Energy Sector Update ConocoPhillips (NYSE: COP) Overview

March 18, 2014

Purchase Date

Bought $70.67 Last $67.29 Return -4.8% Target $85.00

Since we acquired COP on December 9, 2013, management has continued its plan to grow production organically and reposition its production mix in favor of shale liquids from the GOM and tight oil plays in the Bakken, Permian, and Eagle Ford basins. COP has continued to shift the weight of overall hydrocarbon production to natural gas liquids and sweet crude. These liquids have a lower breakeven cost for production and also carry a premium due to their higher quality than other forms of crude. Liquids in COPs Lower 48 segment now account for +50% of total hydrocarbons produced, as opposed to 45% in 2012. So far in 2014, COP has had two GOM deepwater discoveries and is currently the fourth-largest leaseholder in the GOM. COP pulled back nearly 9% after our purchase. This negative price move caused immediate concern, as COPs 50-day moving average crossed below its 200-day moving average. However, when comparing this cross with instances where this type of cross occurred in the past, we noticed there was significantly less volume, seen below.

William C. Dunkelburg Owl Fund

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Energy Sector Update

March 18, 2014

The price decline was a result of a broader, market sell-off as shown by the chart below which shows COP, the SPDR Energy ETF (XLE), and the S&P 500 index. Based on this analysis we recommended COP as a HOLD.
Performance since purchase

Outlook Shares have recovered 7.31% since the bottom on February 5. COP was purchased less than four months ago, remains undervalued, and the Funds original investment thesis is still intact.

Schlumberger (NYSE: SLB)

Overview Bought $92.07 Last $90.50 Return -1.7% Target $115.54

Purchase Date

After a small improvement after our purchase on February 27, SLB tested the historical $93.00 resistance level twice in the following week.

William C. Dunkelburg Owl Fund

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Energy Sector Update New Product Launch SLB announced the launch of PowerDrive Orbit rotary steerable system (RSS). This expands SLBs drilling product offering and will extend system life, increase directional control of drills, and increase drilling efficiency. The drill had been tested in 500 runs in the last two years, and one Middle Eastern customer used the PowerDrive Orbit RSS to drill a record 12,690 ft in a single run. This expanded the lateral length over previous wells by 33% and completed the operation in 21 days ahead of schedule. Completed Acquisition

March 18, 2014

On March 13, SLB announced the completion of the remaining shares of Saxon, a Calgary-based provider of international land drilling services. This follows an initial investment in 2008 and reflects SLBs goal of improving its production segment. Drag factors: We speculate that shares fell on March 10 slightly more than broader market due to a few reports of workers in Ghana initiating a sit-down strike. Employees are protesting for higher wages. The strike involves a small number of employees and SLB has brought in expatriate workers to continue operations in the short term. We believe this event is immaterial to earnings and does not impact the investment thesis. SLB is a global company with over 120,000 employees and temporary strikes in third-world countries is a consequence of doing business in these areas. There has been no official statement about the strike by SLB. Outlook SLB is still on course with our original investment thesis and we anticipate shares to increase to our price target of $115.54 in the next 12 months.

William C. Dunkelburg Owl Fund

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