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Breaking Down BP's New BOP Standards

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Breaking Down BP's New BOP Standards

  1. 1. EQUITY RESEARCH 22 July 2011U.S. OIL SERVICES & DRILLING INDUSTRY UPDATE U.S. Oil Services & DrillingBreaking Down BP’s New BOP Standards 1-POSITIVE UnchangedBP Announces Strengthened Safety Rules: Last week BP unveiled a set of new safetyrequirements that include heightened blowout preventer (BOP) standards, third-party BOP U.S. Oil Services & Drillingverification, required laboratory testing of cement slurries for primary cementing of casing, James C. West 1.212.526.8796and enhanced measures for responding to oil spills for its Gulf of Mexico operations. james.west1@barcap.comBOP Standards Increased: The key takeaway for the offshore drillers is the heightened BCI, New YorkBOP standards that we believe may call for 6-ram BOPs for dynamically positioned (DP) Zachary Sadowdeepwater units and 5-ram BOPs for moored units in the Gulf of Mexico. BP will now 1.212.526.7930require DP deepwater rigs to have at least two blind shear rams and a casing shear ram zachary.sadow@barcap.comand moored units to have two blind shear rams or a blind shear ram and a casing shear BCI, New Yorkram. This is in addition to the three pipe rams already in place. We believe there issome scope to substitute pipe rams and still be compliant; however, this process would Anthony Walkerlead to a few weeks of downtime. 1.312.609.8183 anthony.walker@barcap.comExpect Others to Follow Suit: We expect other operators to follow BP’s lead in an effort BCI, New Yorkto be proactive in the current post-Macondo, zero-tolerance safety environment. Wealso expect safety standards in the Gulf of Mexico will eventually be adoptedinternationally or become global best practices for the Major oils.Roughly 61% of Global DP Rigs have 6-ram BOPs; Only 8% of Worldwide MooredUnits have 5-ram BOPs: Of the 202 DP floaters in the worldwide fleet (includingnewbuilds), roughly 61% have 6-ram BOPs. There are currently 20 DP floaters in theUS GOM, 16 of which have 6-ram BOPs. The majority of established offshore drillershave 6-ram BOPs on slightly over 65% of their fleets, including Ensco, Seadrill, Nobleand Diamond Offshore Drilling. Transocean lags its peers in this metric with 6-ramBOPs on only 44% of its DP rigs, according to ODS-Petrodata. There are 144 mooredfloaters in the worldwide fleet, only 12 of which (8%) have 5-ram BOPs or more (fulldetails inside report).Upgrades Possible but Expensive and Downtime Significant: We believe adding anadditional ram cavity on a BOP costs roughly $9 million, while new 6- and 7-ram stackscost roughly $26 million and $30 million, respectively (close to $60 million includingrisers, manifolds and diverters). Also, adding a new cavity takes more than a year.BOEMRE Will Likely Issue New Rules Soon: Michael Bromwich, Director of theBOEMRE, indicated recently that the BOEMRE would likely issue new all-encompassingsafety regulations soon that would also heighten technical requirements on BOPs. Weexpect the BOEMRE BOP standards to be of a similar nature to BP’s.CAM and NOV are Likely Biggest Beneficiaries: We believe Cameron International andNational Oilwell Varco stand to benefit from increased safety standards as the majorproviders of new BOPs, BOP upgrades, and BOP aftermarket services. For the drillers,we believe the BOP uncertainty argues for selective investments in the group, and inprimarily high-spec companies like SDRL, ESV and RDC.Barclays Capital does and seeks to do business with companies covered in its research reports. As aresult, investors should be aware that the firm may have a conflict of interest that could affect theobjectivity of this report.Investors should consider this report as only a single factor in making their investment decision.PLEASE SEE ANALYST(S) CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 16.
  2. 2. Barclays Capital | U.S. Oil Services & DrillingCONTENTS BP Heightens Safety Standards............................................................................................................... 3 BOP Standards Increased ......................................................................................................................... 3 Other Oil Companies to Follow Suit....................................................................................................... 4 Only 39% of Global Units Are Compliant with BP’s New Standards .............................................. 4 Roughly 61% of Global DP Units Have 6-ram BOPs .................................................................... 4 Only 8% of Worldwide Moored Units Have 5-ram BOPs............................................................ 5 BOP Related Downtime Already Becoming a Problem...................................................................... 6 BOEMRE Will Likely Issue New Rules Soon .......................................................................................... 6 CAM, NOV Are Likely Biggest Beneficiaries.......................................................................................... 6 Glossary of Terms ....................................................................................................................................10FIGURES Figure 1: BOP Breakdown on Worldwide Floater Fleet ...................................................................... 4 Figure 2: BOP Breakdown on Dynamically Positioned Floaters....................................................... 5 Figure 3: BOP Breakdown on Moored Floaters ................................................................................... 5 Figure 4: 2010 BOP Market Share .......................................................................................................... 7 Figure 5: Blowout Preventer (BOP) ........................................................................................................ 7 Figure 6: Blowout Preventer (BOP) Ram Stack.................................................................................... 8 Figure 7: Blind Shear Ram ........................................................................................................................ 8 Figure 8: Casing Shear Ram ..................................................................................................................... 9 Figure 9: Cameron: Annual Income Statement ($ in Millions).......................................................11 Figure 10: National Oilwell Varco: Annual Income Statement ($ in Millions) ............................12 Figure 11: Ensco: Annual Income Statement ($ in Millions) ..........................................................13 Figure 12: Seadrill: Annual Income Statement ($ in Millions)........................................................14 Figure 13: Rowan Companies: Annual Income Statement ($ in Millions) ..................................1522 July 2011 2
