Why is Halliburton BuyingWhy is Halliburton BuyingBaker-Hughes?Baker-Hughes?

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RoadmapRoadmapIndustry Overview Company Considerations HAL + BHI Trade Idea Appendix

INDUSTRYINDUSTRYOVERVIEWOVERVIEW

Key Macroeconomic Trend:Key Macroeconomic Trend:Persistent Oil Price DepressionPersistent Oil Price Depression

Falling trend in oil prices

52% decrease over 6 months (from $106/bbl to $50/bbl)

Robust supply growth & weak global demand

US EIA forecast: continuation of pricing pressures, especially in 1H2015

WTI Crude Oil Prices ($/bbl)World Oil Demand & Supply Growth Rates

Source: US Energy Information Administration

Competitive LandscapeCompetitive Landscape

*2013

COMPANYCOMPANYCONSIDERATIONSCONSIDERATIONS

World's #2 oilfield services (OFS) firm

Delivers upstream-related products & services tooil and gas producers

ExplorationDevelopmentProduction

What is Halliburton?What is Halliburton?

Business ModelBusiness ModelRevenue by Operating Segment

D&E Revenue by Product Line C&P Revenue by Product Line

Completion & ProductionPressure pumping (~45% of HAL totalrevenue; ~20% CAGR for demand)Artificial lift (~5%)

Drilling & EvaluationGreater revenue stream diversification

D&E

C&P

40%

60%

Sources: Barclays research, company financials

Geographic OperationsGeographic OperationsHigh concentration in North America (~52% of total revenue)Well-diversified across international regionsNo country comprising above 10% of revenues, besides US Historical diversification: incremental increases from 2011

Incremental increases of int'l revenue ratio expected to continueInt'l revenues forecasted to exceed 50% of total from 2014

52%13%

18%

17%

Revenue by Geographic Region International Revenue

Sources: Barclays research, company financials

Headline Operating MetricsHeadline Operating MetricsEBIT & Margin

Revenue Growth by Geography Revenue Growth by Operating Segment

Decreasing rate of revenue growthIncreasing diversification of revenuestream by region & operating segmentSteadily declining EBIT & margins EBIT margins: from 19% to 11% over 3 yrsRising costs (guar gum), pricing pressuresin US, & non-recurring charges (Macondo)

Gearing MetricsGearing MetricsIncreasing leverage from 2011

2012 to 2013: 150%+ jump in net debt /EBITDA due to large debt growth

Still healthy relative to peers

SLB, BHI, WFT @ 0.89x, 0.82x, 4.31x resp.

Net Debt / EBITDA (x)

Net Debt ($m) Debt / Equity (%)

Financial Forecasts ('14E-'18E)Financial Forecasts ('14E-'18E)

EBIT & MarginsSales & Growth

Sales growth: negative in 2014, sluggish improvement onwards

EBIT margins: continued decline from 2014

Persisting high costs & pricing pressures in NA

Macondo charge ($1b pre-tax in 2014)

Oil price impact to be felt in 2015

Peer Relative Share PricePeer Relative Share PricePerformance (Last 7 Months)Performance (Last 7 Months)

HAL + BHIHAL + BHI

HAL + BHIHAL + BHI

The GOALIncrease growth, margins, and returnsExpand product portfolio & geographical reach Diversify risk across geographies & product segments

Narrow the gap between HAL (#2) and SLB (#1)

The WHY

Overcome falling oil prices & increased regulationsOvercome [firm-specific challenges]

The HOW

Potential COST synergies (~$2b p.a. post integration)Potential REVENUE synergies

Potential $2b p.a. Cost SynergiesPotential $2b p.a. Cost Synergies

Improve local & international operational efficiencies (50%+ of cost synergies)

Eliminate overlap in key, high-cost product areas

Streamline administrative/organizational structure

Optimize R&D

Source: Halliburton investor presentation

Potential Revenue SynergiesPotential Revenue SynergiesExpansion of Product Portfolio

Expedited Extension of Geographic PresenceFaster, more cost effective market penetrationvs. organic "product-line-by-product-line" approachHighlight: resource-rich Canada and Russia, smaller int'l markets

Source: Jefferies and Oppenheimer research

Challenges Challenges

Worldwide Regulatory IssuesWorldwide Regulatory Issues

Antitrust regulations in the US, Europe, Asia

HAL + BHI = ~500 increase in HHI = virtual duopoly

Currently awaiting approvals

Potential voluntary divestment of up to $7.5b

Break-up fee of $3.5b

Cultural Integration ProblemsCultural Integration Problems

BHI: declared open bid right before announcement

HAL: threatened hostile takeover & total board replacement

Price increase of $38b from $35b

Possible lingering animosity, which will affect operations

Other ChallengesOther ChallengesHAL-SLB Gap Still Large

HAL + BHIPotential enhanced competitiveness in NA & Russia

SLBSuperior capacity to increase drilling in GOM Secure dominance in China due to unique partnership

Growth Not Guaranteed

Oil prices still falling: threat to synergistic goals Heightened exposure due to merger However, overall plan to overcome headwinds is double-barreled

Capex reduction & internal efficiency measures

Transaction Summary & AnalysisTransaction Summary & Analysis

Merger RemediesMerger Remedies

Financial EffectsFinancial Effects

TRADE IDEATRADE IDEA

Discounted Cash Flow AnalysisDiscounted Cash Flow Analysis

WACC = 8.0%

02/05/2015 Closing Price @ $43.36 VS. DCF Valuation @ $36.25

HAL overvaluation by 20%

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