Cleveland Research Company Stock Pitch Compeition - 2014

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Cleveland Research Company Stock Pitch Compeition - 2014

  1. 1. Atwood Oceanics Inc. “Full Speed Ahead” Matt Bender | Michael Loffredo|AlexVielmetti |JoeWavering Cleveland Research Company Stock Pitch | 2014
  2. 2. 2 InvestmentThesis & Overview Industry Dynamics Growth Opportunities & Drivers Valuation & FinalThoughts Appendix 3 5 8 16 19
  3. 3. 3Appendix Valuation & Final Thoughts Growth Opportunities & Drivers Industry Dynamics Investment Thesis & Overview InvestmentThesis Atwood is currently positioned with premium asset exposure in the ultra deepwater sector of an industry that is trending downward Atwood Oceanics currently owns one of the most technologically superior fleets in the industry They boast unsurpassed profit margins and top tier return on capital Continued organic EPS growth will drive the share price upwards We recommendAtwood as a Buy with a 12 month price target of $63.00, which represents an upside of 36.6% from the current share price of $46.13
  4. 4. 4Appendix Valuation & Final Thoughts Growth Opportunities & Drivers Industry Dynamics Investment Thesis & Overview Business Overview Headquartered in Houston,Texas Traded on the NYSE:ATW Operations in 10 countries 83% of contracts are through foreign countries Contract oil rigs to exploration and production companies Description & Operations 52-WeekTrading Range Revenue by CustomerKey Statistics Market Data Capital Structure Current Price $46.13 Net Debt $1,563.6M Market Cap $2962M Cash $132.5M P/E Ratio 8.39x Current Ratio 2.9x Price/Book 1.29x Quick Ratio 1.8x Operations Value TTM Revenue $1,103M EV/Revenue 4.0x Profit Margin 34.00% EV/EBITDA 7.8x Diluted EPS $5.50 EV/Cash Flow 10.0x Sources: Atwood Oceanics Howard Weil Presentation, Atwood Oceanics 10k, Bloomberg 19% 15% 15%14% 37% Chevron Apache Energy Hess Corporation Noble Energy Other 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 2 0 10 20 30 40 50 60 70 4/10/2013 7/10/2013 10/10/2013 1/10/2014 Millions StockPrice
  5. 5. 5Appendix Valuation & Final Thoughts Growth Opportunities & Drivers Industry Dynamics Investment Thesis & Overview Industry Overview Perceived over-supply of rigs in the offshore drilling industry Pressure on day rates is causing pessimistic outlook on EPS for the next 12-18 months Macroeconomic Situation Indexed 2014 EPS Revisions Industry Revenue BreakdownSwingTowards Ultra Deepwater 38% 19% 12% 6% 21% 4% Transocean Ensco Diamond Offshore Rowan Companies Seadrill Atwood Oceanics 0.65 0.70 0.75 0.80 0.85 0.90 0.95 1.00 1.05 ATW RIG ESV DO RDC Sources: Atwood Oceanics Howard Weil Presentation, Atwood Oceanics 10k, Bloomberg, Barrons 8% 7% 85% Newbuild 34% 54% 12% Operating Less than 4500 4500-7500 Greater than 7500 Water depth (ft.)
  6. 6. 6Appendix Valuation & Final Thoughts Growth Opportunities & Drivers Industry Dynamics Investment Thesis & Overview Industry Rig Breakdown Ultra Deepwater Drillships Self-Propelled, large amounts of supplies Semisubmersible Rigs Can operate in more severe sea conditions Jack-up Rigs Supported by three legs and drill in shallow water Types of Rigs Percentage of Drillships with Dual BOP Average Day Rate by RigTypeAge of Contracted Jack-up Fleet 0 100 200 300 400 500 600 700 Ultra-Deepwater Drillships Semisubmersible Rigs Jackup Drilling Rigs (inthousands) Industry Average Day Rate Atwood Average Day Rate Sources: Atwood 10k, RigZone 0 50 100 150 200 250 2013 2014E 2015E 2020E NumberofRigs 40 years or more 35 years or more 30 years or more 0% 20% 40% 60% 80% 100% ATW RDC DO NE RIG ESV SDRL
  7. 7. 7Appendix Valuation & Final Thoughts Growth Opportunities & Drivers Industry Dynamics Investment Thesis & Overview Effects of Oil A large portion of revenue has already been locked in over the next three years 95% for remaining fiscal 2014 72% for fiscal 2015 43% for fiscal 2016 Contract Status Atwood vs. Markets IEA’s Oil Scenarios 60 70 80 90 100 110 120 130 140 150 160 2008 2009 2010 2011 2012 2013IndexedReturn Atwood Oceanics NYSE/AMEX/NASDAQ Stock Markets Atwood-Determined Peer Group Brent Oil Sources: Atwood Oceanics Howard Weil Presentation, Atwood Oceanics 10k, Bloomberg, IEA projections $0 $20 $40 $60 $80 $100 $120 $140 $160 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 Brentpriceperbarrel Current Policies Scenario New Policies 450 Scenario Historical
