Energy Company Presentation

Dan GeislerOlga Boder(Firdman)

Fall 2009

Agenda

• Recommendation • Recap of Sector Presentation• Business analysis • Financial analysis &Valuation

– RIG– NOV– COP– BP

• Revisit Recommendation

Recommendation

• Hold the overall % for the sector.• Hold Transocean Ltd.• Reduce the % of BP plc. – ADR and

ConocoPhillips Co.• Diversify our energy sector by purchasing a

stock with an exposure to other industries inside the energy sector.

• Purchase National Oilwell Varco (NOV).

SIM and S&P 500Sector S&P 500 Weight SIM Weight +/-

Energy 12.35% 12.80% 0.45%

Weight Security Ticker Industry

4.62% BP plc. - ADR BP Major Integrated Oil & Gas

3.43% ConocoPhillips Co. COP Major Integrated Oil & Gas

4.75% Transocean Ltd. RIG Oil & Gas Drilling & Exploration

SIM Companies and Industries

Oil Price Forecast

Industry/Sector Valuations

Energy Absolute High Low Median CurrentP/Trailing E 14.9 6.1 11.7 12.1P/Forward E 16.2 7.8 11.5 15.4P/B 3.8 1.4 3.0 2.1 Overvalued by >20%P/S 1.4 0.5 1.1 1.0 Inline within 20%P/CF 9.4 4.1 7.3 5.4 Undervalued by >20% Energy Relative to S&P 500 High Low Median Current

P/Trailing E 0.88 0.53 0.70 0.68P/Forward E 1.20 0.57 0.74 0.91P/B 1.40 0.80 1.10 1.00 Overvalued by >10%P/S 1.00 0.60 0.80 0.9 Inline within 10%P/CF 0.90 0.50 0.70 0.50 Undervalued by >10%

Industry/Sector Valuations

Oil Drilling Relative to S&P 500 High Low Median Current

P/Trailing E 3.70 0.28 0.98 0.41 P/Forward E 2.00 0.28 0.68 0.79 P/B 1.70 0.50 1.00 0.80 Overvalued by >10%P/S 4.30 1.40 2.90 1.80 Inline within 10%P/CF 1.80 0.40 1.00 0.50 Undervalued by >10%

Oil Integrated Relative to S&P 500 High Low Median Current

P/Trailing E 0.79 0.51 0.61 0.64P/Forward E 1.20 0.46 0.68 0.78P/B 1.40 0.90 1.00 1.00 Overvalued by >10%P/S 0.80 0.50 0.60 0.80 Inline within 10%P/CF 0.80 0.50 0.60 0.50 Undervalued by >10%

Oil Exploration Relative to S&P 500 High Low Median Current

P/Trailing E 1.10 0.55 0.70 1.00P/Forward E 1.90 0.51 0.73 1.20P/B 1.30 0.70 0.80 0.80 Overvalued by >10%P/S 3.50 1.50 2.20 2.50 Inline within 10%P/CF 0.80 0.40 0.60 0.50 Undervalued by >10%

Industry/Sector Valuations

Oil Equipment Relative to S&P 500 High Low Median Current

P/Trailing E 1.90 0.58 1.30 0.77P/Forward E 1.70 0.61 1.20 1.40P/B 2.80 1.00 2.00 1.30 Overvalued by >10%P/S 2.80 1.20 1.80 1.60 Inline within 10%P/CF 1.60 0.70 1.30 0.80 Undervalued by >10%

Oil Refining Relative to S&P 500 High Low Median Current

P/Trailing E 1.00 0.23 0.50 0.31P/Forward E 3.90 0.39 0.55 3.90P/B 1.30 0.30 0.80 0.30 Overvalued by >10%P/S 0.50 0.10 0.20 0.10 Inline within 10%P/CF 0.70 0.20 0.50 0.30 Undervalued by >10%

Coal Relative to S&P 500 High Low Median Current

P/Trailing E 23.30 0.55 1.40 0.74P/Forward E 2.10 0.39 0.95 1.20P/B 1.90 0.70 1.10 1.90 Overvalued by >10%P/S 4.00 0.90 1.30 1.40 Inline within 10%P/CF 2.10 0.50 0.70 0.80 Undervalued by >10%

Transocean Ltd. (RIG)

