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GoM Supply_Demand - D. Gacicia

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GoM Supply_Demand - D. Gacicia

  1. 1. People. Ideas. Success. Guggenheim Securities, LLC Oilfield Services, Offshore Contract Drillers & Capital Equipment March 14, 2014 Potential for Tight GoM Floater Balance, but Overhang of LLS/WTI Linkage Looms Darren Gacicia (212) 293-3054 darren.gacicia@guggenheimpartners.com Michael Gunther (212) 518-9782 michael.gunther@guggenheimpartners.com GUGGENHEIM SECURITIES, LLC See pages 88 - 90 for analyst certification and important disclosures.
  2. 2. GoM Floater Outlook Favorable, Nervous About LLS in a Captive Market Gulf of Mexico Floater Market Frictions in 2014, Tighter in 2015. We expect the Gulf of Mexico (GoM) floater market may see up to three rigs roll off contract to idle time in 2014, with a recovery and need to net add rigs through 2015 (pg. 3). The resultant rig-on-rig competition through the year may create some dayrate sloppiness, but it should prove short-lived and already discounted by depressed offshore drillers shares. Our regional analysis of wells and upstream operator demand (pgs. 4,16) of the Gulf floater market supports our more constructive outlook for the industry and opinion that negative consensus sentiment has created an entry point for the offshore drillers. We see 56 floaters working in the region at the end of 2014, up from 46 contracted in 1Q14. Given only 10-12% of expected development drilling demand for 2014 and 2015 remains non-FID and exploration activity assumptions run at roughly half of levels seen since 2005, our near-term forecast remains more biased to upside versus downside revisions. Our main concern centers around a captive North American oil market, which may weigh on WTI/LLS prices versus Brent (global benchmarks). Higher perceived commodity price risk, with our WTI forecast at $78 for 2015 vs. an $89 strip, may lead to further project delays. De-Bottlenecking Midstream Infrastructure Links LLS with WTI vs. Brent Over Time. Over time, we believe the North American market is positioning itself to arbitrage WTI/LLS/Brent spreads (pg. 9) through investment in midstream infrastructure to the Gulf Coast. Without relief from exports, projected light sweet production growth threatens to bump up against the absorption capacity of North American refineries and widen the WTI/Brent Spread, which will put pressure on LLS pricing and potentially challenge GoM project economics. (See Roger Diwan‘s report, The Unbearable Lightness of US Crudes: Oil Super-Cycle Delivers Super-Discount in 2014 & 2015, 1/28/14). Varying timelines leave most inland transport capacity to the Gulf Coast from Cushing (WTI hub), Permian, and Bakken (pg. 12) arriving after 2014, but the stage is set for closer linkage between WTI/LLS vs. LLS/Brent. As a result, we see the potential for LLS to trade closer to parity with WTI, rather than its traditional relationship with Brent (pg. 9). Given our sensitivity analysis of project economics with PFC/ IHS of GoM (pg. 5), a $10 move in oil assumptions may drive a 200-400bps delta in project IRRs. Existing development-forward project economics at $70/bbl oil assumptions suggest most projects move forward, but 20-30% of projects may prove at risk under lower oil forecasts. Prospects for oil exports may provide a relief valve, but we still see a limited probability for policy change at this point. (See more oil export coverage from Whitney Stanco, our energy policy analyst.) Development Demand May Require More Floaters. Our forecast calls for continued growth in development drilling (climbing to 41 in 2014/2015), supported by attractive development-forward returns characteristics for projects we track, limited (10-12%) risk to demand expectations from non-sanctioned projects (4-5 rigs, pg. 20), and a limited risk from daunting CAPEX requirements across projects (pg. 22). If rigs rolling off contract are not re-signed, we see a number of upstream operators short floaters for development work, which suggests that rigs will roll to new contracts. In a market that assumes rigs will roll off contract, without significant tender market visibility, we continue to see development drilling growth (pg. 15), especially if rig drilling efficiency remains at recent levels (pg. 63). Potential Upside from Conservative Exploration Forecast. Our forecast has exploration floater demand falling to nine rigs by the end of 2015, after assuming contract roll-offs and limited demand indications from tenders. In our view, we may prove conservative, given two- and five-year averages of 23 rigs and 15 rigs (pg. 24). Roughly 67% of non-FID and 33% of FID projects in the GoM suggest full cycle IRRs below 15% at $70bbl long-term realization assumptions. With an increased focus on returns on capital, growth, and development of existing discoveries, we assume capital budget vetting, responsible for the current ―pause‖ by upstream players, may curtail near- term exploration activity. That said, our very conservative outlook for exploration demand may prove too low if the need to replace reserves and meet longer-term new source production goals (pg. 30) moves closer to the front of capital budgeting debates. For operators of ~65% of the floater fleet, we continue to see 30-40% of forecasted new source production obtained from deepwater plays. Offshore Drillers Continue to Screen Well vs. Other Oil Service Companies. Concerns about market balances and near-term dayrates continue to drive valuation discounts (NAV, P/TBV, Earnings Multiples). Given sentiment near bottom, stocks circling tangible book value (pg. 38), and fundamentals beyond 2014 likely better than consensus expectations, we see the offshore drillers screening well versus other oil service companies with higher multiples and lofty growth outlooks. If our view of a widening WTI/Brent spread comes into focus, both consensus EPS forecasts and valuation multiples may be at risk for service, equipment, and land drilling names, with washed-out offshore driller shares screening well. We continue to favor SDRL (BUY, $33.70), ATW (BUY, $46.02), and PACD (BUY, $9.89), based on relative fleet quality and outlook for more significant distribution strategies. Attrition Risk More Important than Total Floater Fleet Exposure. NE (BUY, $28.98), ESV (NEUTRAL, $48.86), and ATW have the most floater exposure to the GoM as percentage of their total floater fleets (pg. 6). Given potential idle time for GoM floaters in 2014, DO (BUY, $44.39), NE, and RIG (BUY, $39.54) have the most contract coverage risk (pg. 39), compounded by older fleet mix in the region. As a result, we would expect these companies with the most rollover risk to trade with the greatest sensitivity to GoM news flow. Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 2
  3. 3. Total Supply/Demand Balance 2014E 2015E Development Demand 41 41 Exploration & Appraisal Demand 15 9 Total Demand 56 50 End of Previous Period 45 56 Rigs Rolling Off Contract (13) (7) Assumed in Contract Renew als 10 - New Rig Contracts Starting 14 3 Additional Rig Needed to Enter/(Leave) the Market - (2) Total Rigs Contracted 56 50 Net Rig Additions/(Attrition) 11 (6) Unsanctioned Development Demand at Risk 2014E 2015E 2014E 2015E Bull Case (All FID Comes) 5 6 1 1 Base Case 4 5 - - Bear Case (No FID Comes) - - (4) (5) Exploration & Appraisal Demand 2014E 2015E 2014E 2015E Bull Case (All Rigs Renew ed & All Tenders Come) 24 20 9 11 Base Case 15 9 - - Bear Case (No Rigs Renew ed & No Tenders Come) 15 9 - - Well/Rig Ratios 2014E 2015E 2014E 2015E Bull Case (1x w ell/rig for UDW/DW, 2x for MW) 89 83 33 33 Base Case (2x w ell/rig for UDW/DW, 3x for MW) 56 50 - - Bear Case (3x w ell/rig for UDW/DW, 4x for MW) 44 37 (12) (13) Demand Projection In Demand Exploration Potential Increase/(Decrease) Demand Projection In Demand Total Potential Increase/(Decrease) Contracted Rig Grow th: 2013-2015 5 Unsanctioned Potential Increase/(Decrease) Demand Projection In Demand GoM Floater S/D & Sensitivity Analysis More Favorable than Consensus Source: IHS Inc, Infield Systems, Company Reports, Guggenheim Securities, LLC Between 10-12% of demand remains at risk from non-FID projects. Our forecast for exploration demand remains conservative versus recent E&A rig counts above 20. Idle rig time in 2014 may prove transient, especially as our exploration forecast remains conservative and may offer upside. New rigs entering the region are newer and higher spec., putting the pieces in place for rig replacement scenarios in the GoM. Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 3
  4. 4. Implied Development Drilling Demands Exceed Current Contract Coverage Source: IHS Inc, Infield Systems, Company Reports, Guggenheim Securities, LLC GoM Projected Implied Development Rig Demand GoM Development Contract Coverage Note: contract coverage is expressed in rig years Implied Development Rig Surplus/(Deficit) Current floater demand for development drilling, as implied by our well-by- well forecast, is not covered by current contracts over 2014-2016, producing a deficit. If our wells per rig assumptions are correct, the deficit must be reconciled by re-contracting of rigs coming off contract, rig tenders, or projects being delayed or cancelled. Company 2014 Wells 2015 Wells 2016 Wells 2014 Implied Rigs 2015 Implied Rigs 2016 Implied Rigs Shell 20 18 24 8 8 10 BP 11 16 7 5 7 3 Anadarko 14 13 18 6 6 9 Chevron 11 8 5 6 4 2 BHP 2 1 2 1 0 1 Noble Energy 7 5 8 4 3 4 Stone Energy 2 3 - 1 1 - Apache - - 1 - - 1 Cobalt - - - - - - Eni - 1 - - 1 - ExxonMobil 3 6 1 2 3 1 Hess 3 2 6 1 1 2 Murphy 3 3 3 1 1 1 Statoil - - - - - - Marathon - 1 - - 1 - Other 20 16 12 8 6 5 Total 96 93 87 41 41 39 Company 2014 Contract Coverage 2015 Contract Coverage 2016 Contract Coverage Shell 5.9 5.0 4.8 BP 6.4 6.0 5.3 Anadarko 4.1 4.6 4.0 Chevron 3.5 4.0 4.0 BHP 0.8 1.0 1.0 Noble Energy 1.6 1.0 1.0 Stone Energy 0.6 - - Apache 1.0 - - Cobalt 0.2 - - Eni 1.0 0.3 - ExxonMobil 1.9 1.8 1.0 Hess 0.9 - - Murphy 1.0 1.0 0.9 Statoil 1.8 1.9 0.3 Marathon 1.1 1.0 1.0 Other 6.4 8.0 7.1 Total 38 36 30 Company 2014 Surplus/ (Deficit) 2015 Surplus/ (Deficit) 2016 Surplus/ (Deficit) Shell (1.9) (2.5) (5.4) BP 1.1 (1.2) 2.0 Anadarko (1.6) (1.2) (4.8) Chevron (2.0) 0.3 1.7 BHP 0.1 0.7 0.2 Noble Energy (1.9) (1.5) (2.8) Stone Energy (0.1) (1.0) - Apache 1.0 - (1.0) Cobalt 0.2 - - Eni 1.0 (0.7) - ExxonMobil 0.4 (1.0) 0.5 Hess (0.1) (0.7) (2.0) Murphy (0.3) (0.3) (0.1) Statoil 1.8 1.9 0.3 Marathon 1.1 - 1.0 Other (1.6) 2.0 2.3 Total (3) (5) (8) Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 4
