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2014-11-13_Floater Attrition Forecast - D. Gacicia

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2014-11-13_Floater Attrition Forecast - D. Gacicia

  1. 1. People. Ideas. Success. Guggenheim Securities, LLC Oilfield Services, Offshore Contract Drillers & Capital Equipment November 13, 2014 Floater Attrition Forecast: A Potential Inflection Point Darren Gacicia (212) 293-3054 darren.gacicia@guggenheimpartners.com GUGGENHEIM SECURITIES, LLC See pages 43 - 44 for analyst certification and important disclosures. Thisreportisintendedforeric.w.loyet@guggenheimpartners.comatGuggenheim.Unauthorizeddistributionofthisreportisprohibited.
  2. 2. Floater Attrition May Be a Potential Positive Catalyst for the Group Floater Market Forecast: Introduces Rig Attrition, Flat Demand, Market Utilization Bottoming in Low 90s %, & Scenarios for Upside. We are recalibrating our floater market assumptions, forecasting that 58 total floaters leave the market by the end of 2016 (70 by 2018, pgs. 3-6), versus no retirements previously, and assume a flat demand forecast amid limited visibility, versus demand growth previously. Limited slackening of the floater market to 90+% marketed utilization under a flat demand outlook, although not a clear bullish signal, suggests a better outcome than the current market forecasts and more stable dayrates. In our view, announcements of rig stacking and retirement will mark a bullish shift in the sentiment around floater market balances and likely a bottom in offshore driller shares. Under a flat forecast for contracted rigs (currently 280, pg. 12) and our rig attrition forecast, utilization of marketed rigs falls from a current ~94% to ~92% at the end of 2016 (pg. 3), as attrition largely offsets the arrival of newbuilds. Given plausible scenarios for low single digit (2.5%) demand growth and potential for delays or cancellations of Brazilian-built newbuilds, the market may tighten and investor sentiment could shift quickly. We believe the stocks are likely near bottom and range-bound into year-end, as negative investor sentiment reigns, but patient investors should build positions at current levels (see favored stocks below). If rig attrition trims supply, upstream budgets surprise (better rig demand growth), and the oil outlook becomes more balanced (political/fundamental reasons), offshore driller shares may outperform in 2015. Flat Floater Demand Forecast Conservative vs. Recent History. Firm contracted demand through 2015 for development work (pg. 21), a fall in exploration activity back to historical averages (pg. 20), and limited near-term visibility around capital budgets supports a flat 2015 demand assumption. No growth beyond 2015 may prove conservative versus historical trends. Historically, development drilling growth has been resilient through commodity volatility, as offshore basins remain important for new source production. Our most recent demand forecast (pg. 14-16) must be revisited, as high growth, project-by-project data from consultant sources must better factor the outcomes of a cautious capital budgeting cycle in addition to our probability weighting (“Second Derivative” Leads Drivers, Despite Near-Term Dayrate Headwinds, 6/2/14). Although 3Q14 industry comments temper offshore spending expectations and suggest project delays, favorable marginal cost economics for a large number of projects (pg. 18) and the push for standardization indicate oil companies look to press forward with projects. Two Plausible Bullish Scenarios May Turn the Market in 2H15/1H16 (pg. 3): Growth Can Change Dynamics Quickly. A low single digit demand growth forecast (2.5%/year) remains plausible (pg. 3). Even small growth, in addition to rig attrition, may tighten the market via an inflection in utilization, and turn market sentiment. For the last ten years, the number of contracted floaters grew at a 6-7% CAGR (pg. 19), largely driven by the search for larger scale reserve replacement and production growth. The advent of unconventional plays has not derailed the trend, but the quest to lower breakeven costs has slowed activity and started the industry up the learning curve within the deepwater frontier, toward an establishment of best practices and standardization. A flat growth forecast works contrary to historical trends and the need for oil companies to generate cash from offshore assets, if a better ROIC, production growth, and dividend sustainability remain IOC goals. Brazilian Floater Delays May Significantly Change Supply Dynamics. If the 28 newbuilds scheduled for construction in Brazil (9 by 4Q16) are delayed or do not come to market, marketed utilization may improve dramatically (pg. 10). Only 13 of these rigs are under construction at shipyards with participation from established players (Keppel FELS & Jurong). The remaining shipyards are under construction themselves. Probability favors Brazil rig delays/cancellations as a tailwind. Drawing the Line in the Fleet: Multi-Factor Rating Methodology. We have constructed a proprietary multi-factor model to assess the floater fleet by capability, age, and free date in order to create a ranking for each rig, retirement list and schedule (pg. 7). From the analysis we have derived a list of 71 rigs set to leave the market (pg. 9), most in addition to those already idle/not contracted (47, pg. 12). We see 4Q14 as a significant attrition period, with 13 rigs leaving the market, of which 6 are currently uncontracted. In our view, our retired rigs will leave the marketed fleet and drive marketed utilization higher, but may be counted in the fleet until scrapped, lowering the optics of total fleet utilization despite no longer competing. Several offshore drillers have begun to announce rigs as stacked, retiring, or held for sale, while others have suggested retirements are to follow. We see strategic reasons for offshore drillers to be coy in identifying rigs until they formally leave the market, but maintain the view that rig retirements are on the horizon and will serve as positive catalysts for sentiment. We believe RIG (BUY, $27.08), DO (BUY, $35.84), and ESV (Neutral, $39.27) will see the most retirements (pg. 8), but these are largely factored into our models and appear to be discounted in their share prices. Favored Offshore Drillers. In our coverage, we believe SDRL (BUY, $21.27) and RIG (BUY, $27.08) have the most leverage to the more bullish offshore driller outlook, especially if capital markets remain open to financing newbuild deliveries and fleet renewal, respectively. Post PGN spin and recent announcements, NE (BUY, $21.54) continues to screen better with a solid cash flow story with catalysts around the MLP and share repurchase prospects. In the small/mid-cap names, we continue to like PACD (BUY, $6.87) and ATW (BUY, $35.52) for quality of fleets, longer-term growth stories, and emerging payout strategies. Guggenheim Securities, LLC | 212-293-3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers & Capital Equipment PAGE 2
  3. 3. (13) (7) (7) (3) (4) (7) (3) (4) (4) (2) (2) (1) (3) - (2) (2) - 9 7 5 4 9 1 5 2 5 1 4 1 - 1 - - - 94% 94% 95% 94% 93% 95% 94% 95% 94% 95% 94% 94% 95% 95% 95% 96% 96% 91% 92% 93% 94% 95% 96% 97% -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 MarketedUtilization% Attrition/NewbuildCount Attrition Newbuilds, ex Brazil Marketed Utilization, ex Brazil (13) (7) (7) (3) (4) (7) (3) (4) (4) (2) (2) (1) (3) - (2) (2) - 9 7 6 4 10 2 5 6 7 3 5 3 2 2 2 2 3 94% 94% 94% 94% 92% 94% 93% 92% 92% 91% 90% 90% 90% 89% 89% 89% 89% 85% 86% 87% 88% 89% 90% 91% 92% 93% 94% 95% -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 MarketedUtilization% Attrition/NewbuildCount Attrition Newbuilds Marketed Utilization 78% 79% 80% 81% 82% 83% 84% 85% 86% 87% 88% 89% 90% 91% 92% 93% 94% 95% 96% 97% 98% 99% 100% 1Q96 3Q96 1Q97 3Q97 1Q98 3Q98 1Q99 3Q99 1Q00 3Q00 1Q01 3Q01 1Q02 3Q02 1Q03 3Q03 1Q04 3Q04 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 MarketedUtilization% 2.5% Growth 2.5% Decline Marketed Utilization - No Growth Fleet Newbuilds (ex. Brazil)/ Attrition vs. Utilization Attrition Forecast, Demand Growth & Brazil Rig Delays Tighten Market 78% 79% 80% 81% 82% 83% 84% 85% 86% 87% 88% 89% 90% 91% 92% 93% 94% 95% 96% 97% 98% 99% 100% 1Q96 3Q96 1Q97 3Q97 1Q98 3Q98 1Q99 3Q99 1Q00 3Q00 1Q01 3Q01 1Q02 3Q02 1Q03 3Q03 1Q04 3Q04 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 MarketedUtilization% 2.5%Growth 2.5%Decline MarketedUtilization - No Growth Floater Marketed Utilization – Inc. Brazil Newbuilds Floater Marketed Utilization – Ex. Brazil NB Fleet Newbuilds/Attrition vs. Utilization Source: Guggenheim Securities, LLC, IHS-Petrodata; Note: All estimates are by Guggenheim Securities, LLC Guggenheim Securities, LLC | 212-293-3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers & Capital Equipment PAGE 3
  4. 4. Forecast of 60+ Incremental Rigs to Retire Through 2018 13 7 7 3 4 7 3 4 4 2 2 1 3 0 2 2 0 13 20 27 30 34 41 44 48 52 54 56 57 60 60 62 64 64 0 10 20 30 40 50 60 70 0 2 4 6 8 10 12 14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 CumulativeFloaterAttrition QuarterlyFloaterAttrition Attrition Cumulative Forecasted Floater Attrition 6 of the 13 rigs we see exiting the market in 4Q14 are not contracted. The majority of rigs will exit the market in the near term, as market conditions remain slack. In our view, retirements will drive a change in the perceived direction of market balances. Source: Guggenheim Securities, LLC, IHS-Petrodata Note: All estimates are by Guggenheim Securities, LLC Note: We do not include rigs stacked or idle prior to 4Q14 in our incremental rig retirement assumptions. Guggenheim Securities, LLC | 212-293-3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers & Capital Equipment PAGE 4
  5. 5. Drawing a Retirement Line on the Older, Lower Spec Fleet. 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 0.50 0.55 0.60 0.65 0.70 0.75 0.80 0.85 0.90 0.95 1.00 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 PercentileRank Year in Service 3G 4G 5G 6G Floater Fleet Percent Rank by Generation We see the bottom quartile of the floater fleet as ripe for retirement as new rigs arrive, the market remains oversupplied, and higher spec. 5G/4G rigs compete for work. Source: Guggenheim Securities, LLC, IHS-Petrodata Note: All estimates are by Guggenheim Securities, LLC Guggenheim Securities, LLC | 212-293-3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers & Capital Equipment PAGE 5
