# Investment Management for Marathon Oil

Submitted By chengzhi09
Words 1996
Pages 8
Introduction This stock analysis paper is for Marathon Oil (MRO) which has been chosen because the oil and gas sector is in the throes of an energy revolution in the United States. With the endless opportunities offered by fracking and the possibility that the United States has become a net energy exporter again after many decades, the prospects for the oil and gas sector are indeed bright. Further, MRO is a midcap company meaning that it is neither too big nor too small which means that it is on the cusp of a transformation where it can ramp up its operations in a scalable and sustainable manner without affecting either its financials or its core operating principles. The following are the calculations of two different models, the CAPM and the DDM or the Dividend Discount Model.
CAPM= Rf + beta*(Rm-Rf), where Rf is the risk free rate, Rm is the expected market return and beta is the beta for the asset.
CAPM=8%+1.7*(1.7*8%-8%) =17.52%, where risk free rate=8%, beta=1.7, MCR=1.7*8%=13.6%
Under the DDM, Fair Value (P) = D/r-g, where D represents dividend paid, r represents discounting rate and g represents the expected dividend growth. The discounting rate is 13.6%, and the Fair Value=0.76/ (1.136-1.089) =16.17
Market Price = Expected Dividend Per Share + (Expected End of Year Price – Current Share Price)/ Current Share Price. Given the fact that Expected Dividend Per Share is 2.87, Expected End of Year Price is 45.3, and Current Share Price is 39.94, we get the Market Price using this model as 20.6.
Intrinsic Value = Expected Dividend Per Share + Expected End of Year Price/1+MCR we get the numerator as 48.17 which is divided by 1 + MCR which turns out to be 1.136. Thus, the Intrinsic Value is calculated as 42.40.
The Intrinsic Value using the Constant Growth Model yields the result as 42.26
All the data used in this stock analysis paper is from the EDGAR…...

### Similar Documents

Free Essay

#### Investment Management

...Investment Report by 28/2/2012 Name of company: AVEVA GROUP RIC: AVV.L Price: 1732 Date: 28 Feb 2012 Company profile: AVEVA Group PLC operates in the Computer related services sector. AVEVA Group plc is a holding company. The Company is engaged in engineering design and information management solutions for the process plant, power and marine industries. It activities include marketing and development of computer software and services for engineering and related solutions. One-year Price chart: [pic] Price performance: Key financial forecasts and ratios: | |Actual |Estimate | | |MAR 11 |MAR 11 |MAR 12 |MAR 13 | |EPS(GBp) |- |- |63.934 |74.790 | |DPS(GBp) |18.250 |18.590 |20.100 |22.750 | |PE |- |- |26.590 |22.730 | |ROE% |17.04 | |Beta |1.34 | |Alpha |0.01 | | |AVEVA GROUP |FTSE-100 ......

Words: 1457 - Pages: 6

#### Investment Management Case Study

...Beta Management Company | | |Investment Management case study | Table of contents Backgrounds……………………………………………………….……1 Strategies………………………………………………………………...1 Background of California R.E.I.T and Brown Group Inc……………2 Return and risk…………………………………………………….....…2 Summary………………………………………………………………...4 Appendix………………………………………………………………...5 Background: Beta Management Company is a small investment management company based in a Boston suburb founded in 1988. As the company developed, they had roughly 25 million dollars in the 1991. The goal of the company is to enhance returns but reduce risks for clients via market timing. Currently, the company’s funds were invested into the Vanguard 500, an S&P 500 no-load and low-expense index funds (with the reminder in money market instruments). As time goes by, Sarah Wolfe who is the founder of this company think about increasing her equity exposure to 80% with the purchase of individual stock. Strategies: Firstly, Sarah Wolfe uses a market timing strategy based on two portfolios: the Vanguard Index and money market. In order to obtain the capital gains, once the company predicts the market value will rise, it will transfer its assets from the money market to the Index. The limit will up to a maximum 99% of total assets. On the other hand when the company expects the market value will decrease,......

Words: 1292 - Pages: 6

#### Investments and Portfolio Management

...| |Portfolio Management Simulation Project |Performance Evaluation | |Ifaz Khorshed Hassan |Student ID: 22104364 |27/05/2011 Executive Summary This report is based on the ‘Portfolio Management Simulation Project’. It provides an analysis and evaluation of the monthly holding period returns of both managed portfolio and market portfolio of MSCI index, along with the arithmetic average, standard deviation and geometric mean of both sets of date. Methods of analysis include Capital Asset Pricing Model, Sharpe ratio, M2 measure. It also includes regression analysis:......

