MANAGEMENT AND FINANCE ONLINE JOURNAL€¦ · Director of Communications, and the founder of peer review e-Journal publication platform: “Management and Finance Online Journal”

Source: Management and Finance Online

Journal: Vol. 3, No. 2 (November 2019)

Published by: Harvard Extension Student

Management and Finance Club (HESMFC)

VALUATION OF THREE MAJOR

OIL COMPANIES: EXXONMOBIL,

ROYAL DUTCH SHELL, AND

CHEVRON

MANAGEMENT AND FINANCE

ONLINE JOURNAL Published by Harvard Extension Student Management and Finance Club

(HESMFC)

HESMFC is a not-for-profit, student organization, an affiliate of Harvard Extension Student Association (HESA) that serves as a

platform for academic publication. The HESMFC online journal helps student researchers and scholars to publish a wide range

of topics in the fields of business, management, and finance.

Disclaimer: The analyses, calculations, results, opinions, enterprise valuation, terminal value, and financial projections presented in this paper does not represent the actual result or financial projections by the companies, ExxonMobil, Shell, and Chevron. This work is purely the opinion of the authors, and readers of this paper should not use these analyses to make any investment decision. This paper does not endorse nor oppose the companies analyzed in this publication. No part of this paper should be used as a source of advice. Anyone who utilizes the information in this publication does so at their own risks.

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Harvard Extension Student Management and Finance Club (HESMFC).

Management and Finance Online Journal: Vol. 3, No. 2 (November 2019).

Author(s): Edwin I. Egbobawaye1, Mona Abdolrazaghi2, John Hudock3 and Karina Yamamoto4

VALUATION OF THREE MAJOR OIL

COMPANIES: EXXONMOBIL, ROYAL DUTCH

SHELL, AND CHEVRON

Edwin I. Egbobawaye1, Mona Abdolrazaghi2, John Hudock2 and Karina Yamamoto2 1,2 Harvard Extension School, Harvard University, 51 Brattle Street,

Cambridge, Massachusetts, MA 02138-3722, USA. Contact Email: [email protected]

ABSRACT

This study utilizes systematically empirical financial health

metrics and discounted cash flow (DCF) valuation model to

assess ExxonMobil Corporation, Royal Dutch Shell, and

Chevron Corporation, which are the three major oil companies

in the same industry as peers, with global business operation, but

asymmetrical in capitalization. Using historical financial data of

the companies from 2015 to 2018, the revenue growth, profit

margin, EBITDA, and the unlevered free cash flows were

determined, and used as proxies for future projection from 2019

to 2023, and the present value of free cash flows for the periods

were calculated for the three companies.

Financial ratios such as return on asset (ROA), return on

equity (ROE), financial leverage, profit margin, asset turnover,

coverage ratio, current ratio, account receivable turnover,

account payable turnover, inventory turnover, property-plant

and equipment turnover, days sales outstanding, days inventory

outstanding, days payable outstanding, cash conversion cycle,

liability/equity ratio and debt/equity ratio were analyzed. These

ratios helped to unravel profitability, coverage analysis,

liquidity, productivity, and solvency for ExxonMobil, Shell, and

Chevron. The DCF model used a weighted average cost of

capital (WACC) of 8%, 8.8%, and 8.8% for ExxonMobil, Shell,

and Chevron respectively as the discount rate.

Ed Egbobawaye, Ph.D., is a

geologist, and he works in the oil

and gas sector in Texas. He is a

Master’s degree (ALM) candidate

in Management at Harvard

University Extension School. As a

member of Harvard Extension

Student Management and Finance

Club (HESMFC), he served as the

Director of Communications, and

the founder of peer review e-

Journal publication platform:

“Management and Finance Online

Journal”. Ed was a Teaching

Assistant in the department of

Earth and Atmospheric Sciences at

the University of Alberta as a

graduate student while working on

his doctorate degree in geology.


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The stand-alone enterprise value of ExxonMobil and Shell were

estimated correlatively to their market value. Chevron, on the

other hand, has an estimated enterprise value that exceeds its

current market value. This valuation, however, is subjective, and

enormously impacted by systematic-risk volatility of crude oil and

gas prices due to current economic burst associated with oil and

gas commodities. Periods of high oil price boom in the future

would render the valuation results and interpretation presented

herein inconsequential, archaic, and incorrect.

INTRODUCTION

Enterprise valuation encompasses the analyses of historical and

current financial data (income statement, balance sheet, and cash

flow statements) of a company to determine the past and present

financial health of a firm. By using discounted cash flow (DCF)

model, the future cash flows and performance of a company can

be projected; albeit, not 100% accurate. However, using different

sensitivities in the model, future performance scenarios for an

organization can be forecasted and the terminal value of the firm

can be determined.

In mergers and acquisitions of companies, DCF valuation

methodology is adopted in conjunction with other valuation

methods, such as Residual Income Model (dividend growth

model), Dividend Discount Model, EBITDA multiples, market

multiples, perpetuity growth model and a host of other financial

metrics that investors use in making a decision about the net

present value (NPV) of future cash flows for a firm. Without DCF

valuation, it will be impracticable and a conundrum for investors

to empirically assess the future earnings of a firm.

The basic premise of a discounted cash flow valuation model is

the utility of the present value concept of future cash flows in

conjunction with a discount rate as shown in the formula below:

𝐷𝐶𝐹 =𝐹𝐶𝐹1

(1+𝑟)1+

𝐹𝐶𝐹2

(1+𝑟)2+

𝐹𝐶𝐹3

(1+𝑟)3+ ⋯

𝐹𝐶𝐹𝑛

(1+𝑟)𝑛+

𝐹𝐶𝐹𝑛

(1+𝑟)𝑛

At the University of Alberta, he

was the President of American

Association of Petroleum

Geologists (AAPG) Student

Chapter. He is the recipient of

AAPG Abstract Winner Award in

2007 at the University of Wyoming

Student Rendezvous; Award for

Outstanding and Creativity

Research at Northeastern Illinois

University, Chicago in 2005 during

his Master’s degree program in

Earth Science; and the recipient of

Geoscience B.C. Unconventional

Reservoir Research Scholarship in

British Columbia, Canada. Ed has

published several peer reviewed

articles in scientific journals in the

field of geology. His area of

geological research is focused on

hydrocarbon reservoir charac-

terization. In his ALM

Management study at Harvard, Ed

is concentrating in businesses

analysis, enterprise valuation,

mergers & acquisitions, and

financial modeling.

Mona Abdolrazaghi holds a

Masters in Biomedical Engineering

from the Iran University of Science

and Technology, a Masters in

Mechanical Engineering from the

University of Alberta, and a


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Where:

DCF = Discounted Cash Flow

FCF = Free Cash Flow

r = discount rate (WACC)

n = periods (years)

Whereas, the company value can be calculated by summation of

present and future cash flows as shown in the equation model

below:

Where: CF refers to the expected cash flows; k discount rate

applied; Vn is the residual value of the company at the terminal

year, and n is the number of years over which cash is expected to

be generated as income in the future for the company (Gil-Lafuente

and Castillo-López, 2013).

The discount rate is based on the Weighted Average Cost of

Capital (WAAC) or the reciprocal of opportunity cost. The DCF

valuation method is based on generated cash from the company’s

operational activities, and therefore, reflects and captures actual

revenue, assets, liabilities, shareholders’ equity, investing activities,

and financing activities of the firm. Although there are

innumerable publications relating to discounted cash flow and

enterprise valuation in the literature, however, no work or

publication has specifically performed DCF analysis and valuation

for the three major oil companies, ExxonMobil, Shell, and

Chevron, except the annual reports written and presented by these

companies to shareholders.

The objective of this paper is to use publicly available financial

data to analyze the trio oil companies and by using discounted cash

flow (DCF) valuation method, we can separately project the future

value or the NPV of the terminal value of the three major oil

companies, ExxonMobil, Shell and Chevron within the projected

periods.

Certificate in Corporate Finance

from the Harvard Extension

School. Mona has over ten years of

industry experience, specializing in

pipeline reliability and threat

assessment. She has recently been

promoted to the position of

Specialist in Risk Management at

Enbridge pipelines. She has

authored an extensive set of

publications and presented her

work at multiple conferences and

industry seminars. Mona is

dedicated to keep contributing to

the pipeline industry and the public

knowledge.

John Hudock is a Team Leader at

Tenneco Inc. He graduated with a

double Bachelor in Economics and

Politics from Ave Maria

University, Florida, USA (2011).

He is a Finance candidate working

towards a Master’s degree (ALM)

at Harvard University Extension

School (expected, 2021). His career

is currently in manufacturing, but

his ultimate goal is to enter into

investment banking and eventually

transition to a hedge fund. He was

a Resident Assistant during his

junior undergraduate year. He is a

member of the Omicron Delta

Epsilon International Economics

Honor Society and he does charity


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THE THREE OIL COMPANIES

ExxonMobil Background

ExxonMobil is the successor of two of the spin-off companies,

Jersey Standard and Socony (Exxon and Mobil, respectively),

which were among the 34 companies disaggregated from Standard

Oil (formed in 1870 by Rockefeller and partners in Ohio)5 as a

result of a U.S. Supreme Court ruling that broke up Standard Oil

Trust in 1911. In 1931, Socony acquired assets of Vacuum Oil,

which subsequently became Socony Mobil Oil Company in 1955,

and was basically referred to as “Mobil” in 1966. And in 1972,

Jersey Standard changed its name to Exxon Corporation, using

“Exxon” as its trademark throughout the U.S., while its affiliates

in other countries were using Esso until the 1970s5. In 1998, Exxon

and Mobil entered into absolute agreement to merge into one entity

to harness synergies, thereby resulting in the current name,

ExxonMobil Corporation5. ExxonMobil is a global oil and gas

company with operations in many countries around the world

(Figure 1) with businesses in upstream, downstream, and

chemical.

Royal Dutch Shell Background

Marcus Samuel founded Shell in London, U.K. around 1838,

and was originally an import and export business that sells sea-

shells for interior design21 industry at the time, which subsequently

became a global oil and gas company. After the death of Marcus

Samuel in 1870, his two sons, Marcus Junior and Samuel became

interested in the business of exporting oil. In the post-war era, the

market for oil evolved rapidly, and Shell pitched its interests in oil

exploration in the continent of Africa and South America with its

refineries built in the United Kingdom21. And, in the Gulf of

Mexico, Shell had its first commercial discovery in 1948, with

similar success in Nigeria Niger Delta commercial production in

195821. By 1960s and beyond, Shell became a major player in the

oil exploration and production in the Middle East with oil

discovery in Yibal field, Oman. By the 1980s, Shell grew through

acquisitions, intensive research in drilling techniques, and with the

advancement in technology, and availability of 3D seismic survey

work as a 3rd degree member of the

Knights of Columbus. In his ALM

Finance study, John is

concentrating in Mergers and

Acquisitions (M&A), Private

Equity, and Investment Theory.

He has a keen interest in High

Frequency Trading (HFT).

Karina Yamamoto holds a

bachelor’s degree from the

University of Sydney, with a major

in Economics and International

Relations, and a minor in Political

Economy. She is currently

pursuing her Masters in Finance at

the Harvard Extension School.

Karina has experience working in

the public sector, including

working in the United Nations’

Women Peace and Security team

in South East Asia and the

Ministry of Foreign Affairs,

Foreign Trade and Development

Cooperation, under the Deputy

Prime Minister and Minister of

Foreign Affairs Didier Reynders.

She also had extensive experience

in the private sector as a Strategy

Consultant for Fintech and

Financial services companies and

she is currently pursuing the

development of her own startup in

the travel/social media field.

Karina is passionate about

contributing to academia, adopting

new insights and executing

innovative strategies and seeks to


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to scan the subsurface, and its geological interpretation, the

company was able to better conduct exploration in more

challenging offshore environment and other subsurface terrains21.

Figure 1. Map showing locations where ExxonMobil operates worldwide5.

Shell operates in many countries around the world (Figure 2) with businesses in the upstream, midstream,

and downstream sectors.

Figure 2. Map showing Shell assets and projects under construction21.

develop a career in which she can

make a positive impact in the

world.


Page | 7




Chevron Background

In 1879, Pacific Coast Oil Company, the predecessor of Chevron was incorporated in San

Francisco3. “Within the next year, Coast Oil built California’s largest and most modern refinery, with a

capacity of 600 barrels per day, at Point Alameda on San Francisco Bay; constructed a pipeline that linked

Pico Canyon with the Southern Pacific’s train station at Elayon in southern California; and undertook an

extensive, largely successful drilling program3. In 1895, the company initiated its enduring maritime history

when it launched California’s first steel tanker, the George Loomis, which could ship 6,500 barrels of crude

oil between Ventura and San Francisco.”3

Chevron over the years has evolved and grown into a global oil company with operations in many

countries around the world (Figure 3), and its businesses comprises upstream (onshore, Deepwater U.S.

Gulf of Mexico, offshore exploration and production in Western Australia, West Africa, and

unconventional shale/tight resource plays in U.S., Canada and Argentina); midstream (transportation,

power, and trading); and downstream (manufacturing and retail)3.

Figure 3. Map showing Chevron’s major capital projects in oil and gas exploration and production around

the world3.

The three oil companies – ExxonMobil, Shell and Chevron engage in similar business operations (Figures

1-3), and Figure 4 shows total capitalization and financial leverage as of 2018.


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Figure 4. Shows total “capitalization defined as net debt + market capitalization; and leverage defined on

the basis of net debt/total capitalization”5

LITERATURE REVIEW

Numerous publications on the subject of corporate or enterprise valuation abound in literature, e.g.,

Rosenbaum and Pearl (2009) discuses valuation, leveraged buyouts and mergers and acquisitions.

