Dissertation submitted in partial fulfillment of the Requirement for the MSc in Finance and Investment FINAL DISSERTATION ON COMPANY ANALYSIS AND VALUATION OF ARAMCO, SHELL, EXXON MOBIL, and TOTALENERGIES NGUYEN THI HONG NGOC ID No: 22080952 Intake 6 Supervisor: Dr Pham Thu Thuy September 2023 Table of Contents Acknowledgements. i List of Tables. ii List of Figures. iii CHAPTER 1: INTRODUCTION .2 Area of study .1 CHAPTER 2: MACROECONOMIC ANALYSIS .4 Technology and Innovation.
7 CHAPTER 3: INDUSTRY ANALYSIS .2 Industry competition – Porters five forces .1 Bargaining power of Suppliers .2 Bargaining power of Buyers .3 Threat of new entrants .4 Threat of substitutes .12 CHAPTER 4: SAUDI ARABIAN OIL COMPANY .5 Financial Statement Analysis .1 Revenue and Profit .6 Financial Ratio Analysis .2 Dividend Discount Model .3 Free Cash Flow.4 Residual Income Model .25 CHAPTER 5: SHELL PLC.5 Financial Statement Analysis .6 Financial Ratio Analysis .2 Dividend Discount Model .3 Free Cash Flow.4 Residual Income Model .38 CHAPTER 6: EXXON MOBIL CORPORATION .5 Financial Statement Analysis .6 Financial Ratio Analysis .2 Dividend Discount Model .3 Free Cash Flow.4 Residual Income Model .50 CHAPTER 7: TOTAL ENERGIES .5 Financial Statement Analysis .6 Financial Ratio Analysis .2 Dividend Discount Model .3 Free Cash Flow.4 Residual Income Model .1 Conclusions and Recommendations.72 Acknowledgements First of all, I would like to express my sincere thanks to my tutor Dr. Pham Thu Thuy for her priceless suggestions and guidance. Her comments helped me a lot in establishing my research methodology, structuring, and completing my report. Additionally, I would like to thank all lecturers who broadened my knowledge in finance and investment through this master program.
Thirdly, I wanted to express my gratitude to my parents and my husband who gave me unconditional support and continuous encouragement throughout my whole life. Finally, I would like to thank all my friends in this master program who helped me a lot in this one year journey. Nguyen Thi Hong Ngoc Hanoi 9th September 2023 i List of Tables Table 1: Aramco’s Investment ratios. 20 Table 2: Aramco’s Gearing ratios.
20 Table 3: Aramco’s Profitability ratios. 21 Table 4: Aramco’s Liquidity ratios. 21 Table 5: Aramco’s Efficiency ratios. 22 Table 6: Aramco’s Z-Score.
23 Table 7: Industry Multiples. 23 Table 8: Aramco’s valuation using Price Multiples. 23 Table 9: Aramco’s valuation using Free Cash Flow Method. 24 Table 10: Aramco’s valuation summary.
25 Table 11: Shell’s Investment ratios. 34 Table 12: Shell’s Gearing ratios. 34 Table 13: Shell’s Profitability ratios. 35 Table 14: Shell’s Liquidity ratios.
35 Table 15: Shell’s Efficiency ratios. 35 Table 16: Shell’s Z-Score. 36 Table 17: Shell’s valuation using Price Multiples. 36 Table 18: Shell's valuation using Free Cash Flow Model.
37 Table 19: Shell's valuation summary. 38 Table 20: Exxon Mobil’s Investment ratios. 46 Table 21: Exxon Mobil’s Gearing ratios. 47 Table 22: Exxon Mobil’s Profitability ratios.
47 Table 23: Exxon Mobil’s Liquidity ratios. 47 Table 24: Exxon Mobil’s Efficiency ratios. 48 Table 25: Exxon Mobil's Z-Score. 48 Table 26: Industry Multiples.
48 Table 27: Exxon Mobil's valuation using Price Multiples. 49 Table 28: Exxon Mobil's valuation using Free Cash Flow Model. 50 Table 29: Exxon Mobil's valuation summary. 51 Table 30: TotalEnergies's Investment ratios.
