Analysts: Matthew Coyne and Jennifer Downing Energy Sector Analysts: Matthew Coyne and Jennifer Downing

Agenda Overview Halliburton Kinder Morgan Valero Recommendation

Energy Sector Weights Update: as of quarter end s&p weight is 6.01 and sim weight is 5.23

Performance Performance of energy sector vs s&p over the past 5 years

Crude Oil Crude oil vs energy - strongly correlated

Halliburton Co. (HAL) - 1.64%, $42.71 Current Holdings Halliburton Co. (HAL) - 1.64%, $42.71 Kinder Morgan Inc. (KMI) - 3.59%, $19.16 Going into this, we are expecting oil prices to reach 55 or 60 by the end of the year, just to keep in mind, we are recommending to hold halliburton where it’s at, and to trim kinder morgan

Halliburton Co Market Data Oilfield Services Company Ticker: HAL Price: $44.11 (7/17/2017) Market Cap: $37,006.7M Beta: 1.07 Dividend Yield: 1.62% Target Price: $59.73 Upside: 35.41% Oilfield Services Company Second largest in their industry Headquartered in Houston, TX Divisions: Drilling and Evaluation & Completion and Production A little background on what halliburton does. They’re is one of the world's largest providers of products and services to the energy industry related to the exploration, development, and production of oil and natural gas behind their competitor Schlumberger. They’re headquartered in houston texas. Their business operates in two divisions: completion and production and drilling and evaluation. Completion and production involves cementing, stimulation, intervention, pressure control, specialty chemicals, and completion services. Drilling and evaluation involves field and reservoir modeling, drilling, evaluation, and welbore placement solutions that enable customers to model and measure their well construction activities. They operate in 70 countries with having more of its sales occurring in north america. Talk about data

HAL Performance

HAL Key Drivers & Risks Risks Oil price volatility Exposure in shale industry Dominance in pressure pumping Keeping capital intensity to a minimum Risks Oil price volatility Services sector still suffering from overcapacity and weakened demand Rig counts Environmental Risks Political Risks Exposure in shale industry Dominance in pressure pumping- increased utilization and pricing in pressure pumping and well construction product service lines has helped drive revenue Higher than expected profit, 16% increase in revenues compared to the first quarter, positive operating income from last years loss, outperformed major peers in every geomarket demonstrating their growth in global market share. This was driven by the strengthened market conditions in north america. Halliburton is confident about their ability to grow north american margins while remaining steady in their international business

Financials Here is a look at Halliburton’s financials over the past 5 years. You can see that after the crash of oil the company took a huge hit and are still recovering.

Second Quarter Results

DCF Consensus 59.73 34.9%

Valuation Analysis Currently, Halliburton has no PE due to negative earnings, but analysts are optimistic about the future of Halliburton as you can see the higher P/E ratios forecasted for the end of year, ROE, and op margin

HAL Recommendation Target Price: $59.73 Current Price: $44.71 (as of 7/17/2017) Upside: 35.41% HOLD

Kinder Morgan Inc Market Data Energy Oil & Gas - Midstream Ticker: KMI Price: $19.55 Market Cap: $45.3B Beta: 1.14 Dividend Yield: 2.56% Energy Oil & Gas - Midstream Operations in U.S. and Canada Five Lines of Business - Natural Gas Pipelines, CO2, Terminals, Products Pipelines & Kinder Morgan Canada Dividend reduced by 74% in 2015 from $1.93 -> $0.50 38% of natural gas consumed flows through KMI pipelines

KMI Performance

KMI Key Drivers & Risks Risks Shale boom and investment in natural gas consumption Since 1997 - consumption of natural gas in the U.S. has grown by CAGR of 1% Exportation of Natural Gas - Liquefied Natural Gas Reduction of costs Risks Commodity price volatility -Every $1 change in crude oil price per barrel would impact distributable cash flow by approx. $6M Deleveraging debt while maintaining a growth profile Political and Environmental Activism - halt major projects Returning dividend growth **Earnings Release 7/19/17** -Beat EPS estimates -Net debt decreased to $36.6B compared to $37.8B -Announced 60% Div increase in 2018 and subsequent 25% increase through 2020

Financial Analysis - KMI

DCF Consensus

Valuation Analysis

Valero Market Data Energy Oil & Gas - Refining Ticker: VLO Price: $67.43 Market Cap: $30.2B Beta: 0.89 Dividend Yield: 4.15% Energy Oil & Gas - Refining Two Lines of Business - Refining and ethanol 15 petroleum refineries operating in U.S. , Canada and U.K. 11 ethanol plants in the U.S.

VLO Performance

VLO Key Drivers and Risks Domestic & Global economic growth Favorable trade relations Sustained dividend growth (currently 4.15%) Aggressive share buyback program over last couple of years Risks Regional and Global supply and demand for crude oil and refined products Carrying value of inventories Refining Margins - price of crude oil and feedstocks compared to market price of selling refined products Government and environmental regulation

Financial Analysis - VLO

DCF Consensus

Valuation Analysis

Recommendation -Steady growth in oil prices in next 6-12 months to $55-60/bl range -Companies living within their means and have adapted to sub $60/bl oil prices -Improving fundamentals -Reducing debt, increasing dividends and share buyback programs -Increasing % capex spend through internal cash flow HAL - most volatile with the price of oil. Hold based on belief that oil will continue to climb closer to $55-60/bl, reflecting more activity in U.S. domestic drilling that would increase revenue for HAL. KMI - trim holdings…. VLO - buy, optimistic ...