Luehrman (2015) showcase corporate valuation and market multiples. In a parallel analysis, Rosenbaum

and Pearl (2009) unravel that Exit Multiple calculates the remaining value of a company’s free cash flow

generated after the projection period based on a multiple of its terminal year EBITDA (or EBIT). Coats

(2017) analyzed mergers and acquisitions process; Piper (2012) crafted case analysis assessing company’s

future financial health; Harmond (2000) demonstrated accumulated value, present value and internal rate

of return; Stewart et al. (2001) unravel how to put a price on biotechnology company; Gil-Lafuente and

Castillo-López (2013) explained discounted cash flows valuation process using fuzzy; Gélinas (2013) use

discounted cash flow model to argue about unexpected takeover premiums due to the limitations of

traditional discounted cash flow models that do not take into account potential synergies; Linke and

Zumwalt (1984) revealed the “Estimation biases in discounted cash flow analyses of equity capital cost in

rate regulation”; Baginski and Wahlen (2003) used residual income risk, intrinsic value, and share prices to

address the question regarding the risk-relevance of accounting numbers, e.g., does “accounting-related risk

measure the systematic risk and total volatility in a firm's time-series of residual return on equity associated

with the market's assessment and pricing of equity risk?”; while Ehrenmann and Smeers (2013) address risk-

adjusted discounted cash flows in capacity expansion models; and, Jiang and Lee (2019) performed “an

empirical test of the accounting-based residual income model (RIM) and the traditional dividend discount

model to provide an alternative to the conventional dividend discount model (DDM) valuation method, and

to test the empirical validity of the accounting-based RIM and compare the two models’ performance in

terms of their implications for volatility and their restrictions on the data”. Welc (2017) compares EBITDA

and cash flows in the prediction of capital market bankruptcy, wherein its utility in valuation came to fore.


Page | 9




Other than DCF valuation method, EBITDA or EBITDA multiples are also used in business valuation

(Verninmen, et al., 2005; Gray and Vogel, 2012; Hughen and Strauss, 2016), particularly, in valuation of

small private firms, which do not report cash flow statement as publicly traded companies (Greenwald, et

al., 2001). EBITDA is widely used by management, the board of directors of many companies as a primary

metric to assess a company’s performance (Isidro and Marques, 2008). Advocates of EBITDA tend to

emphasize its comparability, particularly as compared to other profit measures. Perpetuity growth method

(PGM) was treated by Rosenbaum and Pearl (2009), wherein, it stated that PGM is terminal value = FCFn

X (1+g) / (r-g). This means that the perpetuity growth model calculates terminal FCF as perpetuity growing

at an assumed rate, subject to a firm’s sustainable long-term growth rate.

METHOD OF STUDY AND DATA

(i) Methodology

The mechanics of enterprise valuation begins with research about the target company to garner pertinent

historical financial statements data for the past three to five years about ExxonMobil, Royal Dutch Shell,

and Chevron (Table 1-9 in Appendix-1). Our approach in this study encapsulates both the Waterfall and

Agile methodology of project management. The Waterfall approach helped to conceptually layout the

workflow used for the discounted cash flow analysis (Figure 5).

Figure 5. Waterfall methodology exemplify a preceding task that must be done before the next subsequent

task, and successive task.

However, other processes used in the analysis and the results presented herein follows Agile methodology

of project management, which is a process involving iterations, and fine-tuning the assumptions used in the

discounted cash flow (DCF) analysis model.


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We used several performance proxies based on ExxonMobil, Shell, and Chevron’s financial data (Table

1-9 in Appendix-1). These proxies are Return on Assets (ROA), Return on Equity (ROE), and Financial

Leverage (FL), which helped in profitability analysis for ExxonMobil, Shell, and Chevron. Then, we

assessed the financial burden using debt coverage ratio, free cash flow to-total-debt, liquidity analysis and

solvency were calculated for ExxonMobil, Shell, and Chevron. Asset Turnover (AT), Inventory Turnover

(IT), Account Payable Turnover (APT), Property Plant and Equipment (PPE) Turnover, Days Sales

Outstanding (DSO), Days Inventory Outstanding (DIO), Days Payable Outstanding (DPO), and Cash

Conversion Cycle (CCC) were calculated to determine productivity for ExxonMobil, Shell, and Chevron.

Data inputted into the DCF model was based on the income statement, Balance sheet, and cash flow

statement. Based on the income statement, sales and revenue growth was unraveled; and cost of goods sold

(COGS) was subtracted from sales revenue, and the resulting gross profit was calculated with the reciprocal

gross profit margin in percentage. Selling, general and administrative (SG&A) expense was deducted from

gross profit to determine EBITDA, and calculate EBITDA margin in percentage. Depreciation and

amortization, which is a non-cash balance sheet line item were subtracted, resulting in EBIT and EBIT

margin in percentage was calculated. Tax expense was deducted to get EBIAT, and depreciation and

amortization were added back before capital expenditures were subtracted. Then, the increase or decrease

in net-working capital, which is a cash flow statement line item was deducted. The final bottom line is the

calculated unlevered free cash flow (UFCF) for ExxonMobil, Shell, and Chevron depicting past

performance. The UFCF for the projected periods into the future (2019 to 2023) were discounted to present

value (PV), and subsequently, to net present value (NPV). Our calculation of enterprise value is based on

discounted cash flow (DCF) valuation method using financial data from ExxonMobil, Shell, and Chevron

(Table 1-9 in Appendix-1). In this study, we used perpetuity growth method to calculate a terminal value,

which treats ExxonMobil, Shell, and Chevron’s terminal year (2023) free cash flows as perpetuity growing

at an assumed rate of 3% respectively. However, the exit multiple methodology of terminal value calculation

was not used or incorporated into the analyses presented herein.

(ii) Data Used in Empirical Analyses and Valuation

Pertinent data used in the valuation of ExxonMobil, Shell, and Chevron are financial statements (Table 1-9

in Appendix-1).

(iii) Empirical Models

DCF Model

𝐷𝐶𝐹 =𝐹𝐶𝐹1

(1 + 𝑟)1+

𝐹𝐶𝐹2

(1 + 𝑟)2+

𝐹𝐶𝐹3

(1 + 𝑟)3+ ⋯

𝐹𝐶𝐹𝑛

(1 + 𝑟)𝑛+

𝐹𝐶𝐹𝑛

(1 + 𝑟)𝑛 (1)

Where: DCF = Discounted Cash Flow, FCF = Free Cash Flow, r = discount rate (WACC),

n = periods (years).


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Valuation Model

𝑃𝑉0 = ∑𝐹𝐶𝐹𝐹𝑡

(1 + 𝐾𝑊𝐴𝐶𝐶)𝑡+

𝑇𝑉𝑁

(1 + 𝐾𝑊𝐴𝐶𝐶)𝑁

𝑁

𝑡=1

(2)

Where: PV is present value, FCFF is free cash flow for the firm, t is time (period, in year), K is discount rate, WACC is weighted average cost of capital, TV is terminal value of the firm, N is period (year).

WACC Model

𝑊𝐴𝐶𝐶 = (𝑟𝑑 X (1 + 𝑡)) 𝑋 1+𝐷

𝐷+𝐸+ 𝑟𝑒 X

𝐸

𝐷+𝐸 (3)

Where: WACC is weighted average cost of capital; rd is the cost of debt, re is the cost of equity, t is marginal tax rate, D is the market value of equity, E is the market value of the firm’s equity.

Capital Asset Pricing Model (CAPM)

𝐶𝑜𝑠𝑡 𝑜𝑓 𝐸𝑞𝑢𝑖𝑡𝑦 (𝑟𝑒) = 𝑟𝑓 + 𝛽𝐿 X (rm – rf) (4)

Where: rf, is risk free rate, 𝛽𝐿 is Levered Beta, rm is return on the market, (rm – rf) is the market risk premium.

Perpetuity Growth Model

Terminal Value = 𝐹𝐶𝐹𝑛 𝑋 (1−𝑔)

(𝑟−𝑔) (5)

Where: FCFn is free cash flow, n is the period (year), g is growth rate, and r is discount

rate (WACC).

Residual Income Model

𝑃0 = 𝐵𝑉𝑒𝑞𝑢𝑖𝑡𝑦 +𝑅𝐼1

(1+𝑟)1+

𝑅𝐼2

(1+𝑟)2+

𝑅𝐼3

(1+𝑟)3+ ⋯

𝑅𝐼𝑛

(1+𝑟)𝑛+

𝑇𝑉𝑛

(1+𝑟)𝑛 (6)

Where: 𝑃0 is value of stock, BV is book value, RI is residual income, n is period (year), TV is terminal value.

Dividend Discount Model

𝑃0 =𝐷

(𝑟−𝑔) (7)

Where: 𝑃0 is value of stock; D is expected dividend per share; r is cost of equity; and g is the dividend growth rate.


Page | 12




Enterprise Value Model Enterprise Value = Equity Value + Total Debt + Preferred Stock +

Noncontrolling Interest – Cash and Cash Equivalent. (8)

Exit Multiple Model

Terminal Value = EBITDAn X Exit Multiple (9)

RESULTS OF VALUATION

Empirical Findings

To understand the profitability, liquidity, performance, risks and financial stability associated with

ExxonMobil, Shell, and Chevron, financial ratios were calculated from the financial statements (income

statement, balance sheet, and cash flow statement) shown in Table 1-9 in Appendix-1. Financial ratios are

indicators of a company’s financial performance, and therefore, were used as a measure of evaluation of

performance. Based on empirical findings, Return on Equity (ROE), Return on Asset (ROA), and Financial

Leverage (FL) unraveled profitability of ExxonMobil, Shell, and Chevron (Figure 6). According to Higgins,

et al. (2016), “ROE is by far the most popular yardstick of measuring financial performance, defined as: ROE

= Net income ÷ shareholders’ equity. ROE is the measure of the efficiency with which a firm utilizes owners’

capital or the equivalent of the percentage return to owners on their investment. ROE is determined by three

principal components based on DuPont decomposition: ROE = Net income ÷ sales X Sales ÷ Assets X Assets ÷

Shareholders’ equity. Denoting the last three ratios as profit margin, asset turnover, and financial leverage,

respectively, the expression can be rewritten as: ROE = Profit margin X Asset turnover X Financial leverage”

(Higgins, et al., 2016). The expression above indicates that management only have three levers for

controlling ROE: 1) the earnings squeezed out of each dollar of sales, or profit margin (PM); 2) the sales

generated from each dollar of assets employed, or the asset turnover; and 3) the amount of equity used to

finance the asset, or financial leverage (Higgins, et al., 2016).

ROA is an indicator or metric that measure efficiency (Figure 6), how profitable and how well a company

allocates and manages its resources or assets. ROA gives a manager or analyst insight into how efficient a

company manages its assets to generate earnings. ROA = Net Income ÷ Total Assets. Financial Leverage (FL),

which is debt to assets ratio and debt to equity ratio measures financial leverage (Figure 6) compared to the

book value of a company’s liabilities to book value of its assets or equity. Debt-to-assets ratio = Total liabilities

÷ Total assets; Debt-to-equity ratio = Total liabilities ÷ shareholder’s equity.


Page | 13




Figure 6. Graphical plot showing profitability using Return on Equity (ROE), Return on Asset (ROA), and

Financial Leverage (FL) calculation to determine and compare profitability for and between ExxonMobil,

Shell, and Chevron from 2014 to 2018.

0.0%

50.0%

100.0%

150.0%

200.0%

250.0%

2014 2015 2016 2017 2018

Rat

io

Year

ExxonMobil: Profitability Analysis

ROE ROA Financial Leverage

0.0%

50.0%

100.0%

150.0%

200.0%

250.0%

2014 2015 2016 2017 2018

Rat

io

Year

Royal Dutch Shell: Profitability Analysis


-50.0%

0.0%

50.0%

100.0%

150.0%

200.0%

2014 2015 2016 2017 2018

Rat

io

Year

Chevron: Profitability Analysis



Page | 14




The profit margin (PM) measures the fraction of each dollar of sales that drops down through the income

statement to profits (Figure 7). This ratio is particularly important to analysts because it captures the

company’s pricing strategy and its ability to control costs. Profit margin varies within the industry; herein,

we compare three oil companies that are within the same oil and gas sector. Companies with high-profit

margin tend to have low asset turnover (Higgins, et al., 2016). The asset turnover ratio measures the sales

generated per dollar of assets. This ratio measures asset intensity, with a low asset turnover signifying an

asset-intensive business and high turnover the reverse.

The coverage ratio (Figure 8) is a group of measures of the financial burden that reflects a firm’s ability

to meet its debt and financial obligations. Times interest earned (TIE): Times interest earned (TIE) =

EBIT/Interest expense. The EBITDA interest coverage ratio, which is used to evaluate a company’s financial

durability by examining whether the company is profitable enough to be able to pay off its interest expenses:

EBITDA-To-Interest-Coverage-Ratio = EBITDA/Interest Payment. Based on Free Cash Flow to Total Debt, Cash

Flow-to-Debt is a coverage ratio used to analyze how long it would take a company to repay its total debt if

it put all of its free cash flow towards debt repayment ( Free Cash Flow /Total Debt).

Operating Cash-to-Debt is a coverage ratio similar to Cash Flow-to-Debt (Figure 9). However, instead of

Free Cash Flow, Operating Cash Flow is used towards repaying debt (Operating Cash/Total Debt). The current

ratio is one of the most commonly cited financial ratios, which measures the firm’s ability to meet its short-

term obligations (Current ratio = Current assets /Current liabilities).

The quick (acid test) ratio is similar to the current ratio except that it excludes inventory, which is

generally, the least liquid current asset (Figure 10). The generally low liquidity of inventory results from two

primary factors: 1) Many types of inventory cannot be easily sold because they are partially completed items,

special purpose items, and the like; and 2) inventory is typically sold on credit, which means that it becomes

an account receivable before being converted into cash. An additional problem with the inventory as a liquid

asset is that the times when companies face the most-dire need for liquidity, when business is bad, are

precisely the times when it is most difficult to convert inventory into cash by selling it (Quick ratio = Current

assets – Inventory / Current liabilities).


Page | 15




Figure 7. Analysis of profitability for ExxonMobil, Shell and Chevron using profit margin (PM) and Asset

Turnover (AT) to depict its performance from 2014 to 2018.