  8. 8. 8Appendix Valuation & Final Thoughts Growth Opportunities & Drivers Industry Dynamics Investment Thesis & Overview “A-Class”Additions RevenueWeightedAge of Fleet Project Status Specification "A-Class" Drillship Typical 5th Gen Drillship MaxWater Depth (Ft) 12,000 10,000 Max Drilling Depth (Ft) 40,000 35,000 Variable Deckload (mt) 23,000 20,000 Dual 15K BOP Yes No BOP Rams 7 6 Hookload (Lbs) 2,500,000 2,000,000 Mud Pumps 5 4 Cranes 3 x 100 mt 3 x 85 mt Compensating Crane Yes - 165 mt No Active Heave with Crown- Mounted Compensator Yes No 0 10 20 30 2010 2011 2012 2013 2014 2015 FleetAge(years) ATW DO RIG NE ESV The Benefits Atwood’s recent cash flow has gone toward the production of four “A-Class” ships The Atwood Advantage was completed in November 2013 and is currently mobilizing to the Gulf of Mexico The Atwood Achiever will be completed in June 2014 when it will pick up contract off the coast of Morocco The Atwood Admiral and Atwood Archer are slated to be completed in March and December 2015, respectively Sources: Atwood Oceanics Howard Weil Presentation, Atwood Oceanics 10k
  9. 9. 9Appendix Valuation & Final Thoughts Growth Opportunities & Drivers Industry Dynamics Investment Thesis & Overview MarginAnalysis Atwood has numerous clauses in contracts that protect against margin erosion Currency stability Margin preservation Built-in CPI growth Forms of Day Rates CAGR Projections for 2012-2020Variable Contracts Three main types of day rates Full-operating rate Moving rate Weather rate/repair rate 0% 10% 20% 30% 40% ATW ESV SDRL DO NE RDC RIG Sources: Management Conference Call, Atwood Oceanics Howard Weil Presentation, Atwood Oceanics 10k, Rystad Energy Consulting 2013 Profit Margin 0% 4% 8% 12% 16% 20% Offshore Ultra Deepwater On Shore Offshore Shelf Offshore Deepwater
  10. 10. 10Appendix Valuation & Final Thoughts Growth Opportunities & Drivers Industry Dynamics Investment Thesis & Overview Margin Expansion Opportunities Higher day rates Accompanied by similar costs Atwood’s class “A” drillships have already begun to hit the market, propelling margins higher Newer Fleet Benefits 2015 Projected Revenue Breakdown2013 Revenue Breakdown 54% 29% 17% Ultra Deepwater Floaters High Spec Jackups Other 32% 25% 43% Ultra Deepwater Floaters High Spec Jackups Other Sources: Management Conference Call, Atwood Oceanics Howard Weil Presentation, Atwood Oceanics 10k, Rystad Energy Discovered Resources 0 20 40 60 80 100 120 140 1980 1985 1990 1995 2000 2005 2013 (inbillionsofboe) Shelf Deepwater Ultra Deepwater
  11. 11. 11Appendix Valuation & Final Thoughts Growth Opportunities & Drivers Industry Dynamics Investment Thesis & Overview Revenue Backlog Ultra Deepwater revenue backlog will continue to drive margin expansion TheAtwoodAdvantage andAtwoodAchiever will fulfill most of the current backlog TheAtwoodArcher andAtwoodAdmiral will continue to drive revenue past 2016 Atwood’s contracts moving forward are with a variety of customers, providing an additional layer of safety Margin Benefits Backlog by RigType Backlog by CustomerTypeRevenue Diversification 0 200 400 600 800 1000 2014 2015 2016 RevenueBacklog(m) Ultra-deepwater Deepwater Jackups 37% 34% 29% Majors/Large NOCs Large Independents Small Independents Sources: Atwood Oceanics Howard Weil Presentation, Atwood Oceanics 10k, Bloomberg
  12. 12. 12Appendix Valuation & Final Thoughts Growth Opportunities & Drivers Industry Dynamics Investment Thesis & Overview Management Organic growth driven by internal investment in high end drill ships High returns on internal investment justify Atwood’s retention of capital Very centralized and consistent business dealings Common parts and systems across ships “Lessons are learned once and passed across the crew and fleet” Organic Growth Opportunities Return on Capital Utilization Rate of In-Service RigsManagement Efficiency 0% 4% 8% 12% 16% 20% RDC RIG ESV NE ATW SDRL DO 2014 2015 75% 80% 85% 90% 95% 100% 2009 2010 2011 2012 2013 Sources: Atwood Oceanics Howard Weil Presentation, Atwood Oceanics 10k, Bloomberg