  5. 5. Field Year on Stream Status Water Depth Operator Full Cycle IRR % Dev- Forw ard IRR % Full Cycle IRR % Dev- Forw ard IRR % Full Cycle IRR % Dev- Forw ard IRR % CAPEX ($MM) Mad Dog 2012 FID Midw ater BP 37% 76% 38% 76% 39% 77% 5,302$ Caesar/Tonga 2011 FID Midw ater Anadarko 21% 70% 23% 73% 26% 78% 508$ Cardamom Deep 2012 FID Midw ater Shell 59% 69% 65% 76% 76% 88% 206$ Shenzi 2007 FID Midw ater BHP Billiton 42% 61% 42% 62% 43% 62% 1,239$ Thunder Horse 2006 FID Deepw ater BP 35% 61% 35% 61% 36% 62% 1,857$ Condor 2009 FID Midw ater Deep Gulf Energy 52% 60% 54% 61% 56% 64% 171$ Atlantis North 2010 FID Deepw ater BP 24% 54% 25% 56% 26% 58% 458$ Tahiti 2007 FID Midw ater Chevron 30% 51% 31% 52% 33% 53% 2,536$ Atlantis South 2005 FID Deepw ater BP 31% 50% 31% 50% 32% 51% 1,257$ Dalmatian 2012 FID Deepw ater Murphy 34% 45% 36% 49% 41% 56% 61$ Tubular Bells 2014 FID Midw ater Hess 14% 44% 15% 49% 18% 59% 344$ Pompano 1992 FID Midw ater Stone Energy 43% 43% 43% 43% 43% 43% 381$ Julia 2014 FID Deepw ater ExxonMobil 19% 42% 21% 47% 23% 58% 163$ Mars B 2013 FID Midw ater Shell 33% 38% 38% 45% 46% 56% 1,087$ Lucius 2012 FID Deepw ater Anadarko 20% 30% 24% 35% 30% 45% 1,315$ Heidelberg 2014 FID Deepw ater Anadarko 16% 30% 19% 35% 24% 45% 897$ Big Bend 2014 FID Deepw ater Noble Energy 22% 27% 25% 31% 30% 37% 228$ Jack-St. Malo 2013 FID Deepw ater Chevron 13% 26% 16% 30% 20% 39% 1,811$ Perdido 2009 FID Ultradeepw ater Shell 14% 24% 16% 27% 19% 31% 2,524$ Big Foot 2014 FID Deepw ater Chevron 8% 23% 10% 28% 13% 37% 1,444$ Hadrian South 2012 FID Deepw ater ExxonMobil 10% 20% 10% 20% 10% 20% 134$ Gunflint 2014 FID Deepw ater Noble Energy 8% 19% 10% 22% 14% 27% 150$ Stones 2014 FID Ultradeepw ater Shell 7% 15% 10% 20% 13% 27% 1,210$ Pyrenees 2013 FID Midw ater W&T Offshore 13% 13% 14% 14% 17% 17% 83$ Holstein Subsea Tiebacks 2014 Non-FID Midw ater Plains E&P 33% 57% 39% 64% 49% 78% 216$ Marlin Subsea Tiebacks 2014 Non-FID Midw ater Plains E&P 27% 54% 31% 60% 38% 71% 144$ Vito 2016 Non-FID Midw ater Shell 10% 47% 12% 54% 15% 67% 1,061$ Horn Mountain Subsea Tiebacks 2015 Non-FID Deepw ater Plains E&P 26% 47% 31% 54% 40% 66% 309$ Kaskida 2018 Non-FID Deepw ater BP 10% 45% 12% 52% 14% 66% 2,254$ Stampede 2016 Non-FID Midw ater Hess 10% 37% 11% 43% 14% 54% 1,608$ Hadrian North 2017 Non-FID Ultradeepw ater ExxonMobil 11% 36% 13% 43% 16% 55% 1,959$ Shenandoah 2016 Non-FID Deepw ater Anadarko 23% 35% 26% 41% 31% 52% 2,367$ Who Dat 2012 Non-FID Midw ater LLOG 21% 26% 23% 28% 28% 33% 1,525$ Logan 2018 Non-FID Ultradeepw ater Statoil 11% 25% 13% 29% 16% 38% 727$ Appomattox 2016 Non-FID Deepw ater Shell 10% 24% 13% 29% 17% 38% 2,915$ Dalmatian South 2014 Non-FID Deepw ater Murphy 15% 19% 17% 23% 23% 30% 154$ Vicksburg 2016 Non-FID Deepw ater Shell 8% 19% 9% 23% 12% 30% 392$ Moccasin 2018 Non-FID Deepw ater Chevron 3% 18% 6% 23% 10% 31% 1,289$ Buckskin 2018 Non-FID Deepw ater Chevron 6% 16% 8% 20% 12% 28% 1,275$ $70/bbl $80/bbl $100/bbl Breakdown of Project Dynamics: Vetting Economics at $70/bbl LLS Source: IHS Inc, Guggenheim Securities, LLC A $10 move in project oil price assumptions can move full cycle IRRs between 200-250bps and development forward IRRs 400bps. The perceived risks may put development projects on the cusp at risk. We suspect that most oil companies are using closer to $70/bbl oil in their forecast. High up-front CAPEX costs may overhang projects. Although Mad Dog economics were attractive, the size of the near-term investment led to a delay to rethink production infrastructure solutions. A number of projects see Full- Cycle returns below 15%, which likely challenges exploration decisions than development decisions, which have better incremental return outlooks. Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 5
  6. 6. 0% 10% 20% 30% 40% 50% 60% 70% 80% 29 2 3 5 1 2 2 7 10 1 0% 5% 10% 15% 20% 25% 30% 35% 40% 10 8 2 2 15 1 5 6 1 1 GoM Floater Fleet & Contract Exposure by Offshore Driller Source: IHS Inc., Guggenheim Securities, LLC. % of Company Floater Fleet in the GoM % of Company Jackup Fleet in the GoM Jackup Contract Coverage in the GoMFloater Contract Coverage in the GoM Manager 2014 2015 2016 Atwood 100% 100% 100% Diamond Offshore 42% 21% 17% Ensco 84% 38% 16% Maersk Drilling 100% 100% - Noble 73% 50% 33% Pacific Drilling 100% 100% 100% Seadrill 95% 100% 100% Stena 100% 63% 50% Transocean 78% 55% 40% Vantage Drilling 100% 100% 100% Manager 2014 2015 2016 Diamond Offshore - - - Ensco 50% 3% - Gryphon Energy - - - Hercules Offshore 42% 1% - Nabors - - - Noble 100% 100% 25% Perforadora Central - - - Rowan 39% - - Spartan Offshore Drilling 42% - - Well Services Ltd - - - Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 6
  7. 7. Breakdown of Contracted Floaters May Suggest Fleet Renewal in Place Source: IHS Inc, Guggenheim Securities, LLC Current Contracted Floaters in the Gulf of Mexico New Contracts Starting 2014-2016 Some of the currently contracted rigs rolling off contract in 2014 (shown in light blue on the left) are older, lower spec rigs. By contrast, floaters that are starting new contracts in the GoM during 2014-2016 are new and high spec. Rig Name Manager Operator Water Depth (ft) Gen Year In Svc Variable Deck Load (Tons) Derrick Capacity (lbs) Free Quarter 1 GSF Grand Banks Transocean Husky Oil Operations 1,500 3G 1984 5,622 1,300,000 1Q14 2 Ocean Saratoga Diamond Offshore LLOG 2,200 2G 1976 2,500 1,000,000 1Q14 3 Noble Driller Noble Marubeni 5,000 4G 1976 3,400 1,576,575 2Q14 4 Ocean Victory Diamond Offshore Stone Energy 5,500 4G 1972 6,294 1,500,000 1Q14 5 Ocean Onyx Diamond Offshore Apache 6,000 5G 1973 6,173 1,600,000 1Q15 6 Noble Jim Thompson Noble Shell 6,000 4G 1999 4,000 1,500,000 1Q15 7 Noble Amos Runner Noble LLOG 8,000 4G 1999 4,000 1,500,000 4Q15 8 Development Driller III Transocean BP 7,500 6G 2009 14,881 2,000,000 4Q16 9 GSF Development Driller II Transocean BP 7,500 6G 2005 7,716 2,000,000 1Q14 10 GSF Development Driller I Transocean BHP Billiton 7,500 6G 2005 7,716 2,000,000 3Q14 11 Stena Forth Stena Hess 7,500 Drillship 2009 22,046 2,000,000 1Q15 12 West Capricorn Seadrill BP 7,500 6G 2011 7,716 2,500,000 3Q17 13 Stena IceMAX Stena Shell 7,500 Drillship 2012 19,290 2,000,000 3Q17 14 Discoverer Enterprise Transocean BP 8,000 Drillship 1999 22,046 2,100,000 1Q15 15 Deepwater Nautilus Transocean Shell 8,000 5G 2000 9,700 2,000,000 3Q17 16 ENSCO 8500 Ensco Anadarko 8,500 6G 2008 8,000 2,000,000 3Q14 17 ENSCO 8501 Ensco Noble Energy 8,500 6G 2009 8,000 2,000,000 3Q14 18 ENSCO 8502 Ensco Stone Energy 8,500 6G 2010 8,000 2,000,000 1Q15 19 ENSCO 8503 Ensco Cobalt Intl 8,500 6G 2010 8,000 2,000,000 2Q14 20 ENSCO 8505 Ensco Anadarko 8,500 6G 2012 8,000 2,000,000 3Q14 21 ENSCO 8506 Ensco Anadarko 8,500 6G 2012 8,000 2,000,000 3Q15 22 Deepwater Pathfinder Transocean Eni 10,000 Drillship 1998 22,040 2,500,000 2Q15 23 Discoverer Spirit Transocean Anadarko 10,000 Drillship 2000 22,040 2,000,000 2Q14 24 GSF C.R. Luigs Transocean BHP Billiton 10,000 Drillship 2000 28,660 2,000,000 1Q14 25 Discoverer Deep Seas Transocean Murphy 10,000 Drillship 2001 22,040 2,000,000 4Q16 26 West Sirius Seadrill BP 10,000 6G 2008 7,716 2,500,000 3Q19 27 Maersk Developer Maersk Drilling Statoil 10,000 6G 2009 14,881 2,000,000 4Q15 28 Discoverer Inspiration Transocean Chevron 10,000 Drillship 2009 22,046 2,500,000 1Q20 29 ENSCO DS-3 Ensco BP 10,000 Drillship 2010 22,046 2,000,000 2Q16 30 Discoverer India Transocean Chevron 10,000 Drillship 2010 22,046 2,500,000 4Q20 31 Deepwater Champion Transocean ExxonMobil 10,000 Drillship 2010 23,888 2,500,000 4Q15 32 ENSCO DS-5 Ensco Repsol 10,000 Drillship 2011 20,000 2,000,000 3Q16 33 Noble Bully I Noble Shell 10,000 Drillship 2011 13,558 2,204,623 2Q17 34 Pacific Santa Ana Pacific Drilling Chevron 10,000 Drillship 2011 22,046 2,000,000 2Q17 35 Atwood Condor Atwood Shell 10,000 6G 2012 8,818 2,500,000 4Q16 36 Noble Globetrotter I Noble Shell 10,000 Drillship 2012 19,842 2,403,039 2Q22 37 Atwood Advantage Atwood Noble Energy 10,000 Drillship 2013 25,353 2,500,000 1Q17 38 Noble Don Taylor Noble Shell 10,000 Drillship 2013 22,046 2,500,000 1Q19 39 West Auriga Seadrill BP 10,000 Drillship 2013 19,842 2,500,000 3Q20 40 West Vela Seadrill BP 10,000 Drillship 2013 19,842 2,500,000 4Q20 41 Noble Danny Adkins Noble Shell 12,000 6G 2009 8,000 2,500,000 3Q14 42 Discoverer Clear Leader Transocean Chevron 12,000 Drillship 2009 22,046 2,500,000 3Q18 43 Noble Jim Day Noble Shell 12,000 6G 2010 8,000 2,500,000 1Q16 Rig Name Manager Operator Water Depth (ft) Gen Year In Svc Variable Deck Load (Tons) Derrick Capacity (lbs) Discoverer Americas Transocean Statoil 12,000 Drillship 2009 22,046 2,500,000 Titanium Explorer Vantage Drilling Petrobras 10,000 Drillship 2012 22,046 2,500,000 Noble Bob Douglas Noble Anadarko 10,000 Drillship 2013 22,046 2,500,000 Noble Globetrotter II Noble Shell 10,000 Drillship 2013 19,842 2,403,039 Sevan Louisiana Seadrill LLOG 10,000 6G 2013 16,535 2,000,000 Deepwater Invictus Transocean BHP Billiton 10,000 Drillship 2014 24,251 2,500,000 Maersk Valiant Maersk Drilling ConocoPhillips 10,000 Drillship 2014 22,046 2,500,000 Maersk Viking Maersk Drilling ExxonMobil 12,000 Drillship 2014 22,046 2,500,000 Noble Sam Croft Noble Freeport McMoran 10,000 Drillship 2014 22,046 2,500,000 Ocean Blackhawk Diamond Offshore Anadarko 10,000 Drillship 2014 24,300 2,500,000 Ocean Blackhornet Diamond Offshore Anadarko 10,000 Drillship 2014 24,300 2,500,000 Pacific Sharav Pacific Drilling Chevron 10,000 Drillship 2014 24,250 2,500,000 Rowan Resolute Rowan Anadarko 12,000 Drillship 2014 22,046 2,500,000 West Neptune Seadrill LLOG 10,000 Drillship 2014 5,181 2,500,000 Rowan Reliance Rowan Cobalt Intl 12,000 Drillship 2014 22,046 2,500,000 Noble Tom Madden Noble Freeport McMoran 10,000 Drillship 2014 22,046 2,500,000 ENSCO DS-9 Ensco TBA 10,000 Drillship 2014 24,250 2,500,000 Deepwater Conquerer Transocean Chevron 12,000 Drillship 2016 25,353 2,500,000 Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 7
  8. 8. Widening WTI/Brent Spread May Impact LLS Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 8
  9. 9. 80 85 90 95 100 105 110 $/bbl LLS WTI Brent 95 100 105 110 115 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 $/bbl Brent LLS LLS Shows Signs of De-Linking from Brent, Moving Toward WTI Source: Bloomberg, Guggenheim Securities, LLC. Brent vs. LLS Crude Oil, 2013- Present Brent, WTI, & LLS Futures Curves Toward the end of 2013, LLS Crude began to diverge from Brent Crude. The direction of LLS will likely have a big impact on operators‘ decision making in the Gulf of Mexico. The futures market assumes that LLS will gravitate toward WTI vs. Brent over time, under the assumption that exports will not be allowed. If WTI/Brent spreads widen, long-term oil assumptions of ~$70/bbl for project economic assessments may gravitate lower. In our view, long-term oil price assumptions by upstream players will follow the long end of the futures curve. Note: we create synthetic LLS futures by using the LLS/WTI Spread Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 9
  10. 10. Bearish ‗14 & ‗15 WTI Forecast, Excerpt from Roger Diwan Report 1/28/14  As U.S. crude output continues to grow, we believe that the domestic refining industry has a limited ability to further absorb the tsunami of light sweet crude production. PADD 3 is already close to saturation, and with production continuing to rise dramatically in 2014, U.S. crude will more than fill the remaining pockets of spare domestic demand. Light-sweet supply will likely soon overwhelm the ability of the U.S. crude processing infrastructure to accommodate it, resulting in further dislocation of U.S. prices from global price markers. Exactly when this nationwide structural ―near-saturation point‖ will come to pass depends on a number of variables, but we believe it is likely to occur before mid-2015.  The risk of ―near-saturation‖ implies that domestic crude pricing will become increasingly discounted from global prices as the export valve remains shut . We believe that the United States will start to see the Super-Discounts increasing on a seasonal basis before becoming structural by 2015. For this reason, we expect WTI prices to average $86.5/b, $16/b below Brent, in 2014. This Super- Discount is likely to grow in 2015 as the limited relief valves that still exist in 2014 are overwhelmed, and we see a risk of having WTI prices averaging below $80/b in 2015, assuming crude exports remain off the table.  Our Brent crude oil price forecast is now $102.50 for 2014, revised down from our forecast in October of $103.50. Softer pricing is supported by another upward revision in supply, despite expected outages from key OPEC producers. In our base case, we see Brent prices continuing their softening—a softening that could have been a rout had Iranian and Libyan barrels remained in the market. To this end, the potential return of Iranian supply clearly remains the most salient and unpredictable risk on the horizon for Brent prices.  Over the medium term, fundamentals are still eroding, with non-OPEC supply outpacing stabilizing, but still anemic global demand both this year and next. This trend has been masked by the major supply outages of the past two years. Even if these endure, OPEC supply will need to be trimmed again in view of the expected surge in Non -OPEC supply in 2014 and 2015, led by North America. Source: The unbearable Lightness of U.S. Crudes: Oil Super-Cycle Delivers Super-Discount in 2014 & 2015 , Roger Diwan, 1/28/14. PFC Energy-Guggenheim, Wall Street Journal Guggenheim Crude Oil Price Forecast $/barrel 2012 1Q13 2Q13 3Q13 4Q13 2013 1Q14F 2Q14F 3Q14F 4Q14F 2014F 2015F Brent $111.69 $112.93 $103.35 $110.05 $109.35 $108.74 $103.00 $102.00 $105.00 $100.00 $102.50 $96.00 Forecast on 10/24/2013 $108.00 $108.82 $107.00 $101.00 $105.00 $101.00 $103.50 $98.00 Futures on 3/7/2014 - - - - 108.5 107.2 105.6 107.1 102.4 WTI $95.66 $94.32 $94.17 $105.81 $97.56 $98.01 $86.00 $88.00 $92.33 $79.67 $86.50 $78.00 Forecast on 10/24/2013 $101.00 $97.62 $99.00 $94.00 $100.00 $95.00 $97.00 $89.00 Futures on 3/7/2014 - - - - 101.8 99.1 96.2 99.0 90.3 Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 10
