Team3 national oilwell_varco_final

A closer look at the company’s strategic initiatives

National Oilwell Varco A closer look at the company’s strategic initiatives

through Return Driven Strategy Framework.

Mashuk, Abdullah

Moraes, Ricardo

Rabello, Vitoria

Team 3Arakelian, Victoria

Gurumurthy, Jayaram

Hoffman, Aaron

Mathur, Pankaj

NOV ranked No. 1 in 2008 in Houston Chronicle’s list of 100 companies.

“Self-styled Wal-Mart of the

oil patch”oil patch”

Last 10 years performance resulted in superior ROI compared to the industry.

13% 11% 8% 9% 12%

23% 25%

40%33% 29% 27% 26%

19%

0%

20%

40%

60%

80%

100%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 LFY+1 LFY+2Mkt Imp

ROI'

130%200%

Average ROI

21%

0%20% 15% 4%

130%

6%

62%

3% 11%

-7%

0% 9%

-100%

0%

100%

200%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 YTD 5Yr

CAGR

IC' Growth

0.0

2.0

4.0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 LFY+1

RelativeTSR

Average Invested Capital Growth

24%

Average Total Shareholder Return

3X

NOV achieved many milestones since its inception over 150 years ago.

1862 – 1987: NOV

operated as separate

companies

1997: begins series of acquisitions

1999: The acquisition of Hitec

ASA of Norway

2005: National Oilwell and

Varco merged to become NOV

1996: Incorporation of National Oilwell,

Inc. and IPO

2001: The first completely

automated oil drilling

equipment

2008: Merge with Grant

Prideco (mkt. cap $32B)

Industry: the price of oil and competitive environment can impact performance.

440 356 438

1720 1790 1868

952 10171089

20

40

60

80

100

1000

2000

3000

4000 International

US

Canada

West Texas

NOV VS.MAIN COMPETITORS

REVENUE 2009 (M$)

NOV 12, 710

FCM TECHNOLOGIES 4,410

CAMERON CORPORATION 5,220

BAKER HUGES 9,660

SMITH INTERNATIONAL 8,220

440 356 43800

2006 2007 2008

West Texas International Price

� Clearly the leader among industry peers� Only company that provide complete solution� Operates globally

Current success is linked to their strategic initiatives.

� Constant Growth through mergers & acquisitions “snowball effect”

� International expansion through mergers & acquisitions

� All in One House

Mergers & Acquisitions

• 2005 National Oil buys Varco for $2.4B which let’s the acquisitions of more than

Deals

Constant Growth through Mergers & Acquisitions

acquisitions of more than

150(!) companies in 4 years

International expansion through mergers & acquisitions

International expansion:

• 2008 Grant Prideco buyout starts strategy of international expansion from 30% To 70% in 5

Reason to expand:

• Industry is violent: politics, economics, legislation, etc.

• Mideast Crisis led to write downs, Company still was profitable

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from 30% To 70% in 5 years

profitable

Unique rig technology:• Allows to install the drilling

point in 3 months, as compared to 1 year

All in One House Rig From Rig to petroleum &

distribution:• Acquisitions has led the

company to have all set of services and solutions

• Consists of 95% changeable parts, which are produced in house.

• Allows to address the customers’ issues faster

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All-in-one-stop-Strive to new

Big companies in the oilfield industry

Complete solution for oilfield industry

National Oilwell Varco meets all the tenets of the Return Driven Strategy.

Wealth-creation that benefits all

stakeholders

Individual basis branding

All-in-one-stop-shop solution

Strive to new products and

solutions

“Umbrella-Brand” for all products

and services

Big vigilant of customer processes

Next Generation Program

Each brand with own decision

process

Acquisitions of companies with

synergy

Global Presence, Rig Technology, in-house R&D

Regulatory compliance, Globalization awareness

Constant Growth in Market Cap, Steady CFROI, internal control

Wal-Mart of Rigs &

12

Wal-Mart of Rigs &Buffet of oil deals

DISCIPLINED PERFORMANCE

MEASUREMENT AND

VALUATION

Relevant ROI and Capital

Growth Benchmarks

Revenue Metrics & #s

Appendix 1: Return Driven Strategy© Workbench

1996 Strategic Initiative

DEFINE “WEALTH” ETHICALLY

• Capture a significant portion of any increased level of expenditures by its

customers for the construction of new drilling rigs and equipment as well as the

upgrade and refurbishment of existing drilling rigs and equipment.