  13. 13. 13Appendix Valuation & Final Thoughts Growth Opportunities & Drivers Industry Dynamics Investment Thesis & Overview Earnings Overview Strong internal investment in new fleet is driving top line growth Slight margin expansion will also contribute to EPS growth There is a perceived over supply of rigs New round of upgrades to jack-up market Negative sentiment on the overall industry A softening of day rates is projected Drivers Historical and Projected EPS Consensus vs.Actual EarningsReason for Analyst Pessimism Sources: Atwood Oceanics Howard Weil Presentation, Atwood Oceanics 10k, Bloomberg 0% 10% 20% 30% 40% 50% $0.00 $2.00 $4.00 $6.00 $8.00 $10.00 $12.00 $14.00 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 EPSYOYGrowth EPS $0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 $1.40 $1.60 $1.80 Q4 - 2012 Q1 - 2013 Q2 - 2013 Q3 - 2013 Q4 - 2013 Q1 - 2014 EPS Estimate Reported
  14. 14. 14Appendix Valuation & Final Thoughts Growth Opportunities & Drivers Industry Dynamics Investment Thesis & Overview Financing and Capex Analysis Atwood has all of its new-build capex covered with locked in future cash flow These figures come from only 72% and 43% of the fleet being contracted for 2015 and 2016, respectively Management expects to refinance a $605 million note due in May 2020 Plan to convert a portion of the revolving credit facility to long term debt Seek to maintain around 30% debt to capital to keepWACC low Capital Expenditure Coverage Financing of Capital Expenditures Key MetricsNatural Deleveraging $405 $707 $581 $85 $490 $520 $525 0 100 200 300 400 500 600 700 800 2014 2015 2016 (inmillions) Contracted Operating Cash Flow Debt Capex Sources: Management Conference Call, Atwood Oceanics Howard Weil Presentation, Atwood Oceanics 10k, Bloomberg Debt to Capital Debt to EBITDA 2013 42% 3.1x 2016E 29% 1.5x
  15. 15. 15Appendix Valuation & Final Thoughts Growth Opportunities & Drivers Industry Dynamics Investment Thesis & Overview SWOTAnalysis Strong Margins Future deleveraging Strong contracts with hedging for costs and currency fluctuation New cutting edge fleet Explosive growth in the Gulf of Mexico Strong market demand for new, high spec rigs Discovery of new oil fields in ultra deepwater locations Financing of Capital Expenditures Key MetricsNatural Deleveraging Increased competition in the offshore market Stagnation of Brent market Increased rig supply Uncontrollable weather events Governmental regulation Sources: Management Conference Call, Atwood Oceanics Howard Weil Presentation, Atwood Oceanics 10k, Bloomberg Taking two ships out of cold stacked storage would be expensive ($50-100 million each) Not a strong history of cashflows WeaknessesStrengths Opportunities Threats
  16. 16. 16Appendix Valuation & Final Thoughts Growth Opportunities & Drivers Industry Dynamics Investment Thesis & Overview Valuation Public comparables does not give a completely accurate valuation Atwood has been grouped in with a softening industry EV/EBITDA ratios vary significantly, leading to wide valuation range ComparablesAnalysis Football Field Segmented DCF Sensitivity AnalysisSegmented DCF vs. DCF Implied Share Price Sensitivity WACC 64.97 8.0% 8.3% 8.6% 8.9% 9.2% 4.0% $87.04 $80.82 $75.26 $70.28 $65.79 2.0% $81.36 $75.42 $70.12 $65.36 $61.07 Day Rate Step 0.0% $75.68 $70.02 $64.97 $60.44 $56.35 (3.0%) $67.16 $61.93 $57.25 $53.06 $49.27 (6.0%) $58.65 $53.83 $49.53 $45.67 $42.19 Sources: Atwood Oceanics Howard Weil Presentation, Atwood Oceanics 10k, Bloomberg Segmented DCF was done by breaking down revenue projections by each oil rig Used contracted day rates and operating margins to project revenue $35.00 $45.00 $55.00 $65.00 $75.00 DCF Segmented DCF Comparables
