Energy Sector Company
Presentation
Marcus Baker
S&P 500 vs. SIMS Weighting
2.41% S&P 500 Sector Breakdown 3.51% 3.07% Consumer Discre9onary Financials Health Care 10.86% 10.70% 16.07% 10.33% 23.01% U9li9es Financials Health Care 10.08% Industrials IT 7.53% Materials Telecom Services Consumer Staples Energy Industrials IT Consumer Discre9onary 12.09% Energy 9.63% 13.24% 3.01% 3.56% Consumer Staples 11.78% 18.73% SIM Weights by Sector 15.24% 15.14% Materials Telecom Services U9li9es SIMS Energy Companies
•  Four Energy Companies in the SIM Portfolio
▫  National Oilwell Varco Inc.: 1.90% of SIMs
porfolio
▫  Chevron: 4.51% of SIMs portfolio
▫  Marathon: 3.06% of the SIMs portfolio
▫  Now INC/DE: 0.21% of SIMs portfolio
National Oilwell Varco Inc.
•  National Oilwell Varco Inc. is a 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 over
1,235 locations across six continents.
•  National Oilwell and Varco completed a merger in 2005
•  Has 3 main operating segments
▫  1. Rig Technology - Generated $11.7B in revenues during
2013
▫  2. Petroleum Services and Supplies – Generated 7.2B in
revenues during 2013
▫  3. Distribution & Transmission – Generated 5.1B in
revenues during
NOV’s Stock Performance - 5 yr
NOV’s Price ratios relative to S&P 500
NOV's P/C Relative to S&P 500
Price/Sales
1.6
0.7
1.8
1.7
10.8
-2.6
11.2
23.5
NOV's P/E Relative to S&P 500
4
NOV
S&P 500
NOV
3.5
S&P 500
3
3
NOV
2.5
S&P 500
2
2.5
1.5
2
1.5
1
1
0.5
0.5
0
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
TTM
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
TTM
39
34
29
24
19
14
9
4
NOV's P/S Relative to S&P 500
NOV's P/B Relative to S&P 500
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
TTM
Price/C ash Flow
TTM
1.5
2013
2.7
2012
1.5
2011
1.6
2010
Price/Book
2009
14
2008
18.6
2007
13.7
S&P 500
2006
15.2
NOV
2005
Price/Earnings
Industry Avg S&P 500 NOV 5 yr avg
2004
NOV
150
135
120
105
90
75
60
45
30
15
0
National Oilwell Varco’s Price Multiples
Relative to the S&P 500 Energy Sector
National Oilwell Varco’s Returns
Relative to S&P 500 and Energy Sector
NOV’s Historical & Analyst Projections
Chevron Corporation
•  Chevron is active in both upstream operations
(exploring, developing and producing crude oil and
natural gas; processing, liquefaction, transportation,
storage and marketing of natural gas) and
downstream operations (refining crude oil into
petroleum products; marketing of crude oil and
refined products; transporting crude oil and refined
products by pipeline, marine vessel, motor
equipment and rail car
▫  Upstream operations brought in $20.8B in net income
during 2013
▫  Downstream operations generated $2.2B in net
income during 2013.