59 Table 31: TotalEnergies's Gearing ratios. 60 Table 32: TotalEnergies's Profitability ratios. 60 Table 33: TotalEnergies's Liquidity ratios. 60 Table 34: TotalEnergies's Efficiency ratios.
61 Table 35: TotalEnergies's Z-Score. 61 Table 36: TotalEnergies's valuation using Price Multiples. 62 Table 37: TotalEnergies's valuation using Free Cash Flow. 63 Table 38: TotalEnergies's valuation summary.
64 Table 39: Investment Recommendations. 65 ii List of Figures Figure 1: GDP Growth (World Bank, n. 4 Figure 2: Global inflation rate (Statista, 2023). 5 Figure 3 Crude Oil (Trading Economics, 2023).
8 Figure 4: Crude Oil Production (Enerdata, n. 9 Figure 5: Aramco’s Net Sales by Business segments in 2022. 15 Figure 6: Aramco’s Net Sales by Geographic segments in 2022. 15 Figure 7: Aramco’s Revenue and Profit.
18 Figure 8: Aramco’s Cash Flow. 18 Figure 9: Aramco’s Changes in Assets. 19 Figure 10: Aramco’s Changes in Liabilities and Equity. 19 Figure 11: Shell’s Net Sales by Business segments in 2022.
28 Figure 12: Shell’s Net Profit by Business segments in 2022. 28 Figure 13: Shell’s Net Sales by Geographic segments in 2022. 29 Figure 14: Shell’s Revenue and Profit. 31 Figure 15: Shell’s Cash Flow.
32 Figure 16: Shell’s Changes in Assets. 33 Figure 17: Shell’s Changes in Liabilities and Equity. 33 Figure 18: Exxon Mobil's Net Sales by Business segments in 2022. 41 Figure 19: Exxon Mobil's Net Sales by Geographic segments in 2022.
41 Figure 20: Exxon Mobil's Revenue and Profit. 44 Figure 21: Exxon Mobil's Cash Flow. 44 Figure 22: Exxon Mobil's Changes in Assets. 45 Figure 23: Exxon Mobil's Changes in Liabilities and Equity.
46 Figure 24: TotalEnergies's Net Sales by Business segments in 2022. 54 Figure 25: TotalEnergies's Net Sales by Geographic segments in 2022. 55 Figure 26: TotalEnergies's Revenue and Profit. 57 Figure 27: TotalEnergies's Cash Flow.
58 Figure 28: TotalEnergies's Changes in Assets. 58 Figure 29: TotalEnergies's Changes in Liabilities and Equity. 59 iii CHAPTER 1: INTRODUCTION Commented [TP1]: Chapter 1: Introduction: the dissertation should start with the rationale of the topic 1.1 Market overview (in theory and practice), explain in more detail the research method, data, method and assumptions, the After the significant hit by Covid-19 pandemic, the world economy started to recover in 2021 limitation of the research toward 2022. However, the global economic condition is not as strong as before the pandemic due to several factors.
As an important component of the global economy, the oil and gas industry has faced the same difficulty. The main market of the oil and gas industry is the Middle East area. However, due to the pressure by OPEC, the oil and gas production will shift from Middle East countries to other parts of the world, especially America area. Additionally, the increasing awareness about impacts of oil and gas industry on environment has put a lot of pressure on this industry.
It is expected that the demand of oil and gas-based products will slow down significantly in the future to make room for the increase in demand of renewable and green energy. This forecast forces firms in the industry to quickly develop their products to fit the future trend. To secure market shares, top market players in the oil and gas industry will not stand aside of this trend.2 Area of study This report is aiming to analyse the performance and calculate the intrinsic value of the four leading businesses in oil and gas market including Saudi Arabian Oil Company, Shell plc, Exxon Mobil Corporation and TotalEnergies SE. Through the analysis and calculation, the report will arrive with investment recommendations for investors.3 Study objectives This paper is produced with the following objectives: 1) To provide the understanding of the current oil and gas industry 2) To analyse macroeconomics factors that can impact oil and gas industry 3) To evaluate the oil and gas industry regarding its performance, future growth and competition 4) To analyse performance of four leading firms in oil and gas industry 5) To calculate intrinsic value of each company using four valuation models 6) To give investment recommendations 1.4 Study objectives The study contains eight chapters: - Chapter 1: A brief introduction about the report.