• Oil & Gas Drilling & Exploration Industry (correlation: 0.91)• Provides contract drilling services for offshore oil drilling• Their competitive advantage and source of high margin

profits is due to a specialization in harsh environment and deepwater drilling

• Deepwater Millennium has set four world water-depth records in the U.S. Gulf of Mexico, including the most recent record at 8,960 feet of water

• Has well depth record of over 40,000 feet (7.5 miles)

Transocean (RIG) Key Facts/Figures

• 2008 Total revenue: $12,764m• 2008 Net income: $4,202m (33.2%)• 9 month profit margin: 27.8%• Current stock price (11/20/09): $83.80• Current market cap (11/20/09): $26.91b• Correlation to crude oil: 0.92• Headquartered: Vernier, Switzerland

Transocean (RIG) Valuation Ratios

RIG Absolute High Low Median CurrentTarget

MultipleTarget E, S, B,

etc/ShareTarget Price

P/Trailing E 160.8 3.4 23.9 6.6P/Forward E 41.9 3.1 11.9 8.4 10.3 10.0 $ 103.25 P/B 4.7 0.9 2.8 1.4 2.1 59.9 $ 125.70 Overvalued by >20%P/S 9.4 1.3 6.8 2.2 4.2 36.6 $ 153.92 Inline within 20%P/CF 33.8 2.8 18.4 5.1 9.0 16.4 $ 147.88 Undervalued by >20%

Simple Average 132.69$

Transocean Ltd. (RIG)

Analyst: Dan Geisler Terminal Discount Rate = 12.0%11/20/2009 Terminal FCF Growth = 5.0%

Year 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E

Revenue 11,764 12,235 12,846 13,489 14,298 15,156 15,914 16,709 17,545 18,422 19,343 % Grow th 4.0% 5.0% 5.0% 6.0% 6.0% 5.0% 5.0% 5.0% 5.0% 5.0%

EBT 3,973 4,282 4,753 5,261 5,433 5,608 5,729 5,848 5,965 6,079 6,190 EBT Margin 33.8% 35.0% 37.0% 39.0% 38.0% 37.0% 36.0% 35.0% 34.0% 33.0% 32.0%

Interest - - - - - - - - - - - Interest % of Sales 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Taxes 755 963 1,188 1,315 1,358 1,402 1,432 1,462 1,491 1,520 1,547 Tax Rate 19.0% 22.5% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0%

Net Income 3,218 3,319 3,565 3,945 4,075 4,206 4,297 4,386 4,474 4,559 4,642 % Grow th 3.1% 7.4% 10.7% 3.3% 3.2% 2.2% 2.1% 2.0% 1.9% 1.8%

Add Depreciation/Amort 1,412 1,468 1,542 1,619 1,716 1,819 1,910 2,005 2,105 2,211 2,321 % of Sales 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0%

Plus/(minus) Changes WC (88) (31) (80) 115 146 155 135 142 149 157 164 % of Sales -0.7% -0.2% -0.6% 0.9% 1.0% 1.0% 0.9% 0.9% 0.9% 0.9% 0.9%

Capital Expenditures (3,800) (2,692) (2,055) (1,888) (1,716) (1,819) (1,910) (2,005) (2,105) (2,211) (2,321) Capex % of sales -32.3% -22.0% -16.0% -14.0% -12.0% -12.0% -12.0% -12.0% -12.0% -12.0% -12.0%

Free Cash Flow 918 2,126 3,131 3,561 3,929 4,051 4,161 4,244 4,325 4,403 4,478 % Grow th 131.7% 47.3% 13.8% 10.3% 3.1% 2.7% 2.0% 1.9% 1.8% 1.7%

NPV of Cash Flows 20,528 49%NPV of terminal value 21,627 51% Terminal Value 67,169 Projected Equity Value 42,155 100%Free Cash Flow Yield 3.07% Free Cash Yield 6.67%

Current P/E 9.3 9.0 8.4 Terminal P/E 14.5 Projected P/E 13.1 12.7 11.8 Current EV/EBITDA 7.4 6.9 6.3 Terminal EV/EBITDA 9.0 Projected EV/EBITDA 9.7 9.0 8.3

Shares Outstanding 321.0

Current Price 93.20$ Implied equity value/share 131.32$ Upside/(Downside) to DCF 40.9%

Debt 10,890 Cash 1,081 Cash/share 3.37

National Oilwell Varco (NOV)