CVX’s Stock Price – 5 yr
CVX’s Price ratios relative to S&P 500
20
Chevron's P/E Relative to the S&P
500
CVX
CVX
2.5
1.3
12
2
1.1
10
1.5
8
1
TTM
2013
2012
2011
2010
2009
CVX
S&P 500
0.9
0.7
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
TTM
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
TTM
2008
1.9
1.5
16
6
2007
Chevron's P/S Relative to S&P 500
S&P 500 1.7
3
14
2006
2005
CVX
S&P 500
Chevron's P/B Relative to S&P 500
3.5
S&P 500
18
Chevron's P/CF Relative to S&P 500
12
11
10
9
8
7
6
5
0.5
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
TTM
Price/Earnings
Price/Book
Price/Sales
Price/Cash Flow
Industry Avg S&P 500 CVX 5 yr avg
12.8
13.7
18.6
10.3
1.7
1.5
2.7
1.7
1.1
0.7
1.8
0.9
6.7
-­‐2.6
11.2
5.8
2004
CVX
Chevron’s Price Multiples Relative to
S&P 500 Energy Sector
Chevron’s Returns Relative to S&P 500
and Energy Sector
CVX’S Historical & Analyst Projections
•  According to the 10-K Marathon Oil Corporation is an
international energy company engaged in the
exploration, production and marketing of liquid
hydrocarbons and natural gas, production and
marketing of products manufactured from natural gas
and oil sands mining •  Marathon Oil have three main product lines
▫  1. Liquid hydrocarbons – Generated 11.9B in revenues
during 2013
▫  2. Natural gas – Generated $937M in revenues during 2013
▫  3. Synthetic crude oil – Generated 1.5B in revenues during
2013
•  Over 47% of revenues are derived from domestic
operations
•  Potential Growth Opportunities
▫  17 locations in the Gulf of Mexico are available for drilling
▫  Focus on organic growth in U.S. market with the increase expenditures in the
Eagle Ford Shale region in Texas.
•  Potential Threats to Growth
▫  Sale of Norweign business operations to Det Norske Olieseskap AS for 2.1 Billion
dollars
–  In 2013, sales in Norway were $3.21 Billion dollars
▫  Unsuccessful drilling expeditions that fail to replenish oil reserves
–  Funding the activities
–  Obtaining the rights to produce and develop liquid hydrocarbons and natural gas in
favorable areas.
–  Delays in drilling are potential drawbacks
▫  Changes in oil and natural gas prices
–  OPEC regulations that provide unfavorable conditions (Increasing oil reserves in the
market, which in turn would reduce oil prices)
–  Decreasing demand for natural gas and oil
–  Several other external factors related to geographical, regulatory, or political changes
MRO’s Stock Performance - 5 yr
MRO’s Price ratios relative to S&P 500
MRO
Price/Earnings
Price/Book
Price/Sales
Price/Cash Flow
Industry Avg S&P 500 MRO 5 yr avg
16
13.7
18.6
14.1
1.4
1.5
2.7
1.2
1.9
0.7
1.8
1
5.4
-­‐2.6
11.2
4.5
12
Marathon's P/CF Relative to S&P
500
MRO
S&P 500
10
8
6
2
Marathon's P/B Relative to S&P 500
18
3.5
MRO
S&P 500
3
16
2.5
20
14
2
S&P 500 1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
8
1
6
0.5
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
