Oilfield Services and Equipment Sector Market Opportunity Update

May 2010 Oilfield Services and Equipment Sector Market Opportunity Update C O N F I D E N T I A L www.oliverwyman.com

Contents Introduction and executive summary Global energy industry and oilfield services trends Value flows: Oilfield services sub-sectors Oilfield services and equipment mergers and acquisition activity Oilfield services customer needs and investment priorities 1

Executive summary Oil service industry trends The global financial markets have stabilized and oil demand and prices and capital spending are recovering Given that oilfield services activity and investment are highly correlated to commodity prices, the sector s revenues and profitability have begun to recover Global E&P spending is forecasted to rebound by 11% in 2010, partly reversing a 15% slump in 2009 In the long term, oil demand will continue to expand and the oil & gas service sector will continue to grow The combination of NOCs restricting access to easier-to-reach reserves, elephant-sized field potential and technological improvement has made deepwater development a critical source of international and national oil company growth in some portions of the globe The push to more challenging reservoirs (deeper, higher pressure and temperature wells) is yielding more robust and expensive equipment and services. However, operators are frustrated with some of the quality assurance /quality control inadequacies existing in service providers creating opportunities for superior service providers. Oilfield services M&A activity has plunged to its lowest level since 2005 due to a lack of available debt capital and high volatility in valuations within the sector Both asset and corporate deal values have fallen year-over-year As a result, oilfield service company valuations are at near record lows relative to replacement costs and Net Asset Values (NAVs) Investment considerations Value will be created where business designs are constructed that take advantage of industry trends and do a superior job of meeting customers (producers ) unmet and future needs According to operators, oilfield service company equipment is often fairly equivalent for many providers and this not a differentiator the differences are personnel expertise, project management acumen, and having local expertise in the area There are compelling opportunities today for private equity to consider in the oilfield services industry 2

Global E&P spending is forecasted to rebound in 2010 Evolution of worldwide drilling activity and oil prices (1975-2009) Key observations Global E&P spending is forecasted to rebound by 11% in 2010, partly reversing a 15% slump in 2009, according to Barclays Capital s most recent semi-annual spending survey. Rig count 6 000 5 000 4 000 3 000 2 000 1 000 0 U.S. Latin America Africa Canada Middle East Europe Far East Price of Barrel 1975 1980 1985 1990 1995 2000 2005 Q1 2010 $120 $100 $80 $60 $40 $20 $0 Oil price USD (1975-09 inflation adjusted on 2009 USD) A strong rebound is forecasted for North America, which saw the biggest budget cuts in the past year. US spending is seen up 12%, while Canadian budgets are seen climbing 23% Capex budgets outside of NA will be led by the national oil companies, who as a group are expected to increase spending by 10% Companies based in Asia, Africa, Russia and the Middle East are planning the biggest spending increases, while European companies are keeping their budgets relatively flat from 2009 The increase in spending is attributed to recent increases in commodity prices and loosening credit markets On average, companies are basing their 2010 budgets on an oil price of $70.16 per barrel and gas prices of $5.21 per thousand cubic feet About 45% of the companies said they expect to spend a greater share of their budgets on exploration this year than they did in 2009, up from 16% in 2009. That is good news for the seismic and oil-service industries The companies listed horizontal wells and fracturing and stimulation as the most important technologies for 2010, both of which are important in shale gas production, with 3D and 4D seismic considered the third most important Sources: Baker Hughes, EIA, Barclays Capital, Oliver Wyman analysis. 4

EIA forecasted oil prices suggest improving market values for oilfield service companies 400 350 World crude prices versus OSX index 1 Monthly, January 2002 February 2010 ($USD) R 2 = 87% % of January 2002 300 250 200 150 100 50 EIA forecasted prices World Crude Oil Price ($/barrel) Oil Service Sector Index (OSX) 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: Compustat, Energy Information Administration, OW analysis. 1 OSX Index: Baker Hughes, Inc., BJ Services Co., Cameron International Corporation, Global Industries, Ltd., Halliburton Company, Nabors Industries, Inc., Noble Corp., National Oilwell Varco, Inc., Oceaneering International, Inc., Rowan Companies, Inc., Transocean, Inc., Smith International, Inc., Schlumberger Ltd., Tidewater, Inc., Weatherford Int l Inc. All prices indexed at 100 starting in Jan 2002. 5

