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Oil & Gas Investment Symposium

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Presentation on theme: "Oil & Gas Investment Symposium"— Presentation transcript:

1 Oil & Gas Investment Symposium
IPAA’s 9th Annual Oil & Gas Investment Symposium London July 2005 Notes:

2 Presenting Management
Neil G. Russell Sr. Vice President Business Development & Sr. Vice President Premium Connections Notes:

3 Forward Looking Statements
To the extent this presentation reflects our expectations about Hydril’s business or performance for any future period, we are relying on the safe harbor protections afforded by federal law. We caution you that Hydril’s business or performance in the future may differ materially from those expectations. Forward-looking statements should be weighed in the context of the many risks, issues, and events that could cause Hydril’s actual performance to be different from that contemplated in this presentation, including, but not limited to, the impact of changes in oil and natural gas prices and worldwide and domestic economic conditions on drilling activity and demand for and pricing of Hydril’s products, the impact of geo-political and other events affecting international markets and trade, Hydril’s ability to remain on the leading edge of technology in its products and maintain and increase its market share, the impact of international and domestic trade laws, the loss of or change to distribution methods of premium connections in the U.S. and Canada, overcapacity in the pressure control industry, high fixed costs that could affect the pricing of Hydril’s products, and the other risk factors discussed in our most recent Quarterly Report on Form 10-Q for the first quarter of 2005 filed with the Securities and Exchange Commission. obligatory word from our lawyers Notes:

4 Overview Premium Connections Pressure Control Financials
Today’s Presentation Overview Premium Connections Pressure Control Financials Investment Premise Notes:

5 Stock price - 52-week range* US$28.50 - $64.58
Hydril Summary Founded IPO September 2000 Stock price - 52-week range* US$ $64.58 Stock price - 30-day average* US$52.12 Market Cap* US$1.2 billion Float % NASDAQ Ticker HYDL Notes: * As of 6/21/2005

6 Deep formation and offshore drilling leverage Technical innovator
Overview Leader in our segments Premium Connections Pressure Control Deep formation and offshore drilling leverage Technical innovator Global presence Brand name recognition Financial stability deep formation – drilling targets > 15,000 feet deep core markets; ~ 85% of our output goes to the deep formation and offshore drilling markets clear technology leader in our served markets Notes:

7 * 2004 Premium Connection Pressure Control • Revenue US$184.8 million*
Business Segments Premium Connection • Revenue US$184.8 million* • End users: E&P companies • Manufacturing service • Low working capital • International & domestic manufacturing Pressure Control • Revenue US$100.6 million* • End users: drilling contractors • Capital equipment Aftermarket parts • Domestic manufacturing Notes: * 2004

8 TTM* Segments Geographic Revenue Distribution Pressure Control 34%
United States 32% 4 sub-segments: Premium Connections: United States / International Pressure Control: Capital Equipment / Aftermarket 5 plants in the U.S., 7 plants in 5 foreign countries ~ 1,400 employees, ~ 2/3 in the U.S. Premium Connections 66% International 68% Notes: *TTM as of 3/31/05

9 Overview Premium Connections Pressure Control Financials
Today’s Presentation Overview Premium Connections Pressure Control Financials Investment Premise Notes:

10 End users: E&P companies
Premium Connections Hydril invention Proprietary designs 30 U.S. patents End users: E&P companies Largest integral casing market share and threading capacity Early / middle cycle high tension, high pressure connections used in difficult applications; ~ 15% of wells drilled use premium connections leading share of integral connections (pictured, left) Notes:

11 Deep Formation Leverage
Premium Connections 10,000’ 15,000’ 20,000’ US$125,000 premium connection strings shown in red, API in black US$320,000 deeper wells have more strings of pipe and strings are longer US$600,000 Notes: Note: potential premium connection revenue per well

12 United States Ex-United States Market Share Premium Connections Hydril
Others Kawasaki Others Hunting Hydril Tenaris VAM VAM two distinct markets: United States and Ex-United States U.S. / Canada: independents, short lead times (2 days – 2 weeks); distributors ex-North America: national oil companies and super-majors, long lead times (6 – 12 months), mill direct Grant Prideco Notes: Note: full length threading only; excludes accessory threading, pipe, etc.; excludes Russia and China Sources: Spears & Associates, and management estimates

