ENERGY SECTOR
Gengyuan Cao
Chun-Ning Chen
Troy Evans
Holly Fisher
AGENDA
¡  Overview
¡  Business Analysis
¡  Economic Analysis
¡  Financial Analysis
¡  Valuation Analysis
¡  Recommendation
Weight of Energy Sector
Sector Weight in S&P 500 SIM Weight S&P 500 TELECOM SERV IDX Consumer DiscreIonary S&P 500 UTILITIES INDEX S&P 500 MATERIALS INDEX 2% 3% 3% 20% 10% 10% 15% 13% 9% 23% S&P 500 CONS STAPLES IDX S&P 500 INDUSTRIALS IDX Energy 3% 3% 0% 0% S&P 500 ENERGY INDEX 8% 16% Consumer Staples 1% Financials 10% 8% 8% 16% 19% Health Care Industrials S&P 500 CONS DISCRET IDX InformaIon Technology S&P 500 HEALTH CARE IDX Materials S&P 500 FINANCIALS INDEX TelecommunicaIon Services S&P 500 INFO TECH INDEX UIliIes BIGGEST NAMES IN ENERGY
World Company Ranking
US Company Ranking
0 100 200 300 400
0 100 200 300 400
EXXON MOBIL
EXXON MOBIL CORP
PETROCHINA-H
CHEVRON CORP
CHEVRON CORP
SCHLUMBERGER LTD
ROYAL DUTCH SH-A
KINDER MORGAN IN
TOTAL SA
CONOCOPHILLIPS
BP PLC
ENTERPRISE PRODU
SINOPEC CORP-H
SCHLUMBERGER
KINDER MORGAN
CONOCOPHILLIPS
Mkt
Cap( Billion
Dollars↑
OCCIDENTAL PETE
EOG RESOURCES
PHILLIPS 66
ANADARKO
ENI SPA
WILLIAMS COS INC
ENTERPRISE PRODU
HALLIBURTON CO
CHINA SHENHUA-H
ENERGY TRANSFER
CNOOC
VALERO ENERGY
STATOIL ASA
WILLIAMS PARTNER
OCCIDENTAL PETE
MARATHON
GAZPROM
BAKER HUGHES INC
Mkt
Cap( Billion
Dollars↑
Sub-sector Information
Mkt Cap of Sub-­‐sectors ( Billion Dollars) Integrated Oil & Gas (6 members) ExploraIon & ProducIon (19 members) Oil Equipment & Services (11 members) Pipelines (2 members) Gas DistribuIon (2 members) Coal (1 member) Sector Performance and
general information
Selected Industry Aggregate Statistics Total Market Cap Price/Earnings Total Revenue Total Revenue 1YR Growth Energy Value 5.16T 15.41 7.32T -1.51 5 years holding period Currency S5ENRS Index USD SPX Index USD 10 years holding period Price Change Dividends Reinvested into the
Index Total Return Annual Eq 70.92% 5.55% 109.45% 7.74% Price Change Total Return Difference Annual Eq 34.21% 49.70% -­‐49.78% 8.56% 79.96% 99.49% 15.09% Business Analysis
Life Cycle
The Energy sector is in the Maturity Phase of the life Cycle
Energy
Business Cycle
Energy
External Factors & Uncertainties
§
Geopolitical risks
§
Climate policies
§
China & India have been growing at around 7% annually, what if this slows –how
will this affect the energy sector?
§
Possible Tax increases
§
Price risks, projects are not easily shut down and restarted --- if prices goes down
companies have to live with the lower revenues.
§
Environmental restrictions & regulations ---- What does fracking do to the
environment?
§
Regulatory & legislative changes
§
Finding replacement Reserves
§
Natural disasters and extreme weather conditions
Top Ten Oil Consuming
Countries
1. United States
19,000,000
2. China
9,500,000
3. Japan
4,470,000
4. India
3,300,000
5. Russia
3,200,000
6. Saudi Arabia
2,820,000
7. Brazil
2,600,000
8. Germany
2,500,000
9. South Korea
2,300,000
10. Canada
2,210,000
(Barrels per day)
§
China is expected to overtake the U.S. as the major consumer of oil
within two decades.