  11. 11. Infrastructure Constraints Lead to Regional Crude Price Differentials Source: PFC Energy–Guggenheim, Bloomberg $/bbl Price, 3/7 WCS 80.73$ $/bbl Price, 3/7 Bakken 96.08$ $/bbl Price, 3/7 Maya 92.68$ $/bbl Price, 3/7 Midland 94.33$ $/bbl Price, 3/7 WTI 102.58$ $/bbl Price, 3/7 LLS 106.93$ $/bbl Price, 3/7 Landed Brent 108.58$ Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 11
  12. 12. Planned Infrastructure Brings More Crude to Gulf Over Time: WTI/LLS Arbitrage ENB/ETP Trunkline 420mbd TRP Keystone 700mbd ETP Permian Express 200mbd & West Coast Gulf ~100mbd. MMP/OXY BridgeTex 278mbd and MMP Longhorn 225mbd ENB/ETP Seaway 450mbd Source: PFC Energy–Guggenheim, Bloomberg Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 12
  13. 13. Gulf of Mexico Floater Market Dynamics Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 13
  14. 14. 28 29 32 34 32 31 32 32 29 27 28 31 33 28 26 25 27 25 27 31 37 38 39 56 50 48 57 55 20 25 30 35 40 45 50 55 60 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14E 1Q15E 1Q16E 1Q17E 1Q18E RigQuarters Total Rig Demand History & Forecast Source: IHS Inc., Guggenheim Securities, LLC. Working Floaters in the GoM, History, and Projections We see an increase in working floaters in the GoM in 2014, with a leveling off over the next several years. Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 14
  15. 15. 22 19 14 16 20 21 25 20 14 18 18 16 17 19 13 2 4 11 9 14 17 19 20 23 24 20 15 9 9 9 - 5 10 15 20 25 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14E 1Q15E 1Q16E 1Q17E 1Q18E NumberofRigQuarters 61 55 59 63 41 58 62 62 91 96 93 87 107 98 40 50 60 70 80 90 100 110 DevelopmentWellCount GoM Floater Mix: Development Drilling Emphasized, Exploration Decelerates GoM Development Well Count History and Projections Floaters Working in E&A in the GoM, History and Projections Source: IHS Inc., Guggenheim Securities, LLC Note: well count excludes shallow water Recession-driven drop-off Macondo- driven decline Production and reserve replacement needs may make our outlook conservative. Move to develop recent GoM discoveries. 19 32 26 37 28 28 24 19 25 17 5 5 12 11 0 5 10 15 20 25 30 35 40 Discoveries GoM Discoveries Emphasis on developing the number of discoveries made over the last decade. Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 15
  16. 16. GoM Demand Projections Imply Deficits that Call for Contract Renewals Source: IHS Inc., Guggenheim Securities, LLC. Company 2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E Shell 8 8 10 5.9 5.0 4.8 (1.9) (2.5) (5.4) BP 5 7 3 6.4 6.0 5.3 1.1 (1.2) 2.0 Anadarko 6 6 9 4.1 4.6 4.0 (1.6) (1.2) (4.8) Chevron 6 4 2 3.5 4.0 4.0 (2.0) 0.3 1.7 BHP 1 0 1 0.8 1.0 1.0 0.1 0.7 0.2 Noble Energy 4 3 4 1.6 1.0 1.0 (1.9) (1.5) (2.8) Stone Energy 1 1 - 0.6 - - (0.1) (1.0) - Apache - - 1 1.0 - - 1.0 - (1.0) Cobalt - - - 0.2 - - 0.2 - - Eni - 1 - 1.0 0.3 - 1.0 (0.7) - ExxonMobil 2 3 1 1.9 1.8 1.0 0.4 (1.0) 0.5 Hess 1 1 2 0.9 - - (0.1) (0.7) (2.0) Murphy 1 1 1 1.0 1.0 0.9 (0.3) (0.3) (0.1) Statoil - - - 1.8 1.9 0.3 1.8 1.9 0.3 Marathon - 1 - 1.1 1.0 1.0 1.1 - 1.0 Other 8 6 5 6.4 8.0 7.1 (1.6) 2.0 2.3 Total 41 41 39 38 36 30 (3) (5) (8) Company 2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E Shell 3 1 1 3.6 3.0 2.0 0.6 2.0 1.0 BP 2 2 2 1.6 1.0 1.0 (0.4) (1.0) (1.0) Anadarko 1 - - 0.5 - - (0.5) - - Chevron 4 4 4 1.0 1.0 0.7 (3.0) (3.0) (3.3) BHP - - - 0.2 - - 0.2 - - Noble Energy - - - 0.6 - - 0.6 - - Stone Energy - - - 0.1 - - 0.1 - - Apache - - - - - - - - - Cobalt - - - - 0.9 1.0 - 0.9 1.0 Eni 2 - - - - - (2.0) - - ExxonMobil - - - - - - - - - Hess - 1 1 - - - - (1.0) (1.0) Murphy 1 - - - - - (1.0) - - Statoil 1 1 1 - - - (1.0) (1.0) (1.0) Marathon - - - - - - - - - Other 1 - - - - - (1.0) - - Total 15 9 9 8 6 5 (7) (3) (4) E&A Rig Contract Coverage Development Rig Demand Development Rig Contract Coverage Development Rig Surplus/(Deficit) E&A Demand E&A Rig Surplus/(Deficit) Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 16
  17. 17. 56 50 48 57 1 11 13 4 57 61 61 61 0 10 20 30 40 50 60 70 YE2014 YE2015 YE2016 YE2017 RigQuarters Forecast Total Potential 34 36 38 38 38 38 38 37 9 6 6 6 4 3 3 3 3 1 46 43 44 44 42 41 41 40 0 5 10 15 20 25 30 35 40 45 50 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 ContractedRigQuarters Ultradeepwater Deepwater Midwater 46 43 44 44 42 41 41 40 1 2 2 2 2 2 3 3 1 1 1 25 30 35 40 45 50 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 RigQuarters Contracted Adjusted Tenders Raw Tenders Probable Contract Renewals Leave Forecast Conservative, Upside from Tenders Note: all data are estimates by Guggenheim Securities, LLC Source: IHS Inc., Guggenheim Securities, LLC. Future Contracted Floaters in the GoM Potential Incremental Demand from Tenders Note: tenders are cumulative; i.e. if a new tender is for one year, it will appear as one rig throughout that year Potential Total Demand from Contract Renewals & New Contract Starts Potential Contracts with Renewals vs. Our Floater Forecast 41 41 38 43 40 40 41 40 5 2 6 1 2 1 7 12 13 16 17 19 21 48 50 56 57 58 58 60 61 0 10 20 30 40 50 60 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 RigQuarters Existing Contracts New Contracts Cumulative Roll Offs Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 17
  18. 18. Shell and BP Dominate the Gulf, with Contracted Visibility Strong Through 2015 Source: IHS Inc, Guggenheim Securities, LLC Current and Future Contracted Floaters in the Gulf of Mexico by Operator Grey, bolded cells indicate potential upside from tenders, if they translate into actual rig demand Quarter Operator Status Rig Years 2Q14 Statoil Tender 4.0 1Q14 Eni Probable 0.3 3Q15 Hess Probable 0.6 1Q16 Hess Probable 4.0 1Q14 Marathon Possible 1.9 Tender Demand Operator Current Contracted 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 Shell 9 9 9 9 8 8 8 8 8 BP 8 8 7 7 7 6 6 6 6 Anadarko 4 4 4 5 5 5 5 5 4 Chevron 4 4 4 5 5 5 5 5 5 BHP Billiton 2 2 1 1 1 1 1 1 1 LLOG 2 2 2 2 3 3 3 3 3 Noble Energy 2 3 3 2 1 1 1 1 1 Stone Energy 2 2 1 1 - - - - - Apache 1 1 1 1 1 1 - - - Cobalt Intl 1 1 - - - 1 1 1 1 Eni 1 1 1 1 1 1 1 - - ExxonMobil 1 2 2 2 2 2 2 2 2 Hess 1 1 1 1 1 - - - - Husky Oil Operations 1 - - - - - - - - Marubeni 1 1 1 1 - - - - - Murphy 1 1 1 1 1 1 1 1 1 Repsol 1 1 1 - - - - - - Statoil 1 1 1 1 2 2 2 2 2 ConocoPhillips - - - - 1 1 - - 1 Marathon - 1 2 1 1 - 1 1 1 Operator Tba - - - 1 1 - - 1 - Petrobras - 1 1 1 2 2 2 2 2 PXP - - - 1 1 2 2 2 2 Total 43 46 43 44 44 42 41 41 40 Roll-Offs 2 5 5 1 3 1 2 2 Cumulative Roll-Offs 2 7 12 13 16 17 19 21 Potential Contracted W/ Rolls 48 50 56 57 58 58 60 61 Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 18
  19. 19. GoM Development Well Forecast Leaves Non-FID Risk 3-5 Rigs in 2014-15 Source: Infield Systems, IHS Inc, Guggenheim Securities, LLC The well count projections from PFC are already ―risked‖ based on the likelihood that projects reach FID (Final Investment Decision). For Infield well counts, we use our own conservative probability weights in order to arrive at a reasonable projection for well count growth. As we get further toward 2018, the differential between raw and adjusted Infield data becomes greater, as more projects are marked ―probable‖ and ―possible.‖ Development Well Count & Rig Count Projections Probability Weights Assigned to Infield Wells Apply probability weights Apply well/rig ratios Development Well Count & Rig Count Projections Status 2014E 2015E 2016E 2017E 2018E Firm 100% 100% 100% 100% 100% Probable 0% 50% 75% 75% 75% Possible 0% 25% 30% 30% 30% Note: FID = Final Investment Decision Water Depth 2014E 2015E 2016E 2017E 2018E Ultradeepwater 7 10 9 21 18 Deepwater 46 46 46 44 58 Midwater 46 40 33 49 39 Total 99 96 88 114 115 Water Depth 2014E 2015E 2016E 2017E 2018E Ultradeepwater 7 10 9 16 12 Deepwater 44 45 46 43 55 Midwater 45 38 32 48 31 Total 96 93 87 107 98 Water Depth 2014E 2015E 2016E 2017E 2018E Ultradeepwater 4 5 5 9 7 Deepwater 22 23 23 22 28 Midwater 15 13 11 16 10 Total 41 41 39 47 45 Implied Rig Demand Raw Data Risk-Weighted Data (2.0x Well/Rig for UDW/DW, 3.0x for MW) Status 2014E 2015E 2016E 2017E 2018E Base 35 35 18 15 13 FID 52 49 44 56 27 Non-FID 12 12 26 43 75 Total 99 96 88 114 115 Status 2014E 2015E 2016E 2017E 2018E Base 35 35 18 15 13 FID 52 49 44 56 27 Non-FID 9 9 25 36 58 Total 96 93 87 107 98 Raw Data Risk-Weighted Data At an implied well-to-rig ratio of 2-3 per year, 9 Non-FID wells in 2014- 2015 could translate into 3-5 rigs at risk. Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 19
  20. 20. Much of the ―Deficit‖ Hinges on Projects Reaching Final Investment Decision Source: IHS Inc, Infield Systems, Company Reports, Guggenheim Securities, LLC GoM Projected Implied Development Rig Demand, Non-FID Only A meaningful portion of our rig demand forecast is contingent upon projects being sanctioned. Company 2014 Wells 2015 Wells 2016 Wells 2014 Implied Rigs 2015 Implied Rigs 2016 Implied Rigs Shell - 1 9 - - 3 BP - - - - - - Anadarko - 1 3 - 1 2 Chevron - - - - - - BHP - - - - - - Noble Energy - - - - - - Stone Energy - - - - - - Apache - - 1 - - 1 Cobalt - - - - - - Eni - - - - - - ExxonMobil - - - - - - Hess 1 - 5 1 - 2 Murphy 2 1 - 1 1 - Statoil - - - - - - Marathon - - - - - - Other 6 6 7 2 3 3 Non-FID 9 9 25 4 5 11 Total 41 41 39 % Non-FID 10% 12% 28% Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 20
  21. 21. 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% AvgofFullCycleIRR(%) Avg of Dev Fwd IRR (%) Sanctioned Unsanctioned Incremental Returns Favor Development, Full Cycle Returns Promote Vetting Unsanctioned projects gravitate toward both lower IRRs. Projects below a ~15-20% IRR may become more variant if operators see a risk to oil prices or require a bigger cushion with regard to project returns. Larger NPVs may prove more attractive as project management constraints at the operator level push for larger projects to best leverage internal resources. Note: Project economics run at $70/bbl oil prices. Source: IHS Inc, Guggenheim Securities, LLC Note: Projects with negative NPVs or IRRs are omitted from the chart. Lower full cycle economics on project lists leaves investors calling for project reviews for upstream players. The economics of incremental capital decisions, illustrated in development forward IRRs, suggest that most projects that have reached the development phase should move forward. Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 21