  17. 17. 17Appendix Valuation & Final Thoughts Growth Opportunities & Drivers Industry Dynamics Investment Thesis & Overview Valuation Segmented DCFValuation Calculation ofWACC ComparablesValuationDCFValuation Sources: Atwood Oceanics Howard Weil Presentation, Atwood Oceanics 10k, Bloomberg Debt Cost of Debt 6.5% Equity Cost of Equity 10.2% Beta 1.40 Risk-Free Rate 2.9% Return on Market 10.0% Weighted Average Cost of Capital Market Value of Equity 3,263.9 Market Value of Debt 1,691.2 Total 4,955.1 Tax Rate 14.0% WACC 8.64% PPG Method at 2.75% Terminal Value 8,273.6 Implied TV EBITDA Multiple 6.6x Present Value PV of Free Cash Flows 424.0 PV of Terminal Value 5,468.1 Implied Enterprise Value 5,892.1 Net Debt 1,563.6 Equity Value 4,328.4 Shares Outstanding 64.1 Implied Price per Share 67.53 Implied Premium to Current Price 46.4% PPG Method at 2.75% Terminal Value 7,297.7 Implied TV EBITDA Multiple 6.4x Present Value PV of Free Cash Flows 599.2 PV of Terminal Value 5,239.6 Implied Enterprise Value 5,838.8 Net Debt 1,563.6 Equity Value 4,275.1 Shares Outstanding 65.8 Implied Price per Share 64.97 Implied Premium to Current Price 40.8% Implied Valuation EV/EBITDA 1st Quartile Median Mean 3rd Quartile Implied Share Price $38.74 $52.02 $52.84 $65.83 Upside (16.0%) 12.8% 14.5% 42.7%
  18. 18. 18Appendix Valuation & Final Thoughts Growth Opportunities & Drivers Industry Dynamics Investment Thesis & Overview FinalThoughts Atwood Oceanics currently owns the most technologically superior fleet in the industry The “A-Class” drillship,AtwoodAdvantage, is deploying to the Gulf of Mexico TheAtwoodAchiever is scheduled for deployment in June 2014 TheAtwoodArcher andAtwoodAdmiral will come online in 2015 Within the industry,Atwood boasts unsurpassed profit margins and top tier return on capital Ultra deepwater drillships will drive margin expansion Strong internal investment and management efficiency Continued organic EPS growth will help drive the share price upwards New drillships will drive top-line growth while keeping margins high Atwood’s locked in day rates are industry-leading We recommendAtwood as a Buy with a 12 month price target of $63.00, which represents an upside of 36.6%
  19. 19. 19 Appendix Appendix Valuation & Final Thoughts Growth Opportunities & Drivers Industry Dynamics Investment Thesis & Overview
  20. 20. 20Appendix Valuation & Final Thoughts Growth Opportunities & Drivers Industry Dynamics Investment Thesis & Overview AppendixTable of Contents Pro Forma Income Statement Pro Forma Balance Sheet Pro Forma Statement of Cash Flows Segmented DCF Revenue Projections Comparable CompaniesAnalysis Fleet Location Contract Overlook Competitors 1 Competitors 2
  21. 21. 21Appendix Valuation & Final Thoughts Growth Opportunities & Drivers Industry Dynamics Investment Thesis & Overview Back Pro Forma Income Statement Income Statement Historical Projections 2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E Total Revenue 586.5 650.6 645.1 787.4 1,063.7 1,255.2 1,518.8 1,792.1 2,060.9 2,308.3 Contract Drilling 586.5 650.6 637.2 756.0 1,017.9 1,201.1 1,453.4 1,715.0 1,972.2 2,208.9 Revenues related to reimbursable expenses 0.0 0.0 7.9 31.4 45.8 54.0 65.4 77.2 88.7 99.4 Operating Costs and Expenses Contract Drilling 221.7 252.4 218.8 328.5 426.2 480.4 566.8 668.8 769.2 861.5 Depreciation 35.1 37.1 43.6 70.6 117.5 143.4 163.9 184.5 208.3 235.4 Reimbursable expenses 0.0 0.0 4.7 18.7 32.7 33.5 40.5 47.8 55.0 61.6 General and administrative 31.6 40.7 44.4 49.8 56.8 74.1 86.6 98.6 109.2 117.7 Other, net (0.4) (1.9) 4.9 0.4 1.0 2.5 3.0 3.6 4.1 4.6 Total Operating Costs and Expenses 288.0 328.3 316.4 468.0 634.2 733.9 860.9 1,003.3 1,145.8 1,280.8 Operating Income 298.5 322.3 328.7 319.4 429.5 521.3 657.9 788.8 915.1 1,027.4 Interest Expense 2.3 2.7 4.5 6.5 24.9 84.2 70.7 57.2 43.8 61.4 Foreign Exchange Losses (Gains) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net Non-Operating Losses (Gains) (0.7) (0.4) (0.7) (0.4) (0.2) (0.1) (0.1) (0.1) (0.1) (0.1) Pretax Income 296.4 320.0 324.8 313.3 404.8 437.2 587.3 731.7 871.5 966.1 Income Tax Expense 45.7 63.0 53.2 41.1 54.6 61.2 82.2 102.4 122.0 135.3 Income Before XO Items 250.7 257.0 271.7 272.2 350.2 376.0 505.1 629.2 749.5 830.8 Extraordinary Loss Net of Tax 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Minority Interests 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net Income Net Income 250.7 257.0 271.7 272.2 350.2 376.0 505.1 629.2 749.5 830.8 Abnormal Losses (Gains) (0.4) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Tax Effect on Abnormal Items 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Normalized Income 250.5 257.0 271.7 272.2 350.2 376.0 505.1 629.2 749.5 830.8 Basic EPS Before Abnormal Items 3.90 3.99 4.20 4.17 5.38 5.87 7.88 9.82 11.69 12.96 Basic EPS Before XO Items 3.91 3.99 4.20 4.17 5.38 5.87 7.88 9.82 11.69 12.96 Basic EPS 3.91 3.99 4.20 4.17 5.38 5.87 7.88 