National Oilwell Varco A closer look at the company’s strategic initiatives through Return Driven Strategy Framework. Arakelian, Victoria Team 3 Mashuk, AbdullahGurumurthy, Jayaram Moraes, Ricardo Hoffman, Aaron Mathur, Pankaj Rabello, Vitoria
NOV ranked No. 1 in 2008 in HoustonChronicle’s list of 100 companies. “Self-styled Wal-Mart of the oil patch”
Last 10 years performance resulted insuperior ROI compared to the industry. 100% 80% 60% 40% 21% ROI 40% 25% 33% 29% 27% 26% 23% 20% 13% 11% 12% 19% Average ROI 8% 9% 0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 LFY+1 LFY+2Mkt Imp 200% 130% IC 100% 20% 15% 62% 11% 9% 24% 0% 4% 6% 3% 0%Growth 0% Average Invested Capital Growth -7% -100% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 YTD 5Yr CAGR 4.0 Relative 3X 2.0 TSR Average Total Shareholder Return 0.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 LFY+1
NOV achieved many milestones since itsinception over 150 years ago. 1862 – 1987: 1997: begins series NOV of acquisitions 2005: National operated as 1999: The Oilwell and separate acquisition of Hitec Varco merged to companies ASA of Norway become NOV 1996: 2001: The first 2008: Merge Incorporation of completely with Grant National Oilwell, automated oil Prideco (mkt. Inc. and IPO drilling cap $32B) equipment
Industry: the price of oil and competitiveenvironment can impact performance.4000 100 International 803000 1089 US 952 1017 602000 40 Canada 1720 1790 18681000 20 440 438 West Texas 356 0 0 International Price 2006 2007 2008NOV VS. REVENUEMAIN COMPETITORS 2009 (M$) Clearly the leader amongNOV 12, 710 industry peersFCM TECHNOLOGIES 4,410 Only company that provideCAMERON CORPORATION 5,220 complete solutionBAKER HUGES 9,660 Operates globallySMITH INTERNATIONAL 8,220
Current success is linked to their strategicinitiatives. Constant Growth through mergers & acquisitions “snowball effect” International expansion through mergers & acquisitions All in One House
Constant Growth through Mergers &Acquisitions Deals Mergers & Acquisitions• 2005 National Oil buys Varco for $2.4B which let’s the acquisitions of more than 150(!) companies in 4 years
International expansion through mergers &acquisitions Reason to expand: • Industry is violent:International expansion: politics, economics,• 2008 Grant Prideco legislation, etc. buyout starts strategy of • Mideast Crisis led to write international expansion downs, Company still was from 30% To 70% in 5 profitable years 8
All in One House Rig From Rig to petroleum & distribution: Unique rig technology: • Allows to install the drilling • Acquisitions has led the point in 3 months, as company to have all set of compared to 1 year services and solutions • Consists of 95% changeable parts, which are produced in house. • Allows to address the customers’ issues faster 10
National Oilwell Varco meets all the tenetsof the Return Driven Strategy. Wealth-creation that benefits all stakeholders Complete solution Big companies in for oilfield the oilfield industry industry Strive to new All-in-one-stop- Individual basis products and shop solution branding solutions Acquisitions of Big vigilant of Each brand with “Umbrella-Brand” Next Generation companies with customer own decision for all products Program synergy processes process and services Global Presence, Rig Technology, in-house R&D Regulatory compliance, Globalization awareness Constant Growth in Market Cap, Steady CFROI, internal control
Appendix 5: Additional InformationHistorically, drilling companies have ordered customized rigs that can take a year or more to design and build. Manystill take that long, but land drilling is so hot today, especially in North America, that National Oilwell Varco is turningout its trademarked Ideal Rig system in as little as three months.The Ideal Rig has thousands of parts, and National Oilwell Varco makes 95 percent of them — everything but theengines and air compressors. National Oilwell Varcos business is split between overseas and North Americanoperations, which include the U.S. and Canada. Thats about to change, thanks to the Grant Prideco addition.Miller said he expects international operations to account for 70 percent of business in five years as overseas drillingcontinues to expand and the Grant Prideco merger takes the company into new territory.Some of the hottest contractsNational Oilwell Varco is working on now involve rigs for major natural gas plays, including drilling in the Algeriandesert and in Russia, where the company recently signed a $400 million deal to build two floating rigs for theShtokman field in the Barents Sea.Clay Williams, the companys chief financial officer, said snapping up smaller rivals doesnt just take National OilwellVarco into new markets. It can mean striking technological pay dirt. The Natixis Bleichroeder report points to one gemof the Grant Prideco acquisition — the IntelliServ Network. Analyst Jeff Spittel calls it "a potentially game-changingtechnology" with great promise for future profits. IntelliServ embeds a fiber-optic measuring system in drill pipe thattells operators on the drill floor exactly what is going on thousands of feet below at the drill bit. The instantaneous datafeeds should mean more precise drilling and could prevent blowouts.