  22. 22. 0% 10% 20% 30% 40% 50% 60% 70% $- $500 $1,000 $1,500 $2,000 $2,500 $3,000 AvgofFullCycleIRR(%) Avg of Total CAPEX($mm) Sanctioned Unsanctioned Large Infrastructure CAPEX May Prove a ―Gating‖ Factor in the GoM The cost of production infrastructure may prove a gating factor for new projects. Thus, the ability to tie back to existing infrastructure or find lower-cost production solutions may determine the fate of projects. We look to recent project delays due to infrastructure cost concerns as an example of this issue playing out in the market. Note: Project economics run at $70/bbl oil prices. Source: IHS Inc, Guggenheim Securities, LLC Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 22
  23. 23. Ultra/Deepwater E&A Tenders Calls for Decline in Exploration Activity Source: IHS Inc., Guggenheim Securities, LLC 2014E 2015E Current Number of Floaters Working in E&A 18 Raw Demand "Tender" Demand 1 1 "Pre-Tender" Demand - - "Probable" Demand 1 1 "Possible" Demand 1 1 Total Un-risked Demand 3 3 Add Probability-Weighted Demand Adjusted "Tender" Demand (100%) 1 1 Adjusted "Pre-Tender" Demand (100%) - - Adjusted "Probable" Demand (20-45%) - - Adjusted "Possible" Demand (5-35%) - - Total Probability Weighted Demand 1 1 Subtract Available Rigs Subtract: Ultradeepwater Available Rigs 2 4 Subtract: Deepwater Available Rigs 2 2 Subtract: Total UDW/DW Rigs Coming Available 4 6 Beginning of Period Demand 18 15 Add: Total Probability Weighted Demand 1 1 Subtract: Total UDW/DW Rigs Coming Available (4) (6) Total Exploration Demand: Ultra/Deepwater 15 11 E&A Tender Demand Calculation- UDW/DW Current UDW/DW Rigs Working in E&A in the GoM Discoverer Spirit, GSF Development Driller I, Noble Danny Adkins, & Ocean Victory become available in 2014. Deepwater Pathfinder & ENSCO 8506 become available in 2015. Our forecast conservatively assumes that these are not re-contracted in the Gulf of Mexico. In Midwater, the Ocean Saratoga & Noble Driller are currently working but coming off contract this year. 2014E 2015E Ultra/Deepwater Exploration Demand 15 11 Midwater Exploration Demand - (2) Total Exploration Demand 15 9 E&A Tender Demand Calculation- Total Floater # Rig Name Market Category Manager Operator 1 Deepwater Pathfinder Drillship >7500 Transocean Eni 2 Discoverer Clear Leader Drillship >7500 Transocean Chevron 3 Discoverer Deep Seas Drillship >7500 Transocean Murphy 4 Discoverer India Drillship >7500 Transocean Chevron 5 Discoverer Inspiration Drillship >7500 Transocean Chevron 6 Discoverer Spirit Drillship >7500 Transocean Anadarko 7 ENSCO 8500 Semi >7500 Ensco Anadarko 8 ENSCO 8501 Semi >7500 Ensco Noble Energy 9 ENSCO 8506 Semi >7500 Ensco Anadarko 10 ENSCO DS-5 Drillship >7500 Ensco Repsol 11 GSF Development Driller I Semi 5001-7500 Transocean BHP Billiton 12 Noble Danny Adkins Semi >7500 Noble Shell 13 Noble Globetrotter I Drillship >7500 Noble Shell 14 Noble Jim Day Semi >7500 Noble Shell 15 Ocean Victory Semi 5001-7500 Diamond Offshore Stone Energy 16 Pacific Santa Ana Drillship >7500 Pacific Drilling Chevron 17 West Sirius Semi >7500 Seadrill BP 18 West Vela Drillship >7500 Seadrill BP Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 23
  24. 24. E&A History Supports Possibility of Contract Renewals Source: IHS Inc., Guggenheim Securities, LLC Floaters Working in Exploration & Appraisal in the GoM Note: data in the above table is counted in rig quarters, and then rounded Our current forecast calls for 15 rigs working in E&A in the GoM in 2014 and 9 in 2015. Given how many rigs operators have employed in recent history, we see potential demand upside given the likelihood that some contracts get renewed or extended. Operator 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2014E 2015E 2016E Average 2009-2013 Average 2012-2013 Anadarko 3.5 2.9 1.7 2.2 2.4 1.5 - 0.7 0.2 - - 1.9 2.0 1.1 1.2 3.2 4.5 3.8 4.1 3.6 1 - - 2 4 Apache - - - - - - - - - - - 0.4 - 0.4 0.4 - 0.1 0.6 0.3 1.0 - - - 0 1 BHP Billiton 0.2 1.5 1.0 0.0 1.5 0.9 - 0.4 1.8 1.0 1.0 2.0 1.4 1.2 1.4 0.8 0.1 1.3 1.5 0.2 - - - 1 1 BP 1.2 2.0 1.5 2.7 2.0 0.5 - - - - - 0.9 2.0 2.7 3.6 3.4 3.2 2.3 1.7 2.2 2 2 2 2 2 Chevron 1.0 1.0 1.1 0.6 0.2 0.7 - - 0.2 2.0 2.3 2.2 3.0 3.3 2.6 3.0 3.5 3.4 3.6 4.0 4 4 4 2 4 Cobalt Intl - - 0.9 1.0 0.4 - - - - - - 0.0 1.0 1.0 0.9 1.0 0.9 1.0 0.9 1.0 - - - 1 1 Eni 1.0 1.1 1.5 1.1 1.0 0.9 - - 0.7 1.0 2.0 1.0 0.8 0.5 0.8 1.1 1.8 1.0 1.3 1.4 2 - - 1 1 ExxonMobil - - - 1.0 0.7 - - - 0.1 0.5 1.0 - - 0.2 1.5 0.8 0.4 - 1.0 0.0 - - - 0 0 Hess - - - - 0.5 0.8 - - - - - - - 0.1 0.1 0.9 1.0 1.0 0.2 - - 1 1 0 1 Marathon - 0.4 - 0.3 1.1 1.2 - - - - - - - - 0.3 0.5 - - 0.1 1.0 - - - 0 0 Murphy 0.7 1.0 0.6 0.1 0.7 0.5 - - - - - - - - 0.5 0.3 - - - 0.2 1 - - 0 0 Noble Energy 0.9 0.1 - 1.1 1.0 0.8 - - - 0.7 - 1.0 0.7 1.0 0.9 0.8 0.8 0.9 1.0 1.0 - - - 1 1 Shell 0.2 1.2 2.2 2.8 2.7 1.1 - - 0.6 3.4 1.4 2.4 2.2 3.1 2.7 4.4 4.9 4.8 6.8 3.4 3 1 1 3 5 Statoil - - 0.2 1.5 2.0 1.8 - - - 1.5 0.6 0.3 1.0 1.5 1.0 1.0 0.5 0.5 0.6 - 1 1 1 1 0 Stone Energy - - - - - - - - - - - - - - - - - - - 0.6 - - - 0 0 Other 5.3 6.3 5.5 2.9 2.9 2.6 0.2 0.8 0.3 1.0 1.2 1.9 2.7 2.6 2.4 2.3 1.2 2.5 1.1 0.3 1 - - 2 1 Total 14 18 16 17 19 13 0 2 4 11 9 14 17 19 20 24 23 23 24 20 15 9 9 15 23 Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 24
  25. 25. Well/Rig Sensitivity Analysis Implies Bullish Bias Source: IHS Inc., Guggenheim Securities, LLC Contracted Floater Forecast in the GoM Well/Rig Ratio Sensitivity Analysis For our global rig supply/demand model, we assume a well/rig ratio of 2:1 for ultra-deepwater and deepwater, and 3:1 for midwater development wells. In order to account for potential variation across regions, we ran a sensitivity analysis to measure the impact of changes in the well/rig ratio input. Currently, the implied well/rig ratio is close to 3.0x. 56 1.00 1.25 1.50 1.75 2.00 2.25 2.50 2.75 3.00 3.25 3.50 3.75 4.00 4.25 4.50 4.75 5.00 1.00 111 101 94 89 86 83 81 79 77 76 75 74 73 72 72 71 70 1.25 102 92 85 80 77 74 72 70 68 67 66 65 64 63 63 62 61 1.50 96 86 79 74 71 68 66 64 62 61 60 59 58 57 57 56 55 1.75 92 82 75 70 66 64 61 60 58 57 56 55 54 53 52 52 51 2.00 89 79 72 67 63 60 58 56 55 53 52 51 51 50 49 48 48 2.25 86 76 69 64 61 58 56 54 52 51 50 49 48 47 47 46 45 2.50 84 74 67 62 59 56 54 52 50 49 48 47 46 45 45 44 43 2.75 83 72 66 61 57 54 52 50 49 47 46 45 44 44 43 42 42 3.00 81 71 64 59 56 53 51 49 47 46 45 44 43 42 42 41 40 3.25 80 70 63 58 55 52 49 48 46 45 44 43 42 41 40 40 39 3.50 79 69 62 57 54 51 49 47 45 44 43 42 41 40 39 39 38 3.75 78 68 61 56 53 50 48 46 44 43 42 41 40 39 39 38 37 4.00 78 67 61 56 52 49 47 45 44 42 41 40 39 39 38 37 37 4.25 77 67 60 55 51 49 46 44 43 42 40 39 39 38 37 37 36 4.50 76 66 59 54 51 48 46 44 42 41 40 39 38 37 37 36 35 4.75 76 66 59 54 50 47 45 43 42 40 39 38 37 37 36 35 35 5.00 75 65 58 53 50 47 45 43 41 40 39 38 37 36 36 35 34 Ultra/Deepwater Well/Rig Ratio MidwaterWell/RigRatio 2014E 2015E 2016E 2017E 2018E Ultra/Deepwater Wells 51 55 55 59 67 Divided by: U/DW Well/Rig Ratio 2.0 2.0 2.0 2.0 2.0 Equals: Ultra/Deepwater Rigs 26 28 28 30 34 Midwater Wells 45 38 32 48 31 Divided by: MW Well/Rig Ratio 3.0 3.0 3.0 3.0 3.0 Equals: Midwater Rigs 15 13 11 17 11 Ultra/Deepwater Rigs 26 28 28 30 34 Midwater Rigs 15 13 11 17 11 Total Development Rigs 41 41 39 47 45 E&A Rigs 15 9 9 9 9 Development Rigs 41 41 39 47 45 Total Rigs 56 50 48 57 55 Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 25
  26. 26. Offshore Rig Market Balances (1/22/14 Report) Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 26
  27. 27. Sensitivity Analysis Points Toward a More Favorable Supply/Demand Balance Note: the rig attrition number is cumulative We assume 92% utilization to account for frictional downtime and shipyard time. Historically, utilization has run closer to 80- 85%. Our conservative estimate lends a bias toward a tighter floater market. (pg. 12) Our model incorporates no rig attrition into the supply/demand balance. We see the potential for 43 floaters to retire by 2015 as contract expirations of these older, lower spec rigs may be catalysts for retirement. There is no bear case in this scenario because rigs will not return to the market. There is a strong relationship between crude oil prices and E&A floater demand, so activity may move with oil price outlooks. At the same time, our forecast for a North American slowdown may free up capital for offshore exploration work. We have already heavily probability-weighted down unsanctioned project development demand, but if conditions turned more bearish, there is a risk that the remaining unsanctionedd demand would never reach FID. Utilization 2014E 2015E 2014E 2015E Bull Case (80%) 252 276 (38) (41) Base Case (92%) 290 318 - - Bear Case (95%) 299 328 9 10 Rig Attrition 2014E 2015E 2014E 2015E Bull Case 263 275 (27) (43) Base Case (no attrition) 290 318 - - Bear Case (no attrition) 290 318 - - Exploration & Appraisal Rig Demand Relative to Oil Price 2014E 2015E 2014E 2015E Bull Case (Recent Peak -110 rigs) 110 110 17 12 Base Case 93 98 Bear Case (Recent Low - 80 rigs) 80 80 (13) (18) Unsanctioned Development Demand at Risk 2014E 2015E 2014E 2015E Bull Case (+10% to all probabilities) 36 50 - 3 Base Case 36 47 - - Bear Case (Unsanctioned Projects Lapse) - - (36) (47) Unsanctioned Demand Projection In Overall Supply In Overall Supply In Overall Demand In Overall Demand Potential Increase/(Decrease) Potential Increase/(Decrease) Potential Increase/(Decrease) Potential Increase/(Decrease) Overall Supply Projection Overall Supply Projection Exploration Demand Projection Source: IHS Inc., Guggenheim Securities, LLC Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 27
  28. 28. Project Push Favors Long-Term Market Balances vs. Near-Term Tightness Note: All estimates are by Guggenheim Securities, LLC. Source: IHS Inc., Infield Systems, Guggenheim Securities, LLC Probability-weighted, field- by-field data analyzed across regions, based on project likelihood for sanctioned and non- sanctioned projects. Exploration rig demand focuses on probability- weighted tender activity in the near term. Post 2015, estimates based on exploration requirements needed to meet longer-term offshore production forecast. The market balance incorporates the demand in concert with total rig supply, adjusted for cold stacked and other non-marketed rigs, newbuilds, but without the assumption of rig attrition. Near term, the floater market remains fairly balanced, but the wave of expected development drilling sees the rig deficit expanding, even after ―risking‖ future project probabilities. Thus, the probability of FIDs for future demand becomes the key debate. Development Floater Demand 2014E 2015E 2016E 2017E 2018E Development Well Count - Ultra/Deepwater 256 275 287 318 359 Divided By: Well-to-Rig Ratio 2.0 2.0 2.0 2.0 2.0 Equals: Development Floater Demand - Ultra/Deepwater 128 138 143 159 179 Development Well Count - Midwater 196 209 222 221 200 Divided By: Well-to-Rig Ratio 3.0 3.0 3.0 3.0 3.0 Equals: Development Floater Demand - Midwater 65 70 74 74 67 Add: Development Floater Demand - Ultra/Deepwater 128 138 143 159 179 Add: Development Floater Demand - Midwater 65 70 74 74 67 TOTAL DEVELOPMENT FLOATER DEMAND 193 207 218 233 246 Exploration Floater Demand 2014E 2015E 2016E 2017E 2018E Add: Exploration Rig Demand - Ultra/Deepwater 65 71 74 78 82 Add: Exploration Rig Demand - Midwater 28 28 29 31 32 Equals: TOTAL EXPLORATION FLOATER DEMAND 93 98 103 108 114 Total Floater Demand 2014E 2015E 2016E 2017E 2018E Add: Ultra/Deepwater Floater Demand 194 209 218 237 261 Add: Midwater Floater Demand 94 98 104 105 100 Equals: TOTAL FLOATER DEMAND 288 307 322 342 361 Total Floater Demand Growth 12.5% 6.6% 4.9% 6.2% 5.6% Floater Market Balance 2014E 2015E 2016E 2017E 2018E Add: Ultradeepwater Floater Supply 120 143 156 166 172 Add: Deepwater Floater Supply 63 64 67 69 69 Less: Ultra/Deepwater Floater Demand (194) (209) (218) (237) (261) Less: Carried Ultra/Deepwater Floater Demand - (12) (14) (8) (11) Equals: Ultradeepwater Suplus/(Deficit) (12) (14) (8) (11) (31) Add: Midwater Floater Supply 108 111 114 115 115 Less: Midwater Floater Demand (94) (98) (104) (105) (100) Less: Carried Midwater Floater Demand - - - - - Equals: Midwater Suplus/(Deficit) 14 13 10 10 15 Add: Ultradeepwater Suplus/(Deficit) (12) (14) (8) (11) (31) Add: Midwater Suplus/(Deficit) 14 13 10 10 15 Equals: Total Floater Suplus/(Deficit) 2 (1) 2 (1) (16) Previous Total Floater Surplus (Deficit) from 11/1/13 (1) (3) (1) (27) (45) Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 28