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

2014 2015 2016 2017 2018

Rat

io

Year

ExxonMobil: Profitability Analysis

Profit Margin Asset Turnover

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

2014 2015 2016 2017 2018

Rat

io

Year

Royal Dutch Shell: Profitability Analysis


-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

2014 2015 2016 2017 2018

Rat

io

Year

Chevron: Profitability Analysis



Page | 16




Figure 8. Showcase times interest earned (TIE) and EBITDA coverage ratio a measure of financial burden

of ExxonMobil, Shell and Chevron, and their ability to meet its debt and financial obligations.

-

100.0

200.0

300.0

400.0

500.0

2014 2015 2016 2017 2018

Rat

io

Year

ExxonMobil: Coverage Analysis

TIE EBITDA Cov.

0.0

10.0

20.0

30.0

40.0

2014 2015 2016 2017 2018

Rat

io

Year

Royal Dutch Shell: Coverage Analysis

TIE EBITDA Cov.

0.0

50.0

100.0

150.0

200.0

2014 2015 2016 2017 2018

Rat

io

Year

Chevron: Coverage Analysis

TIE EBITDA Cov.


Page | 17




Figure 9. Showcase cash flow (CF) to total debt, and operating cash to total debt as a measure of financial

burden of ExxonMobil, Shell and Chevron, and their ability to meet its debt and financial obligations.

-

0.2

0.4

0.6

0.8

1.0

1.2

2014 2015 2016 2017 2018

Rat

io

Year

ExxonMobil: Coverage Analysis

FCF/TD Op. Cash/TD

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

2014 2015 2016 2017 2018

Rat

io

Year

Royal Dutch Shell: Coverage Analysis

FCF/TD Op. Cash/TD

0.0

0.2

0.4

0.6

0.8

1.0

1.2

2014 2015 2016 2017 2018

Rat

io

Year

Chevron: Coverage Analysis

FCF/TD Op. Cash/TD


Page | 18




Figure 10. Graphical plot showing ExxonMobil, Shell and Chevron’s liquidity ratios, a measure of its ability

to pay its short-term debt obligation, which captures a company’s financial health. The higher the liquidity

ratio (2:1), the more like the firm can cover its short-term debts, and lower liquidity ratio (1:2) signify a

company may have trouble paying its short-term liabilities.

-

0.2

0.4

0.6

0.8

1.0

2014 2015 2016 2017 2018

Rat

io

Year

ExxonMobil: Liquidity Analysis

Current ratio Quick Ratio

-

0.2

0.4

0.6

0.8

1.0

1.2

1.4

2014 2015 2016 2017 2018

Rat

io

Year

Royal Dutch Shell: Liquidity Analysis


-

0.5

1.0

1.5

2014 2015 2016 2017 2018

Rat

io

Year

Chevron: Liquidity Analysis



Page | 19




The accounts receivable turnover ratio (Figure 11) is an accounting measure used to quantify a company's

effectiveness and its efficiency in collecting its receivables or money owed by clients. The ratio shows how

well a company uses and manages the credit it extends to customers and how quickly that short-term debt

is collected or is paid. The receivables turnover ratio is also called the accounts receivable turnover ratio.

The accounts payable turnover ratio is a short-term liquidity measure used to quantify the rate at which a

company pays off its suppliers (Figure 12). Accounts payable turnover shows how many times a company

pays off its accounts payable during a period. Accounts payable are short-term debt that a company owes to

its suppliers and creditors. The accounts payable turnover ratio shows how efficient a company is at paying

its suppliers and short-term debts. Inventory turnover is a ratio that measures the activity, or liability, of a

firm’s inventory, simply calculated by: Inventory turnover = Cost of goods sold / Inventory.

Property, plant, and equipment (PP&E) are long-term assets vital to business operations and not easily

converted into cash. Property, plant, and equipment are tangible assets, meaning they are physical in nature

or can be touched (Figure 11). The total value of PP&E can range from very low to extremely high compared

to total assets (Net PPE = Gross PPE + Capital Expenditures – Accumulated Depreciation).

Days Sales Outstanding (DSO) is an average of the number of days it takes for a company to collect

payment after a sale has been made (Figure 12). It is an element of the Cash Conversion Cycle and is

calculated annually as (Accounts Receivable/Total Credit Sales) × 365 Days. Days Inventory Outstanding (DIO)

is a financial ratio that measures the average number of days it takes for a company to turn all of its inventory

into sales. It is also an element of the Cash Conversion Cycle and it is calculated annually as (Average

Inventory/Cost of Goods Sold) × 365 Days.

Days Payable Outstanding (DPO) indicates the average time it takes in days for a company to pay its bill

and invoices to its creditors (Figure 12). It analyzes how well a company’s cash flows are being managed; a

company with a lower value of DPO pays its bill sooner rather than later. It is the final variable in the Cash

Conversion Cycle and the annual formula for DPO is (Accounts Payable × 365 Days)/Cost of Goods Sold. Cash

Conversion Cycle (CCC) is a quantitative metric that measures the time it takes for a company to convert

its resource investments into cash flows from revenues. It takes into account the time it takes for the company

to sell its inventory, collect receivables and pay its bills without incurring penalties. It evaluates the efficiency

of a company’s operations and management; however, it only applies to business sectors dependent on

inventory management and related operations ( CCC = Days inventory outstanding + Days sales outstanding –

Days payable outstanding).

https://www.investopedia.com/ask/answers/021215/how-long-are-accounts-receivable-allowed-be-outstanding.asp

https://www.investopedia.com/articles/03/102203.asp

https://www.investopedia.com/terms/q/quickratio.asp

https://www.investopedia.com/terms/a/accountspayable.asp


Page | 20




Figure 11. Shows graphical plot depicting productivity for ExxonMobil, Shell, and Chevron using (AR)

Account Receivable Turnover, Inventory Turnover, (AP) Account payable Turnover, and (PPE) Property,

Plant & Equipment Turnover from 2014 to 2018.

-

5.00

10.00

15.00

2014 2015 2016 2017 2018

Day

s

Year

ExxonMobil: Productivity Analysis

AR Turnover Inventory Turnover

AP Turnover PPE Turnover

-

5.0

10.0

15.0

20.0

2014 2015 2016 2017 2018

Day

s

Year

Royal Dutch Shell: Productivity Analysis



-

5.00

10.00

15.00

20.00

2014 2015 2016 2017 2018

Day

s

Year

Chevron: Productivity Analysis




Page | 21




Figure 12. Shows analysis of Days Sales Outstanding (DSO), Days Inventory Outstanding (DIO), Days

Payable Outstanding (DPO), and Cash Conversion Cycle (CCC) as a measure of productivity for

ExxonMobil, Shell, and Chevron from 2014 to 2018.

(50.00)

-

50.00

100.00

150.00

2014 2015 2016 2017 2018

Day

s

Year

ExxonMobil: Productivity Analysis

DSO DIO DPO CCC

-

20.00

40.00

60.00

80.00

100.00

120.00

2014 2015 2016 2017 2018

Day

s

Year

Royal Dutch Shell: Productivity Analysis

DSO DIO DPO CCC

(20.00)

-

20.00

40.00

60.00

80.00

100.00

2014 2015 2016 2017 2018

Day

s

Year

Chevron: Productivity Analysis

DSO DIO DPO CCC


Page | 22




Figure 13. Shows solvency ratios plotted for ExxonMobil, Shell and Chevron, which indicates their financial

health in terms of debt obligation. A higher ratio indicates stronger financial strength, and lower ratio, could

indicate financial difficulties in the future.

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

2014 2015 2016 2017 2018

Rat

io

Year

ExxonMobil: Solvency Analysis

Liability/Equity Total Debt/Equity

0.00%

50.00%

100.00%

150.00%

2014 2015 2016 2017 2018

Rat

io

Year

Royal Dutch Shell: Solvency Analysis


0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

2014 2015 2016 2017 2018

Rat

io

Year

Chevron: Solvency Analysis



Page | 23

Harvard Extension Student Management and Finance Club (HESMFC). Management and Finance Online Journal: Vol. 3, No. 2 (November 2019). Author(s): Edwin I. Egbobawaye1, Mona Abdolrazaghi2, John Hudock3 and Karina Yamamoto4

Discounted Cash Flow (DCF) Model for ExxonMobil

ExxonMobil Corporation Discounted Cash Flow Analysis ($ in millions, fiscal year ending December 31)

Operating Scenario

Operating Scenario 1 Mid-Year Convention N Historical Period CAGR Projection Period

2015 2016 2017 ('09 - '11) 2018 2019 2020 2021 2022 2023

Sales $236,810.0 $200,628.0 $237,156.0 0.1% $279,202.0 $328,704.5

$386,983.8

$455,596.1

$536,373.2

$631,472.2

% growth NA (15.3%) 18.2% 17.7% 17.7%

17.7%

17.7%

17.7%

17.7%

Cost of Goods Sold 167,113.0 137,565.0 162,592.0 194,200.0 228,631.7

269,168.1

316,891.5

373,076.4

439,222.9

Gross Profit $69,697.0 $63,063.0 $74,564.0 3.4% $85,002.0 $100,072.9

$117,815.8

$138,704.5

$163,296.8

$192,249.3

% margin 29.4% 31.4% 31.4% 30.4% 30.4%

30.4%

30.4%

30.4%

30.4%

Selling, General & Administrative 10,961.0 10,799.0 12,394.0 12,765.0 15,028.2

17,692.7

20,829.7

24,522.8

28,870.6

EBITDA $58,736.0 $52,264.0 $62,170.0 2.9% $72,237.0 $85,044.6

$100,123.0

$117,874.8

$138,774.1

$163,378.7

% margin 24.8% 26.1% 26.2% 25.9% 25.9%

25.9%

25.9%

25.9%

25.9%

Depreciation & Amortization 22,308.0 17,893.0 18,045.0 18,045.0 21,244.4

25,011.0

29,445.5

34,666.1

40,812.4

EBIT $36,428.0 $34,371.0 $44,125.0 10.1% $54,192.0 $63,800.2

$75,112.0

$88,429.4

$104,107.9

$122,566.3

% margin 15.4% 17.1% 18.6% 19.4% 19.4%

19.4%

19.4%

19.4%

19.4%

Taxes 12,749.8 12,029.9 15,443.8 18,967.2 22,330.1

26,289.2

30,950.3

36,437.8

42,898.2

EBIAT $23,678.2 $22,341.2 $28,681.3 10.1% $35,224.8 $41,470.2

$48,822.8

$57,479.1

$67,670.1

$79,668.1

Plus: Depreciation & Amortization 22,308.0 17,893.0 18,045.0 18,045.0 21,244.4

25,011.0

29,445.5

34,666.1

40,812.4

Less: Capital Expenditures 26,490.0 16,163.0 15,402.0 19,574.0 (23,044.5)

(27,130.3)

(31,940.4)

(37,603.5)

(44,270.6)

Less: (Inc.)/Dec in Net Working Capital 370.0 247.0 165.0 935.0

895.5

1,054.3

1,241.3

1,461.3

1,720.4

Unlevered Free Cash Flow $72,846.2 $56,644.2 $62,293.3 $73,778.8 $40,565.6

$47,757.9

$56,225.4

$66,194.1

$77,930.3

WACC 8.0%

Discount Period

1.0

2.0

3.0

4.0

5.0


Page | 24


Discount Factor

0.93

0.86

0.79

0.74

0.68

Present Value of Free Cash Flow $37,572.0

$40,969.1

$44,673.5

$48,712.8

$53,117.3

Enterprise Value Implied Equity Value and Share Price Implied Perpetuity Growth Rate

Cumulative Present Value of FCF $225,044.6 Enterprise Value $225,044.6

Terminal Year Free Cash Flow (2023E) $77,930.3

Less: Total Debt 37,796.0 WACC 8.0%

Terminal Value Less: Preferred Stock Terminal Value -

Terminal Year EBITDA (2023E) $163,378.7

Less: Noncontrolling Interest 6,734.0

Exit Multiple - x

Plus: Cash and Cash Equivalents 3,042.0 Implied Perpetuity Growth Rate (100.0%)

Terminal Value -

Discount Factor 0.68 Implied Equity Value $272,616.6 Implied EV/EBITDA

Present Value of Terminal Value - Enterprise Value $225,044.6

% of Enterprise Value -

Fully Diluted Shares Outstanding 4,270.0 LTM 9/30/2000 EBITDA 39,574.0

Enterprise Value $225,044.6 Implied Share Price $63.84 Implied EV/EBITDA 5.7x

Enterprise Value Implied Perpetuity Growth Rate

Exit Multiple Exit Multiple

225,044.6 -1.0x -0.5x 0.0x 0.5x 1.0x (1.0) -1.0x -0.5x 0.0x 0.5x 1.0x

WA

CC

-1.0% 126,707 212,606 298,505 384,405 470,304

WA

CC

-1.0% 89.3% 2051.4% -

100.0% -

49.3% -33.0%

-0.5% 126,004 209,766 293,529 377,291 461,054 -0.5% 90.2% 2062.3% -

100.0% -

49.1% -32.6%

0.0% 125,295 206,984 $288,673 370,363 452,052 0.0% 91.2% 2073.2% -

100.0% -

48.8% -32.3%

0.5% 124,581 204,258 283,936 363,613 443,290 0.5% 92.2% 2084.0% -

100.0% -

48.6% -32.0%

1.0% 123,863 201,587 279,312 357,037 434,761 1.0% 93.1% 2094.9% -

100.0% -

48.3% -31.6%


Page | 25


Assumptions

Sales (% growth)

NA

(15.3%)

18.2%

17.7%

17.7%

17.7%

17.7%

17.7%

17.7%

COGS (% sales)

70.6%

68.6%

68.6%

69.6%

69.6%

69.6%

69.6%

69.6%

69.6%

SG&A (% sales)

4.6%

5.4%

5.2%

4.6%

4.6%

4.6%

4.6%

4.6%

4.6%

Depreciation & Amortization (% sales)

