Energy Sector Company
Presentation
Gefei Liu
Tyler Gustafson
SIM ENERGY STOCKS
PRESENTATION
Fall 2013
Agenda
i.
ii.
iii.
iv.
v.
vi.
Overview (Recap)
Chevron
Marathon
Schlumberger
Apache
Final Recommendation
Agenda
SECTOR RECAP
SIM ENERGY STOCKS
PRESENTATION
Fall 2013
S&P 500, SIM Portfolio Comparison
S&P 500 - 10.49%
390 basis points
Overweight
SIM - 14.39%
Voted to adjust
back inline with
benchmark
Overview
SIM CURRENT HOLDINGS
 Chevron Corp
(CVX)
 Schlumberger Ltd.
(SLB)
 Apache Corp
(APA)
Overview
Final Recommendations
Company
Apache
Chevron
Marathon
Schlumberger
Price Target Current Weight
$
$
$
$
106.63
139.31
33.19
90.61
468 bps
486 bps
0 bps
484 bps
Change
Recommended
Weight
Potential Upside
Hold
Hold
SELL
SELL 484 bps
486 bps
486 bps
0 bps
0 bps
14.29%
12.32%
-11.75%
0.89%
* Will now be 94 bps underweight to our benchmark
Overview
Chevron Corporation
SIM ENERGY STOCKS
PRESENTATION
Fall 2013
Business Overview
 Chevron is a global leader in the
Oil & Gas industry.
• Upstream
•
•
Crude oil and natural gas exploration
and production
Liquefied Natural Gas (LNG)
liquefaction, transportation and
regasification
• Downstream
•
•
•
Refining
Marketing
Transporting
• Other
•
•
•
Mining
Power generation
Debt financing
Stock Data
Current Price:
$124.03
52 Week Price Range $102.76-$127.83
Market Capitalization
$233.93B
Shares Outstanding
1.93B
Dividend Yield
3.14%
Beta
0.84
Stock Performance v. S&P 500
Drivers & Risks
Drivers
•
•
•
•
Strong investments in CapEx
New LNG projects in Australia
Strong energy demand
Emphasizes on delivering
returns to shareholders
Risks
• Fluctuating oil prices
• Geopolitical risks
• Litigation
Integrated Oil & Gas Sales Growth
40
35
30
25
15
10
5
0
2010 Q3
2010 Q4
2011 Q1
2011 Q2
2011 Q3
2011 Q4
2012 Q1
2012 Q2
2012 Q3
2012 Q4
2013 Q1
2013 Q2
-5
-10
-15
Total Sales Growth
Chevron Corp
Exxon Mobil Corp
Murphy Oil Corp
Sales Growth %
20
Profitability
Return on Capital Employed
30.00%
25
25.00%
20
20.00%
Industry Average
Operating Margin
15
Net Profit Margin
%
15.00%
ROE
10.00%
Chevron Corp
10
ROA
Exxon Mobil Corp
5
5.00%
Murphy Oil Corp
0
0.00%
2012
2011
2010
2009
2008
2013 2013 2012 2012 2012 2012 2011 2011 2011 2011 2010
Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4
DCF Analysis
Sensitivity Analysis
Valuation Analysis
Recommendation
 Target Price: $139.31
 Current Price: $124.03
 Upside Potential: 12.32%
 Hold
Calculation of Final Target Price
Price
Upside/Dow
nside
Weight
Current Price
$
124.03
DCF Target Price
$
143.47
15.67%
70%
Multiples Target Price
$
135.15
8.97%
30%
Weighted Average Target Price
$
139.31
12.32%
100%
Marathon Oil
SIM ENERGY STOCKS
PRESENTATION
Fall 2013
Business Overview
Stock Data
Current Price:
• Independent international
energy company
• Operates in North America,
Europe and Africa
• Operating Segments
• North America Exploration
and Production (E&P)
• International E&P
• Oil Sands Mining
52 Week Price Range
Market Capitalization
Shares Outstanding
Dividend Yield
Beta
$37.61
$29.47-$38.18
$26.20B
696.63M
1.91%
1.79
MRO 1 Year Stock Performance
39
37
35
33
31
29
27
25
MRO, 37.61
Stock Performance v. S&P 500
Drivers & Risks
Drivers
•
•
•
•
Sizable acreage position
Base assets investment
Strong energy demand
Competitive overall growth
Risks
•
•
•
•
Fluctuating oil prices
High tax rate
Political Risk
Regulation