  29. 29. Unsanctioned Projected Demand at Risk Creates Significant Variance Potential We assign little probability for unsanctioned projects in 2014, outside of the PFC forecast. We assign a lower probability to a larger inventory of longer dated projects labeled either ―Probable‖ or ―Possible.‖ A negative outcome to near- term unsanctioned project risk could prove meaningful, but risks to longer-dated development projects may impact up to ~40% of forecasted rig demand. Lack of clarity on the timing for final investment decisions will weigh on the market, as typical tendering activity only provides visibility for projects two to three years into the future. More conservative assumptions yield lower deficits and highlight the impact of probability weights. Note: All estimates are by Guggenheim Securities, LLC. Source: IHS Inc., Infield Systems, Guggenheim Securities, LLC A 1% increase in unsanctioned demand at risk accounts for ~3 floaters, showing the high impact of project FIDs on our forecasts. Unsanctioned Development Rig Demand at Risk 2014E 2015E 2016E 2017E 2018E Probable (75% Probability) - 2 3 5 5 Possible (25-30% Probability) - 0 2 5 7 Ultra-Deepwater Wells- Infield - 2 5 9 11 Probable (75% Probability) - 8 8 20 39 Possible (25-30% Probability) - 1 3 10 14 Deepwater Wells- Infield - 10 10 30 53 Probable (75% Probability) - 23 26 58 98 Possible (25-30% Probability) - 7 19 23 45 Midwater Wells- Infield - 30 45 81 143 Deepwater - PFC Energy 71 61 110 142 146 Total Unsanctioned Wells at Risk 71 102 170 262 354 Ultra/Deepwater Well-to-Rig Ratio 2 2 2 2 2 Midwater Well-to-Rig Ratio 3 3 3 3 3 Ultra/Deepwater Unsanctioned Floater Demand at Risk 36 37 63 91 106 Total Ultra/Deepwater Floater Demand 194 209 218 237 261 % of Demand at Risk 19% 18% 29% 38% 41% Midwater Unsanctioned Floater Demand at Risk - 10 16 28 48 Total Midwater Floater Demand 94 98 104 105 100 % of Demand at Risk 0% 10% 15% 27% 48% Total Unsanctioned Floater Demand at Risk 36 47 79 119 154 Total Floater Demand 288 307 322 342 361 % of Demand at Risk 13% 15% 25% 35% 43% Previous% of Demand at Risk from 11/1/13 15% 19% 27% 36% 43% Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 29
  30. 30. Deepwater Projects Represent ~40% of New Source Production Source: IHS Inc., Guggenheim Securities, LLC. Note: Subset of companies consists of APA, BG.-LN, BHP,BP, CVX, COP, E, XOM, HES, LKOH-MZ, MRO, MUR, NBL, OMV-VI, PBR, REP-MC, RDSA, STO, TLM, TLW-LN, TOT Forecast Cumulative New Source Oil Production by Asset Type, Global Majors Deepwater Contribution to Forecast Cumulative New Source Oil Production Deepwater production remains the largest contributor to new source production in the forecast for our sample set of companies, representing ~5mbd or ~40% of new source production by 2020. Deepwater production represents more than 2X the production to come on from other sources. Thus, we anticipate that deepwater development and exploration drilling will remain central to production goals across the group. - 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E ThousandsofBarrelsofOil/Day Conventional Onshore Conventional Shallow Deepwater Oil Sands Unconventional 29% 31% 33% 37% 38% 40% 42% 44% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E %ofProjectedCumulativeNew SourceProduction Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 30
  31. 31. Dayrate Forecasts Call for Normalization Source: IHS Inc., Guggenheim Securities, LLC. Guggenheim Offshore Rig Dayrate Forecasts ($kpd) Rig Type 1Q14E 2Q14E 3Q14E 4Q14E 1Q15E 2Q15E 3Q15E 4Q15E 1Q16E 2Q16E 3Q16E 4Q16E 1Q17E 2Q17E 3Q17E 4Q17E Prem UDW DS 590 590 580 580 570 570 560 560 550 550 540 540 540 540 540 530 Prem UDW SS 530 530 520 520 510 510 500 500 490 490 480 480 470 470 460 450 Standard UDW DS 520 520 510 510 500 500 490 490 480 480 470 470 450 420 400 380 Standard UDW SS 510 510 500 500 490 490 480 480 470 470 460 460 430 410 380 360 Prem DW DS 430 430 420 420 410 410 400 400 390 390 380 380 330 270 220 170 Prem DW SS 430 430 420 420 410 410 400 400 390 390 380 380 360 340 330 310 Standard DW DS 240 240 240 230 230 220 220 210 210 200 200 190 200 200 200 200 Standard DW SS 430 430 420 420 410 410 400 400 390 390 380 380 350 310 280 240 HDHE MW DS 180 180 170 170 160 160 150 150 140 140 130 130 140 140 150 150 HDHE MW SS 500 500 490 490 480 480 470 470 460 460 450 450 410 370 330 280 MW DS 190 190 180 180 170 170 160 160 150 150 140 140 140 140 140 140 MW SS 360 360 350 350 340 340 330 330 320 320 310 310 280 250 220 200 HDHE JU 270 270 260 260 250 250 240 240 230 230 220 220 220 210 210 200 Prem JU 210 210 200 200 190 190 180 180 170 170 160 160 160 160 170 170 High End JU 170 170 170 160 160 150 150 140 140 130 130 120 120 120 120 120 Standard JU 140 140 140 130 130 120 120 110 110 100 100 90 90 90 80 80 Sub-Standard JU 100 100 100 90 90 80 80 70 70 60 60 50 60 60 60 70 Commodity JU 80 80 80 70 70 60 60 50 50 40 40 30 40 40 50 50 Legacy JU 70 70 70 60 60 50 50 40 40 30 30 20 30 40 50 60 Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 31
  32. 32. 9 6 - 3 5 3 - 3 3 3 1 3 1 5 4 5 3 2 3 9 1 2 1 3 1 6 10 15 18 20 23 32 33 35 36 39 - 5 10 15 20 25 30 35 40 45 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 NumberofRigs Contracted Uncontracted Cumulative Uncontracted 4 4 2 1 3 - 1 - - 2 1 1 11 5 6 7 14 5 18 17 15 4 5 1 11 16 22 29 43 48 66 83 98 102 107 108 - 20 40 60 80 100 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 NumberofRigs Contracted Uncontracted Cumulative Uncontracted 108 110 114 115 115 63 64 67 69 69 120 143 156 166 172 290 317 338 350 356 - 50 100 150 200 250 300 350 400 2014E 2015E 2016E 2017E 2018E ProjectedTotalRigSupply Midwater Deepwater Ultradeepwater 86 88 89 89 89 164 169 170 171 171 158 184 210 218 219 44 55 66 72 73 453 497 535 550 552 - 100 200 300 400 500 600 2014E 2015E 2016E 2017E 2018E ProjectedTotalRigSupply Commodity Standard Premium Harsh Environment Fleet Growth Note: All estimates are by Guggenheim Securities, LLC. Source: ODS Petrodata, Infield Systems, PFC Energy-Guggenheim Jackup Newbuild ProjectionsFloater Newbuild Projections Floater Fleet Growth Projections Jackup Fleet Growth Projections Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 32
  33. 33. Offshore Driller Equity Overview Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 33
  34. 34. v v Stocks Likely Bifurcate on Asset Quality & Capital Budgeting Strategies Favored to Benefit Capital Budgeting Strategies SDRL – BUY – PT $50 : Delivery of newbuilds & accretive financing from SDLP (NC, $30.80) offers upside leverage to distributions and yield-based valuations. The recent SDLP unit offering below a 6% yield and North American IPO of NADL on the horizon remain positive indicators. ATW – BUY – PT $58: Attractive growth profile, solid execution, and potential for future payout-friendly bias. PACD – BUY – PT $14: Good management, pure-play ultra-deepwater assets, recent favorable refinancing, and longer-term dividend bias offer meaningful upside potential. DO – BUY – PT $65: Overly slighted for its older fleet, we like DO‘s high payout strategy. We see potential for significant upside to our target with a possible dividend increase in 2014 as a catalyst. Current negative sentiment surrounding DO‘s older fleet has created an attractive entry point. Special Situations – Transaction/Catalyst Driven NE – BUY – PT $42: Potential for further upside on spin-off of older asset and yield re-rate of premium assets. The potential transaction on the horizon provides a catalyst. ORIG – BUY – PT $28: The need for cash and ORIG shares as a source of funding at DRYS should prompt a dividend strategy from ORIG and efforts to re-rate the shares on yield-based metrics. RIG – BUY – PT $55: Meaningful discount to NAV leaves hope that activist involvement and reformulated Board of Directors, with renewed dividend policy and MLP plans, will lead shares to mean-revert. Trapped in Multiple Compression ESV – NEUTRAL – PT $60: Discount to NAV screens well, with an opportunity for upside with better communication of distribution policy. RDC – NEUTRAL – PT $36: Trading closer to NAV, we see potential for continued multiple compression as investors infer higher capital budgeting risk on companies without clear payout strategies or belief in a transition from growth investment to higher payouts. HERO – NEUTRAL – PT $5: Peak-cycle economics and stretched balance sheet create a challenging risk/reward, despite a good management team. RIG: We see alpha in pot. strategic change, but needs clarity around direction of payout/plowback ATW & PACD: Attractive fleets and cash flow profiles may need a dividend catalyst in the near term versus medium term inferred by both managements. Reasons to Be More/Less Bullish NE: Re-emphasis on growth vs. distributions ORIG: Concerns about unconventional ownership and corporate structure may challenge the story for the shares. RIG: We see alpha in pot. strategic change, but needs clarity around direction of payout/plowback Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 34
  35. 35. Large Cap Services 7.3 x Large Cap Equipment 9.0 x Small/Mid Cap Svcs & Equipment 8.9 x Offshore Drilling 6.4 xOnshore Drilling 5.7 x Engineering & Construction, 7.8x 5.5 x 6.0 x 6.5 x 7.0 x 7.5 x 8.0 x 8.5 x 9.0 x 9.5 x 5% 10% 15% 20% 25% 30% EV/EBITDA'14E EBITDA Growth, '14E vs. '13E Large Cap Services 7.3 x Large Cap Equipment 9.0 x Small/Mid Cap Svcs &Equipment 8.9 x Offshore Drilling 6.4 x Onshore Drilling 5.7 x Engineering & Construction 7.8 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 9.5 x 8.0 x 13.0 x 18.0 x 23.0 x 28.0 x EV/EBITDA'14E Price/Earnings '14E Offshore Drillers Screen as a ―Good Property in a Tough Neighborhood‖ Source: Thomson Reuters., Guggenheim Securities, LLC. 2014E P/E vs. 2014E EV/EBITDA- Sub Sectors ‘14E Y/Y EBITDA Growth vs. 2014E EV/EBITDA- Sub Sectors The mix of low valuations, high cash flow, and overblown negative sentiment about rig supply/demand balances leave offshore drillers screening attractively within the group. We see a potential for rotation out of high multiple/high growth expectation stocks with North American leverage into lower multiple stocks with more visible earnings growth that screen more attractively, like the offshore drillers. Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 35
