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National Oilwell Varco (NYSE: NOV)

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Kareem Dakak Aditya Seshadri Haley Schlinger Fangfei Li Tammy Nguyen


Outline

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Company Overview Investment Thesis Investment Catalysts Future Opportunities Valuation

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• • • • •


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Company and Financial Overview


Company Overview

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National-Oilwell Varco, Inc. is a worldwide leader in the design, manufacture, and sale of equipment and components used in oil and gas drilling. The company conducts operations in more than 1,200 locations across six continents. 4 Segments

• Rig Systems

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Designs, manufactures and sells various top drives, automated pipe handling systems, motion compensation systems, rig controls, blowout preventers, handling tools, drawworks, risers, rotary tables, mud pumps, cranes, drilling motors, turret mooring systems and other offshore vessels and terminals.

• Rig Aftermarket

• Wellbore Technologies

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The Company’s Rig Aftermarket segment provides comprehensive aftermarket products and services to support land rigs and offshore rigs, and drilling rig components manufactured by the Rig Systems segment.

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Manufactures entire rig packages, both drilling and workover, in addition to well servicing equipment such as coiled tubing units, pressure pumping equipment, and wireline winches. It sells directly to drilling contractors, shipyards, and other rig fabricators.

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• Completion and Production Solutions

Manufactures and sells fiber glass systems, intervention and stimulation equipment, process and flow technologies, XL systems, floating production systems, subsea production systems


Financial Overview Revenue Streams

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4.2X 6.9X

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TEV/ Total Revenue: TEV/ EBITDA:

Rig Systems (~43%)

Wellbore Technology (~24%)

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Total Revenue: $ 5.587 B EBITDA: 3.423 B Net Income: 0.7 B Market Cap: 24.59 B Enterprise Value: 23.66 B Total Debt: 3.146 B Total Assets: 34.27 B

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Key Financials:

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Rig Aftermarket (~14%)

Completion and Product Solutions (~19%)

Note The rig aftermarket segment features 27.4% operating margin, highest of all segments This segment contributed $236 mm of EBITDA from 2013-14


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Management Team

Clay C. Williams,

Greg Armstrong,

Senior Vice President, General Counsel

Lead Independent Director

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Chief Financial Officer, Senior Vice President

Scott Duff,

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Jeremy Thigpen,

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Chairman of the Board, President and Chief Executive Officer

Craig Weinstock,

Chief Accounting Officer, Vice President, Corporate Controller


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Investment Thesis


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Significant amount of cash for M&A and share buybacks

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NOV is wellsuited to sustain downturns in oil prices

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Investment Thesis

Severe undervaluation based solely on oil prices


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Investment Catalysts


Significant Events in Company History

February 2012: National Oilwell Varco Completes Flexible Pipe Acquisition (NKT Flexibles)

October 2013: NOV adds the newest addition to the Ideal™ Rig Series, the Ideal Prime Rig

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August 2011: National Oilwell Varco Pens $1.5B Deal for 7 Drillship Equipment Packages

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NOV Stock Performance – 2010-2015

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February 2013: National Oilwell Varco Completes Acquisition of Robbins & Myers

March 2014: National Oilwell Varco Announces Election of Clay Williams as President and Chief Executive Officer

January 2015: Oil prices fall to the lowest point since 2009

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OPEC oil situation directly impacted stock prices

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Oil Prices per Barrel (2014-2015)

Oil Prices reach all time low since 2009  NOV stock prices sinking to 52 week lows along wit the oil prices 

Opportunity to buy new equipment or other franchises

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Predictions for rest of the year oil costs

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Oil prices recover as the dollar weakens against the euro Predict increase prices due to rising wholesale prices Change in Saudi leadership has significant implications for OPEC stance

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Oil prices have possibility of long-term recovery

Stable forecasts for the rest of the year and future potential for growth as oil prices rise 11


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Company well positioned despite oil price drops

Mostly affected by oil prices in the rig systems which accounts for only 44%, rest of the sectors will see less change

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International oil companies expected to expand on deep water projects

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Sufficient backlog to account for about 1.5 years worth of revenue from rig systems

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14.3 billion in backlog for rig systems

National Oilwell Varco able to withstand significant oil price fluctuations, with the capability to spend multiple quarters simply executing backlog 12


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Future Opportunities


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NOV Slims Down and Has Growth Potential

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NOV spun off its distribution business, dubbing it Distribution NOW (NYSE: DNOW); higher multiple on shares and streamlined operations

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• NOV focuses on only 4 segments now: Rig Systems, Rig Aftermarket, Wellbore Technologies, Completion & Production Solutions

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Free-cash flows and profits grow as rig technology and petroleum services units see climbing revenues; $4B cash on balance sheet

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• Quarterly dividends, which recently had a substantial 77% increase, expected to still be hefty after DNOW spinoff

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At start of Q4 2014, management authorized a share buyback program of up to $3B over 3 years


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Technology Advancement Tony Pink, VP of Automated Drilling Applications at National Oilwell Varco, announced that NOV plans to introduce closed-loop automation in its drilling equipment to the Middle East later this year.

