John Goik
John Glankler
Christian Töpfner von Schütz
Agenda
•
•
•
•
S&P 500 Energy Sector
Business & Economic Analysis
Financial Analysis / Valuation
Recommendation
S&P 500: # of Companies in Sectors
100
81
80
80
75
58
60
53
41
40
35
40
20
0
28
9
S&P 500 Energy Sector
Global Industry Classification Standard (GICS)
Sector
Industry Group Industry
Sub-Industry
Oil & Gas Drilling (4)
Energy Equipment &
Services (12)
Oil & Gas Equipment &
Services (8)
Integrated Oil & Gas (7)
Energy (40)
Energy (40)
Oil, Gas &
Consumable Fuels
(28)
Oil & Gas Exploration &
Production (12)
Oil & Gas Refining &
Marketing (3)
Oil & Gas Storage &
Transportation (3)
Coal & Consumable Fuels (3)
S&P 500 Energy Sector
% of S&P 500
Integrated Oil & Gas (7)
7.61%
Oil & Gas Exploration & Production (12)
1.99%
Oil & Gas Equipment & Services (8)
1.61%
Oil & Gas Storage & Transportation (3)
0.32%
Oil & Gas Drilling (4)
0.22%
Coal & Consumable Fuels (3)
0.20%
Oil & Gas Refining & Marketing (3)
0.17%
12.12%
S&P 500: QTD Sector Performance
5.70%
6.00%
5.00%
4.00%
3.00%
4.07%
3.41%
2.73%
1.86%
1.64%
2.00%
1.00%
0.43%
0.33%
0.19%
0.00%
-1.00%
-2.00%
-3.00%
-4.00%
-3.34%
S&P 500: YTD Sector Performance
40.00%
31.15%
30.00%
20.00%
16.11%
10.45%
10.00%
0.49%
0.00%
-10.00%
-0.53%
-2.92%
-3.20%
-3.89%
-5.96%
-9.85%
Energy Sector: Historical Performance
Energy Sector: Historical Performance
Energy Sector: Top 5
Market Cap
Exxon Mobil Corp. (XOM)
$ 334,357,700,000
Chevron Corp. (CVX)
$ 130,544,200,000
Schlumberger Limited (SLB)
$ 67,010,740,000
ConocoPhillips (COP)
$ 62,788,270,000
Occidental Petroleum Corporation (OXY)
$ 54,916,530,000
YTD Performance
FMC Technologies, Inc. (FTI)
64.88%
Pioneer Natural Resources Co. (PXD)
58.83%
Diamond Offshore Drilling Inc. (DO)
52.38%
Massey Energy Co. (MEE)
51.92%
Peabody Energy Corp. (BTU)
45.78%
Agenda
•
•
•
•
S&P 500 Energy Sector
Business & Economic Analysis
Financial Analysis / Valuation
Recommendation
Oil Price - Outlook
 Short Term:
 High Inventories
 Four month rally in prices stalled in early July
 Demand down by 3.2 mb/d 2Q 2009
 Demand down by 2.2 mb/d 3Q 2009
 Demand expected to rise again by 1.4 mb/d 1Q 2010 to 85.9 mb/d
 Oil price expected to be $55 on average in 3Q 2009 (Morgan Stanley)
 Long Term:
 Structural capacity issues
 Production capacity likely to decline (weak price environment)
 Utilization at 100% by 2013
 Demand limited by flat supply capacity
Correlation Between Crude & Stock Prices
per Industry
180
160
140
CRUDE
120
COAL +
100
DRILLING
SERVICES
80
EXPLOR.
60
INTEGR.
R&M
40
STORAGE
20
0
COAL + DRILLING SERVICES EXPLOR. INTEGR.
R&M
STORAGE
0.650897 0.846183 0.368496 0.90326 0.6885324 0.525075166 -0.46567
Oil Supply
Oil Inventory
Oil Demand
Global Oil Demand
Oil Futures
Crude Oil Feb 13
Crude Oil Apr 13
Crude Oil Jun 13
Crude Oil Aug 13
Crude Oil Oct 13
Crude Oil Dec 13
Crude Oil Feb 14
Crude Oil Apr 14
Crude Oil Jun 14
Crude Oil Aug 14
Crude Oil Oct 14
Crude Oil Dec 14
Crude Oil Dec 15
Crude Oil Dec 16
Crude Oil Dec 17
Crude Oil Aug 09
Crude Oil Oct 09
Crude Oil Dec 09
Crude Oil Feb 10
Crude Oil Apr 10
Crude Oil Jun 10
Crude Oil Aug 10
Crude Oil Oct 10
Crude Oil Dec 10
Crude Oil Feb 11
Crude Oil Apr 11
Crude Oil Jun 11
Crude Oil Aug 11
Crude Oil Oct 11
Crude Oil Dec 11
Crude Oil Feb 12
Crude Oil Apr 12
Crude Oil Jun 12
Crude Oil Aug 12
Crude Oil Oct 12
Crude Oil Dec 12
In US Dollars
Future Projections
Oil Prices
Drop-off relative to past few years
Going to Hold Steady/Possibly Increase
Projections are cautiously optimistic
Crude Oil Futures
95
90
85
80
75
70
65
60
Analysts Projections
 Most analysts are skeptical about the near term
Global demand slashed by as much as 2.8% in 2009
Earnings for 2009 are expected to be poor
 But virtually all agree on long term growth in
prices