  3. 3. Barclays Capital | U.S. Oil Services & Drilling BP Heightens Safety Standards Last week BP unveiled a set of new safety requirements that include heightened blowout preventer (BOP) standards, third party BOP verification, required laboratory testing of cement slurries for primary cementing of casing and enhanced measures for responding to oil spills for its Gulf of Mexico operations. ! Heightened BOP Standards: BP will require contractors to use BOPs with no fewer than two blind shear rams and a casing shear ram on all deepwater dynamically positioned (DP) rigs. Deepwater moored rigs using subsea BOPs will be required to have two shear rams, which must include at least one blind shear ram and either an additional blind shear ram or a casing shear ram. ! Third Party Verification: Each time a subsea BOP rig is brought to the surface for testing and maintenance, BP will require that a third party verify that the testing and maintenance of the BOP were performed in accordance with the manufacturer’s recommendations and industry recommended practice. ! Lab Testing of Cement Slurries: BP will require that lab testing of cement slurries for primary cementing of casing and exposed hydrocarbon-bearing zones for deepwater wells be conducted or witnessed by a BP engineer “competent to evaluate such laboratory testing”, or a competent third party independent of the cement provider. BP will then provide the lab results to the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE). ! Enhanced Response Measures for Spills: BP’s Oil Spill Response Plan (OSRP) will include information about enhanced measures for responding to a spill in open water, near-shore response and shoreline spill response based on lessons learned from the Deepwater Horizon oil spill. BOP Standards Increased The key takeaway from BP’s safety update for the offshore drillers is the heightened BOP standards that we believe may call for 6-ram BOPs for DP deepwater units and 5-ram BOPs for moored units in the Gulf of Mexico (the Deepwater Horizon was a DP rig with a 5-ram BOP). The company will now require DP deepwater rigs to have at least two blind shear rams and a casing shear ram. This is in addition to the typical three pipe rams already in place. In the subsequent investigation of the Macondo blowout, Det Norske Veritas’s forensic testing found that the blind shear ram failed to close and seal the well, primarily because a portion of the drill pipe was trapped between the blocks. We believe BP is attempting to address such a scenario by adding a redundant blind shear ram, often the last defense for the fail-safe device. We note there could be scope for contractors to utilize 5-ram and 4-ram BOPs for DP and moored units, respectively, and still be compliant with BP’s standards as pipe rams in the BOP stack could be switched out for one another as needed; however, this process would lead to a few weeks of downtime. For moored rigs, BP will now require either two blind shear rams or a blind shear ram and a casing shear ram. We think these new requirements essentially require 5-ram BOPs. We believe 4-ram BOPs could also be compliant with pipe ram switches; however, the switching of pipe rams for these units would also likely lead to two to three weeks of downtime.22 July 2011 3
  4. 4. Barclays Capital | U.S. Oil Services & Drilling In addition to the associated downtime, we believe switching rams is an undesirable option for operators for two reasons: 1) pulling equipment up from the seafloor during the drilling process presents additional risks in regards to safety and 2) storing additional rams onboard reduces variable deck load storage space and could prevent rigs from working for certain operators. Operators may also be dissuaded to upgrade or replace 4-ram or 5-ram BOPs on older units due to the associated costs and downtime. As an alternative to the unattractive option of switching rams on DP rigs that have 5-ram BOPs and moored units that have 4-rams, contractors are faced with the time consuming and expensive option of upgrades. Adding a cavity on 4-ram, 5-ram or 6-ram BOPs costs roughly $9 million per cavity, while new 6-and 7-ram stacks cost roughly $26 million and $30 million, respectively (close to $60 million including risers, manifolds and diverters). Adding a new cavity takes over a year, according to industry sources. This is due not only to the size and complexity of the BOP itself, but the requisite changes to the rig to accommodate the larger BOP. Furthermore, we believe backlog constraints are exacerbating equipment delivery times. We believe the offshore drillers are scrambling to interpret BP’s requirements and to determine how their fleets stack up. Some contractors have taken a proactive approach and began ordering additional rams following the Macondo oil-spill, like Noble. Other Oil Companies to Follow Suit We expect other operators to follow BP’s lead and adjust safety standards in an effort to be proactive in the current post-Macondo, zero-tolerance safety environment. We also expect safety standards in the Gulf of Mexico will eventually be adopted internationally or become global best practices for the Major oils. We believe other regional regulatory bodies could follow the BOEMRE and impose heightened safety requirements as well. Only 39% of Global Units Are Compliant with BP’s New Standards Of the 346 floaters in the worldwide fleet (including newbuilds under construction), only 39% are compliant with BP’s new BOP standards, according to ODS-Petrodata. Furthermore, only half of the 34 floaters in the US GOM have the necessary rams to work for BP.Figure 1: BOP Breakdown on Worldwide Floater Fleet Compliant with % Compliant with Total New BP Standards New BP Standards Worldwide Floaters 346 135 39% GOM Floaters 34 17 50%Source: ODS-Petrodata, Company reports, Barclays Capital Research Roughly 61% of Global DP Units Have 6-ram BOPs Of the 202 DP floaters in the worldwide fleet (including newbuilds under construction), roughly 61% have at least 6-ram BOPs. There are currently 20 DP floaters in the US GOM, 16 of which have 6-ram BOPs or more. The majority of established offshore drillers have 6- ram BOPs on slightly over 65% of their fleets including Diamond, Ensco, Noble and Seadrill. Transocean lags its peers in this metric with 6-ram BOPs on only 44% of its DP rigs.22 July 2011 4
