/Trailing E
10.7
2.7
6.9
5.8
6.9
P/Forward E
8.8
4.0
6.6
8.4
6.6
P/S
0.6
0.2
0.4
0.3
0.4
P/B
1.4
.7
1.1
1.0
1.1
9.74
2.0
2.91
2.23
2.91
5.1
1.7
3.9
3.5
3.9
P/EBITDA
P/CF
ConocoPhillips: Independent E&P
EV
Market Trailing Forward P/E
Cap P/E Ratio
Ratio
EPS
Proven
Reserves
EV/Proven
mmBOE EV/ EBITDA Reserves
• Compared to Other E&P firms?
EBITDA
Margin
P/S
P/B
Apache
40,500 31,660
6.8
6.6
12.11
2990
3.2 $
13.55
73.40%
1.8
1.1
Chesapeake
26200 10,474
7.1
19.7
2.24
3300
5.9 $
7.94
35.60%
0.8
0.6
Devon Energy
28000 24,254
10.3
10.9
5.85
3010
3.8 $
9.30
62.20%
2.05
1.1
EOG Resources
32,100 27,379
23.9
20.1
4.26
2054
6.8 $
15.63
42.60%
2.5
2.1
Forest Oil
2,800
992
9.7
14.5
0.87
NA
4.7
NA
79.60%
1.33
0.8
Murphy Oil
8,400
9,242
7.3
8
6.49
NA
2.3
NA
12.40%
0.3
1
Newfield
7,100
4,114
7.9
10.3
3.91
NA
4
NA
66.10%
1.58
1
14,500 12,228
22.1
16.5
4.48
1063
8.9 $
13.64
57.80%
4.3
2.2
7,700 4,674
20.0
11.0
1.82
2200
6.1 $
3.50
60.10%
2.2
1.4
Southwestern
11,500 10,042
16.5
23.7
1.74
NA
NA
60.30%
3.4
2.4
Talisman
14,900 10,802
18.4
13.7
0.57
1382
13.1 $
10.78
13.70%
1.3
1.1
Noble Energy
18,30014,852
15.0
12.3
5.61
1200
7.2 $
15.25
62.90%
3.7
2.0
ConocoPhillips
Peer Group
Average
90,000 66,684
5.8
8.4
8.97
8400
3.0 $
10.71
12.00%
0.3
1.0
23,230 17,492
13.14
13.52
4.53
2,844
11.14
49.13%
1.97
1.37
Pioneer
Plains E&P
6.5
5.81
Sum of Parts Analysis
Segment
Target Market
E/S/B
Multiple
Cap
# Diluted
Shares
Target
Price
Current Stock % return
Price
to target
Trailing P/E
Ratio
8,242.00
13.14
108,287.20 1,279,693,000
84.62
52.11
62%
Forward P/E
Ratio
8,242.00
13.52
111,393.80 1,279,693,000
87.05
52.11
67%
49,453.00
1.97
97,194.17 1,279,693,000
75.95
52.11
46%
P/S
Weighted Average
Price
Trailing P/E
.2(75.95)
16.92
Forward P/E
.2(87.05)
17.41
P/S
.6(75.95)
30.38
Total Price Target
64.71
Current Price
52.11
Upside
24.2%
ConocoPhillips: Independent E&P
• Price multiples (Forward & Trailing P/E, P/S,
P/B, P/CF) are way below comparative firms as
well as industry
• Much lower EV/Proved Reserves than
competitor average
ConocoPhillips: Independent E&P
• Conclusion
– New COP is very large & inefficient compared to
other smaller independent firms
– Still suffering from structural inefficiencies
(bureaucracy of large firm)
– Examine Other Exploration & Production Firms
replace COP in portfolio
Phillips 66: Downstream Firm
• Includes:
– Refining & Marketing
– Chemicals
– Emerging Businesses
– Midstream
• Strategy: Build up Chemicals & Midstream
segments to support low performing R&M
Phillips 66 Stock History
(since May 1st)
Phillips 66: Downstream Firm
Comparable Firms Analysis
EV
Adams
Resources &
Energy
Closing
Stock
Price
Shares
Outstanding
Market Trailing Forward
Cap
P/E Ratio P/E Ratio
EV/
EBITDA
EPS
EBITDA
Margin
P/S
P/B
121
37.18
4218000
156.83
7.5
16.4
4.99
2.5
1.50%
0.04
1.6
2700
26.65
86808000
2313.43
6.4
5.4
4.15
3.6
12.70%
0.4
1.9
13700
36.88
347614000 12820.00
5.3
5.7
NA
3
5.80%
0.2
1.4
Sunoco
Targa
Resources
5600
47.29
106817000
5051.38
89.2
38.4
0.53
8.1
1.40%
0.1
7
3200
44.13
42442000
1872.97
34.2
36.6
1.29
8.2
5.60%
0.27
12.2
Tesoro
