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Finance & Investment Club Energy Sector Summer 2012 SA of Energy Sector: Jeremy Lim PETROLEUM INDUSTRY ANALYSIS

Finance & Investment Club Energy Sector Summer 2012 SA of Energy Sector: Jeremy Lim PETROLEUM INDUSTRY ANALYSIS

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Page 1: Finance & Investment Club Energy Sector Summer 2012 SA of Energy Sector: Jeremy Lim PETROLEUM INDUSTRY ANALYSIS

Finance & Investment ClubEnergy SectorSummer 2012

SA of Energy Sector: Jeremy Lim

PETROLEUM INDUSTRY ANALYSIS

Page 2: Finance & Investment Club Energy Sector Summer 2012 SA of Energy Sector: Jeremy Lim PETROLEUM INDUSTRY ANALYSIS

 

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Industry Definition

Calumet Specialty Products Partners LP(NASDAQ: CLMT)

Crosstex Energy LP(NASDAQ: XTEX)

Adam Resources & Energy Inc.(NYSE: AE)

Delek US Holdings Inc.(NYSE: DK)

Rentech Inc.(NYSE: RTK)

Alon USA Energy Inc.(NYSE: AlJ)

Firms in this industry explore, extract, refine, transport and market petroleum products. The largest volume products are fuel oil and gasoline.

Consumer of petroleum are worldwide, with developed nations being the largest.

Page 3: Finance & Investment Club Energy Sector Summer 2012 SA of Energy Sector: Jeremy Lim PETROLEUM INDUSTRY ANALYSIS

 

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Petroleum Industry Breakdown

Industry Breakdown By Market Cap ($BLN)Breakdown By March 2012 Revenue1

1Total revenue = $24,728,700

DK $ 8.2251BRTK $ 0.2157 BCLMT $ 3.6993 B

XTEX $ 1.8959 B

AE $ 3.428 BALJ $ 7.2647 B

13.86%

29.38%

14.96%7.67%

33.26%

0.87%AE ALJ CLMT XTEX DK RTK

Petroleum $4.7B(.02%)

Oil & Gas Refining & Marketing$8,125.1B

(4.0%)

Major Integrated Oil & Gas $110,212.6B

(53.6%)

Basic Materials $205,563.5B

(100%)

Page 4: Finance & Investment Club Energy Sector Summer 2012 SA of Energy Sector: Jeremy Lim PETROLEUM INDUSTRY ANALYSIS

 

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Revenue Segment Generation

32.2%67.8%

Fuel ProductsSpecialty Products

39.9%

18.9%

41.1%

PNGL (NGL Assets)

NTX (Shale)

LIG (Transporta-tion)

0.4%2.0%

92.1%

0.2%

5.3% Oil and Gas

Transportation

Marketing - Crude Oil

Marketing - Natural Gas

Marketing - Re-fined Products 91.1%

3.3%5.6%

Refining and Unbranded Marketing

Asphalt

Retail and Branded Marketing

99.9%

0.1%Nitrogen Products Manufacturing

Alternative Energy

64.5%25.5%

10.0%RefiningRetailMarketing

Page 5: Finance & Investment Club Energy Sector Summer 2012 SA of Energy Sector: Jeremy Lim PETROLEUM INDUSTRY ANALYSIS

 

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Revenue Generation

Raw Materials Work-In-Progress Finished Goods

Page 6: Finance & Investment Club Energy Sector Summer 2012 SA of Energy Sector: Jeremy Lim PETROLEUM INDUSTRY ANALYSIS

 

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Geographical Breakdown

Page 7: Finance & Investment Club Energy Sector Summer 2012 SA of Energy Sector: Jeremy Lim PETROLEUM INDUSTRY ANALYSIS

 

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Time Series Analysis: Revenue vs. Oil Production (Barrels)

2007 2008 2009 2010 20110

5

10

15

20

25

-4.000%

-2.000%

0.000%

2.000%

4.000%

6.000%

8.000%

10.000%

Total Revenue in BillionsUS % ChangeWorld % Change

Revenue – World Production Correlation: 0.484 Revenue – US Production Correlation: -0.485

Page 8: Finance & Investment Club Energy Sector Summer 2012 SA of Energy Sector: Jeremy Lim PETROLEUM INDUSTRY ANALYSIS

 

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Trends Overview

Trend 1 Trend 2 Trend 3

Page 9: Finance & Investment Club Energy Sector Summer 2012 SA of Energy Sector: Jeremy Lim PETROLEUM INDUSTRY ANALYSIS

 

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Trends Overview

Demand for Refined Petroleum Trend 2 Trend 3

Page 10: Finance & Investment Club Energy Sector Summer 2012 SA of Energy Sector: Jeremy Lim PETROLEUM INDUSTRY ANALYSIS

 

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Trend 1: Demand For Refined Petroleum Revenue figures have been increasing

steadily since 2009 and is forecasted to continue through to 2016– Indispensable nature of oil industry of economy

and national defense– Increase in crude petroleum reserve

Petroleum industry Is backbone in USA and is expected to remain the leading energy source at 38% out of total energy consumed.

In 2015, the United States oil & gas market is forecast to have a volume of 12,264.7 million BOE, an increase of 13.8% since 2010.

