BP and Exxon Comparative Financial Analysis Jan 2011
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Financial analysis of oil industry and the two largest players: Exxon and BP, from a comparative perspective that was done as a project.
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BP and Exxon Comparative Financial Analysis Jan 2011
- 1. Oil Industry Investor Analysis Comparison of BP, Exxon and the industry
- 2. 1 Overview of Industry 2005 – 2009 Performance 2010-2011 Performance Forecasts Investor Scorecard and Recommendation Agenda 2 3 4
- 3. 3
- 4. 4 Miles 0 10 20 ANWR LJL (April, 1997) Sourdough Flaxman BPXA (Op)100% Milne Point Greater Prudhoe Bay Alpine CPAI (Op) 78% Anadarko 22% Endicott BPXA (Op) 68% Exxon Mobil 21% Unocal 11% Greater Kuparuk CPAI (Op) 55% BPXA 39% Unocal 5% Exxon Mobil 37% CPAI 37% BPXA (Op) 26% 2 3 4 6 7 8 9 10 11 12 1 UnitedStates Northstar BPXA (Op)98% Murphy 2% Liberty NPRA Pt Thomson Exxon Mobil (Op) 36% BPXA 32% Chevron 25% CPAI 5% Anchorage BPXA (Op)100% Badami North Slope Alaska North Slope – Units and Oil Field Boundaries
- 5. 5 Gulf of Mexico – Horn Mountain / Marlin
- 6. -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% 60% 2005 2006 2007 2008 2009 2010 XOI DJI Company Market Cap (US$ billions) Exxon Mobil Corporation 337,077 PetroChina Company 233,882 Royal Dutch Shell PLC 196,075 Chevron Corporation 170,639 Petroleo Brasileiro S.A. 141,745 OAO Gasprom 133,134 BP PLC 125,937 2005-2009 Weekly Market Performance for Dow Jones and Major Oil Index
- 7. Competitive Advantage Differences • Focus is on ownership of oil rights and oil assets • Limited operational exposure • Tight cash management policies • Disciplined approach to investments • Culture – profit driven, standardized, top down management • More exposure to operational roles within partnerships which increases risk • Accounts payable terms ~35 days • Investments based on opportunity • Culture – consensus driven focus
- 8. Gross Margin 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 2005 2006 2007 2008 2009 42.8% 43.8% 42.8% 39.8% 40.2% 31.6% 33.5% 32.7% 31.1% 29.0% 25.0% 23.1% 22.8% 20.0% 24.0% Exxon Exxon Adj BP
- 9. 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 2005 2006 2007 2008 2009 9.7% 10.5% 10.3% 9.8% 6.3% 9.2% 8.1% 7.3% 5.90% 6.8% Exxon BP Profit Margin
- 10. Historical Stock Price Chart -70% -50% -30% -10% 10% 30% 50% 70% 2005 2006 2007 2008 2009 2010 BP Exxon
- 11. The Spill “The way that they are selling assets and strengthening their balance, is what you would expect them to do if they were preparing for a worse scenario such as a finding of gross negligence," December 1st 2010 Anonymous analyst (Did not want to be seen questioning BP's public comments) “As we believe the true liability for the Macondo accident to be nearer $25-30 billion as opposed to the around $60 billion the market is discounting.” November 10th, 2010 Richard Griffith Evolution Securities Buy recommendation
- 12. 2009-2011 Gross Margins • Crude Oil prices up $85.17 vs $78.8 or 8.1% in 2011 (US Energy Dept Fcst 11/9/10) • 1.7% increase in World Wide consumption in 2011 (US EIA Nov-10) 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 2009 2010 2011 40.2% 38.9% 38.4% 29.0% 29.4% 28.9% 24.0% 4.4% 20.2% Exxon Exxon Adj BP
- 13. 2009 – 2011 Profit Margin • $40B spill reserve; $30B reimbursements -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 2009 2010 2011 6.3% 7.6% 7.6% 6.8% -4.0% 5.8% Exxon BP
- 14. Conclusion – Investor Scorecard Risk Current Stock Price Forecasted Price ROA 2011 Profit Margin 2011 Investments Oil Reserves Gas Reserves Med 43.27 47-57 7.4% 5.83% $18B/yr 5,658BB 40,388BCF Low 71.85 79-87 9.9% 7.57% $25-$30B/2yr 9,215BB 34,442BCF
Editor's Notes
- BP has returned to profitability in Q310 with a replacement cost profit of $1.8 billion which included an additional $7.7 billion charge on top of the $32.2 billion charge taken in Q210 relating to the oil spillSocieteGenerale analyst EvengySolovyov, who rates BP shares a Buy and maintains a 12-month price target of 495 pence, said the underlying numbers look “unaffected” by the spill-related disturbances. “Adjusted for divestments and spill costs, BP’s performance remains strong,” the analyst wrote in a note.
- Key takeawaysContinued growth, investing in future business and reservesJust completed merger with XTOPlan to spend $25-30B in capital investments in the next few yearsContinue strong performanceRising oil prices impact ($85/barrel in 2011 – 8% higher than 2010)
- BP has returned to profitability in Q310 with a replacement cost profit of $1.8 billion which included an additional $7.7 billion charge on top of the $32.2 billion charge taken in Q210 relating to the oil spillKey TakeawaysVisibility into losses and expenses from oil spillYTD at loss, but Q3 showed profitSelling assets to raise capital - $30B in assets sold and reducing debt by $10-15BInvesting in long term assets - $18BRising oil prices impact ($85/barrel in 2011 – 8% higher than 2010)
- Talking PointsIndustry outperforming DJIRisk and reward – BP is undervaluedExxon – strong analyst ratingsRecommendation –Buy and hold BP – higher risk, higher potential depending on outcome of future legal actionsExxon buy and hold