Energy Sector
Maggie & Tyler
SIM SECTOR PRESENTATION
Fall 2013
Agenda
i.
ii.
iii.
iv.
v.
vi.
Overview
Business Analysis
Economic Analysis
Financial Analysis
Valuation Analysis
Recommendation
Agenda
SECTOR OVERVIEW
SIM SECTOR PRESENTATION
Fall 2013
S&P 500, SIM Portfolio Comparison
S&P 500 - 10.49%
390 basis points
Overweight
SIM - 14.39%
Overview
Energy Sector vs S&P 500 YTD
*Thomas Baseline
Overview
Energy Sector vs. S&P 500 QTD
*Thomas Baseline
Overview
SIM Weight
 Chevron Corp
(CVX)
 Schlumberger Ltd.
(SLB)
 Apache Corp
(APA)
Overview
Stocks in SIM Portfolio YTD
Schlumberger – Up 27%
Chevron – Up 7%
Apache –Up 6%
Overview
Largest Firms within Energy Sector
Overview
Largest Energy Firms in S&P500
by MarketCap
Overview
Industries
•
•
•
•
•
•
•
Integrated Oil & Gas
Oil & Gas Drilling
Oil & Gas Exploration and Production
Oil & Gas Equipment and Services
Oil & Gas Storage
Coal & Consumed Fuels
Oil & Gas Refining and Marketing
Overview
Industries YTD
Top Performers: Oil &Gas Refining, Exploration/Production, Equipment/Services
Bottom Performers: Coal & Consumed Fuels, Oil & Gas Integrated
Overview
BUSINESS ANALYSIS
SIM SECTOR PRESENTATION
Fall 2013
Phases of the Business Cycle
Early Expansion
Middle Expansion*
Technology
Capital Goods
& Basic
Materials
Financials &
Consumer
Cyclicals
Late Contraction
Energy&
Consumer
Staples
Late Expansion**
Utilities
Early Contraction
Business
Analysis
World Production
Oil Producers in 2012
(By millions of barrels per day)
I.
II.
III.
IV.
V.
VI.
VII.
Saudi Arabia – 11.73
United States – 11.12
Russia – 10.40
China – 4.42
Canada – 3.87
Iran – 3.59
United Arab Emirates – 3.21
U.S. Projected to be world’s top oil
producer by the end of 2013
according to PIRA
(12.1 million barrels a day)
*According to U.S. Energy Information Administration 2012 (eia)
Business
Analysis
World Consumption
Oil Consumption 2012
(By millions of barrels per day)
I.
II.
III.
IV.
V.
VI.
VII.
United States – 18.56
China – 10.28
Japan – 4.72
India – 3.62
Russia– 3.20
Saudi Arabia – 2.86
Brazil – 2.81
*According to U.S. Energy Information Administration 2012 (eia)
Business
Analysis
World Proven Reserves
Proven Oil Reserves in 2012-2013
(By millions of barrels )
I.
II.
III.
IV.
V.
VI.
VII.
Venezuela– 297,700
Saudi Arabia – 265,900
Canada – 175,00
Iran – 157,300
Iraq – 140,300
Kuwait– 101,500
United Arab Emirates – 97,800
*According to U.S. Energy Information Administration 2012 (eia)
Business
Analysis
Industrialization in Emerging
Countries
Demand
I.
II.
