Eli b h H h G Z ki i ∙ Ben Goates
Elizabeth Hatch ∙ Greg Zunkiewicz
B G
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Overview
Overview
Chevron Analysis
y
Murphy Oil Analysis
Transocean Analysis
y
ConocoPhillips Proposal
Final Recommendation
Chevron
Murphy
Transocean
Conoco Phillips Conclusion
Overview
Chevron
Murphy
Transocean
Conoco Phillips Conclusion
1)
Coal & Consumer Fuels
2)
Oil & Gas Drilling
3)
Oil & Gas Equipment / Svc
4)
Oil & Gas Explor / Prod
5)
Oil & Gas Integrated
O
& Gas teg ated
6)
Oil & Gas Refining / Mkting
7)
Oil & Gas Storage
Overview
Chevron
Murphy
Transocean
Conoco Phillips Conclusion
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y
p
p
Cyclical sector that performs well under conditions of political uncertainty and low consumer confidence.
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Opportunities lie with major market players and strategic niche players.
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Final recommendation is to overweight the sector.
Current
S&P 500 Weight
S&P W i ht
12.99%
SIM Weight
SIM W
i ht
10.36%
+/‐
/
‐2.63%
Recommend
Overweight
13.36%
+.37%
Overview
Chevron
Murphy
Transocean
Conoco Phillips Conclusion
Overview
Chevron
Murphy
Transocean
Conoco Phillips Conclusion
Overview
Chevron
Murphy
Transocean
Conoco Phillips Conclusion
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Large player
Business segments
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Overview
Upstream (Exploration and production)
p
( p
p
)
Downstream (Refining and distribution)
Chemicals
Oth
Other
Exploration operations in numerous countries
Operations in 180 countries (nearly all)
Chevron
Murphy
Transocean
Conoco Phillips Conclusion
Overview
Chevron
Murphy
Transocean
Conoco Phillips Conclusion
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Oil price
 Stock price largely follows the oil price.
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L
Lowered production for 2011, based on Q2
d d ti f b d Q
 Thailand, shared GOM Project, two other GOM rigs
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Marcellus Shale, Gorgon Australia
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Huge international presence and diversification
Overview
Chevron
Murphy
Transocean
Conoco Phillips Conclusion
Overview
Chevron
Murphy
Transocean
Conoco Phillips Conclusion
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g
One of largest oil titans
 Many risks affecting smaller companies do not apply
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Overview
Movement in oil and gas prices
g p
Political, economic, and climatological events
Double‐dip recession
oub e d p ecess o
Ability to find new sources
Liabilities of exploration
Increase in operational costs
Potential for litigation
Chevron
Murphy
Transocean
Conoco Phillips Conclusion
Overview
Chevron
Murphy
Transocean
Conoco Phillips Conclusion
Overview
Chevron
Murphy
Transocean
Conoco Phillips Conclusion
Overview
Chevron
Murphy
Transocean
Conoco Phillips Conclusion
‐ As alluded to, I am placing a BUY
As alluded to I am placing a BUY rating on Chevron Corporation. ‐ Using my pro forma income statement, other U i f
i
t t
t th professional analyst projections of $127.00 (as reference), comparable ratios (35% weight), and discounted cash flow projections (65%), I place a target price of $118.50 (slightly higher because the optimism displayed throughout the paper)
optimism displayed throughout the paper).
Overview
Chevron
Murphy
Transocean
Conoco Phillips Conclusion
Overview
Chevron
Murphy
Transocean
Conoco Phillips Conclusion
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Mid‐size player (Market Cap of $10B vs. 300B)
Mid i l
(M k t C f $ B B)
Business segments
 Exploration and Production
p
 Refining and Marketing
▪ Retail operations w/ Wal‐Mart
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Overview
Drilling operations in 5 countries & offshore
Exploration operations in a dozen countries
Expected production levels of 300,000 barrels per day by 2015
d b Chevron
Murphy
Transocean
Conoco Phillips Conclusion
Overview
Chevron
Murphy
Transocean
Conoco Phillips Conclusion

