ENERGY SECTOR
Overview
Largest Firms
Size of Sector
Industries
Performance
Worldwide Largest Firms

Depends on Market Capital
Sector Weightings

Third Largest Sector by weighting
Sector Makeup

Main Industries
› Oil & Gas Integrated (Largest )
› Oil & Gas Drilling
› Oil & Gas Exploration and Production
› Oil & Gas Services & Equipment
› Oil & Gas Storage
› Oil & Gas Refining and Marketing
› Coal & Consumed Fuels
02/07/2012
02/06/2012
02/05/2012
02/04/2012
02/03/2012
02/02/2012
02/01/2012
01/31/2012
01/30/2012
01/29/2012
01/28/2012
01/27/2012
01/26/2012
01/25/2012
01/24/2012
01/23/2012
01/22/2012
01/21/2012
01/20/2012
01/19/2012
01/18/2012
01/17/2012
01/16/2012
01/15/2012
01/14/2012
01/13/2012
01/12/2012
01/11/2012
01/10/2012
01/09/2012
01/08/2012
01/07/2012
01/06/2012
01/05/2012
01/04/2012
01/03/2012
01/02/2012
01/01/2012
12/31/2011
12/30/2011
Energy Performance
555
550
545
540
535
530
525
520
515
510
505
Business Analysis
Life Cycle
Business Cycle
Macro-Economy Influences
Demand & Supply
Porter’s Five Forces
Life Cycle
Currently Energy sector is in
this stage of its Life Cycle
Introduction
Growth
Maturity
Saturation
Business Cycle
Growth
Currently, the
Energy Sector is
recovering from
the decline
brought by
Financial Crisis in
2008.
Recovery
Through
Peak
Recession
Economic Indicators
High Correlation between Rig Count and Sector
Performance
Bakers Rig count and Energy
r= .85
700
2500
600
2000
500
1500
400
Energy

300
1000
Energy Sector
200
Baker Hughs
Rig Count
500
100
0
0
Economic Indicators
Energy vs Crude Inventory
r= -.08
700
25.0
20.0
600
15.0
500
10.0
400
5.0
300
0.0
-5.0
200
-10.0
100
-15.0
8/1/11
2/1/11
8/1/10
2/1/10
8/1/09
2/1/09
8/1/08
2/1/08
8/1/07
2/1/07
8/1/06
2/1/06
8/1/05
2/1/05
8/1/04
2/1/04
8/1/03
2/1/03
8/1/02
2/1/02
-20.0
8/1/01
0
Energy
U.S. Crude
Oil Inventory
Economic Indicators
Negative Correlation
WTI Price vs. Inventory
r= -.20
160.00
25.00
20.00
140.00
15.00
120.00
10.00
100.00
5.00
80.00
0.00
60.00
-5.00
40.00
-10.00
8/1/11
2/1/11
8/1/10
2/1/10
8/1/09
2/1/09
8/1/08
2/1/08
8/1/07
2/1/07
8/1/06
2/1/06
8/1/05
2/1/05
8/1/04
2/1/04
8/1/03
-20.00
2/1/03
0.00
8/1/02
-15.00
2/1/02
20.00
8/1/01

Crude Oil Price:
WTI
U.S. Crude Oil
Inventory
Macro-Economy

US GDP
› US GDP is anticipated to grow at 1.9%
From historical perspective, US GDP has
not been a strong indicator of Energy
sector’s performance.
 Correlation is only -0.34

Real US GDP vs. Energy Sector
Macro-Economy

Relative to SPX
› Historically, in last 20 years, the correlation
was 0.72
› In past two years, after the crisis, the
correlation was 0.96
S&P 500 vs. Energy Sector
Energy vs S&P 500
r=0.72
700
1,800
1,600
600
1,400
500
1,200
400
1,000
300
800
600
200
400
100
200
0
0
SPENS
S&P500 Price Index
Macro-Economy

Foreign Influences
› Emerging markets
› BRIC (Brazil, Russia, India, and China)
› OECD (Organization for Economic Co-
operation and Development)
BRICs
Crude Oil Price
Performance dependent upon Crude Oil
Prices
WTI Crude vs Energy
r = .93
700
160
600
140
500
120
100
Energy

400
80
300
60
200
100
0
40
20
0
Energy
Crude Oil Price:
WTI
Other Factors
Situation in Middle-East
 New Energy substitutes