13 Earnings Growth Opportunities
Premium Connections International markets growing U.S. demand is strong Expanded N. American capacity New products: GB connections Big Wedge Other large diameter connections expansion into larger diameter connections GB Tubular mill-premium connections acquired May 2004 enhanced manufacturing capabilities in U.S. to thread heavier wall pipe for ultra deep wells Notes:

14 Overview Premium Connections Pressure Control Financials
Today’s Presentation Overview Premium Connections Pressure Control Financials Investment Premise Notes:

15 Hydril invented annular blowout preventer (BOP) 53 U.S. patents
Pressure Control Hydril invented annular blowout preventer (BOP) 53 U.S. patents End users: drilling contractors “Brand name” drilling equipment franchise Middle / late cycle capital equipment for rigs, safety equipment aftermarket or replacement parts largest share of annular BOPs ~ 50 – 60% of installed base Notes:

16 Capital Equipment Aftermarket Pressure Control Business Model Notes:
business model: razors and razor blades higher margins on aftermarket Notes:

17 Capital Equipment Aftermarket Market Share Pressure Control Hydril
Others Non-OEM Cooper Cameron normalized, longer term market shares National Oilwell Varco Notes: Note: capital equipment served markets only; aftermarket pertains to Hydril aftermarket products only Source: management estimates

18 Note: potential capital equipment revenue per rig
Deepwater Leverage Pressure Control Deepwater Platform/Jackup Land aftermarket revenue is proportional to capital equipment revenue US$0.5 – 1.0 million US$2.0 – 4.0 million US$14.0 – 18.0 million Notes: Note: potential capital equipment revenue per rig

19 Capital Equipment Backlog
Pressure Control (US$ Millions) $37 million order in 1Q01 from GlobalSantaFe: 2 deepwater and 2 jack-up systems ~$18 million order in 1Q05 from Diamond Offshore: 1 deepwater system and 1 spare BOP stack Notes:

20 Earnings Growth Opportunities
Pressure Control Large installed base drives aftermarket revenue Offshore rig upgrades and newbuilds New technologies and products Quik-Loq™ - high pressure, ram blowout preventer New generation of surface MUX controls Flowguard™ pulsation dampeners aftermarket revenue driven principally by worldwide offshore rig count Notes:

21 Overview Premium Connections Pressure Control Financials
Today’s Presentation Overview Premium Connections Pressure Control Financials Investment Premise Notes:

22 Operating Results Consolidated Company Notes:
quarterly operating margin normally ~ 15-20% improved operating leverage from premium connection segment during 2004 increased operating margins to ~ 20-25% Notes:

23 (US$ Millions, except per share data )
Financial Summary (US$ Millions, except per share data ) Q4 Q1 Revenue 2002 $241.5 2003 $212.0 2004 $285.4 $86.5 2005 $78.8 Operating Income Net Income 44.3 26.5 34.2 25.6 66.4 46.5 22.8 15.2 22.1 15.0 EPS* 1.16 0.96* 1.89* 0.64 0.63 one-time tax benefit -- $3.3 million (15¢ / share) in 2003 and $2.1 million (9¢ / share) in 2004 Notes: *Note: excluding one-time tax benefits

24 Overview Premium Connections Pressure Control Financials
Today’s Presentation Overview Premium Connections Pressure Control Financials Investment Premise Notes:

25 Deep formation and offshore drilling leverage Technical innovator
Investment Premise Leader in our segments Premium Connections Pressure Control Deep formation and offshore drilling leverage Technical innovator Global presence Brand name recognition Financial stability fundamentals in place for increasing demand for Hydril products Hydril is heavily leveraged to deep formation and offshore drilling (~ 85% of sales) Hydril is technology leader in its segments Notes:

26 P.O. Box 60458 Houston, Texas Sue Nutt, Manager Investor Relations & Corporate Communications (281) NASDAQ: HYDL


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