9.82 11.69 12.96 Basic Weighted Average Shares 64.17 64.39 64.75 65.27 65.07 64.10 64.10 64.10 64.10 64.10 Diluted EPS Before Abnormal Items 3.89 3.95 4.15 4.14 5.32 5.78 7.77 9.68 11.53 12.78 Diluted EPS Before XO Items 3.89 3.95 4.15 4.14 5.32 5.78 7.77 9.68 11.53 12.78 Diluted EPS 3.89 3.95 4.15 4.14 5.32 5.78 7.77 9.68 11.53 12.78 Diluted Weighted Average Shares 64.49 65.03 65.40 65.78 65.85 65.00 65.00 65.00 65.00 65.00 Dividends Declared per Share 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 EBITDA 33.2 359.4 372.3 390.0 547.0 664.6 821.8 973.3 1123.4 1262.8 Assumptions Revenue - 10.9% (0.8%) 22.1% 35.1% 18.00% 21.00% 18.00% 15.00% 12.00% Contract Drilling Expense as a % of Contract Revenue 37.8% 38.8% 34.3% 43.5% 41.9% 40.00% 39.00% 39.00% 39.00% 39.00% Reimbursable Expense as a % of Reimbursable Revenue - - 59.5% 59.6% 71.4% 62.00% 62.00% 62.00% 62.00% 62.00% General and administrative as a % of Total Revenue 5.4% 6.3% 6.9% 6.3% 5.3% 5.90% 5.70% 5.50% 5.30% 5.10% Other Expenses as a % of Total Revenue (0.1%) (0.3%) 0.8% 0.1% 0.1% 0.20% 0.20% 0.20% 0.20% 0.20% Interest Expense Rate 0.8% 1.2% 0.9% 0.8% 2.0% 5.00% 4.20% 3.40% 2.60% 3.65% Tax Rate 15.4% 19.7% 16.4% 13.1% 13.5% 14.00% 14.00% 14.00% 14.00% 14.00%
  22. 22. 22Appendix Valuation & Final Thoughts Growth Opportunities & Drivers Industry Dynamics Investment Thesis & Overview Back Pro Forma Balance Sheet Historical Projections 2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E Assets Cash & Near Cash Items 100.3 180.5 295.0 77.9 88.8 138.8 264.4 556.0 920.4 1,321.4 Short-Terms Investments 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Accounts Receivable 124.1 96.5 87.2 167.2 199.7 223.5 270.5 319.1 367.0 411.1 Income Tax Receivable 8.3 16.1 5.6 5.8 4.7 3.0 3.0 3.0 3.0 3.0 Insurance receivable 2.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Inventories 50.1 52.7 58.3 80.3 121.8 132.1 158.2 184.8 210.3 233.2 Prepaid expenses and deferred costs 19.3 14.2 14.9 39.4 38.8 38.8 38.8 38.8 38.8 38.8 Total Current Assets 304.6 360.0 460.9 370.5 453.8 536.3 734.8 1,101.7 1,539.5 2,007.4 LT Investments & LT Receivables 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net Fixed Assets 1,184.3 1,344.0 1,887.3 2,537.3 3,164.7 3,900.0 4,234.2 4,517.5 4,845.0 5,209.7 Gross Fixed Assets 1,562.1 1,755.9 2,342.4 3,002.2 3,746.0 4,624.6 5,122.8 5,590.5 6,126.4 6,726.5 Accumulated Depreciation 377.8 411.9 455.1 464.8 581.3 724.6 888.6 1,073.1 1,281.4 1,516.8 Other Long-Term Assets 20.5 20.5 27.1 35.9 38.8 38.8 38.8 38.8 38.8 38.8 Total Long-Term Assets 1,204.8 1,364.4 1,914.5 2,573.2 3,203.5 3,938.8 4,273.0 4,556.2 4,883.8 5,248.5 Total Assets 1,509.4 1,724.4 2,375.4 2,943.8 3,657.3 4,475.0 5,007.8 5,658.0 6,423.3 7,255.9 Liabilities & Shareholders' Equity Accounts Payable 19.1 37.2 113.0 83.6 95.8 94.0 110.1 128.6 147.3 165.3 Accrued liabilities 29.0 25.4 30.7 19.6 17.7 20.0 20.0 20.0 20.0 20.0 Income tax payable 29.1 26.4 8.5 10.7 16.6 19.3 25.0 30.6 36.2 39.6 Short-Term Borrowings 0.0 0.0 5.5 5.1 8.1 8.0 8.0 8.0 8.0 8.0 Interest Payable 0.0 0.0 0.0 4.9 7.9 8.0 8.0 8.1 8.1 8.0 Deferred credits 35.8 4.5 1.7 13.7 10.8 11.0 11.0 11.0 11.0 11.0 Total Current Liabilities 112.9 93.5 159.3 137.6 156.9 160.3 182.1 206.3 230.6 251.9 Long-Term Borrowings 275.0 230.0 520.0 830.0 1,263.2 1,683.2 1,683.2 1,683.2 1,683.2 1,683.2 Other Long-Term Liabilities 19.2 30.8 43.3 36.7 29.8 29.8 29.8 29.8 29.8 29.8 Total Long-Term Liabilities 294.2 260.8 563.3 866.7 1,293.0 1,713.0 1,713.0 1,713.0 1,713.0 1,713.0 Total Liabilities 407.1 354.3 722.6 1,004.3 1,449.9 1,873.2 1,895.0 1,919.2 1,943.5 1,964.9 Total Preferred Equity 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Minority Interest 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Share Capital & APIC 186.7 197.5 210.0 226.0 247.4 247.4 247.4 247.4 247.4 247.4 Retained Earnings & Other Equity 915.6 1,172.6 1,442.7 1,713.4 1,959.9 2,354.3 2,865.3 3,491.4 4,232.4 5,043.6 Total Equity 1,102.3 1,370.1 1,652.8 1,939.4 2,207.4 2,601.7 3,112.7 3,738.8 4,479.8 5,291.0 Total Liabilities & Equity 1,509.4 1,724.4 2,375.4 2,943.8 3,657.3 4,475.0 5,007.8 5,658.0 6,423.3 7,255.9 Assumptions Days Receivable 77.2 54.1 49.3 77.5 68.5 65.0 65.0 65.0 65.0 65.0 Inventory Turnover Rate 11.70 12.33 10.94 9.42 8.35 9.5 9.6 9.7 9.8 9.9 Days Payable 27.1 46.9 157.2 76.4 64.3 55.0 55.0 55.0 55.0 55.0 Income Taxes Payable 63.6% 41.9% 15.9% 26.0% 30.3% 30.0% 30.0% 30.0% 30.0% 30.0%
