Integrated Oil Companies

Exxon Mobil and Chevron Corporation

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

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

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 RecommendationsBuys: 6Buy/Hold: 8Hold: 5Hold/Sells: 0Sells: 0

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

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 RecommendationsBuys: 5Buy/Hold: 3Hold: 10Weak Hold: 1Sells: 0

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)

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