  6. 6. Lower Deciles of the Fleet Screen Show Risk to 3G & 4G Rigs 43 40 29 11 3 - - - - - - 2 10 12 2 - - - - - - - 3 15 13 12 2 1 - - - 4 26 29 40 41 42 43 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 1 2 3 4 5 6 7 8 9 10 %ofRigsbyGeneration Decile 3G 4G 5G 6G Floater Fleet Percent Rank by Deciles Need to stretch retirements into the bottom 3rd and 4th deciles to begin retiring a meaningful number of 4th and 5th generation rigs. Source: Guggenheim Securities, LLC, IHS-Petrodata Note: All estimates are by Guggenheim Securities, LLC Guggenheim Securities, LLC | 212-293-3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers & Capital Equipment PAGE 6
  7. 7. Multi-Factor Rig Ranking Methodology Our floater factor-weighting methodology ranks each rig against every rig in the floater universe. Each rig is percent ranked against the universe on the below factors, with the overall ranking as an average of the category ranks. Double counted due to being significantly differentiating factors that are difficult/expensive to change. Rig Ranking Methodology Source: Guggenheim Securities, LLC Factor Description Weighting Water Depth The rig's maximum operating water depth. A deeper depth ranks higher. Standard Drilling Depth The rig's maximum drilling depth. A deeper depth ranks higher. Standard VDL (Variable Deck Load) The variable deck load represents the carrying capacity of the rig. A greater capacity ranks higher. Double Derrick/Hook Load Maximum weight the derrick/mast and substructure can handle. A greater maximum load ranks higher. Double BOP Rams (Blowout Preventers) Total count of BOP rams onboard. BOP rams are designed to help prevent blowouts and are important for the safety of the crew, environment, and rig. More rams rank higher. Double DP (Dynamically Positioned) A dynamically positioned rig employs computerized thrusters to keep a rig positioned correctly at all times. Dynamically positioned is a binary measure with a DP system ranking positively. Standard Dual Activity A rig with two drilling packages to allow for greater efficiency. A binary measure with dual activity ranking positively. Standard Rebuild Credit is given to rigs that have been rebuilt. Standard Generation Rig generation is based on the rig's initial delivery year. Newer generation rigs rank higher. Standard YIS (Year in Service) Year in service represents when a rig first began working. Newer rigs rank higher. Standard Guggenheim Securities, LLC | 212-293-3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers & Capital Equipment PAGE 7
  8. 8. Rig Retirements by Offshore Driller Source: Guggenheim Securities, LLC, IHS-Petrodata Note: All estimates are by Guggenheim Securities, LLC Manager Forecast Retirements Transocean 20 Diamond Offshore 12 Ensco 6 Dolphin 4 Noble 3 Awilco Drilling 2 Paragon Offshore 2 PetroSaudi 2 Saipem 2 Songa Opus Offshore Drilling 2 Aban Offshore 1 Arktikmor 1 Atwood 1 Caspian Drilling 1 Crosco 1 Deepwater Drilling & Services 1 Frigstad Offshore 1 Gryphon Energy 1 Japan Drilling 1 Jet Drilling 1 Maersk Drilling 1 Odfjell Drilling 1 QGOG Constellation 1 Schahin 1 Songa Offshore 1 Stena 1 Total 71 Guggenheim Securities, LLC | 212-293-3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers & Capital Equipment PAGE 8
  9. 9. List of Forecasted Retirement Rigs: Dominated by Large Players We expect a large number of retirements will come from large established offshore drillers, like RIG & DO, in-line with recent industry/company commentary. Source: Guggenheim Securities, LLC, IHS- Petrodata Note: All estimates are by Guggenheim Securities, LLC Rig Name Manager Market Category Generation Rig Status Contract Status Last/Scheduled Yard Survey Due Free Date 1 Aban Ice Aban Offshore Drillship <=3000 3G Drilling Contracted -- Nov-18 Nov-16 2 Deep Venture Arktikmor Drillship 5001-7500 3G Yard Not Contracted Jun-14 Apr-18 Oct-14 3 Atwood Hunter Atwood Semi 3001-5000 3G Drilling Contracted Jan-14 Aug-17 Oct-14 4 WilHunter Awilco Drilling Semi Harsh Standard 3G Drilling Contracted Dec-15 -- Feb-16 5 WilPhoenix Awilco Drilling Semi Harsh Standard 3G Drilling Contracted May-16 -- Sep-17 6 Istiglal Caspian Drilling Semi <=3000 4G Drilling Contracted -- -- Jan-23 7 Zagreb 1 Crosco Semi <=3000 3G Warm stacked Not Contracted -- -- Sep-14 8 Paragon MDS1 Deepwater Drilling & Services Drillship <=3000 3G Drilling Contracted Dec-14 -- May-15 9 Ocean Vanguard Diamond Offshore Semi Harsh Standard 3G Warm stacked Not Contracted -- -- Jun-14 10 Ocean Concord Diamond Offshore Semi <=3000 3G Standby Not Contracted -- -- Nov-14 11 Ocean Yatzy Diamond Offshore Semi 3001-5000 4G Standby Not Contracted May-14 -- Nov-14 12 Ocean Star Diamond Offshore Semi 5001-7500 3G En route Not Contracted -- -- Nov-14 13 Ocean Princess Diamond Offshore Semi Harsh Standard 3G Drilling Contracted -- -- Dec-14 14 Ocean Worker Diamond Offshore Semi 3001-5000 3G Drilling Contracted -- -- Feb-15 15 Ocean Yorktown Diamond Offshore Semi <=3000 3G Drilling Contracted -- -- Mar-15 16 Ocean Winner Diamond Offshore Semi 3001-5000 3G Drilling Contracted -- -- Mar-15 17 Ocean Nomad Diamond Offshore Semi Harsh Standard 3G Drilling Contracted -- -- Aug-15 18 Ocean Ambassador Diamond Offshore Semi <=3000 3G Drilling Contracted -- Jul-18 Mar-16 19 Ocean Patriot Diamond Offshore Semi Harsh Standard 3G Moving to location Contracted Aug-14 -- Oct-17 20 Ocean Lexington Diamond Offshore Semi <=3000 3G Drilling Contracted Feb-15 -- Apr-18 21 Borgny Dolphin Dolphin Semi Harsh Standard 3G Warm stacked Not Contracted -- -- Dec-14 22 Byford Dolphin Dolphin Semi Harsh Standard 3G Drilling Contracted Jan-15 Jan-15 Apr-16 23 Bideford Dolphin Dolphin Semi Harsh High Spec 3G Drilling Contracted Apr-14 Jun-19 Jan-17 24 Borgland Dolphin Dolphin Semi Harsh High Spec 5G Yard Contracted Sep-14 Oct-19 Oct-17 25 ENSCO 5001 Ensco Semi 3001-5000 3G Yard Contracted Aug-14 Jun-14 Feb-15 26 ENSCO 6004 Ensco Semi 5001-7500 5G Drilling Contracted Sep-14 May-19 Oct-16 27 ENSCO 5004 Ensco Semi <=3000 3G Drilling Contracted Jan-14 Aug-16 Dec-16 28 ENSCO 6003 Ensco Semi 5001-7500 5G Drilling Contracted Jan-14 Sep-16 Jan-17 29 ENSCO 6001 Ensco Semi 5001-7500 5G Yard Contracted May-14 Dec-15 Jun-18 30 ENSCO 6002 Ensco Semi 5001-7500 5G Drilling Contracted Apr-14 Feb-16 Jul-18 31 Kan Tan IV Frigstad Offshore Semi <=3000 3G Drilling Contracted -- Apr-17 Dec-14 32 Peregrine I Gryphon Energy Drillship 5001-7500 3G Yard Not Contracted -- -- Dec-14 33 Hakuryu-5 Japan Drilling Semi <=3000 3G Hot stacked Not Contracted Apr-14 Sep-17 Sep-14 34 Energy Searcher Jet Drilling Drillship <=3000 3G Drilling Contracted Jan-14 May-16 Apr-15 35 Nanhai VI Maersk Drilling Semi <=3000 3G Drilling Contracted Jun-15 Dec-15 Oct-15 36 Noble Driller Noble Semi 3001-5000 3G Drilling Contracted -- May-19 Nov-14 37 Noble Jim Thompson Noble Semi 5001-7500 5G Drilling Contracted Dec-14 Sep-14 May-16 38 Noble Discoverer Noble Drillship <=3000 3G Standby Contracted Feb-14 Feb-19 Dec-16 39 Deepsea Bergen Odfjell Drilling Semi Harsh Standard 3G Drilling Contracted -- Aug-15 Jun-17 40 Paragon MSS1 Paragon Offshore Semi Harsh Standard 3G Drilling Contracted -- -- Jun-15 41 Paragon MSS2 Paragon Offshore Semi 3001-5000 3G Drilling Contracted Nov-14 -- Oct-15 42 PetroSaudi Discoverer PetroSaudi Drillship <=3000 3G Warm stacked Not Contracted Sep-14 -- Sep-14 43 PetroSaudi Saturn PetroSaudi Drillship 3001-5000 3G Drilling Contracted -- -- Nov-17 44 Atlantic Star QGOG Constellation Semi <=3000 3G Drilling Contracted -- Jan-16 Jul-18 45 Scarabeo 3 Saipem Semi <=3000 3G Drilling Contracted -- -- May-15 46 Scarabeo 4 Saipem Semi <=3000 3G Drilling Contracted -- -- Oct-15 47 SC Lancer Schahin Drillship 3001-5000 3G Drilling Contracted -- -- Aug-16 48 Songa Trym Songa Offshore Semi Harsh Standard 3G Moving to location Contracted -- -- Mar-16 49 Songa Venus Songa Opus Offshore Drilling Semi <=3000 3G Warm stacked Not Contracted Apr-15 -- Jul-14 50 Songa Mercur Songa Opus Offshore Drilling Semi <=3000 4G Standby Contracted Jun-15 -- Nov-14 51 Stena Clyde Stena Semi <=3000 3G Drilling Contracted Dec-14 -- Mar-15 52 M.G. Hulme, Jr. Transocean Semi 3001-5000 3G Hot stacked Contracted May-14 Aug-15 Aug-14 53 Sedco 707 Transocean Semi 5001-7500 3G Drilling Contracted -- -- Nov-14 54 GSF Rig 140 Transocean Semi <=3000 3G Drilling Contracted -- Oct-18 Dec-14 55 Transocean Legend Transocean Semi 3001-5000 3G Drilling Contracted Feb-14 -- Jan-15 56 GSF Arctic III Transocean Semi Harsh Standard 3G Moving to location Contracted Oct-14 Feb-15 Feb-15 57 Transocean Marianas Transocean Semi 5001-7500 5G Drilling Contracted -- -- Apr-15 58 GSF Rig 135 Transocean Semi <=3000 3G Drilling Contracted -- Jun-18 May-15 59 Transocean Prospect Transocean Semi Harsh Standard 3G Drilling Contracted -- -- May-15 60 GSF Grand Banks Transocean Semi Harsh Standard 3G WOW Contracted -- Mar-19 Sep-15 61 Actinia Transocean Semi <=3000 3G Drilling Contracted Jan-15 Oct-17 Sep-15 62 Transocean Amirante Transocean Semi 3001-5000 3G Yard Contracted Jun-14 -- Dec-15 63 Sedco 702 Transocean Semi 5001-7500 3G Drilling Contracted Mar-15 -- Jan-16 64 Sedco 711 Transocean Semi Harsh Standard 3G Drilling Contracted -- -- Jan-16 65 Sedco 704 Transocean Semi Harsh Standard 3G Drilling Contracted -- -- Jan-16 66 Sedco 714 Transocean Semi Harsh Standard 3G Drilling Contracted Jun-14 -- Feb-16 67 Transocean John Shaw Transocean Semi Harsh Standard 3G Drilling Contracted Jan-14 -- Apr-16 68 Transocean Winner Transocean Semi Harsh Standard 3G Drilling Contracted -- -- Jul-16 69 Transocean Driller Transocean Semi <=3000 4G Drilling Contracted Jul-15 -- Jul-16 70 Sedco 706 Transocean Semi 5001-7500 3G Drilling Contracted May-14 -- Sep-16 71 Polar Pioneer Transocean Semi <=3000 4G Yard Contracted Jul-14 -- Jun-17 Guggenheim Securities, LLC | 212-293-3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers & Capital Equipment PAGE 9
