CHEVRON CORPORATION & CONOCO PHILLIPS Christian Moore Sung Bae, Mun

RECAP

¢  Our Energy Sector recommendation was an increase 40 basis points.

¢  We currently own Chevron at 4.75% of the portfolio, and we own Conoco Phillips at 2.87% of the portfolio. We plan to buy more Conoco Phillips. These two stocks make up 7.62 of the 8.75% in energy in the portfolio.

CHEVRON BUSINESS ANALYSIS

¢  Business Segments – Oil and Natural Gas, they also lead in Manufacturing, Global Trading, Products, Pipelines, Shipping, Lubricants, and Oronite. Other interests of Chevron include Chemicals, Mining, Power, and Technology

CONOCO PHILLIPS BUSINESS

¢  ConocoPhillips has six major business segments: Exploration and Production, Midstream, Refining & Marketing, LUKOIL, Chemicals, and Emerging Businesses. Exploration and Production (E&P) segment explores for, produces, transports and markets crude oil, bitumen, natural gas, liquefied natural gas (LNG) and natural gas liquids on a worldwide basis.

KEY BUSINESS DRIVERS

¢  Fundamental drivers of these stock prices are the oil prices, the litigation regarding fossil fuels and the exploration and development of clean energy sources.

RECENT PERFORMANCE

¢  Chevron is currently trading at $108.87, down 12% from its 52-week high and down 8% since the start of the month.

¢  ConocoPhillips is currently trading at $66.20, down from its 52 week high of $87.

¢  This is due to the decrease in oil and gas prices. 90% of all the variation in the stock price of ConocoPhillips is explained by the crude oil price.

COP VS CRUDE OIL

ROE

¢  Chevron has a Return on Equity of 13.71%

¢  ConocoPhillips has a Return on Equity of 16.70%. ¢  This ratio shows ConocoPhillips as the more profitable

company, revealing that their shareholders earn more for their investment in the company.

OTHER KEY RATIOS

Chevron

P/S : 1.01

P/B : 1.32

P/E : 10.30

Enterprise Value/EBITDA:

5.45

ConocoPhillips

P/S : 1.42

P/B : 1.47

P/E : 8.91

Enterprise Value/

EBITDA : 4.44

VALUATION PRICE TARGETS

Chevron- Current Price – 108.87

Target Price – 131.60

Projected Return

including Dividend – 20.95%

Conoco Phillips-

Current Price – 66.07

Target Price – 86.15

Projected Return

including Dividend – 27.4%

CHEVRON DCF Christian  Moore 13.0%

2.7%

Year 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Revenue 233,365$           252,035$         267,157$         288,529$             311,612$             336,540$             363,464$             378,002$             412,022$             457,345$           493,933$             533,447$                  %Growth 7% 6% 8% 8% 8% 8% 4% 9% 11% 8% 8%

Operating  Income 33,879 41,244 45,347 49,564.69$       54,174.21$       59,212.41$       64,719.16$       70,738.05$       77,316.69$       84,507.14$     92,366.30$       100,956.37$        Operating  Margin 15% 16% 17% 17% 17% 18% 18% 19% 19% 18% 19% 19%

Other  Income 1,258.20             1,358.86           1,467.56           1,584.97               1,711.77               1,848.71               1,996.61               2,156.33               2,328.84               2,515.15             2,716.36               2,933.67                    Other  Income  %  of  sales 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1%

Interest  and  Other 187.92                   202.95                 219.19                 236.73 255.66 276.12 298.21 322.06 347.83 375.65 405.71 438.16      Interest  %  of  Sales 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1%

Taxes 13,716.15         14,401.96       15,122.06       15878.16 16672.07 17505.67 18380.95 19300.00 20265.00 21278.25 22342.16 23459.27      Tax  rate 40% 40% 40% 43% 43% 43% 43% 43% 43% 43% 43% 43%

Net  Income 18,154.98         19,295.46       20,667.55       22940.98 25464.49 28774.87 31364.61 33873.78 36583.68 39510.37 43461.41 48242.16      %  Growth 6% 7% 11% 11% 13% 9% 8% 8% 8% 10% 11%

Add  Depr/Depl/Amort 9334.61 10081.38 10686.27 11113.72 11558.27 12020.60 12501.42 13001.48 13521.54 14062.40 14624.89 15209.89      %  Of  Sales 4.0% 4.0% 4.0% 3.9% 3.7% 3.6% 3.4% 3.4% 3.3% 3.1% 3.0% 2.9%Plus/minus  Changes  WC 344.64 -­‐351.53 344.50 337.61 330.86 324.24 317.76 311.40 305.17 299.07 293.09 287.23      %  of  sales 0.15% -­‐0.14% 0.13% 0.12% 0.11% 0.10% 0.09% 0.08% 0.07% 0.07% 0.06% 0.05%Subtract  Cap  Ex -­‐37962.209 -­‐37939.4317 -­‐37916.668 (25,967.63)$   (34,277.27)$   (26,923.24)$   (50,884.92)$   (41,580.25)$   (24,721.35)$   (27,440.69)$   (29,635.95)$   (32,006.83)$          Capex  %  of  Sales -­‐16% -­‐15% -­‐14% -­‐9% -­‐11% -­‐8% -­‐14% -­‐11% -­‐6% -­‐6% -­‐6% -­‐6%

