J.C. Penney Valuation
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Transcript of 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