  10. 10. PBR Sponsored & Brazil Built Newbuilds Manager Rig Name Rig Type Water Depth Drilling Depth North Sea Capable Shipyard Country Build Cost Drilling Package BOP Cementing Order Date Delivery Date Operator Contract Duration 1 Etesco / OAS Cassino Drillship 10,000 35,000 N Ecovix-Engevix Brazil 778 SLB Mar-12 Jul-16 Petrobras 15.2 2 Etesco / OAS Curumim Drillship 10,000 35,000 N Ecovix-Engevix Brazil 778 SLB Mar-12 Mar-17 Petrobras 15.9 3 Etesco / OAS Salinas Drillship 10,000 35,000 N Ecovix-Engevix Brazil 778 SLB Mar-12 Nov-17 Petrobras 15.9 4 Etesco / OAS Itapema Drillship 10,000 35,000 N Estaleiro Enseada do Paraguacu Brazil 799 HAL Apr-12 May-19 Petrobras 15.8 5 Etesco / OAS Comandatuba Drillship 10,000 35,000 N Estaleiro Enseada do Paraguacu Brazil 799 HAL Apr-12 Jan-20 Petrobras 15.6 6 Not known Grumari Drillship 10,000 N Estaleiro Atlantico Sul Brazil 662 NOV BHI Jun-11 Jul-16 Petrobras 15.3 7 Not known Ipanema Drillship 10,000 N Estaleiro Atlantico Sul Brazil 662 NOV BHI Jun-11 Mar-17 Petrobras 15.3 8 Not known Leblon Drillship 10,000 N Estaleiro Atlantico Sul Brazil 662 NOV BHI Jun-11 Nov-17 Petrobras 15.3 9 Not known Leme Drillship 10,000 N Estaleiro Atlantico Sul Brazil 662 NOV BHI Jun-11 Jul-18 Petrobras 15.3 10 Not known Marambaia Drillship 10,000 N Estaleiro Atlantico Sul Brazil 662 NOV BHI Feb-11 Dec-18 Petrobras 15.6 11 Odebrecht Ondina Drillship 10,000 35,000 N Estaleiro Enseada do Paraguacu Japan 799 HAL Dec-12 Jul-16 Petrobras 15.1 12 Odebrecht Pituba Drillship 10,000 35,000 N Estaleiro Enseada do Paraguacu Brazil 799 HAL Apr-12 May-17 Petrobras 15.1 13 Odebrecht Boipeba Drillship 10,000 35,000 N Estaleiro Enseada do Paraguacu Brazil 799 NOV HAL Apr-12 Jan-18 Petrobras 15.6 14 Odebrecht Interlagos Drillship 10,000 35,000 N Estaleiro Enseada do Paraguacu Brazil 799 HAL Apr-12 Sep-18 Petrobras 15.7 15 Odebrecht Botinas Semisubmersible 10,000 32,808 N BRASFELS Brazil 832 HAL Mar-12 Aug-19 Petrobras 15.4 16 Odfjell Galvao Deepsea Guarapari Drillship 10,000 32,808 N Estaleiro Jurong Aracruz Singapore 792 CAM BHI Feb-12 Jul-16 Petrobras 15.0 17 Odfjell Galvao Deepsea Itaoca Drillship 10,000 40,000 N Estaleiro Jurong Aracruz Brazil 792 CAM BHI Mar-12 Aug-17 Petrobras 15.4 18 Odfjell Galvao Deepsea Siri Drillship 10,000 32,808 N Estaleiro Jurong Aracruz Brazil 792 CAM BHI Mar-12 Dec-18 Petrobras 16.1 19 Petrobras Arpoador Drillship 10,000 32,808 N Estaleiro Jurong Aracruz Singapore 792 NOV BHI Feb-11 Jun-15 Petrobras 15.6 20 Petrobras Copacabana Drillship 10,000 N Estaleiro Atlantico Sul Brazil 662 NOV BHI Jun-11 Feb-16 Petrobras 15.1 21 Petroserv Frade Semisubmersible 10,000 32,808 N BRASFELS Brazil 832 HAL Mar-12 Dec-16 Petrobras 15.4 22 Petroserv Portogalo Semisubmersible 10,000 32,808 N BRASFELS Brazil 832 HAL Mar-12 Apr-18 Petrobras 15.4 23 Queiroz Galvao Urca Semisubmersible 10,000 32,808 N BRASFELS Brazil HAL Dec-11 Dec-15 Petrobras 15.6 24 Queiroz Galvao Bracuhy Semisubmersible 10,000 32,808 N BRASFELS Brazil 832 HAL Mar-12 Aug-17 Petrobras 15.4 25 Queiroz Galvao Mangaratiba Semisubmersible 10,000 32,808 N BRASFELS Brazil 832 HAL Mar-12 Dec-18 Petrobras 15.4 26 Seadrill Camburi Drillship 10,000 32,808 N Estaleiro Jurong Aracruz Brazil 792 ASKO AKSO BHI Mar-12 Dec-16 Petrobras 15.4 27 Seadrill Itaunas Drillship 10,000 32,808 N Estaleiro Jurong Aracruz Brazil 792 ASKO AKSO BHI Mar-12 Apr-18 Petrobras 16.1 28 Seadrill Sahy Drillship 10,000 32,808 N Estaleiro Jurong Aracruz Brazil 792 ASKO AKSO BHI Mar-12 Aug-19 Petrobras 16.1 We assume that rigs built by established offshore drillers do come to market on time, which may prove an aggressive assumption if final construction takes place at Brazilian yards. The yards building rigs in Brazil are largely still under construction. Aside from Jurong and Keppel FELS, the yards are also inexperienced in building rigs. Source: Guggenheim Securities, LLC, IHS-Petrodata; Note: All estimates are by Guggenheim Securities, LLC Guggenheim Securities, LLC | 212-293-3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers & Capital Equipment PAGE 10
  11. 11. Demand Calibration vs. Oil Prices Guggenheim Securities, LLC | 212-293-3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers & Capital Equipment PAGE 11
  12. 12. Current Fleet Complexion: Offshore Drillers Source: Guggenheim Securities, LLC, IHS-Petrodata OPERATOR CONTRACTED FLEET NOT CONTRACTED FLEET NEWBUILDS Drilling Enroute Standby MovingToLocation WOW Yard Hotstacked Warmstacked TOTALCONTRACTED TOTALUTILIZATION MARKETEDUTILIZATION Hotstacked Warmstacked Enroute Standby MovingToLocation WOW Yard Underconstruction Onorder Acceptancetesting Outofservice Coldstacked TOTALNOTCONTRACTED Marketed-NC NotMarketed-NC Contracted NotContracted TOTALNEWBUILDS Onorder TOTALRIGS Transocean 46 1 1 1 - 4 1 - 55 75% 90% 2 - - - - - 3 - - - - 13 18 6 12 5 2 7 5 80 Diamond Offshore 19 - - - - 2 2 - 23 68% 88% - - 1 2 - - 2 - - - - 6 11 3 8 4 - 4 - 38 Ensco 19 - - - - 3 - - 22 85% 96% - 1 - - - - - - - - - 3 4 1 3 2 1 3 - 29 Seadrill 15 2 1 2 - 1 - - 21 95% 95% - 1 - - - - - - - - - - 1 1 - 4 6 10 3 32 Noble 13 - 1 - - 1 1 - 17 85% 85% 1 - - - - - 1 - - - - 1 3 3 - - - - - 20 Ocean Rig 8 - - - - 1 - - 9 100% 100% - - - - - - - - - - - - - - - 1 3 4 3 13 Saipem 8 - - - - - - 1 9 100% 100% - - - - - - - - - - - - - - - - - - - 9 Maersk Drilling 7 - - - - - - - 8 100% 100% - - - - - - - - - - - - - - - - 1 1 - 9 Atwood 6 1 - - - - - - 7 88% 100% - - - - - - - - - - - 1 1 - 1 - 2 2 - 10 Dolphin (Fred Olsen) 6 - - - - 1 - - 7 88% 100% - - - - - - - - - - - 1 1 - 1 1 - 1 - 9 Stena 5 - 1 - - 1 - - 7 100% 100% - - - - - - - - - - - - - - - - 2 2 - 9 Odfjell Drilling 6 1 - - - - - - 7 100% 100% - - - - - - - - - - - - - - - - 1 1 - 8 Pacific Drilling 6 - - - - - - - 6 100% 100% - - - - - - - - - - - - - - - - 2 2 - 8 Schahin 6 - - - - - - - 6 100% 100% - - - - - - - - - - - - - - - - - - - 6 Paragon Offshore 5 - - - - - - - 5 71% 100% - - - - - - - - - - - 2 2 - 2 - - - - 7 North Atlantic Drilling 3 - - 1 - - - - 4 100% 100% - - - - - - - - - - - - - - - 1 - 1 - 5 Songa Offshore 2 - - - - 1 - - 3 100% 100% - - - - - - - - - - - - - - - 4 - 4 - 7 Vantage Drilling 2 1 - - - - - - 3 100% 100% - - - - - - - - - - - - - - - - 3 3 - 6 Jet Drilling 2 - - - - - - - 2 100% 100% - - - - - - - - - - - - - - - - - - - 2 Awilco Drilling 2 - - - - - - - 2 100% 100% - - - - - - - - - - - - - - - - - - - 2 Rowan 1 1 - 1 - - - - 3 100% 100% - - - - - - - - - - - - - - - 1 - 1 - 4 Frigstad Offshore 1 - - - - - - - 1 100% 100% - - - - - - - - - - - - - - - - 2 2 - 3 Songa Opus Offshore Drilling - - - - - - - 1 1 50% 50% - 1 - - - - - - - - - - 1 1 - - - - - 2 Aban Offshore 1 - - - - - - - 1 100% 100% - - - - - - - - - - - - - - - - - - - 1 Deepwater Drilling & Services 1 - - - - - - - 1 100% 100% - - - - - - - - - - - - - - - - - - - 1 Essar Oilfields Services 1 - - - - - - - 1 100% 100% - - - - - - - - - - - - - - - - - - - 1 Other 1 - - - - - 1 - 2 150% 29% 1 3 - - - - 1 - - - - - 5 5 - 5 8 13 8 20 TOTAL COMPETITIVE 192 7 4 5 - 15 5 2 233 83% 92% 4 6 1 2 - - 7 - - - - 27 47 20 27 28 33 61 19 341 SPECULATORS -- Friede Goldman Offshore - - - - - - - - - -- -- - - - - - - - - - - - - - - - - 1 1 - 1 Keppel FELS - - - - - - - - - -- -- - - - - - - - - - - - - - - - - 1 1 - 1 PBR / BRAZIL -- Odebrecht 7 - - - - - - - 7 100% 100% - - - - - - - - - - - - - - - 5 - 5 4 12 QGOG Constellation 8 - - - - - - - 8 100% 100% - - - - - - - - - - - - - - - - - - - 8 Petrobras 4 - - - - - - - 4 100% 100% - - - - - - - - - - - - - - - 2 - 2 - 6 Odfjell Galvao - - - - - - - - - -- -- - - - - - - - - - - - - - - - 3 - 3 2 3 Etesco 1 - - - - 1 - - 2 100% 100% - - - - - - - - - - - - - - - - - - - 2 Etesco / OAS - - - - - - - - - -- -- - - - - - - - - - - - - - - - 5 - 5 5 5 Queiroz Galvao - - - - - - - - - -- -- - - - - - - - - - - - - - - - 4 - 4 1 4 NOC's -- COSL 8 - - - - - - 1 9 100% 100% - - - - - - - - - - - - - - - - 2 2 - 11 Petroserv 4 - - - - - - - 4 100% 100% - - - - - - - - - - - - - - - 2 - 2 1 6 IPC 3 - - - - - - - 3 100% 100% - - - - - - - - - - - - - - - - - - - 3 Caspian Drilling 2 - - - - - - - 2 100% 100% - - - - - - - - - - - - - - - - 1 1 - 3 Gazflot - - - - - - - 2 2 100% 100% - - - - - - - - - - - - - - - - - - - 2 ONGC 2 - - - - - - - 2 100% 100% - - - - - - - - - - - - - - - - - - - 2 KNOC - - - - - 1 - - 1 100% 100% - - - - - - - - - - - - - - - - 1 1 - 2 PetroSaudi 1 - - - - - - - 1 50% 50% - 1 - - - - - - - - - - 1 1 - - - - - 2 Sinopec 1 - - - - - - - 1 100% 100% - - - - - - - - - - - - - - - - - - - 1 KEPCO 1 - - - - - - - 1 100% 100% - - - - - - - - - - - - - - - - - - - 1 SOCAR - - - - - - - - - 0% -- - - - - - - - - - - 2 1 3 - 3 - - - - 3 North Sea Rigs - - - - - - - - - -- -- - - - - - - - - - - - - - - - - 2 2 - 2 Arktikmor - - - - - - - - - 0% 0% - - - - - - 1 - - - - - 1 1 - - - - - 1 TOTAL NOC 42 - - - - 2 - 3 47 90% 96% - 1 - - - - 1 - - - 2 1 5 2 3 21 8 29 13 81 TOTAL FLEET 234 7 4 5 - 17 5 5 280 84% 93% 4 7 1 2 - - 8 - - - 2 28 52 22 30 49 41 90 32 422 NOC/NOCSponsored/SpeculatorsCompetitiveOffshoreDrillers Guggenheim Securities, LLC | 212-293-3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers & Capital Equipment PAGE 12
  13. 13. Current Fleet Complexion: Operator & Geography Source: Guggenheim Securities, LLC, IHS-Petrodata OPERATOR IndianOcean SEAsia WAfrica FarEast USGOM Aus/NZ Med/BlackSea NWEurope Caspian SAmerica Mexico CAmerica CanadaEast MiddleEast TOTALMARKET Petrobras - - - - 1 - - - - 59 - - - - 60 Statoil 1 - 1 - 1 - - 14 - - - - 1 - 18 BP - - 3 - 8 - 1 2 3 - - - - - 17 Shell - 2 2 - 8 1 - 2 - 1 - - - - 16 Total - - 13 - - - - 2 - - - - - - 15 ONGC 9 - - - - - - - - - - - - - 9 Chevron - 1 2 - 4 2 - - - - - - - - 9 CNOOC - - 1 7 - - - - - - - - - - 8 Eni - 1 3 - 1 1 1 1 - - - - - - 8 Anadarko 1 - 1 - 5 - - - - - - - - - 7 ExxonMobil - - 3 - 1 1 1 1 - - - - - - 7 PEMEX - - - - - - - - - - 6 - - - 6 ConocoPhillips - 1 1 - - 1 - 1 - - - - - - 4 Apache - - - - 1 1 - 1 - - - - - - 3 Murphy - 1 - - 2 - - - - - - - - - 3 Rig Management Nor. - - - - - - - 3 - - - - - - 3 LLOG - - - - 3 - - - - - - - - - 3 Woodside - - - - - 2 - - - - - - - - 2 Hess - - - - 1 - - 1 - - - - - - 2 Marathon - - - - 1 - - 1 - - - - - - 2 BG - - - - - - - - - - - 1 - - 1 Nexen - - - - - - - 2 - - - - - - 2 PetroSA - - 2 - - - - - - - - - - - 2 Gazflot - - - 2 - - - - - - - - - - 2 Freeport-McMoRan Oil & Gas - - - - 2 - - - - - - - - - 2 Tullow Oil - - 2 - - - - - - - - - - - 2 Talisman Sinopec - - - - - - - 2 - - - - - - 2 Other 4 10 11 2 12 2 5 10 1 4 - - 3 1 65 TOTAL MARKET 15 16 45 11 51 11 8 43 4 64 6 1 4 1 280 Guggenheim Securities, LLC | 212-293-3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers & Capital Equipment PAGE 13
  14. 14. Previous Forecast: Consultant Raw Forecast Growth Aggressive vs. Oil Outlook Unadjusted development activity data sets create unrealistic expectations for the industry to rapidly ramp project execution. 0 20 40 60 80 100 120 140 160 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 NumberofProjects Source: IHS-Petrodata., Infield Systems, Guggenheim Securities, LLC - Note: All estimates by Guggenheim Securities, LLC Projects History & Forecast Ultra/Deepwater Well Counts History & Forecast Midwater Well Counts History & Forecast Even our probability-weighted demand growth assumptions may prove too high if commodity concerns curb spending. Our midwater forecast implies a number of projects that are not sanctioned at lower water depths, but may prove conservative. Processing projects near this rate of increase will require a much higher level of project management efficiency. 150 102 99 110 109 117 103 130 101 119 184 205 183 206 150 102 99 110 109 117 103 130 101 99 153 149 112 103 - 50 100 150 200 250 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 NumberofWells MW - Unadjusted WellCounts MW Forecast 129 146 164 153 121 127 138 165 199 201 236 278 350 439 129 146 164 153 121 127 138 165 199 171 215 232 265 301 - 50 100 150 200 250 300 350 400 450 500 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 NumberofWells UDW/DW - Unadjusted WellCounts UDW/DW Forecast Guggenheim Securities, LLC | 212-293-3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers & Capital Equipment PAGE 14