Profitability
45.00%
40.00%
35.00%
30.00%
Operating Margin
25.00%
Net Profit Margin
20.00%
ROE
15.00%
ROA
10.00%
40.00%
5.00%
35.00%
0.00%
2012
2011
2010
2009
2008
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
Operating Margin
Profit Margin
ROE
ROA
DCF Analysis
Sensitivity Analysis
Valuation Analysis
Relative to
High
Low
Industry
P/Trailing E
0.88
P/Forward E
0.79
P/B
0.80
P/S
0.70
P/CF
5.70
Median
0.22
0.26
0.30
0.10
1.50
Absolute
Valuation
Current
0.49
0.50
0.50
0.10
3.70
High
Low
0.80
0.77
0.70
0.70
5.60
Median
Relative to
High
Low
S&P 500
P/Trailing E
0.99
P/Forward E
0.81
P/B
0.60
P/S
1.10
P/CF
0.60
Median
0.20
0.24
0.30
0.10
0.20
Target E, S, B,
Target
Target
Current
EBITDA, CF per
Multiple
Price
Share
12.20
10.00
3.08
30.80
1.70
1.00
24.00
24.00
1.40
1.20
28.00
33.60
2.92
2.42
13.00
31.46
5.60
5.00
7.00
35.00
P/Forward E
12.20
3.40
5.90
P/S
1.70
0.10
0.30
P/B
1.80
0.50
1.20
P/EBITDA
4.03
1.08
2.42
P/CF
5.70
1.50
3.70
Average of Target Prices
Upside/Downside to Current Stock Price ($37.61)
30.97
-17.65%
0.39
0.38
0.50
0.20
0.40
Current
0.87
0.80
0.50
1.10
0.50
Recommendation
 Target Price: $33.19
 Current Price: $37.61
 Downside Potential: -11.75%
 Don’t Buy
Calculation of Final Target Price
Price
Upside/Downside
Weight
Current Price
$
37.61
DCF Target Price
$
35.41
-5.85%
70%
Multiples Target Price
$
30.97
-17.65%
30%
Weighted Average Target Price
$
33.19
-11.75%
100%
Schlumberger
SIM ENERGY STOCKS
PRESENTATION
Fall 2013
Schlumberger Limited
• Schlumberger Limited (SLB) is the world’s
largest oilfield services company with a
presence in over 85 nations.
Ticker
SLB
Current Weight
4.84%
Industry
Oil & Gas Equipment & Services
Market Cap
118.28B
Shares Outstanding
1.32B
Dividend Yield
1.30%
Beta
1.78
52 Week Price Range
$67.60-$94.91
• The firm supplies technology, project
management, and information solutions
to the global oil & gas exploration and
production industries.
• Schlumberger Limited is segmented into
three core focuses as follows:
1. The Reservoir Characterization
Group
2. The Drilling Group
3. The Production Group
Schlumberger
Competition
Oil Field Service Companies by Market Cap
Schlumberger Ltd. (SLB)
Halliburton Co. (HAL)
National Oilwell Varco Inc. (NOV)
Baker Hughes Inc. (BHI)
Transocean LTD
Market Capitalization ($B) Annual Sales ($B)
118.28
44.63
44.70
29.05
35.37
22.38
25.28
21.73
18.39
9.48
Schlumberger
Competition & Profitability
12 Month Stock Performance
Schlumberger Limited vs. S&P 500
Schlumberger
Drivers and Risks
Drivers
• Outlook of the macro-environment
• Competitive edge in R&D
• Business with large integrated oil
and gas companies
• Risk Management
Risks
• Foreign Exchange Risk
• Environmental Risk
• Reliance on Oil Prices
(Volatile and significantly reduce profits)
• Political risk (Russia)
• Legal risk with regulations delay in
development
Schlumberger
Discounted Cash Flow
Schlumberger Limited
Analyst: Tyler Gustafson
Date: 10/05/2013
Year
Revenue
Terminal Discount Rate =
Terminal FCF Growth =
2013E
45,947
% Growth
Operating Income
Operating Margin
Interest and Other
Interest % of Sales
Taxes
Tax Rate
Net Income
% of Sales
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
Capex % of sales
Free Cash Flow
% Growth
50,116
9.1%
9,097
9,923
2015E
56,165
12.1%
11,121
2016E
62,905
12.0%
13,839
2017E
71,712
14.0%
15,060