§
Growth of emerging countries
Top Ten Oil Producing
Countries
1. Russia
10,580,000
2. Saudi Arabia
9,900,000
3. United States
7,441,200
4. China
4,372,000
5. Canada
3,856,000
6. Iran
3,518,000
7. Iraq
3,400,000
8. United Arab Emirates
3,090,000
9. Venezuela
3,025,000
10. Mexico
2,935,000
(Barrels per day)
World Supply & Demand
Oil & Gas Rig Count
Fossil Fuels Remain Main Energy
Source
Coal is the slowest
growing fossil fuel.
Gas is the fastest
growing fossil fuel.
Energy Consumption by Source
& Sector
(Quadrillion Btu)
Porter’s Five Forces
§
Barriers to Entry (High)
Very capital Intensive
§
Bargaining Power of Suppliers (Moderate)
A high firm concentration
§
Bargaining Power of Buyers (Low)
§
Substitutes (Low), growing renewables but still low % of total energy
consumption.
§
Rivalry (Low),commodity product, hard to differentiate.
Economic Analysis
Regression Analysis: Energy Index vs. S&P 500
Economic Analysis
Regression Analysis: Energy Index vs. Oil
Financial Analysis
Energy Sector Sales
$600.00
Sales $Millions
$500.00
$400.00
$300.00
$200.00
$100.00
$2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015E 2016E
Year
ENERGY
SECTOR 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E 2016E Sales $ 366.98 $ 396.21 $ 434.29 $ 546.00 $ 365.88 $ 423.42 $ 514.95 $ 549.09 $ 545.53 $ 533.13 $ 418.95 $ 471.03 Sales Growth 7.97% 9.61% 25.72% -32.99% 15.73% 21.62% 6.63% -0.65% -2.27% -21.42% 12.43% Financial Analysis
Energy Sector Earnings
$60.00
Earnings $ Millions
$50.00
$40.00
$30.00
$20.00
$10.00
$2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015E
2016E
Year
ENERGY
SECTOR Earnings Earnings
Growth $
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E 34.51 $
42.50 $
45.71 $
52.99 $
23.14 $
34.12 $
46.48 $
44.66 $
42.79 $
41.06 $
23.15% 7.55% 15.93% -56.33% 47.45% 36.23% -3.92% -4.19% 2016E 20.40 $
-4.04% -50.32% 29.51 44.66% Financial Analysis
Operatin Profit
Gross
g Margin Margin ROA Margin P/E P/B ROE Energy Sector 13.40 1.68 16.93 9.40 6.88 5.31 11.10 S&P 500 18.30 2.81 32.69 13.31 9.16 3.12 14.39 S&P 500 outperforms the energy sector on most margins
Financial Analysis
ENERGY SECTOR
P/E
P/B
Gross Margin
Operating Margin
Profit Margin
ROA
ROE
2008
7.29
1.88
18.51
14.67
6.53
8
17.12
2009
18.58
2.03
15.04
9.43
4.22
3.5
7.47
2010
14.85
2.08
17.13
12.21
8.58
7.67
16
2011
11.2
1.93
18.43
13.84
9.09
8.63
17.93
2012
11.93
1.77
17.52
12.41
8.35
7.57
15.72
2013
15.23
1.98
16.65
11.06
7.87
6.59
13.61
2014 2015E
2016E
14.29
26.95
18.64
1.79
1.6
1.58
16.92
9.39
6.87
5.3
4.26
5.26
11.09
8.33
10.19
ROE
20
18
16
14
12
10
8
6
4
2
0
2008
2009
2010
2011
2012
2013
2014
2015E
2016E
Valuation Analysis
ABS
High
Low
Relative
Current to S&P High
Avg.
Low
Avg.