Oil price
 Stock price largely follows the oil price.
 Price per barrel rose 2.6% this week to $87 Segment Contribution
to Operating Revenue
(up from 2010 average of $79)
(up from 2010 average of $79).
▪ WTI = $87.64, Brent = $109.91.
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Exploration and Production
Refining and Marketing
Exploration and Production
p
 Major expansion, high profit margins.
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Segment Contribution
to Profit
Refining and Marketing
g
g
Exploration and Production
 Divestment
Refining and Marketing
Overview
Chevron
Murphy
Transocean
Conoco Phillips Conclusion
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Modest Size
 Market fluctuations felt more strongly
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Regulatory Environment
 BP oil spill fallout
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Refinery Sales
 S&P downgrade of debt?
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Overview
Dry Hole Drilling
Chevron
Murphy
Transocean
Conoco Phillips Conclusion
MUR
Segment
(millions)
Net Sales
Exploration and
Production
Refining and Marketing
Total
Consensus
FY
2013E
FY
2012E
FY
2011E
FY
2010
FY
2009
FY
2008
FY
2007
FY
2006
9,923
7,939
6,107
3,571
2,951
3,957
2,016
1,828
6,867
16,791
13,465
21,404
19,236
25,343
19,831
23,402
15,960
18,910
23,566
27,523
16,409
18,425
12,462
14,289
$ 31,992
$ 31,973
$ 33,200
2,481
2,382
2,443
806
692
1,603
657
617
52
2,532
135
2,516
240
2,683
149
955
72
764
314
1,917
206
863
111
727
Operating Earnings
Exploration and
Production
Refining and Marketing
Total
Operating Margin
ROA
ROE
EPS
EBITDA (TTM)
Cash Flow
Murphy
Oil
5.93
7.28
11.61
4.93
2.98B
2.60B
Chevron
Murphy
Financials
Overview
Exxon
Mobil
12.74
10.13
25.32
7.59
37.93B
55.88B
British
Petroleum
6.18
4.83
20.96
6.28
32.68B
9.42B
Transocean
Royal Dutch
Shell
8.40
6.84
18.34
8.97
49.82B
33.13B
Conoco Phillips Conclusion
Overview
Chevron
Murphy
Transocean
Conoco Phillips Conclusion
Target Price Calculation: (104.40*.05)+(118.95*.05)+(83.72*.05)+(77.74*.85) = $81.43
Absolute
Valuation
High
Low
Median
Current
Target
Multiple
P/Forward E
P/S
P/B
/
P/EBITDA
P/CF
36.2
1.7
4.1
11.42
14.2
6.7
.3
1.2
2.22
3.4
13.8
.8
2.7
5.77
9.0
7.4
.3
1.2
3.20
4.5
13.8
.8
2.7
5.77
9.0
Target E,
S, B,
etc/Share
8.62
130.5
45.63
14.51
6.92
Target
Price
$118.95
$104.40
$
$123.20
$83.72
$62.28
Target Price Calculation: ((104.40*.05)+(118.95*.05)+(83.72*.05)+(77.74*.85))*.90
= $75 ((45% upside)
p
)
Overview
Chevron
Murphy
Transocean
Conoco Phillips Conclusion
Overview
Chevron
Murphy
Transocean
Conoco Phillips Conclusion
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World’s largest offshore drilling company Business segments
 Contract Drilling (90% of sales)
 Other operations (10% of sales)
▪ Drilling management services
▪ Oil and gas exploration, development, and production activities
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Overview
Specialize in deepwater and ultra deepwater drilling
Has a drilling fleet of 138 vessels with 47 High‐
g
3
47 g
Specification Floaters and three new ones under construction
Closest competitor Ensco only has of 74 drilling ship which 21 are deepwater and ultra deep water.
Thus they have more than double their fleet Chevron
Murphy
Transocean
Conoco Phillips Conclusion
Current Stock Price: 57.26
Overview
Chevron
Murphy
Transocean
Conoco Phillips Conclusion

Oil price
 In order for deepwater drilling to be profitable oil price needs to be above $75 per barrel
 Brent Crude Oil on August 15, 2011 was $109.91 and is expected to rise in the coming year
t d t i i th i 
Deepwater drilling demand  Increase in discoveries in reserves, main place new oil discoveries are
 Brazil is a main driver with 48 new oil and gas discoveries in its offshore and onshore areas as well as West Africa
▪ Have 8 deepwater and ultra deepwater rigs there
 Expected capital expenditures to grow from $58.8 billion in Expected capital expenditures to grow from $58 8 billion in 2010 to $64.2 billion in 2011
Overview
Chevron
Murphy
Transocean
Conoco Phillips Conclusion
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g g g
p
Still ongoing litigation from oil spill
 BP suing for $40 million as well as Halliburton and Cameron
 Is insured up to $950 million for liabilities and fees
 Provision in contract with BP that places all liability on BP
 Likely out come divide up all responsibility between all parties involved ll ti i
l d 
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Overview
Public opinion If oil prices decrease, demand for deepwater drilling will decrease
New costly regulations following oil spill
Chevron
Murphy
Transocean
Conoco Phillips Conclusion
2009
Contract drilling sales
% growth
9,065
10,888
-16.74%
511
668
-23.50%
Total sales
9,576
11,556
-17.13%
Operating margin
1,866
4,400
-48.82%
Other business sales
Contract drilling sales
3 months ending March 31, 2010
3 months ending June 30, 2010
% growth
1,960
2,096
6.94%
184
238
87.5%
,
2,144
2,334
,
8.86%
372
391
5.11%
Other business sales
Total sales
Operating margin
Overview
2010
Chevron
Murphy
Transocean
Conoco Phillips Conclusion
Overview
Chevron
Murphy
Transocean
Conoco Phillips Conclusion
Overview
Chevron
Murphy
Transocean
Conoco Phillips Conclusion
Price from excel worksheet: 68.2 x .8
Price from above: 64.96 x .2
Target price: 67.55
Total upside: 17.97%
Overview
Chevron
Murphy
Transocean
Conoco Phillips Conclusion
Overview
Chevron
Murphy
Transocean
Conoco Phillips Conclusion
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Second‐largest refinery operator in the U.S.
f
 Recently announced spin off of refineries

Solid financials
 High cash flow, low debt

Dividends
 Both companies to pay dividend + increases
▪ Current 4% dividend yield, increasing since 2001
Overview
Chevron
Murphy
Transocean
Conoco Phillips Conclusion
Overview
Chevron
Murphy
Transocean
Conoco Phillips Conclusion

Tasks:
T k
 Increase SIM weight by 300 bps
 Sell 50 bps of Chevron stock
5 p
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Recommendations
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Overview
Chevron:
Murphy:
Transocean:
ConocoPhillips
ConocoPhillips:
Chevron
Murphy
Sell 50 bps
Hold
Hold
Buy 350 bps
Transocean
Conoco Phillips Conclusion