Valero
Energy
Western
Refining
4300
23.76
139014000
3302.97
6.6
5.3
3.58
3.1
4.40%
0.1
0.9
18400
22.34
555069000 12400.24
6.4
5.4
3.51
3.4
4.10%
0.09
0.8
2300
19.76
1794.50
5.5
4.8
3.6
3.1
7.90%
0.19
2
Phillips66
25700
31.3
639847000 20027.21
0
0
0
0
0
0
0
CVR Energy
Marathon
Petroleum
90815000
Phillips 66: Downstream Firm
• Notable:
–
–
–
–
R&M firms perform very poorly in general
Poor margins, low growth
Price-takers from the Market & Low Buyer Bargaining Power
Susceptible to Significant fines & taxes for Environmental
Regulations
• Chemical Segment is currently through a 50% joint venture
with Chevron
– Since we already own chevron and will be exposed to this
segment, do not want to have double “risk”
– Most of Phillips66 profits will be dependent on this Chemical
segment going forward
• Conclusion: Sell Phillips66 stocks (2500 shares)
ConocoPhillips & Phillips 66
• COP is relatively unprofitable compared to
other E&P’s
• Phillips 66 highest performing segment
(Chemicals) is already owned by Chevron
• Decision:
– Sell 290 bp’s & examine other higher performing
E&P firm
Chevron Corporation
•
•
•
•
•
Second largest integrated energy company
in the United States
• 61,000+ employees worldwide
Engages in petroleum, chemicals, mining,
power generation and energy operations
worldwide
Upstream activities include:
• Exploration
• Development
• Production
• Liquefaction
• Regasification
Downstream activities include:
• Refining
• Transporting
• Manufacturing
• Marketing
Capital and exploratory expenditures
• Invested $29.1B in 2011
• Projected $32.7B in 2012
Stock Data
Ticker: CVX
Current Weight: 379 bps
52 Week Range: 86.68 – 112.28
Market Capitalization: 196.4B
Diluted Shares Outstanding: 1.97B
Dividend Yield: 3.60%
Historic Beta: 0.97
Industry: Oil & Gas Integrated
Competition
Oil & Gas Integrated Companies by Market Cap
Market
Capitalization ($B)
(as of May 21)
Number of
Employees
2011 Annual
Sales ($B)
Exxon Mobil (XOM)
383.6
82,100
496.5
PetroChina Co Ltd (PTR)
238.5
552,810
2083.5
Royal Dutch Shell (RSD.A)
200.9
90,000
493.4
Chevron (CVX)
196.4
61,000
254.1
Petro Brasileiro SA (PBR)
128.3
82,000
150.7
Company
Chevron
Performance Measures
2006
2007
2008
2009
2010
2011
TTM
Profitability
Net Margin (%)
8.2
8.5
8.8
6.1
9.3
10.6
10.7
Operating
ROA (%)
13.3
13.3
15.4
6.4
10.9
13.6
13.3
ROE (%)
26.0
25.6
29.2
11.7
19.3
23.8
23.0
1.11
1.08
1.07*
Liquidity *as of 5/2012
Debt/Equity
1.11
ROE vs. S&P 500
1.08
1.07
1.11
ROE vs. Industry
Competition
2011 Profitability Ratios
0.45
0.4
0.35
0.3
Chevron
Exxon Mobil
0.25
RDS
0.2
BP
0.15
Total SA
Industry Median
0.1
0.05
0
Gross Profit
Margin
Net Profit
Margin
ROE
ROA
Return on
Invested Cap
Chevron
12 Month Stock Performance
Chevron
YTD Stock Performance
Chevron
DCF Analysis
Analyst: Nick Eyer
Date: 5/23/2012
Year
Revenue
2011E*
253,706
Operating Margin
Interest and Other
2013E
2014E
11.25%
3.0%
2015E
2016E
2017E
2018E
2019E
2020E
2021E
270,619
277,583
284,872
294,273
303,984
314,015
324,378
334,758
345,470
355,834
6.7%
2.6%
2.6%
3.3%
3.3%
3.3%
3.3%
3.2%
3.2%
3.0%
47,634
46,817
48,022