9.4%

8.9%

7.6%

6.5%

6.5%

6.5%

6.5%

6.5%

6.5%

Capital Expenditures (% sales)

(11.2%)

(8.1%)

(6.5%)

(7.0%)

7.0%

7.0%

7.0%

7.0%

7.0%

Tax Rate

35.0%

35.0%

35.0%

35.0%

35.0%

35.0%

35.0%

35.0%

35.0%

Working Capital (% sales)

1.8%

1.8%

1.8%

1.8%

1.8%

ExxonMobil Corporation Sensitivity Analysis ($ in millions, fiscal year ending December 31)

Enterprise Value Implied Equity Value


225,044.6 -1.0x -0.5x 0.0x 0.5x 1.0x 272,616.6 -1.0x -0.5x 0.0x 0.5x 1.0x

WA

CC

-1.0% 126,707 212,606 298,505 384,405 470,304

WA

CC

-1.0% 174,279 260,178 346,077 431,977 517,876

-0.5% 126,004 209,766 293,529 377,291 461,054 -0.5% 173,576 257,338 341,101 424,863 508,626

0.0% 125,295 206,984 $288,673 370,363 452,052 0.0% 172,867 254,556 $336,245 417,935 499,624

0.5% 124,581 204,258 283,936 363,613 443,290 0.5% 172,153 251,830 331,508 411,185 490,862

1.0% 123,863 201,587 279,312 357,037 434,761 1.0% 171,435 249,159 326,884 404,609 482,333

Implied Perpetuity Growth Rate Implied Enterprise Value / LTM EBITDA


(1.0) -1.0x -0.5x 0.0x 0.5x 1.0x 5.7 6.5x 7.0x 0.0x 0.5x 1.0x

WA

CC

-1.0% 89.3% 2051.4% -100.0% -49.3% -33.0%

WA

CC

-1.0% 35.8x 37.9x 7.5x 9.7x 11.9x

-0.5% 90.2% 2062.3% -100.0% -49.1% -32.6% -0.5% 34.9x 37.0x 7.4x 9.5x 11.7x

0.0% 91.2% 2073.2% -100.0% -48.8% -32.3% 0.0% 34.1x 36.2x 7.3x 9.4x 11.4x

0.5% 92.2% 2084.0% -100.0% -48.6% -32.0% 0.5% 33.3x 35.4x 7.2x 9.2x 11.2x

1.0% 93.1% 2094.9% -100.0% -48.3% -31.6% 1.0% 32.6x 34.6x 7.1x 9.0x 11.0x


Page | 26


PV of Terminal Value % of Enterprise Value

Exit Multiple

0.0 6.5x 7.0x 7.5x 8.0x 8.5x

WA

CC

-1.0% 78.9% 80.1% 81.2% 82.2% 83.0%

-0.5% 78.8% 80.0% 81.1% 82.0% 82.9%

0.0% 78.6% 79.8% 80.9% 81.9% 82.8%

0.5% 78.5% 79.7% 80.8% 81.8% 82.7%

1.0% 78.3% 79.6% 80.7% 81.7% 82.5%

Calculation of Implied Share Price

Enterprise Value $225,044.6

Less: Total Debt 37,796.0

Less: Preferred Securities -


Plus: Cash and Cash Equivalents 3,042.0

Implied Equity Value $272,616.6

Options/Warrants

Number of Exercise In-the-Money

Tranche Shares Price Shares Proceeds

Tranche 1 4,270.000 - 4,270.000 -

Tranche 2 - - - -

Tranche 3 - - - -

Tranche 4 - - - -

Tranche 5 - - - -

Total 4,270.000 - 4,270.000 -

Basic Shares Outstanding (1)

Plus: Shares from In-the-Money Options 4,270.000

Less: Shares Repurchased -

Net New Shares from Options 4,270.000

Plus: Shares from Convertible Securities -

Fully Diluted Shares Outstanding 4,270.000

Implied Share Price $63.84


Page | 27


ExxonMobil Corporation Working Capital Projections

($ in millions, fiscal year ending December 31)

Historical Period Projection Period

2015 2016 2017 2018 2019 2020 2021 2022 2023

Sales $236,810.0 $200,628.0 $237,156.0 $279,202.0 $328,704.5 $386,983.8 $455,596.1 $536,373.2 $631,472.2

Cost of Goods Sold 167,113.0 137,565.0 162,592.0 194,200.0 228,631.7 269,168.1 316,891.5 373,076.4 439,222.9

Current Assets

Accounts Receivable 19,875.0 21,394.0 25,597.0 24,701.0 29,080.5 34,236.5 40,306.6 47,452.9 55,866.3

Inventories 16,245.0 15,080.0 16,992.0 18,958.0 22,319.3 26,276.5 30,935.3 36,420.1 42,877.4

Prepaid Expenses and Other 2,798.0 1,285.0 1,368.0 1,272.0 1,497.5 1,763.0 2,075.6 2,443.6 2,876.9

Total Current Assets $38,918.0 $37,759.0 $43,957.0 $44,931.0 $52,897.3 $62,276.0 $73,317.5 $86,316.7 $101,620.6

Current Liabilities

Accounts Payable 18,074.0 17,801.0 21,701.0 21,063.0 24,797.5 29,194.1 34,370.2 40,464.0 47,638.3

Accrued Liabilities 3,348.0 2,615.0 3,045.0 2,612.0 3,075.1 3,620.3 4,262.2 5,017.9 5,907.6

Other Current Liabilities 13,792.0 13,392.0 15,095.0 16,205.0 19,078.1 22,460.7 26,443.0 31,131.3 36,650.9

Total Current Liabilities $35,214.0 $33,808.0 $39,841.0 $39,880.0 $46,950.7 $55,275.1 $65,075.4 $76,613.2 $90,196.7

Net Working Capital $3,704.0 $3,951.0 $4,116.0 $5,051.0 $5,946.5 $7,000.9 $8,242.1 $9,703.4 $11,423.9

% sales 1.6% 2.0% 1.7% 1.8% 1.8% 1.8% 1.8% 1.8% 1.8%

Increase / (Decrease) in NWC NA $247.0 $165.0 $935.0 $895.5 $1,054.3 $1,241.3 $1,461.3 $1,720.4

Assumptions

Current Assets 2015 2016 2017 2018 2019 2020 2021 2022 2023

Days Sales Outstanding 30.6 38.9 39.4 32.3 32.3 32.3 32.3 32.3 32.3

Days Inventory Held 35.5 40.0 38.1 35.6 35.6 35.6 35.6 35.6 35.6

Prepaids and Other CA (% of sales) 1.2% 0.6% 0.6% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5%

Current Liabilities

Days Payable Outstanding 39.5 47.2 48.7 39.6 39.6 39.6 39.6 39.6 39.6

Accrued Liabilities (% of sales) 1.4% 1.3% 1.3% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9%

Other Current Liabilities (% of sales) 5.8% 6.7% 6.4% 5.8% 5.8% 5.8% 5.8% 5.8% 5.8%


Page | 28


ExxonMobil Corporation Weighted Average Cost of Capital Analysis

($ in millions)

WACC Calculation

Comparable Companies Unlevered Beta

Target Capital Structure Predicted Market Market Debt/ Marginal Unlevered Debt-to-Total Capitalization 19.7% Company

Levered Beta (4)

Value of Debt

Value of Equity Equity Tax Rate Beta

Equity-to-Total Capitalization 80.3% Shell

1.19

$50,110.0

$155,972.0

32.1%

37.0%

0.99

Chevron 1.04

34,459.0

154,554.0

22.3%

28.0%

0.90

Exxon 1.09

37,796.0

191,794.0

19.7%

31.0%

0.96

Cost of Debt CompCo D -

-

-

- %

- %

-

Cost-of-Debt 2.0% CompCo E -

-

-

- %

- %

-

Tax Rate 35.0%

After-tax Cost of Debt 1.3% Mean 1.11

24.7%

0.95

Median 1.04

22.3%

0.90

Cost of Equity ExxonMobil Relevered Beta

Risk-free Rate (1) 2.5% Mean Target Target Market Risk Premium (2) 8.0% Unlevered Debt/ Marginal Relevered

Levered Beta 0.89 Beta Equity Tax Rate Beta

Size Premium (3) - % Relevered Beta

0.95

24.5%

35.0%

1.10

Cost of Equity 9.6%

WACC Sensitivity Analysis

Pre-tax Cost of Debt

WACC 8.0%

Deb

t-to

-To

tal

Cap

italizati

on

0.1 -1.0% -0.5% 0.0% 0.5% 1.0%

-20.0% 11.7% 11.6% 11.5% 11.5% 11.4%

-10.0% 10.6% 10.6% 10.6% 10.5% 10.5%

0.0% 9.6% 9.6% 9.6% 9.6% 9.6%

10.0% 8.6% 8.6% 8.6% 8.7% 8.7%

20.0% 7.6% 7.6% 7.7% 7.7% 7.8%


Page | 29


Discounted Cash Flow (DCF) Model for Royal Dutch Shell

Royal Dutch Shell Discounted Cash Flow Analysis ($ in millions, fiscal year ending December 31)

Operating Scenario

Operating Scenario 1

Mid-Year Convention N Historical Period CAGR Projection Period

2015 2016 2017 ('09 - '11) 2018 2019 2020 2021 2022 2023

Sales

$173,425.0

$173,120.0

$237,003.0 16.9%

$288,951.0

$352,289.1

$429,510.8

$523,659.6

$638,445.8

$778,393.1

% growth NA (0.2%)

36.9%

21.9%

21.9%

21.9%

21.9%

21.9%

21.9%

Cost of Goods Sold

149,534.0

143,123.0

195,713.0

242,019.0

295,069.6

359,748.8

438,605.8

534,748.1

651,964.9

Gross Profit

$23,891.0

$29,997.0

$41,290.0 31.5%

$46,932.0

$57,219.5

$69,762.0

$85,053.8

$103,697.6

$126,428.2

% margin

13.8%

17.3%

17.4%

16.2%

16.2%

16.2%

16.2%

16.2%

16.2%

Selling, General & Administrative 8,541.0

8,397.0

7,757.0

9,259.0

11,288.6

13,763.0

16,779.9

20,458.0

24,942.4

EBITDA

$15,350.0

$21,600.0

$33,533.0 47.8%

$37,673.0

$45,930.9

$55,999.0

$68,274.0

$83,239.6

$101,485.7

% margin

8.9%

12.5%

14.1%

13.0%

13.0%

13.0%

13.0%

13.0%

13.0%

Depreciation & Amortization

11,958.0

17,864.0

17,805.0

16,843.0

20,535.0

25,036.3

30,524.2

37,215.1

45,372.7

EBIT

$3,392.0

$3,736.0

$15,728.0 115.3%

$20,830.0

$25,395.9

$30,962.7

$37,749.8

$46,024.5

$56,113.1

% margin

2.0%

2.2%

6.6%

7.2%

7.2%

7.2%

7.2%

7.2%

7.2%

Taxes

1,187.2

1,307.6

5,504.8

7,290.5

8,888.6

10,837.0

13,212.4

16,108.6

19,639.6

EBIAT

$2,204.8

$2,428.4

$10,223.2 115.3%

$13,539.5

$16,507.4

$20,125.8

$24,537.3

$29,915.9

$36,473.5

Plus: Depreciation & Amortization 11,958.0

17,864.0

17,805.0

16,843.0

20,535.0

25,036.3

30,524.2

37,215.1

45,372.7

Less: Capital Expenditures

(17,104.0)

(16,391.0)

(16,186.0)

(17,257.0)

21,039.7

25,651.6

31,274.5

38,129.9

46,487.9

Less: (Inc.)/Dec in Net Working Capital 5,092.0

2,757.0

(2,859.0)

527.0

642.5

783.3

955.0

1,164.3


Page | 30


Unlevered Free Cash Flow

($2,941.2)

$8,993.4

$14,599.2

$10,266.5

$58,609.0

$71,456.1

$87,119.3

$106,215.9

$129,498.4

WACC

8.8%

Discount Period

1.0

2.0

3.0

4.0

5.0

Discount Factor

0.92

0.84

0.78

0.71

0.65


$60,310.3

$67,552.7

$75,664.7

$84,750.9



Terminal Year Free Cash Flow (2023E)

$129,498.4


Terminal Value Less: Preferred Stock 121.0

Terminal Value

$101,485.7

Terminal Year EBITDA (2023E)

$101,485.7

Less: Noncontrolling Interest -

Exit Multiple

1.0x

Plus: Cash and Cash Equivalents 20,996.0 Implied Perpetuity Growth Rate

(52.2%)

Terminal Value

$101,485.7

Discount Factor 0.65

Implied Equity Value $479,768.0 Implied EV/EBITDA

Present Value of Terminal Value

$66,417.9 Enterprise Value

$408,541.0

% of Enterprise Value 16.3%

Fully Diluted Shares Outstanding 8,349.0 LTM 9/30/2000 EBITDA

Enterprise Value

$408,541.0 Implied Share Price $57.46 Implied EV/EBITDA - x



408,541.0 -1.0x -0.5x 0.0x 0.5x 1.0x (0.5) -1.0x -0.5x 0.0x 0.5x 1.0x

WA

CC

-1.0% 361,923 415,281 468,639 521,997 575,355

WA

CC

-1.0% -458.7% -163.8% -

100.0% -

72.1% -56.5%

-0.5% 356,610 408,640 460,671 512,702 564,732 -0.5% -460.5% -164.1% -

100.0% -

72.0% -56.3%

0.0% 351,413 402,156 $452,899 503,642 554,384 0.0% -462.3% -164.4% -

100.0% -

71.8% -56.1%

0.5% 346,330 395,824 445,317 494,810 544,303 0.5% -464.1% -164.8% -

100.0% -

71.7% -55.8%

1.0% 341,359 389,639 437,919 486,199 534,479 1.0% -465.9% -165.1% -

100.0% -

71.6% -55.6%


Page | 31


Assumptions Years Sales (% growth)

2015 NA

2016 (0.2%)