2018E
79,815
11.3%
15,644
2019E
71,834
-10.0%
14,079
2020E
81,172
13.0%
15,910
2021E
91,725
13.0%
16,694
2022E
99,063
8.0%
18,029
2023E
107,978
9.0%
19,652
19.8%
19.8%
19.8%
22.0%
21.0%
19.6%
19.6%
19.6%
18.2%
18.2%
18.2%
350
361
372
440
502
559
503
568
642
693
756
0.8%
0.7%
0.7%
0.7%
0.7%
0.7%
0.7%
0.7%
0.7%
0.7%
0.7%
1,849
21.1%
6,898
% Growth
Add Depreciation/Amort
2014E
11.50%
3.75%
2,021
21.1%
7,541
9.3%
4,218
4,611
2,272
21.1%
8,477
12.4%
5,617
2,827
21.1%
10,512
24.0%
6,165
3,072
21.1%
11,426
8.7%
6,598
3,183
21.1%
11,842
3.6%
7,343
2,865
21.1%
10,652
-10.1%
6,609
3,237
21.1%
12,044
13.1%
7,468
3,387
21.1%
12,605
4.7%
8,439
3,658
21.1%
13,618
8.0%
9,114
3,987
21.1%
14,849
9.0%
9,934
9.2%
9.2%
10.0%
9.8%
9.2%
9.2%
9.2%
9.2%
9.2%
9.2%
9.2%
414
(660)
(957)
(629)
(717)
(798)
718
812
(917)
(991)
(1,080)
0.9%
5,160
11.2%
6,370
-1.3%
5,628
11.2%
5,864
-8.0%
-1.7%
6,307
11.2%
6,829
16.5%
-1.0%
7,064
11.2%
8,983
31.5%
-1.0%
8,053
11.2%
9,253
3.0%
-1.0%
8,963
11.2%
9,424
1.8%
1.0%
8,067
11.2%
9,912
5.2%
1.0%
8,929
11.0%
11,395
15.0%
-1.0%
9,631
10.5%
10,495
-7.9%
-1.0%
9,708
9.8%
12,033
14.7%
-1.0%
9,934
9.2%
13,769
14.4%
Sensitivity Analysis
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
Shares Outstanding
Current Price
Implied equity value/share
Upside/(Downside) to DCF
$
$
52,988
62,066
115,054
5.37%
1,320
89.81
87.16
-2.9%
46%
54%
100%
Terminal Value 184,331
Free Cash Yield
7.47%
Terminal P/E
12.41
Terminal EV/EBITDA
6.43
Terminal Growth Rate
Discount Rate
2.75%
3.00%
3.25%
3.50%
3.75%
4.00%
4.25%
4.50%
11.00%
86.94
88.49
90.43
91.88
93.76
95.77
97.93
100.25
11.25%
84.08
85.50
87.02
88.63
90.35
92.19
94.16
96.25
11.50%
81.39
82.70
84.10
85.58
87.16
88.85
90.65
92.58
11.75%
78.85
80.60
81.35
82.72
84.18
85.72
87.37
89.14
12.00%
76.44
77.57
78.77
80.03
81.83
82.80
84.32
85.53
Schlumberger
Valuation Analysis
SLB Valuation Relative to the Industry
P/Forward E
P/S
P/B
P/EBITDA
P/CF
High
1.40
2.10
1.80
1.44
1.60
Low
0.98
1.30
1.00
0.97
0.90
Median
1.10
1.60
1.30
1.17
1.10
SLB Valuation Relative to the S & P 500
Current
1.10
1.40
1.30
1.14
0.90
P/Forward E
P/S
P/B
P/EBITDA
P/CF
High
1.80
4.40
3.90
2.92
2.40
Low
0.82
1.30
1.10
1.21
0.80
Median
1.40
2.70
2.00
1.87
1.40
Schlumberger Absolute Valuation
P/Forward E
P/S
P/B
P/EBITDA
P/CF
High
Low
Median
31.60
6.40
11.90
19.58
24.50
10.20
1.70
2.50
4.87
5.90
20.40
3.10
4.90
12.62
14.40
Target
Current
Multiple
16.00
2.60
3.10
9.98
12.00
Target E,
S per
Share
4.76
33.59
19.40
3.00
3.30
10.00
13.02
Average Target Price
Implied Upside/Downside over current stock price (89.81)
Target
Price
Weighte
d
92.34
100.77
25%
75%
96.56
7.51%
98.6635
9.86%
Current
1.00
1.70
1.20
1.33
1.10
Schlumberger Limited
Schlumberger Price Target
Metric
Price
Weight
Discounted Cash Flow $ 87.16 70.0%
Price/ Forward Earnings $ 92.34
7.5%
Price/Sales
$ 100.77 22.5%
Projected Target Price: $ 90.61
Current Price: $ 89.81
Potential Upside: 0.89%
HOLD/SELL
Schlumberger
Apache Corporation
SIM ENERGY STOCKS
PRESENTATION
Fall 2013
Apache Corporation
Ticker
Current Weight
Industry
Market Cap
Shares Outstanding
Dividend Yield
Beta
52 Week Price Range
APA
4.68%
Independent Oil & Gas
37.22B
399.24M
0.90%
1.79
$67.91 - $94.84
• Apache Corporation was established in
1954
• Apache discovers, develops and produces
natural gas, crude oil, and natural gas
liquids.