49,283
50,026
51,677
53,383
53,522
55,235
56,312
56,933
18.8%
17.3%
17.3%
17.3%
17.0%
17.0%
17.0%
16.5%
16.5%
16.3%
16.0%
% Grow th
Operating Income
2012E
Terminal Discount Rate =
Terminal FCF Growth =
-
(135)
(139)
(142)
(147)
(152)
(157)
(162)
(167)
(173)
(178)
0.0%
-0.1%
-0.1%
-0.1%
-0.1%
-0.1%
-0.1%
-0.1%
-0.1%
-0.1%
-0.1%
20,626
19,606
20,111
20,639
20,949
21,641
22,355
22,411
23,128
23,578
23,837
43.3%
42.0%
42.0%
42.0%
42.0%
42.0%
42.0%
42.0%
42.0%
42.0%
42.0%
Income Attributable to Noncontrolling
113Interests124
Interest % of Sales
Taxes
Tax Rate
% Grow th
Net Income
27,008
% Grow th
Add Depreciation/Amort
% of Sales
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
Capex % of sales
Free Cash Flow
% Grow th
12,911
128
132
136
140
144
148
153
157
162
10.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
27,075
27,772
28,501
29,066
30,025
31,015
31,097
32,092
32,718
33,080
0.2%
2.6%
2.6%
2.0%
3.3%
3.3%
0.3%
3.2%
2.0%
1.1%
16,237
16,655
17,092
17,656
18,239
18,841
19,463
20,085
20,728
21,350
5.1%
6.0%
6.0%
6.0%
6.0%
6.0%
6.0%
6.0%
6.0%
6.0%
6.0%
1,804
(2,659)
(202)
(211)
(486)
(502)
(518)
(535)
(536)
(553)
(534)
0.7%
-1.0%
-0.1%
-0.1%
-0.2%
-0.2%
-0.2%
-0.2%
-0.2%
-0.2%
-0.2%
29,066
27,062
27,758
28,487
27,956
27,359
26,691
25,950
25,107
24,183
21,350
11.5%
10.0%
10.0%
10.0%
9.5%
9.0%
8.5%
8.0%
7.5%
7.0%
6.0%
13,356
14,248
17,017
17,460
18,806
20,872
23,054
24,416
26,806
28,906
32,573
6.7%
19.4%
2.6%
7.7%
11.0%
10.5%
5.9%
9.8%
7.8%
12.7%
Chevron
Sensitivity Analysis – Implied Equity Value/Share
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
121,214
140,035
261,249
6.72%
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
7.4
9.7
3.2
4.2
Shares Outstanding
Terminal FCF
Growth Rate
Terminal Value
Free Cash Yield
7.3
9.6
3.1
4.1
7.2
9.4
3.0
4.0
406,664
8.01%
Terminal P/E
12.3
Terminal EV/EBITDA
5.1
2,007
Current Price
Implied equity value/share
Upside/(Downside) to DCF
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
46%
54%
100%
$ 98.99
$ 130.20
31.5%
10.50%
130.09
134.41
139.27
144.78
151.08
158.34
166.81
10.75%
126.05
130.05
134.54
139.60
145.36
151.98
159.65
Terminal
11.00%
122.22
125.94
130.08
134.75
140.04
146.08
153.06
Discount Rate
11.25%
11.50%
118.60
115.17
122.05
118.38
125.89
121.94
130.20
125.93
135.06
130.41
140.60
135.49
146.95
141.29
11.75%
111.92
114.90
118.22
121.91
126.04
130.71
136.03
12.00%
108.82
111.61
114.69
118.11
121.94
126.24
131.12
Chevron
Valuation Analysis
Relative to Industry
High
Low
Median
Current
Relative to S&P500
High
P/Trailing E
0.99 0.82
0.89
0.84
P/Trailing E
P/Forward E
1.2 0.77
0.89
0.85
P/Forward E
1.1
P/B
0.9
0.7
0.9
0.9
P/B
P/S
1.1
0.8
1.0
1.0
P/CF
1.2
0.5
0.9
0.9
Median
Current
Absolute Valuation
P/Forward E
High
Low
Low
Median
0.91 0.47
Current
0.66
0.56
0.4
0.64
0.61
1.3
0.7
0.8
0.7
P/S
0.8
0.5
0.7
0.6
P/CF
0.9
0.4
0.6
0.6
Target Multiple
Target E, S, B/
Share
Target Price
14.3
5.6
9.1
7.4
9.0
13.50
121.50
P/S
1.1
0.4
0.9
0.8
0.9
135.58
122.02
P/B
2.9
1.4
1.7
1.6
1.7
60.26
102.44
P/EBITDA
5.4
2.4
4.5
3.2
4.0
30.22
120.88
P/CF
8.2
3.8
5.8
4.9
5.8
