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Gold/Mining/Energy : NATIONAL - OILWELL INC. (NOI) - undervalued/takeover ? -- Ignore unavailable to you. Want to Upgrade?

To: Dennis Roth who wrote (42)	5/22/2008 8:30:23 AM
From: Dennis Roth	Respond to of 44

National Oilwell Varco (NOV): Offshore rig demand still strong, raising price target to $88 - Goldman Sachs - May 22, 2008 What's changed We recently hosted meetings with National Oilwell Varco management and came away more positive than before and increasingly confident that demand for additional rigs and growth in its other business segments could be sustained at least for the next several quarters. The conversations provided indications that deepwater rig demand has not yet peaked and that demand exists for land rigs in North America and internationally. We also see continued development of shale plays as a revenue growth driver in the Petroleum Services & Supply business due to its exposure to the directional drilling and the drill pipe businesses. Implications We are Neutral-rated on NOV, but mainly because we favor HAL and SLB more at current levels. We highlight NOV as one of our favorite Neutral-rated stocks, with dominant market share in key product lines and inexpensive valuation relative to peers. Key takeaways from the meetings were: (1) Strong commodity prices are likely to continue to stimulate demand for deepwater assets worldwide. (2) Industry re-tooling cycle may pick up steam in the North American land rig market as new rig technology gains acceptance with the operators. (3) The Petroleum Services & Supply business should continue strong growth due to its exposure to the secularly growing directional drilling market. (4) Integration of Grant Prideco’s businesses is progressing on track, with revenue growth synergies expected in addition to cost savings. Valuation We are raising our 12-month price target to $88 (15.5X 2009 EPS) to reflect the outlook for more sustainable offshore rig demand. NOV is trading at 14.3X 2009 EPS, well below 22.4X for FTI and 17.3X for CAM. Key risks Risks include a prolonged decline in commodity prices or equity indices.

To: Dennis Roth who wrote (42)	5/22/2008 8:46:29 AM
From: Dennis Roth	Respond to of 44

National Oilwell Varco (NOV): Petrobras drilling plans positive for NOV, subsea equipment - Goldman Sachs - May 21, 2008 News Last night, Petrobras, announced its intent to contract 40 deepwater and ultra-deepwater drill ships and semi-submersible rigs. The company anticipates the construction and delivery of the rigs through 2017, and the priority will be given to building them in Brazil. We expect the new rigs to operate in the Santos basin. Analysis This news is a clear positive for NOV, as well as the shares of subsea equipment providers CAM and FTI. National Oilwell Varco is the world leader in building of rig equipment and Petrobras’s announcement that it will need several more rigs suggests that the deepwater rig demand cycle has still not yet peaked. NOV can book as much as $300 million in revenue for each new deepwater rig and is the most direct beneficiary of this announcement. We think the news is positive for CAM and FTI, who operate in Brazil and will likely be the subsea equipment providers. We expect subsea work for Petrobras to be split between a few equipment providers. All the major services should benefit from Petrobras’s plans, though we would highlight SLB and HAL as the leaders in the offshore services market. For the deepwater drillers, this is likely negative for near-term sentiment as it introduces a potential risk to dayrates if new entrants submit low bids to win the contracts. However, we believe that it is unlikely that Petrobras is able to, or willing to, risk its future deepwater development plans on drillers with limited or no prior experience. We remain Buy rated on RIG, DO, and PDE and would add to positions on weakness. Implications With oil prices now nearing $130/bbl, we expect continued interest in increasing offshore oil exploration activity, which benefits all oil services companies. Given the strength in the group recently, we recommend looking for pullbacks to be more opportunistic about adding to positions.