- Chapter 2: Analyse macroeconomics factors that can affect the growth of the oil and gas industry including political factors, economic factors, social factors, and technological factors. - Chapter 3: Analyse the oil and gas industry with reference to the global oil and gas industry performance, outlook, and competition level. 1 - Chapter 4 to 7: Evaluate performance of Saudi Arabian Oil Company, Shell plc, Exxon Mobil Corporation, TotalEnergies SE using SWOT analysis, financial statement analysis, financial ratios analysis; then calculate intrinsic value and give recommendations. - Chapter 8: Conclude about the report’s findings and limitations.
2 CHAPTER 2: MACROECONOMIC ANALYSIS Using PEST analysis method, in this chapter, the report examines the key macroeconomic indicators that have significant impact on oil and gas industry.1 Environmental policies Environment impacts of oil and gas industry has become an increasingly important issue that is focused by many governments globally. As the awareness of environment protection, the current policies aim at minimising greenhouse gas emissions as well as reducing the impacts from production activities to environment. However, these policies can negatively impact the production costs of oil and gas. One example is The Clean Air Act.
This is a United State regulation that regulates the level of air emissions with the aim to reduce air pollution nationwide (Environmental Protection Agency, 2023). This policy aim to improve air quality standards by limiting the number of criteria pollutants such as carbon monoxide, sulfur dioxide, etc. To comply with this law, firms in the oil and gas industry have to develop new technologies to lower the air emissions from their production or reduce production level. Doing either actions will be costly for companies and impacts their profitability.2 Health and safety standards Due to the dangerous nature of oil and gas extraction activities, Occupational Safety and Health Administration (OSHA) has imposed safety standards that participants in the oil and gas industry have to follow.
One example of the standard is the guideline about the power tongs that includes the required safety distance and safety operation of power tongs (OSHA, 2007).3 Taxation To tax oil and gas business, government generally combines tax and royalty payments which includes three parts (Davis, Fedelino and Ossowski, 2003). The first part is a royalty which is used to collect minimum payment of a project. After royalty, companies in the oil and gas industry will face normal income tax that applied to every firms. Finally, there is a resource rent tax which take a numerous amount of profit from an oil extraction project.
This tax will be applied after the project reaches its target rate of return. To encourage oil production, the government usually provides some tax benefits to oil and gas producers such as tax deduction for intangible drilling expenses, tax deduction for resource depletion, etc. In the future, if the government want to reduce oil and gas production, they can eliminate these benefits which may discourage its production. Moreover, taxation can also impact oil prices as higher tax, higher oil prices that firms will charge their customers.2 Political climate Like other industries, the oil and gas industry is vulnerable to changes in global political conditions but its impacts on the oil and gas industry can even be higher than others.
This is due to the fact that the oil and gas industry is a highly profitable industry. Thus, every countries want to secure its oil and gas resources which may create war between countries. Additionally, 3 political tension between countries can also disrupt oil and gas production which will impact its prices. For example, during the first half of 2022, because of the war between Russia and Ukraine, the oil supply was disturbed which caused the shortage in oil supply globally (Bagchi and Paul, 2023).
This resulted in a significant increase in oil and gas prices to the highest value in the past 13 years of 116.23 USD per barrel in May 2022 (Trading Economics, 2023).2 Economic After recovering from the global financial crisis in 2008 – 2009, the global GDP growth was quite stable at around 3% between 2011 and 2019. However, the hit of Covid-19 pandemic pushed down the global economy. The global GDP growth was recorded at the lowest value in history in 2020 at negative 3.