› Renewables
Demand & Supply
• Generally, No apparent surpluses or
shortages.
Porter’s Five Forces
Low, Nearly Impossible
Low
Large
High, Oligopoly
Low
Financial Analysis
Earnings Growth
Profit Margin
ROE
Cash Flow
EBITDA
Earnings Growth
Profit Margin
Absolute
Vs. SP 500
Return on Equity
Absolute
Vs. SP 500
Cash Flow Per Share
EBITDA
Absolute
Vs. SP 500
Valuation Analysis
Energy
Oil Integrated
Oil & Gas Exploration/Production
Oil & Gas Drilling
Oil & Gas Refining/Marketing
Oil & Gas Equip/ Service
Coal & Consumer Fuels
Oil & Gas Storage
Valuation Ratios
10 Yr P/E
Price to Book/Sales
30.00
25.00
4.00
1.60
3.50
1.40
3.00
1.20
2.50
1.00
2.00
0.80
1.50
0.60
1.00
0.40
0.50
0.20
0.00
0.00
15.00
Forward P/E
10.00
5.00
Trailing P/E
Ptice/Book
P/E
20.00
Price/Book
0.00
• Trading near the low end of the range for all ratios
Price/Sales
Oil Integrated


Trading near Median
Cheap Relative to
S&P
Oil Integrated
1.00
0.90
0.80
Relative to SP500 High
Low
Median Current S&P
0.70
P/Trailing E
P/Forward E
P/B
P/S
P/CF
1.10
1.20
1.40
0.80
0.90
0.51
0.46
0.70
0.50
0.60
0.70
0.73
1.00
0.70
0.70
0.73
0.73
0.70
0.70
0.70
1.00
1.00
1.00
1.00
1.00
Ratio
0.60
0.50
0.40
0.30
0.20
0.10
-
Median
Current
S&P
Low
Oil & Gas
Exploration/Production

Trading near S&P
levels
Oil & Gas
Exploration/Production
2.50
Relative to SP500 High
P/Trailing E
P/Forward E
P/B
P/S
P/CF
1.50
1.90
1.30
3.50
0.90
Low
0.39
0.51
0.50
1.00
0.40
Median Current S&P
0.74
0.84
0.80
2.10
0.60
1.20
1.10
0.80
2.40
0.70
1.00
1.00
1.00
1.00
1.00
2.00
1.50
Median
Current
1.00
S&P
Low
0.50
-
Oil & Gas Drilling

Fairly valued relative
to S&P
Relative to SP500 High
P/Trailing E
P/Forward E
P/B
P/S
P/CF
3.70
2.10
1.70
4.30
1.80
Low
0.28
0.28
0.40
1.30
0.40
Oil & Gas Drilling
2.50
Median Current S&P
1.20
0.96
0.70
2.40
1.00
1.30
0.86
0.60
1.50
0.80
1.00
1.00
1.00
1.00
1.00
2.00
1.50
Median
1.00
0.50
-
Current
S&P
Oil & Gas – Equipment/Service

High Crude Prices
supporting investment
in equipment and
service companies
Oil & Gas
Equipment/Service
1.80
1.60
1.40
Relative to SP500 High
Low
Median Current S&P
1.20
1.00
P/Trailing E
P/Forward E
P/B
P/S
P/CF
2.00
1.70
2.80
2.80
1.70
0.58
0.61
0.90
1.00
0.80
1.50
1.30
1.50
1.60
1.30
1.40
1.10
1.30
1.70
1.20
1.00
1.00
1.00
1.00
1.00
Median
0.80
0.60
0.40
0.20
-
Current
S&P
Oil & Gas – Refining/Marketing

Consistently
discounted vs S&P
500
Relative to SP500 High
Low
Oil & Gas Refining/Marketing
1.00
0.90
Median Current S&P
0.80
0.70
P/Trailing E
P/Forward E
P/B
P/S
P/CF
7.60
4.80
1.30
0.50
0.80
0.23
0.38
0.20
0.10
0.30
0.63
0.57
0.50
0.20
0.50
0.52
0.58
0.60
0.10
0.50
1.00
1.00
1.00
1.00
1.00
0.60
0.50
0.40
0.30
0.20
0.10
-
Median
Current
S&P
Coal & Consumer Fuels

Speculation of
decreased Coal
Demand in China
causing investor fears
Coal & Consumer fuels
1.60
1.40
1.20
Relative to SP500 High
Low
Median Current S&P
1.00
P/Trailing E
P/Forward E
P/B
P/S
P/CF
3.80
2.10
2.10
4.00
2.10
0.55
0.39
0.40
0.90
0.60
1.30
1.00
1.60
1.40
1.00
0.88
0.70
0.50
0.90
0.70
1.00
1.00
1.00
1.00
1.00
0.80
Median
Current
0.60
0.40
0.20
-
S&P
Oil & Gas - Storage

Trading near Highs
Oil & Gas - Storage
2.50
Relative to SP500 High
P/Trailing E
P/Forward E
P/B
P/S
P/CF
1.70
1.50
1.40
2.50
1.30
Low
0.62
0.69
0.60
0.40
0.50
Median Current S&P
1.10
1.10
0.90
1.10
0.70
1.60
1.50
1.20
2.40
1.00
1.00
1.00
1.00
1.00
1.00
2.00
1.50
High
Median
1.00
Current
S&P
0.50
-
Recommendation
Buy Sell Hold