• Oil & Gas Equipment & Services Industry (correlation: 0.91)• Design, construct, manufacture, and sell systems,

components, and products used in oil and gas drilling and production

• Business segments: Rig Technology, Petroleum Services & Supplies, and Distribution Services

National Oilwell Varco (NOV)Key Facts/Figures• 2008 Total revenue: $13,431m• 2008 Net income: $1,952m (14.5%)• 9 month profit margin: 11.3%• Current stock price (11/20/09): $42.79• Current market cap (11/20/09): $17.9b• Correlation to crude oil: 0.94• Headquartered: Houston, Texas

National Oilwell Varco (NOV)Valuation Ratios

NOV AbsoluteHigh Low Median Current

Target Multiple

Target E, S, B, etc/Share

Target Price

P/Trailing E 42.10 5.10 21.00 8.20P/Forward E 26.90 5.10 15.20 11.50 13.50 3.48 $ 46.98 P/B 4.40 0.80 2.70 1.30 2.00 32.92 $ 65.83 Overvalued by >20%P/S 3.10 0.80 1.90 1.80 1.90 30.63 $ 58.19 Inline within 20%P/CF 40.50 3.90 18.50 6.70 10.00 6.39 $ 63.87 Undervalued by >20%

Simple Average 58.72$

National Oilwell Varco (NOV)

Analyst: Dan Geisler Terminal Discount Rate = 11.0%11/20/2009 Terminal FCF Growth = 5.0%

Year 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E

Revenue 12,771 13,409 14,080 14,784 15,523 16,299 17,114 17,970 18,868 19,811 20,802 % Grow th 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%

EBT 2,171 2,179 2,288 2,365 2,484 2,608 2,738 2,875 3,019 3,170 3,328 EBT Margin 17.0% 16.3% 16.3% 16.0% 16.0% 16.0% 16.0% 16.0% 16.0% 16.0% 16.0%

Interest - - - - - - - - - - - Interest % of Sales 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Taxes 733 730 766 792 832 874 917 963 1,011 1,062 1,115 Tax Rate 33.8% 33.5% 33.5% 33.5% 33.5% 33.5% 33.5% 33.5% 33.5% 33.5% 33.5%

Net Income 1,451 1,462 1,536 1,573 1,652 1,734 1,821 1,912 2,008 2,108 2,213 % Grow th 0.8% 5.0% 2.4% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%

Add Depreciation/Amort 485 402 422 444 466 489 513 539 566 594 624 % of Sales 3.8% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%

Plus/(minus) Changes WC 1,754 (913) (248) (148) (155) (163) (171) (180) (189) (198) (208) % of Sales 13.7% -6.8% -1.8% -1.0% -1.0% -1.0% -1.0% -1.0% -1.0% -1.0% -1.0%

Capital Expenditures (319) (335) (422) (444) (466) (489) (513) (539) (566) (594) (624) Capex % of sales -2.5% -2.5% -3.0% -3.0% -3.0% -3.0% -3.0% -3.0% -3.0% -3.0% -3.0%

Free Cash Flow (137) 2,443 1,784 1,721 1,807 1,897 1,992 2,092 2,196 2,306 2,421 % Grow th -1878.5% -27.0% -3.5% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%

NPV of Cash Flows 12,002 45%NPV of terminal value 14,923 55% Terminal Value 42,374 Projected Equity Value 26,926 100%Free Cash Flow Yield -0.75% Free Cash Yield 5.71%

Current P/E 12.6 12.5 11.9 Terminal P/E 19.1 Projected P/E 18.6 18.4 17.5 Current EV/EBITDA 6.0 6.2 5.9 Terminal EV/EBITDA 10.1 Projected EV/EBITDA 9.3 9.5 9.1

Shares Outstanding 417.0

Current Price 43.83$ Implied equity value/share 64.57$ Upside/(Downside) to DCF 47.3%

Debt 875 Cash 3,192 Cash/share 7.65

ConocoPhillips Co. (COP)

• Integrated Oil & Gas Industry• One of the largest integrated energy company in the world

that engages in the exploration, production, refining, processing, and marketing of petroleum and natural gas.