• Currently having exploration and
production interest in six countries around
the world
•
•
•
•
•
•
United States
Canada
Egypt
United Kingdom (North Sea)
Australia
Argentina
Apache Corp.
Competition
Oil Field Service Companies by Market Cap
EOG Resources Inc
Anadarko Petroleum Corp.
Apache Corporation
Hess Corporation
Devon Energy Corp.
Market Capitalization ($B) Annual Sales ($B)
46.18
13.76
45.56
14.36
37.22
17.07
27.89
18.69
25.01
10.36
Apache Corp.
Competition & Profitability
Recent Apache News
Latest Earnings release -November 7th
• Beat Earnings Estimates
• 35% increase of onshore liquid
production
Fieldwood Energy Deal
• Sold Gulf Shelf Assets for 3.75 Billion
• Maintain 50% ownership
Sinopec deal
August 30th
• Sold 33 percent stake for $3.1 billion
• Reduced Exposure in highly volatile
market, monetizing portion viewed as
a positive step for Apache
Thoughts of CEO
“The strength of our financial
performance this quarter is a
testament to the effectiveness of
our strategy… Apache’s focused
drilling program in North America
is yielding significant production
growth.”
- G. Steven Farris: CEO
Apache Corp.
12 Month Stock Performance
Apache Corporation vs. S&P 500
Apache Corp.
Drivers and Risks
Drivers
• Outlook of the macro-environment
• Quality of Exploration*
• Production Growth*
• Risk Management
• Environmental Regulations
Risks
• High Degree Exposure of Operational
Risk
• Foreign Exchange Risk
• Reliance on Oil Prices
(Volatile and significantly reduce profits)
• Political risk
• Legal risk with regulations delay in
development
• High Taxation rate
Apache Corp.
Discounted Cash Flow
Apache (APA)
Analyst: Tyler Gustafson
Date: 10/24/2013
Year
Revenue
Terminal Discount Rate =
Terminal FCF Growth =
2013E
17,420
% Growth
Operating Income
Operating Margin
Interest and Other
Interest % of Sales
Taxes
Tax Rate
Net Income
% of Sales
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
Capex % of sales
Free Cash Flow
% Growth
16,549
-5.0%
6,097
5,627
2015E
18,121
9.5%
6,705
2016E
19,933
10.0%
6,976
2017E
22,325
12.0%
7,814
2018E
24,379
9.2%
8,532
2019E
20,590
-15.5%
7,207
2020E
24,914
21.0%
8,720
2021E
25,288
1.5%
8,851
2022E
24,782
-2.0%
8,674
2023E
26,517
7.0%
9,281
35.0%
34.0%
37.0%
35.0%
35.0%
35.0%
35.0%
35.0%
35.0%
35.0%
35.0%
172
120
150
140
156
171
144
174
177
173
186
1.0%
0.7%
0.8%
0.7%
0.7%
0.7%
0.7%
0.7%
0.7%
0.7%
0.7%
2,666
45.0%
3,259
% Growth
Add Depreciation/Amort
2014E
11.50%
3.75%
2,203
40.0%
3,304
1.4%
6,309
6,288
2,950
45.0%
3,605
9.1%
7,067
3,213
47.0%
3,564
-1.2%
7,973
3,599
47.0%
3,998
12.2%
9,153
3,930
47.0%
4,372
9.3%
10,239
3,319
47.0%
3,683
-15.8%
8,854
4,016
47.0%
4,469
21.3%
10,713
4,077
47.0%
4,537
1.5%
10,874
3,995
47.0%
4,445
-2.0%
10,656
3,638
40.0%
5,397
21.4%
11,402
36.2%
38.0%
39.0%
40.0%
41.0%
42.0%
43.0%
43.0%
43.0%
43.0%
43.0%
157
137
(248)
(199)
(223)
(244)
(206)
(249)
(253)
(248)
(265)
0.9%
0.8%
-1.4%
-1.0%
-1.0%
-1.0%
-1.0%
-1.0%
-1.0%
-1.0%
7,971
45.8%
1,753
7,573
45.8%
2,157
23.0%
8,292
43.0%
2,132
-1.1%
8,571
43.0%
2,766
29.7%
9,600
43.0%
3,329
20.3%
10,483
43.0%
3,884
16.7%
8,854
43.0%
3,477
-10.5%
10,713
43.0%
4,220
21.4%
10,874
43.0%
4,284
1.5%
10,656
43.0%
4,197
-2.0%
-1.0%
11,402
43.0%
5,132
22.3%
Apache Corp.