Significant increase in Operating Usage
Tendency to see rapid demand growth for
Energy during this stage
III. Driving Global Use steadily higher
Business
Analysis
Transport Sector
Demand
 Transport Sector already accounts for over half of
global oil consumption*
 Although trending “Fuel-economic” for passenger
vehicles, not being widely adopted for the trucking
and road freight business
 40% increase in global oil demand for trucking*
 Air- Travel
*According to World Energy Outlook
Business
Analysis
New Capacity additions in Supply
Supply
U.S. Shale Drilling
•
•
Natural Gas
Predicted by the year 2035,
46% of the U.S. natural gas
supply will come from Shale
Drilling*
*According to the EIA
Business
Analysis
OPEC
12 Current Members












Algeria
Angola
Ecuador
Iran
Iraq
Kuwait
Libya
Nigeria
Qatar
Saudi Arabia
United Arab Emirates
Venezuela
Dedicated to ensure the stabilization of oil markets to:
1. Secure an efficient, economic and regular supply of
petroleum to consumers
2. Steady income to producers
3. A fair Return on capital for those investing in the
petroleum industry
Business
Analysis
OPEC
Porter’s Five Forces
Barriers to Entry/Exit
Power of Suppliers
Rivalry
Amongst
Firms
Substitutes
Power of Buyers
Business
Analysis
Five Forces - Barriers
Barriers to Entry
 Extraordinary Start-Up Costs
 Economies of Scale take time
to be realized
 Potential Entrants - Low
Business
Analysis
Five Forces - Suppliers
Bargaining Power of
Suppliers
 Many firms are vertically
integrated, not a factor
 Exploration and production
industry, high costs for
purchasing
Business
Analysis
Five Forces - Substitutes
Threat of a Substitute
 Alternative Energy is not
efficient enough, costly
• Solar, Wind, Nuclear
 Long-term possible when
efficiencies are realized
Business
Analysis
Five Forces - Buyers
Bargaining Power of Buyers
 Market Demand is a primary
factor in setting prices.
 Consumers are individual
buyers in large populations
giving no individual
bargaining power
Business
Analysis
ECONOMIC ANALYSIS
SIM SECTOR PRESENTATION
Fall 2013
Real GDP vs. Energy
Economics
Crude Oil Price (WTI) vs. Energy
Sector
Economics
Crude Oil Price (BRENT) vs. Energy
Sector
Economics
Rig Count vs. Energy
Economics
Consumer Confidence
Economics
Worldwide Production vs. Energy
Economics
FINANCIAL ANALYSIS
SIM SECTOR PRESENTATION
Fall 2013
Sector Growth
Revenue/Share Growth
55%
47%
28%
2005
Earnings/Share Growth
21%
9%
2006
9%
7%
2007
25%
19%
2008
21%
2009
2010
37%
24%
2011
11%
4%
2%
-2%
-6%
-4%
2012
2013
2014
-33%
-57%
Revenue/Share Growth
Earnings/Share Growth
2005
28%
47%
2006
9%
21%
2007
9%
7%
2008
25%
19%
2009
-33%
-57%
2010
21%
55%
2011
24%
37%
2012
-4%
-2%
2013
4%
-6%
2014
2%
11%
Financial
Sector
Net Profit Margin
EBITDA Margin
12.0%