2017 36.9%

2018 21.9%

2019 21.9%

2020 21.9%

2021 21.9%

2022 21.9%

2023 21.9%

COGS (% sales)

86.2%

82.7%

82.6%

83.8%

83.8%

83.8%

83.8%

83.8%

83.8%

SG&A (% sales)

4.9%

4.9%

3.3%

3.2%

3.2%

3.2%

3.2%

3.2%

3.2%


6.9%

10.3%

7.5%

5.8%

5.8%

5.8%

5.8%

5.8%

5.8%


9.9%

9.5%

6.8%

6.0%

(6.0%)

(6.0%)

(6.0%)

(6.0%)

(6.0%)

Tax Rate

35.0%

35.0%

35.0%

35.0%

35.0%

35.0%

35.0%

35.0%

35.0%


0.8%

0.8%

0.8%

0.8%

0.8%

Royal Dutch Shell

Royal Dutch Shell Sensitivity Analysis ($ in millions, fiscal year ending December 31)



408,541.0 -1.0x -0.5x 0.0x 0.5x 1.0x 479,768.0 -1.0x -0.5x 0.0x 0.5x 1.0x

WA

CC

-1.0% 361,923 415,281 468,639 521,997 575,355

WA

CC

-1.0% 433,150 486,508 539,866 593,224 646,582

-0.5% 356,610 408,640 460,671 512,702 564,732 -0.5% 427,837 479,867 531,898 583,929 635,959

0.0% 351,413 402,156 $452,899 503,642 554,384 0.0% 422,640 473,383 $524,126 574,869 625,611

0.5% 346,330 395,824 445,317 494,810 544,303 0.5% 417,557 467,051 516,544 566,037 615,530

1.0% 341,359 389,639 437,919 486,199 534,479 1.0% 412,586 460,866 509,146 557,426 605,706



(0.5) -1.0x -0.5x 0.0x 0.5x 1.0x - x 6.5x 7.0x 0.0x 0.5x 1.0x

WA

CC

-1.0% -458.7% -163.8% -100.0% -72.1% -56.5%

WA

CC

-1.0% - x - x - x - x - x

-0.5% -460.5% -164.1% -100.0% -72.0% -56.3% -0.5% - x - x - x - x - x

0.0% -462.3% -164.4% -100.0% -71.8% -56.1% 0.0% - x - x - x - x - x

0.5% -464.1% -164.8% -100.0% -71.7% -55.8% 0.5% - x - x - x - x - x

1.0% -465.9% -165.1% -100.0% -71.6% -55.6% 1.0% - x - x - x - x - x


Page | 32


Discounted Cash Flow Analysis ($ in millions, fiscal year ending December 31)

Operating Scenario


2015 2016 2017 ('09 - '11) 2018 2019 2020 2021 2022 2023

Sales

$264,960.0

$233,591.0

$305,179.0 7.3%

$388,379.0

$494,261.6

$629,010.5

$800,495.7

$1,018,732.4

$1,296,466.2

% growth NA

(11.8%)

30.6%

27.3%

27.3%

27.3%

27.3%

27.3%

27.3%

Cost of Goods Sold

222,739.0

191,008.0

250,099.0

321,369.0

408,982.8

520,482.5

662,380.1

842,962.7

1,072,777.0

Gross Profit

$42,221.0

$42,583.0

$55,080.0 14.2%

$67,010.0

$85,278.7

$108,528.0

$138,115.7

$175,769.7

$223,689.2

% margin

15.9%

18.2%

18.0%

17.3%

17.3%

17.3%

17.3%

17.3%

17.3%


12,101.0

10,509.0

11,360.0

14,457.0

18,398.4

23,414.3

29,797.7

37,921.4

EBITDA

$30,265.0

$30,482.0

$44,571.0 21.4%

$55,650.0

$70,821.7

$90,129.6

$114,701.3

$145,972.0

$185,767.9

% margin

11.4%

13.0%

14.6%

14.3%

14.3%

14.3%

14.3%

14.3%

14.3%


26,714.0

24,993.0

26,223.0

22,135.0

28,169.6

35,849.4

45,622.9

58,060.9

73,889.9

EBIT

$3,551.0

$5,489.0

$18,348.0 127.3%

$33,515.0

$42,652.1

$54,280.2

$69,078.4

$87,911.1

$111,878.0

% margin

1.3%

2.3%

6.0%

8.6%

8.6%

8.6%

8.6% 8.6% 8.6%

Taxes

1,242.9

1,921.2

6,421.8

11,730.3

14,928.2

18,998.1

24,177.5

30,768.9

39,157.3

EBIAT

$2,308.2

$3,567.9

$11,926.2 127.3%

$21,784.8

$27,723.9

$35,282.1

$44,901.0

$57,142.2

$72,720.7


24,993.0

26,223.0

22,135.0

28,169.6

35,849.4

45,622.9

58,060.9

73,889.9


(896.0)

(22,116.0)

(20,845.0)

(23,011.0)

29,284.4

37,268.1

47,428.4

60,358.7

76,814.1

Less: (Inc.)/Dec in Net Working Capital 3,098.0

4,022.0

(4,058.0)

834.8

1,062.4

1,352.0

1,720.6

2,189.7


$28,126.2

$9,542.9

$21,326.2

$16,850.8

$86,012.7

$109,462.0

$139,304.3

$177,282.4

$225,614.4

WACC

9.1%

Discount Period

1.0

2.0

3.0

4.0

5.0

Discount Factor

0.92

0.84

0.77

0.71

0.65


Page | 33



$91,982.8

$107,307.3

$125,184.9

$146,040.9





Terminal Value Less: Preferred Stock -

Terminal Value $185,767.9


$185,767.9


Exit Multiple 1.0x


(50.7%)

Terminal Value

$185,767.9

Discount Factor 0.65

Implied Equity Value $777,063.9 Implied EV/EBITDA

Present Value of Terminal Value

$120,248.2 Enterprise Value $669,610.9

% of Enterprise Value 18.0%

Fully Diluted Shares Outstanding 4,174.4 LTM 9/30/2000 EBITDA

Enterprise Value

$669,610.9 Implied Share Price $186.15 Implied EV/EBITDA - x



669,610.9 -1.0x -0.5x 0.0x 0.5x 1.0x (0.5) -1.0x -0.5x 0.0x 0.5x 1.0x

WA

CC

-1.0% 568,589 666,260 763,931 861,601 959,272

WA

CC

-1.0% -561.5% -169.3% -

100.0% -

71.1% -55.3%

-0.5% 560,155 655,397 750,638 845,879 941,120 -0.5% -563.9% -169.6% -

100.0% -

71.0% -55.1%

0.0% 551,908 644,792 $737,676 830,560 923,444 0.0% -566.2% -170.0% -

100.0% -

70.8% -54.8%

0.5% 543,841 634,438 725,034 815,630 906,227 0.5% -568.5% -170.3% -

100.0% -

70.7% -54.6%

1.0% 535,951 624,327 712,703 801,079 889,455 1.0% -570.9% -170.7% -

100.0% -

70.5% -54.4%


Page | 34


Assumptions Years Sales (% growth)

2015 NA

2016 (11.8%)

2017 30.6%

2018 27.3%

2019 27.3%

2020 27.3%

2021 27.3%

2022 27.3%

2023 27.3%

COGS (% sales)

84.1%

81.8%

82.0%

82.7%

82.7%

82.7%

82.7%

82.7%

82.7%

SG&A (% sales)

4.5%

5.2%

3.4%

2.9%

2.9%

2.9%

2.9%

2.9%

2.9%


10.1%

10.7%

8.6%

5.7%

5.7%

5.7%

5.7%

5.7%

5.7%


0.3%

9.5%

6.8%

5.9%

(5.9%)

(5.9%)

(5.9%)

(5.9%)

(5.9%)

Tax Rate

35.0%

35.0%

35.0%

35.0%

35.0%

35.0%

35.0%

35.0%

35.0%


0.8%

0.8%

0.8%

0.8%

0.8%

Royal Dutch Shell Sensitivity Analysis ($ in millions, fiscal year ending

December 31)



669,610.9 -1.0x -0.5x 0.0x 0.5x 1.0x 777,063.9 -1.0x -0.5x 0.0x 0.5x 1.0x

WA

CC

-1.0% 568,589 666,260 763,931 861,601 959,272

WA

CC

-1.0% 676,042 773,713 871,384 969,054 1,066,725 -0.5% 560,155 655,397 750,638 845,879 941,120 -0.5% 667,608 762,850 858,091 953,332 1,048,573

0.0% 551,908 644,792 $737,676 830,560 923,444 0.0% 659,361 752,245 $845,129 938,013 1,030,897 0.5% 543,841 634,438 725,034 815,630 906,227 0.5% 651,294 741,891 832,487 923,083 1,013,680 1.0% 535,951 624,327 712,703 801,079 889,455 1.0% 643,404 731,780 820,156 908,532 996,908



(0.5) -1.0x -0.5x 0.0x 0.5x 1.0x - x 6.5x 7.0x 0.0x 0.5x 1.0x

WA

CC

-1.0% -561.5% -169.3% -100.0% -71.1% -55.3%

WA

CC

-1.0% - x - x - x - x - x -0.5% -563.9% -169.6% -100.0% -71.0% -55.1% -0.5% - x - x - x - x - x

0.0% -566.2% -170.0% -100.0% -70.8% -54.8% 0.0% - x - x - x - x - x 0.5% -568.5% -170.3% -100.0% -70.7% -54.6% 0.5% - x - x - x - x - x 1.0% -570.9% -170.7% -100.0% -70.5% -54.4% 1.0% - x - x - x - x - x


Page | 35



Exit Multiple

0.2 6.5x 7.0x 7.5x 8.0x 8.5x

WA

CC

-1.0% 62.4% 64.2% 65.7% 67.2% 68.5%

-0.5% 62.3% 64.0% 65.6% 67.0% 68.3%

0.0% 62.1% 63.8% 65.4% 66.8% 68.2%

0.5% 61.9% 63.6% 65.2% 66.7% 68.0%

1.0% 61.7% 63.5% 65.0% 66.5% 67.8%




Less: Preferred Securities -




Options/Warrants



Tranche 1 4,174.350 - 4,174.350 -

Tranche 2 - - - -

Tranche 3 - - - -

Tranche 4 - - - -

Tranche 5 - - - -

Total 4,174.350 - 4,174.350 -





Page | 36


Royal Dutch Shell Working Capital Projections

($ in millions, fiscal year ending December 31)


2015 2016 2017 2018 2019 2020 2021 2022 2023

Sales $264,960.0 $233,591.0 $305,179.0 $388,379.0 $494,261.6 $629,010.5 $800,495.7 $1,018,732.4 $1,296,466.2

Cost of Goods Sold 222,739.0 191,008.0 250,099.0 321,369.0 408,982.8 520,482.5 662,380.1 842,962.7 1,072,777.0

Current Assets

Accounts Receivable 45,664.0 49,869.0 42,431.0 53,998.8 68,720.4 87,455.4 111,298.1 141,640.9

Inventories 21,775.0 25,223.0 21,117.0 26,874.1 34,200.7 43,524.7 55,390.7 70,491.7

Prepaid Expenses and Other - - - 7,193.0 9,154.0 11,649.6 14,825.6 18,867.5 24,011.3

Total Current Assets - $67,439.0 $75,092.0 $70,741.0 $90,026.9 $114,570.7 $145,805.7 $185,556.2 $236,143.9

Current Liabilities

Accounts Payable 53,417.0 56,663.0 48,888.0 62,216.2 79,178.0 100,764.0 128,235.0 163,195.3

Accrued Liabilities 10,924.0 11,309.0 18,791.0 23,913.9 30,433.5 38,730.5 49,289.5 62,727.1

Other Current Liabilities - - - - - - - -

Total Current Liabilities - $64,341.0 $67,972.0 $67,679.0 $86,130.1 $109,611.5 $139,494.5 $177,524.5 $225,922.5

Net Working Capital - $3,098.0 $7,120.0 $3,062.0 $3,896.8 $4,959.2 $6,311.1 $8,031.7 $10,221.4

% sales - 1.3% 2.3% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8%

Increase / (Decrease) in NWC NA $3,098.0 $4,022.0 ($4,058.0) $834.8 $1,062.4 $1,352.0 $1,720.6 $2,189.7






Page | 37


Assumptions Current Assets 2015 2016 2017 2018 2019 2020 2021 2022 2023

Days Sales Outstanding - 71.4 59.6 39.9 39.9 39.9 39.9 39.9 39.9

Days Inventory Held - 41.6 36.8 24.0 24.0 24.0 24.0 24.0 24.0

Prepaids and Other CA (% of sales) - % - % - % 1.9% 1.9% 1.9% 1.9% 1.9% 1.9%

Current Liabilities

Days Payable Outstanding - 102.1 82.7 55.5 55.5 55.5 55.5 55.5 55.5

Accrued Liabilities (% of sales) - % 4.7% 3.7% 4.8% 4.8% 4.8% 4.8% 4.8% 4.8%

Other Current Liabilities (% of sales) - % - % - % - % - % - % - % - % - %

Royal Dutch Shell Weighted Average Cost of Capital Analysis

($ in millions)

WACC Calculation


Target Capital Structure Predicted Market Market Debt/ Marginal Unlevered

Debt-to-Total Capitalization

37.9% Company Levered Beta (4)

Value of Debt



1.19

$76,824.0

$202,534.0

37.9%

37.0%

0.96

Chevron 1.04

34,459.0

154,554.0

22.3%

28.0%

0.90

Exxon 1.09

37,796.0

191,794.0

19.7%

31.0%

0.96

Cost of Debt Imperial Oil -

-

-

- %

- %

-

Cost-of-Debt

2.0% Total

-

-

-

- %

- %

-

Tax Rate

35.0%

After-tax Cost of Debt

1.3% Mean 1.11

26.6%

0.94

Median 1.04

19.7%

0.90

Cost of Equity Shell Relevered Beta

Risk-free Rate (1)