20.09
116.52
Chevron
Price Target Calculation
Value Drivers
DCF
.65(130.20)
84.63
P/Forward E
.07(121.50)
8.51
P/S
.07(122.02)
8.54
P/B
.07(102.44)
7.17
P/EBITDA
.07(120.88)
8.46
P/CF
.07(116.52)
8.16
Total
•Heavy CAPEX
investments
•Geopolitical risk,
specifically Brazil and
Ecuador
•Introducing dual
gradient drilling
•Strong position in
natural gas
•“New” earnings
potential in Europe
•Relatively weak shortterm demand for
natural gas
$125.47
Recommendation: BUY 80 bps
Price Target: $125.47
Current Price (May 25): $98.99
Upside Potential: 26.8%
Risks
•Strong position in
natural gas and strong
relations with Australia
and Japan
EOG Resources
•
•
•
•
•
Explores for, develops, produces and
markets natural gas and crude oil
Operates primarily in the US, Canada,
Trinidad, the UK North Sea and China
After increasing liquids production by
50%, Q12012 profit increased by
more than 100%
• Liquids production accounts for
85% of production revenue
Capital and exploratory expenditures
have averaged 67% of sales during
previous seven year period
Recent news:
• Upgraded to Stable by Moody’s
(April 2012)
• Upgraded to Outperform by
Wells Fargo among others (May
2012)
• Currently trading above 200 day
SMA, indicating bullish stock
Stock Data
Ticker: EOG
Current Weight: n/a
52 Week Range: 66.81 – 119.97
Market Capitalization: 27.43B
Diluted Shares Outstanding: 266M
Dividend Yield: 30.70%
Historic Beta: 1.18
Industry: Oil & Gas Expl/Prod
EOG Resources
Performance Measures
2006
2007
2008
2009
2010
2011
TTM
Profitability
Net Margin (%)
33.0
26.8
38.2
11.4
2.6
10.8
11.6
Operating
ROA (%)
15.0
10.0
17.4
3.2
0.8
4.7
5.2
ROE (%)
26.4
17.2
30.5
5.8
1.6
9.5
10.34
0.49
0.40
0.39
Liquidity *as of 5/2012
Debt/Equity
0.13
ROE vs. S&P 500
0.17
0.21
0.28
ROE vs. Industry
EOG Resources
12 Month Stock Performance
EOG Resources
YTD Stock Performance
EOG Resources
DCF Analysis
EOG Resources (EOG)
Analyst: Nick Eyer
Date: 5/24/2012
Year
Revenue
Operating Margin
Interest and Other
Interest % of Sales
Taxes
Tax Rate
Net Income
11.25%
3.0%
2011
2012E
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
10,126
12,658
16,075
20,898
25,077
29,591
33,734
37,444
40,440
42,462
43,736
25.0%
27.0%
30.0%
20.0%
18.0%
14.0%
11.0%
8.0%
5.0%
3.0%
2,113
3,576
4,541
5,904
6,018
6,510
6,915
7,227
7,360
7,388
7,435
20.9%
28.3%
28.3%
28.3%
24.0%
22.0%
20.5%
19.3%
18.2%
17.4%
17.0%
(210)
127
161
209
251
296
337
374
404
425
437
-2.1%
1.0%
1.0%
1.0%
1.0%
1.0%
1.0%
1.0%
1.0%
1.0%
1.0%
819
1,481
1,881
2,445
2,508
2,722
2,901
3,040
3,106
3,125
3,149
42.9%
40.0%
40.0%
40.0%
40.0%
40.0%
40.0%
40.0%
40.0%
40.0%
40.0%
% Grow th
Operating Income
Terminal Discount Rate =
Terminal FCF Growth =
1,090
2,221
2,821
3,668
3,762
4,084
4,352
4,561
4,659
4,688
4,723
103.8%
27.0%
30.0%
2.6%
8.6%
6.6%
4.8%
2.1%
0.6%
0.8%
2,516
3,164
4,019
5,224
6,771
7,398
7,759
7,863
7,684
7,643
7,435
24.8%
25.0%
25.0%
25.0%
27.0%
25.0%
23.0%
21.0%
19.0%
18.0%
17.0%
(144)
(359)
(99)
(140)
(251)
(266)
(236)
(206)
(162)
(106)
(66)
-1.4%
-2.8%
-0.6%
-0.7%
-1.0%
-0.9%
-0.7%
-0.6%
-0.4%
-0.3%
-0.2%
5,519
6,329
8,038