Words: 1278 - Pages: 6

#### The Role of Oil Futures in Risk Management

...FInTHE ROLE OF OIL FUTURES IN RISK MANAGEMENT From: To: Senior Management - Airlines Company November 2011 0 University of Westminster - Westminster Business School International Risk Management COURSEWORK THE ROLE OF OIL FUTURES IN RISK MANAGEMENT Student: Student ID: Course: Word count: MSc. Finance and Accounting 2557/2617 1 EXECUTIVE SUMMARY In the world today, oil is being used as the main source of energy for a lot of core industries. Due to its non-renewable characteristics and the global rising demand, oil has increased in its value, which results in many oil price crises recently. For all those industries using large amount of oil in operation, the risk of rising oil price is an extensive problem. The most efficient method to hedge against this risk is by using oil futures contracts. Because of its effectiveness, oil futures contracts are playing a key role in risk management for a number of industries including transportation and manufacturing. This report provides principal knowledge about oil futures and its role in hedging the risk of oil price volatility. A case study of US airline industry with most updated data obtained from Bloomberg system is also discussed, which suggests the effectiveness of oil futures in risk management for most airlines companies. However, in some case, the inflexible use of oil futures may create a burden in financial costs while not producing effectiveness in risk hedging. 2 TABLE OF CONTENTS LIST......

Words: 3635 - Pages: 15

#### Investment Strategy and Portfolio Management

...INVESTMENT STRATEGY AND PORTFOLIO MANAGEMENT Executive Summary Kaplan is a charitable fund established in 2007 to provide an investment vehicle for investors seeking to finance some educational objectives. The aim of the fund is to grow members’ contributions through investment in securities. Investors in Kaplan are yet to start making withdrawals from the fund but are due to begin in June 2012. This report looks at current issues in the investment environment in the UK, Europe, and the rest of the world which have an impact on Kaplan’s operations. It also examines strategic asset allocation and investment strategies that Kaplan should employ to achieve its goals. In addition, the report recommends areas in which the fund’s management should actively manage investments and those areas in which passive management would be the better option. Overview of the Investment Environment In recent years, the global fund sector has continued to register robust growth in many countries with developed financial markets. Collective investment schemes are becoming the most preferred investment vehicles for investors because of their obvious advantages including diversification, professional management of investments, liquidity and investment advice for investors and superior returns (Roll, 2008). Indeed, as by the end of 2011, the global investment fund industry was worth US \$11.7 trillion which translates to 17 percent of primary securities holdings around the world.......

Words: 2861 - Pages: 12

#### Oil and Gas Management I

...TNK-BP, also known as Tyumenskaya Neftyanaya Kompaniya, Tyumen Oil Company), used to be a one of the biggest vertically integrated Russian oil company, which had its headquarters in Moscow. It was rated Russia’s third largest oil producer, in addition it was amongst the top 10 largest private oil companies in the whole world. However, it was bought by another Russian oil company known as Rosneft, in 2013. History of TNK-BP It was confirmed by DeGolyer and MacNaughton that since 31 December 2009 all of TNK-NP’s proved reserves added up to 11.667 million barrels which is the equivalent to 1.8549×109 m3 oil, applying PRMS criteria. The proved reserves account for a total PRMS reserve replacement of 329%. BP and a group of Russian businessmen, whom were represented by the AAR, announced a strategic partnership which was designed to jointly hold their oil assets and the creation of TNK-BP in Russian and the Ukraine, on 1st September 2003. AAR’s holdings in TNK international, ONAKO, SIDANCO, RUSIA Pretrolum; whom held license for Kovytka and Verkhnechonsk fields), and Rospan field located in West Siberia, were all contributed towards TNK-BP. On the other hand BP’s holdings in SIDANCO, RUSIA Petroleum and its BP Moscow retail network, all contributed towards TNK-BP. BP and AAR reached an agreement to consolidate AAR’s 50% stake in Slavneft and into TNK-BP, in January 2014. ARR and Sibnett (now known as Gazprom Neft) previously joined Slavneft. Slavneft has operations......

Words: 2516 - Pages: 11

#### Investment Management

...a. What is the mission of the SEC? What Information and advice does the SEC Offer to beginning investors? Mission: The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. Information/Advice: By far the best way for investors to protect the money they put into the securities markets is to do research and ask questions. b. Go to the NASD Website, www.finra.org. What Is its mission? What information and advice does it offer to beginners? Mission: FINRA is dedicated to investor protection and market integrity through effective and efficient regulation of the securities industry. Information/Advice: Before undertaking any investment program, though, it is critical that you assess your current situation and form goals. You'll need to take an accurate measurement of your finances to determine how much you can invest reasonably. Then you'll need to ask yourself a few key questions: What are your goals and what will they cost? When do you want to achieve each goal? c. Go to the IOSCO Website, www.iosco.org. What is its mission? What information and advice does it offer to beginners? Mission: IOSCO develops, implements, and promotes adherence to internationally recognized standards for securities regulation, and is working intensively with the G20 and the Financial Stability Board (FSB) on the global regulatory reform agenda. Information/Advice: enhance investor...