  5. 5. Barclays Capital | U.S. Oil Services & DrillingFigure 2: BOP Breakdown on Dynamically Positioned Floaters % Compliant with Total With 6 or More Rams New BP Standards Worldwide DP Floaters 202 123 61% GOM DP Floaters 20 16 80% Total Floaters with 6 Ram % Compliant with Company DP Floaters BOPs or More New BP Standards Diamond 9 6 66.7% Transocean 34 15 44.1% Noble 15 10 66.7% Ensco 20 13 65.0% Seadrill 18 12 66.7% Rowan 2 2 100.0%Source: ODS-Petrodata, Company reports, Barclays Capital Research Only 8% of Worldwide Moored Units Have 5-ram BOPs There are 144 moored floaters in the worldwide fleet, only 12 of which (8%) have 5-ram BOPs or more. In the Gulf of Mexico, there are 14 moored units, only one of which (Transocean’s Deepwater Nautilus) has a 5-ram BOP. The vast majority of rigs belonging to the established contract drillers have less than 5-ram BOPs, as shown in figure 3. We believe the decision between upgrading to larger BOPs and suffering incremental downtime from switching rams will make these rigs less competitive and could speed-up the retirement process for many older moored floaters.Figure 3: BOP Breakdown on Moored Floaters % Compliant with Total With 5 or More Rams New BP Standards Worldwide Moored Floaters 144 12 8% GOM Moored Floaters 14 1 7% Total Floaters with 5 Ram % Compliant with Company - Moored Moored Floaters BOPs or More New BP Standards Diamond 27 1 3.7% Transocean 39 2 5.1% Noble 12 1 8.3% Ensco 7 1 14.3% Seadrill 1 0 0.0%Source: ODS-Petrodata, Company reports, Barclays Capital Research22 July 2011 5
  6. 6. Barclays Capital | U.S. Oil Services & Drilling BOP Related Downtime Already Becoming a Problem We view the introduction of additional safety standards as incrementally negative for offshore drillers with older fleets, such as Diamond and Transocean. Channel checks indicate that operators are already asking contractors to double check BOPs at any indication something might be wrong. Each time an operator requests an inspection this causes at least one week of downtime for the rig. We expect this trend will persist and lead to greater-than-expected downtime for all of the offshore drillers in the near-term. BOEMRE Will Likely Issue New Rules Soon Michael Bromwich, Director of the BOEMRE, indicated during a speech in New Orleans last week that the BOEMRE would likely issue new all-encompassing safety regulations soon that would also heighten technical requirements on BOPs. We expect the BOEMRE BOP standards to be of a similar nature to BP’s. The BOEMRE has a July 27th deadline to release its internal report on the Macondo oil spill. The new set of rules will likely correspond to the findings in the report and we anticipate both to be of a detailed nature. We expect the new regulations will lead to equipment retrofits, spill procedure clarifications and other safety- oriented changes; however, we do not anticipate the regulations to stifle activity - on the contrary, we expect operators will be encouraged by the additional clarity. Permitting activity may actually improve following the release of the report. CAM, NOV Are Likely Biggest Beneficiaries As we see it, the biggest beneficiaries of this increased BOP scrutiny and upgrade cycle to meet new standards are the capital equipment companies, especially the leading BOP providers – Cameron International (CAM) and National Oilwell Varco (NOV), which collectively represented almost three quarters of the BOP market share in 2010. We continue to prefer the high specification drillers over those companies with older assets. Our favorite offshore driller remains Ensco. Seadrill and Rowan should also be beneficiaries of the continued move towards high-spec fleets as Seadrill has one of the youngest and most capable fleets in the industry and Rowan is primarily a pure play on premium shallow water assets.22 July 2011 6
  7. 7. Barclays Capital | U.S. Oil Services & Drilling Figure 4: 2010 BOP Market Share National Oilwell Varco 27% Cameron 46% General Electric Other (Hydril) 4% 23% Source: ODS-Petrodata Figure 5: Blowout Preventer (BOP) Source: Used with permission of Transocean; use in no way constitutes an endorsement of the content or conclusions of this report.22 July 2011 7
  8. 8. Barclays Capital | U.S. Oil Services & Drilling Figure 6: Blowout Preventer (BOP) Ram Stack Source: Used with permission of Transocean; use in no way constitutes an endorsement of the content or conclusions of this report. Figure 7: Blind Shear Ram Source: Used with permission of Transocean; use in no way constitutes an endorsement of the content or conclusions of this report.22 July 2011 8
  9. 9. Barclays Capital | U.S. Oil Services & Drilling Figure 8: Casing Shear Ram Source: Used with permission of Transocean; use in no way constitutes an endorsement of the content or conclusions of this report.22 July 2011 9