• Capitalizing on Increasing Demand for Higher Horsepower Drilling Machinery

KEY CUSTOMER SEGMENTS & THEIR UNMET NEEDS• Upstream oil & gas companies

• The advanced age of the existing fleet of drilling rigs

• Increasing drilling activity involving greater water depths and extended reach

• New drilling rig construction and the upgrading and capacity enhancement of existing

rigs

COMPETENCIES TO INNOVATE, BRAND, AND DELIVER OFFERINGS• higher horsepower drawworks, mud pumps and power swivels provide

• integrated information and process systems that enhance procurement, inventory management

* VALUE PROPOSITION * The company seeks to expand its market position by leveraging its

installed base of higher capacity drilling machinery and equipment, expanding its non-capital upstream

products business, building its information technology strategy, and making acquisitions to enhance its

product line.

VIGILANCE TO

FORCES OF CHANGE

Scientific/Technological:• The Company's business is dependent

on and affected by the level of

worldwide oil and gas drilling and

production activity, aging of the

worldwide rig fleet which was

generally constructed prior to 1982

and the profitability and cash flow of

oil and gas companies and drilling

contractors. Drilling activity has

recently increased in the offshore and

deeper land markets, both of which

are particularly well served by the

drilling machinery and equipment

manufactured by the Company.

Cost Related Metrics & #s

Capital Investment Measures

• integrated information and process systems that enhance procurement, inventory management

and logistics activities

• Regionally centralized procurement, inventory and logistics operations in order to gain cost and

inventory utilization efficiencies while retaining responsiveness to local markets.

GENUINE ASSETS

• Large and geographically diverse network of distribution service centers in major

oil and gas producing areas

• Purchasing leverage due to the volume of products sold

• Breadth of available product lines

• Information systems that offer customers enhanced online and onsite services.

manufactured by the Company.

• Worldwide offshore mobile drilling rig

utilization rate was over 90% and

active U.S. land rigs had increased 14%

compared to December 31, 1995.

• Alliance/outsourcing trends among oil

& gas companies

Governmental/Regulatory:• Environment laws and regulations

have changed rapidly over the past 20

year which placed more restriction s

and limitations on activities that may

impact the environment. Compliance

with these laws and regulations did

not adversely affected the company’s

financial condition.

• The Comprehensive Environmental

Response, Compensation and Liability

Act ("CERCLA")

Demographic/Cultural:

SUPPORTING ACTIVITIES

• strategic integration of the Company's distribution expertise, extensive

distribution network and growing base of customer alliances provides an

increased opportunity for cost effective marketing of the Company's

manufactured equipment.


MEASUREMENT AND

VALUATION


Growth Benchmarks




One Stop Shop


KEY CUSTOMER SEGMENTS & THEIR UNMET NEEDS

• Rig Technology, Petroleum Services & Supplies, and Distribution Services

• Solutions and Customized Rigs For eg. The Ideal Rig has thousands of parts, and National

Oilwell Varco makes 95 percent of them.

COMPETENCIES TO INNOVATE, BRAND, AND DELIVER OFFERINGS

• The Company offers Supply Chain Solutions, Lifting and handling solutions, Renting the

* VALUE PROPOSITION * The company seeks to expand its market position by

leveraging its installed base of higher capacity drilling machinery and equipment,

expanding its non-capital upstream products business, building its information

technology strategy, and making acquisitions to enhance its product line.

VIGILANCE TO

FORCES OF CHANGE

Scientific/Technological:

Governmental/Regulatory:

• Rig Assembling in the country

• The recent mideast crisis

impacted the company bottomline

with write down of assets.

Demographic/Cultural:• Any disturbance in the oil


• The Company offers Supply Chain Solutions, Lifting and handling solutions, Renting the

rigs

• It designs its own pumps to be used in rigs

• They want to be the one stop shop for oil and drilling equipment.


• NOV IntelliServ is a joint venture between the Company and Schlumberger, Ltd.,

in which the Company holds a 55% interest and maintains operational control.