Sensitivity Analysis
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
Shares Outstanding
Current Price
Implied equity value/share
Upside/(Downside) to DCF
$
$
18,549
23,133
41,682
4.83%
389
93.30
107.15
14.8%
45%
55%
100%
Terminal Value
68,702
Free Cash Yield
7.47%
Terminal P/E
12.7
Terminal EV/EBITDA
3.3
Terminal Growth Rate
Discount Rate
2.75%
3.00%
3.25%
3.50%
3.75%
4.00%
4.25%
4.50%
11.00%
106.8
108.8
110.9
113.1
115.5
118.0
120.7
123.7
11.25%
103.2
105.0
107.0
109.0
111.2
113.5
116.0
118.7
11.50%
99.9
101.5
103.3
105.2
107.2
109.3
111.6
114.0
11.75%
96.7
98.2
99.8
101.6
103.4
105.4
107.4
109.7
12.00%
93.6
95.1
96.6
98.2
99.9
101.7
103.6
105.6
Apache Corp.
Valuation Analysis
Apache Valuation Relative to the Industry
P/Forward E
P/S
P/B
P/EBITDA
P/CF
High
1.10
2.00
1.30
1.08
1.80
Low
0.53
0.80
0.50
0.34
0.40
Median
0.77
1.10
0.90
0.92
0.90
Apache Valuation Relative to the S & P 500
Current
0.79
1.00
0.60
0.53
0.60
P/Forward E
P/S
P/B
P/EBITDA
P/CF
High
1.60
3.70
1.30
1.29
0.90
Low
0.46
1.20
0.40
0.35
0.20
Median
0.65
2.40
0.80
0.65
0.50
Current
0.80
1.50
0.40
0.35
0.30
Apache Absolute Valuation
P/Forward E
P/S
P/B
P/EBITDA
P/CF
High
Median
20.70
4.70
3.00
6.36
9.00
9.70
3.20
2.00
4.24
5.50
Target
Current
Multiple
10.80
2.00
1.10
2.37
3.50
Target E,
S per
Share
8.17
42.94
12.20
2.50
1.30
2.30
3.20
Average Target Price
Implied Upside/Downside over current stock price (93.30)
Target
Price
Weighted
99.67
107.35
25%
75%
103.51
10.95%
105.431
13.00%
Apache Corporation
Apache Price Target
Metric
Price
Discounted Cash Flow
$ 107.15
Price/ Forward Earnings
$ 99.67
Price/Sales
$ 107.35
Projected Target Price:
Current Price:
Potential Upside:
Weight
70.0%
7.5%
22.5%
$ 106.63
$ 93.30
14.29%
BUY/HOLD
Apache Corp.
RECOMMENDATION
SIM ENERGY STOCKS
PRESENTATION
Fall 2013
Recommendation
Company
Apache
Chevron
Marathon
Schlumberger
Price Target Current Weight
$
$
$
$
106.63
139.31
33.19
90.61
468 bps
486 bps
0 bps
484 bps
Change
Recommended
Weight
Potential Upside
Hold
Hold
SELL
SELL 484 bps
486 bps
486 bps
0 bps
0 bps
14.29%
12.32%
-11.75%
0.89%
* Will now be 94 bps underweight to our benchmark
Questions?
SIM ENERGY STOCKS
PRESENTATION
Fall 2013