30.0%
S&P, 9.2%
10.0%
8.0%
25.0%
S&P, 19.7%
20.0%
Energy
Sector, 7.7%
6.0%
4.0%
10.0%
2.0%
5.0%
0.0%
0.0%
2004 2005 2006 2007 2008 2009 2010
2011
2012
Energy
Sector, 19.7%
15.0%
2013
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
ROE
30.0%
25.0%
20.0%
S&P, 16.1%
15.0%
Energy Sector,
15.1%
10.0%
5.0%
Financial
0.0%
2004
2005
2006
2007
2008 2009
2010
2011
2012
2013
Industries
 Oil & Gas – Integrated
 Major Companies
 Chevron, Exxon Mobil, Hess Corp
OGINT
80%
60%
40%
20%
0%
Revenue/Share Growth
Earnings/Share Growth
-20%
-40%
-60%
-80%
Revenue/Share
Growth
Earnings/Share
Growth
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
29%
4%
11%
29%
-32%
23%
23%
-21%
3%
1%
39%
20%
6%
23%
-58%
70%
38%
-3%
-10%
5%
Financial
Industries
 Oil & Gas – Expl/Prod
 Major Companies
 Apache, Conoco Phillips, Marathon Oil
OGEXP
80%
60%
40%
20%
0%
Revenue/Share Growth
Earnings/Share Growth
-20%
2005 2006
-40%
-60%
-80%
Revenue/Share
Growth
Earnings/Share
Growth
2007 2008
2009
2010
2011
2012
2013
2014
22%
27%
10%
22%
-35%
17%
32%
28%
18%
1%
67%
10%
-4%
27%
-56%
34%
34%
-12%
22%
13%
Financial
Industries
 Oil & Gas – Equip/Svc
 Major Companies
 Schlumberger, Baker Hughes, Cameron Int’l
OGEQP
80%
60%
40%
20%
0%
-20%
-40%
-60%
Revenue/Share Growth
Earnings/Share Growth
Revenue/Share
Growth
Earnings/Share
Growth
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
8%
28%
10%
21%
-19%
7%
28%
15%
10%
11%
71%
55%
35%
15%
-47%
17%
42%
4%
5%
26%
Financial
Industries
 Coal & Consumable Fuels
 Major Companies
 Consol Energy, Peabody Energy
COCOF
300%
250%
200%
150%
100%
Revenue/Share Growth
Earnings/Share Growth
50%
2005 2006
0%
-50%
-100%
Revenue/Share
Growth
Earnings/Share
Growth
2007 2008 2009
2010
2011
2012
2013
2014
37%
-6%
-7%
32%
-4%
2%
22%
-12%
-30%
11%
147%
50%
-29%
84%
-33%
4%
36%
-62%
-82%
271%
Financial
Industries
 Oil & Gas – Drilling
 Major Companies
 Diamond Offshore Drl, Ensco Plc
OGDRL
200%
150%
100%
50%
Revenue/Share Growth
Earnings/Share Growth
0%
-50%
-100%
2005 2006
Revenue/Share
Growth
Earnings/Share
Growth
2007 2008 2009
2010
2011
2012
2013
2014
25%
43%
33%
35%
-3%
9%
-5%
4%
-3%
14%
181%
89%
83%
34%
-44%
-39%
6%
25%
8%
27%
Financial
Industries
 Oil & Gas – Refining/Marketing
 Major Companies
 Marathon Petroleum, Phillips 66, Tesoro
OGREF
400%
300%
200%
100%
Revenue/Share
Growth
Earnings/Share
Growth
0%
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
-100%
Revenue/Share
Growth
88%
19%
19%
30%
-43%
18%
24%
8%
5%
0%
-200%
Earnings/Share
Growth
194%
24%
-9%
-35%
-112%
351%
174%
71%
-30%
19%
Financial
Industries
 Oil & Gas – Storage
 Major Companies
 Kinder Morgan Holdco, Spectra Energy
OGSTO
2500%
2000%
1500%
1000%
500%
0%
-500%
Revenue/Share
Growth
Earnings/Share
Growth
2005 2006
Revenue/Share
