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Finance & Investment ClubEnergy SectorSummer 2012
SA of Energy Sector: Jeremy Lim
PETROLEUM INDUSTRY ANALYSIS
2
2
Industry Definition
Calumet Specialty Products Partners LP(NASDAQ: CLMT)
Crosstex Energy LP(NASDAQ: XTEX)
Adam Resources & Energy Inc.(NYSE: AE)
Delek US Holdings Inc.(NYSE: DK)
Rentech Inc.(NYSE: RTK)
Alon USA Energy Inc.(NYSE: AlJ)
Firms in this industry explore, extract, refine, transport and market petroleum products. The largest volume products are fuel oil and gasoline.
Consumer of petroleum are worldwide, with developed nations being the largest.
3
3
Petroleum Industry Breakdown
Industry Breakdown By Market Cap ($BLN)Breakdown By March 2012 Revenue1
1Total revenue = $24,728,700
DK $ 8.2251BRTK $ 0.2157 BCLMT $ 3.6993 B
XTEX $ 1.8959 B
AE $ 3.428 BALJ $ 7.2647 B
13.86%
29.38%
14.96%7.67%
33.26%
0.87%AE ALJ CLMT XTEX DK RTK
Petroleum $4.7B(.02%)
Oil & Gas Refining & Marketing$8,125.1B
(4.0%)
Major Integrated Oil & Gas $110,212.6B
(53.6%)
Basic Materials $205,563.5B
(100%)
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Revenue Segment Generation
32.2%67.8%
Fuel ProductsSpecialty Products
39.9%
18.9%
41.1%
PNGL (NGL Assets)
NTX (Shale)
LIG (Transporta-tion)
0.4%2.0%
92.1%
0.2%
5.3% Oil and Gas
Transportation
Marketing - Crude Oil
Marketing - Natural Gas
Marketing - Re-fined Products 91.1%
3.3%5.6%
Refining and Unbranded Marketing
Asphalt
Retail and Branded Marketing
99.9%
0.1%Nitrogen Products Manufacturing
Alternative Energy
64.5%25.5%
10.0%RefiningRetailMarketing
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5
Revenue Generation
Raw Materials Work-In-Progress Finished Goods
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Geographical Breakdown
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Time Series Analysis: Revenue vs. Oil Production (Barrels)
2007 2008 2009 2010 20110
5
10
15
20
25
-4.000%
-2.000%
0.000%
2.000%
4.000%
6.000%
8.000%
10.000%
Total Revenue in BillionsUS % ChangeWorld % Change
Revenue – World Production Correlation: 0.484 Revenue – US Production Correlation: -0.485
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Trends Overview
Trend 1 Trend 2 Trend 3
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Trends Overview
Demand for Refined Petroleum Trend 2 Trend 3
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Trend 1: Demand For Refined Petroleum Revenue figures have been increasing
steadily since 2009 and is forecasted to continue through to 2016– Indispensable nature of oil industry of economy
and national defense– Increase in crude petroleum reserve
Petroleum industry Is backbone in USA and is expected to remain the leading energy source at 38% out of total energy consumed.
In 2015, the United States oil & gas market is forecast to have a volume of 12,264.7 million BOE, an increase of 13.8% since 2010.
A 2.2% Revenue increase is expected in 2012 and the performance of the industry is forecast to accelerate at a projected CAGR of 2.9%.
2008 2009 2010 2011 2012 2013 2014 2015 20160
100000
200000
300000
400000
500000
600000
700000
800000
900000
2008 2009 2010 2011 2012 2013 2014 2015 2016
-50.0%
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
-37.4%
36.0%
6.6%2.2% 3.2% 1.9% 1.6%
4.9%
Industry Revenue Growth (% Change)
Industry Total Revenue
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Trends Overview
Trend 1
Increasing M&A
and Joint
Ventures
Trend 3
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Trend 2: Mergers, Acquisitions and Joint Ventures continue at record pace More companies are motivated by
synergies; diversifying assets; reducing costs; enhancing stock values; responding to price volatility.
Partnerships with governments have also taken place to work out reasonable tax and fiscal regimes
Over 2,600 merger transactions have occurred since the 1990’s involving all three segments of the petroleum industry. – Upstream – 85%– Midstream – 2%– Downstream – 13%
Companies will be able to expand and improve their technologies as discovered oil volumes are greater than oil demand.
Exploration and Production M&A Landscape
Billions of Oil Equivalent Barrels
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Trends Overview
Trend 1 Trend 2 Shale Gas
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Trend 3: Shale Gas US shale-led transactions of total upstream
transaction value has increased to 68%. US has 862 trillion cubic feet of shale gas
reserves. 19 geographic basins are recognized
sources of shale gas where an estimated 35,000 wells were drilled in 2006.
This shows that US is globally poised to be a significant player in this market.
US Shale Transactions – Value and Count
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Comps. Financials
SymbolMarket Cap(M)
52 high
Closing Price P/E EPS
EV/ EBITDA
Debt/ Equity
Debt/ EBITDA LTM ROE
Revenue (B)
AE 187.6 75.13 44.48 8.1 5.67 2.2x 0 0 21.8% 3.428
ALJ 611.9 12.56 10.89 7.9 - 7.0x 2.51 4.2x -0.2% 7.265
CLMT 1,419.80 27.74 24.68 10.1 1.9 9.2x 1.07 2.9x 18.3% 3.699
XTEX 984.6 18.24 16.5 - -0.35 9.6x 0.99 4.2x 0.1% 1.896
DK 1,105.30 20.00 18.99 6 2.8 3.1x 0.64 1.0x 33.3% 8.225
RTK 429.4 2.40 1.88 NM -0.28 5.2x 0.23 1.1x NA 0.216
High 1,419.80 75.13 44.48 10.1 5.67 9.6x 2.51 4.2x 33.3% 8.225
Low 429.4 2.40 1.88 6 -0.35 2.2x 0 0 -0.2% 0.216
Median 798.25 19.12 17.75 8 1.90 6.1x 0.82 2x 18.3% 3.565
Mean 789.77 26.01 19.578.025 1.68 6.05x 0.91 2.23x 14.7% 4.121
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Petroleum Industry Recommendation: POSITIVE
Subsector operates with trends signifying:1) Gross margin fluctuations due to lead demand and lagging supply 2) Vital but finite commodity creates an inelastic demand
Delek is set to outperform subsector and will be researched because:1) Debt / Equity: .64 (Median: .82, Mean: .91)2) EV/EBITDA: 3.10x (Median: 6.10x, Mean: 6.05x) 3) Diversity in company assets from refining and marketing to retailing.
The petroleum industry however must combat the key risks of:1) Staying competitive in technological advancements2) Possible synergies created from other M&A transactions of other companies
Delek US Holdings Inc.(NYSE: DK)
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Thank you for listening. Any questions?
Industry Definition Industry Breakdown Revenue Segmentation Revenue Generation Geographical Breakdown Time-Series Analysis Trend 1: Demand for Refined Petroleum Trend 2: Mergers, Acquisition and Joint Ventures Trend 3: Shale Gas Comps Financials Recommendation