  23. 23. 23Appendix Valuation & Final Thoughts Growth Opportunities & Drivers Industry Dynamics Investment Thesis & Overview Back Pro Forma Statement of Cash Flows Historical Projections 2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E Cash From Operating Activities Net Income 250.7 257.0 271.7 272.2 350.2 394.4 511.0 626.1 741.0 811.2 Depreciation 35.1 37.0 43.6 70.6 117.5 143.4 163.9 184.5 208.3 235.4 Amortization of debt issuance costs 0.7 0.8 2.4 3.6 4.2 0.0 0.0 0.0 0.0 0.0 Amortization of deferred items (15.9) 13.8 3.3 (4.3) 1.0 0.0 0.0 0.0 0.0 0.0 Provision for doubtful accounts 1.0 (0.1) 0.0 0.0 3.9 0.0 0.0 0.0 0.0 0.0 Provision for inventory obsolescence 0.7 1.1 0.7 0.8 1.7 0.0 0.0 0.0 0.0 0.0 Deferred income tax benefit (4.5) 4.8 (1.1) (1.0) (0.8) 0.0 0.0 0.0 0.0 0.0 Share-based compensation expense 7.7 10.0 6.3 10.4 14.2 0.0 0.0 0.0 0.0 0.0 Other, net (0.4) (1.9) 4.8 0.5 1.0 0.0 0.0 0.0 0.0 0.0 Change in assets and liabilities Accounts Receivable (4.8) 26.2 13.2 (80.0) (36.3) (23.8) (46.9) (48.7) (47.9) (44.0) Insurance Receivable 0.0 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Income Tax Receivable (5.0) (7.7) 10.4 (0.1) 1.1 1.7 0.0 0.0 0.0 0.0 Inventory (12.9) (3.7) (6.2) (23.4) (43.3) (10.3) (26.1) (26.6) (25.5) (22.9) Prepaid expenses (1.9) (0.2) 0.8 (6.4) (0.7) 0.0 0.0 0.0 0.0 0.0 Deferred costs and other assets (9.8) (10.3) (10.4) (32.6) (19.7) 0.0 0.0 0.0 0.0 0.0 Accounts Payable (0.0) 4.7 (1.2) 27.5 11.4 (1.8) 16.1 18.5 18.7 18.0 Accrued liabilites (0.0) (1.0) 4.4 (7.1) 1.4 2.3 0.0 0.0 0.0 0.0 Bond Premium 0.0 0.0 0.0 0.0 8.5 0.0 0.0 0.0 0.0 0.0 Income Tax Payable 13.1 (2.7) (17.9) 1.3 5.9 2.7 5.7 5.6 5.6 3.4 Deferred credits and other liabilities 51.3 (21.9) 14.8 23.7 10.9 0.2 0.0 0.0 0.0 0.0 Net Increase in Operating Capital 54.2 49.4 68.1 (16.6) 81.9 114.3 112.7 133.3 159.2 190.0 Cash from Operations 304.9 306.4 339.8 255.6 432.1 508.7 623.7 759.4 900.2 1,001.2 Cash From Investing Activities Disposal of Fixed Assets 0.3 1.5 0.2 7.6 0.1 0.0 0.0 0.0 0.0 0.0 Capital Expendiutres (430.5) (187.1) (514.9) (785.1) (745.2) (878.6) (498.2) (467.7) (535.8) (600.1) Increase in Investments 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Decrease in Investments 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Collection of insurance receivable 1.8 3.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Cash from Investing Activities (428.3) (182.0) (514.6) (777.4) (745.1) (878.6) (498.2) (467.7) (535.8) (600.1) Cash from Financing Activities Dividends Paid 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Change in Short-Term Borrowings 0.0 0.0 0.0 (5.5) (11.2) (0.1) 0.0 0.0 0.0 0.0 Increase in Long-Term Borrowings 155.0 0.0 345.0 760.0 600.0 420.0 0.0 0.0 0.0 0.0 Decrease in Long-Term Borrowings (50.0) (45.0) (55.0) (450.0) (175.0) 0.0 0.0 0.0 0.0 0.0 Increase in Capital Stocks 0.2 0.8 6.2 5.5 9.2 0.0 0.0 0.0 0.0 0.0 Decrease in Capital Stocks 0.0 0.0 0.0 0.0 (107.3) 0.0 0.0 0.0 0.0 0.0 Other Financing Activities (2.6) 0.0 (6.9) (5.4) 8.1 0.0 0.0 0.0 0.0 0.0 Cash from Financing Activities 102.6 (44.2) 289.3 304.7 323.9 419.9 0.0 0.0 0.0 0.0 Net Changes in Cash (20.8) 80.3 114.5 (217.1) 10.9 50.0 125.6 291.7 364.4 401.0 Assumptions CapEx as a % of Revenue 73.4% 28.8% 79.8% 99.7% 70.1% 70.0% 32.8% 26.1% 26.0% 26.0% D&A as a % Gross Fixed Assets 2.2% 2.1% 1.9% 2.4% 3.1% 3.1% 3.2% 3.3% 3.4% 3.5%
  24. 24. 24Appendix Valuation & Final Thoughts Growth Opportunities & Drivers Industry Dynamics Investment Thesis & Overview Back Segmented DCF Revenue Projections 2014 Ultra Deepwater Revenue Expense Day Rate Utilization Rate % of Days Drilling % of Fiscal Yr. Operating Margin Advantage 112.48 35.99 0.54 100.0% - 60.0% 68.0% Achiever 32.45 10.38 0.46 100.0% - 20.0% 68.0% Condor 194.47 73.90 0.56 100.0% - 100.0% 62.0% Osprey 164.69 62.58 0.47 100.0% - 100.0% 62.0% Average 126.02 45.71 0.51 100.0% 96.0% 70.0% 63.7% Deepwater Revenue Expense Day Rate Utilization Rate % of Days Drilling % of Fiscal Yr. Operating Margin Eagle 146.50 70.32 0.42 100% - 100.0% 52.0% Falcon 138.70 61.03 0.40 100% - 100.0% 56.0% Hunter 142.86 40.00 0.52 80% - 