TTM
1.5
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
TTM
10
4
MRO
2
12
Marathon's P/S Relative to S&P 500
MRO
S&P 500
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
TTM
Marathon's P/E Relative to S&P 500
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
TTM
4
Marathon’s Price Multiples Relative to
the S&P 500 Energy Sector
Marathon Oil’s Returns Relative to S&P
500 and Energy Sector
MRO’s Historical & Analyst Projections
# i n millions e xcept per share i nfo
Terminal Discount Rate =
Marathon Oil
10.1%
Terminal FCF Growth =
3.8%
Year
Revenue
2014E
14,809
% Grow th
Operating Income
2015E
14,513
-2.0%
8,156
5,090
2016E
13,497
-7.0%
4,734
2017E
13,227
2018E
13,161
-2.0%
5,291
-0.5%
5,264
2019E
13,293
1.0%
5,317
2020E
13,426
1.0%
5,370
2021E
13,694
2.0%
5,478
2022E
13,968
2.0%
5,587
2023E
14,248
2.0%
5,699
2024E
14,532
2.0%
5,813
Operating Margin
55.1%
35.1%
35.1%
40.0%
40.0%
40.0%
40.0%
40.0%
40.0%
40.0%
40.0%
Interest Income
(271)
(218)
(202)
198
197
199
201
205
210
214
218
Interest % of Sales
-1.8%
-1.5%
-1.5%
1.5%
1.5%
1.5%
1.5%
1.5%
1.5%
1.5%
1.5%
Taxes
Tax Rate
Net Income
4,731
58.0%
3,154
% Grow th
Add Depreciation/Amort
% of Sales
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
Capex % of sales
Free Cash Flow
57.4%
1,949
-38.2%
2,962
2,903
2,645
-0.5%
2,632
45.0%
3,214
1.0%
2,592
2,326
45.0%
3,246
1.0%
2,551
2,373
45.0%
3,311
2.0%
2,602
2,420
45.0%
3,377
2.0%
2,654
2,468
45.0%
3,444
2.0%
2,707
2,518
45.0%
3,513
2.0%
2,761
19.0%
19.0%
19.0%
19.0%
296
290
270
265
263
266
269
274
279
285
291
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
4,887
33.0%
1,525
4,789
33.0%
352
-76.9%
8,730
4,454
33.0%
4,365
33.0%
328
1,743
-7.0%
431.7%
33.0%
1,734
-0.5%
4,387
33.0%
1,685
-2.8%
4,162
31.0%
1,903
13.0%
4,245
31.0%
1,941
2.0%
4,330
31.0%
1,980
2.0%
4,417
31.0%
2,020
2.0%
Terminal Value
5.37%
Free Cash Yield
9.0
14.6
15.7
6.9
11.1
12.0
3.1
4.3
4.6
2.5
3.5
3.7
2.0%
4,505
31.0%
2,060
2.0%
33,949
6.07%
Terminal P/E
9.7
Terminal EV/EBITDA
4.7
-
705
$ 40.27 premarket after preannouncement
Implied equity value/share
$ 30.78
-23.6%
4,343
40%
Current Price
Upside/(Downside) to DCF
3,182
2,303
19.0%
60%
Shares Outstanding
76.4%
45.0%
19.5%
100%
Projected EV/EBITDA
2,699
3,198
2,280
20.0%
21,703
Current EV/EBITDA
-7.0%
45.0%
20.0%
Projected Equity Value
Projected P/E
1,812
2,292
20.0%
12,973
Current P/E
57.4%
20.0%
NPV of terminal value
Free Cash Flow Yield
2,719
20.0%
% Grow th
NPV of Cash Flows
2,923
•  ConocoPhillips is the world’s largest
independent exploration and production (E&P)
company, based on proved reserves and
production of liquids and natural gas. (10-K)
•  Conoco Inc. and Phillips Petroleum Company
merged and 2002 but ConocoPhillips spun off
Phillips 66 as of 2012.
▫  Marketing and transportation, refining, power
generation, and their chemical segments was a
part of the spinoff of Phillips 66.