Oilfield services revenue and EBIT margins Increasing oil prices have led to increased drilling activity, and oilfield services revenues and margins have begun to rebound as quickly as they collapsed Oil Services Large-Cap: Revenue Growth Oil Services Large-Cap: EBIT Margins 40% 30% 2011e MS 19.5% 2011e Middle East/Asia 25.0% 30% 25% 2011e Middle East/Asia 24.2% 20% 20% 2011e MS 19.0% 10% 2011e Consensus 18.9% 15% 2011e Consensus 16.5% 0% 10% -10% -20% MS Consensus 2011e Consensus Middle 16.5% East/Asia 2005 2006 2007 2008 2009 2010E 2011E 2012E 5% 0% MS Consensus 2011e Consensus Middle 16.5% East/Asia 2005 2006 2007 2008 2009 2010E 2011E 2012E Note: Includes historical figures and MS vs. consensus projection of top line growth for the average of SLB, HAL, WFT and BHI. Note: Includes historical figures and MS vs. consensus projection of EBIT margins for the average of SLB, HAL, WFT and BHI. Source: Morgan Stanley. Middle East/Asia is projected to have relatively high revenue growth and EBIT margins relative to other regions. 6

Exploration and production spending cycle In large part, commodity prices determine the cash flow of producers which is followed by increasing cash flows to service and equipment providers Commodity prices rise E&P margins expand Current International cycle Production declines E&P spending increases Oil service pricing falls E&P spending decreases E&P margins contract Oil service pricing rises Production increases Cyclical inflection points are driven by the expected returns from drilling. 7

Market values recovering but still at low end of trading ranges The price-to-net asset value, price-to-book, and price-to-sales for oilfield services companies are at or near historic lows Price/NAV Range (since 2001) P/NAV Trading Range average for NE/ESV/RDC 300% 250% P/NAV Range and Price Target (line) Current P/NAV (2009A) 220% 190% Standard Deviation Range Average Offshore Drillers P/NAV 200% 160% 150% 130% 100% 100% 50% 70% 0% DO ESV NE PDE RIG RDC ATW Source: FactSet, Morgan Stanley Research. Oil Services and Equipment: Price/Book 8.0x Standard Deviation Range Average P/B 7.0x 6.0x 5.0x 4.0x 3.0x 2.0x 1.0x 0x 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: FactSet, Morgan Stanley Research, Includes Services, Equipment and Land Drillers. 40% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: FactSet, Morgan Stanley Research, companies included: DO, ESV, NE, PDE, RDC, and RIG. 4.0x 3.5x 3.0x 2.5x 2.0x 1.5x 1.0x 0.5x Oil Services and Equipment: Price/Sales Standard Deviation Range Average P/S 0x 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: FactSet, Morgan Stanley Research. Includes Services, Equipment and Land Drillers. 8

Business design value creation across upstream services Oliver Wyman analysis has shown that each services segment has its own value creation characteristics and outcomes Upstream Oil Field Service Value Creation trends MV/Sales 2003, 2005, 2007 and 2009 4,6 2003 2005 2007 2009 1,7 1,4 0,9 0,8 0,6 1,2 1,0 1,0 0,9 1,7 2,2 1,9 1,1 1,4 2,0 0,7 1,3 1,3 1,3 1,6 2,5 3,1 2,1 3,1 3,4 2,3 Within any segment, there are market and value creation opportunities driven by both the segment and the specific business designs competing in the segment U.S. Regional Low-Tech Services Engineering & Construction Equipment U.S. Regional High-Tech Specialty Reservoir Info & Seismic Services Integrated Global Oil Services Drillers Source: Compustat, Oliver Wyman analysis Notes: Market values are as of December 31. Sales are for full year, except for 2009 which is annualized Q1-Q3 10

Oilfield services and equipment mergers and acquisition activity Both asset and corporate deal value falling year-over-year Transaction value and deal count $80 160 50,000 160 $70 140 $60 120 40,000 120 Transaction value US$ billions $50 $40 $30 $20 $10 80 40 Deal count Global rig count 30,000 20,000 10,000 100 80 60 40 20 Global deal count $0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 0 0 2005 2006 2007 2008 2009 0 Asset Corp. Deal Count Baker Hughes Global Rig Count Deal count With financial operating margins under pressure and important North American land rig counts at recent historic lows, total dollar transaction value plunged to its lowest level since 2005 Source: Thomson Datastream, Baker Hughes, Oliver Wyman analysis. Note: Figures represent all acquisition, merger and swap reserve transactions >US$10MM. 12