  15. 15. Previous Demand Analysis Needs Revisiting After Visibility Improves Source: IHS Inc., Infield Systems, Guggenheim Securities, LLC - Note: All estimates are by Guggenheim Securities, LLC Probability-weighted, field-by-field data analyzed across regions, based on project likelihood for FID and non-FID projects. Exploration rig demand focuses on probability-weighted tender activity in the near term. See next page for greater detail. Heavily “risked” demand in the near term accrues into greater demand inventories and challenges production forecasts. We have done a better job of accounting for “carried” demand from project delays. Later forecast helped by slowed pace of fleet construction. A number of rigs rolling off contract through 2016 screen for retirement due to age, capabilities, and investment required. Coupled with Brazil rigs that may not arrive or be delayed, floater market balances may prove better than expected. Development Floater Demand 2014E 2015E 2016E 2017E 2018E Development Well Count - Ultra/Deepwater 171 215 232 265 301 Divided By: Well-to-Rig Ratio 2.0 2.0 2.1 2.1 2.2 Equals: Development Floater Demand - Ultra/Deepwater 85 108 113 126 140 Development Well Count - Midwater 99 153 149 112 103 Divided By: Well-to-Rig Ratio 3.0 3.0 3.1 3.2 3.2 Equals: Development Floater Demand - Midwater 33 51 48 35 32 Add: Development Floater Demand - Ultra/Deepwater 85 108 113 126 140 Add: Development Floater Demand - Midwater 33 51 48 35 32 TOTAL DEVELOPMENT FLOATER DEMAND 118 159 162 162 171 Exploration Floater Demand 2014E 2015E 2016E 2017E 2018E Add: Exploration Rig Demand - Ultra/Deepwater 67 74 78 82 86 Add: Exploration Rig Demand - Midwater 29 32 33 35 36 Equals: TOTAL EXPLORATION FLOATER DEMAND 95 106 111 116 122 Total Floater Demand 2014E 2015E 2016E 2017E 2018E Add: Ultra/Deepwater Floater Demand 152 182 191 208 226 Add: Midwater Floater Demand 62 83 82 71 69 Equals: TOTAL FLOATER DEMAND 214 265 273 279 295 Floater Market Balance 2014E 2015E 2016E 2017E 2018E Add: Ultradeepwater Floater Supply (Util. Adjusted) 111 120 135 145 152 Add: Deepwater Floater Supply (Util. Adjusted) 68 68 68 69 70 Less: Ultra/Deepwater Floater Demand (152) (182) (191) (208) (226) Equals: Current Ultra/Deepwater Suplus/(Deficit) 27 6 12 6 (4) Less: Floater Demand Assumed "Pushed to Right" (Previous Year) - (15) (10) (22) (39) Less: Carried Ultra/Deepwater Floater From Rig Deficit - - (9) (7) (23) Equals: Current & Carried Ultra/Deepwater Suplus/(Deficit) 27 (9) (7) (23) (67) Add: Midwater Floater Supply (Util. Adjusted) 85 92 97 100 100 Less: Midwater Floater Demand (62) (83) (82) (71) (69) Equals: Current Midwater Suplus/(Deficit) 23 9 15 29 31 Less: Floater Demand Assumed "Pushed to Right" (Previous Year) - (7) (10) (18) (22) Less: Carried Midwater Floater Demand - - - - - Equals: Current & Carried Midwater Suplus/(Deficit) 23 2 5 11 9 Floaters Rolling Off Contract Screening for Retirement 33 27 25 6 2 Petrobras/Brazil Rigs Likely Delayed/Cancelled - 1 6 6 6 Ultra/deepwater demand remains strong, but mid-water activity slows in the forecast. Guggenheim Securities, LLC | 212-293-3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers & Capital Equipment PAGE 15
  16. 16. Unsanctioned Development Rig Demand at Risk 2014E 2015E 2016E 2017E 2018E IHS - Non-FID (0-80% Probability) - - - 1 4 Probable (30-75% Probability) - 2 3 2 2 Possible (25% Probability) - 1 2 3 6 Ultra-Deepwater Wells- Infield - 3 5 6 12 IHS - Non-FID (0-80% Probability) 0 18 44 74 97 Probable (30-75% Probability) 3 11 14 30 48 Possible (25% Probability) 1 3 8 16 26 Deepwater Wells- Infield 5 31 66 120 171 IHS - Non-FID (0-80% Probability) 0 7 10 13 16 Probable (30-75% Probability) 3 14 32 41 52 Possible (25% Probability) 3 8 15 18 27 Midwater Wells- Infield 5 29 56 72 95 Total Unsanctioned Wells at Risk 10 63 127 198 278 Ultra/Deepwater Well-to-Rig Ratio 2.0 2.0 2.0 2.0 2.0 Midwater Well-to-Rig Ratio 3.0 3.0 3.0 3.0 3.0 Ultra/Deepwater Unsanctioned Floater Demand at Risk 2 17 36 63 91 Total Ultra/Deepwater Floater Demand 152 182 191 208 226 % of Demand at Risk 1% 9% 19% 30% 40% Midwater Unsanctioned Floater Demand at Risk 2 10 19 24 32 Total Midwater Floater Demand 62 83 82 71 69 % of Demand at Risk 3% 12% 23% 34% 46% We assign very low probabilities to non-FID projects in 2014 and 2015. With a deeper dive into the IHS components of demand, we were able to further risk- weight current assumptions across water depths. Our conclusions see very little demand at risk from non-FID projects in the near term, thus less of a chance that negative revisions will come from projects pushed to the right. Note: All estimates are by Guggenheim Securities, LLC Source: IHS Inc., Infield Systems, Guggenheim Securities, LLC Previous Demand Analysis Needs Revisiting, but Offers View on Sensitivities Guggenheim Securities, LLC | 212-293-3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers & Capital Equipment PAGE 16
  17. 17. Oil Strips: Brent & WTI 77.0 77.5 78.0 78.5 79.0 79.5 80.0 77 79 81 83 85 87 89 91 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 WTIContractPrice(USD) BrentContractPrice(USD) Brent Strip WTI Strip Oil Strips Source: Guggenheim Securities, LLC, Bloomberg Guggenheim Securities, LLC | 212-293-3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers & Capital Equipment PAGE 17
  18. 18. Most Oil Price Strips Still Leave Many Deepwater Projects Above Breakeven Source: IHS-Petrodata Guggenheim Securities, LLC | 212-293-3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers & Capital Equipment PAGE 18
  19. 19. Growth in Contracted Floaters Resilient to Short-Term Oil Fluctuations 137 140 146 152 157 162 163 168 166 165 169 171 169 175 174 179 180 179 185 185 190 193 193 192 194 199 201 200 206 213 220 226 241 251 253 255 257 259 261 264 260 262 260 - 10 20 30 40 50 60 70 80 90 100 110 120 130 110 120 130 140 150 160 170 180 190 200 210 220 230 240 250 260 270 280 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 BrentOilPrice(QuarterAvg.) TotalContractedRigQuarters Total Contracted Floaters Brent Prices (Avg Quarter) Total Contracted Floaters vs. Brent Prices Growth in the contracted floater rig count has trended higher independent of oil prices at about a 6-7% CAGR for the last 10 years. Capital budget vetting & concerns about project economics have slowed the trajectory of contacted rigs in recent quarters. Source: Guggenheim Securities, LLC, IHS-Petrodata, Bloomberg Guggenheim Securities, LLC | 212-293-3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers & Capital Equipment PAGE 19
  20. 20. Exploration & Appraisal Drilling Already Returned to Historical Run Rates 32 63 68 80 82 81 74 80 79 79 80 84 83 77 83 84 91 82 76 79 76 81 79 83 86 81 73 79 80 87 93 104 106 108 105 108 98 91 95 89 89 90 94 83 52 41 38 32 - 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 110 115 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 TotalExplorationandAppraisalRigQuarters Future Contracted E&A Contracted Rigs Earmarked for E&A Activity Source: Guggenheim Securities, LLC, IHS-Petrodata Note: All estimates are by Guggenheim Securities, LLC Floaters rolling off contract may be renewed, but present a risk to our flat demand assumption. Guggenheim Securities, LLC | 212-293-3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers & Capital Equipment PAGE 20
  21. 21. Development Drilling Maintains Consistent Growth Path 24 58 57 51 56 63 70 68 76 75 69 74 76 76 69 56 55 61 60 52 58 54 52 57 62 58 55 55 60 59 61 58 65 76 78 80 92 101 108 110 112 109 109 92 8 15 16 15 14 13 18 15 13 12 16 11 12 17 22 35 34 37 44 54 53 56 62 53 46 59 74 70 62 59 60 60 55 60 69 65 65 65 56 62 63 62 59 84 - 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 170 180 190 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 TotalDevelopmentRigQuarters Development Under Contract: Not Defined 32 73 72 66 70 77 88 83 89 87 85 85 88 93 91 91 89 98 104 107 111 110 114 110 108 117 129 125 122 119 121 118 121 135 147 145 157 166 164 172 174 171 168 177 189 195 188 183 - 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 170 180 190 200 210 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 TotalDevelopmentRigQuarters Future Contracted Development/Unidentified Contracted Rigs: Development & Unidentified Past & Future Contracted Rigs: Development & Unidentified Source: Guggenheim Securities, LLC, IHS-Petrodata Note: All estimates are by Guggenheim Securities, LLC The number of development rigs contracted remains high through 2015. A number of rigs are not identified as exploration or development, we assume they are working on development work. Guggenheim Securities, LLC | 212-293-3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers & Capital Equipment PAGE 21
  22. 22. Number of Uncontracted Marketed Rigs Moves With Oil Prices - 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 0 5 10 15 20 25 30 35 40 45 1Q90 3Q90 1Q91 3Q91 1Q92 3Q92 1Q93 3Q93 1Q94 3Q94 1Q95 3Q95 1Q96 3Q96 1Q97 3Q97 1Q98 3Q98 1Q99 3Q99 1Q00 3Q00 1Q01 3Q01 1Q02 3Q02 1Q03 3Q03 1Q04 3Q04 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 BrentOilPrice(QuarterEnd) #ofUncontractedMarketedRigs Uncontracted Marketed Rigs Brent Price (QTR End) Period of oversupply, following 80s overbuild and low oil prices Tight market spurs build of 5G rigs. Asian Financial Crisis, oil approaches $10/bbl Oil market tightens and prices surge past $140/bbl. US/Europe financial crisis and oil market recovery from lows near $40/bbl. Current CAPEX spending pullback, creates overbuild scenario, and need for retirement of legacy rigs. Uncontracted Marketed Rigs Source: Guggenheim Securities, LLC, IHS-Petrodata, Bloomberg Note: Current quarter end Brent price as of 11/10/2014 Guggenheim Securities, LLC | 212-293-3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers & Capital Equipment PAGE 22
  23. 23. Utilization vs. Brent - 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 75% 76% 77% 78% 79% 80% 81% 82% 83% 84% 85% 86% 87% 88% 89% 90% 91% 92% 93% 94% 95% 96% 97% 98% 99% 100% 1Q90 3Q90 1Q91 3Q91 1Q92 3Q92 1Q93 3Q93 1Q94 3Q94 1Q95 3Q95 1Q96 3Q96 1Q97 3Q97 1Q98 3Q98 1Q99 3Q99 1Q00 3Q00 1Q01 3Q01 1Q02 3Q02 1Q03 3Q03 1Q04 3Q04 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 BrentOilPrice(QuarterEnd) MarketedUtilization Marketed Util% Brent Price (QTR End) Marketed Utilization vs. Brent Prices Source: Guggenheim Securities, LLC, IHS-Petrodata, Bloomberg Note: Current quarter end Brent price as of 11/10/2014 Guggenheim Securities, LLC | 212-293-3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers & Capital Equipment PAGE 23
