The Future of Oil Mike Lee, Roy Ju, Christine Chen, Jon Stein

Introduction Recommendation Industry Analysis Price Increase Drives Additional Considerations Rise of Natural Gas Interest Rate Impact Company Analysis Strategies Financial Ratios Valuation and Projection Conclusion

Recommendation Invest in ConocoPhillips Industry Analysis: Future Oil Price Increase Favorable Company Analysis Favorable Ratio Analysis Relatively High NPV and Intrinsic Value Analysis

Industry Analysis: Price Increase Drivers Spike Potential Geopolitical Turmoil Natural Disasters War Depletion of Low-Cost Crude Oil Sources Weakening U.S. dollar Emerging Markets Surge Saudi Arabia

Industry Analysis: Additional Considerations Sustainability Political Risk Government restrictions in favor of environmentally friend sources Growth in Alternative Energy Sources Nuclear Power Wind Power Solar Power Technological Improvements Increase industry margins  increase market supply Pushes prices down Expedite rise of natural gas

Industry Analysis: Additional Considerations Rise of natural gas 3 themes in historical energy consumption Regular energy transition Diversification of fuel sources De-carbonization as time passes Trend Dominance for years Surpass oil as soon as 2030

Industry Analysis: Additional Considerations Impact on CP and AR Comparable business mix Extremely strong correlation between natural gas and oil prices Crude Oil Natural Gas

Industry Analysis: Additional Considerations Interest Rates Offsetting impacts on crude oil prices Increase in rates Increase cost, driving down demand Stronger U.S. dollar applies upward pressure on prices Minimal impact on oil

Company Analysis CP First mover High margins Efficient operations Intent to finish active projects Shorter asset life cycles-capital flexibility

Company Analysis AR Cutting production – higher break-even point Reliance on fracking Idle capacity Recent downsizing

Ratio Analysis

Regression Analysis High correlations between oil prices and GDP, consumption, and production Utilized regression coefficient to predict future oil prices

Sensitivity Analysis

Probability of a Large Price Change

Model Assumptions Projected Revenue Oil Prices Natural Gas Price Growth Assumptions ConocoPhillips – 4% Antero- Initially massive, regression toward the mean

Model Assumptions Price elasticity of demand -0.2 Terminal Growth is 4%

Commodity PricesPer Share Intrinsic Value OilNatural GasCPAR Optimistic $ $51.42 $1, $ Semi-Optimistic $ $30.59 $ $ Base $ $11.53 $ $13.10 Semi-Pessimistic $61.45 $10.18 $(0.08) $(304.45) Pessimistic $33.78 $5.60 $(112.67) $(3,372.07)

OilNatural GasCOP Optimistic$ $51.42 $1, Semi-Optimistic$ $30.59 $ Base$ $11.53 $ Semi-Pessimistic$61.45$10.18($0.08) Pessimistic$33.78 $5.60 ($112.67)

OilNatural GasAR Optimistic$ $51.42 $ Semi-Optimistic$ $30.59 $ Base$ $11.53 $13.10 Semi-Pessimistic$61.45$10.18($304.45) Pessimistic$33.78 $5.60 ($3,372.07)

Model Shortcomings Extreme Intrinsic Value Price elasticity of demand increases at higher prices Managers slow growth when prices fall

Qualitative Analysis ConocoPhillips Established Slow growth-mature firm Dividend Antero Resources Young firm Obsessed with growth

Conclusion CP has favorable long-term viability Crude oil price recovery will enhance company performance