Growth
-5%
42%
Earnings/Share
Growth
2046%
18%
2007 2008
2009
2010
2011
2012
2013
2014
-38%
15%
-24%
9%
6%
15%
11%
16%
26%
24%
-35%
13%
13%
-22%
2%
33%
Financial
VALUATION ANALYSIS
SIM SECTOR PRESENTATION
Fall 2013
Sector
Absolute Basis
Relative to S&P 500
20
1.6
1.4
15
1.2
1
10
0.8
0.6
5
0.4
0.2
0
0
P/Trailing E
P/Forward E
High
Absolute Basis
P/Trailing E
P/Forward E
P/B
P/S
P/CF
P/B
Low
P/S
Median
High
Current
Low
18.7
16.9
3.8
1.4
9.4
P/CF
Median Current
6.1
12.3
13.1
7.8
11.8
12.5
1.4
2.4
1.9
0.5
1.0
1.0
5.0
7.1
7.3
P/Trailing E
P/Forward E
High
Relative to SP500
P/Trailing E
P/Forward E
P/B
P/S
P/CF
P/B
Low
P/S
Median
High
Current
Low
1.1
1.2
1.4
1.0
0.9
P/CF
Median Current
0.53
0.78
0.84
0.57
0.82
0.86
0.7
1.0
0.8
0.6
0.7
0.7
0.6
0.7
0.7
Valuation
OGINT
Absolute Basis
Relative to S&P 500
20.0
1.4
1.2
15.0
1
0.8
10.0
0.6
0.4
5.0
0.2
0.0
0
P/Trailing E P/Forward E
High
Absolute Basis
P/Trailing E
P/Forward E
P/B
P/S
P/CF
P/B
Low
Median
High
Low
16.8
16.2
3.6
1.2
8.9
P/S
P/CF
P/Trailing E P/Forward E
Current
High
Median Current
6.2
6.5
1.6
0.5
5.1
10.8
10.7
2.3
0.9
6.8
10.9
10.8
1.9
1.0
6.9
Relative to
SP500
P/Trailing E
P/Forward E
P/B
P/S
P/CF
Low
High
P/B
P/S
Median
Low
0.97
1.1
1.2
0.8
0.9
P/CF
Current
Median
0.51
0.4
0.46
0.5
0.6
0.69
0.65
0.72
0.7
0.7
Current
0.7
0.68
0.75
0.7
0.7
Valuation
OGEXP
Absolute Basis
Relative to S&P 500
30.0
4
3.5
3
2.5
2
1.5
1
0.5
0
25.0
20.0
15.0
10.0
5.0
0.0
P/Trailing E P/Forward
E
High
Absolute Basis
P/Trailing E
P/Forward E
P/B
P/S
P/CF
Low
P/B
P/S
Median
High
P/Trailing E P/Forward
E
Current
Low
27.1
27.1
3.4
4.3
8.7
P/CF
High
Median Current
6.3
8.2
1.0
1.5
3.8
13.1
13.1
2.0
2.9
5.9
18.2
15.2
1.9
2.3
6.7
Low
P/B
P/S
Median
Current
P/CF
Relative to
High
Low
Median Current
SP500
P/Trailing E
1.6
0.47
0.83
1.2
P/Forward
1.9
0.51
0.93
1.1
E
P/B
1.3
0.5
0.8
0.8
P/S
3.5
1.4
2.1
1.6
P/CF
0.9
0.4
0.6
0.7
Valuation
OGEQP
Absolute Basis
Relative to S&P 500
50.0
3
40.0
2.5
2
30.0
1.5
20.0
1
10.0
0.5
0.0
0
P/Trailing E P/Forward E
High
Absolute Basis
P/Trailing E
P/Forward E
P/B
P/S
P/CF
Low
P/B
Median
High
P/S
P/Trailing E P/Forward E
Current
Low
39.5
28.9
8.6
3.0
17.5
P/CF
High
Median Current
6.5
7.8
1.6
1.0
5.6
20.6
18.1
3.6
2.0
12.3
20.2
16.4
2.6
2.0
12.3
Relative to
High
SP500
P/Trailing E
P/Forward E
P/B
P/S
P/CF
Low
P/B
P/S
Median
Low
1.9
1.7
2.8
2.8
1.7
P/CF
Current
Median
0.58
0.61
0.9
1.0
0.8
1.3
1.2
1.5
1.6
1.3
Current
1.2
1.1
1.1
1.3
1.1
Valuation
COCOF
Absolute Basis
Relative to S&P 500
80.0
5
4
60.0
3
40.0
2
20.0
1
0
0.0
P/Trailing E P/Forward E
High
Absolute Basis
P/Trailing E
P/Forward E
P/B
P/S
P/CF
Low
P/B
Median
High
P/S
Current
Low
37.5
70.5
4.3
4.9
22.1
P/Trailing E P/Forward
E
P/CF
High
Median Current
7.2
5.3
0.6
0.6
4.8
17.4
15.6
2.5
1.6
7.9
37.5