100.0% 72.0% Average 142.69 57.12 0.45 93% 95.0% 100.0% 60.0% Jackups Revenue Expense Day Rate Utilization Rate % of Days Drilling % of Fiscal Yr. Operating Margin Aurora 50.97 26.00 0.15 100.0% - 100.0% 49.0% Beacon 60.68 39.44 0.18 100.0% - 100.0% 35.0% Mako 43.00 15.91 0.16 80.0% - 100.0% 63.0% Manta 55.48 19.42 0.16 100.0% - 100.0% 65.0% Orca 55.48 19.42 0.16 100.0% - 100.0% 65.0% Average 53.12 24.04 0.16 96.0% 95.0% 100.0% 54.8% 2015 Ultra Deepwater Revenue Expense Day Rate Utilization Rate % of Days Drilling % of Fiscal Yr. Operating Margin Advantage 204.63 67.53 0.58 100.0% - 100.0% 67.0% Achiever 208.49 68.80 0.60 100.0% - 100.0% 67.0% Admiral 36.62 12.08 0.55 95.0% - 20.0% 67.0% Condor 194.47 73.90 0.56 100.0% - 100.0% 62.0% Osprey 164.69 62.58 0.47 100.0% - 100.0% 62.0% Average 161.78 56.98 0.55 99.0% 96.0% 84.0% 64.8% Deepwater Revenue Expense Day Rate Utilization Rate % of Days Drilling % of Fiscal Yr. Operating Margin Eagle 159.51 78.16 0.46 100.0% - 100.0% 51.0% Falcon 146.68 66.00 0.45 94.0% - 100.0% 55.0% Hunter 134.29 40.29 0.41 94.0% - 100.0% 70.0% Average 146.82 61.48 0.44 96.0% 95.0% 100.0% 58.1% Jackups Revenue Expense Day Rate Utilization Rate % of Days Drilling % of Fiscal Yr. Operating Margin Aurora 54.79 30.13 0.16 100.0% - 100.0% 45.0% Beacon 56.43 38.37 0.18 93.0% - 100.0% 32.0% Mako 45.15 16.70 0.14 93.0% - 100.0% 63.0% Manta 55.48 21.64 0.16 100.0% - 100.0% 61.0% Orca 50.28 19.61 0.15 100.0% - 100.0% 61.0% Average 52.43 25.29 0.16 97.2% 95.0% 100.0% 51.8% 2016 Ultra Deepwater Revenue Expense Day Rate Utilization Rate % of Days Drilling % of Fiscal Yr. Operating Margin Advantage 210.24 67.28 0.60 100.0% - 100.0% 68.0% Achiever 210.24 67.28 0.60 100.0% - 100.0% 68.0% Admiral 201.83 64.59 0.60 96.0% - 100.0% 68.0% Archer 158.77 50.81 0.59 96.0% - 80.0% 68.0% Osprey 196.22 78.49 0.56 100.0% - 100.0% 60.0% Condor 197.73 79.09 0.57 99.0% - 100.0% 60.0% Average 195.84 67.92 0.59 98.5% 96.0% 96.7% 65.3% Deepwater Revenue Expense Day Rate Utilization Rate % of Days Drilling % of Fiscal Yr. Operating Margin Eagle 169.91 73.06 0.49 100.0% - 100.0% 57.0% Falcon 154.82 69.67 0.47 95.0% - 100.0% 55.0% Hunter 151.53 45.46 0.46 95.0% - 100.0% 70.0% Average 158.75 62.73 0.47 96.7% 95.0% 100.0% 60.5% Jackups Revenue Expense Day Rate Utilization Rate % of Days Drilling % of Fiscal Yr. Operating Margin Aurora 54.79 30.13 0.16 100.0% - 100.0% 45.0% Beacon 58.25 39.03 0.18 96.0% - 100.0% 33.0% Mako 47.53 22.82 0.15 92.0% - 100.0% 52.0% Manta 56.43 20.88 0.18 93.0% - 100.0% 63.0% Orca 48.37 17.90 0.15 93.0% - 100.0% 63.0% Average 53.08 26.15 0.16 94.8% 95.0% 100.0% 50.7% 2017 Ultra Deepwater Revenue Expense Day Rate Utilization Rate % of Days Drilling % of Fiscal Yr. Operating Margin Advantage 227.76 72.88 0.65 100.0% - 100.0% 68.0% Achiever 227.76 72.88 0.65 100.0% - 100.0% 68.0% Admiral 227.76 72.88 0.65 100.0% - 100.0% 68.0% Archer 216.34 69.23 0.63 98.0% - 100.0% 68.0% Osprey 202.60 70.91 0.59 98.0% - 100.0% 65.0% Condor 206.74 72.36 0.59 100.0% - 100.0% 65.0% Average 218.16 71.86 0.63 99.3% 96.0% 100.0% 67.1% Deepwater Revenue Expense Day Rate Utilization Rate % of Days Drilling % of Fiscal Yr. Operating Margin Eagle 164.71 67.53 0.50 95.0% - 100.0% 59.0% Falcon 180.31 73.93 0.52 100.0% - 100.0% 59.0% Hunter 164.71 57.65 0.50 95.0% - 100.0% 65.0% Average 169.91 66.37 0.51 96.7% 95.0% 100.0% 60.9% Jackups Revenue Expense Day Rate Utilization Rate % of Days Drilling % of Fiscal Yr. Operating Margin Aurora 72.36 39.80 0.22 94.0% - 100.0% 45.0% Beacon 76.98 46.19 0.22 100.0% - 100.0% 40.0% Mako 63.11 30.29 0.20 91.0% - 100.0% 52.0% Manta 64.50 23.86 0.20 93.0% - 100.0% 63.0% Orca 70.82 26.20 0.22 92.0% - 100.0% 63.0% Average 69.55 33.27 0.21 94.0% 95.0% 100.0% 52.2%