GENUINE ASSETS 1. Rig Technology

2. Petroleum Services

3. Distribution services

4. Moving towards total solutions by acquisitions of smaller companies. They are really

good in acquisitions, and trying to maintain customized different offering.

• Any disturbance in the oil

producing nations would

impact heavily the industry and

the company.


MEASUREMENT AND

VALUATION


Growth Benchmarks

12% ROI and 130% IC

growth achieved in 2005

after the merger



National Oil Well and Varco Merger-2005


Growing feeling from companies and investors that it is better to buy an established

Organization than to build on right from the scratch.

KEY CUSTOMER SEGMENTS & THEIR UNMET NEEDS

• Merger employed together both of the company genuine assets and help NOV to

become a dominant market leader .

• NOI and VRC anticipated and responded correctly the ever-growing worldwide

demand for energy over the next few years.

• Merger able to produced joint offering to target specifically oil and gas drilling

industry which no other competitor couldn’t offered.


• Merger Brought and packaged together many of the most popular and

respected product and services offering from oil and gas drilling industry.

* VALUE PROPOSITION * “Customer from Oil and Gas drilling industry

benefited from New Merger ability to respond with an unparallel level of

quality in capital equipment, expandable product and services”

VIGILANCE TO

FORCES OF CHANGE


• Merger combined effort

from R&D of both of the

companies and offered

next generation of energy

product

`

Governmental/Regulatory: Revenue Metrics & #s


$40-50 million pretax cost

saving after the merger


$2.5 billion value of the

merger offered 170 million

shares from the new merger

from which NOI get 51% and

Varco get 49% of the Merger

respected product and services offering from oil and gas drilling industry.

• Merger helped NOV to covered a big part of the unmet need of customers

from Oil and Gas Industry i.e. offered One stop solution provider or All in one

shop for Oil and Gad drilling production.


•Formed a new Entity NOI+VRC = NOV

•Merger offered excellent opportunities for the stockholders, employees and

customers of both companies, as National Oil well and Varco to better positioned

to compete effectively in the global market place.

GENUINE ASSETS of NOI

•Worldwide leader in the design, manufacture and sale of comprehensive systems

and components used in oil and gas drilling and production.

GENUINE ASSET of VRC

• A leading provider of Highly-engineered equipment to the world's oil and gas

industry


Factors that facilitate M&A in

2005:

- Opening up of European

market

- Growing sense of investors

about M&A

- Ease of M&A process

- More availability of cash

Big mergers In 2005:

-- P&G acquired Gillette

-- Adidas acquired Reebok

-- eBay acquired Skype


Merger helped NOI and VRC to

better positioned to complete

effectively in the global

market place.


MEASUREMENT AND

VALUATION


Growth Benchmarks

National Oilwell Varco will

acquire all of Grant Prideco

for $23.20 in cash and 0.4498

of its own shares per GRP

share. The deal values GRP at

$58 per share, a 22%

premium to Friday’s closing


<Title of Strategic Initiative>


The Company has a long tradition of pioneering innovations which improve the

cost-effectiveness, efficiency, safety and environmental impact of oil and gas

operations. The Company's common stock is traded on the New York Stock

Exchange under the symbol "NOV". The Company operates through three business

segments: Rig Technology, Petroleum Services & Supplies, and Distribution Services.KEY CUSTOMER SEGMENTS & THEIR UNMET NEEDS


The Company has a long tradition of pioneering innovations which improve the


* VALUE PROPOSITION *

VIGILANCE TO

FORCES OF CHANGE


•Fiber-optic measuring system

in drill pipe


•Changes associated with

operating in foreign countries

Demographic/Cultural: premium to Friday’s closing

price of $47.46.




•Combined market cap of $32

b


operations.


GENUINE ASSETS

The Company believes that it has been a leader in the development of new

technology and equipment to enhance the safety and productivity of drilling and

well servicing processes and that its sales and earnings have been dependent, in

part, upon the successful introduction of new or improved products. Through its

internal development programs and certain acquisitions, the Company has

assembled an extensive array of technologies protected by a substantial number of

trade and service marks, patents, trade secrets, and other proprietary rights.