Been dedicated to provide highest qualityoilfield products and services since 1841 700 worldwide manufacturing, sales, and service centers Customer-focused solutions that meet the quality, productivity, and environmental requirements Worldwide leader in providing major mechanical components for land and offshore drilling rigs Provides Oil & Gas supply chain services through its network of distribution service cents 19
The incorporation in 1996 and subsequentIPO allowed the company to grow faster. IPO SNAPSHOT OPPORTUNITY EXCHANGE: NYSE Construction of new drilling rigs and equipment as well SHARES OFFERED: 4 million as the upgrade and refurbishment of existing drilling rigs POST-OFFERING SHARES: 17.7 and equipment. million Increasing Demand for Higher Horsepower Drilling PROPOSED OFFER PRICE: $ 17.0 - Machinery $ 15.0 ACTUAL OFFER PRICE: $ 17.0 TRENDS FIRST-DAY CLOSING PRICE: $ 20.1 90% offshore mobile drilling rig utilization and increased OFFERING AMOUNT: $ 68.0 million land rig utilization Alliance/outsourcing trends among oil & gas companies COMPETENCIES Large and geographically diverse network of distribution service centers Purchasing leverage due to the volume of products sold Breadth of available product lines Information systems that offer customers enhanced online and onsite services.
Multiple acquisition allowed NOV tobecome one stop shop. Opportunities: NOV wants to become a one stop shop for oil and drilling equipments Their main offerings : Rig Technology, Petroleum Services & Supplies and Distribution Services Trends NOV started from the year 1998 to 2006 have acquired approximately 150 companies to diversify their portfolio. Growth as seen in CFROI They develop complete solutions for the oil and drilling companies for their rigs. NOV is contemplating of venturing into alternative energy sources Core Competencies In a rig manufactured by NOV, 95% parts are from its companies which it acquired. Their main strategy is acquiring and making deals with companies to offer different solutions to the oil and drilling companies.
National OilWell and Varco merger (2005)expanded product and services.MERGER SNAPSHOT Opportunities $2.5 billion value of the merger Merger employed together both of the company offered 170 million shares. genuine assets and help NOV to become a NOI get 51% and Varco get 49% dominant market leader . of the Merger $40-50 million pretax cost saving after the merger Value Proposition 12% ROI and 130% IC growth New Merger Provided unparallel level of quality in achieved in 2005 after the merger capital equipment, expandable product and services Competencies Merger offered excellent opportunities for the stockholders, employees and customers of both companies and positioned better to compete effectively in global market place.
Grant Prideco Merger (2008)is the catalystfor international expansion.MERGER SNAPSHOT Opportunities $7.5 billion value of cash and Merger build a model of synergy for NOV-- a one-stop stock merger with Houston based shop for all a drillers needs, from derricks to drill bits Grad Prideco Combined Market Cap of $32 billion Value Proposition New Merger advances NOV strategic goal of providing 86% of Merger to NOV and 14% more products and services to Oil Machinery sector. to Grant Pridecco 5% increase in EPS in 2008 Competencies $60 million of Pretax Cost saving Merger benefited the stakeholders by creating a larger, more diversified company that is better positioned to compete in the global marketplace