65.6
1.4
1.0
7.7
Low
P/B
P/S
Median
Relative to
High
Low
SP500
P/Trailing E
1.9
P/Forward E
1.7
P/B
2.1
P/S
4.0
P/CF
2.1
P/CF
Current
Median Current
0.58
0.61
0.3
0.5
0.5
1.3
1.2
1.1
1.2
0.8
1.2
1.1
0.6
0.7
0.7
OGDRL
Absolute Basis
Relative to S&P 500
80.0
5
60.0
4
3
40.0
2
20.0
1
0.0
0
P/Trailing E P/Forward E
High
Absolute Basis
P/Trailing E
P/Forward E
P/B
P/S
P/CF
P/B
Low
P/S
Median
High
65.0
38.3
4.1
6.6
20.1
P/CF
P/Trailing E P/Forward E
Current
Low
High
Median Current
3.3
3.7
0.8
1.1
3.0
15.1
11.3
1.7
2.6
8.0
12.6
11.1
1.2
2.0
6.5
Low
P/B
P/S
Median
Relative to
High
Low
SP500
P/Trailing E
3.7
P/Forward E
2.1
P/B
1.7
P/S
4.3
P/CF
1.8
P/CF
Current
Median
0.28
0.28
0.5
1.2
0.4
0.99
0.83
0.7
2.0
0.8
Current
0.77
0.73
0.5
1.3
0.6
Valuation
OGREF
Absolute Basis
Relative to S&P 500
90.0
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
6
5
4
3
2
1
0
P/Trailing E P/Forward E
High
Absolute Basis
P/Trailing E
P/Forward E
P/B
P/S
P/CF
Low
High
36.8
78.9
3.9
3.5
8.2
P/B
P/S
P/CF
Median
Current
Low
Median Current
3.4
4.3
0.5
0.1
2.9
8.7
8.6
1.6
0.2
5.4
P/Trailing E P/Forward E
High
7.4
12.3
1.6
0.2
5.4
Low
P/B
Median
P/S
P/CF
Current
Relative to
High
Low
Median Current
SP500
P/Trailing E
2.4
0.23
0.57
0.46
P/Forward E
4.8
0.38
0.58
0.81
P/B
1.3
0.2
0.7
0.7
P/S
0.5
0.1
0.2
0.1
P/CF
0.8
0.4
0.5
0.5
Valuation
OGSTO
Absolute Basis
Relative to S&P 500
450.0
25
400.0
20
350.0
300.0
15
250.0
200.0
10
150.0
100.0
5
50.0
0.0
0
P/Trailing E P/Forward E
High
Absolute Basis
P/Trailing E
P/Forward E
P/B
P/S
P/CF
Low
P/B
P/S
Median
Current
High
396.0
32.5
3.6
3.2
16.1
Low
P/CF
High
Median Current
5.9
8.5
0.9
0.6
3.7
20.9
17.6
2.8
1.7
8.3
P/Trailing E P/Forward E
38.5
26.8
3.5
2.8
15.8
Relative to SP500
P/Trailing E
P/Forward E
P/B
P/S
P/CF
P/B
Low
High
22
2.1
1.5
2.6
1.6
P/S
P/CF
Median
Current
Low
Median Current
0.52
0.69
0.6
0.4
0.5
1.4
1.2
1.1
1.4
0.9
2.3
1.8
1.4
1.9
1.5
Valuation
Technical Analysis
 Simple Moving Average
 Relative Strength
Valuation
RECOMMENDATION
SIM SECTOR PRESENTATION
Fall 2013
Recommendation
 Attractive Sector, but already significantly overweight.
 Remain Overweight relative to the benchmark
 Sell a 100 basis points in each stock and purchase another stock to lower
the single stock weights in the portfolio
 Ultimately Hold at 14.38%
 Positives
 Valuation, sector is at or below median
 U.S. and Chinese economies drive the sector
 Developing countries demand
 Risks
 Heavily Reliant on Oil Prices - volatility
 Industries to overweight – oil & gas integrated, exploration and
production, coal and consumed fuels
Questions?
SIM SECTOR PRESENTATION
Fall 2013
References







www.opec.org
us.spindices.com
www.eia.gov
www.worldenergyoutlook.org
www.oecd.org
Bloomberg Terminal
Thomas Reuters Baseline