• Lines of Business:• Exploration and Production • Midstream• Refining and Marketing • LUKOIL Investment• Chemicals• Emerging Businesses

ConocoPhillips Co. (COP) Key Facts/Figures

• 2008 Total revenue: $240,842m• 2008 Net income: ($16,998)m (-7.1%)• 9 month profit margin: 3.4%• Current stock price (11/20/09): $52.08• Current market cap (11/20/09): $77.27b• Correlation to oil: 0.91• Headquartered: Houston , Texas

ConocoPhillips Co. (COP)Valuation Ratios

COP AbsoluteHigh Low Median Current Target

MultipleTarget E, S, B,

etc/Share Target Price

P/Trailing E 18.8 5.3 8.9 13.6 P/Forward E 1.2 0.2 0.7 0.5 0.70 91.02 $ 63.70 P/B 3.5 0.8 1.6 1.3 1.60 39.98 $ 63.97 Overvalued by >20%P/S 12.44 2.53 3.97 4.64 4.50 12.95 $ 49.85 Inline within 20%P/CF 11 2.3 5.7 4.1 5.70 12.54 $ 71.45 Undervalued by >20%

Simple Average $ 62.24

ConocoPhillips (COP)

Analyst: Olga Boder(Firdman) Terminal Discount Rate = 12.0%10/12/2009 Terminal FCF Growth = 3.0%

Year 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E

Revenue 138,667 184,300 194,248 204,155 214,363 225,081 236,335 248,152 260,559 273,587 287,267 % Grow th 32.9% 5.4% 5.1% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%

EBT 9,513 14,486 19,444 15,046 15,756 15,981 16,307 17,122 17,197 17,510 18,385 EBT Margin 6.9% 7.9% 10.0% 7.4% 7.4% 7.1% 6.9% 6.9% 6.6% 6.4% 6.4%

Interest - - - - - - - - - - - Interest % of Sales 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Taxes 3,805 5,794 7,778 6,018 6,302 6,392 6,523 6,849 6,879 7,004 7,354 Tax Rate 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0%

Net Income 5,708 8,692 11,667 9,028 9,453 9,588 9,784 10,273 10,318 10,506 11,031 % Grow th 52.3% 34.2% -22.6% 4.7% 1.4% 2.0% 5.0% 0.4% 1.8% 5.0%

Add Depreciation/Amort 9,823 10,505 11,461 12,045 12,219 12,830 13,235 13,897 14,591 15,321 16,087 % of Sales 7.1% 5.7% 5.9% 5.9% 5.7% 5.7% 5.6% 5.6% 5.6% 5.6% 5.6%

Plus/(minus) Changes WC (7,623) (913) (199) (612) (643) (675) (709) (744) (782) (821) (862) % of Sales -5.5% -0.5% -0.1% -0.3% -0.3% -0.3% -0.3% -0.3% -0.3% -0.3% -0.3%

Subtract Cap Ex 9,000 11,058 10,684 11,229 11,790 12,379 12,998 13,648 14,331 15,047 15,800 Capex % of sales 6.5% 6.0% 5.5% 5.5% 5.5% 5.5% 5.5% 5.5% 5.5% 5.5% 5.5%

Free Cash Flow (1,093) 7,226 12,245 9,232 9,239 9,363 9,312 9,777 9,797 9,959 10,457 % Grow th -761.2% 69.5% -24.6% 0.1% 1.3% -0.6% 5.0% 0.2% 1.6% 5.0%

NPV of Cash Flows 54,024 58%NPV of terminal value 38,530 42% Terminal Value 119,669 Projected Equity Value 92,554 100%Free Cash Flow Yield -1.35% Free Cash Yield 10.23%

Current P/E 14.2 9.3 6.9 Terminal P/E 10.3 Projected P/E 16.2 10.6 7.9 Current EV/EBITDA 5.6 4.4 3.5 Terminal EV/EBITDA 4.8 Projected EV/EBITDA 6.2 4.8 3.9

Shares Outstanding 1,523.4

Current Price 53.08$ Implied equity value/share 60.75$ Upside/(Downside) to DCF 14.5%

Debt 28,926 Cash 888 Cash/share 0.58

BP PLC(BP)

• Integrated Oil & Gas Industry• The 3rd largest global energy company and the 5th largest

company in the world. BP supplies fuel for transportation, energy for heat and light, retail services, and petrochemicals products.