Oilfield services and equipment mergers and acquisition activity: Geographies Deal values for exclusively U.S. companies make up a relatively small, and declining portion of global oilfield services M&A 2005-2008 % of deal value by global region 2009 % of deal value by global region United States, 9.5% Latin America, 3.0% Africa & Middle East, 1.2% United States, 6.1% Africa & Middle East, 3.0% Canada, 5.0% Asia Pacific, 2.0% Asia Pacific, 7.1% Europe, 5.0% Canada, 0.5% Europe, 9.9% Former Soviet Union, 4.5% Globally diversified, 69.2% Former Soviet Union, 0.2% Globally diversified, 73.8% Source: Thomson Datastream, Oliver Wyman analysis. Note: Figures represent all acquisition, merger and swap reserve transactions >US$10MM. 13

Oil and Gas Customers (Operators): Representative needs Current Needs Future / Unmet Needs Reliability Advanced technology Responsible commitment Scale Customer-aligned organization Good safety record Lower cost and time for well completions Reduced risk, cost, & complexity of exploration and development drilling Improvements to conserve rig time Higher reliability downhole systems requiring less frequent intervention Better HP/HT designs to enable drilling and production in more severe environments Integrated solutions that are flexible for different applications Enhanced seismic imaging in sand dune areas and for more effective production management Improved formation evaluation capabilities, especially in carbonates Enhanced recovery methods Enhanced water management Enhanced sand management Enhanced well testing and multi-stage completion/stimulation Enhanced reservoir characterization and asset management More IWS applications Better flow assurance capabilities The extent to which equipment and service providers are successful in the future depends on how well their future business designs address customers unmet needs. Source: Oliver Wyman interviews. 15

E&P environment drivers for oilfield services demand It is also critical to understand the oil and gas resource map and potential to identify E&P hot spots for services and trends that will impact current and future oilfield service markets Difference between proven gas reserves 1998-2008 in 10 12 m 3 Norway: -0.88 Russia: -0.21 Canada: -0.12 USA: 2.08 Venezuela: 0.69 Kazakhstan: 0.01 Turkmenistan: 5.43 Algeria: 0.42 Iraq: -0.02 Iran: 5.51 China: 1.09 Egypt: 1.15 Kuwait: 0.3 KSA: 1.5 Qatar: 14.56 UAE: 0.43 Nigeria: 1.71 Malaysia: -0.02 Indonesia: 1 Australia: 0.86 + Net increase - Net decrease Gas reserves in 10 12 m 3 1988 1998 2008 109.72 148.01 185.02 +35% +25% Source: BP Statistical Review 2008, Oliver Wyman analysis. Note: Top 20 countries displayed. 16

E&P environment drivers for oilfield services demand Investment in E&P worldwide will continue to focus on prospectivity, terms and stability; shortage of new unexplored frontiers is shifting attention to mature assets Attractiveness for E&P investment Legend Potential for hydrocarbon discoveries Fiscal attractiveness Political stability Norway Russia High Medium Low Algeria Iraq Azerbaijan/ Kazakhstan China Canada GoM Libya Malaysia Indonesia Trin. & Tob Colombia Venezuela Nigeria Egypt Iran Brasil Eq. Guinea India East Timor Argentina Angola Australia Source: EIA, IFP, PEPS, Oliver Wyman analysis. 17

Discussion: Opportunity assessment preferences 1 Geography US only? ME & North Africa? Europe? Global operations? 2 Market segment 3 Business model and financial Asset intensive vs people intensive? Preferred size? Controlling interest vs. minority interest? Equipment vs service? Hi-tech vs. low-tech? Drilling related vs production related? Most investment firms need to set their preferences to ensure focus and alignment of firm capabilities to manage any investment ultimately made 18

Oliver Wyman Oil and Gas Oliver Wyman s oil & gas practice works with companies in all elements of the value chain. Industries / Clients Served Oil Field Services and Equipment Upstream Midstream Transport and Logistics Natural Gas Marketing and Supply Downstream Investors Rig, drilling, and seismic Engineering, procurement and construction General oil field and well servicing Independent E&P s Major integrated oil National oil Pipelines Terminals / storage Trucking and distribution Gas marketing Liquefaction and regasification Other LNG infrastructure providers Fuels marketing Lubricants marketing Refiners Convenience retailers Marketers / jobbers PE/VC firms Strategics Investment banks Practice Capabilities and Focus Areas Strategic planning Network and portfolio optimization Growth strategy Business design Customer experience and site operations For more information, please contact: Post -transaction integration Acquisition due diligence Cost improvement Operations effectiveness Operational and financial planning Industry investment opportunity scans Asset value maximization Optimization of capital deployment Pricing strategies Risk reduction Bob Orr, Partner +1.713.276.2187 bob.orr@oliverwyman.com Ryan Isherwood, Partner +1.713.276.2245 ryan.isherwood@oliverwyman.com 19