  24. 24. 75% 80% 85% 90% 95% 100% - 100 200 300 400 500 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Utilization% FixtureDayrate(kpd) Marketed Utilization Dayrate 75% 80% 85% 90% 95% 100% - 100 200 300 400 500 600 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Utilization% FixtureDayrate(kpd) Marketed Utilization Dayrate 75% 80% 85% 90% 95% 100% - 100 200 300 400 500 600 700 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Utilization% FixtureDayrate(kpd) Marketed Utilization Dayrate Marketed Utilization vs. Average Fixed Dayrates UDW Marketed Utilization vs. Fixtures DW Marketed Utilization vs. Fixtures Midwater Semis Marketed Utilization vs. Fixtures Source: Guggenheim Securities, LLC, IHS-Petrodata Note: Data through September 2014 Guggenheim Securities, LLC | 212-293-3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers & Capital Equipment PAGE 24
  25. 25. Floater Fleet Additions and Attrition: Raw Consultant Data - 5 10 15 20 25 30 35 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 #ofRigs Drillship Semisubmersible 0 2 4 6 8 10 12 14 16 18 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 #ofRigs Drillship Semisubmersible Floater Additions by Year Floater Attrition by Year Total Drillship Additions Post 2000: 141 Total Semisubmersible Additions Post 2000: 100 Total Drillship Attritions Post 2000: 3 Total Semisubmersible Attritions Post 2000:13 Source: Guggenheim Securities, LLC, IHS-Petrodata Guggenheim Securities, LLC | 212-293-3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers & Capital Equipment PAGE 25
  26. 26. Valuation & EPS Comp Sheets Guggenheim Securities, LLC | 212-293-3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers & Capital Equipment PAGE 26
  27. 27. Large Cap Services 7.5 x Large Cap Equipment 8.6 x Small/Mid Cap Svcs & Equipment 8.8 x Offshore Drilling 6.5 x E & C 8.3 x 5.0 x 5.5 x 6.0 x 6.5 x 7.0 x 7.5 x 8.0 x 8.5 x 9.0 x 5.0 x 10.0 x 15.0 x 20.0 x 25.0 x EV/EBITDA'14E Price/Earnings '14E NAVs & Relative Valuation Leave Offshore Driller Shares Screening Attractively Source: Guggenheim Securities, LLC, Thomson Reuters Note: Based on Consensus Estimates Offshore Drillers Least Expensive Sub-Sector 2014 Y/Y EBITDA Growth vs. 2014 EV/EBITDA PX NAV-B/U NAV-R P/NAV-B/U P/NAV-R Company Rating 11/12 Target PX Rtn to Target 2014 PE 2015 PE 2016 PE 2014 PE 2015 PE 2016 PE 2014 EV/EBITDA 2015 EV/EBITDA 2016 EV/EBITDA 2014E 2014E 2014E 2014E ATW Buy 35.52$ $55.0 55% 11.2x 8.3x 8.5x 7.3x 5.4x 5.5x 7.4x 5.6x 5.4x 55 65 65% 55% DO Buy 35.84$ $50.0 40% 16.4x 15.4x 16.7x 11.8x 11.0x 11.9x 7.0x 6.4x 6.5x 50 52 72% 69% ESV Neutral 39.27$ $44.0 12% 7.3x 7.2x 7.0x 6.5x 6.4x 6.2x 6.0x 5.9x 5.6x 44 44 89% 89% HERO Neutral 1.61$ $1.5 -7% NA NA NA NA NA NA 5.7x 8.2x 29.8x 0.75 0.75 215% 215% NE Buy 21.54$ $30.0 39% 10.2x 13.0x 12.8x 7.4x 9.4x 9.2x 5.1x 6.0x 5.9x 30 30 72% 72% ORIG Neutral 12.87$ $15.0 17% 6.0x 5.6x 5.0x 5.1x 4.8x 4.3x 5.9x 5.5x 5.2x 15 17 86% 76% PACD Buy 6.87$ $14.0 104% 17.3x 12.2x 13.5x 8.5x 6.0x 6.6x 7.2x 5.4x 5.4x 14 14 49% 49% RDC Neutral 24.05$ $25.0 4% 11.9x 6.4x 7.7x 11.5x 6.2x 7.4x 8.0x 5.1x 5.3x 25 27 96% 88% RIG Buy 27.08$ $45.0 66% 9.5x 14.8x 12.9x 5.7x 8.9x 7.7x 4.8x 5.8x 5.5x 45 45 60% 60% SDRL Buy 21.27$ $50.0 135% 16.1x 14.3x - 6.9x 6.1x - 11.6x 9.6x - 28 33 76% 64% Averages 7.8x 7.1x 7.4x 6.8x 6.4x 8.3x 88% 84% Target Current Large Cap Services 7.5 x Large Cap Equipment 8.6 x Small/Mid Cap Svcs & Equipment 8.8 x Offshore Drilling 6.5 x E & C 8.3 x 5.0 x 5.5 x 6.0 x 6.5 x 7.0 x 7.5 x 8.0 x 8.5 x 9.0 x 0% 5% 10% 15% 20% EV/EBITDA'14E EBITDA Growth, '14E vs. '13E Source: Guggenheim Securities, LLC, Thomson Reuters, Company Reports Guggenheim Securities, LLC | 212-293-3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers & Capital Equipment PAGE 27
  28. 28. Gross Fleet Value & EBITDA by Rig Generation Source: Guggenheim Securities, LLC Estimated Gross Fleet Value Breakdown Estimated EBITDA Breakdown 2014 - 2015 Ticker Jackups 2G 3G 4G 5G 6G Other ATW 15% 0% 0% 9% 0% 75% 0% DO 5% 3% 4% 17% 17% 54% 0% ESV 35% 0% 1% 11% 18% 35% 1% HERO 74% 0% 0% 0% 0% 0% 26% NE 10% 0% 18% 16% 17% 38% 0% ORIG 0% 0% 0% 0% 11% 89% 0% PACD 0% 0% 0% 0% 0% 100% 0% RDC 57% 0% 0% 0% 0% 43% 0% RIG 11% 1% 6% 5% 23% 54% 0% SDRL 25% 0% 0% 1% 3% 71% 1% TOTAL 17% 0% 7% 8% 13% 53% 1% Ticker Jackups 2G 3G 4G 5G 6G Other ATW 19% -1% 0% 22% 0% 58% 0% DO 7% 20% 18% 15% 19% 21% 0% ESV 38% 0% 1% 10% 25% 24% 2% HERO 84% 0% 0% 0% 0% 0% 16% NE 28% 0% 7% 13% 14% 37% 0% ORIG 0% 0% 0% 0% 21% 79% 0% PACD 0% 0% 0% 0% 0% 100% 0% RDC 68% 0% 0% 0% 0% 32% 0% RIG 5% 2% 20% 16% 26% 31% 0% SDRL 25% 0% 0% 3% 5% 67% 0% TOTAL 23% 2% 7% 10% 15% 42% 1% Guggenheim Securities, LLC | 212-293-3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers & Capital Equipment PAGE 28
  29. 29. Jackup Contract Coverage Give Less Buffer Than for Floaters Jackup Contract Coverage Floater Contract Coverage Source: Guggenheim Securities, LLC, Company Reports 33% 57% 50% 55% 67% 71% 46% 100% 70% 61% 84% 66% 79% 84% 70% 71% 100% 96% 87% 90% 96% 96% 96% 100% 100% 100% 100% 0% 20% 40% 60% 80% 100% RIG NE DO ESV SDRL ATW PACD RDC ORIG 2014E 2015E 2016E 17% 47% 37% 38% 17% 26% 45% 45% 16% 52% 76% 64% 78% 46% 84% 73% 50% 90% 90% 92% 93% 93% 94% 95% 0% 20% 40% 60% 80% 100% HERO RDC RIG ESV ATW DO NE SDRL 2014E 2015E 2016E Guggenheim Securities, LLC | 212-293-3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers & Capital Equipment PAGE 29
  30. 30. Clear Relationship Between Yield & Payout Ratios Yield vs. DPS/CEPS Source: Thomson Reuters, Company Reports, Guggenheim Securities, LLC NADL 19.4% DO, 9.8% ESV, 7.6% NE, 7.1% ORIG, 5.9% RDC, 1.7% RIG, 11.1% SDRL, 18.8% CRR, 2.6% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 12.0% 13.0% 14.0% 15.0% 16.0% 17.0% 18.0% 19.0% 20.0% 21.0% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 110% 120% DividendYield(LatestQuarterAnnualized) DPS/CEPS 3Q14E (annualized) Full payouts should migrate yields toward each company’s cost of equity, under the assumption that higher payouts signify lower future distribution growth. Lower yields are contingent upon perceived future distribution growth. Theoretically, lower payout ratios produce lower yields, as assumed reinvestment should produce dividend growth in the future. Guggenheim Securities, LLC | 212-293-3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers & Capital Equipment PAGE 30
  31. 31. Yield-Based Values vs. P/NAV Yield vs. P/NAV relationship Source: Thomson Reuters, Company Reports, Guggenheim Securities, LLC DO, 9.8% ESV, 7.6% NE, 7.1% ORIG, 5.9% RDC, 1.7% RIG, 11.1% SDRL, 18.8% NADL, 19.4% SDLP, 11.3% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 12.0% 13.0% 14.0% 15.0% 16.0% 17.0% 18.0% 19.0% 20.0% 21.0% 45% 55% 65% 75% 85% 95% 105% 115% DividendYield(LatestQuarterAnnualized) P/NAV - Break-up 2014E Guggenheim Securities, LLC | 212-293-3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers & Capital Equipment PAGE 31
  32. 32. OFS Earnings Metrics Source: Thomson Reuters, Guggenheim Securities, LLC Mkt Price Gugg EPS PE Consensus EPS EPS Variance Company Ticker Rating Cap 11/12 Target Upside 4Q14E 14E 15E 16E 14E 15E 16E 4Q14E 14E 15E 16E 4Q14E 14E 15E 16E S&P 500 SPX 2,038 17.4 16.0 14.9 117.3 127.2 137.0 Large Cap Services Baker Hughes BHI Buy 22,054 50.98 72 41% 1.20 3.98 4.85 5.80 12.8 10.5 8.8 1.19 3.97 4.84 5.57 1% 0% 0% 4% Halliburton HAL Buy 45,110 53.23 75 41% 1.21 4.04 5.05 5.80 13.2 10.5 9.2 1.21 4.04 4.82 5.53 0% 0% 5% 5% Schlumberger SLB Buy 125,372 97.43 125 28% 1.51 5.57 6.40 7.35 17.5 15.2 13.3 1.55 5.62 6.34 7.19 -3% -1% 1% 2% Weatherford WFT Neutral 11,948 15.44 25 62% 0.43 1.15 1.75 - 13.4 8.8 - 0.38 1.06 1.53 1.84 14% 8% 15% NA Mean 14.2 11.3 10.4 Large Cap Equipment Cameron CAM Buy 11,576 58.63 75 28% 1.21 4.10 4.75 4.90 14.3 12.3 12.0 1.22 4.12 4.87 5.49 -1% 0% -2% -11% FMC Tech FTI Buy 13,046 55.79 70 25% 0.77 2.85 3.40 3.70 19.6 16.4 15.1 0.80 2.86 3.38 3.73 -4% 0% 1% -1% Nat Oil Varco NOV Buy 31,432 73.00 90 23% 1.59 5.98 6.05 6.25 12.2 12.1 11.7 1.61 6.06 6.32 6.50 -1% -1% -4% -4% Tenaris TS Buy 21,533 36.48 50 37% 0.59 2.56 3.35 4.35 14.2 10.9 8.4 0.65 2.66 2.87 3.19 -9% -4% 17% 37% Mean 15.1 12.9 11.8 SMid Cap Services C&J Energy Svcs CJES Neutral 1,035 18.71 32 71% 0.38 1.20 2.00 - 15.6 9.4 - 0.44 1.35 1.84 1.75 -13% -11% 9% NA Core Laboratories CLB Buy 6,101 139.31 170 22% 1.55 5.80 6.70 7.50 24.0 20.8 18.6 1.54 5.81 6.34 6.85 1% 0% 6% 10% Carbo Ceramics CRR Neutral 1,167 50.52 55 9% 0.62 3.25 3.25 4.55 15.5 15.5 11.1 0.69 3.27 3.12 3.79 -9% 0% 4% 20% Frank's International FI Buy 3,123 20.24 27 33% 0.31 1.07 1.30 - 18.9 15.6 - 0.31 1.13 1.25 1.37 0% -5% 4% NA Oil States Int'l OIS Neutral 3,056 57.48 60 4% 1.00 4.29 4.30 4.65 13.4 13.4 12.4 1.00 3.80 4.07 4.46 0% 13% 6% 4% Superior Energy Svcs SPN Neutral 3,684 24.21 26 7% 0.50 1.81 2.25 2.35 13.4 10.8 10.3 0.52 1.82 2.21 2.45 -3% -1% 2% -4% U.S. Silica Holdings SLCA Buy 2,305 42.75 70 64% 0.72 2.43 3.37 4.17 17.6 12.7 10.3 0.74 2.43 3.59 5.15 -2% 0% -6% -19% TESCO TESO Buy 647 16.32 23 41% 0.31 1.08 1.40 1.60 15.1 11.7 10.2 0.34 1.14 1.41 1.59 -10% -6% -1% 1%- Mean 16.7 13.7 12.1 *In $m except per share data Guggenheim Securities, LLC | 212-293-3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers & Capital Equipment PAGE 32
  33. 33. OFS Earnings Metrics Source: Thomson Reuters, Guggenheim Securities, LLC Mkt Price Gugg EPS PE Consensus EPS EPS Variance Company Ticker Rating Cap 11/12 Target Upside 4Q14E 14E 15E 16E 14E 15E 16E 4Q14E 14E 15E 16E 4Q14E 14E 15E 16E Smid Cap Equipment Aker Solutions AKSO Buy kr 11,820 43.45 kr 75 73% kr 1.17 kr 4.15 kr 5.40 kr 6.70 10.5 8.0 6.5 Dresser-Rand DRC Neutral 6,256 81.62 83 2% 1.39 2.65 3.25 - 30.8 25.1 - 1.38 2.57 3.08 3.51 1% 3% 5% NA Dril-Quip DRQ Neutral 3,425 86.78 100 15% 1.35 5.01 5.55 6.00 17.3 15.6 14.5 1.34 5.03 5.72 6.15 1% 0% -3% -2% Forum Energy Tech FET Buy 2,560 27.19 40 47% 0.51 1.87 2.35 2.74 14.5 11.6 9.9 0.50 1.87 2.21 2.45 2% 0% 6% 12% Oceaneering OII Neutral 7,372 70.20 80 14% 0.99 4.00 4.35 4.80 17.5 16.1 14.6 1.00 4.00 4.40 4.90 -1% 0% -1% -2%425% Mean 18.1 15.3 11.4 Offshore Drilling Atwood Oceanics* ATW Buy 2,285 35.52 55 55% 1.31 4.89 6.60 6.50 7.3 5.4 5.5 1.56 4.91 6.62 6.35 -16% 0% 0% 2% Diamond DO Buy 4,915 35.84 50 40% 0.62 3.05 3.25 3.00 11.8 11.0 11.9 0.65 3.09 3.36 2.28 -5% -1% -3% 32% Ensco plc ESV Neutral 9,199 39.27 44 12% 1.37 6.05 6.10 6.30 6.5 6.4 6.2 1.53 6.15 5.21 4.74 -10% -2% 17% 33% Hercules Offshore HERO Neutral 259 1.61 1.50 -7% (0.51) (0.39) (0.45) (0.71) NA NA NA (0.29) (0.08) (0.12) (0.12) 78% 413% 285% 492% Noble Corp NE Buy 5,434 21.54 30 39% 0.40 2.93 2.30 2.35 7.4 9.4 9.2 0.50 2.96 2.25 1.86 -19% -1% 2% 27% Ocean Rig UDW ORIG Neutral 1,697 12.87 15 17% 0.80 2.52 2.70 3.00 5.1 4.8 4.3 0.56 2.00 2.16 1.71 42% 26% 25% 76% Pacific Drilling PACD Buy 1,443 6.87 14 104% 0.26 0.81 1.15 1.04 8.5 6.0 6.6 0.27 0.82 1.05 0.73 -2% -1% 9% 42% Rowan RDC Neutral 2,995 24.05 25 4% 0.87 2.10 3.90 3.25 11.5 6.2 7.4 0.91 2.18 3.57 3.68 -5% -4% 9% -12% Transocean RIG Buy 9,810 27.08 45 66% 0.73 4.75 3.05 3.50 5.7 8.9 7.7 0.71 4.69 2.66 1.95 3% 1% 15% 80% Seadrill SDRL Buy 10,488 21.27 50 135% 0.69 3.10 3.50 - 6.9 6.1 - 0.71 2.99 3.23 3.33 -3% 4% 8% NA- NA NA NA NA Mean 7.8 7.1 7.4 Onshore Drilling Helm & Payne* HP Neutral 9,260 85.56 110 29% - 6.21 7.25 - 13.8 11.8 - 1.76 6.29 7.41 7.76 NA -1% -2% NA Nabors NBR Neutral 4,990 17.24 32 86% 0.44 1.20 2.30 - 14.4 7.5 - 0.42 1.18 1.95 2.11 5% 2% 18% NA Patterson UTI PTEN Neutral 3,169 21.64 40 85% 0.50 1.55 2.35 - 14.0 9.2 - 0.52 1.59 2.22 2.34 -4% -3% 6% NA Seventy Seven Energy SSE Buy 597 11.73 33 181% 0.35 0.75 2.00 3.00 15.6 5.9 3.9 0.30 0.69 1.68 2.28 15% 9% 19% 32% Mean 14.4 8.6 3.9 *Quarterly EPS figures for ATW and HP reflect calendar year reporting basis. In $m except per share data. Guggenheim Securities, LLC | 212-293-3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers & Capital Equipment PAGE 33