Most predict an oil rebound late this year/early next
year, projections as high as $85/barrel next year
Oil stocks themselves tend to lead the way
out of a recession
Agenda
•
•
•
•
S&P 500 Energy Sector
Business & Economic Analysis
Financial Analysis / Valuation
Recommendation
Energy Sector: Top 5
Sales Growth (5 year average)
National Oilwell Varco, Inc. (NOV)
49.32%
XTO Energy Inc. (XTO)
44.16%
Chesapeake Energy Corporation (CHK)
38.88%
Diamond Offshore Drilling Inc. (DO)
38.25%
Southwestern Energy Co. (SWN)
37.62%
Net Income Growth (5 year average)
Peabody Energy Corp. (BTU)
260.76%
Southwestern Energy Co. (SWN)
156.79%
Murphy Oil Corporation (MUR)
127.00%
EOG Resources, Inc. (EOG)
123.59%
CONSOL Energy Inc. (CNX)
65.24%
Energy Sector: Top 5
Operating Margin
Ensco International Inc. (ESV)
57.40%
Diamond Offshore Drilling Inc. (DO)
54.74%
Apache Corp. (APA)
52.50%
Denbury Resources Inc. (DNR)
51.67%
EOG Resources, Inc. (EOG)
50.41%
Operating Margin Growth (5 year average)
Rowan Companies Inc. (RDC)
78.46%
Halliburton Company (HAL)
40.19%
Peabody Energy Corp. (BTU)
33.72%
Schlumberger Limited (SLB)
25.52%
Williams Companies, Inc. (WMB)
25.46%
Energy Sector Valuations
Sector Valuations vs. S&P 500
% Change of Current Valuation
From 15 Year Median
19%
14%
20%
10%
0%
0%
0%
-10%
-14%
-20%
-30%
-32%
-40%
Trailing P/E
Forward P/E
P/S
P/B
P/CF
P/EBITDA
Industry Valuations – Trailing P/E
Trailing P/E vs. S&P 500
0%
% Change of Current Valuation
From 15 Year Median
-10%
-14%
-20%
-30%
-31%
-40%
-42%
-50%
-60%
-56%
-57%
-60%
-70%
-80%
COCOF
-79%
OGDRL
OGEQP
OGEXP
OGINT
OGREF
OGSTO
Industry Valuations – Forward P/E
Industry Forward P/E vs. S&P 500
% Change of Current Valuation
From 15 Year Median
200%
159%
150%
84%
100%
50%
11%
0%
0%
-8%
-19%
-43%
-50%
COCOF
OGDRL
OGEQP
OGEXP
OGINT
OGREF
OGSTO
Industry Valuations – P/S
Industry P/S vs. S&P 500
20%
% Change of Current Valuation
From 15 Year Median
18%
16%
20%
10%
0%
0%
0%
-10%
-20%
-30%
-40%
-45%
-50%
COCOF
OGDRL
OGEQP
OGEXP
OGINT
-50%
OGREF
OGSTO
Industry Valuations – P/CF
Industry P/CF vs. S&P 500
0%
% Change of Current Valuation
From 15 Year Median
0%
-10%
-13%
-14%
-20%
-29%
-30%
-33%
-40%
-40%
-50%
-55%
-60%
COCOF
OGDRL
OGEQP
OGEXP
OGINT
OGREF
OGSTO
Industry Valuations – P/B
P/B vs. S&P 500
50%
% Change of Current Valuation
From 15 Year Median
50%
40%
30%
20%
11%
10%
0%
0%
0%
-10%
-8%
-20%
-30%
-30%
-40%
COCOF
OGDRL
OGEQP
OGEXP
OGINT
-40%
OGREF
OGSTO
Industry Valuations – P/EBITDA
P/EBITDA vs. S&P 500
133%
% Change of Current Valuation
From 15 Year Median
140%
120%
100%
80%
60%
40%
5%
20%
0%
-9%
-20%
-40%
-34%
-39%
-60%
-36%
-63%
-80%
COCOF
OGDRL
OGEQP
OGEXP
OGINT
OGREF
OGSTO
Agenda
•
•
•
•
S&P 500 Energy Sector
Business & Economic Analysis
Financial Analysis / Valuation
Recommendation
S&P 500 vs. SIM: Sector Weight
Energy
Energy sector currently underweight by 137 basis points
14.00%
12.00%
10.00%
S&P 500
25.00%
SIM
8.00%
6.00%
4.00%
20.00%
2.00%
0.00%
15.00%
10.00%
5.00%
0.00%
12.05%
10.68%
Recommendation
Increase weight of Energy sector by 137 basis points
to par with S&P 500 :
 Sector is undervalued and has mid to long-term growth potential
 Current weakness should be used to add stock in this sector
 Waiting until the next SIM trading window in Nov/Dec 09 could be
too long since stocks will most likely move quickly on positive news
 Positives:
 Economic recovery (especially in China and India)
 Expected rise in oil prices (mid to long-term)
 Structural problems on the supply side (mid to long-term)
 Risks:
 High inventory/low demand in short term
 Overall uncertainty in oil price predictions
Recommendation
Industry to overweight
Oil & Gas Drilling
Integrated Oil & Gas
Industry to underweight
Oil & Gas Storage & Transportation
Refining & Manufacturing
Energy Sector
What Questions Do You Have?