Profit

Real-time reporting of pressure change and flow data

Remote directional drilling allows for fewer personnel

Risk Mitigation

Cost-Effectiveness

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Uniform control system platform

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Cleaner, smoother wellbore produces higher yield

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Benefits of Downhole-Driven, Closed-Loop Automation

Convenience


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Valuation


DCF Analysis Suggests Severe Undervaluation Discounted Cash Flow Analysis

Unlevered Free Cash Flows

2014E 2015E 2016E 2017E 3,349.2 3,700.2 4,100.8 4,543.4 (1,010.3) (1,119.2) (1,243.3) (1,380.6) 807.9 872.5 929.2 989.6 (310.3) (309.6) (300.0) (310.0) (135.9) (443.8) (488.6) (598.6) 2,700.4

2,700.1

2,998.0

2018E 5,037.3 (1,533.7) 1049.0 (305.0) (656.9)

WACC

4.9x 5.9x 8.1% $32,193.3 $36,316.4 9.1% 30,959.1 34,896.7 10.1% 29,787.2 33,549.2 11.1% 28,673.8 32,269.5 12.1% 27,615.4 31,053.5

3,243.9

3,590.7

-WACC

6,086.3 5.2x 31,648.6

3 2,246.3

4 2,207.6

7.9x 0.6% 1.5% 2.4% 3.4% 4.3%

8.9x 1.4% 2.3% 3.3% 4.2% 5.1%

5 2,219.4 19,562.2

$30,915.8

(1.1%)

Enterprise Value (-) Net Debt (=) Implied Equity Value Shares Outstanding (=) Share Price

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Enterprise Value Implied Perpetuity Growth Rate

2 2,227.5

5.9x (1.7%) (0.8%) 0.1% 1.0% 1.9%

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1 2,452.7

4.9x (3.5%) (2.6%) (1.7%) (0.8%) 0.1%

EV/EBITDA 6.9x (0.4%) 0.5% 1.4% 2.3% 3.3%

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Years Discounted Discounted FCFs Discounted Terminal Value

8.1% 9.1% 10.1% 11.1% 12.1%

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EBITDA EV/EBITDA Terminal Value WACC 10.1%

EV/EBITDA 6.9x 7.9x 8.9x $40,439.5 $44,562.6 $48,685.7 38,834.3 42,771.8 46,709.4 37,311.1 41,073.1 44,835.1 35,865.1 39,460.8 43,056.5 34,491.7 37,929.8 41,367.9

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x ($ in millions) Year EBIT (-) Taxes (+) Depreciation & Amortization (-) Capital Expenditures (+/-) Changes in Working Capital

Sensitivity Analysis

$30,915.8 2473 ######## 430.57 $66.06

• NOV’s implied share price of $66.06 reflects a potential upside of over 23% from its price of $53.53 (as of close 1/28)


DCF Sensitivity Table 8.10%

$59.76 $64.33 $68.90 $73.48 $78.05

11.10%

$57.32 $61.69 $66.06 $70.43 $74.80

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$62.32 $67.11 $71.90 $76.69 $81.47

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4.20 4.70 5.20 5.70 6.20

WACC 10.10%

9.10%

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EV/EBITDA

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DCF Sensitivity Table

$55.01 $59.18 $63.36 $67.53 $71.71

12.10% $52.80 $56.80 $60.79 $64.78 $68.77


Comparable Company Analysis Public Comparables - Oil & Gas Drilling Equipment Manufacturers

1,670 1,290 4,740 2,310 7,370 3,423 $2,867

15.2% 16.5% 19.3% 15.5% 22.4% 15.0% 16.0%

8,770 8,940 25,580 8,500 35,160 24,860 $16,900

3,210 50 4,130 8,720 7,840 3,149 $3,670

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$1bn+ EV Cameron Internation Corp. (NYSE: CAM) 11,010 FMC Technologies, Inc. (NYSE: FTI) 7,830 Baker Hughes Inc. (NYSE: BHI) 24,550 Weatherford International Plc. (NYSE: WFT) 14,920 Halliburton Co. (NYSE: HAL) 32,870 National Oilwell Varco Inc. (NYSE: NOV) 22,869 Median $18,895

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• Lower-than-average EV/EBITDA and Forward P/E ratios • Significantly less debt than Halliburton, its largest competitor

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Revenue EBITDA

Market Capitalizatio LT Debt Enterprise Value n

EV/LTM Revenue

EV/LTM EBITDA

Forward P/E

1.0x 1.3x 1.1x 1.1x 1.2x 1.0x 1.1x

6.5x 7.6x 5.9x 7.2x 5.5x 5.2x 6.2x

11.6x 13.0x 20.8x 17.7x 15.7x 10.6x 14.4x

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Company

EBITDA Margin

10,810 9,770 27,740 16,630 40,650 23,660 $20,145


Valuation Summary

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• Price Target: $66.38 • Current Price: $53.53 • Potential Upside: 24%

NOV Valuation Range Current Price

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DCF

Target Price

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52 Week

$10.00

$20.00

$30.00

$40.00

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$0.00

$50.00

$60.00

$70.00

$80.00

$90.00

$100.00


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Q&A

National oilwell varco (nov) pitch