  10. 10. Barclays Capital | U.S. Oil Services & DrillingGlossary of TermsAnnular BOPs: Annular preventers are designed to seal around pieces of equipment inside the wellbore. A large doughnut-shaped piece of rubber is used as the sealing element, and is mechanically squeezed inward to seal around the equipment (e.g.drill pipe, casing, etc.). An annular preventers ability to seal around equipment of various sizes is one of its main advantages,though it is not as reliable in sealing the entire hole as a ram preventer. Annular preventers typically have a lower operatingpressure than ram preventers.Annulus: Latin for “little ring”, an annulus in an oil well is the cylindrical space between the wellbore and casing or casing andpiping, where fluids can flow.Blind Ram: A blind ram consists of two blocks of steel that meet in the center of the wellbore to seal off the well (like a slidinggate). Unlike a pipe ram, there is no space for pipe and therefore it is used for wells that do not contain a drill string.Blind Shear Ram: A combination of ram types, a blind shear ram is capable of both cutting the drill string as well assimultaneously sealing the well. In the subsequent investigation of the Macondo blowout, Det Norske Veritas found that the blindshear ram failed to close and seal the well, primarily because a portion of the drill pipe was trapped between the blocks.Blowout: an uncontrolled release of oil or natural gas from a well.Blowout Preventer: A blowout preventer (BOP) is a large piece of equipment installed at the ground level and designed to act likea fail-safe device that prevents oil and/or natural gas from escaping uncontrollably out of the ground. During the drilling process,drilling fluids are pumped into the wellbore to keep hydrocarbons underground. If the well experiences unexpectedly highpressure, these combustible hydrocarbons could force these fluids up and out of the wellbore and escape, potentially leading to ablowout. The various types of BOPs are each designed to help drillers address different situations and regain control of the well.BOPs are massive pieces of equipment, capable of handling enormous amounts of pressure. For example, the BOP by theDeepwater Horizon rig at Macondo was 54 feet tall and weighed 450 tons. Camerons EVO™ BOP is capable of holding pressuresof up to 25,000 psi (pound-force per square inch). There are two types of BOPs, annular and ram preventers.BOP Stack: Two or more BOPs are often used in combination (in a stack formation) to ensure pressure control of a well. In atypical BOP stack configuration, annular preventers are at the top and ram preventers are placed on the bottom. Theconfiguration is designed to maximize pressure integrity and safety in the event of a well control incident. As a BOP is designed tobe a fail-safe device, there are often multiple ram preventers in one stack for redundancy. Multiple rams are also often required toaccommodate the different diameter drill pipes used at various drill depths.Drill String: A drill string is a column of pipe that allows drilling fluid to be pumped down to the drill bit and circulated back upthrough the annulus.Pipe Ram: A pipe ram preventer is designed with a half-circle hold on the edge of each ram that fits around a drill pipe, restrictingflow in the annulus (see above). One key downside to pipe rams is that they are only able to fit around a small set of drill pipesizes. However, the variable bore ram is a new style of ram that has been developed to be used on a wider set of pipe sizes byutilizing rubber inserts to adjust its diameter.Ram BOPs: Ram preventers are devices used to quickly seal the top of a well in the event of a potential blowout. Two heavy steelplates act like a gate in closing off fluid movement in the well. These plates are traditionally operated by hydraulic force, eitherfrom pressurized hydraulic oil supplied from the rig or, in the case of deeper waters, from accumulators which store the hydraulicoil with the BOP. There are three main classifications of ram preventers: pipe, blind and shear. However, some products combinemultiple types into one ram (e.g. blind shear ram, these are referred to as “combi-BOPs”).Shear Ram: A shear ram utilizes two steel blades designed to cut (or shear) the drill pipe when the well is closed. This type of ramis used as a last resort to regain pressure control of a well that is flowing. While the joint of drill pipe that has been cut isdestroyed in the process, the rest of the drill string is unharmed.Source: Schlumberger, ODS-Petrodata, Barclays Capital22 July 2011 10
  11. 11. Barclays Capital | U.S. Oil Services & DrillingFigure 9: Cameron: Annual Income Statement ($ in Millions) 1998A 1999A 2000A 2001A 2002A 2003A 2004A 2005A 2006A 2007A 2008A 2009A 2010A 2011E 2012E 2013ERevenues Drilling & Production Systems $1,021.1 $811.2 $836.1 $898.3 $918.7 $1,018.5 $1,402.7 $1,507.6 $2,113.1 $2,887.1 $3,736.8 $3,406.0 $4,087.6 $3,865.7 $4,440.0 $4,992.6 Valves & Measurement 309.1 231.7 218.7 292.3 273.5 307.0 350.2 625.2 1,177.9 1,273.6 1,473.2 1,194.7 1,273.2 1,524.9 1,655.0 1,861.9 Process & Compression Systems 551.9 421.7 326.0 373.0 345.8 308.8 339.9 384.9 452.0 505.6 638.9 622.5 838.0 1,295.7 1,433.0 1,576.3Total Revenue $1,882.1 $1,464.6 $1,380.8 $1,563.6 $1,538.0 $1,634.3 $2,092.8 $2,517.7 $3,743.0 $4,666.3 $5,848.9 $5,223.2 $6,198.8 $6,686.3 $7,528.0 $8,430.7EBITDA Drilling & Production Systems $215.0 $139.3 $148.8 $172.7 $128.5 $120.7 $170.2 $222.6 $417.7 $554.7 $710.4 $721.8 $811.3 $791.4 $1,035.8 $1,199.6 Valves & Measurement 60.9 33.4 37.0 52.5 47.4 46.4 50.1 118.4 215.4 297.9 333.6 247.4 230.3 281.4 327.8 389.1 Process & Compression Systems 57.3 32.7 43.8 40.5 36.5 30.4 41.4 42.0 60.9 90.2 117.2 107.2 135.1 194.7 253.1 292.9 Corporate and Other (10.4) (12.4) (15.0) (14.2) (16.8) (19.0) (33.1) (42.7) (81.4) (96.4) (108.4) (108.8) (118.5) (125.9) (132.3) (137.6)Total EB ITDA $322.8 $193.0 $214.6 $251.5 $195.6 $178.5 $228.6 $340.3 $612.6 $846.4 $1,052.8 $967.6 $1,058.2 $1,141.6 $1,484.5 $1,743.9Depreciation and Amortization 72.4 83.8 75.3 83.2 77.9 83.5 82.9 78.4 101.3 109.7 132.1 156.6 201.6 208.5 230.0 242.9Operating Income $250.4 $109.2 $139.3 $168.3 $117.7 $95.0 $145.7 $261.9 $511.3 $736.7 $920.7 $811.0 $856.6 $933.1 $1,254.6 $1,501.0Net Interest Expense 32.7 28.0 18.0 5.5 (0.7) 2.9 6.2 (1.1) (6.1) (7.5) 22.4 88.3 78.1 77.7 71.2 68.5Pretax Income $217.7 $81.2 $121.3 $162.8 $118.4 $92.1 $139.5 $263.0 $517.4 $744.2 $898.3 $722.7 $778.5 $855.4 $1,183.4 $1,432.5Taxes 66.0 26.5 37.2 50.0 33.9 24.0 40.5 91.9 180.9 253.6 288.1 201.9 179.9 198.3 278.1 336.6Net Income $151.7 $54.7 $84.1 $112.8 $84.5 $68.1 $99.0 $171.1 $336.5 $490.6 $610.2 $520.8 $598.6 $657.0 $905.3 $1,095.9Earnings Per Share - Basic $2.87 $1.03 $1.59 $2.08 $1.56 $1.25 $1.86 $1.54 $1.49 $2.24 $2.80 $2.35 $2.46 $2.67 $3.64 $4.35Earnings Per Share - Diluted $0.69 $0.25 $0.38 $0.49 $0.35 $0.30 $0.92 $1.52 $1.44 $2.13 $2.67 $2.32 $2.42 $2.60 $3.55 $4.25Shares Outstanding - Basic 211.4 212.9 211.2 216.8 