  36. 36. ATW DO ESV NE PACD RDC RIG SDRL HERO ORIG 4.00 4.50 5.00 5.50 6.00 6.50 7.00 7.50 8.00 8.50 9.00 9.50 12% 14% 16% 18% 20% 2014EEV/EBITDA 2015E EBITDA/Gross Fleet Value ATW DO ESV NE PACD RDC RIG SDRL HERO ORIG 4.00 4.50 5.00 5.50 6.00 6.50 7.00 7.50 8.00 8.50 9.00 9.50 0 10 20 30 40 2014EEV/EBITDA Average Fleet Age (years) Investors continue to reward smaller cap names with clearly defined growth strategies, a bias toward a higher payout model in the medium to long term, and newer fleets. ATW DO ESV NE PACD RDC RIG SDRL HERO ORIG 4.00 5.00 6.00 7.00 8.00 9.00 0.00 0.50 1.00 1.50 2.00 2.50 2014EEV/EBITDA Change in FCF ($B) FY13E-FY15E ATW DO ESV NE PACD RDCRIG SDRL HERO ORIG 4.00 4.50 5.00 5.50 6.00 6.50 7.00 7.50 8.00 8.50 9.00 9.50 10% 20% 30% 40% 50% 60% 2014EEV/EBITDA Net Debt/Gross Fleet Value Multiple Compression Reflects Capital Budgeting & Fleet Age Concerns Net Debt ‗15/Gross Fleet Value vs. EV/EBITDA FCF Growth vs. EV/EBITDA SDRL helped by leverage, full payout, and pot. benefits from SDLP financing. The inverse relationship between free cash flow (FCF) growth and multiples suggests concerns about the dilution of return structures and risks to incremental growth investment. Source: Thomson Reuters, Guggenheim Securities, LLC ‗15 EBITDA/Gross Fleet Value vs. EV/EBITDAFleet Age vs. EV/EBITDA Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 36
  37. 37. Company Rating PX Target PX Rtn to Target TGT TGT Current Px Current Px EV/EBITDA '14 EV/EBITDA '15 3/13 '14 PE '15 PE 14 PE 15 PE 2014E 2015E 2014E 2015E 2014E 2015E 2014E 2015E ORIG Buy 17.09$ 28$ 64% 15.5x 10.0x 9.5x 6.1x 6.5x 5.4x 26$ 31$ 66% 55% 28$ 32$ 61% 53% SDRL Buy 33.70$ 50$ 48% 15.1x 12.4x 10.2x 8.3x 8.6x 7.2x 28$ 31$ 120% 109% 28$ 31$ 120% 109% DO Buy 44.39$ 65$ 46% 11.8x 8.6x 8.1x 5.8x 4.3x 3.2x 60$ 68$ 74% 65% 67$ 74$ 66% 60% NE Buy 28.98$ 42$ 45% 10.5x 7.5x 7.2x 5.2x 5.2x 4.2x 42$ 46$ 69% 63% 42$ 46$ 69% 63% PACD Buy 9.89$ 14$ 42% 14.0x 8.8x 9.9x 6.2x 7.9x 5.4x 14$ 16$ 71% 62% 14$ 16$ 71% 62% RIG Buy 39.54$ 55$ 39% 11.0x 9.2x 7.9x 6.6x 5.6x 5.0x 55$ 62$ 72% 64% 55$ 62$ 72% 64% ATW Buy 46.02$ 58$ 26% 10.7x 7.4x 8.5x 5.9x 7.5x 5.4x 58$ 66$ 79% 70% 66$ 74$ 70% 62% ESV Neutral 48.86$ 60$ 23% 9.1x 7.5x 7.4x 6.1x 6.4x 5.3x 60$ 67$ 81% 73% 60$ 67$ 81% 73% RDC Neutral 31.72$ 36$ 13% 12.6x 7.2x 11.1x 6.3x 6.2x 4.2x 36$ 41$ 88% 77% 44$ 49$ 72% 65% HERO Neutral 4.55$ 5$ 10% 11.2x 91.4x 10.2x 83.2x 4.1x 5.2x 5$ 5$ 91% 95% 5$ 5$ 91% 95% AVERAGE 36% 12.2x 17.0x 9.0x 14.0x 6.2x 5.1x 81% 73% 77% 71% NAV-B/U P/NAV-B/U NAV-R P/NAV-R NAV Comparison of Offshore Drillers Sees Shares Screen Attractively Source: Thomson Reuters, Guggenheim Securities, LLC Offshore drillers trade at a significant discount to NAV, suggesting a favorable risk/reward Gross Fleet Value Breakdown Estimated EBITDA Breakdown, 2014-2016 Most of our Gross Fleet Value and EBITDA estimates are derived from jackups, drillships, and 6G semisubmersibles, but 20-30% of these values comes from 2G, 3G, 4G, & 5G semisubmersibles, leaving our estimates at risk. Ticker Jackups 2G Semis 3G Semis 4G Semis 5G Semis 6G Semis Drillships Other ATW 15% 0% 4% 8% 0% 37% 35% 0% DO 4% 7% 6% 19% 21% 11% 32% 0% ESV 28% 1% 1% 8% 26% 0% 36% 1% HERO 78% 0% 0% 0% 0% 0% 0% 22% NE 34% 0% 2% 26% 0% 0% 38% 0% ORIG 0% 0% 0% 0% 14% 0% 86% 0% PACD 0% 0% 0% 0% 0% 0% 100% 0% RDC 63% 0% 0% 0% 0% 0% 37% 0% RIG 8% 2% 8% 8% 11% 4% 58% 0% SDRL 21% 0% 0% 1% 1% 38% 37% 1% TOTAL 20% 1% 3% 8% 9% 12% 46% 1% Ticker Jackups 2G Semis 3G Semis 4G Semis 5G Semis 6G Semis Drillships Other ATW 15% 0% 8% 17% 0% 40% 20% 0% DO 4% 14% 12% 30% 17% 7% 16% 0% ESV 29% 2% 2% 10% 23% 0% 28% 6% HERO 78% 0% 0% 0% 0% 0% 0% 22% NE 33% 0% 6% 31% 0% 0% 30% 0% ORIG 0% 0% 0% 0% 19% 0% 81% 0% PACD 0% 0% 0% 0% 0% 0% 100% 0% RDC 72% 0% 0% 0% 0% 0% 28% 0% RIG 4% 3% 16% 14% 12% 4% 48% 0% SDRL 22% 0% 0% 3% 2% 39% 33% 1% TOTAL 21% 2% 6% 13% 9% 11% 38% 1% Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 37
  38. 38. 60 65 70 75 80 85 90 95 100 105 110 1.0X 1.2X 1.4X 1.6X 1.8X 2.0X 2.2X Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 DayrateIndex Price/TangibleBookValue P/TBV Average P/TBV Dayrate Index Without Massive Dayrate Dive, Historical Relationships Support a Share Rally Source: IHS Inc., Thomson Reuters., Guggenheim Securities, LLC. Average Offshore Driller P/TBV vs. Dayrate Index We see the ~40% decline in dayrates in ‘09-‘10 as unlikely to repeat. Note: P/TBV for ATW, DO, ESV, HERO, NE, ORIG, PACD, RDC, RIG, SDRL are averaged and then indexed. The solid green line represents the average P/TBV over the specified time period, and the dotted green lines show +/- 1 standard deviation Current Price/Tangible Book Value 2.7X 1.4X 1.3X 1.2X 1.1X 1.0X 1.0X 0.8X 0.8X 0.8X 0.0X 0.5X 1.0X 1.5X 2.0X 2.5X 3.0X SDRL DO ATW ESV RIG NE PACD RDC ORIG HERO Price/TangibleBookValue Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 38
  39. 39. Global Contract Coverage Leaves Earnings Potential Secure in 2014 14% 23% 36% 29% 44% 49% 51% 48% 75% 40% 46% 52% 41% 66% 66% 68% 73% 86% 76% 78% 78% 86% 89% 92% 95% 100% 100% 0% 20% 40% 60% 80% 100% DO RIG ESV PACD NE ATW SDRL ORIG RDC 2014E 2015E 2016E Floaters 2014E-2016E Jackups 2014E-2016E Source: Company Reports, Guggenheim Securities, LLC 8% 10% 21% 19% 12% 0% 12% 34% 13% 24% 42% 32% 34% 44% 38% 60% 37% 60% 65% 73% 74% 78% 80% 82% 0% 20% 40% 60% 80% 100% HERO DO RIG RDC ESV ATW NE SDRL 2014E 2015E 2016E Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 39
  40. 40. Clear Relationship Between Yield & Payout Ratios Yield vs. DPS/CEPS Source: Thomson Reuters, Company Reports, Guggenheim Securities, LLC 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. DO 7.9% ESV 6.1% NE 3.5% NADL 10.9% SDLP 5.6% HAL 0.9% AKSO 3.9% RIG 5.7% CLB 3.9% CRR 1.4% OII 1.0% 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% 0% 20% 40% 60% 80% DividendYield(LatestQuarter Annualized) DPS/CEPS 2013E Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 40
  41. 41. Appendix: Development Drilling Well Count Detail Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 41
  42. 42. Summation of Development Drilling Demand: Base/Infield Note: Project economics run at $70/bbl oil prices. Source: IHS Inc, Guggenheim Securities, LLC Continued on next page… Field Year on Stream Water Depth Operator Full Cycle IRR % Dev- Forw ard IRR % CAPEX $MM 2014E 2015E 2016E 2017E 2018E Appaloosa- Mississippi Canyon 460-459 2011 Midw ater Eni n/a n/a n/a - 1 - - 1 Atlantis- Green Canyon 698-700 & 742-744 2007 Deepw ater BP n/a n/a n/a 4 4 3 - - Atlantis North 2010 Deepw ater BP 24% 54% 458$ - 2 - 1 1 Atlantis South 2005 Deepw ater BP 31% 50% 1,257$ - 1 - 2 - Callisto (AVP)- Mississippi Canyon 876 2011 Ultradeepw ater Anadarko n/a n/a n/a - 1 - - - Clipper Corridor- Green Canyon 299-300 2013 Midw ater ATP n/a n/a n/a - - - 1 - Deimos- Mississippi Canyon 806 2007 Midw ater Shell n/a n/a n/a 1 - - - - Dorado- Viosca Knoll 915 2009 Midw ater Freeport-McMoRan n/a n/a n/a 1 - - - - Europa- Mississippi Canyon 934-935 & 890 2000 Midw ater Shell n/a n/a n/a 1 - - - 1 Front Runner South- Green Canyon 339 2005 Midw ater Murphy n/a n/a n/a - - 2 1 - Genghis Khan- Green Canyon 652 2007 Midw ater BHP Billiton n/a n/a n/a - 1 - - - Gilder- Green Canyon 248 2004 Midw ater Shell n/a n/a n/a 1 - - - - Gladden- Mississippi Canyon 800 2011 Midw ater New field Exploration n/a n/a n/a - 1 - - - Hadrian South- Keathley Canyon 964 2013 Deepw ater ExxonMobil n/a n/a n/a 1 2 - - - Isabela (Galapagos)- Mississippi Canyon 562 2012 Deepw ater BP n/a n/a n/a 1 - - - - King- Mississippi Canyon 085-084 2002 Deepw ater Freeport-McMoRan n/a n/a n/a 1 - - - - Llano- Garden Banks 385-386 2004 Midw ater Shell n/a n/a n/a 1 - - - - Mad Dog 2012 Midw ater BP 37% 76% 5,302$ - 5 1 2 1 Mad Dog- Green Canyon 782 & 738 2005 Midw ater BP n/a n/a n/a 1 - - - - Mandy- Mississippi Canyon 199 2012 Midw ater LLOG n/a n/a n/a - 1 - - - Number of Wells Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 42
  43. 43. Summation of Development Drilling Demand: Base/Infield cont. Note: Project economics run at $70/bbl oil prices. Source: IHS Inc, Guggenheim Securities, LLC Field Year on Stream Water Depth Operator Full Cycle IRR % Dev- Forw ard IRR % CAPEX $MM 2014E 2015E 2016E 2017E 2018E Medusa- Mississippi Canyon 582 & 538 2003 Midw ater Murphy n/a n/a n/a 1 1 1 1 - Neptune- Atw ater Valley 573-575 & 617-618 2008 Deepw ater BHP Billiton n/a n/a n/a - - 1 - - Ozona- Garden Banks 515 2012 Midw ater Marathon Oil n/a n/a n/a - 1 - - - Perdido 2009 Ultradeepw ater Shell 14% 24% 2,524$ 3 3 2 4 1 Phoenix (Phase 2)- Green Canyon 237-236 2010 Midw ater ERT n/a n/a n/a 1 - - - - Pompano 1992 Midw ater Stone Energy 43% 43% 381$ - - - - 1 Pompano II - Mississippi Canyon 028 & 072 1996 Midw ater Stone Energy n/a n/a n/a - 1 - - - Raton (Gemini North)- Mississippi Canyon 248 2008 Midw ater Noble Energy n/a n/a n/a - - 1 - - Shenzi 2007 Midw ater BHP Billiton 42% 61% 1,239$ 2 - 1 - 1 Silvertip (Tobago North)- Alaminos Canyon 815 2011 Ultradeepw ater Shell n/a n/a n/a 1 1 1 1 - South Diana- Alaminos Canyon 065 2004 Midw ater ExxonMobil n/a n/a n/a - 1 - - - Tahiti 2007 Midw ater Chevron 30% 51% 2,536$ - - 1 - - Tahiti- Green Canyon 640-641 & 596 2009 Midw ater Chevron n/a n/a n/a - 2 - - - Thunder Horse 2006 Deepw ater BP 35% 61% 1,857$ 1 1 2 - 1 Thunder Horse- Mississippi Canyon 778 & 822 2008 Deepw ater BP n/a n/a n/a 4 1 1 1 4 Thunder Horse North- Mississippi Canyon 776 2009 Deepw ater BP n/a n/a n/a - 2 - - 1 Tobago- Alaminos Canyon 859 & 815 2011 Ultradeepw ater Shell n/a n/a n/a 1 1 1 1 - Tonga- Green Canyon 727 2012 Midw ater Anadarko n/a n/a n/a 1 - - - - West Tonga- Green Canyon 726 & 770 2013 Midw ater Anadarko n/a n/a n/a 4 - - - - Who Dat- Mississippi Canyon 503-503 & 546-5472011 Midw ater LLOG n/a n/a n/a 3 1 - - - Total 35 35 18 15 13 Number of Wells Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 43
  44. 44. Summation of Development Drilling Demand: New Source FID Note: Project economics run at $70/bbl oil prices.Source: IHS Inc, Guggenheim Securities, LLC Field Year on Stream Status Water Depth Operator Full Cycle IRR % Dev- Forw ard IRR % CAPEX $MM 2014E 2015E 2016E 2017E 2018E Big Bend 2014 FID Deepw ater Noble Energy 22% 27% 228$ 2 1 2 1 1 Big Bend (Rio Grande)- Mississippi Canyon 698 2017 FID Deepw ater Noble Energy n/a n/a n/a - - 2 2 1 Big Foot 2014 FID Deepw ater Chevron 8% 23% 1,444$ 3 3 2 - 2 Caesar/Tonga 2011 FID Midw ater Anadarko 21% 70% 508$ 3 4 1 3 1 Cardamom Deep 2012 FID Midw ater Shell 59% 69% 206$ 2 2 2 - 1 Cardona (Phase 2)- Mississippi Canyon 029 2015 FID Midw ater Stone Energy n/a n/a n/a 2 2 - - - Condor 2009 FID Midw ater Deep Gulf Energy 52% 60% 171$ 1 - - - - Dalmatian 2012 FID Deepw ater Murphy 34% 45% 61$ - 1 - - - Gotcha (Great White West)- Alaminos Canyon 8562016 FID Ultradeepw ater Shell n/a n/a n/a 1 3 2 1 - Gunflint 2014 FID Deepw ater Noble Energy 8% 19% 150$ 3 1 1 1 1 Gunflint- Mississippi Canyon 948 & 992 2017 FID Deepw ater Noble Energy n/a n/a n/a 2 3 2 2 1 Hadrian South 2012 FID Deepw ater ExxonMobil 10% 20% 134$ 1 2 - - - Heidelberg 2014 FID Deepw ater Anadarko 16% 30% 897$ 3 1 4 3 2 Heidelberg- Green Canyon 859-860 & 903-4 2016 FID Deepw ater Anadarko n/a n/a n/a - 3 8 5 - Jack- Walker Ridge 758-759 2019 FID Deepw ater Chevron n/a n/a n/a 4 - - - 4 Jack-St. Malo 2013 FID Deepw ater Chevron 13% 26% 1,811$ 4 3 2 2 2 Julia 2014 FID Deepw ater ExxonMobil 19% 42% 163$ 1 1 1 1 1 Kodiak- Mississippi Canyon 771 2015 FID Midw ater Deep Gulf Energy n/a n/a n/a 1 2 2 1 - Lucius 2012 FID Deepw ater Anadarko 20% 30% 1,315$ 3 3 2 1 2 Marmalard (Delta House)- Mississippi Canyon 3002019 FID Deepw ater LLOG n/a n/a n/a 2 3 1 1 1 Mars B 2013 FID Midw ater Shell 33% 38% 1,087$ 7 5 3 3 2 Pyrenees 2013 FID Midw ater W&T Offshore 13% 13% 83$ 1 - - - 1 Son of Bluto II- Mississippi Canyon 431 2015 FID Deepw ater LLOG n/a n/a n/a 2 2 2 1 - Stampede- Green Canyon 468 & 512 2018 FID Midw ater Hess n/a n/a n/a - - - 14 - Stones 2014 FID Ultradeepw ater Shell 7% 15% 1,210$ 1 1 3 2 1 Tubular Bells 2014 FID Midw ater Hess 14% 44% 344$ 2 2 1 1 1 Tubular Bells- Mississippi Canyon 726-25 & 683 2018 FID Midw ater Hess n/a n/a n/a 1 - - 11 2 West Boreas- Mississippi Canyon 762 2016 FID Midw ater Shell n/a n/a n/a - 1 1 - - Total 52 49 44 56 27 Number of Wells Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 44