2.5% Mean Target Target


Page | 38


Market Risk Premium (2)

8.0% Unlevered Debt/ Marginal Relevered

Levered Beta

1.31 Beta Equity Tax Rate Beta

Size Premium (3)

- % Relevered Beta

0.94

61.1% 35.0% 1.31

Cost of Equity

13.0%



WACC

8.6%

Deb

t-to

-To

tal

Cap

italizati

on

0.1 -1.0% -0.5% 0.0% 0.5% 1.0%

-20.0% 11.2% 11.1% 11.0% 11.0% 10.9%

-10.0% 10.6% 10.6% 10.5% 10.5% 10.5%

0.0% 10.0% 10.0% 10.0% 10.0% 10.0%

10.0% 9.4% 9.5% 9.5% 9.5% 9.6%

20.0% 8.9% 8.9% 9.0% 9.0% 9.1%


Page | 39


Discounted Cash Flow (DCF) Model for Chevron

Chevron Corporation Discounted Cash Flow Analysis ($ in millions, fiscal year ending December 31)

Operating Scenario


2015 2016 2017 ('09 - '11) 2018 2019 2020 2021 2022 2023

Sales

$129,648.0

$110,484.0

$134,779.0 2.0%

$158,767.0

$187,027.5

$220,318.4

$259,535.1

$305,732.4

$360,152.7

% growth NA (14.8%)

22.0%

17.8%

17.8%

17.8%

17.8%

17.8%

17.8%

Cost of Goods Sold

93,846.0

80,102.0

95,549.0

115,612.0

136,190.9

160,432.9

188,990.0

222,630.2

262,258.4

Gross Profit

$35,802.0

$30,382.0

$39,230.0 4.7%

$43,155.0

$50,836.6

$59,885.5

$70,545.1

$83,102.2

$97,894.3

% margin

27.6%

27.5%

29.1%

27.2%

27.2%

27.2%

27.2%

27.2%

27.2%


4,601.0

4,758.0

4,398.0

5,180.8

6,103.0

7,189.4

8,469.1

9,976.6

EBITDA

$31,359.0

$25,781.0

$34,472.0 4.8%

$38,757.0

$45,655.7

$53,782.5

$63,355.7

$74,633.1

$87,917.8

% margin

24.2%

23.3%

25.6%

24.4%

24.4%

24.4%

24.4%

24.4%

24.4%


23,346.0

19,946.0

19,547.0

20,106.0

23,684.9

27,900.8

32,867.1

38,717.5

45,609.2

EBIT

$8,013.0

$5,835.0

$14,925.0 36.5%

$18,651.0

$21,970.9

$25,881.7

$30,488.6

$35,915.6

$42,308.6

% margin

6.2%

5.3%

11.1%

11.7%

11.7%

11.7%

11.7%

11.7%

11.7%

Taxes

2,804.6

2,042.3

5,223.8

6,527.9

7,689.8

9,058.6

10,671.0

12,570.5

14,808.0

EBIAT

$5,208.5

$3,792.8

$9,701.3 36.5%

$12,123.2

$14,281.1

$16,823.1

$19,817.6

$23,345.1

$27,500.6


19,946.0

19,547.0

20,106.0

23,684.9

27,900.8

32,867.1

38,717.5

45,609.2


(0.2)

(0.2)

(0.1)

(0.1)

16,177.9

19,057.5

22,449.8

26,445.8

31,153.2

Less: (Inc.)/Dec in Net Working Capital (885.0)

(885.0)

1,102.0

336.4

396.3

466.8

549.9

647.8


$28,554.2

$22,853.6

$28,363.2

$33,331.1

$54,480.2

$64,177.7

$75,601.4

$89,058.4

$104,910.8

WACC

8.8%


Page | 40


Discount Period 1.0 2.0 3.0 4.0 5.0 Discount Factor 0.92 0.84 0.78 0.71 0.66


$54,209.7

$58,690.6

$63,541.8

$68,794.1


Cumulative Present Value of FCF

$295,307.1 Enterprise Value $295,307.1



Terminal Value Less: Preferred Stock 17,112.0

Terminal Value -


$87,917.8

Less: Noncontrolling Interest (36.0)

Exit Multiple - x


(100.0%)

Terminal Value -

Discount Factor 0.66 Implied Equity Value $357,528.1 Implied EV/EBITDA

Present Value of Terminal Value - Enterprise Value $295,307.1

% of Enterprise Value -

Fully Diluted Shares Outstanding 1,914.0 LTM 9/30/2000 EBITDA 33,890.0

Enterprise Value

$295,307.1 Implied Share Price $186.80 Implied EV/EBITDA 8.7x



295,307.1 -1.0x -0.5x 0.0x 0.5x 1.0x (1.0) -1.0x -0.5x 0.0x 0.5x 1.0x

WA

CC

-1.0% 309,007 355,232 401,456 447,680 493,905

WA

CC

-1.0% -612.2% -171.4% -

100.0% -

70.8% -54.9%

-0.5% 304,612 349,686 394,761 439,835 484,910 -0.5% -614.8% -171.8% -

100.0% -

70.6% -54.6%

0.0% 300,311 344,270 $388,229 432,187 476,146 0.0% -617.4% -172.1% -

100.0% -

70.5% -54.4%

0.5% 296,102 338,978 381,855 424,731 467,607 0.5% -620.0% -172.5% -

100.0% -

70.3% -54.2%

1.0% 291,984 333,809 375,634 417,460 459,285 1.0% -622.5% -172.8% -

100.0% -

70.2% -54.0%


Page | 41


Assumptions Year Sales (% growth)

2015 NA

2016 (14.8%)

2017 22.0%

2018 17.8%

2019 17.8%

2020 17.8%

2021 17.8%

2022 17.8%

2023 17.8%

COGS (% sales)

72.4%

72.5%

70.9%

72.8%

72.8%

72.8%

72.8%

72.8%

72.8%

SG&A (% sales)

3.4%

4.2%

3.5%

2.8%

2.8%

2.8%

2.8%

2.8%

2.8%


18.0%

18.1%

14.5%

12.7%

12.7%

12.7%

12.7%

12.7%

12.7%


0.0%

0.0%

0.0%

0.0%

(8.7%)

(8.7%)

(8.7%)

(8.7%)

(8.7%)

Tax Rate

35.0%

35.0%

35.0%

35.0%

35.0%

35.0%

35.0%

35.0%

35.0%


1.2%

1.2%

1.2%

1.2%

1.2%

Chevron Corporation Sensitivity Analysis ($ in millions, fiscal year ending December 31)



295,307.1 -1.0x -0.5x 0.0x 0.5x 1.0x 357,528.1 -1.0x -0.5x 0.0x 0.5x 1.0x

WA

CC

-1.0% 309,007 355,232 401,456 447,680 493,905

WA

CC

-1.0% 371,228 417,453 463,677 509,901 556,126

-0.5% 304,612 349,686 394,761 439,835 484,910 -0.5% 366,833 411,907 456,982 502,056 547,131

0.0% 300,311 344,270 $388,229 432,187 476,146 0.0% 362,532 406,491 $450,450 494,408 538,367

0.5% 296,102 338,978 381,855 424,731 467,607 0.5% 358,323 401,199 444,076 486,952 529,828

1.0% 291,984 333,809 375,634 417,460 459,285 1.0% 354,205 396,030 437,855 479,681 521,506



(1.0) -1.0x -0.5x 0.0x 0.5x 1.0x 8.7 6.5x 7.0x 0.0x 0.5x 1.0x

WA

CC

-1.0% -612.2% -171.4% -100.0% -70.8% -54.9%

WA

CC

-1.0% 29.6x 30.9x 11.8x 13.2x 14.6x

-0.5% -614.8% -171.8% -100.0% -70.6% -54.6% -0.5% 28.9x 30.3x 11.6x 13.0x 14.3x

0.0% -617.4% -172.1% -100.0% -70.5% -54.4% 0.0% 28.3x 29.6x 11.5x 12.8x 14.0x

0.5% -620.0% -172.5% -100.0% -70.3% -54.2% 0.5% 27.7x 29.0x 11.3x 12.5x 13.8x

1.0% -622.5% -172.8% -100.0% -70.2% -54.0% 1.0% 27.1x 28.4x 11.1x 12.3x 13.6x


Exit Multiple


Page | 42


0.0 6.5x 7.0x 7.5x 8.0x 8.5x

WA

CC

-1.0% 59.9% 61.7% 63.3% 64.8% 66.2%

-0.5% 59.7% 61.5% 63.1% 64.6% 66.0%

0.0% 59.5% 61.3% 62.9% 64.4% 65.8%

0.5% 59.3% 61.1% 62.7% 64.2% 65.6%

1.0% 59.1% 60.9% 62.5% 64.0% 65.4%




Less: Preferred Securities 17,112.0

Less: Noncontrolling Interest (36.0)



Options/Warrants



Tranche 1 1,914.000 1,914.000 -

Tranche 2 - - - -

Tranche 3 - - - -

Tranche 4 - - - -

Tranche 5 - - - -

Total 1,914.000 - 1,914.000 -









Page | 43


Chevron Corporation Working Capital Projections ($ in millions, fiscal year ending December 31)


2015 2016 2017 2018 2019 2020 2021 2022 2023

Sales $129,648.0 $110,484.0 $134,779.0 $158,767.0 $187,027.5 $220,318.4 $259,535.1 $305,732.4 $360,152.7

Cost of Goods Sold 93,846.0 80,102.0 95,549.0 115,612.0 136,190.9 160,432.9 188,990.0 222,630.2 262,258.4

Current Assets

Accounts Receivable 12,860.0 14,092.0 15,353.0 15,050.0 17,728.9 20,884.6 24,602.1 28,981.3 34,140.0

Inventories 6,334.0 5,419.0 5,585.0 5,704.0 6,719.3 7,915.3 9,324.3 10,984.0 12,939.2

Prepaid Expenses and Other 3,904.0 3,107.0 2,395.0 2,581.0 3,040.4 3,581.6 4,219.1 4,970.1 5,854.8

Total Current Assets $23,098.0 $22,618.0 $23,333.0 $23,335.0 $27,488.6 $32,381.6 $38,145.5 $44,935.4 $52,933.9

Current Liabilities

Accounts Payable 13,516.0 13,986.0 14,565.0 13,953.0 16,436.6 19,362.4 22,808.9 26,868.8 31,651.5

Accrued Liabilities 1,073.0 1,050.0 1,600.0 1,628.0 1,917.8 2,259.1 2,661.3 3,135.0 3,693.0

Other Current Liabilities 5,951.0 5,909.0 6,380.0 5,864.0 6,907.8 8,137.4 9,585.8 11,292.1 13,302.1

Total Current Liabilities $20,540.0 $20,945.0 $22,545.0 $21,445.0 $25,262.2 $29,758.9 $35,056.0 $41,295.9 $48,646.6

Net Working Capital $2,558.0 $1,673.0 $788.0 $1,890.0 $2,226.4 $2,622.7 $3,089.6 $3,639.5 $4,287.3

% sales 2.0% 1.5% 0.6% 1.2% 1.2% 1.2% 1.2% 1.2% 1.2%

Increase / (Decrease) in NWC NA ($885.0)

($885.0) $1,102.0 $336.4 $396.3 $466.8 $549.9 $647.8


Page | 44


Chevron Corporation

Weighted Average Cost of Capital Analysis

($ in millions)

WACC Calculation


Target Capital Structure Predicted Market Market Debt/ Marginal Unlevered

Debt-to-Total Capitalization

22.3% Company Levered Beta (4)

Value of Debt



1.19

$50,110.0

$155,972.0

32.1%

37.0% 0.99

Chevron 1.04

34,459.0

154,554.0

22.3%

28.0% 0.90

Exxon 1.09

37,796.0

191,794.0

19.7%

31.0% 0.96

Cost of Debt CompCo D -

-

-

- %

- % -

Cost-of-Debt

2.0% CompCo E

-

-

-

- %

- % -

Tax Rate

35.0%

After-tax Cost of Debt

1.3% Mean 1.11

14.8% 0.95

Median 1.04

19.7% 0.90

Assumptions

Current Assets 2015 2016 2017 2018 2019 2020 2021 2022 2023

Days Sales Outstanding 36.2 46.6 41.6 34.6 34.6 34.6 34.6 34.6 34.6

Days Inventory Held 24.6 24.7 21.3 18.0 18.0 18.0 18.0 18.0 18.0

Prepaids and Other CA (% of sales)

3.0% 2.8% 1.8% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6%

Current Liabilities

Days Payable Outstanding 52.6 63.7 55.6 44.1 44.1 44.1 44.1 44.1 44.1

Accrued Liabilities (% of sales)

0.8% 1.0% 1.2% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%

Other Current Liabilities (% of sales)

4.6% 5.3% 4.7% 3.7% 3.7% 3.7% 3.7% 3.7% 3.7%


Page | 45


Cost of Equity Chevron Relevered Beta

Risk-free Rate (1)

2.5% Mean Target Target

Market Risk Premium (2)

8.0% Unlevered Debt/ Marginal Relevered

Levered Beta

1.06 Beta Equity Tax Rate Beta

Size Premium (3)

- % Relevered Beta

0.95

28.7%

35.0%

1.13

Cost of Equity

11.0%



WACC

8.8%

Deb

t-to

-To

tal

Cap

italizati

on

0.1 -1.0% -0.5% 0.0% 0.5% 1.0%

-20.0% 13.3% 13.2% 13.2% 13.1% 13.0%

-10.0% 12.1% 12.1% 12.1% 12.0% 12.0%

0.0% 11.0% 11.0% 11.0% 11.0% 11.0%

10.0% 9.8% 9.8% 9.9% 9.9% 9.9%

20.0% 8.6% 8.7% 8.8% 8.8% 8.9%

CONCLUSION

Discounted Cash flow valuation can be used as an appropriate methodology to assess a company’s intrinsic value; particularly, when there is limited

information in peer companies’ valuation. This paper focuses on valuations of three companies in the energy sector: ExxonMobil, Royal Dutch Shell, and

Chevron. The three companies engage in hydrocarbon exploration, refining, transportation, and marketing of their products.