216.9 217.6 213.1 221.6 226.6 219.4 217.5 221.4 243.2 245.9 249.0 252.1Shares Outstanding - Diluted 219.6 216.0 218.6 232.2 239.3 229.7 220.3 225.3 233.9 231.2 228.6 225.0 247.5 253.0 255.2 257.5Total EB ITDA $322.8 $193.0 $214.6 $251.5 $195.6 $178.5 $228.6 $340.3 $612.6 $846.4 $1,052.8 $967.6 $1,058.2 $1,141.6 $1,484.5 $1,743.9Cash Flow $224.1 $138.5 $159.4 $196.0 $162.4 $151.6 $181.9 $249.5 $437.8 $600.3 $742.3 $677.4 $800.2 $865.6 $1,135.3 $1,338.7CFPS $1.02 $0.64 $0.73 $0.84 $0.68 $0.66 $0.83 $1.11 $1.87 $2.60 $3.25 $3.01 $3.23 $3.42 $4.45 $5.20Tax Rate 30.3% 32.6% 30.7% 30.7% 28.7% 26.1% 29.0% 34.9% 35.0% 34.1% 32.1% 27.9% 23.1% 23.2% 23.5% 23.5% Drilling & Production Systems EBITDA 21.1% 17.2% 17.8% 19.2% 14.0% 11.9% 12.1% 14.8% 19.8% 19.2% 19.0% 21.2% 19.8% 20.5% 23.3% 24.0% Valves & Measurement EBITDA 19.7% 14.4% 16.9% 18.0% 17.3% 15.1% 14.3% 18.9% 18.3% 23.4% 22.6% 20.7% 18.1% 18.5% 19.8% 20.9% Process & Compression Systems EBITDA 10.4% 7.8% 13.4% 10.9% 10.6% 9.8% 12.2% 10.9% 13.5% 17.8% 18.3% 17.2% 16.1% 15.0% 17.7% 18.6%EBITDA Margins 17.2% 13.2% 15.5% 16.1% 12.7% 10.9% 10.9% 13.5% 16.4% 18.1% 18.0% 18.5% 17.1% 17.1% 19.7% 20.7% Drilling & Prod Systems EBITDA mgn seq 37.2% 36.1% 38.2% 38.4% -216.7% -7.8% 12.9% 50.0% 32.2% 17.7% 18.3% -3.4% 13.1% 9.0% 42.6% 29.6% Valves & Measurement EBITDA mgn seq 21.3% 35.5% -27.7% 21.1% 27.1% -3.0% 8.6% 24.8% 17.6% 86.2% 17.9% 31.0% -21.8% 20.3% 35.7% 29.6% Process & Compression Systems EBITDA m 36.1% 18.9% -11.6% -7.0% 14.7% 16.5% 35.4% 1.3% 28.2% 54.7% 20.3% 61.0% 12.9% 13.0% 42.5% 27.8%Incremental EBITDA Margin seq -5.1% 31.1% -25.8% 20.2% 218.4% -17.8% 10.9% 26.3% 22.2% 25.3% 17.5% 13.6% 9.3% 17.1% 40.7% 28.7%Incremental EBITDA Margins yoy -5.1% 31.1% -25.8% 20.2% 218.4% -17.8% 10.9% 26.3% 22.2% 25.3% 17.5% 13.6% 9.3% 17.1% 40.7% 28.7%Operating Margin 13.3% 7.5% 10.1% 10.8% 7.7% 5.8% 7.0% 10.4% 13.7% 15.8% 15.7% 15.5% 13.8% 14.0% 16.7% 17.8% Drilling & Production Systems Orders 1,074.9 619.5 851.4 1,057.2 1,081.6 1,082.4 1,274.4 2,301.2 3,256.9 3,417.8 5,255.4 3,126.2 3,260.0 3,918.3 4,568.3 5,218.3 Valves & Measurement Orders 279.5 209.8 228.3 321.6 258.4 324.0 365.7 710.8 1,296.0 1,315.6 1,573.4 1,004.1 1,579.2 1,762.0 1,907.2 2,064.4 Process & Compression Systems Orders 488.1 473.8 326.1 361.3 325.0 340.2 369.3 449.8 521.2 648.5 711.9 464.9 951.3 1,156.6 1,324.3 1,433.4Orders $1,842.5 $1,303.1 $1,405.8 $1,740.1 $1,665.0 $1,746.6 $2,009.4 $3,461.8 $5,074.1 $5,381.9 $7,540.7 $4,595.2 $5,790.5 $6,836.9 $7,799.8 $8,716.2 Drilling & Production Systems Backlog 592.6 367.0 372.3 521.6 695.8 771.8 752.9 1,503.6 2,661.3 3,203.0 4,416.8 4,364.1 3,657.0 3,208.0 3,353.8 3,572.1 Valves & Measurement Backlog 54.4 32.4 42.5 71.2 56.1 72.4 122.9 469.0 620.8 685.2 749.2 547.1 711.7 1,012.6 1,250.8 1,473.2 Procces & Compression Systems Backlog 143.4 113.2 113.4 102.6 75.9 102.4 124.2 183.2 248.9 380.1 440.5 278.6 543.9 708.7 593.3 464.2Backlog $790.4 $512.6 $528.2 $695.4 $827.8 $946.6 $1,000.0 $2,155.8 $3,531.0 $4,268.3 $5,606.5 $5,189.8 $4,912.6 $4,929.3 $5,197.8 $5,509.5Source: Company data and Barclays Capital estimates22 July 2011 11
  12. 12. Barclays Capital | U.S. Oil Services & DrillingFigure 10: National Oilwell Varco: Annual Income Statement ($ in Millions) 2000A 2001A 2002A 2003A 2004A 2005A 2006A 2007A 2008A 2009A 2010A 2011E 2012E 2013E Revenue Non-Capital Goods NA NA NA NA NA 802.1 1,268.9 1,662.6 2,229.3 1,860.0 1,779.1 1,994.9 2,164.7 2,378.0 Capital Equipment NA NA NA NA NA 1,414.7 2,316.0 4,082.1 5,298.8 6,233.0 5,185.9 4,849.0 6,548.3 8,903.7 Rig Technology NA NA NA NA NA 2,216.8 3,584.9 5,744.7 7,528.1 8,093.0 6,965.0 6,843.9 8,713.0 11,281.7 Petroleum Services and Supplies NA NA NA NA NA 1,645.8 2,425.0 3,061.0 4,651.4 3,745.0 4,182.0 5,205.9 5,823.3 6,704.8 Distribution 521.3 707.8 686.2 792.0 905.1 1,074.5 1,369.6 1,423.7 1,771.9 1,350.0 1,546.0 1,692.7 1,795.8 1,879.7 Eliminations (54.8) (81.3) (81.5) (101.7) (124.0) (292.6) (353.7) (440.4) (520.0) (476.0) (537.0) (521.8) (538.7) (563.9)Total Revenue $1,149.9 $1,747.5 $1,521.9 $2,004.9 $2,318.2 $4,644.5 $7,025.8 $9,789.0 $13,431.4 $12,712.0 $12,156.0 $13,220.7 $15,793.4 $19,302.2 Operating Income Rig Technology NA NA NA NA NA 264.1 621.4 1,393.6 1,969.5 2,287.0 2,071.0 1,699.1 2,248.0 3,092.1 Petroleum Services and Supplies NA NA NA NA NA 294.6 556.4 731.6 1,131.3 453.0 585.0 1,044.3 1,291.0 1,558.9 Distribution 12.9 28.5 18.1 17.9 29.6 46.6 96.1 94.0 129.7 50.0 78.0 117.3 132.8 157.8 Corporate (11.3) (10.2) (10.8) (12.6) (18.5) (59.5) (154.9) (174.8) (220.2) (241.0) (269.0) (274.0) (280.0) (287.0)Total Operating Income $82.0 $190.3 $134.3 $170.4 $168.6 $545.8 $1,119.0 $2,044.4 $3,010.3 $2,549.0 $2,465.0 $2,586.7 $3,391.8 $4,521.8Net Interest Income (Expense) (16.2) (23.2) (24.6) (36.6) (34.9) (51.9) (30.6) 2.3 (22.7) (44.0) (37.0) (38.7) (31.5) (22.3)Other Income (Expense) 3.2 (0.1) 2.8 (5.7) (2.3) 5.1 (31.3) (17.8) 24.1 (110.0) (22.0) (40.0) (28.0) (28.0)Equity Income in Unconsolidated Affiliates 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 53.0 47.0 36.0 52.8 54.9 57.2Income before Taxes & Min. Interest 69.0 167.0 112.5 128.0 131.4 499.0 1,057.1 2,028.9 3,064.7 2,442.0 2,442.0 2,560.8 3,387.3 4,528.6Income Tax 27.9 63.6 39.4 39.0 34.0 161.6 358.3 675.8 999.0 788.8 739.2 813.6 1,083.9 1,449.2Income before Minority Interest 41.1 103.4 73.1 89.0 97.4 337.4 698.8 1,353.1 2,065.7 1,653.2 1,702.8 1,747.2 2,303.3 3,079.5Minority Interest 0.0 0.0 0.0 (6.1) (2.1) (4.2) (9.5) (16.0) (16.5) (4.0) 8.0 12.4 14.3 16.8Net Income $41.1 $103.4 $73.1 $82.9 $95.4 $333.2 $689.3 $1,337.1 $2,049.2 $1,649.2 $1,710.8 $1,759.6 $2,317.7 $3,096.2EPS - Diluted $0.25 $1.27 $0.45 $0.49 $1.10 $1.03 $1.95 $3.75 $5.10 $3.94 $4.09 $4.15 $5.45 $7.25EBITDA $117.0 $229.2 $159.4 $209.6 $211.6 $660.4 $1,279.6 $2,258.5 $3,412.4 $3,039.0 $2,972.0 $3,129.7 $3,942.8 $5,080.8Cash Flow 76.1 142.3 98.1 122.0 138.4 447.8 849.9 1,551.2 2,451.3 2,139.2 2,217.8 2,302.6 2,868.7 3,655.2Cash Flow per Share $0.47 $0.87 $0.60 $0.72 $0.80 $1.41 $2.40 $4.34 $6.14 $5.11 $5.29 $5.44 $6.74 $8.56Shares Outstanding - Diluted 161.6 163.5 163.4 170.0 173.0 316.6 353.6 357.1 399.4 418.3 419.5 423.6 425.3 427.0Depreciation & Amortization 35.0 38.9 25.0 39.2 43.0 114.6 160.6 214.1 402.1 490.0 507.0 543.0 551.0 559.0MarginsEBITDA Margin 10.2% 13.1% 10.5% 10.5% 