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Comprehensive Economic and Financial Analysis of Energy Sector – May 5, 2009

This report by Zach Rochon, Logan Cotter, Adam Claugus, and Joseph Hsieh analyzes the energy sector's size, economic metrics, business cycles, financial performance, and recommendations for investment. Key segments include coal, oil and gas, drilling, and refining. The analysis reveals an underweight position relative to the S&P 500, with significant companies like ExxonMobil and PetroChina highlighted. The report underscores the importance of market dynamics, including credit flow and political factors, influencing the near-term and long-term prospects of the energy sector.

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Comprehensive Economic and Financial Analysis of Energy Sector – May 5, 2009

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  1. Energy Sector Zach Rochon Logan Cotter Adam Claugus Joseph Hsieh May 5th, 2009

  2. Agenda 1) Size and Composition 2) Economic Analysis 3) Business Analysis 4) Valuation Analysis 5) Financial Analysis 6) Recommendation

  3. 1) Size and Composition

  4. Industries in Energy • Coal and Consumer Fuels • Oil and Gas • Drilling • Equipment and Services • Exploration and Production • Integrated • Refining/Marketing • Storage

  5. Energy Size and Performance • Size • Adjusted market cap of $1,006,613 million • Composes 12.51% of the S&P500 • SIM currently underweights by 120 basis points • Largest Companies • Exxon Mobile($332.30B), PetroChina($180.73B), Royal Dutch Shell($149.17B), BHP Billiton ($141.55B), BP ($139.57B), Chevron($131.86B) • Performance • YTD: (2.25%) • QTD: 11.18%

  6. 2) Economic Analysis

  7. EUR/USD Energy (Sp-10) prices

  8. 3) Business Analysis

  9. Basics • The Life Cycle • The Business Cycle

  10. Primary Driver

  11. Price of Oil

  12. Demand • 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.

  13. Politics • 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

  14. 4) Financial Analysis

  15. EPS YOY

  16. 5) Valuation Analysis

  17. Sector Valuation

  18. Industry Valuation

  19. Industry Valuation

  20. Stock Valuation

  21. Technical AnalysisBollinger Bands and Moving Avg.

  22. 6) Recommendation

  23. Energy Recommendation • 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 long-term

  24. Energy Recommendation (cont.) • 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

  25. Energy Recommendation (cont.) • Overweight • Drilling & Services • Underweight • Exploration and Production • Individual stock recommendation • Transocean (RIG)

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