Current
P/E
19.5
5.7
12.7
13.4 P/E
1.1
0.4
0.8
0.7
P/S
1.5
0.6
1.1
1.0 P/S
1.0
0.6
0.8
0.6
P/B
3.3
1.4
2.2
1.7 P/B
1.3
0.6
0.9
0.6
P/CF
9.7
3.8
7.2
6.4 P/CF
1.1
0.4
0.7
0.6
OGINT/OGDRL
ABS
High
Low
Relative
Current to S&P High
Avg.
Low
Avg.
Current
P/E
17.5
5.6
10.9
11.4 P/E
0.9
0.4
0.7
0.6
P/S
1.3
0.5
1.0
1.1 P/S
0.9
0.5
0.7
0.6
P/B
3.1
1.6
2.2
1.6 P/B
1.2
0.6
0.9
0.6
P/CF
9.9
4.1
7.0
6.9 P/CF
1.2
0.4
0.7
0.6
ABS
High
Low
Relative
Current to S&P High
Avg.
Low
Avg.
Current
P/E
64.1
3.4
16.0
10.0 P/E
3.6
0.2
1.0
0.5
P/S
6.3
0.9
2.9
0.9 P/S
4.2
0.5
2.0
0.5
P/B
3.6
0.6
1.8
0.7 P/B
1.4
0.2
0.7
0.2
24.3
2.6
8.5
3.2 P/CF
2.1
0.3
0.8
0.3
P/CF
OGEQP/COCOF
ABS
High
Low
Relative
Current to S&P High
Avg.
Low
Avg.
Current
P/E
33.2
5.9
19.6
12.5 P/E
1.9
0.4
1.2
0.7
P/S
3.9
0.9
2.2
1.4 P/S
2.6
0.8
1.6
0.8
P/B
7.1
1.5
3.4
2.0 P/B
2.5
0.7
1.4
0.7
31.8
5.2
16.0
9.0 P/CF
2.8
0.7
1.6
0.8
P/CF
ABS
High
Low
Relative
Current to S&P High
Avg.
Low
Avg.
Current
P/E
20.2
5.7
12.1
13.7 P/E
1.1
0.4
0.7
0.7
P/S
1.3
0.5
1.0
1.0 P/S
0.9
0.5
0.7
0.6
P/B
3.2
1.4
2.1
1.7 P/B
1.2
0.6
0.9
0.6
P/CF
8.8
3.7
6.6
6.3 P/CF
1.1
0.4
0.7
0.6
OGEXP/OGREF
ABS
High
Low
Relative
Current to S&P High
Avg.
Low
Avg.
Current
P/E
23.9
5.4
14.4
16.5 P/E
1.5
0.4
0.9
0.9
P/S
4.7
1.4
2.9
1.9 P/S
3.5
1.4
2.1
1.1
P/B
3.3
1.0
2.0
1.5 P/B
1.3
0.5
0.8
0.5
P/CF
8.4
2.5
5.4
4.4 P/CF
0.9
0.3
0.6
0.4
ABS
High
Low
Relative
Current to S&P High
Avg.
Low
Avg.
Current
P/E
38.7
3.1
9.7
11.6 P/E
2.5
0.2
0.6
0.6
P/S
0.5
0.1
0.2
0.3 P/S
0.3
0.1
0.2
0.2
P/B
3.8
0.4
1.6
1.9 P/B
1.4
0.3
0.6
0.7
P/CF
9.8
1.7
5.3
9.1 P/CF
1.1
0.2
0.5
0.8
OGSTO/Summary
ABS
High
Low
Relative
Current to S&P High
Avg.
Low
Avg.
Current
P/E
50.5
4.9
25.8
38.8 P/E
2.9
0.4
1.6
2.1
P/S
3.6
0.7
2.3
2.6 P/S
2.7
0.6
1.6
1.5
P/B
4.9
0.9
2.8
3.0 P/B
2.1
0.6
1.1
1.1
16.3
2.3
8.5
10.6 P/CF
1.3
0.3
0.9
1.0
P/CF
Summary of Valuation Analysis:
1. Sector’s multiples are near their averages but relatively cheaper than
SPX.
2. OGEXP/OGREF/OGSTO beat S&P 500 and their historical averages.
3. The sector is not performing well.
Recommendation
¡  HOLD
Q&A