Financial ratios for these companies were calculated from 10-K reports. It shows that the capital structure of the three companies are very similar (20% debt

and 80% equity). Therefore, the financial leverage ratio is 2:1 average asset over equity. The return on equity (ROE) is roughly around 10%, which is an average

value for energy company. ROE is a measure of profitability for a company, and here it shows a moderate profitability for these companies. Coverage ratio is a

measure that the company can meet its obligations such as debt, loans, and interests. The higher the coverage ratio the more the company can meet its

financial obligation. ExxonMobil, Shell, and Chevron have a very high coverage ratios which indicates the companies have the ability to pay their debts with

the current earnings. Chevron and Exxon have historically shown a higher coverage ratio than Royal Dutch Shell.


Page | 46


Liquidity analysis shows how the company can manage its debt and pay them off quickly with the

current cash and assets. ExxonMobil in comparison with Chevron and Shell has shown a weaker

current ratio. This shows that ExxonMobil may have problems to meet its short-term obligations.

Productivity analysis shows how quickly the company can turn its assets, and convert it into sales or

cash. Shell and Chevron have a similar productivity in terms of the number of days. However,

ExxonMobil seems to have a higher productivity when compared with Shell and Chevron.

Enterprise valuation is estimating the projected cash flows based on the assumptions from historical

performance of the target company. Thus, the projection for ExxonMobil, Shell, and Chevron was for a

period of five years (2019 - 2023). The WACC, which was calculated based on the target company

capital structure and interest rate of the debt and equity, was used as the discount rate. Finally, the

terminal value was determined based on the present value of the future free cash flows that will be

produced by the target company. Two methods can be used for calculating the target’s terminal value:

1) Exit multiplier; and 2) the perpetuity growth method. The exit multiplier can be typically obtained by

using comparison among similar companies; whereas, the perpetuity growth rate can be assumed

based on the presumed growth rate; in general, it can be assumed as 2% or 3% based on 4% - 5%

historical GDP growth rate. In this paper, the perpetuity growth rate method was used.

The standalone intrinsic value of ExxonMobil and Shell were estimated to their market value.

Chevron, on the other hand, is over-estimated from the market value (Figure 14). The reason for

overestimation of Chevron’s enterprise value might be due to the overestimation of Chevron’s stock. In

addition, since this valuation is completed based on the financial statements of the target companies, it

can be concluded that the history of the companies (ExxonMobil, Shell, and Chevron) is not projecting

the same performance in the future if crude oil prices increases or decreases.

Figure 14. Valuation football field plot for ExxonMobil, Shell, and Chevron (Y-axis represents company

name, and X-axis shows share price).


Page | 47


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APPENDIX-1

Table 1. ExxonMobil Statement of Income

Fiscal year is January-December. All values USD Millions. 2,018 2,017 2,016 2,015 2,014

Sales/Revenue $ 279,202 $ 237,156 $ 200,628 $ 236,810 $ 364,763

Cost of Goods Sold (COGS) incl. D&A 212,245 180,485 159,873 185,161 285,797

COGS excluding D&A 194,200 162,592 137,565 167,113 268,500

Depreciation & Amortization Expense 18,045 17,893 22,308 18,048 17,297

Depreciation 18,045 17,893 22,308 18,048 17,297

Gross Income 66,957 56,671 40,755 51,649 78,966

SG&A Expense 12,765 12,394 10,799 10,961 12,002

Research & Development 1,116 1,063

1,058 1,008 971

Other SG&A 11,649 11,331 9,741 9,953 11,031

Other Operating Expense 32,663 30,104 29,020 27,805 32,882

EBIT 21,529 14,173 936 12,883 34,082

Unusual Expense 700 2,000 - - -

Non Operating Income/Expense 3,535 1,722 2,680 1,750 4,511

Equity in Affiliates (Pretax) 7,355 5,380 4,806 7,644 13,323

Interest Expense 766 601 453 311 286

Gross Interest Expense 1,418 1,350 1,161 793 630

Interest Capitalized 652 749 708 482 344

https://www.shell.com/about-us/our-heritage/our-company-history.html


Page | 49


Pretax Income 30,953 18,674 7,969 21,966 51,630

Income Tax 9,532 -1,174 -406 5,415 18,015

Income Tax - Current Domestic 627 514 -25 26 957

Income Tax - Current Foreign 9,001 6,633 3,842 7,126 14,760

Income Tax - Deferred Domestic 518 -9,075 -2,801 -1,166 900

Income Tax - Deferred Foreign - 614 754 -1,422 -571 1,398

Consolidated Net Income 21,421 19,848 8,375 16,551 33,615

Minority Interest Expense 581 138 535 401 1,095

Net Income 20,840 19,710 7,840 16,150 32,520

Net Income After Extraordinaries 20,840 19,710 7,840 16,150 32,520

Net Income Available to Common 20,840 19,710 7,840 16,150 32,520

EPS (Basic) 5 5 2 4 8

Basic Shares Outstanding 4,270 4,256 4,177 4,196 4,282

EPS (Diluted) 5 5 2 4 8

Diluted Shares Outstanding 4,270 4,256 4,177 4,196 4,282

EBITDA 39,574 32,066 23,244 30,931 51,379

EBIT 21,529 - - 12,883 34,082

Table 2. ExxonMobil Balance Sheet.

Fiscal year is January-December. All values USD Millions.

2018 2017 2016 2015 2014

Assets

Cash & Short Term Investments $ 3,042 $ 3,177 $ 3,657 $ 3,705 $ 4,658

Cash Only 3,042 3,177 3,657 3,705 4,658

Total Accounts Receivable 24,701 25,597 21,394 19,875 28,009

Accounts Receivables, Net 19,638 21,274 16,033 13,243 18,541

Accounts Receivables, Gross 20,038 21,885 16,735 13,354 18,702

Bad Debt/Doubtful Accounts - 400 - 611 -702 -111 -161

Other Receivables 5,063 4,323 5,361 6,632 9,468

Inventories 18,958 16,992 15,080 16,245 16,678

Finished Goods 14,803 12,871 10,877 12,037 12,384

Raw Materials 4,155 4,121 4,203 4,208 4,294

Other Current Assets 1,272 1,368 1,285 2,798 3,565

Miscellaneous Current Assets 1,272 1,368 1,285 2,798 3,565

Total Current Assets 47,973 47,134 41,416 42,623 52,910

Net Property, Plant & Equipment 247,101 252,630 244,224 251,605 252,668

change in net PPE


Page | 50


Property, Plant & Equipment - Gross 477,190 477,185 453,915 447,337 446,789

Other Property, Plant & Equipment 477,190 477,185 453,915 447,337 446,789

Accumulated Depreciation 230,089 224,555 209,691 195,732 194,121

Other Property, Plant & Equipment 230,089 224,555 209,691 195,732 194,121

Total Investments and Advances 40,790 39,160 35,102 34,245 35,239

LT Investment - Affiliate Companies 34,990 33,466 30,253 29,447 29,835

Other Long-Term Investments 5,800 5,694 4,849 4,798 5,404

Other Assets 7,123 6,449 5,452 4,864 4,721

Tangible Other Assets 7,123 6,449 5,452 4,864 4,721

Total Assets 346,196 348,691 330,314 336,758 349,493

Liabilities & Shareholders' Equity

ST Debt & Current Portion LT Debt 17,258 17,930 13,830 18,762 17,468

Short Term Debt 13,188 13,164 10,870 18,204 16,698

Current Portion of Long-Term Debt 4,070 4,766 2,960 558 770

Accounts Payable 21,063 21,701 17,801 18,074 25,286

Income Tax Payable 2,612 3,045 2,615 3,348 5,389

Other Current Liabilities 16,205 15,095 13,392 13,792 16,490

Miscellaneous Current Liabilities 16,205 15,095 13,392 13,792 16,490

Total Current Liabilities 57,138 57,771 47,638 53,976 64,633

Long-Term Debt 20,538 24,406 28,932 19,925 11,653

Long-Term Debt excl. Capitalized Leases 19,235 23,079 27,707 18,687 11,278

Non-Convertible Debt 19,235 23,079 27,707 18,687 11,278

Capitalized Lease Obligations 1,303 1,327 1,225 1,238 375

Provision for Risks & Charges 31,457 33,060 33,032 35,480 38,171

Deferred Taxes 24,035 23,575 29,921 33,397 35,275

Deferred Taxes - Credit 27,244 26,893 34,041 36,818 39,230

Deferred Taxes - Debit 3,209 3,318 4,120 3,421 3,955

Other Liabilities 11,291 12,061 12,841 13,749 14,742

Other Liabilities (excl. Deferred Income) 11,291 12,061 12,841 13,749 14,742

Total Liabilities 147,668 154,191 156,484 159,948 168,429

Common Equity (Total) 191,794 187,688 167,325 170,811 174,399

Common Stock Par/Carry Value 15,258 14,656 12,157 11,612 10,792

Retained Earnings 421,653 414,540 407,831 412,444 408,384

Cumulative Translation Adjustment/Unrealized For. Exch. Gain

-13,881 - 9,482 -14,501 -14,170 - 5,952

Unrealized Gain/Loss Marketable Securities - - - - - 60

Other Appropriated Reserves -5,683 -6,780 - 7,738 - 9,341 -12,945

Treasury Stock - 225,553 -225,246 - 230,424 - 229,734 -225,820

Total Shareholders' Equity 191,794 187,688 167,325 170,811 174,399

Accumulated Minority Interest 6,734 6,812 6,505 5,999 6,665

Total Equity 198,528 194,500 173,830 176,810 181,064

Liabilities & Shareholders' Equity 346,196 348,691 330,314 336,758 349,493


Page | 51


Table 3. ExxonMobil Statement of Cash Flows Fiscal year is January-December. All values USD Millions.

2018 2017 2016 2015 2014

Operating Activities

Net Income before Extraordinaries $ 21,421 $ 19,848 $ 8,375 $ 16,551 $ 33,615

Depreciation, Depletion & Amortization 18,045 17,893 22,308 18,048 17,297

Depreciation and Depletion 18,045 17,893 22,308 18,048 17,297

Deferred Taxes & Investment Tax Credit -60 - 8,577 -4,386 -1,832 1,540

Deferred Taxes -60 -8,577 -4,386 -1,832 1,540

Other Funds -1,975 2,322 -2,609 856 -1,581

Funds from Operations 37,431 31,486 23,688 33,623 50,871

Changes in Working Capital -1,417 -1,420 -1,606 -3,279 -5,755

Receivables - 545 -3,954 - 2,090 4,692 3,118

Inventories -3,107 -1,682 -388 -379 -1,343

Accounts Payable 2,321 5,104 915 -7,471 -6,639

Other Assets/Liabilities -86 -888 -43 -121 -891

Net Operating Cash Flow 36,014 30,066 22,082 30,344 45,116

Investing Activities

Capital Expenditures -19,574 -15,402 -16,163 -26,490 -32,952

Capital Expenditures (Fixed Assets) -19,574 -15,402 -16,163 -26,490 - 32,952

Net Assets from Acquisitions - -150 - - -

Sale of Fixed Assets & Businesses 4,269 3,103 4,275 2,389 4,035

Purchase/Sale of Investments -1,981 -5,507 -1,417 235 1,715

Purchase of Investments -1,981 -5,507 -1,417 -607 -1,631

Sale/Maturity of Investments - - - 842 3,346

Other Sources 986 2,076 902 - -

Net Investing Cash Flow -16,300 -15,880 -12,403 -23,866 -27,202

Financing Activities

Cash Dividends Paid - Total - 13,798 -13,001 -12,453 - 12,090 -11,568

Common Dividends -13,798 -13,001 -12,453 -12,090 -11,568

Change in Capital Stock -626 -747 -971 -4,034 -13,153

Repurchase of Common & Preferred Stk. -626 -747 -977 -4,039 -13,183

Sale of Common & Preferred Stock - - 6 5 30

Proceeds from Stock Options - - 6 5 30

Issuance/Reduction of Debt, Net -4,925 -1,048 4,293 9,255 6,966

Change in Current Debt -4,971 -1,108 -7,773 1,253 1,304

Change in Long-Term Debt 46 60 12,066 8,002 5,662

Issuance of Long-Term Debt 46 60 12,066 8,028 5,731

Reduction in Long-Term Debt - - - -26 -69

Other Funds -243 -184 -162 -168 -133

Other Uses -243 -184 -162 -170 -248


Page | 52


Other Sources - - - 2 115

Net Financing Cash Flow -19,592 -14,980 -9,293 -7,037 -17,888

Exchange Rate Effect -257 314 -434 -394 -281

Net Change in Cash -135 -480 -48 -953 -255

Free Cash Flow 16,440 14,664 5,919 3,854 12,164

Table 4. Royal Dutch Shell plc Annual Report and Form 20-F 2018

Consolidated Statement of Income. All values USD Millions.

Notes 2018 2017 2016

Revenue 4 $ 388,379 $ 305,179 $ 233,591

Share of profit of joint ventures and associates 9 4,106 4,225 3,545

Interest and other income 5 4,071 2,466 2,897

Total revenue and other income 396,556 311,870 240,033

Purchases 294,399 223,447 162,574

Production and manufacturing expenses 26,970 26,652 28,434

Selling, distribution and administrative expenses 11,360 10,509 12,101

Research and development 986 922 1,014

Exploration 1,340 1,945 2,108

Depreciation, depletion and amortisation 4 22,135 26,223 24,993

Interest expense 6 3,745 4,042 3,203

Total expenditure 360,935 293,740 234,427

Income before taxation 35,621 18,130 5,606

Taxation charge 16 11,715 4,695 829

Income for the period 4 23,906 13,435 4,777

Income attributable to non-controlling interest 554 458 202

Income attributable to Royal Dutch Shell plc shareholders 23,352 12,977 4,575

Basic earnings per share ($) 24 2.82 1.58 0.58

Diluted earnings per share ($) 24 2.80 1.56 0.58


Consolidated Balance Sheet. All values USD Millions.