• Lines of Business:• Exploration and Production • Refining and Marketing • Other Businesses and Corporate

BP PLC (BP) Key Facts/Figures

• 2008 Total revenue: $ 367,053m• 2008 Net income: $ 21,157 m (5.7%)• 9 month profit margin: 7.2%• Current stock price (11/20/09): $ 57.83• Current market cap (11/20/09): $180.62b• Correlation to oil: 0.67• Headquartered: London, England

BP PLC (BP) Valuation Ratios

BP Absolute High Low Median Current Target Multiple

Target E, S, B, etc/Share

Target Price

P/Trailing E 16 4.5 10.7 13.4 P/Forward E 13.8 4.7 10.3 10.5 10.30 5.90 $

60.77 P/B 3.3 1.4 2.6 1.8 1.80 32.13 $

57.83 Overvalued by >20%

P/S 1.1 0.3 0.8 0.8 0.80 85.70 $ 68.56 Inline within 20%

P/CF 9.7 3.3 7.6 7.1 7.10 8.15 $ 57.83 Undervalued by >20%

Simple Average $ 61.25

BP plc (BP)

Analyst: Olga Boder(Firdman) Terminal Discount Rate = 12.0%11/21/2009 Terminal FCF Growth = 3.0%

Year 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E

Revenue 385,405 404,675 424,909 437,656 450,786 464,309 478,238 492,585 507,363 522,584 538,261 % Grow th 5.0% 5.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%

EBT 75,291 87,996 55,238 56,895 58,602 60,360 62,171 64,036 65,957 67,936 69,974 EBT Margin 19.5% 21.7% 13.0% 13.0% 13.0% 13.0% 13.0% 13.0% 13.0% 13.0% 13.0%

Interest - - - - - - - - - - - Interest % of Sales 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Taxes 29,363 34,318 21,543 22,189 22,855 23,540 24,247 24,974 25,723 26,495 27,290 Tax Rate 39.0% 39.0% 39.0% 39.0% 39.0% 39.0% 39.0% 39.0% 39.0% 39.0% 39.0%

Net Income 45,928 53,678 33,695 34,706 35,747 36,820 37,924 39,062 40,234 41,441 42,684 % Grow th 16.9% -37.2% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%

Add Depreciation/Amort 10,985 11,534 12,111 12,474 12,849 13,234 13,631 14,040 14,461 14,895 15,342 % of Sales 2.9% 28.0% 28.0% 28.0% 28.0% 28.0% 28.0% 28.0% 28.0% 28.0% 28.0%

Plus/(minus) Changes WC 9,101 5,382 5,651 (1,313) (1,352) (1,393) (1,435) (1,478) (1,522) (1,568) (1,615) % of Sales 2.4% 1.3% 1.3% -0.3% -0.3% -0.3% -0.3% -0.3% -0.3% -0.3% -0.3%

Subtract Cap Ex 27,479 20,098 30,296 31,074 32,006 32,966 33,955 34,974 36,023 37,103 38,217 Capex % of sales 7.1% 7.1% 7.1% 7.1% 7.1% 7.1% 7.1% 7.1% 7.1% 7.1% 7.1%

Free Cash Flow 38,534 54,215 20,892 14,794 15,238 15,695 16,166 16,651 17,150 17,665 18,195 % Grow th 40.7% -61.5% -29.2% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%

NPV of Cash Flows 129,058 66%NPV of terminal value 67,044 34% Terminal Value 208,229 Projected Equity Value 196,102 100%Free Cash Flow Yield 21.36% Free Cash Yield 10.03%

Current P/E 3.9 3.4 5.4 Terminal P/E 6.2 Projected P/E 4.3 3.7 5.8 Current EV/EBITDA 2.4 2.1 3.1 Terminal EV/EBITDA 3.5 Projected EV/EBITDA 2.6 2.3 3.3

Shares Outstanding 3,120.0

Current Price 57.83$ Implied equity value/share 62.85$ Upside/(Downside) to DCF 8.7%

Debt 28,926 Cash 888 Cash/share 0.28

Recommendation

Mult. Weighting 40%

DCF Weighting 60%

Stock Mult. Target Price DCF Target Price Weighted Average Current Price Upside/(Downside) Current Holding Recommendation

RIG $132.69 $131.32 $131.87 $83.80 57.4% 4.75% 4.75%

NOV $56.52 $64.57 $61.35 $42.79 43.4% 0.0% 2.50%

COP $62.24 $60.75 $61.35 $52.08 17.8% 3.43% 2.93%

BP $61.25 $62.85 $62.21 $57.83 7.6% 4.62% 2.62%

Questions?