march energy update report

8/12/2019 March Energy Update Report

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Energy Sector Update March 18, 2014

W i l l i a m C . D u n k e l b u r g O w l F u n d P

ConocoPhillips (NYSE: COP)

Overview

Since we acquired COP on December 9, 2013, management has continued its plan to grow

production organically and reposition its production mix in favor of shale liquids from the GOM

and tight oil plays in the Bakken, Permian, and Eagle Ford basins. COP has continued to shift the

weight of overall hydrocarbon production to natural gas liquids and sweet crude. These liquids

have a lower breakeven cost for production and also carry a premium due to their higher quality

than other forms of crude. Liquids in COPs Lower 48 segment now account for +50% of total

hydrocarbons produced, as opposed to 45% in 2012.

So far in 2014, COP has had two GOM deepwater discoveries and is currently the fourth-largest

leaseholder in the GOM.

COP pulled back nearly 9% after our purchase.

This negative price move caused immediate concern, as COPs 50-day moving average crossed

below its 200-day moving average. However, when comparing this cross with instances wherethis type of cross occurred in the past, we noticed there was significantly less volume, seen

below.

Bought $70.67Last $67.29

Return -4.8%

Target $85.00

Purchase Date


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The price decline was a result of a broader, market sell-off as shown by the chart below which

shows COP, the SPDR Energy ETF (XLE), and the S&P 500 index. Based on this analysis we

recommended COP as a HOLD.

Performance since purchase

Outlook

Shares have recovered 7.31% since the bottom on February 5. COP was purchased less than four

months ago, remains undervalued, and the Funds original investment thesis is still intact.

Schlumberger (NYSE: SLB)

Overview

After a small improvement after our purchase on February 27, SLB tested the historical $93.00

resistance level twice in the following week.

Bought $92.07

Last $90.50

Return -1.7%

Target $115.54Purchase Date


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New Product Launch

SLB announced the launch of PowerDrive Orbit rotary

steerable system (RSS). This expands SLBs drilling product

offering and will extend system life, increase directional

control of drills, and increase drilling efficiency. The drill had

been tested in 500 runs in the last two years, and one Middle

Eastern customer used the PowerDrive Orbit RSS to drill a

record 12,690 ft in a single run. This expanded the lateral

length over previous wells by 33% and completed the

operation in 21 days ahead of schedule.

Completed Acquisition

On March 13, SLB announced the completion of the

remaining shares of Saxon, a Calgary-based provider of international land drilling services. This

follows an initial investment in 2008 and reflects SLBs goal of improving its production

segment.

Drag factors:

We speculate that shares fell on March 10 slightly more than broader market due to a few reports

of workers in Ghana initiating a sit-down strike. Employees are protesting for higher wages. The

strike involves a small number of employees and SLB has brought in expatriate workers to

continue operations in the short term. We believe this event is immaterial to earnings and does

not impact the investment thesis. SLB is a global company with over 120,000 employees and

temporary strikes in third-world countries is a consequence of doing business in these areas.

There has been no official statement about the strike by SLB.

Outlook

SLB is still on course with our original investment thesis and we anticipate shares to increase to

our price target of $115.54 in the next 12 months.

march energy update report

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