Free  Cash  Flow (10,127.97)       (8,914.12)         (6,218.35)         8,424.68               3,076.34               14,196.47           (6,701.13)           5,606.41               25,689.04           26,431.15         28,743.44           31,732.46                %Growth -­‐14% -­‐43% 174% -­‐174% 78% 312% 220% 78% 3% 8% 9%

NPV  of  Cash  Flows $23,814.59 9.6% Terminal  Value 231,209.62      NPV  of  terminal  value $225,131.08 90.4% Free  Cash  Yield 5.64%      Value  of  Operating  Assets$248,945.67 Terminal  P/EAdjustments Termina  EV/EBITDALitigation  Contingency      Probability  of  Cont 1%      Expected  ValuePension  Shortfall -­‐1400Net  Debt -­‐3000Projected  Equity  Value $244,545.67Free  Cash  Flow  Yield

Current  P/E 11.5 11.3 11      Projected  P/E 10.12 9.37 8.84Current  EV/EBITDA 5.54 4.66 4.27      Projected  EV/EBITDA 5.54 4.64 4.23

Shares  Outstanding 1,898.50 1,893.50 1,888.50 1,883.50 1,878.50

Current  Price 119.28Implied  equity  value/share 131.60 131.95 132.30 132.65 133.00Upside/Downside  to  DCF 10.33%

Terminal  Discount  Rate  =Terminal  FCF  Growth=

CONOCOPHILLIPS DCF COP

Terminal Discount Rate = 12.0%Terminal FCF Growth = 2.64%

Year 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E

Revenue 62,575 62,575 70,084 72,186 74,352 76,583 78,880 81,246 83,684 86,194 88,780 % Grow th 0.0% 12.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%

Operating Income 15,531 15,631 20,787 4,115 4,238 4,365 4,496 4,631 4,770 4,913 5,060 Operating Margin 24.8% 25.0% 29.7% 5.7% 5.7% 5.7% 5.7% 5.7% 5.7% 5.7% 5.7%

Interest (125) (69) 385 505 520 536 552 569 586 603 621 Interest % of Sales -0.2% -0.1% 0.6% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7%

Taxes (7,645) (6,765) (11,022) (2,056) (2,118) (2,181) (2,247) (2,314) (2,383) (2,455) (2,528) Tax Rate -44.2% -38.2% -44.5% -44.5% -44.5% -44.5% -44.5% -44.5% -44.5% -44.5% -44.5%

Net Income 9,651 10,944 13,746 6,676 6,876 7,082 7,295 7,514 7,739 7,971 8,210 % Grow th 13.4% 25.6% -51.4% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%

Add Depreciation/Amort 6,608 6,633 7,429 7,652 7,881 8,118 8,361 8,612 8,870 9,137 9,411 % of Sales 10.6% 10.6% 10.6% 10.6% 10.6% 10.6% 10.6% 10.6% 10.6% 10.6% 10.6%

Plus/(minus) Changes WC (1,099) (796) 113 217 223 230 237 244 251 259 266 % of Sales -1.8% -1.3% 0.2% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3%

Subtract Cap Ex 16,700 4,693 113 5,414 5,576 5,744 5,916 6,093 6,276 6,465 6,659 Capex % of sales 26.7% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5%

Free Cash Flow (1,540) 12,088 21,175 9,130 9,404 9,686 9,977 10,276 10,584 10,902 11,229 % Grow th -884.9% 75.2% -56.9% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%

NPV of Cash Flows 67,169 63%NPV of terminal value 39,655 37% Terminal Value 123,163 Projected Equity Value 106,824 100%Free Cash Flow Yield -1.74% Free Cash Yield 9.12%

Current P/E 9.2 8.1 6.4 Terminal P/E 15.0 Projected P/E 11.1 9.8 7.8 Current EV/EBITDA 4.1 4.0 3.2 Terminal EV/EBITDA 8.6 Projected EV/EBITDA 4.9 4.9 3.8

Shares Outstanding 1,240.0

Current Price 71.45$ Implied equity value/share 86.15$ Upside/(Downside) to DCF 20.6%

HISTORICAL ROE

¢  COP ROE

¢  CVX ROE

ROE 2013 2012 2011 2010 17.58% 17.56% 19.06% 16.57%

ROE 2013 2012 2011 2010 14.37% 19.18% 22.16% 18.10%

HISTORICAL P/E

¢  COP P/E

¢  CVX P/E

¢  The ratios have stayed for the most part over the past five years.

P/E 2013 2012 2011 2010

10.02 8.36 6.55 8.18

P/E 2013 2012 2011 2010

8.80 9.73 9.78 8.24

S&P 500 RATIOS

• 19.43% P/E : 11/28/14

• 14.53% ROE : 11/28/14

COMPARING TO THE S&P AND CRUDE OIL

TECHNICAL ANALYSIS – COP

TECHNICAL ANALYSIS - CVX

RECOMMENDATION

¢  Increase holding in ConocoPhillips 50 basis points and Hold Chevron.

¢  An increase in holdings of ConocoPhillips will impose a bit of dollar cost averaging, we bought 4000 shares at $86, a purchase of 800 more shares at 67.17 will decrease the risk of our overall position while increasing the overall gain.

CATALYSTS

¢  Valuation for ConocoPhillips represents a price nearly 20% higher than its current low. Improved view on the price of oil and usage of energy across the country increases stock price.

RISKS

¢  Increased litigation and continued low price of oil could continue to keep both COP and CVX stock prices down and cause us to lose money.

¢  CVX has a much larger market cap and is continuing exploration and development of sources of energy and not buying more could cause us to lose out on potential gains.

Q&A