j.c. penney valuation

2016 Brooks Case CompetitionBattling the Oil ‘Death Spiral’

Team 7: Johanan Tai, Xin (Kathy) Zhang, Kevin Wang

OverviewPart I: Industry Outlook

❖Fitting the Oil Price Trend to a distribution

❖Traditional versus Horizontal Tracking Analysis

❖Saudi Arabia Strategy & Effectiveness

Part II: Firm Analysis

❖ConocoPhillips & Antero Resources

❖Firm Strategies & Recommendation

❖Overall Investment Attractiveness

Oil Prices Fitted to a Lognormal Distribution❖Similar to stock in the sense that prices can’t be negative

❖Right skewed distribution

❖Lognormally distributed for both 2 yr and 5 yr

❖Annualized Parameters: Alpha and sigma

Lognormal Data❖Based on rate of

change on a daily basis

❖Continuously Compounded RoC

❖2 year had higher volatility

❖Significance of forward vs backward looking

Breakeven Analysis ❖Assumptions: inelastic supply

existent platforms

mainly variable costsHorizontal Vertical

Price/barrel 34.01 34.01

VC/barrel 13.60 40% 22.11 65%

BOPD 80 40

Breakeven Analysis❖Other factors: Horizontal

---more initial and storage costs ---pollution ---more time and water ---hydraulic fracturing

Saudi Arabia’s Role in OPEC❖2nd largest Country in terms of Reserves (~268 Billion Barrels)❖Largest OPEC producer (11.62M Barrels/day)❖Strategy: Refusal to give up market share against the US❖Belief: US has high production cost compared to Saudi Arabia

"The Hidden Agenda Behind Saudi Arabia's Market Share Strategy | OilPrice.com." OilPrice.com. N.p., n.d. Web. 19 Feb. 2016.

How Successful are they?❖US output growth in 2015 outpaced Saudi Arabia and other oil

producers❖US has higher delta in production rates ❖US companies have high debt and fixed costs

"The Hidden Agenda Behind Saudi Arabia's Market Share Strategy | OilPrice.com." OilPrice.com. N.p., n.d. Web. 19 Feb. 2016.

Revenue Mix❖Antero Resources

❖ConocoPhillips

❖ ConocoPhillips

Antero Resource Strategy & Recommendation❖Currently one of main shale

oil players➢ Shale drawbacks/costs

❖Experienced a 93% increase in production of NGL

❖Price per Mcfe increased from $4.31 to $4.73

❖NG uses and potential future in North America

ConocoPhillips Strategy & Recommendation

❖Operations in 27 countries

❖Large majority of US energy market

❖Current cuts and losses

❖Best course of action: short hedging

Financial Ratio Analysis of ConocoPhillips/Antero