10,449
10,783
10,357
9,445
8,987
8,492
8,068
7,435
Capex % of sales
54.5%
50.0%
50.0%
50.0%
43.0%
35.0%
28.0%
24.0%
21.0%
19.0%
17.0%
Free Cash Flow
(512)
428
725
937
1,592
2,442
3,373
3,884
4,165
4,418
4,690
69.4%
29.2%
69.8%
53.4%
38.1%
15.2%
7.2%
6.1%
6.2%
% Grow th
Add Depreciation/Amort
% of Sales
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
% Grow th
EOG Resources
Sensitivity Analysis – Implied Equity Value/Share
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
12,827
20,163
32,991
-1.98%
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
23.8
30.3
8.1
9.6
Shares Outstanding
255
Terminal FCF
Growth Rate
Current Price
Implied equity value/share
Upside/(Downside) to DCF
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
39%
61%
100%
Terminal Value
58,555
Free Cash Yield
11.7
14.9
5.6
6.6
9.2
11.7
4.4
5.2
8.01%
Terminal P/E
12.4
Terminal EV/EBITDA
4.7
$ 101.75
$ 129.63
27.4%
10.50%
129.27
134.17
139.69
145.94
153.09
161.33
170.95
10.75%
124.76
129.30
134.39
140.14
146.68
154.19
162.91
Terminal Discout Rate
11.00%
11.25%
11.50%
120.49
116.46
112.65
124.71
120.38
116.29
129.42
124.74
120.33
134.71
129.63
124.86
140.72
135.15
129.94
147.58
141.43
135.71
155.49
148.65
142.30
11.75%
109.03
112.42
116.18
120.37
125.07
130.37
136.40
12.00%
105.59
108.76
112.26
116.14
120.49
125.37
130.91
EOG Resources
Valuation Analysis
Relative to Industry
High
Low
Median
Current
Relative to S&P500
High
Low
Median
Current
P/Trailing E
4.4
1.1
1.5
1.9
P/Trailing E
6.6
0.6
1.1
1.8
P/Forward E
2.4
0.9
1.4
1.8
P/Forward E
3.0
0.6
1.0
1.7
P/B
1.9
0.9
1.5
1.4
P/B
2.1
0.8
1.1
1.0
P/S
2.3
0.9
1.5
1.2
P/S
5.9
1.9
3.0
2.1
P/CF
2.4
1.0
1.5
1.3
P/CF
1.5
0.5
0.9
0.8
Median
Current
Absolute Valuation
P/Forward E
High
Low
Target Multiple
Target E, S, B/
Share
Target Price
42.3
9.3
16.4
20.1
16.4
8.2
134.48
P/S
8.7
1.9
4.4
2.5
4.0
40.7
162.80
P/B
6.3
1.4
3.0
2.1
3.0
49.6
148.80
P/EBITDA
12.1
2.4
7.2
5.8
7.0
17.54
122.78
P/CF
16.4
3.9
9.0
7.1
9.0
14.33
128.97
EOG Resources
Price Target Calculation
Value Drivers
DCF
.65(129.63)
84.26
P/Forward E
.07(134.48)
9.41
P/S
.07(162.80)
11.40
P/B
.07(148.80)
10.42
P/EBITDA
.07(122.78)
8.59
P/CF
.07(128.97)
9.03
Total
$133.11
Recommendation: BUY 210 bps
Price Target: $133.11
Current Price (May 25): $101.75
Upside Potential: 30.8%
Risks
•CEO Mark Papa
•High debt levels and
negative cash flows
•Heavy CAPEX
investments => future
growth
•Strong position in
natural gas
•2012 production
expected to increase
from 140K/barrels/day
to 200K/barrels/day
•Geopolitical risk
•Strong position in
natural gas
Final Recommendations
Potential
Upside
Price Target
(USD)
Current Weight
Change
Recommended
Weight
Schlumberger
72.21
174 bps
Sell 75 bps
99 bps
7.3%
Nabors
26.82
199 bps
Buy 75 bps
274 bps
88.1%
Halliburton
38.37
0 bps
Hold
0 bps
22.3%
ConocoPhillips
64.71
290 bps
Sell 290 bps
0 bps
24.2%
Chevron
125.47
379 bps
Buy 80 bps
459bps
26.8%
EOG Resources
133.11
0 bps
Buy 210 bps
210 bps
30.8%
Company
Final recommendations based on analysis included and goal to maintain same
exposure to specific energy industries