COP’s Stock Performance - 5 yr
COP’s Price ratios relative to S&P 500
8
6
TTM
2013
2012
2011
2009
2008
2007
2006
2010
TTM
2013
2012
2011
2010
1
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
TTM
1.5
2009
2
COP
S&P 500
2008
2.5
ConocoPhillips P/S Relative to S&P 500
2
COP
1.8
S&P 500 1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
2007
3
2005
4
2006
S&P
500
3.5
S&P 500
10
2005
COP
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
TTM
20
18
16
14
12
10
8
6
4
2
0
ConocoPhillips P/B Relative to
S&P 500
COP
12
2
ConocoPhillips P/E Relative to
S&P 500
ConocoPhillips P/CF Relative to S&P
500
2004
Price/Earnings
Price/Book
Price/Sales
Price/Cash Flow
Industry Avg S&P 500 COP 5 yr avg
13
13.7
18.6
10.7
2
1.5
2.7
1.5
1.8
0.7
1.8
0.8
5.9
-­‐2.6
11.2
5.3
2004
COP
ConocoPhillips Price Multiples Relative
to S&P 500 Energy Sector
ConocoPhillips Returns Relative to S&P
500 and Energy Sector
COP’s Historical & Analyst Projections
# i n millions e xcept per share i nfo
Terminal Discount Rate =
Conoco Phillips
8.2%
Terminal FCF Growth =
4.0%
Year
Revenue
2014E
59,995
% Grow th
Operating Income
2015E
60,295
0.5%
14,459
13,132
2016E
60,597
0.5%
12,786
2017E
61,809
2018E
63,045
2.0%
14,834
2.0%
15,131
2019E
64,306
2.0%
15,433
2020E
65,592
2.0%
15,742
2021E
66,904
2.0%
16,057
2022E
68,242
2.0%
16,378
2023E
70,289
3.0%
16,869
2024E
72,398
3.0%
17,375
Operating Margin
24.1%
21.8%
21.1%
24.0%
24.0%
24.0%
24.0%
24.0%
24.0%
24.0%
24.0%
Interest Income
(271)
(218)
(202)
(185)
(189)
(193)
(197)
(201)
(205)
(211)
(217)
Interest % of Sales
-0.5%
-0.4%
-0.3%
-0.3%
-0.3%
-0.3%
-0.3%
-0.3%
-0.3%
-0.3%
-0.3%
Taxes
Tax Rate
Net Income
6,723
46.5%
8,875
% Grow th
Add Depreciation/Amort
% of Sales
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
Capex % of sales
Free Cash Flow
6,106
46.5%
8,171
-7.9%
2,962
2,903
3,152
8,677
2.0%
3,215
6,694
42.0%
8,851
2.0%
3,280
6,828
42.0%
9,028
2.0%
3,345
6,965
42.0%
9,209
2.0%
3,412
7,174
42.0%
9,485
3.0%
3,514
7,389
42.0%
9,769
3.0%
3,620
5.0%
5.0%
5.0%
5.0%
296
290
270
275
281
286
292
298
304
313
323
0.5%
0.5%
0.4%
0.4%
0.4%
0.4%
0.4%
0.4%
0.4%
0.4%
4,887
8.1%
7,246
4,789
7.9%
6,575
-9.3%
66%
4,454
7.4%
6,507
-1.0%
4,636
7.5%
7,071
8.7%
7.5%
7,212
2.0%
4,823
7.5%
7,356
2.0%
4,919
7.5%
7,503
2.0%
5,018
7.5%
7,653
2.0%
5,118
7.5%
7,807
2.0%
5,272
7.5%
8,041
3.0%
Terminal Value
7.05%
Free Cash Yield
11.6
12.6
12.9
15.9
17.2
17.6
6.7
7.3
7.6
8.9
9.7
10.1
0.4%
5,430
7.5%
8,282
3.0%
204,016
4.06%
Terminal P/E
20.9
Terminal EV/EBITDA
10.4
-
1,228
$ 83.69 premarket after preannouncement
Implied equity value/share
$ 114.79
37.2%
4,728
34%
Current Price
Upside/(Downside) to DCF
2.0%
42.0%
5.0%
100%
Shares Outstanding
3,090
8,507
6,563
5.0%
140,931
Projected EV/EBITDA
4.4%
42.0%
5.0%
92,580
Current EV/EBITDA
2,699
8,340
6,434
5.0%
48,351
Projected P/E
-2.2%
42.0%
4.5%
NPV of terminal value
Current P/E
7,992
6,308
4.8%
NPV of Cash Flows
Free Cash Flow Yield
46.5%
4.9%
% Grow th
Projected Equity Value
5,945
Recommendation
•  Sell all 10,000 of common stock in Marathon Oil
(3.06%).
•  Maintain current holdings of Chevon, National
Oilwell and Now Inc DE
•  Purchase 3,860 of ConocoPhillips common stock
(2.50%).
•  Net reduction of the SIM weighting of 66 basis
points
Questions?