  34. 34. OFS EBITDA & Cash Flow Valuation Source: Thomson Reuters, Guggenheim Securities, LLC Price Net Current Debt / EBITDA EV / EBITDA CFPS P / CFPS FCFPS FCF NAV Company Ticker Rating 11/12 Debt EV EBITDA 14E 15E 16E 14E 15E 16E 14E 15E 16E 14E 15E 16E 15E Yield NAV P/NAV* S&P 500 2,038 9.3 8.9 8.8 Large Cap Services Baker Hughes BHI Buy 50.98 3,114 25,168 0.8 4,724 5,390 6,110 5.3 4.7 4.1 8.08 9.13 10.28 6.3 5.6 5.0 2.51 4.9% NA NA Halliburton HAL Buy 53.23 5,787 50,897 1.1 7,269 8,744 - 7.0 5.8 NA 6.52 7.81 - 8.2 6.8 NA 2.75 5.2% NA NA Schlumberger SLB Buy 97.43 6,318 131,690 0.8 13,820 15,061 16,659 9.5 8.7 7.9 8.64 9.65 10.64 11.3 10.1 9.2 4.09 4.2% NA NA Weatherford WFT Neutral 15.44 8,761 20,709 2.2 3,138 3,710 - 6.6 5.6 NA 2.87 3.39 - 5.4 4.6 NA 1.38 8.9% NA NA Mean 7.1 6.2 6.0 7.8 6.8 7.1 5.8% Large Cap Equipment Cameron CAM Buy 58.63 2,039 13,615 1.7 1,630 1,748 1,804 8.4 7.8 7.5 5.77 6.55 6.74 10.2 9.0 8.7 3.68 6.3% NA NA FMC Tech FTI Buy 55.79 836 13,882 1.0 1,302 1,484 1,602 10.7 9.4 8.7 3.83 4.47 4.83 14.6 12.5 11.6 2.43 4.3% NA NA Nat Oil Varco NOV Buy 73.00 (945) 30,487 0.7 4,545 4,674 4,791 6.7 6.5 6.4 7.79 7.89 8.09 9.4 9.3 9.0 3.43 4.7% NA NA Tenaris TS Buy 36.48 (1,364) 20,169 0.1 2,608 3,209 3,985 7.7 6.3 5.1 3.51 4.29 5.31 10.4 8.5 6.9 0.76 2.1% NA NA Mean 8.4 7.5 6.9 11.1 9.8 9.0 4.4% SMid Cap Services C&J Energy Svcs CJES Neutral 18.71 283 1,318 1.2 243 356 - 5.4 3.7 NA 3.12 4.33 - 6.0 4.3 NA 4.30 23.0% NA NA Core Laboratories CLB Buy 139.31 346 6,447 1.0 378 421 457 17.1 15.3 14.1 6.40 7.37 8.25 21.8 18.9 16.9 6.21 4.5% NA NA Carbo Ceramics CRR Neutral 50.52 (25) 1,142 0.0 161 173 228 7.1 6.6 5.0 5.47 5.92 7.69 9.2 8.5 6.6 (2.09) -4.1% NA NA Frank's International FI Buy 20.24 (443) 2,680 0.0 421 476 - 6.4 5.6 NA 1.49 1.74 - 13.6 11.6 NA 0.37 1.8% NA NA Oil States Int'l OIS Neutral 57.48 119 3,175 0.3 532 477 507 6.0 6.7 6.3 7.90 6.73 7.12 7.3 8.5 8.1 2.32 4.0% NA NA Superior Energy Svcs SPN Neutral 24.21 1,666 5,350 1.4 1,222 1,389 1,458 4.4 3.9 3.7 6.04 7.11 7.88 4.0 3.4 3.1 2.01 8.3% NA NA U.S. Silica Holdings SLCA Buy 42.75 203 2,508 1.5 243 333 401 10.3 7.5 6.3 3.30 4.56 5.53 13.0 9.4 7.7 2.46 5.8% NA NA TESCO TESO Buy 16.32 (88) 559 0.0 106 126 139 5.3 4.4 4.0 2.08 2.42 2.66 7.8 6.7 6.1 1.11 6.8% NA NANA Mean 7.7 6.7 6.6 10.3 8.9 8.1 6.2% *All units in $m except per share data. Guggenheim Securities, LLC | 212-293-3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers & Capital Equipment PAGE 34
  35. 35. OFS EBITDA & Cash Flow Valuation Source: Thomson Reuters, Guggenheim Securities, LLC Price Net Current Debt / EBITDA EV / EBITDA CFPS P / CFPS FCFPS FCF NAV Company Ticker Rating 11/12 Debt EV EBITDA 14E 15E 16E 14E 15E 16E 14E 15E 16E 14E 15E 16E 15E Yield NAV P/NAV* Smid Cap Equipment Aker Solutions AKSO Buy kr 43.45 kr 2,201 kr 14,021 1.1 kr 3,322 kr 2,995 kr 3,478 4.2 4.7 4.0 kr 8.03 kr 7.79 9.13 5.4 5.6 4.8 kr 5.17 11.9% NA NA Dresser-Rand DRC Neutral 81.62 1,223 7,479 2.4 475 545 - 15.8 13.7 NA 3.88 4.52 - 21.0 18.1 NA 2.60 3.2% NA NA Dril-Quip DRQ Neutral 86.78 (345) 3,080 0.0 299 320 345 10.3 9.6 8.9 5.77 6.37 6.88 15.0 13.6 12.6 2.60 3.0% NA NA Forum Energy Tech FET Buy 27.19 317 2,877 1.2 349 406 445 8.2 7.1 6.5 2.56 3.08 3.51 10.6 8.8 7.7 2.35 8.6% NA NA Oceaneering OII Neutral 70.20 71 7,443 0.3 861 937 1,026 8.6 7.9 7.3 6.13 6.79 7.52 11.5 10.3 9.3 2.93 4.2% NA NA16,206 17,383 17,836 71 79 Mean 8.3 7.4 6.6 11.2 9.8 8.3 6.2% Offshore Drilling Atwood Oceanics* ATW Buy 35.52 1,705 3,990 3.2 552 727 755 7.2 5.5 5.3 7.16 9.45 9.73 5.0 3.8 3.7 (0.18) -0.5% 55 65% Diamond DO Buy 35.84 2,188 7,103 2.4 1,080 1,191 1,158 6.6 6.0 6.1 6.26 6.51 5.97 5.7 5.5 6.0 0.68 1.9% 50 72% Ensco plc ESV Neutral 39.27 4,878 14,077 2.5 2,357 2,397 2,513 6.0 5.9 5.6 8.57 8.61 8.74 4.6 4.6 4.5 (0.21) -0.5% 44 89% Hercules Offshore HERO Neutral 1.61 1,054 1,313 5.3 230 158 44 5.7 8.3 30.1 0.66 0.61 (0.03) 2.4 2.6 NA (0.21) -12.8% 0.75 215% Noble Corp NE Buy 21.54 4,758 10,192 2.4 1,999 1,692 1,719 5.1 6.0 5.9 6.18 5.01 4.94 3.5 4.3 4.4 1.46 6.8% 30 72% Ocean Rig UDW ORIG Neutral 12.87 3,752 5,449 4.6 951 1,012 1,066 5.7 5.4 5.1 4.95 5.35 5.75 2.6 2.4 2.2 0.14 1.1% 15 86% Pacific Drilling PACD Buy 6.87 2,444 3,887 4.3 554 730 741 7.0 5.3 5.2 1.74 2.40 2.45 3.9 2.9 2.8 0.61 8.9% 14 49% Rowan RDC Neutral 24.05 2,549 5,544 4.1 689 1,071 1,031 8.0 5.2 5.4 4.63 7.05 6.57 5.2 3.4 3.7 0.12 0.5% 25 96% Transocean RIG Buy 27.08 7,045 16,855 2.7 3,713 3,068 3,196 4.5 5.5 5.3 7.91 6.28 6.56 3.4 4.3 4.1 1.05 3.9% 45 60% Seadrill SDRL Buy 21.27 10,954 21,442 3.9 2,450 2,955 - 8.8 7.3 NA 4.46 4.99 - 4.8 4.3 NA (0.72) -3.4% 28 76% Mean 6.5 6.0 8.2 4.1 3.8 3.9 0.6% 88% Onshore Drilling Helm & Payne HP Neutral 85.56 (634) 8,626 0.1 1,559 1,822 - 5.5 4.7 NA 10.22 11.65 - 8.4 7.3 NA (2.01) -2.4% NA NA Nabors NBR Neutral 17.24 3,470 8,460 2.2 1,800 2,327 - 4.7 3.6 NA 5.20 6.69 - 3.3 2.6 NA 0.09 0.5% NA NA Patterson UTI PTEN Neutral 21.64 567 3,736 0.7 985 1,247 - 3.8 3.0 NA 5.83 7.22 - 3.7 3.0 NA (0.75) -3.5% NA NA Seventy Seven Energy SSE Buy 11.73 1,564 2,161 3.3 481 589 675 4.5 3.7 3.2 7.14 9.27 10.48 1.6 1.3 1.1 1.90 16.2% NA NA Mean 4.6 3.8 3.2 4.3 3.5 1.1 2.7% *Quarterly EPS figures for ATW and HP reflect calendar year reporting basis. NAV figures for Offshore Drilling companies are Break-Up NAVs. In $m except per share data. Guggenheim Securities, LLC | 212-293-3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers & Capital Equipment PAGE 35
  36. 36. Offshore Drillers EPS Comp Source: Thomson Reuters, Company Reports, Guggenheim Securities, LLC SDRL 3Q14 is an estimate ATW 4Q14 and 2014 are actual EPS Ticker Company Category 2013 2014E 2015E 2016E 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14E 1Q15E Offshore Drillers ATW Atwood Oceanics EPS 5.32 4.89 6.60 6.50 1.10 1.28 1.37 1.57 1.28 0.78 1.11 1.72 1.31 Consensus EPS 4.91 6.62 6.35 1.55 1.56 Consensus EPS-High 5.36 7.40 9.00 1.78 1.88 Consensus EPS-Low 4.49 5.05 4.95 1.36 1.27 DO Diamond Offshore EPS 4.77 3.05 3.25 3.00 1.26 1.33 1.22 0.96 0.93 0.53 0.97 0.62 0.23 Consensus EPS 3.09 3.36 2.28 0.65 0.66 Consensus EPS-High 3.29 4.85 3.55 1.06 1.06 Consensus EPS-Low 2.91 2.59 1.37 0.47 0.23 ESV Ensco EPS 6.16 6.05 6.10 6.30 1.36 1.55 1.69 1.56 1.23 1.58 1.87 1.37 1.39 Consensus EPS 6.15 5.21 4.74 1.53 1.27 Consensus EPS-High 6.46 6.10 6.30 1.76 1.48 Consensus EPS-Low 5.89 3.37 3.50 1.29 0.89 HERO Hercules Offshore EPS 0.24 (0.39) (0.45) (0.71) (0.02) 0.01 0.11 0.14 0.22 (0.04) (0.07) (0.51) (0.17) Consensus EPS (0.08) (0.12) (0.12) (0.29) (0.14) Consensus EPS-High 0.90 0.81 0.30 (0.03) (0.02) Consensus EPS-Low (0.39) (0.63) (0.71) (0.51) (0.23) NE Noble Drilling EPS 2.89 2.93 2.30 2.35 0.59 0.63 0.85 0.82 1.03 0.93 0.57 0.40 0.49 Consensus EPS 2.96 2.25 1.86 0.50 0.49 Consensus EPS-High 3.16 3.10 2.85 0.67 0.62 Consensus EPS-Low 2.18 1.63 1.16 0.40 0.38 ORIG Ocean Rig UDW EPS 0.84 2.52 2.70 3.00 0.04 0.10 0.30 0.30 0.24 0.53 0.96 0.80 0.41 Consensus EPS 2.00 2.16 1.71 0.56 0.49 Consensus EPS-High 2.46 2.70 3.00 0.71 0.67 Consensus EPS-Low 1.56 1.66 0.66 0.35 0.39 PACD Pacific Drilling EPS 0.42 0.81 1.15 1.04 0.07 0.10 0.14 0.12 0.10 0.23 0.22 0.26 0.26 Consensus EPS 0.82 1.05 0.73 0.27 0.25 Consensus EPS-High 0.89 1.52 1.17 0.31 0.31 Consensus EPS-Low 0.70 0.80 0.30 0.24 0.13 RDC Rowan EPS 1.96 2.10 3.90 3.25 0.55 0.57 0.42 0.42 0.28 0.33 0.63 0.87 0.70 Consensus EPS 2.18 3.57 3.68 0.91 0.76 Consensus EPS-High 3.10 4.61 4.64 1.21 1.05 Consensus EPS-Low 1.95 2.83 2.58 0.72 0.31 RIG Transocean EPS 4.12 4.75 3.05 3.50 0.93 1.08 1.37 0.73 1.43 1.61 0.98 0.73 0.71 Consensus EPS 4.69 2.66 1.95 0.71 0.65 Consensus EPS-High 5.64 4.40 4.75 0.99 1.27 Consensus EPS-Low 3.70 1.35 0.44 0.43 0.33 SDRL Seadrill EPS 3.02 3.10 3.50 -- 0.69 0.96 0.60 0.79 0.59 1.23 0.60 0.69 0.84 Consensus EPS 2.99 3.23 3.33 0.67 0.71 0.73 Consensus EPS-High 3.98 5.83 4.88 0.85 0.87 0.84 Consensus EPS-Low 2.18 2.39 2.56 0.55 0.54 0.62 Guggenheim Securities, LLC | 212-293-3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers & Capital Equipment PAGE 36
  37. 37. OFS Valuations & Risks Source: Thomson Reuters, Company Reports, Guggenheim Securities, LLC ` Ticker Valuation Risks BHI BHI currently trades at approximately 13x our 2014 EPS and 6x our 2014 EBITDA estimates. Our 12-month price target of $72 is based on 15x our 2015 EPS and 6.5x our 2015 EBITDA estimates. While w e believe that current consensus capex is still achievable even if WTI averages $85/bbl next year, and w hile w e note that BHI has several buffers w hich should protect its 2015 earnings grow th, w e submit that another prolonged leg dow n in oil prices due to domestic or international factors w ould likely put E&Pspending at risk, and therefore our estimates may prove too high. HAL HAL currently trades at approximately 14x our 2014 EPS and 7x our 2014 EBITDA estimates. Our 12-month price target of $75 is based on 10.5x our 2015 EPS and 8.0x our 2015 EBITDA estimates. In our view , the risks to the stock are all macro related right now . As our “Picking Up the Pieces” report of October 20 pointed out, should the price of WTI collapse and average $75/bbl or less next year, the organic contraction in E&Pspending w ould be an estimated 18%—a gap vs. current consensus that w ould be too w ide to close w ith incremental debt. Under this scenario, w e believe N American earnings w ould fall by roughly one- third (to the 1H13 level), removing roughly $1.00 from our current 2015 EPS estimate. Additionally, HAL maintains a relatively high level of exposure to Iraq; consequently, should the conflict w ith ISIS interfere w ith operations (as it did during 3Q14), EPS could be adversely impacted. SLB SLB currently trades at approximately 18x our 2014 EPS and 10x