  25. 25. 25Appendix Valuation & Final Thoughts Growth Opportunities & Drivers Industry Dynamics Investment Thesis & Overview Back Comparable CompaniesAnalysis Sources: Bloomberg Atwood Oceanics Inc. Comparable Companies Analysis ($ in millions except for per share data) Name Ticker Share Price Market Cap. Enterprise Value EBITDA (TTM) Revenue (TTM) P/E P/B EV/EBITDA PEG Ratio ROA EPS (TTM) Estimated EPS Profit Margin Quarterly Revenue Growth Transocean LTD RIG $40.60 14,658 22,111 3,375 9,484 10.0x 0.9x 6.6x 0.6 4.2% 4.1 4.4 10.0% 0.3% Ensco Incorporated ESV $49.25 11,508 16,116 2,348 4,920 8.2x 0.9x 6.9x 0.5 7.5% 6.1 6.1 28.8% 15.7% Noble Corporation NE $29.96 7,614 13,783 1,970 4,234 10.1x 1.0x 7.0x 0.7 5.1% 3.4 3.4 14.9% 20.8% Rowan Companies RDC $30.73 3,817 4,733 587 1,579 16.4x 0.8x 8.1x 1.3 3.2% 2.0 2.5 12.6% 11.1% Seadrill LTD SDRL (NO) $33.92 16,274 30,058 2,748 4,892 10.2x 2.5x 10.9x 1.7 12.2% 7.0 3.3 16.9% 21.1% Oceaneering Intl. LTD OII $71.07 7,676 7,584 747 3,287 20.8x 3.8x 10.1x - 12.6% 4.0 4.0 10.4% 14.6% Weatherford Intl. LTD WFT $16.97 13,087 21,420 2,070 15,263 16.8x 1.6x 10.3x 0.5 (1.5%) 1.0 1.0 (7.2%) (7.9%) Vantage Drilling Company VTG $1.69 516 3,377 364 732 - 1.0x 9.3x - (2.3%) 0.3 0.3 (11.2%) 35.6% Baker Hughes Inc. BHI $64.13 27,972 31,153 3,647 22,364 24.4x 1.6x 8.5x 0.9 4.0% 2.5 4.0 4.2% 12.2% Atwood Oceanics Inc. ATW $46.13 2,962 4,435 566 1,103 8.4x 1.4x 7.8 0.4 9.8% 5.6 5.7 34.0% 16.2% 1st Quartile $29.96 7,614 7,584 747 3,287 10.0x 0.9x 7.0 0.5 3.2% 2.0 2.5 4.2% 11.1% Median $33.92 11,508 16,116 2,070 4,892 13.3x 1.0x 8.5 0.7 4.2% 3.4 3.4 10.4% 14.6% Mean $37.59 11,458 16,704 1,984 7,417 14.6x 1.6x 8.6 0.9 5.0% 3.4 3.2 8.8% 13.7% 3rd Quartile $49.25 14,658 22,111 2,748 9,484 17.8x 1.6x 10.1 1.1 7.5% 4.1 4.0 14.9% 20.8%
  26. 26. 26Appendix Valuation & Final Thoughts Growth Opportunities & Drivers Industry Dynamics Investment Thesis & Overview Back Fleet Location UDS: Ultra-deepwater Semisubmersible | DSS: Deepwater Semisubmersible | HSJ: High Specification Jackup | UDD: Ultra-deep Drillship Atwood Aurora HSJ Atwood Hunter DSS Atwood Osprey UDS Atwood Falcon DSS Atwood Eagle DSS Atwood Archer UDD (Under Construction) Atwood Admiral UDD (Under Construction) Atwood Achiever UDD (Under Construction) Atwood Orca HSJAtwood Manta HSJAtwood Mako HSJ Atwood Condor UDS Atwood Advantage UDD Atwood Beacon HSJ Sources: Atwood Oceanics 10k
  27. 27. 27Appendix Valuation & Final Thoughts Growth Opportunities & Drivers Industry Dynamics Investment Thesis & Overview Back Contract Overlook Rig Class/Rig Customer 2014 2015 2016 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Ultra Deepwater Drillships Atwood Advantage Noble Energy Atwood Achiever Kosmos Energy Atwood Admiral Available Atwood Archer Available Ultra Deepwater Semisubs Atwood Osprey Chevron Atwood Condor Shell Deepwater Semisubs Atwood Eagle Apache / Woodside Atwood Falcon Apache / Murphy Oil Atwood Hunter GEPetrol Jack-Ups Atwood Aurora Glencore / Addax Atwood Beacon ENI Atwood Mako Salamander Atwood Manta CEC International Atwood Orca Mubadala Petroleum $584K June Delivery $595K Delivery early 2015 Delivery late 2015 $490K $470K $385K $460K $385K $499K $515K $155K $158K $175K $155K $160K $160K $463K $409K $555K Contracted (current) Contracted (follow on work) Shipyard Mobilization Sources: Atwood Oceanics Howard Weil Presentation
  28. 28. 28Appendix Valuation & Final Thoughts Growth Opportunities & Drivers Industry Dynamics Investment Thesis & Overview Back Competitors Current Fleet – 91 Rigs 10% of fleet will be 6th gen ultra deepwater drillships by late-2017 Aging Fleet Lawsuits in Europe andAmerica Transocean Ensco Rig BreakdownUncommitted Fleet Rate 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% 2014 2015 2016 High-Specification Floater Midwater Floaters High-Specification Jackups Current Fleet – 74 Rigs 12% of fleet will be 6th generation ultra deepwater drillships by late-2016 Rig Utilization rates have been south of 90% since 2009 13% 26% 61% Drillships Semisubmersibles Jackups Sources: Transocean 10-k, Howard Weil Presentation, Ensco 10-k
  29. 29. 29Appendix Valuation & Final Thoughts Growth Opportunities & Drivers Industry Dynamics Investment Thesis & Overview Back Competitors Current Fleet – 70 Rigs 16% of fleet will be 6th gen ultra deepwater drillships by late-2015 Pays a 11% dividend 94.8% Debt/Mkt. Cap Seadrill Rowan Utilization RateDividends vs. Net Income Current Fleet – 34 Rigs 12% of fleet will be 6th gen ultra deepwater drillships by late-2015 Investing heavily in jack-up market 66.0% 77.0% 81.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% 2011 2012 2013 $0 $500 $1,000 $1,500 $2,000 2011 2012 2013 (inmillions) Dividend Net Income Sources: Seadrill 10-k, Howard Weil Presentation, Rowan 10-k

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