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Energy Sector Review

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Energy Sector Review

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    1. Energy Sector Review Peter Johnson James Greenhill Purvil Patel

    2. Current Portfolio Exxon Mobil (XOM) 5.2% $38,500.88 Duke Energy (DUK) 2.54% $18,907.81 Powershares Global Nuclear Energy (PKN) 1.18% $8,831.30

    3. Oil Prices

    4. Natural Gas Prices

    5.

    6. Business Summary ExxonMobil is engaged in exploration for, and production of, crude oil and natural gas, manufacture of petroleum products and transportation and sale of crude oil, natural gas and petroleum products. ExxonMobil is a manufacturer and marketer of commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics and a wide variety of specialty products. It also has interests in electric power generation facilities.

    7. Major Products ExxonMobil is broken down into three primary businesses: Upstream, Downstream, and Chemical. Upstream: Exploration, development, production and gas and power marketing Downstream: Refining, supple, fuels marketing, and lubricants and specialties Chemical The Company sells its products under three brands: Exxon, Esso, and Mobil. It produces numerous products, for example: fuel, motor oil, travel services, chemicals, lubricants, and polymers.

    9. Expanded Ratio Analysis

    10. Historical Dividend Yield

    11. Historical EPS and Revenue

    12. Sub-Industry Analysis

    13. Analyst Predictions

    14. PetroChina Deal August 18, 2009 Long-term demand for liquefied natural gas (LNG) appears solid, as affiliates of XOM signed a 20-year LNG supply agreement with PetroChina Co. Ltd. (PTR 109****) to provide a source of clean energy to meet China's growing demand. Subject to necessary approvals, the deal commits the rest of XOM's share (2.25 MMtonnes per annum of LNG) in the Gorgon LNG Project in Western Australia. We like the proposed deal, as it enhances the relationship between XOM and PTR, and offers cash flow stability to XOM's LNG projects.

    15. Qurna-1 oilfield rights Unconfirmed news reports, such as from Platts & WSJ, said XOM and Shell (RDS.A 60***) won the rights to rehabilitate and further develop the 9B barrel West Qurna-1 oilfield in southern Iraq. Reportedly, the proposed service agreement is for 20-years and calls for a fixed $1.90/barrel payment on new production. We remain concerned about operational risk and low fixed per barrel payments. But, pending approvals, we see the deal as a vote of confidence in Iraq, and gives XOM a foothold in Iraq's giant oilfields, which may be crucial to future opportunities.

    16. Scenarios Outperform ExxonMobil will outperform because of key contracts with PetroChina LNG and rights to the oilfield in West Qurna-1 oilfield in southern Iraq. Which will guarantee increased production and sales for the next 20 years ExxonMobils increase in capital expenditures indicates that they are planning on increasing production capacity. Underperforms Unlikely due to the deals that are in the pipeline and the size of the company.

    17. Duke Energy

    18. Duke Energy Duke Energy Corporation operates as an energy company in the Americas. The company has approximately 35,000 megawatts of electric generating capacity in the Midwest and the Carolinas, and natural gas distribution services in Ohio and Kentucky.

    20. Power Generation http://www.duke-energy.com/pdfs/ProjectSummary.pdf

    21. Competitors

    22. Financial Statements, Ratios, etc http://www.sec.gov/Archives/edgar/data/1326160/000119312509227231/d10q.htm http://www.reuters.com/finance/stocks/ratios?symbol=DUK.N http://online.wsj.com/quotes/q_earnings.html?mod=2_0480&symbol=duk&news-symbol=DUK&mg=com-wsj

    23. Duke Energy

    24. Recent Earnings Revenue dropped 3% to $3.4 billion Profit dropped 49% Net earnings fell to $109 million from $215 million EPS of $0.40, beat analysts estimation of $0.38 Bad earnings were due to weak economy which decreased use for electricity. Still on track to meet full year earnings

    25. Duke Energy Things to worry about Lots of long term debt $16.149 billion in long term debt Growth Looking at the charts, there has been sideways movement Long term debt is huge compared with its market capitalization. Long term debt is huge compared with its market capitalization.

    26. PowerShares Global Nuclear Energy ETF (PKN)

    27. PowerShares Global Nuclear Energy ETF (NYSE:PKN) PowerShares Global Nuclear Energy Portfolio (the Fund) is based on the WNA Nuclear Energy Index (WNAI). The Index is designed to track the overall performance of globally traded companies, which are materially engaged in the nuclear energy industry with representation across reactors, utilities, construction, technology, equipment, service providers and fuels.

    28.

    29. NYSE: PKN

    30. Holdings

    31. Areva Largest holding in PKN French nuclear powerhouse GE, Toshiba, Alstom all competing for the electricity-transmission unit, division accounted for 38% of Arevas sales last year HSBC claims transmission gear is poised for fastest growth in the power business over the next five years

    32. Nuclear Energy Industry Over 439 nuclear reactors provide 16% of the world's electricity Industry was expected to die off around the 1980s but with public acceptance it is rapidly picking up Asia is the current leader in new reactor programs, particularly China and India Vietnam, Malaysia, Thailand and several countries in the Middle East are also considering nuclear power Almost 80% of Frances electricity comes from nuclear reactors, they are the leader in nuclear power usage However, the public still has many fears of nuclear power

    33. Meeting Public Concerns Operational Safety: Only two incidents in 13,000 reactor-years of experience, WANO (World Association of Nuclear Operators) manages safety operations for every reactor world wide, something never before seen in the private sector Cost: Nuclear reactors are already fast catching up with and overtaking their initial costs, with the addition of emission penalties they will pass other forms of energy even faster Waste: contrary to perception, it is the greatest asset, extremely small volume and can be safely managed without harm to people or environment. Most favored disposal is deep geological repositories Terrorism: Security extremely tight around plants, emergency plans are in place for all types of events, very robust, built to with stand almost anything

    34. Recommendation Most credit raters say to AVOID If you are long, close position or monitor stock closely. Stock is a Short Candidate. My recommendation? Buy more Why? The only major threat to nuclear energy is the public, that aside nuclear energy has almost no downsides

    35. Questions?

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