A 2.2% Revenue increase is expected in 2012 and the performance of the industry is forecast to accelerate at a projected CAGR of 2.9%.

2008 2009 2010 2011 2012 2013 2014 2015 20160

100000

200000

300000

400000

500000

600000

700000

800000

900000

2008 2009 2010 2011 2012 2013 2014 2015 2016

-50.0%

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

-37.4%

36.0%

6.6%2.2% 3.2% 1.9% 1.6%

4.9%

Industry Revenue Growth (% Change)

Industry Total Revenue

Page 11: Finance & Investment Club Energy Sector Summer 2012 SA of Energy Sector: Jeremy Lim PETROLEUM INDUSTRY ANALYSIS

 

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Trends Overview

Trend 1

Increasing M&A

and Joint

Ventures

Trend 3

Page 12: Finance & Investment Club Energy Sector Summer 2012 SA of Energy Sector: Jeremy Lim PETROLEUM INDUSTRY ANALYSIS

 

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Trend 2: Mergers, Acquisitions and Joint Ventures continue at record pace More companies are motivated by

synergies; diversifying assets; reducing costs; enhancing stock values; responding to price volatility.

Partnerships with governments have also taken place to work out reasonable tax and fiscal regimes

Over 2,600 merger transactions have occurred since the 1990’s involving all three segments of the petroleum industry. – Upstream – 85%– Midstream – 2%– Downstream – 13%

Companies will be able to expand and improve their technologies as discovered oil volumes are greater than oil demand.

Exploration and Production M&A Landscape

Billions of Oil Equivalent Barrels

Page 13: Finance & Investment Club Energy Sector Summer 2012 SA of Energy Sector: Jeremy Lim PETROLEUM INDUSTRY ANALYSIS

 

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Trends Overview

Trend 1 Trend 2 Shale Gas

Page 14: Finance & Investment Club Energy Sector Summer 2012 SA of Energy Sector: Jeremy Lim PETROLEUM INDUSTRY ANALYSIS

 

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Trend 3: Shale Gas US shale-led transactions of total upstream

transaction value has increased to 68%. US has 862 trillion cubic feet of shale gas

reserves. 19 geographic basins are recognized

sources of shale gas where an estimated 35,000 wells were drilled in 2006.

This shows that US is globally poised to be a significant player in this market.

US Shale Transactions – Value and Count

Page 15: Finance & Investment Club Energy Sector Summer 2012 SA of Energy Sector: Jeremy Lim PETROLEUM INDUSTRY ANALYSIS

 

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Comps. Financials

SymbolMarket Cap(M)

52 high

Closing Price P/E EPS

EV/ EBITDA

Debt/ Equity

Debt/ EBITDA LTM ROE

Revenue (B)

AE 187.6 75.13 44.48 8.1 5.67 2.2x 0 0 21.8% 3.428

ALJ 611.9 12.56 10.89 7.9 - 7.0x 2.51 4.2x -0.2% 7.265

CLMT 1,419.80 27.74 24.68 10.1 1.9 9.2x 1.07 2.9x 18.3% 3.699

XTEX 984.6 18.24 16.5 - -0.35 9.6x 0.99 4.2x 0.1% 1.896

DK 1,105.30 20.00 18.99 6 2.8 3.1x 0.64 1.0x 33.3% 8.225

RTK 429.4 2.40 1.88 NM -0.28 5.2x 0.23 1.1x NA 0.216

                     

High 1,419.80 75.13 44.48 10.1 5.67 9.6x 2.51 4.2x 33.3% 8.225

Low 429.4 2.40 1.88 6 -0.35 2.2x 0 0 -0.2% 0.216

Median 798.25 19.12 17.75 8 1.90 6.1x 0.82 2x 18.3% 3.565

Mean 789.77 26.01 19.578.025 1.68 6.05x 0.91 2.23x 14.7% 4.121

Page 16: Finance & Investment Club Energy Sector Summer 2012 SA of Energy Sector: Jeremy Lim PETROLEUM INDUSTRY ANALYSIS

 

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Petroleum Industry Recommendation: POSITIVE

Subsector operates with trends signifying:1) Gross margin fluctuations due to lead demand and lagging supply 2) Vital but finite commodity creates an inelastic demand

Delek is set to outperform subsector and will be researched because:1) Debt / Equity: .64 (Median: .82, Mean: .91)2) EV/EBITDA: 3.10x (Median: 6.10x, Mean: 6.05x) 3) Diversity in company assets from refining and marketing to retailing.

The petroleum industry however must combat the key risks of:1) Staying competitive in technological advancements2) Possible synergies created from other M&A transactions of other companies

Delek US Holdings Inc.(NYSE: DK)

Page 17: Finance & Investment Club Energy Sector Summer 2012 SA of Energy Sector: Jeremy Lim PETROLEUM INDUSTRY ANALYSIS

 

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Thank you for listening. Any questions?

Industry Definition Industry Breakdown Revenue Segmentation Revenue Generation Geographical Breakdown Time-Series Analysis Trend 1: Demand for Refined Petroleum Trend 2: Mergers, Acquisition and Joint Ventures Trend 3: Shale Gas Comps Financials Recommendation