  45. 45. Summation of Development Drilling Demand: New Source Non-FID and Totals Source: IHS Inc, Guggenheim Securities, LLC Field Year on Stream Status Water Depth Operator Full Cycle IRR % Dev- Forw ard IRR % CAPEX $MM 2014E 2015E 2016E 2017E 2018E Appomattox 2016 Non-FID Deepw ater Shell 10% 24% 2,915$ - - 3 4 3 Appomattox- Mississippi Canyon 391-392 & 348 2019 Non-FID Deepw ater Shell n/a n/a n/a - - - 4 10 Buckskin 2018 Non-FID Deepw ater Chevron 6% 16% 1,275$ - - - - 3 Conquest- Green Canyon 767 2016 Non-FID Deepw ater Anadarko n/a n/a n/a - 1 - - - Dalmatian South 2014 Non-FID Deepw ater Murphy 15% 19% 154$ 1 1 - 1 1 Devils Island- Garden Banks 344 No 4 2019 Non-FID Midw ater New field Exploration n/a n/a n/a - - - - 2 Hadrian North 2017 Non-FID Ultradeepw ater ExxonMobil 11% 36% 1,959$ - - - 3 2 Holstein Subsea Tiebacks 2014 Non-FID Midw ater Plains E&P 33% 57% 216$ 3 2 2 2 1 Horn Mountain Subsea Tiebacks 2015 Non-FID Deepw ater Plains E&P 26% 47% 309$ 1 3 2 2 1 Kaskida 2018 Non-FID Deepw ater BP 10% 45% 2,254$ - - - - 3 Logan 2018 Non-FID Ultradeepw ater Statoil 11% 25% 727$ - - - - 3 Logan- Walker Ridge 969 & 929 2018 Non-FID Ultradeepw ater Statoil n/a n/a n/a - - - 3 4 Magellan- East Breaks 424 2017 Non-FID Midw ater Apache n/a n/a n/a - - 1 - - Marlin Subsea Tiebacks 2014 Non-FID Midw ater Plains E&P 27% 54% 144$ 3 - 2 1 1 Mission Deep- Green Canyon 955 2019 Non-FID Deepw ater Anadarko n/a n/a n/a - - - - 2 Moccasin 2018 Non-FID Deepw ater Chevron 3% 18% 1,289$ - - - - 3 North Platte- Garden Banks 959 2019 Non-FID Midw ater Cobalt International n/a n/a n/a - - - - 2 Oudinot/Dionysis- Viosca Knoll 864 2015 Non-FID Midw ater W&T Offshore n/a n/a n/a - 1 - - - Phobos- Sigsbee Escarpment 039 2018 Non-FID Ultradeepw ater Anadarko n/a n/a n/a - - - 4 2 Salsa West/Kung Pao- Garden Banks 171 2015 Non-FID Midw ater Hess n/a n/a n/a 1 - - - - Shenandoah 2016 Non-FID Deepw ater Anadarko 23% 35% 2,367$ - - 3 7 7 Southw est Perseus- Visoca Knoll 830 2019 Non-FID Midw ater Chevron n/a n/a n/a - - - - 1 Stampede 2016 Non-FID Midw ater Hess 10% 37% 1,608$ - - 5 3 4 Sturgis- Atw ater Valley 182-183 2019 Non-FID Midw ater Chevron n/a n/a n/a - - - - 3 Thunder Bird- Mississippi Canyon 819 2015 Non-FID Deepw ater Murphy n/a n/a n/a 2 1 - - - Tiger/Brontosaurus- Alaminos Canyon 775-774 2019 Non-FID Ultradeepw ater Chevron n/a n/a n/a - - - - 3 Trident- Alaminos Canyon 903-904 & 947 2018 Non-FID Ultradeepw ater Rocksource n/a n/a n/a - - - 2 2 Venus- Mississippi Canyon 2016 Non-FID Midw ater Shell n/a n/a n/a - 1 1 - - Vicksburg 2016 Non-FID Deepw ater Shell 8% 19% 392$ - - 2 2 - Vito 2016 Non-FID Midw ater Shell 10% 47% 1,061$ - - 4 2 2 Vito- Mississippi Canyon 984 & 940 2019 Non-FID Midw ater Shell n/a n/a n/a - - - 3 10 Who Dat 2012 Non-FID Midw ater LLOG 21% 26% 1,525$ 1 1 1 - - Winter- Garden Banks 605 2016 Non-FID Midw ater New field Exploration n/a n/a n/a - 1 - - - Total 12 12 26 43 75 Number of Wells Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 45
  46. 46. Appendix: Operator Breakdown Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 46
  47. 47. Shell: Estimated Development Demand & Expl./Dev. Contract Coverage Shell‘s Current/Upcoming Development Projects Shell‘s Current/Upcoming Rig Contracts In recent presentations, Shell emphasized the importance of the Mars-B and Cardamom projects, with the former currently preparing for start-up, and the latter expected to start up in the second half of 2014 Source: IHS Inc, Infield Systems, Company Reports, Guggenheim Securities, LLC Shell has no outstanding tenders in the GoM at this time. Rig Name Rig Type Well Name Well Type Contract Start Contract End 2014 Contract Coverage 2015 Contract Coverage 2016 Contract Coverage Atwood Condor UDW Europa- Miss Canyon Blk 934 #A8 Development/Unknown Aug-13 Nov-16 1.0 1.0 0.8 Deepwater Nautilus UDW Gilder- Green Canyon Blk 248 #GL8 Development Aug-12 Aug-17 1.0 1.0 1.0 Noble Bully I UDW West Boreas- Miss Canyon Blk 762>805 #WB1 Exploration/Development Mar-12 Apr-17 1.0 1.0 1.0 Noble Danny Adkins UDW Miss Canyon Blk 812 #1 Exploration Oct-09 Aug-14 0.6 - - Noble Don Taylor UDW Princess- Miss Canyon Blk 809>810 #PI1ST1 Development Aug-13 Feb-19 1.0 1.0 1.0 Noble Globetrotter I UDW DeSoto Canyon Blk 843 #1, Miss Canyon Blk 525 #1 Exploration Apr-12 May-22 1.0 1.0 1.0 Noble Globetrotter II UDW USA Unknown Sep-13 Sep-23 1.0 1.0 1.0 Noble Jim Day UDW Walker Ridge Blk 508 #4 Exploration Jan-13 Jan-16 1.0 1.0 0.0 Noble Jim Thompson DW Cardamom- Garden Banks Blk 427 #DC2, #DC4 Development Mar-11 Dec-14 0.9 - - Stena IceMAX DW Yucatan- Walker Ridge Blk 95>96 #1, #2 Exploration/ Appraisal Apr-12 Jul-17 1.0 1.0 1.0 Dev/Unknown 5.9 5.0 4.8 E&A 3.6 3.0 2.0 Total 9.5 8.0 6.9 Note: company totals for rigs are rounded up Project Water Depth Sanctioned? Year on Stream 2014 Wells 2015 Wells 2016 Wells 2014 Implied Rigs 2015 Implied Rigs 2016 Implied Rigs Deimos- Mississippi Canyon 806 MW Base 2007 1 - - 0 - - Europa- Mississippi Canyon 934-935 & 890 MW Base 2000 1 - - 0 - - Gilder- Green Canyon 248 MW Base 2004 1 - - 0 - - Llano- Garden Banks 385-386 MW Base 2004 1 - - 0 - - Perdido UDW Base 2009 3 3 2 2 2 1 Silvertip (Tobago North)- Alaminos Canyon 815 UDW Base 2011 1 1 1 1 1 1 Tobago- Alaminos Canyon 859 & 815 UDW Base 2011 1 1 1 1 1 1 Cardamom Deep MW FID 2012 2 2 2 1 1 1 Gotcha (Great White West)- Alaminos Canyon 856 UDW FID 2016 1 3 2 1 2 1 Mars B MW FID 2013 7 5 3 2 2 1 Stones UDW FID 2014 1 1 3 1 1 2 West Boreas- Mississippi Canyon 762 MW FID 2016 - 1 1 - 0 0 Appomattox DW Non-FID 2016 - - 2 - - 1 Appomattox- Mississippi Canyon 391-392 & 348 DW Non-FID 2019 - - - - - - Venus- Mississippi Canyon MW Non-FID 2016 - 1 1 - 0 0 Vicksburg DW Non-FID 2016 - - 2 - - 1 Vito MW Non-FID 2016 - - 4 - - 1 Vito- Mississippi Canyon 984 & 940 MW Non-FID 2019 - - - - - - Base 9 5 4 4 3 2 FID 11 12 11 4 5 5 Non-FID - 1 9 - - 3 Total 20 18 24 8 8 10 Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 47
  48. 48. BP: Estimated Development Demand & Expl./Dev. Contract Coverage Source: IHS Inc, Infield Systems, Company Reports, Guggenheim Securities, LLC BP‘s Current/Upcoming Rig Contracts All of the projects listed were highlighted in recent BP presentations. On Thunder Horse, BP plans to have five rigs operating in the field in 2014. BP‘s Current/Upcoming Development Projects BP has no outstanding tenders in the GoM at this time. Rig Name Rig Type Well Name Well Type Contract Start Contract End 2014 Contract Coverage 2015 Contract Coverage 2016 Contract Coverage Development Driller III DW Atlantis- Green Canyon Blk 743>699 #DC322BP2 Development Nov-09 Nov-16 1.0 1.0 0.9 Discoverer Enterprise UDW Thunderhorse- Miss Canyon Blk 777 #TB3 Development Jan-13 Oct-14 0.8 - - ENSCO DS-3 UDW Ariel- Miss Canyon Blk 429- #A5 Development Aug-10 Jun-16 1.0 1.0 0.4 GSF Development Driller II DW Atlantis- Green Canyon Blk 743 # DC121ST1 Development Nov-08 Feb-14 0.1 - - West Auriga UDW Thunderhorse- Miss Canyon Blk 777 #7 Development Apr-13 Aug-20 1.0 1.0 1.0 West Capricorn DW Keathley Canyon Blk 93 #1BP1/Green Canyon Blk 83 Exploration/Development May-12 Aug-17 1.0 1.0 1.0 West Sirius UDW Tiber- Keathley Canyon Blk 57 #1 Appraisal/Exploration Jul-12 Jul-14 0.6 - - West Sirius UDW USA Unknown Jul-14 Jul-19 0.4 1.0 1.0 West Vela UDW Miss Canyon Blk 522 #F3 Exploration/Unknown Dec-13 Dec-20 1.0 1.0 1.0 Dev/Unknown 6.4 6.0 5.3 E&A 0.6 - - Total 7.0 6.0 5.3 Note: company totals for rigs are rounded up Project Water Depth Sanctioned? Year on Stream 2014 Wells 2015 Wells 2016 Wells 2014 Implied Rigs 2015 Implied Rigs 2016 Implied Rigs Atlantis- Green Canyon 698-700 & 742-744 DW Base 2007 4 4 3 2 2 2 Atlantis North DW Base 2010 - 2 - - 1 - Atlantis South DW Base 2005 - 1 - - 1 - Isabela (Galapagos)- Mississippi Canyon 562 DW Base 2012 1 - - 1 - - Mad Dog MW Base 2012 - 5 1 - 2 0 Mad Dog- Green Canyon 782 & 738 MW Base 2005 1 - - 0 - - Thunder Horse DW Base 2006 1 1 2 1 1 1 Thunder Horse- Mississippi Canyon 778 & 822 DW Base 2008 4 1 1 2 1 1 Thunder Horse North- Mississippi Canyon 776 DW Base 2009 - 2 - - 1 - Kaskida DW Non-FID 2018 - - - - - - Base 11 16 7 5 7 3 FID - - - - - - Non-FID - - - - - - Total 11 16 7 5 7 3 Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 48
  49. 49. Anadarko: Estimated Development Demand & Expl./Dev. Contract Coverage Anadarko‘s Current/Upcoming Rig Contracts Caesar/Tonga, Heidelberg, Lucius, and Shenandoah seem to be high priority to Anadarko, as implied by recent presentations. In Caesar/Tonga, the 5th development well is expected to be drilled in 2014. In Heidelberg, the first development well is expected to be drilled in 2014, with first oil expected in mid-2016. Lucius is on track to achieve first oil in 2H14. Source: IHS Inc, Infield Systems, Company Reports, Guggenheim Securities, LLC Anadarko‘s Current/Upcoming Development Projects Anadarko has no outstanding tenders in the GoM at this time. Rig Name Rig Type Well Name Well Type Contract Start Contract End 2014 Contract Coverage 2015 Contract Coverage 2016 Contract Coverage Discoverer Spirit UDW Green Canyon Blk 683 > 727 #SS2BP2/Lloyd Bridge Blk 317 Exploration Aug-12 Jun-14 0.5 - - ENSCO 8500 UDW Nansen- East Breaks Blk 646 #11 Exploration/Unknown Sep-13 Sep-14 0.7 - - ENSCO 8505 UDW Caesar/Tonga- Green Canyon Blk 683 #SS1ST2 Development Jan-14 Feb-14 0.1 - - ENSCO 8506 UDW Nansen- East Breaks Blk 645 #SS1 Exploration/Unknown Jan-13 Jul-15 1.0 0.6 - Noble Bob Douglas UDW USA Unknown Nov-13 Dec-16 1.0 1.0 1.0 Ocean BlackHawk UDW USA Unknown May-14 May-19 0.6 1.0 1.0 Ocean BlackHornet UDW USA Unknown Jul-14 Jul-19 0.4 1.0 1.0 Rowan Resolute UDW USA Unknown Sep-14 Sep-17 0.3 1.0 1.0 Dev/Unknown 4.1 4.6 4.0 E&A 0.5 - - Total 4.6 4.6 4.0 Note: company totals for rigs are rounded up Project Water Depth Sanctioned? Year on Stream 2014 Wells 2015 Wells 2016 Wells 2014 Implied Rigs 2015 Implied Rigs 2016 Implied Rigs Callisto (AVP)- Mississippi Canyon 876 UDW Base 2011 - 1 - - 1 - Tonga- Green Canyon 727 MW Base 2012 1 - - 0 - - West Tonga- Green Canyon 726 & 770 MW Base 2013 4 - - 1 - - Caesar/Tonga MW FID 2011 3 4 1 1 1 0 Heidelberg DW FID 2014 3 1 4 2 1 2 Heidelberg- Green Canyon 859-860 & 903-4 DW FID 2016 - 3 8 - 2 4 Lucius DW FID 2012 3 3 2 2 2 1 Conquest- Green Canyon 767 DW Non-FID 2016 - 1 - - 1 - Mission Deep- Green Canyon 955 DW Non-FID 2019 - - - - - - Phobos- Sigsbee Escarpment 039 UDW Non-FID 2018 - - - - - - Shenandoah DW Non-FID 2016 - - 3 - - 2 Base 5 1 - 2 1 - FID 9 11 15 4 4 7 Non-FID - 1 3 - 1 2 Total 14 13 18 6 6 9 Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 49