Words: 2357 - Pages: 10

#### Investment Management Cheet Sheet

... (3) | (4) | (5) | Time until Payment (Years) | Payment | Payment Discounted at 10% | Weight | (1)×(4) | 1 | 60 | 54.55 | 0.0606 | 0.0606 | 2 | 60 | 49.59 | 0.0551 | 0.1101 | 3 | 1060 | 796.39 | 0.8844 | 2.6531 | Column Sum: | 900.53 | 1.0000 | 2.8238 | = k = rf + β [E(rM) – rf ] - The Market consensus estimate of the appropriate discount rate for a firm’s cash flows ∴ 3b. Constant growth no K – Step 1. Find market capitalization rate using CAPM = 0.04 + 0.75 (0.12 – 0.04) = 0.10 Step 2. V0 = D1k － g = \$40.10 － 0.04 = \$66.67. growth =g = ROE b, where b = plowback ratio and ROE = the rate at which income was generated. 4. Present Value Growth Opportunities – Net present value of a firm’s future investments. E.g. ABC expects to earn \$6 per share next year, ROE = 15%, plowback is 60%, market capitalization is 10%. Q: What is PVGO? A: Step 1. calculate the price with the constant dividend growth model: P0 = D1k - g = = EPS × (1-b)k - ROE × b = \$6 × (1 - 0.6)0.10 - 0.15 × 0.6 = \$2.40.10 - 0.09 = \$240. Step 2. knowing that the price is equal to the price with no growth plus the present value of the growth opportunity, we can solve the following Price = \$240 = E1k + PVGO = \$6 0.10 + PVGO PVGO = \$240 –\$60 = \$180 5. No-growth: P0 = D ke e.g. common stock pays annual dividend ps \$2.10, Rf = 7% and the risk premium 4%,Q: If D is expected to remain constant, what is stock value \$2.10 0.11 = \$19.09. *To find k for growth models apply CAPM P/E......

Words: 2265 - Pages: 10

#### Marathon Oil

...and the world demand for crude oil. Marathon is among the top five crude oil refineries in the United States. It’s an integrated international energy company engaged in exploration and production of oil, sand mining, integrated gas, refining, marketing, and transportation operation. Marathon needs to upgrade a few of their refineries and pipelines in order to increase the production process of heavy crude oils, (marathon.com). For example, once the Detroit Heavy Oil Upgrade Project is completed, the refinery crude capacity will increase from 106,000 bpd to 115,000 bpd. The upgrades will allow the Detroit refinery to process an additional 80,000 barrels of heavy crude oil per day (detriothoup.com). The existing pipelines at the Detroit refinery do not have the capacity to transport additional volumes of crude oil to meet the refinery’s upgrade needs. Therefore a 1.5-mile pipeline will provide an alternative oil supply line to the refinery and provide extra security in the event of a supply disruption. Pipelines are the safest and the most efficient way to transport crude oil and other liquid petroleum products. They reduce traffic and pollution as well as provide economic benefits. Pipelines transport two-thirds of all the crude oil and refined products in the U.S. compared to three percent by tanker trucks. According to detriothoup.com, currently 100,000 barrels of crude per day are transport to the refinery. Transporting the same volume of oil by tanker truck would......

Words: 1480 - Pages: 6

#### Investment Management

...beta of a particular investment or portfolio (Investopedia, n.d.). Beta represents the investment or portfolio sensitivity to the market fluctuation. The CAPM is based on few assumptions: * There are no transaction and taxation costs. * Investors are assumed to invest in diversified portfolios. * Investors are rational. * Investors do not have the power to influence market price. * Investors can borrow and lend unlimited amounts under the risk-free rate. * Investors have access to the same information. * Investors aim to maximize economic utilities. * Investors deal with investments that are fully divisible. * Investors are subject to information that is available at the same time. However, CAPM has several limitations. CAPM is created as a theoretical model that its restrictive and unrealistic assumptions are the reason that cause its limitations. One of the limitations of CAPM is the difficulty in estimating the risk-free rate of return. A government security is often used as a best estimate for risk free rate of return. There is a low possibility that the government will default, but the uncertainty in the economic conditions causes the rate of return for government security to be hard to predict. In addition, investors may not hold portfolios that are well diversified. As a result, CAPM is unable to indicate the investor’s behaviour for investment and consequently beta may fail to estimate the risk of investment. Besides......

