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Integrated Oil Companies

This analysis provides insights into the integrated oil companies Exxon Mobil and Chevron Corporation, highlighting the industry structure, major players, market statistics, valuation metrics, DCF analysis results, and future outlook. Key points include the oligopoly market form, barriers to entry, Cournot-Nash models of competition, financial data changes in 2009, and analyst recommendations. The overview offers a comprehensive view of the oil and gas sector, focusing on sustainable profits, market dynamics, and potential growth opportunities for investors.

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Integrated Oil Companies

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  1. Exxon Mobil and Chevron Corporation Integrated Oil Companies

  2. Industry Analysis • Petroleum Industry structure: • 5 sectors of operations (Upstream, downstream, marine, pipeline, and service/supply) • Extremely high barriers to entry allowing for sustainable profits in the long run • Supply of oil is controlled by a cartel regime (OPEC) • Economic market form is close to Oligopoly • Few large sellers dominate industry • High barriers to entry, competitors cannot enter to reduce profits of participating firms • Standardized product • Oil and Gas industry is described well by Cournot-Nash Models of competition ( Two equally positioned firms competing on quantity, not price) - Major Players (Integrated): • Exxon, Chevron, Royal Dutch Shell, British Petroleum

  3. Chevron (CVX) Operates as an Integrated Oil Company: -Global exploration, extraction, refinement, transportation and marketing of petrol and chemical Products Market Statistics: -Market Cap (intraday)5:149.60B -Market Value Debt: 10.54 B -Enterprise Value (9-Mar-10)3:151.60B -Trailing P/E (ttm, intraday):14.22 -Price/Sales (ttm):0.94 -Price/Book (mrq):1.63

  4. Chevron Valuation • WACC = [(D/V)*(YTM*(1-T))]+[(E/V)*(rf + β(Erm - rf)] 0.079299 • Cost of Debt = Weighted Avg. YTM (1-Marginal Tax Rate) 0.045924 • Equity = rf + β(Erm - rf) 0.081512 • Pre. Stock = Div/Price (Chevron does not have P.S.) DCF Analysis Results: • 2014 FCF $140,499.52 • Terminal Value $91,995 • PV $2,076,684.74 Millions Per Share Price Approx $ 685 Current Share Price ($74.60) • Analysts Recommendations Buys: 6 Buy/Hold: 8 Hold: 5 Hold/Sells: 0 Sells: 0

  5. Exxon Mobil Valuation Operates as an Integrated Oil Company: -Global exploration, extraction, refinement, transportation and marketing of petrol and chemical Products Market Statistics: -Market Cap (intraday)5:316.23 B -Market Value Debt: 10.54 B -Enterprise Value (9-Mar-10)3:312.61B -Trailing P/E (ttm, intraday):16.84 -Price/Sales (ttm):1.13 -Price/Book (mrq):2.84

  6. Exxon Mobil Valuation • WACC = [(D/V)*(YTM*(1-T))]+[(E/V)*(rf + β(Erm - rf)] 0.0615 • Cost of Debt = Weighted Avg. YTM (1-Marginal Tax Rate) 0.0330 • Equity = rf + β(Erm - rf) 0.0900 • Pre. Stock = Div/Price (Exxon Mobil does not have P.S.) DCF Analysis Results: • 2014 FCF $130,273 • Terminal Value $94,249 • PV $3,997,414 Millions • Per Share Price Approx $ 845 Current Share Price ($67.00) • Analysts Recommendations Buys: 5 Buy/Hold: 3 Hold: 10 Weak Hold: 1 Sells: 0

  7. Future of Oil and Gas • S&P: Fundamental outlook for the Integrated Oil & Gas sub-industry for the next 12 months is positive, on expectations of improved global oil consumption amid an economic recovery. S&P projects that S&P 500 Energy sector operating EPS will drop about 67% in 2009, but rebound about 89% in 2010. • Financial Data Change in 2009 Drop In Net Income • Exxon Mobil Net Income $19,280 for 2009 vs. $45,219 for 2008 (57% drop) • Chevron Net Income $10,483 for 2009 vs. $23,931 for 2008 (56% drop)

  8. Recommendation • Buy Exxon Mobil current price $67 • High price over past three years is $93 (April 2008) and it should head back to that level within the next 18 months with the economic recovery or 63.5% annual return • Buy Chevron current price $74.33 • High price over the past three years $99 (June 2008) and it should head back to that level within the next 18 months or 53.7% annual return

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