9.1% 14.2% 18.2% 23.1% 25.4% 23.9% 24.4% 23.7% 25.0% 26.3% Operating Margin Rig Technology NA NA NA NA NA NA 17.3% 24.3% 26.2% 28.3% 29.7% 24.8% 25.8% 27.4% Petroleum Services and Supplies NA NA NA NA NA NA 22.9% 23.9% 24.3% 12.1% 14.0% 20.1% 22.2% 23.3% Distribution Services 2.5% 4.0% 2.6% 2.3% 3.3% 4.3% 7.0% 6.6% 7.3% 3.7% 5.0% 6.9% 7.4% 8.4%Total Operating Margin 7.1% 10.9% 8.8% 8.5% 7.3% 11.8% 15.9% 20.9% 22.4% 20.1% 20.3% 19.6% 21.5% 23.4%Tax Rate 40.5% 38.1% 35.0% 30.5% 25.9% 32.4% 33.9% 33.3% 32.6% 32.3% 30.3% 31.8% 32.0% 32.0%Backlog and Orders Backlog 282.0 385.0 364.0 339.0 782.9 2,300.0 6,000.0 6,400.0 11,100.0 6,400.0 5,010.0 8,785.0 9,236.7 7,333.1 Revenue 201.0 454.0 390.0 623.0 723.0 1,414.7 2,316.0 4,082.1 5,298.8 6,233.0 5,185.9 4,849.0 6,548.3 8,903.7 New Orders 369.0 557.0 312.0 598.0 945.0 2,931.8 5,990.1 7,065.0 7,324.2 1,695.0 3,792.0 8,630.0 7,000.0 7,000.0Incremental Op Margin seq RT Op Margin seq NA NA NA NA NA NA 26.1% 35.8% 32.3% 56.2% 19.1% 307.0% 29.4% 32.9% PS&S Op Margin seq NA NA NA NA NA NA 33.6% 27.5% 25.1% 74.8% 30.2% 44.9% 39.9% 30.4% DS Op Margin seq NA NA NA NA NA NA 16.8% -3.9% 10.3% 18.9% 14.3% 26.8% 15.0% 29.8%Total Incr Op Margin seq NA 18.1% 24.8% 7.5% -0.6% 16.2% 24.1% 33.5% 26.5% 64.1% 15.1% 11.4% 31.3% 32.2%Source: Company data and Barclays Capital estimates22 July 2011 12
  13. 13. Barclays Capital | U.S. Oil Services & DrillingFigure 11: Ensco: Annual Income Statement ($ in Millions) 1995A 1996A 1997A 1998A 1999A 2000A 2001A 2002A 2003A 2004A 2005A 2006A 2007A 2008A 2009A 2010A 2011E 2012E 2013ERevenues:Contract DrillingTotal Jackups 178.8 312.8 611.7 619.8 245.9 414.0 578.7 546.3 668.8 701.8 958.6 1,731.6 2,071.0 2,366.0 1,691.8 1,217.3 1,186.6 1,333.0 1,326.6 Deepwater -- -- -- -- 0.0 3.5 60.1 61.6 66.2 23.8 52.0 60.9 72.8 84.4 254.1 475.2 1,296.8 2,672.9 3,022.7 195.2 305.1 245.1 30.3 52.1 24.1Total Contract Drilling 240.8 408.6 720.9 733.5 $327.6 $496.1 $752.7 $649.5 $790.8 $768.0 $1,048.5 $1,824.4 $2,143.8 $2,450.4 $1,936.5 $1,692.5 $2,708.9 $4,363.1 $4,618.5Total Revenues $279.1 $468.8 $815.1 $813.2 $365.1 $534.0 $817.4 $698.1 $790.8 $768.0 $1,048.5 $1,824.4 $2,143.8 $2,450.4 $1,936.5 $1,692.5 $2,708.9 $4,363.1 $4,618.5Expenses:Total Contract Drilling 132.5 199.5 269.5 287.7 218.5 261.5 335.8 348.9 452.9 425.5 460.2 583.0 684.1 800.5 719.5 759.6 1,273.5 1,793.0 1,813.4Total Expenses 155.9 227.3 306.7 329.1 251.7 291.0 374.2 389.7 452.9 425.5 460.2 583.0 684.1 800.5 719.5 759.6 1,273.5 1,793.0 1,813.4Gross Income:Total Contract Drilling 108.5 209.1 451.4 445.8 109.1 234.6 416.9 300.6 337.9 342.5 588.3 1,241.4 1,464.9 1,649.9 1,217.0 932.9 1,435.5 2,570.1 2,805.1Total Gross Income $123.4 $241.5 $508.4 $484.1 113.4 243.0 443.2 308.4 337.9 342.5 588.3 1,241.4 1,464.9 1,649.9 1,217.0 932.9 1,435.5 2,570.1 2,805.1Depreciation & Amortization 58.4 81.8 104.8 83.5 98.2 98.7 124.4 123.8 135.0 144.1 155.4 176.1 184.3 191.5 206.7 219.1 373.8 528.0 536.0General & Administrative 9.6 11.0 14.3 15.4 11.2 13.3 16.8 18.6 22.0 26.3 29.2 44.6 59.5 53.8 64.0 86.1 164.2 168.6 182.4Operating Income $55.4 $148.7 $389.3 $385.2 $4.0 $131.0 $302.0 $166.0 $180.9 $172.1 $403.7 $1,020.7 $1,221.1 $1,404.6 $946.3 $627.7 $897.6 $1,873.5 $2,086.6Interest Expense 16.6 20.8 21.4 26.2 19.3 13.4 32.8 31.1 36.7 36.6 28.8 16.5 1.9 0.0 0.0 0.0 62.5 153.0 171.0Interest Income 6.3 4.5 7.4 15.1 13.7 7.1 8.3 5.1 3.4 3.7 7.0 14.9 26.3 14.0 0.7 0.0 0.0 0.0 0.0Other Income 2.4 10.3 0.5 8.4 0.5 0.3 (0.9) 7.0 (0.4) 0.3 1.6 (4.3) 13.4 (18.2) 8.1 7.2 8.8 8.4 8.0Pretax Income $47.5 $142.7 $375.8 $382.5 ($1.1) $125.0 $276.6 $147.0 $147.2 $139.5 $383.5 $1,014.8 $1,258.9 $1,400.4 $955.1 $634.9 $843.9 $1,728.9 $1,923.6Income Taxes 3.4 44.0 137.8 123.8 (0.3) 39.8 80.3 41.6 41.6 36.0 101.9 253.9 261.7 247.9 176.6 91.4 123.6 250.7 278.9Other 0.0 0.0 (2.8) (3.8) 0.0 0.1 0.0 0.0 0.0 0.0 4.0 (3.7) 0.0 0.0 0.0Gain on asset sale* 6.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Unusual items* 0.0 0.0 9.9 (46.1) 1.0 0.5 12.3 8.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0Net Income $42.0 $95.4 $234.9 $253.9 ($2.2) $85.2 $193.5 $101.6 $105.6 $103.6 $281.6 $760.9 $997.2 $1,152.5 $769.4 $533.4 $720.3 $1,477.8 $1,643.9Operating Earnings per Share Basic $0.35 $0.73 $1.67 $1.82 ($0.02) $0.62 $1.41 $0.72 $0.71 $0.69 $1.86 $5.00 $6.80 $8.14 $5.48 $3.75 $3.50 $6.33 $6.99 Diluted $0.35 $0.72 $1.64 $1.81 ($0.02) $0.61 $1.40 $0.72 $0.70 $0.69 $1.85 $4.97 $6.77 $8.11 $5.45 $3.75 $3.50 $6.35 $7.00EBITDA 113.8 230.5 494.1 468.7 102.2 229.7 426.4 289.8 315.9 316.2 559.1 1,196.8 1,405.4 1,596.1 1,153.0 846.8 1,271.3 2,401.5 2,622.6Cash Flow 100.4 177.2 339.7 337.4 96.0 183.9 317.9 225.4 240.6 247.7 437.0 937.0 1,181.5 1,344.0 976.1 752.5 1,094.0 2,005.8 2,179.9Diluted Cash Flow Per Share $0.83 $1.33 $2.38 $2.40 $0.70 $1.32 $2.31 $1.60 $1.60 $1.64 $2.87 $6.12 $8.02 $9.46 $6.95 $5.34 $5.51 $8.68 $9.35Avg. Shares Outstanding Basic 119.9 131.5 141.0 139.7 136.5 137.6 136.8 140.7 149.6 150.7 151.7 152.2 146.7 141.7 140.5 141.0 185.4 231.4 233.5 Diluted 120.8 133.1 142.9 140.5 136.9 139.2 137.9 141.2 150.1 150.9 152.4 153.1 147.4 142.1 140.4 141.0 185.4 231.0 233.0*Net income excludes one-time and extraordinary itemsMARGINS:Segment Gross MarginTotal Contract Drilling 45.1% 51.2% 62.6% 60.8% 33.3% 47.3% 55.4% 46.3% 42.7% 44.6% 56.1% 68.0% 68.3% 67.3% 62.8% 55.1% 53.0% 58.9% 60.7%Gross Margin 44.2% 51.5% 62.4% 59.5% 31.1% 45.5% 54.2% 44.2% 42.7% 44.6% 56.1% 68.0% 68.3% 67.3% 62.8% 55.1% 53.0% 58.9% 60.7%EBITDA Margin 40.8% 49.2% 60.6% 57.6% 28.0% 43.0% 52.2% 41.5% 39.9% 41.2% 53.3% 65.6% 65.6% 65.1% 59.5% 50.0% 46.9% 55.0% 56.8%Operating Margin 19.8% 31.7% 47.8% 47.4% 1.1% 24.5% 36.9% 23.8% 22.9% 22.4% 38.5% 55.9% 57.0% 57.3% 48.9% 37.1% 33.1% 42.9% 45.2%Pretax Margin 17.0% 30.4% 46.1% 47.0% -0.3% 23.4% 33.8% 21.1% 18.6% 18.2% 36.6% 55.6% 58.7% 57.1% 49.3% 37.5% 31.2% 39.6% 41.7%Net Margin 15.0% 20.3% 28.8% 31.2% -0.6% 16.0% 23.7% 14.6% 13.4% 13.5% 26.9% 41.7% 46.5% 47.0% 39.7% 31.5% 26.6% 33.9% 35.6%Tax rate 7.2% 30.8% 36.7% 32.4% 27.3% 31.8% 29.0% 28.3% 28.3% 25.8% 26.6% 25.0% 20.8% 17.7% 18.5% 14.4% 14.6% 14.5% 14.5%Source: Company data and Barclays Capital estimates22 July 2011 13