our 2014 EBITDA estimates. Our 12-month price target of $125 is based on 19.5x our 2015 EPS and 11.5x our 2015 EBITDA estimates. Much of the investment thesis for SLB rests w ith its ability to grow market share by delivering superior services quality and tool reliability, and reduce the cost of services delivery. To the extent that execution of this strategy takes longer than w e currently expect, our estimates—especially margins—could prove too aggressive. Similarly, SLB’s human resources program has long been a competitive advantage, and to the extent that the company loses key people (particularly to IOCs), its competitive positioning in the industry could w eaken. WFT WFT currently trades at approximately 14x our 2014 EPS and 7x our 2014 EBITDA estimates. Our 12-month price target of $25 is based on 15.0x our 2015 EPS and 7.5x our 2015 EBITDA estimates. Over the course of this year, WFT’s progress on its transformation initiatives has led it to begin to improve margins and cash flow w hile shedding underperforming businesses, allow ing it to begin to trade more in line w ith peers; how ever, should commodity prices encounter any w eakness due to crude saturation in North America, or should WFT be unable to execute on its remaining divestitures in a timely manner, multiples may begin to compress again and our estimates may prove too high. CAM CAM currently trades at approximately 15x our 2014 EPS estimate and 8x our 2014 EBITDA estimate. Our 12- month price target of $75 reflects a multiple of 12.4x our 2015 EPS and 8x our 2015 EBITDA estimates. In addition to the obvious macro risks, w e believe CAM has several company-specific risks. For instance, Drilling Products still make up about one- third of the company’s revenue, and new orders for offshore rig equipment have been w eak as a result of the decline in offshore rig rates. Next year, w e believe the Drilling group’s contribution to revenue and earnings grow th w ill be determined by the aftermarket segment in w hich the company has very little forw ard visibility. Moreover, CAM has onshore U.S. exposure through its surface and distributor valves segments. Should oil prices w eaken enough to push U.S. onshore E&Pspending materially low er next year, our current 2015 earnings estimate w ould likely prove to be too high. FTI FTI currently trades at approximately 20x our 2014 EPS and 11x our 2014 EBITDA estimates. Our 12-month price target of $70 reflects a multiple of 16.4x our 2015 EPS and 9.5x our 2015 EBITDA estimates. In addition to oil-price related macro risks, w e believe FTI has a couple of company specific risks, including: 1) the timing of the delivery of its intervention stacks next year (w hich w ould impact the timing of incremental subsea services revenues and earnings); and 2) the risk that frac company’s scale back meaningfully on capex next year, adversely impacting FTI’s fluid-end orders, revenues, and earnings. NOV NOV currently trades at approximately 12x our 2014 EPS estimate and 7x our 2014 EBITDA estimate. Our 12- month price target of $90 reflects a multiple of 11.6x our 2015 EPS and 6.3x our 2015 EBITDA estimates. Maintaining EPS of $6+ over the next tw o years requires onshore equipment orders to remain strong through 1H15, visibility of w hich w eakens as oil prices retrench to the $70/bbl level. TS TS currently trades at approximately 15x our 2014 EPS and 8x our 2014 EBITDA estimates. Our 12-month price target of $50 is based on 11.3x our 2015 EPS and 6.6x our 2015 EBITDA estimates. In addition to the risk to the U.S. rig count brought on by the recent correction in oil prices, w e believe the biggest risk to TS is margin associated w ith shifting product mix. For instance, the absence of premium shipments to Saudi Arabia in 3Q14 are expected to contribute to a 100bp contraction in EBITDA margin. Should premium volumes not recover in 4Q and 2015 in other regions, providing better balance to TS's mix, margins could remain under pressure as volumes and revenues from commodity products (e.g., U.S. w elded OCTG) drive grow th. Guggenheim Securities, LLC | 212-293-3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers & Capital Equipment PAGE 37
  38. 38. OFS Valuations & Risks Source: Thomson Reuters, Company Reports, Guggenheim Securities, LLC Ticker Valuation Risks CJES CJES currently trades at approximately 6x our 2014 EBITDA and 6x our 2014 OCFPS estimates. Our 12- month price target of $32 is based on 6.5x our 2015 EBITDA and 6.5x our 2015 OCFPS estimates. In our view , risk to our estimates stems from C&J’s ability to execute on the cost synergies it expects to realize from the merger; should integration issues cause the transition to take longer than w e expect, there could be dow nside risk to our estimates. Conversely, should sustained higher oil prices result in higher E&P spending levels than w e now expect, our estimates could prove too low . CLB We arrive at our price target of $170/sh by calibrating against our P/E valuation framew ork and our discounted cash flow valuation methodology. Future estimated earnings grow th discounted by our cost of capital implies a valuation range betw een a 28.4x multiple on 2014 EPS and a 26.0x multiple on our 2015 EPS estimate. Our DCF valuation implies a value of $170/sh, given strong grow th over the explicit forecast, reinvestment of capital, and a normalization of returns w ithout economic rents. Also, yield-based metrics support our $170 target. Since CLB’s largest customers conduct roughly 75% of their reservoir testing in-house, there is a risk that they w ill look to fully integrate their reservoir diagnostics internally. If the major integrated oil companies w ere to bring their testing in-house, roughly 30% of CLB’s revenues may prove at risk. Secondly, increased perforation product competition from the larger pressure pumping players, like HAL, BHI, and SLB, w ould challenge economics for CLB. In addition, if discovery of reserves in less challenging basins shifts the sources of production, the need for more data, diagnostic tests, and equipment may decline w hich w ould adversely impact CLB’s earnings. Finally, if macro factors reduce commodity demand, resulting in a collapse of oil and natural gas prices, numerous fields may prove uneconomic, leading to reduced upstream spending to the detriment of CLB economics. If macro factors turn out stronger than our expectations, thus increasing commodity demand, operator spending may provide upside to CLB earnings. CRR We arrive at our price target of $55 per share by triangulating betw een our P/E valuation framew ork, yield- based metrics, and our discounted cash flow valuation methodology. In our view , yield metrics may offer support but investor focus on grow th and operating leverage w ill continue to drive shares through traditional earnings and cash flow metrics. Future estimated earnings grow th discounted by our cost of capital implies a valuation range betw een an 16.3x multiple on our 2014 EPS and a 17.6x multiple on our 2015 EPS estimate. Our DCF valuation implies a value of $55 per share, given grow th expectations over the explicit forecast, reinvestment of capital, and a normalization of returns. Given management’s desire to maintain grow th of a sustainable dividend, potential upside may lie in yield-based metrics, w hich may magnify the benefit of outsized returns, free cash flow grow th, and the emergence and communication of a fuller payout strategy. Market Oversupply from Low er or Higher Quality Entrants. In our view , the threat of higher marginal cost Chinese supply likely caps the excess returns that may be seen in the North American proppant business. The threat of heightened pricing volatility from poorly managed inventories, given the presence of distributors, likely increases the amplitude of economics across the business cycle. Superior Product Takes Market Share. CRR appears to be the innovator in the industry, especially w ith the upcoming introduction of proppant for deepw ater use. If a new or existing player w ere to create a better product alternative, CRR’s economics may prove at risk. Service Intensity Declines Across Basins. Grow th in reservoir complexity, unconventional plays, and deepw ater activity continue to drive service intensity. If discovery of reserves in less challenging basins shifts the sources of production, the need for more and higher quality proppant may w ane, adversely affecting CRR’s economics. Capital Budgeting. CRR may overbuild capacity or add lines w ithin plants too quickly, expanding fixed overhead to the detriment of returns. Since it costs $70-75M to add a production line w ithin a nine-month timeline, CRR might find it easy to create a hiccup if it does not have clarity on the means of how to sell out the new line upon start of additional operations. Macroeconomic Risks and Commodity Price Decline. Oil prices have recently declined. If oil prices declined too far, numerous fields may prove uneconomic, leading to reduced upstream spending to the detriment of CRR economics. Macroeconomic and Commodity Price Strength. If macro factors turn out stronger than our expectations, thus increasing commodity demand, operator spending may provide upside to CRR earnings. Positive Investor Sentiment and Short Covering. If investors become more optimistic on North American oil & gas activity in 2015, CRR’s stock could rise. In the near term, short covering may keep upw ard pressure on shares. FI FI currently trades at approximately 16x our 2014 EPS and 5x our 2014 EBITDA estimates. Our price target of $27 is based on 20x our 2015 EPS and 11x our 2015 EBITDA estimates. Given that FI generates an estimated 72% of its revenue offshore—the majority of w hich comes from DW and UDW projects that have a higher degree of complexity and are subject to delays related to engineering and project management constraints at the operator level, grow th beyond 2015 may not accelerate as w e currently expect. In addition, should the changes mgmt has made over the last several quarters require a longer transition period to produce results than w e now expect, there may be dow nside risk to our estimates. OIS OIS currently trades at approximately 14x our 2014 EPS and 6x our 2014 EBITDA estimates. Our price target of $60 is based on 13.3x our 2015 EPS and 6.6x our 2015 EBITDA estimates. Should oil prices drop below $80/bbl for a quarter or more, w e believe OIS's Wellsite Services—both completion and drilling segments—w ould experience a decline in revenues and earnings. Conversely, the stock could move higher on M&A speculation, as OIS is often talked about as a takeover candidate due to the strength of its franchises and management team. SPN We arrive at our price target of $26 per share by calibrating betw een our P/E valuation