Valuation Mod-3 Oil and Gas Field Services

1. Valuation Mod-3Oil and Gas Field Services Chris Jennis 1/27/2014

2. Agenda Module 3 Summary Schlumberger Multiples Method Balance Sheet Multiples Income Statement Multiples Analysis Questions

3. Module 3 • Valuation using Market Multiples (Method of Comparables) • Means to create summary metrics for comparison of peer firms • Do not rely on subjective forecasts of future performance • Steps • Select a measure of performance • Ex: EPAT, NEA, earnings, book value • Identify comparable companies • Halliburton, Baker-Hughes, Technip • Compute the ratio of the market value to the selected performance measure • Compute ratio for each comparable • Combine these multiples into a market multiple by taking average • Multiply measure of performance for target company by market multiple • Value = Summary performance measure x Market multiple • Find equity value by deducting value owed to debt holders from enterprise • value

4. Summary Performance Measures

5. Balance Sheet Multiples

6. Valuation using a NEA Multiple • Enterprise Value for comparables: Equity Value + NFL • Equity Value: P*Shares Outstanding • NEA: Provided by group members • Common shares outstanding: Provided by group members • Market Multiple: Enterprise Value/ NEA

7. Valuation using a BV Multiple • Book Value of Equity: NEA- NFL • BV Market Multiple: Equity Value/ Book value of equity • Issues: Financial risk can affect value of equity • Different capital structures and leverage

8. Income Statement Multiples

9. Valuation using an EPAT Multiple • Most commonly used performance measure • Dividends are paid out of earnings and potential dividend payouts • are the basis for company value. • Enterprise value= EPAT x EPAT market multiple

10. Valuation using a NI Multiple Equity value= NI X NI market multiple

11. Valuation using a CI Multiple Comprehensive income includes additional factors that reflect economic activities of the firm.

12. Valuation using a Sales Multiple • If company’s have different cost structures, this could add error • Best if a company is making a loss • Negative multiples don’t help

13. Valuation using R&D • (Price- BV): may be viewed as unrecorded assets arising because of expensing • rather than capitalization of R&D • Variation among multiples • R&D is key feature of our industry because of the services we offer • Attracts customers so they don’t have to do their own R&D • Need to stay ahead of the curve with research and development

14. Analysis

15. Selected Estimates and Recommendation • Reasoning • Technip reports under IFRS so remove due to differences in accounting • standards. • NEA and EPAT give enterprise value output • Prevents capital structure (leverage) from affecting estimate • Recommendation • Strong Sell • According to estimations the stock is overvalued now and 2012 YE • Low confidence: Big range between estimate and actual price could • indicate an error in the estimation

16. Takeaways and Issues • Takeaways • Choose comparable companies carefully • Technip • Enterprise multiple avoids leverage effects • Multiples can be combined for final analysis • Not the best valuation technique • Issues • Use of 2014 stock price vs 2012 financials • No individual well or rig data • Big variation between estimated price and market price • Weighting of companies because of similarity

17. Questions?