Zach Rochon
Logan Cotter
Adam Claugus
Joseph Hsieh
May 5th, 2009
1)
2)
3)
4)
5)
6)
Size and Composition
Economic Analysis
Business Analysis
Valuation Analysis
Financial Analysis
Recommendation


Coal and Consumer Fuels
Oil and Gas
◦ Drilling
◦ Equipment and Services
◦ Exploration and Production
◦ Integrated
◦ Refining/Marketing
◦ Storage
S&P 500 Sector Weights
Materials
3.37%
Cash
0.00%
Telecom Svc
3.71%
Utilities
3.98%
Consumer Discretionary
9.52%
Consumer Staples
12.04%
Information Technology
18.40%
Energy
12.51%
Industrials
10.44%
Health Care
13.83%
Financials
12.19%
Sim Portfolio Weights
Telecom Svc
2.40%
Materials
3.88%
Consumer Discretionary
7.93%
Utilities
2.50%
Cash
3.69%
Consumer Staples
13.06%
Information Technology
19.92%
Energy
11.31%
Industrials
9.44%
Health Care
17.74%
Financials
8.14%
1.
Size
A. Adjusted market cap of $1,006,613 million
B. Composes 12.51% of the S&P500
C. SIM currently underweights by 120 basis points
2.
Largest Companies
1. Exxon Mobile($332.30B), PetroChina($180.73B),
Royal Dutch Shell($149.17B), BHP Billiton
($141.55B), BP ($139.57B), Chevron($131.86B)
3.
Performance
1. YTD: (2.25%)
2. QTD: 11.18%
2) Economic Analysis
EUR/USD
Energy (Sp-10)
prices
Correlation=-.888
R² = 0.7902
USD/Euro vs. Crude Oil
2008-Present
160
140
Crude Oil
120
100
80
60
40
20
0
0.6
0.65
0.7
0.75
USD/Euro
0.8
0.85

The Life Cycle

The Business Cycle



Near-term future of energy markets is tied to
the economy’s uncertainty.
Restoring credit flow is key to stabilizing
demand.
Capital intensive nature of energy projects
makes access to financing critical.

Energy is at the center of a political debate
◦
◦
◦
◦
◦
Waxman-Markey Bill
Cap-and-trade of greenhouse gases
Carbon pricing
Clean Energy and Energy Efficiency
Back by Obama with majority support in the House,
Senate is the only hurdle
100.0000
80.0000
60.0000
12/31/2005
40.0000
12/31/2006
12/31/2007
12/31/2008
20.0000
03/31/2009
0.0000
SP-10
-20.0000
-40.0000
OGINT
BP
COP
XOM
EBITDA Margin
25.0000
20.0000
15.0000
10.0000
5.0000
0.0000
EBITDA Margin
Net Profit Margin Relative to S&P 500
1.6000
1.4000
1.2000
1.0000
0.8000
Net Profit Margin Relative to S&P 500
0.6000
0.4000
0.2000
0.0000
01/01/2004
01/01/2005
01/01/2006
01/01/2007
01/01/2008
03/01/2009
12/01/2008
09/01/2008
06/01/2008
03/01/2008
12/01/2007
09/01/2007
06/01/2007
03/01/2007
12/01/2006
09/01/2006
06/01/2006
03/01/2006
12/01/2005
09/01/2005
06/01/2005
03/01/2005
12/01/2004
09/01/2004
06/01/2004
03/01/2004
Price/Sales
1.6000
1.4000
1.2000
1.0000
0.8000
0.6000
Price/Sales
0.4000
0.2000
0.0000
Cash Flow Per Share
90.0000
80.0000
70.0000
60.0000
50.0000
40.0000
30.0000
20.0000
10.0000
0.0000
Cash Flow Per Share
Return on Equity
30.0000
25.0000
20.0000
15.0000
Return on Equity
10.0000
5.0000
0.0000
Energy
0%
% from 15 Year Median
-10%
-20%
-30%
-40%
-50%
-60%
Energy
P/E TTM
P/E Fwd
P/B
P/S
P/CF
-56%
-20%
-41%
-40%
-46%
Industry: P/CF
COCOF
OGDRL
OGEQP
OGEXP
OGINT
OGREF
OGSTO
0%
-10%
-20%
-30%
-40%
-39%
-40%
-50%
-56%
-60%
-70%
-80%
-73%
-43%
-54%
-58%
Industry: P/E Fwd
150%
100%
107%
50%
12%
0%
-28%
-36%
-50%
-16%
-30%
OGREF
OGSTO
-65%
-100%
COCOF
OGDRL
OGEQP
OGEXP
OGINT
COP
BP
150%
DVN
RIG
123%
100%
50%
0%
-4%
-15%
-50%
-57%
-57%
-55%
-100%
P/E Fwd
P/CF
-77% -73%

Increase 120 basis points to par with S&P500
at 12.51%
◦ The sector is currently undervalued with strong
growth potential within our one year horizon

Energy’s performance against the S&P500
◦ QTD:11.18% vs. 6.48%
◦ YTD: (2.25%) vs. (2.49%)
 We expect this trend to continue and improve longterm

Biggest positives
◦ Short-Term: OPEC cutting production
◦ Long-term: U.S. economic recover

Biggest risks
◦ Appreciation of USD/Euro
◦ Uncertainty in global economy
◦ Political risk

Overweight
◦ Drilling & Services

Underweight
◦ Exploration and Production

Individual stock recommendation
◦ Transocean (RIG)