  50. 50. Chevron: Estimated Development Demand & Expl./Dev. Contract Coverage Chevron‘s Current/Upcoming Rig Contracts Chevron emphasized the Jack/St. Malo, Big Foot, and Tubular Bells projects recently. Source: IHS Inc, Infield Systems, Company Reports, Guggenheim Securities, LLC Chevron‘s Current/Upcoming Development Projects Chevron has no outstanding tenders in the GoM at this time. Rig Name Rig Type Well Name Well Type Contract Start Contract End 2014 Contract Coverage 2015 Contract Coverage 2016 Contract Coverage Deepwater Conqueror UDW USA Unknown Dec-16 Dec-21 - - 0.0 Discoverer Clear Leader UDW Buckskin- Keathley Canyon Blk 829 #1BP3 Exploration/Unknown Jul-09 Aug-18 1.0 1.0 1.0 Discoverer India UDW Coronado- Walker Ridge Blk 143 #3 Exploration/Appraisal Jul-13 Sep-16 1.0 1.0 0.7 Discoverer Inspiration UDW Tahiti- Green Canyon Blk 640 #IS4 Exploration/Unknown Mar-10 Mar-20 1.0 1.0 1.0 Pacific Santa Ana UDW Garden Banks Blk 973 #1 Exploration/Unknown Mar-12 Apr-17 1.0 1.0 1.0 Pacific Sharav UDW USA Unknown Jul-14 Jun-19 0.5 1.0 1.0 Dev/Unknown 3.5 4.0 4.0 E&A 1.0 1.0 0.7 Total 4.5 5.0 4.8 Note: company totals for rigs are rounded up Project Water Depth Sanctioned? Year on Stream 2014 Wells 2015 Wells 2016 Wells 2014 Implied Rigs 2015 Implied Rigs 2016 Implied Rigs Tahiti MW Base 2007 - - 1 - - 0 Tahiti- Green Canyon 640-641 & 596 MW Base 2009 - 2 - - 1 - Big Foot DW FID 2014 3 3 2 2 2 1 Jack- Walker Ridge 758-759 DW FID 2019 4 - - 2 - - Jack-St. Malo DW FID 2013 4 3 2 2 2 1 Buckskin DW Non-FID 2018 - - - - - - Moccasin DW Non-FID 2018 - - - - - - Southwest Perseus- Visoca Knoll 830 MW Non-FID 2019 - - - - - - Sturgis- Atwater Valley 182-183 MW Non-FID 2019 - - - - - - Tiger/Brontosaurus- Alaminos Canyon 775-774 UDW Non-FID 2019 - - - - - - Base - 2 1 - 1 1 FID 11 6 4 6 3 1 Non-FID - - - - - - Total 11 8 5 6 4 2 Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 50
  51. 51. BHP: Estimated Development Demand & Expl./Dev. Contract Coverage BHP‘s Current/Upcoming Rig Contracts BHP is planning two new infill wells in Shenzi in 2014, according to a recent presentation. Neptune was highlighted as well. Source: IHS Inc, Infield Systems, Company Reports, Guggenheim Securities, LLC BHP‘s Current/Upcoming Development Projects BHP has no outstanding tenders in the GoM at this time. Rig Name Rig Type Well Name Well Type Contract Start Contract End 2014 Contract Coverage 2015 Contract Coverage 2016 Contract Coverage Deepwater Invictus UDW USA Unknown Jun-14 Mar-17 0.6 1.0 1.0 GSF C.R. Luigs UDW Shenzi- Green Canyon Blk 653 #SB103 Development Sep-09 Apr-14 0.2 - - GSF Development Driller I DW Neptune- Atwater Valley Blk 575 #SD1 Exploration Oct-12 Feb-14 0.2 - - Dev/Unknown 0.8 1.0 1.0 E&A 0.2 - - Total 1.0 1.0 1.0 Note: company totals for rigs are rounded up Project Water Depth Sanctioned? Year on Stream 2014 Wells 2015 Wells 2016 Wells 2014 Implied Rigs 2015 Implied Rigs 2016 Implied Rigs Genghis Khan- Green Canyon 652 MW Base 2007 - 1 - - 0 - Neptune- Atwater Valley 573-575 & 617-618 DW Base 2008 - - 1 - - 1 Shenzi MW Base 2007 2 - 1 1 - 0 Base 2 1 2 1 - 1 FID - - - - - - Non-FID - - - - - - Total 2 1 2 1 0 1 Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 51
  52. 52. Noble Energy: Estimated Development Demand & Expl./Dev. Contract Coverage Noble Energy‘s Current/Upcoming Rig Contracts Big Bend and Gunflint, both FID, were highlighted in Noble‘s recent investor presentations, with the former expecting first oil in late 2015. Source: IHS Inc, Infield Systems, Company Reports, Guggenheim Securities, LLC Noble Energy‘s Current/Upcoming Development Projects Noble Energy has no outstanding tenders in the GoM at this time. Project Water Depth Sanctioned? Year on Stream 2014 Wells 2015 Wells 2016 Wells 2014 Implied Rigs 2015 Implied Rigs 2016 Implied Rigs Raton (Gemini North)- Mississippi Canyon 248 MW Base 2008 - - 1 - - 0 Big Bend DW FID 2014 2 1 2 1 1 1 Big Bend (Rio Grande)- Mississippi Canyon 698 DW FID 2017 - - 2 - - 1 Gunflint DW FID 2014 3 1 1 2 1 1 Gunflint- Mississippi Canyon 948 & 992 DW FID 2017 2 3 2 1 2 1 Base - - 1 - - - FID 7 5 7 4 3 4 Non-FID - - - - - - Total 7 5 8 4 3 4 Rig Name Rig Type Well Name Well Type Contract Start Contract End 2014 Contract Coverage 2015 Contract Coverage 2016 Contract Coverage Atwood Advantage UDW Europa- Miss Canyon Blk 934 Development/Unknown Dec-13 Mar-17 1.0 1.0 1.0 ENSCO 8501 UDW West Boreas- Miss Canyon Blk 762>805 #WB1 Exploration Aug-13 Aug-14 0.6 - - ENSCO 8505 UDW Miss Canyon Blk 812 #1 Unknown Feb-14 Jul-14 0.6 - - Dev/Unknown 1.6 1.0 1.0 E&A 0.6 - - Total 2.1 1.0 1.0 Note: company totals for rigs are rounded up Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 52
  53. 53. Stone Energy: Estimated Development Demand & Expl./Dev. Contract Coverage Stone Energy‘s Current/Upcoming Rig Contracts Pompano and Cardona appeared as major projects in Stone‘s recent presentations, with the former expected to reach first production in 1Q15. Source: IHS Inc, Infield Systems, Company Reports, Guggenheim Securities, LLC Stone Energy‘s Current/Upcoming Development Projects Stone Energy has no outstanding tenders in the GoM at this time. Project Water Depth Sanctioned? Year on Stream 2014 Wells 2015 Wells 2016 Wells 2014 Implied Rigs 2015 Implied Rigs 2016 Implied Rigs Pompano MW Base 1992 - - - - - - Pompano II - Mississippi Canyon 028 & 072 MW Base 1996 - 1 - - 0 - Cardona (Phase 2)- Mississippi Canyon 029 MW FID 2015 2 2 - 1 1 - Base - 1 - - - - FID 2 2 - 1 1 - Non-FID - - - - - - Total 2 3 - 1 1 - Rig Name Rig Type Well Name Well Type Contract Start Contract End 2014 Contract Coverage 2015 Contract Coverage 2016 Contract Coverage ENSCO 8502 UDW Cardona- Miss Canyon Blk 29 #4 Development Jan-14 Jul-14 0.6 - - Ocean Victory DW Miss Canyon Blk 26 #1 Exploration Nov-13 Feb-14 0.1 - - Dev/Unknown 0.6 - - E&A 0.1 - - Total 0.7 - - Note: company totals for rigs are rounded up Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 53
  54. 54. Apache: Estimated Development Demand & Expl./Dev. Contract Coverage Apache‘s Current/Upcoming Rig Contracts Source: IHS Inc, Infield Systems, Company Reports, Guggenheim Securities, LLC Apache‘s Current/Upcoming Development Projects Apache has no outstanding tenders in the GoM at this time. Project Water Depth Sanctioned? Year on Stream 2014 Wells 2015 Wells 2016 Wells 2014 Implied Rigs 2015 Implied Rigs 2016 Implied Rigs Magellan- East Breaks 424 MW Non-FID 2017 - - 1 - - 1 Base - - - - - - FID - - - - - - Non-FID - - 1 - - 1 Total - - 1 - - 1 Rig Name Rig Type Well Name Well Type Contract Start Contract End 2014 Contract Coverage 2015 Contract Coverage 2016 Contract Coverage ENSCO 8505 UDW Miss Canyon Blk 983 #1 Exploration Sep-13 Jan-14 0.0 - - Ocean Onyx DW East Breaks Blk 424/Garden Banks Blk 169 > 213 #1 Unknown Jan-14 Jan-15 1.0 0.0 - Dev/Unknown 1.0 0.0 - E&A 0.0 - - Total 1.0 0.0 - Note: company totals for rigs are rounded up Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 54
  55. 55. Cobalt: Estimated Development Demand & Expl./Dev. Contract Coverage Cobalt‘s Current/Upcoming Rig Contracts In North Platte (60% Cobalt ownership), processing of appraisal/exploration permitting is under way. Source: IHS Inc, Infield Systems, Company Reports, Guggenheim Securities, LLC Cobalt‘s Current/Upcoming Development Projects Cobalt has no outstanding tenders in the GoM at this time. Project Water Depth Sanctioned? Year on Stream 2014 Wells 2015 Wells 2016 Wells 2014 Implied Rigs 2015 Implied Rigs 2016 Implied Rigs North Platte- Garden Banks 959 MW Non-FID 2019 - - - - - - Rig Name Rig Type Well Name Well Type Contract Start Contract End 2014 Contract Coverage 2015 Contract Coverage 2016 Contract Coverage ENSCO 8503 UDW Keathley Canyon Blk 163 #1 Exploration/Unknown Dec-11 Apr-14 0.2 - - Rowan Reliance UDW North Platte- Garden Banks Blk 959 Exploration/Appraisal Jan-15 Jan-18 - 0.9 1.0 Dev/Unknown 0.2 - - E&A - 0.9 1.0 Total 0.2 0.9 1.0 Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 55
  56. 56. Eni: Estimated Development Demand & Expl./Dev. Contract Coverage Eni‘s Current/Upcoming Rig Contracts Source: IHS Inc, Infield Systems, Company Reports, Guggenheim Securities, LLC Eni has submitted a tender for a floater in Walker Ridge Block 719 for exploration work; IHS currently considers the demand ―probable‖ Eni‘s Current/Upcoming Development Projects Project Water Depth Sanctioned? Year on Stream 2014 Wells 2015 Wells 2016 Wells 2014 Implied Rigs 2015 Implied Rigs 2016 Implied Rigs Appaloosa- Mississippi Canyon 460-459 MW Base 2011 - 1 - - 1 - Base - 1 - - 1 - FID - - - - - - Non-FID - - - - - - Total - 1 - - 1 - Rig Name Rig Type Well Name Well Type Contract Start Contract End 2014 Contract Coverage 2015 Contract Coverage 2016 Contract Coverage Deepwater Pathfinder UDW King Kong- Green Canyon Blk 473/Longhorn- Miss Canyon Blk 546 Exploration/Unknown Mar-10 Apr-15 1.0 0.3 - Note: company totals for rigs are rounded up Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 56
  57. 57. ExxonMobil: Estimated Development Demand & Expl./Dev. Contract Coverage ExxonMobil‘s Current/Upcoming Rig Contracts Exxon emphasized the importance of the Hadrian South and Julia projects at its recent analyst day. Source: IHS Inc, Infield Systems, Company Reports, Guggenheim Securities, LLC ExxonMobil‘s Current/Upcoming Development Projects ExxonMobil has no outstanding tenders in the GoM at this time. Project Water Depth Sanctioned? Year on Stream 2014 Wells 2015 Wells 2016 Wells 2014 Implied Rigs 2015 Implied Rigs 2016 Implied Rigs Hadrian South- Keathley Canyon 964 DW Base 2013 1 2 - 1 1 - South Diana- Alaminos Canyon 065 MW Base 2004 - 1 - - 0 - Hadrian South DW FID 2012 1 2 - 1 1 - Julia DW FID 2014 1 1 1 1 1 1 Base 1 3 - 1 1 - FID 2 3 1 1 2 1 Non-FID - - - - - - Total 3 6 1 2 3 1 Rig Name Rig Type Well Name Well Type Contract Start Contract End 2014 Contract Coverage 2015 Contract Coverage 2016 Contract Coverage Deepwater Champion UDW Hadrian South- Keathley Canyon Blk 964 #3/Julia-Walker Ridge Development May-11 Nov-15 1.0 0.8 - Maersk Viking UDW USA Exploration/Unknown Feb-14 May-17 0.9 1.0 1.0 Dev/Unknown 1.9 1.8 1.0 E&A - - - Total 1.9 1.8 1.0 Note: company totals for rigs are rounded up Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 57
  58. 58. Hess: Estimated Development Demand & Expl./Dev. Contract Coverage Hess‘s Current/Upcoming Rig Contracts Hess expects to have a sanction decision on Stampede in the second half of 2014; Tubular Bells is a very high priority asset, according to recent presentations. If Stampede does reach FID, it could provide meaningful upside to Hess‘s rig demand. In addition to the above contract, Hess has submitted two tenders, one for 3Q15 (exploration), with a max duration of 0.6 rig years, in Green Canyon Block 287, and one for 1Q16 (development), with a max duration of 4 rig years, in Green Canyon Blocks 468 and 512 (Stampede). These indications of interest are marked ―probable‖ by IHS. Source: IHS Inc, Infield Systems, Company Reports, Guggenheim Securities, LLC Hess‘ s Current/Upcoming Development Projects Rig Name Rig Type Well Name Well Type Contract Start Contract End 2014 Contract Coverage 2015 Contract Coverage 2016 Contract Coverage Stena Forth DW Tubular Bells- Miss Canyon Blk 725>724 #1ST1BP1 Development/Unknown Feb-12 Nov-14 0.9 - - Dev/Unknown 0.9 - - E&A - - - Total 0.9 - - Note: company totals for rigs are rounded up Project Water Depth Sanctioned? Year on Stream 2014 Wells 2015 Wells 2016 Wells 2014 Implied Rigs 2015 Implied Rigs 2016 Implied Rigs Stampede- Green Canyon 468 & 512 MW FID 2018 - - - - - - Tubular Bells MW FID 2014 2 2 1 1 1 0 Tubular Bells- Mississippi Canyon 726-25 & 683 MW FID 2018 1 - - 0 - - Salsa West/Kung Pao- Garden Banks 171 MW Non-FID 2015 - - - - - - Stampede MW Non-FID 2016 - - 5 - - 2 Base - - - - - - FID 3 2 1 1 1 - Non-FID - - 5 - - 2 Total 3 2 6 1 1 2 Guggenheim Securities, LLC | 212.293.3054 | guggenheimsecurities.com Oilfield Services, Offshore Contract Drillers, & Capital Equipment PAGE 58

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