framew ork and our discounted cash flow valuation methodology. Future estimated earnings grow th discounted by our cost of capital implies a valuation range betw een a 14.5x multiple on our 2014 EPS estimate and a 11x multiple on our 2015 EPS estimate. Our DCF valuation implies a value of $25/sh, given strong grow th over the explicit forecast, reinvestment of capital, and a normalization of returns. Undisciplined Grow th in International Markets. Given SPN’s international grow th ambitions, if it w ere to take an undisciplined approach, adding large fixed costs ahead of potentially risky revenue streams, SPN profitability may suffer. Failure to properly leverage capital expenditure may adversely impact returns and economics. Lack of Execution Removes Competitive Advantage from Completions Business. Many of SPN’s larger competitors in the pressure pumping business either bundle services, gain share w ith scale, or offer more value added services (IP) in order to maintain their market share lead. While raw horsepow er continues to commoditize in the face of over-supply, SPN w ill need to maintain crew s and service reliability in order to differentiate its offering. Macroeconomic Risks and Commodity Price Decline. Oil prices have recently declined. If oil prices declined too far, numerous fields may prove uneconomic, leading to reduced upstream spending to the detriment of SPN economics. North American Market Strength. If the North American services market reaches a positive inflection point in the near/medium term, SPN w ould likely benefit given its high leverage to the region. SLCA We arrive at our price target of $70 per share by triangulating betw een our P/E valuation framew ork, yield- based metrics, and our discounted cash flow valuation methodology. In our view , yield metrics may offer support, but investor focus on grow th and operating leverage w ill continue to drive shares through traditional earnings and cash flow metrics. Future estimated earnings grow th discounted by our cost of capital implies a valuation range betw een a 24.3x multiple on our 2014 EPS estimate and a 21.1x multiple on our 2015 EPS estimate. Our DCF valuation implies a value of $70 per share, given grow th expectations over the explicit forecast, reinvestment of capital, and a normalization of returns. Given the firm’s ability to convert to an MLP structure, potential upside may lie in yieldbased metrics, w hich may magnify the benefit of outsized returns, free cash flow grow th, and a fuller payout strategy. Risks to our investment thesis include a shift in the market tow ards frac sand alternatives such as ceramic proppants; increased regulation surrounding either sand mining activities or hydraulic fracturing; SLCA's customer concentration, as SLCA's top ten customers represented 52% of its sales revenue during 2013; a logistical disruption or cost increases pertaining to transportation and handling as transportation costs represent a significant portion of the delivered cost of sand; plant dow ntime, namely at one of the firm's major plants; and, an economic/cyclical dow nturn that reduces commodity demand and prices. Economic cycles impact commodity prices, w hich in turn impact fracking activity and sand demand. TESO TESO currently trades at approximately 18x our 2014 EPS and 6x our 2014 EBITDA estimates. Our price target of $23 is based on 11.3x our 2015 EPS and 4.4x our 2015 EBITDA estimates. Last year, TESO generated roughly $100mm in revenue from equipment sales and services in Russia; how ever, this year, Russia as an end market should be closer to $60mm. Although the market has proven to be very lumpy in the $60-100mm range over the last several years, w e believe the U.S. and E.U. sanctions have started to have an impact on the outlook—both in terms of TESO’s w illingness to take the credit risk associated w ith Russian sales, as w ell as the actual capex budgets of TESO’s Russian customers. Consequently, w e w ould expect Russian revenue next year to drop to +/-$25mm, w hich TESO has indicated to be its recurrent services revenue. We also believe that the risk to this revenue—along w ith the sentiment surrounding TESO’s historical exposure to Russia—could w eigh on multiples as w ell. Guggenheim Securities, LLC | 212-293-3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers & Capital Equipment PAGE 38
  39. 39. OFS Valuations & Risks Source: Thomson Reuters, Company Reports, Guggenheim Securities, LLC Ticker Valuation Risks AKSO We arrive at our price target of kr75/sh by calibrating against our P/Evaluation framew ork and our discounted cash flow valuation methodology. Future estimated earnings grow th discounted by our cost of capital implies a valuation range betw een a 17.8x multiple on our 2014 EPS estimate and a 14x multiple on our 2015 EPS estimate. Our DCF valuation implies a value of kr125/sh, given strong grow th over the explicit forecast, reinvestment of capital, and a normalization of returns w ithout economic rents. Business Model Risk - The transition to a matrix business model that crosses regional management and product management in order to create a single point of contact w ith customers poses a risk to existing client relationships that may threaten future orders. At the same time, the change in management structure may also lead to supply chain and other execution issues. There is a risk that AKSO may choose to grow revenues by underbidding the competition on price. Resultant low er margin business may challenge the company’s margin expansion goals. DRC DRC currently trades at approximately 31x our 2014 EPS estimates, and 16x our 2014 EBITDA estimates; after the announcement of the acquisition by SIE, w e expect the deal to be completed and therefore have based our target price on the agreed upon value of $83/sh, w hich implies target multiples of 25.5x our 2015 EPS and 14.0x our 2015 EBITDA estimates. As w ith any acquisition, there is alw ays risk that the deal does not go through, in w hich case there may be dow nside risk to our estimates. In addition, there is risk that a third-party intervenes w ith a higher offer, in w hich case our expectations may prove too low . How ever, as w e have stated previously, w e believe SIEpresents the best industrial fit for DRC, and consequently believe that the stock w ill trade in a relatively tight range around $83 until the deal is completed in 2Q15. DRQ We arrive at our price target of $100/sh by calibrating against our P/Evaluation framew ork and our discounted cash flow valuation methodology. Future estimated earnings grow th discounted by our cost of capital implies a valuation range betw een a 19.9x multiple on our 2014 EPS estimate and a 18.2x multiple on our 2015 EPS estimate. Our DCF valuation implies a value of $100/sh, given strong grow th over the explicit forecast, reinvestment of capital, and a normalization of returns w ithout economic rents. Not Hedge Its Raw Material Inputs. Given that Dril-Quip does not hedge its steel or other inputs, the risk remains that rising input costs may erode margins on its fixed price equipment. Historically, management has successfully aligned costs and revenues through thoughtful coordination of tender pricing and supply chain management. Product Adoption. Management is focused on its core competency in w ellheads and specialty connectors, but they have allocated capital and budgeted manufacturing capacity for grow th in liner hangers, manifolds, subsea trees and control systems. Despite our view that the company w ill utilize its current relationships to increase its presence in these products in the improving market, there is a risk that a failure to gain traction w ith customers may hamper capacity utilization and performance. Macroeconomic Risks and Commodity Price Decline. Oil prices have recently declined. If oil prices declined too far, numerous fields may prove uneconomic, leading to reduced upstream spending to the detriment of DRQ economics. Macroeconomic and Commodity Price Strength. If macro factors turn out stronger than our expectations, thus increasing commodity demand, operator spending may provide upside to DRQ earnings. FET We arrive at our price target of $40 per share by calibrating betw een our P/Evaluation framew ork and our discounted cash flow valuation methodology. Future estimated earnings grow th discounted by our cost of capital implies a valuation range betw een an 21.9x multiple on 2014 EPS and a 17.3x multiple on our 2015 EPS estimate. Our DCF valuation implies a value of $40/share, given strong grow th over the explicit forecast, reinvestment of capital, and a normalization of returns. We see the ability to finance an acquisition strategy through debt or to maintain a valuation multiple that provides an accretive equity currency as potential risks. The company may face competition from larger competitors if they enter FET's specific markets. If macro factors reduce commodity demand, resulting in a collapse of oil and natural gas prices, reduced upstream spending w ould negatively impact the company's operations. In terms of positive risks, if the North American services market reaches a positive inflectiion point, FET w ould likely benefit gtiven its high leverage to the region. OII We arrive at our price target of $80/sh by calibrating against our P/Evaluation framew ork and our discounted cash flow valuation methodology. Future estimated earnings grow th discounted by our cost of capital implies a valuation range betw een a 20.1x multiple on our 2014 EPS estimate and a 17.7x multiple on our 2015 EPS estimate. Our DCF valuation implies a value of $80/sh, given strong grow th over the explicit forecast, reinvestment of capital, and a normalization of returns w ithout economic rents. Macroeconomic Risks and Commodity Price Decline. We assume that the ROV business grow s w ith the expansion of the offshore rigs fleet and the acceleration of offshore drilling activity. That said, oil prices have recently declined w hich may cause operators to reevaluate or delay certain projects in the nearerterm. If oil prices declined too far, numerous fields may prove uneconomic, leading to reduced upstream spending to the detriment of OII economics. Contract Rolls. A significant portion of OII’s ROVs rolling off contract in 2015 do not yet have new contracts negotiated. If low er-spec drilling rig attrition occurs during 2015 w e could see a decrease in demand for OII’s yet-to-be contracted ROVs. Strong Offshore Rig Fundamentals. Persistently high dayrates and favorable supply/demand dynamics in the offshore rig market may benefit earnings. Guggenheim Securities, LLC | 212-293-3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers & Capital Equipment PAGE 39

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