  14. 14. Barclays Capital | U.S. Oil Services & DrillingFigure 12: Seadrill: Annual Income Statement ($ in Millions) 2006A 2007A 2008A 2009A 2010A 2011E 2012E 2013ERevenues Mobile Units 638.0 961.6 1224.2 2302.1 2841.8 3369.9 3829.2 4353.9 Tender Rigs 179.1 265.7 341.4 392.0 471.1 523.9 573.3 591.9 Well Services 337.4 449.1 620.2 609.8 716.9 637.5 667.5 705.0Total Revenues $1,154.5 $1,676.4 $2,185.8 $3,303.9 $4,029.8 $4,531.3 $5,070.0 $5,650.8Expenses Mobile Units 327.0 404.5 491.4 736.6 991.3 1181.1 1283.8 1558.7 Tender Rigs 78.6 117.1 157.1 162.2 170.3 197.8 180.4 201.6 Well Services 285.5 380.5 529.6 503.5 610.9 573.5 667.5 705.0Total Expenses 691.1 902.1 1,178.1 1,402.3 1,772.5 1,952.3 2,131.7 2,465.3Gross Income Mobile Units 311.0 557.1 732.8 1565.5 1850.5 2188.9 2545.5 2795.1 Tender Rigs 100.5 148.6 184.3 229.8 300.8 326.1 392.9 390.4 Well Services 51.9 68.6 90.6 106.3 106.0 64.0 0.0 0.0Total Gross Income $463.4 $774.3 $1,007.7 $1,901.6 $2,257.3 $2,578.9 $2,938.3 $3,185.5Depreciation & Amortization 167.6 182.8 233.2 396.0 479.8 587.9 638.2 687.0General & Administrative 69.8 102.6 125.8 154.4 178.2 211.1 221.4 233.8Operating Profit $226.0 $488.9 $648.7 $1,351.2 $1,599.3 $1,779.9 $2,078.7 $2,264.7Interest Income 14.0 23.7 30.9 78.1 42.5 24.4 26.2 28.4Interest Expense 79.8 112.7 130.0 228.4 312.4 303.4 291.5 280.0Share of Results from Associated Companies 26.6 23.2 15.6 92.5 47.8 86.2 94.2 101.0Other 80.0 13.7 (672.3) 179.8 72.6 64.0 64.0 64.0Pretax Income $266.8 $436.8 ($107.1) $1,473.2 $1,449.8 $1,651.2 $1,971.7 $2,178.1Taxes 22.4 101.5 48.2 120.0 173.6 198.9 236.6 261.4 30.5 13.0 41.7 91.9 54.7 58.4 70.6 73.4Net Income $214.0 $465.5 ($197.0) $1,261.3 $1,221.5 $1,393.9 $1,664.6 $1,843.3Earnings Per ShareBasic $0.61 $1.18 ($0.49) $3.17 $2.98 $3.14 $3.75 $4.14Diluted $0.61 $1.18 ($0.54) $2.99 $2.80 $3.00 $3.55 $3.90EBITDA 393.6 671.7 881.9 1747.2 2079.1 2367.8 2717.0 2951.7Cash Flow 381.6 648.3 36.2 1657.3 1701.3 1981.8 2302.8 2530.4Diluted Cash Flow Per Share $1.00 $1.65 $0.09 $3.95 $3.68 $4.05 $4.69 $5.13Shares Outstanding Basic 383.2 389.4 394.1 398.6 409.3 443.4 444.4 445.2 Diluted 383.2 392.9 402.7 419.4 462.7 489.5 491.1 493.1MARGINS: Eastern Hemisphere 48.7% 57.9% 59.9% 68.0% 65.1% 65.0% 66.5% 64.2% Western Hemisphere 56.1% 55.9% 54.0% 58.6% 63.9% 62.2% 68.5% 65.9% U.S. Gulf of Mexico 15.4% 15.3% 14.6% 17.4% 14.8% 10.0% 0.0% 0.0%Gross Margin 40.1% 46.2% 46.1% 57.6% 56.0% 56.9% 58.0% 56.4%EBITDA Margin 34.1% 40.1% 40.3% 52.9% 51.6% 52.3% 53.6% 52.2%Operating Margin 19.6% 29.2% 29.7% 40.9% 39.7% 39.3% 41.0% 40.1%Pretax Margin 23.1% 26.1% -4.9% 44.6% 36.0% 36.4% 38.9% 38.5%Net Margin 18.5% 27.8% -9.0% 38.2% 30.3% 30.8% 32.8% 32.6%Tax Rate 8.4% 23.2% -45.0% 8.1% 12.0% 12.0% 12.0% 12.0%Source: Company data and Barclays Capital estimates22 July 2011 14
  15. 15. Barclays Capital | U.S. Oil Services & DrillingFigure 13: Rowan Companies: Annual Income Statement ($ in Millions) 2000A 2001A 2002A 2003A 2004A 2005A 2006A 2007A 2008A 2009A 2010A 2011E 2012E 2013ERevenues Land Rigs - - - - - - - - - - - 135.3 192.8 203.0 Boats - - - - - - - - - - - - - Jackups - - - - - - - - - - - 807.8 1,445.7 1,513.1 Semisubmersible - - - - - - - - - - - - -Contract Drilling $418.9 $486.3 $357.2 $421.4 $522.1 $784.7 $1,067.4 $1,382.6 $1,451.6 $1,214.9 $1,208.8 $1,193.1 $1,638.4 $1,740.8Manufacturing Sales and Services 103.5 102.2 118.1 133.2 198.3 293.4 443.3 717.0 $761.1 $555.3 $610.4 $0.0 nm nmTotal Revenues $646.0 $731.1 $617.3 $679.1 $812.3 $1,078.1 $1,510.7 $2,099.6 $2,212.7 $1,770.2 $1,819.2 $1,193.1 $1,638.4 $1,740.8Expenses Land Rigs 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 77.0 107.5 111.5 Boats 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Jackups 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 395.7 612.9 647.4 Semisubmersible 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 16.6Contract Drilling 256.6 303.4 304.8 330.1 364.1 401.9 511.7 591.4 630.4 525.2 553.4 616.1 720.4 775.5Manufacturing Sales and Services 88.5 88.7 109.8 122.2 183.1 253.7 372.2 596.6 624.2 475.5 512.9 0.0 0.0 0.0Total Expenses 451.5 510.3 530.0 564.7 634.7 655.6 883.9 1,188.0 1,254.6 1,000.7 1,066.3 616.1 720.4 775.5Gross IncomeContract Drilling 162.3 182.9 52.4 91.3 157.9 382.8 555.8 791.2 821.2 689.7 655.4 577.1 918.1 965.3Manufacturing Sales and Services 15.0 13.5 8.3 11.0 15.2 39.7 71.1 120.4 136.9 79.8 97.5 - - -Total Gross Income $194.5 $220.8 $87.3 $114.3 $177.6 $422.6 $626.9 $911.6 $958.1 $769.5 $752.9 $577.1 $918.1 $965.3Depreciation & Amortization 58.9 68.5 78.1 86.9 91.3 81.3 90.0 118.8 141.4 171.4 186.6 190.6 213.9 224.1General & Administrative 24.1 27.7 25.1 25.4 27.3 65.1 71.5 94.9 115.1 102.8 132.6 89.9 96.3 101.6Operating Income $111.6 $124.6 ($15.9) $2.1 $59.0 $276.2 $465.4 $697.9 $701.6 $495.3 $433.7 $303.8 $607.9 $639.6Interest Expense (14.7) (13.1) (15.9) (15.9) (18.7) (22.0) (20.6) 0.0 0.0 0.0 0.0 (48.1) (86.0) (86.0)Interest Income 10.4 8.4 4.1 1.1 4.3 16.8 28.0 5.2 4.8 0.0 0.0 0.1 0.1 0.1Other Income (Expense) 3.6 0.3 0.5 0.7 0.7 2.4 0.2 0.0 (9.0) (0.3) (18.5) (4.3) 0.0 0.0Total Other Income (Expense) (0.7) (4.4) (11.4) (14.1) (13.8) (2.8) 7.7 5.2 (4.2) (0.3) (18.5) (52.3) (85.9) (85.9)Pretax Income $110.9 $120.2 ($27.3) ($12.0) $45.2 $273.3 $473.1 $703.1 $697.4 $495.0 $415.2 $251.5 $522.0 $553.7Income Taxes 40.7 43.2 (8.8) (4.2) 18.1 102.2 164.4 242.8 237.7 156.5 111.7 34.9 73.1 76.4Net Income $70.2 $77.0 ($18.5) ($7.8) $27.2 $171.1 $308.7 $460.3 $459.7 $338.5 $303.5 $216.6 $448.9 $477.3Earnings per Share Basic $0.73 $0.80 ($0.20) ($0.09) $0.24 $1.55 $2.76 $4.10 $4.06 $2.98 $2.59 $1.70 $3.50 $3.70 Diluted $0.73 $0.80 ($0.20) ($0.09) $0.24 $1.55 $2.76 $4.10 $4.06 $2.98 $2.58 $1.70 $3.50 $3.70EDITDA 170.4 193.1 62.1 89.0 150.3 357.5 555.4 816.7 843.0 666.7 620.3 494.5 821.8 863.7Cash Flow 129.1 145.5 59.6 79.1 118.4 252.4 398.7 579.1 601.1 509.9 490.1 407.3 662.8 701.3Diluted Cash Flow Per Share $1.37 $1.52 $0.63 $0.83 $1.12 $2.29 $3.57 $5.16 $5.30 $4.49 $4.13 $3.19 $5.17 $5.44Avg. Shares Outstanding Basic 94.6 95.5 94.5 94.8 106.1 110.1 111.7 112.2 113.3 113.7 118.3 127.7 128.3 129.0 Diluted 94.6 95.5 94.5 94.8 106.1 110.1 111.7 112.2 113.3 113.7 118.7 127.7 128.3 129.0MARGINS:Segment Operating MarginsContract Drilling 38.7% 37.6% 14.7% 21.7% 30.3% 48.8% 52.1% 57.2% 56.6% 56.8% 54.2% 48.4% 56.0% 55.4%Manufacturing Sales and Services 14.5% 13.2% 7.0% 8.2% 7.7% 13.5% 16.0% 16.8% 18.0% 14.4% 16.0% nm nm nmGross Margin 30.1% 30.2% 14.1% 16.8% 21.9% 39.2% 41.5% 43.4% 43.3% 43.5% 41.4% 48.4% 56.0% 55.4%EDITDA Margin 26.4% 26.4% 10.1% 13.1% 18.5% 33.2% 36.8% 38.9% 38.1% 37.7% 34.1% 41.4% 50.2% 49.6%Operating Margin 17.3% 17.0% -2.6% 0.3% 7.3% 25.6% 30.8% 33.2% 31.7% 28.0% 23.8% 25.5% 37.1% 36.7%Pretax Margin 17.2% 16.4% -4.4% -1.8% 5.6% 25.3% 31.3% 33.5% 31.5% 28.0% 22.8% 21.1% 31.9% 31.8%Net Margin 10.9% 10.5% -3.0% -1.1% 3.3% 15.9% 20.4% 21.9% 20.8% 19.1% 16.7% 18.2% 27.4% 27.4%Tax Rate 36.7% 35.9% 32.4% 35.0% 39.9% 37.4% 34.7% 34.5% 34.1% 31.6% 26.9% 13.9% 14.0% 13.8%Source: Company data and Barclays Capital estimates22 July 2011 15