•Majority of firms business is

coming from overseas

Appendix 5: Additional Information Historically, drilling companies have ordered customized rigs that can take a year or more to design and build. Many still take that long, but land drilling is so hot today, especially in North America, that National Oilwell Varco is turning out 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 the engines and air compressors. National Oilwell Varco's business is split between overseas and North American operations, which include the U.S. and Canada. That's 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 drilling continues to expand and the Grant Prideco merger takes the company into new territory.Some of the hottest contracts National Oilwell Varco is working on now involve rigs for major natural gas plays, including drilling in the Algerian National Oilwell Varco is working on now involve rigs for major natural gas plays, including drilling in the Algerian desert and in Russia, where the company recently signed a $400 million deal to build two floating rigs for the Shtokman field in the Barents Sea.

Clay Williams, the company's chief financial officer, said snapping up smaller rivals doesn't just take National Oilwell Varco into new markets. It can mean striking technological pay dirt. The Natixis Bleichroeder report points to one gem of the Grant Prideco acquisition — the IntelliServ Network. Analyst Jeff Spittel calls it "a potentially game-changing technology" with great promise for future profits. IntelliServ embeds a fiber-optic measuring system in drill pipe that tells operators on the drill floor exactly what is going on thousands of feet below at the drill bit. The instantaneous data feeds should mean more precise drilling and could prevent blowouts.

� 700 worldwide manufacturing, sales, and service centers

� Customer-focused solutions that meet the quality, productivity, andenvironmental requirements

� Worldwide leader in providing major mechanical components for landand offshore drilling rigs

Been dedicated to provide highest quality oilfield products and services since 1841

and offshore drilling rigs

� Provides Oil & Gas supply chain services through its network ofdistribution service cents

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The incorporation in 1996 and subsequent IPO allowed the company to grow faster.

IPO SNAPSHOT

� EXCHANGE: NYSE

� SHARES OFFERED: 4 million

� POST-OFFERING SHARES: 17.7million

� PROPOSED OFFER PRICE: $ 17.0 -$ 15.0

OPPORTUNITY�Construction of new drilling rigs and equipment as well

as the upgrade and refurbishment of existing drilling rigsand equipment.�Increasing Demand for Higher Horsepower Drilling

Machinery

TRENDS� ACTUAL OFFER PRICE: $ 17.0

� FIRST-DAY CLOSING PRICE: $ 20.1

� OFFERING AMOUNT: $ 68.0 million

TRENDS�90% offshore mobile drilling rig utilization and increased

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 to become one stop shop.

Opportunities:

� NOV wants to become a one stop shop for oil and drilling equipments

� Their main offerings : Rig Technology, Petroleum Services & Suppliesand Distribution Services

Trends� NOV started from the year 1998 to 2006 have acquired approximately� 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 fortheir 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 tooffer different solutions to the oil and drilling companies.

National OilWell and Varco merger (2005) expanded product and services.

MERGER SNAPSHOT� $2.5 billion value of the merger

offered 170 million shares.

� NOI get 51% and Varco get 49%

of the Merger

� $40-50 million pretax cost saving

after the merger

� 12% ROI and 130% IC growth

Opportunities�Merger employed together both of the company

genuine assets and help NOV to become a

dominant market leader .

Value Proposition�New Merger Provided unparallel level of quality in� 12% ROI and 130% IC growth

achieved in 2005 after the merger�New Merger Provided unparallel level of quality in

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 catalyst for international expansion.

MERGER SNAPSHOT� $7.5 billion value of cash and

stock merger with Houston based

Grad Prideco

� Combined Market Cap of $32

billion

� 86% of Merger to NOV and 14%

to Grant Pridecco

Opportunities� Merger build a model of synergy for NOV-- a one-stop

shop for all a driller's needs, from derricks to drill bits

Value Proposition� New Merger advances NOV strategic goal of providing

more products and services to Oil Machinery sector.to Grant Pridecco

� 5% increase in EPS in 2008

� $60 million of Pretax Cost savingCompetencies�Merger benefited the stakeholders by creating a larger,

more diversified company that is better positioned to

compete in the global marketplace

http://impeller.net/magazine/news_en/dx9FCz.asphttp://www.getfilings.com/comp/k0001021860.html

http://www.nov.com/Home.aspx

http://finance.mapsofworld.com/merger-acquisition/2005.html

Citations/Bibliography

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