Notes Dec 31, 2018 Dec 31, 2017

Assets Non-current assets

Intangible assets 7 $ 23,586 $ 24,180

Property, plant and equipment 8 223,175 226,380

Joint ventures and associates 9 25,329 27,927

Investments in securities 10 3,074 7,222

Deferred tax 16 12,097 13,791

Retirement benefits 17 6,051 2,799

Trade and other receivables [A] 11 7,826 8,475

Derivative financial instruments [A] 19 574 919

301,712 311,693

Current assets

Inventories 12 21,117 25,223

Trade and other receivables [A] 11 42,431 44,565

Derivative financial instruments [A] 19 7,193 5,304

Cash and cash equivalents 13 26,741 20,312

97,482 95,404

Total assets 399,194 407,097

Liabilities Non-current liabilities

Debt 14 66,690 73,870


Page | 53


Trade and other payables [A] 15 2,735 3,447

Derivative financial instruments [A] 19 1,399 981

Deferred tax 16 14,837 13,007

Retirement benefits 17 11,653 13,247

Decommissioning and other provisions 18 21,533 24,966

118,847 129,518

Current liabilities

Debt 14 10,134 11,795

Trade and other payables [A] 15 48,888 51,410

Derivative financial instruments [A] 19 7,184 5,253

Taxes payable 16 7,497 7,250

Retirement benefits 17 451 594

Decommissioning and other provisions 18 3,659 3,465

77,813 79,767

Total liabilities 196,660 209,285

Equity Share capital 20 685 696

Shares held in trust (1,260) (917)

Other reserves 22 16,615 16,932

Retained earnings 182,606 177,645

Equity attributable to Royal Dutch Shell plc shareholders 198,646 194,356

Non-controlling interest 3,888 3,456

Total equity 202,534 197,812

Total liabilities and equity 399,194 407,097

[A] With effect from 2018, current and non-current derivative assets and liabilities are no longer presented as part of Trade and other receivables and Trade and other payables, but separately disclosed on the Consolidated Balance Sheet to provide more insight. Comparatives were revised to align with the current year presentation.

Signed on behalf of the Board. /s/ Jessica Uhl


Consolidated Statement of Cash Flows. All values USD Millions.

Notes 2018 2017 2016

Income for the period 4 $ 23,906 $ 13,435 $ 4,777

Adjustment for:

Current tax 16 10,475 6,591 2,731

Interest expense (net) 2,878 3,365 2,752

Depreciation, depletion and amortisation 8 22,135 26,223 24,993

Exploration well write-offs [A] 449 897 834 Net gains on sale and revaluation of non-current assets and businesses (3,265) (1,640) (2,141)

Share of profit of joint ventures and associates (4,106) (4,225) (3,545)

Dividends received from joint ventures and associates 4,903 4,998 3,820

Decrease/(increase) in inventories 2,823 (2,079) (5,658)

Decrease/(increase) in current receivables [A] 1,955 (2,577) (4,127)

(Decrease)/increase in current payables [A] (1,336) 2,406 1,359

Derivative financial instruments [A] 799 (1,039) 1,461

Deferred tax, retirement benefits, decommissioning and other provisions [A] 219 (4,300) (1,588)

Other [A] 921 (98) (619)

Tax paid (9,671) (6,307) (4,434)

Cash flow from operating activities 53,085 35,650 20,615

Capital expenditure (23,011) (20,845) (22,116)

Acquisition of BG Group plc, net of cash and cash equivalents acquired – – (11,421)

Investments in joint ventures and associates (880) (595) (1,330)

Proceeds from sale of property, plant and equipment and businesses 4,366 8,808 2,072

Proceeds from sale of joint ventures and associates 1,594 2,177 1,565

Interest received 823 724 470

Other 3,449[B] 1,702[C] (203)

Cash flow from investing activities (13,659) (8,029) (30,963)

Net decrease in debt with maturity period within three months (396) (869) (360)

Other debt:


Page | 54


New borrowings 3,977 760 18,144

Repayments (11,912) (11,720) (6,710)

Interest paid (3,574) (3,550) (2,938)

Change in non-controlling interest 678 293 1,110

Cash dividends paid to:

Royal Dutch Shell plc shareholders 23 (15,675) (10,877) (9,677)

Non-controlling interest (584) (406) (180)

Repurchases of shares (3,947) – –

Shares held in trust: net purchases and dividends received (1,115) (717) (160)

Cash flow from financing activities (32,548) (27,086) (771)

Currency translation differences relating to cash and cash equivalents (449) 647 (1,503)

Increase/(decrease) in cash and cash equivalents 6,429 1,182 (12,622)

Cash and cash equivalents at beginning of year 20,312 19,130 31,752

Cash and cash equivalents at end of year 13 26,741 20,312 19,130

[A] With effect from 2018 Exploration well write-offs, previously presented under Other and changes in current and non-current Derivative financial instruments previously presented under Decrease/increases in current receivables and payables and Other are shown separately. Prior years comparatives within Cash flow from operating activities have been revised to conform with the current year presentation. Overall, the revisions do not have an impact on the previously published cash flow from operating activities.

[B] Includes $3,307 million from the sale of shares in Canadian Natural Resources Limited, which were received in connection with the oil sands divestment.

[C] Includes $2,635 million from the sale of Shell’s interest in Woodside Petroleum Limited.

Table 7. Chevron Consolidated Statement of Income (millions of dollars, except per share amount)

Consolidated Statement of Income. All values USD Millions.

12 Months Ended

Dec. 31, 2018

Dec. 31, 2017

Dec. 31, 2016

Dec. 31, 2015

Dec. 31, 2014

Revenues and Other Income

Sales $ 58,902 $ 134,674 $ 110,215 $129,925 $ 200,494

Income from equity affiliates 6,327 4,438 2,661 4,684 7,098

Other income 1,110 2,610 1,596 3,868 4,378

Total Revenues 166,339 141,722 14,472 138,477 211,970

Costs and Other Deductions

Purchased crude oil and products 94,578 75,765 59,321 69,751 119,671

Operating expenses 20,544 19,127 19,902 23,034 25,285

Selling, general and administrative expenses 3,838 4,110 4,305 4,443 4,494

Exploration expenses 1,210 864 1,033 3,340 1,985

Depreciation, depletion and amortization 19,419 19,349 19,457 21,037 16,793

EBIT 26,750 22,507 10,454 16,782 43,742

Taxes other than on income 4,867 12,331 11,668 12,030 12,540

Interest and debt expense 748 307 201 - -

Other components of net periodic benefit costs 560 648 745 - -

Total Costs and Other Deductions 145,764 132,501 116,632 133,635 180,768

Income (Loss) Before Income Tax Expense 20,575 9,221 (2,160) 4,842 31,202

Income Tax Expense (Benefit) 5,715 (48) (1,729) 132 11,892

EBIAT 21,035 22,555 12,183 16,650 31,850

Change in Net Working Capital 6,027 2,989 (11,129) (1,343) 10,306

CAPEX 13,792 13,404 18,109 29,504 35,407

Free Cash Flow 20,635 25,511 24,660 9,526 2,930

Net Income (Loss) 14,860 9,269 (431) 4,710 19,310

Less: Net income attributable to noncontrolling interests

36 74 66 123 69

Net Income (Loss) Attributable to Chevron Corporation

14,824 9,195 (497) 4,587 19,241

– Basic (in dollars per share) 7.81 4.88 (0.27) 2.46 10.21

– Diluted (in dollars per share) 7.74 4.85 (0.27) 2.45 10.14


Page | 55


Table 8. Chevron Consolidated Balance Sheet (millions of dollars, except per share amount)

Consolidated Balance Sheet. All values USD Millions. 12 Months Ended

Dec. 31, 2018 Dec. 31, 2017

Dec. 31, 2016

Dec. 31, 2015

Dec. 31, 2014

Assets

Cash and cash equivalents $ 9,342

$ 4,813

$ 6,988

$ 11,022

$ 12,785

Time deposits 950

-

-

-

8

Marketable securities 53

9 13 310 422

Accounts and notes receivable (less allowance: 2018 - $869; 2017 - $490)

15,050 15,353 14,092 12,860 16,736

Inventories:

Crude oil and petroleum products 3,383

3,142 2,720 3,535 3,854

Chemicals 487 476 455 490 467

Materials, supplies and other

1,834

1,967 2,244 2,309 2,184

Total inventories

5,704

5,585 5,419 6,334 6,505

Prepaid expenses and other current assets 2,922 2,800 3,107 3,904 5,776

Total Current Assets 34,021 28,560 29,619 34,430 42,232

Long-term receivables, net 1,942 2,849 2,485 2,412 2,817

Investments and advances 35,546 32,497 30,250 27,110 26,912

Properties, plant and equipment, at cost 340,244 344,485 336,077 340,277 327,289

Less: Accumulated depreciation, depletion and amortization

171,037 166,773 153,891 151,881 144,116

Properties, plant and equipment, net 169,207 177,712 182,186 188,396 183,173

Deferred charges and other assets 6,766 7,017 6,838 6,155 6,299

Goodwill 4,518 4,531 4,581 4,588 4,593

Assets held for sale 1,863 640 4,119 1,449 0

Total Assets 253,863 253,806 260,078 264,540 266,026

Liabilities and Equity

Short-term debt 5,726 5,192 10,840 4,927 3,790

Accounts payable 13,953 14,565 13,986 13,516 19,000

Accrued liabilities 4,927 5,267 4,882 4,833 5,328

Federal and other taxes on income 1,628 1,600 1,050 1,073 2,575

Other taxes payable 937 1,113 1,027 1,118 1,233

Total Current Liabilities 27,171 27,737 31,785 25,467 31,926

Long-term debt 28,733 33,571 35,193 33,542 23,960

Capital lease obligations - - 93 80 68

Deferred credits and other noncurrent obligations 19,742 21,106 21,553 23,465 23,549

Noncurrent deferred income taxes 15,921 14,652 17,516 20,165 21,920

Noncurrent employee benefit plans 6,654 7,421 7,216 7,935 8,412


Preferred stock - - - - 0

Common stock 1,832 1,832 1,832 1,832 1,832

Capital in excess of par value 17,112 16,848 16,595 16,330 16,041

Retained earnings 180,987 174,106 173,046 181,578 184,987

Accumulated other comprehensive losses (3,544) (3,589) (3,843) (4,291) -4,859

Deferred compensation and benefit plan trust (240) (240) (240) (240) -240

Treasury stock (41,593) (40,833) (41,834) (42,493) -42,733

Total Chevron Corporation Stockholders' Equity 154,554 148,124 145,556 152,716 155,028

Noncontrolling interests 1,088 1,195 1,166 1,170 1,163

Total Equity 155,642 149,319 146,722 153,886 156,191


Total Liabilities and Equity 253,863 253,806 260,078 264,540 $ 266,026

Net Working Capital 6,850 823 (2,166) 8,963 10,306

Change in Net Working Capital 6,027 2,989 (11,129) (1,343) 10,306


Page | 56


Table 9. Chevron Consolidated Cash Flow Statement (millions of dollars)

Consolidated Statement of Cash Flows. All values USD Millions.

12 Months Ended

Dec. 31, 2018

Dec. 31, 2017

Dec. 31, 2016

Dec. 31, 2015

Dec. 31, 2014

Operating Activities

Net Income (Loss) $ 14,860 $ 9,269 $ (431) $ 4,710 $ 19,310

Adjustments

Depreciation, depletion and amortization 19,419 19,349 19,457 21,037 16,793

Dry hole expense 687 198 489 2,309 875

Distributions less than income from equity affiliates (3,580) (2,380) (1,549) (760) (2,202)

Net before-tax gains on asset retirements and sales (619) (2,195) (1,149) (3,215) (3,540)

Net foreign currency effects 123

131

186

(82) (277)

Deferred income tax provision 1,050

(3,203) (3,835) (1,861) 1,572

Net decrease (increase) in operating working capital (718) 520

(327) (1,979) (540)

Decrease (increase) in long-term receivables 418

(368) (131) (59) (9)

Net decrease (increase) in other deferred charges -

(254)

178

25

263

Cash contributions to employee pension plans (1,035) (980) (870) (868) (392)

Other 13

251

672

199

(378)

Net Cash Provided by Operating Activities 30,618

20,338

12,690

19,456

31,475

Investing Activities

Capital expenditures (13,792) (13,404) (18,109) (29,504) (35,407)

Proceeds and deposits related to asset sales and returns of investment

2,392

5,096

3,476

5,739

5,729

Net maturities of (investments in) time deposits (950) -

-

8

-

Net sales (purchases) of marketable securities (51) 4

297

122

(148)

Net repayment (borrowing) of loans by equity affiliates 111

(16) (2,034) (217) 140

Net sales (purchases) of other short-term investments -

-

-

44

(207)

Net Cash Used for Investing Activities (12,290) (8,320) (16,370) (23,808) (29,893)

Financing Activities

Net borrowings (repayments) of short-term obligations 2,021

(5,142) 2,130

(335) 3,431

Proceeds from issuances of long-term debt 218

3,991

6,924

11,091

4,000

Repayments of long-term debt and other financing obligations (6,741) (6,310) (1,584) (32) (43)

Cash dividends - common stock (8,502) (8,132) (8,032) (7,992) (7,928)

Distributions to noncontrolling interests (91) (78) (63) (128) (47)

Net sales (purchases) of treasury shares (604) 1,117

650

211

(4,412)

Net Cash Provided by (Used for) Financing Activities (13,699) (14,554) 25

2,815

(4,999)

Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash

(91) 65

(53) (226) (43)

Net Change in Cash, Cash Equivalents and Restricted Cash 4,538

(2,471) (3,708) (1,763) (3,460)

Cash, Cash Equivalents and Restricted Cash at January 1 5,943

8,414

12,122

12,785

16,245

Cash, Cash Equivalents and Restricted Cash at December 31

10,481

5,943

8,414

11,022

12,785

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