Words: 433 - Pages: 2

#### Investment Management

...Investment Management i) The term investment refers to funds invested in various securities — consisting of Government and semi Govt. securities, loans, debentures, shares and bonds etc. ❖ Elements of Investment :- a) Reward (Return) b) Risk and Return c) Time ❖ Nature of Investment :- Investment requires a continuous flow of decisions which can not be avoided. The investment decisions are based on many streams of data which taken together, represent to an investor the observable environment and the general and particular of the securities & enterprises in which he may invest. ❖ Investment Environment :- a) Stable Government b) Stable Currency c) Presence of Public financial Institutions d) Development of corporate sector. [pic] ❖ Different types of Port-folios for Investment :- Investment — Concept of Port-folio :- Portfolio is the collection of financial or real assets such as equity shares or debentures, bonds, treasury bills & property etc. Steps in selecting a portfolio a) framing of investment policies. b) Valuation of Financial Instruments c) Investment Analysis d) Construction of Portfolio Port-folio management is the investment of funds in different securities in which total risk of the port-folio is minimized while expecting maximum return form it. ❖ Port-folio construction :- i) Determination of......

Words: 2435 - Pages: 10

#### Marathon Oil

...Entrepreneurial Leadership Possible options that Marathon could take to reduce the time involved in the production process Basic managerial functions of planning and innovation can help Marathon reduce the time involved in the production process. The first thing they should do is anticipate the market demand. Knowing their market trends can help them to better plan for the future and create new methods to keep up with the growing demand for gasoline. Marathon can be made aware of the largest traveling months by visiting the Department of Energy website at www.energy.gov. The Department of Energy studies show that many Americans travel mainly around the summer time, and the holidays of the fourth of July and Memorial Day. This causes a spike in the price because the demand for fuel is higher. Increasing production in the months when the demands are low is one way to increase the productions and keep up with market demands in the busier months. By extending hours and time of production during non-peak seasons, this will allow them to produce and refine more crude oil than normal. Marathon could use a team formation to increase their production efforts. They could seek temporary labor to increase production. Providing temporary laborers could supplement their normal process and could increase their normal production without overworking their normal everyday employees. These temporary workers can also help with the production process after a disaster or bad weather. This......

Words: 1149 - Pages: 5

#### Marathon Oil

...Production and Operations Management Analyze Marathon’s product process and determine which phase is open to the greatest number of efficiency improvements. Explain your rationale. Marathon oil is considered the fourth largest oil company in the United States. They are engaged in exploration and production; oil sands mining; integrated gas; and refining, marketing and transportation (www.marathonoil.com). Marathon Oil Corporation operates seven refineries and sells refined products at Marathon-branded gas stations, and through retail subsidiary Speedway outlets. It also holds stakes in 10,000 miles of pipeline, and is one of the largest asphalt and light oil product terminal operators in the US. It distributes petroleum products wholesale to private brand marketers and to large commercial and industrial consumers, as well as to the spot market. The company has operations in more than 20 US states. The phase open to the greatest number of efficiency improvements is the pipeline transport of crude oil. Once the crude oil is in the pipeline it will take about eight to ten days to reach the refinery. “The Capeline Pipeline is a major thoroughfare for crude oil in the U.S., transporting up to one million barrels of crude oil a day…at an average speed of four miles per hour…” (“The time it takes,” n.d.). Transporting oil through pipelines is more economical than transporting over land. If Marathon improves the throughput rate of crude oil delivery they will be able to......

Words: 1623 - Pages: 7

#### Investment Management

...Firstname Lastname Instructor’s Name Course Number 21 July 2012 Investment Management Investment Fundamentals Investment is the process of employing saved money in financial institutions with the hope of gaining returns in the future. Investment management is the process of managing the money employed in financial institutions with the hope of gaining positive returns. The financial institutions are catalogued in a case known as an investment portfolio. An individual with saved money may opt to invest it in financial institutions as a way of adding value to the money. Investing for individuals involves identifying the sources of income for investment such as savings and loans from others. The individual then comes up with investment objectives that will guide his investment decisions. After the funds have been secured, the investor does a market analysis to determine which the best investment opportunities available are for him. A market analysis may be done through a “bottom top” approach or a “top bottom” approach. The “top bottom approach” starts from a macroeconomic level of the market and works downwards towards the different service sectors and industries, finishing with the specific corporate institutions and their portfolio. Once at the corporate level, the investor can decide which investments will afford better returns in the long run (Klammer 36). A competitive analysis is done by the potential investor to determine how his options stand against the other......

Words: 4835 - Pages: 20

Free Essay

#### Investment Portfolio Management

...|IPM Project Report | | | | | |Investment Portfolio Creation | |using | | | |Investment Philosophy – of Joel Greenblatt’s | |[pic] | | | | | | ...

Words: 6544 - Pages: 27