  16. 16. Barclays Capital | U.S. Oil Services & DrillingANALYST(S) CERTIFICATION(S)I, James C. West, hereby certify (1) that the views expressed in this research report accurately reflect my personal views about any or all of thesubject securities or issuers referred to in this research report and (2) no part of my compensation was, is or will be directly or indirectly related tothe specific recommendations or views expressed in this research report.IMPORTANT DISCLOSURES CONTINUEDFor current important disclosures, including, where relevant, price target charts, regarding companies that are the subject of this research report,please send a written request to: Barclays Capital Research Compliance, 745 Seventh Avenue, 17th Floor, New York, NY 10019 or refer tohttp://publicresearch.barcap.com or call 1-212-526-1072.The analysts responsible for preparing this research report have received compensation based upon various factors including the firms totalrevenues, a portion of which is generated by investment banking activities.On September 20, 2008, Barclays Capital acquired Lehman Brothers North American investment banking, capital markets, and privateinvestment management businesses. All ratings and price targets prior to this date relate to coverage under Lehman Brothers Inc.Barclays Capital produces a variety of research products including, but not limited to, fundamental analysis, equity-linked analysis, quantitativeanalysis, and trade ideas. Recommendations contained in one type of research product may differ from recommendations contained in othertypes of research products, whether as a result of differing time horizons, methodologies, or otherwise.Materially Mentioned Stocks (Ticker, Date, Price)Cameron International (CAM, 21-Jul-2011, USD 51.85), 1-Overweight/1-PositiveEnsco plc (ESV, 21-Jul-2011, USD 52.66), 1-Overweight/1-PositiveNational Oilwell Varco (NOV, 21-Jul-2011, USD 81.47), 1-Overweight/1-PositiveRowan Companies (RDC, 21-Jul-2011, USD 38.52), 1-Overweight/1-PositiveSeadrill Limited (SDRL, 21-Jul-2011, USD 35.87), 1-Overweight/1-PositiveGuide to the Barclays Capital Fundamental Equity Research Rating System:Our coverage analysts use a relative rating system in which they rate stocks as 1-Overweight, 2-Equal Weight or 3-Underweight (see definitionsbelow) relative to other companies covered by the analyst or a team of analysts that are deemed to be in the same industry sector (the “sectorcoverage universe”).In addition to the stock rating, we provide sector views which rate the outlook for the sector coverage universe as 1-Positive, 2-Neutral or 3-Negative (see definitions below). A rating system using terms such as buy, hold and sell is not the equivalent of our rating system. Investorsshould carefully read the entire research report including the definitions of all ratings and not infer its contents from ratings alone.Stock Rating1-Overweight - The stock is expected to outperform the unweighted expected total return of the sector coverage universe over a 12-monthinvestment horizon.2-Equal Weight - The stock is expected to perform in line with the unweighted expected total return of the sector coverage universe over a 12-month investment horizon.3-Underweight - The stock is expected to underperform the unweighted expected total return of the sector coverage universe over a 12-monthinvestment horizon.RS-Rating Suspended - The rating and target price have been suspended temporarily due to market events that made coverage impracticable orto comply with applicable regulations and/or firm policies in certain circumstances including when Barclays Capital is acting in an advisorycapacity in a merger or strategic transaction involving the company.Sector View1-Positive - sector coverage universe fundamentals/valuations are improving.2-Neutral - sector coverage universe fundamentals/valuations are steady, neither improving nor deteriorating.3-Negative - sector coverage universe fundamentals/valuations are deteriorating.Below is the list of companies that constitute the "sector coverage universe":U.S. Oil Services & DrillingBaker Hughes (BHI) Basic Energy Services (BAS) Bristow Group Inc. (BRS)Cameron International (CAM) CARBO Ceramics (CRR) Chart Industries Inc. (GTLS)Core Laboratories (CLB) Diamond Offshore Drilling (DO) Dresser-Rand Group Inc. (DRC)Dril-Quip Inc. (DRQ) Ensco plc (ESV) Exterran Holdings Inc. (EXH)FMC Technologies (FTI) Global Geophysical Services (GGS) Global Industries, Ltd. (GLBL)GulfMark Offshore, Inc. (GLF) Halliburton Co. (HAL) Helmerich & Payne Inc. (HP)22 July 2011 16
  17. 17. Barclays Capital | U.S. Oil Services & DrillingIMPORTANT DISCLOSURES CONTINUEDHercules Offshore (HERO) Hornbeck Offshore Services (HOS) ION Geophysical Corp. (IO)Key Energy Services (KEG) Nabors Industries (NBR) National Oilwell Varco (NOV)Noble Corp. (NE) Oceaneering International (OII) Parker Drilling (PKD)Patterson-UTI Energy (PTEN) Rowan Companies (RDC) Schlumberger Ltd. (SLB)SEACOR Holdings, Inc. (CKH) Seadrill Limited (SDRL) Superior Energy Services Inc. (SPN)Tenaris S.A. (TS) Tetra Technologies Inc. (TTI) Thermon Group Holdings (THR)Tidewater Inc. (TDW) Transocean Ltd. (RIG) Weatherford International (WFT)Distribution of Ratings:Barclays Capital Inc. Equity Research has 1801 companies under coverage.43% have been assigned a 1-Overweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Buy rating; 58% ofcompanies with this rating are investment banking clients of the Firm.41% have been assigned a 2-Equal Weight rating which, for purposes of mandatory regulatory disclosures, is classified as a Hold rating; 52% ofcompanies with this rating are investment banking clients of the Firm.12% have been assigned a 3-Underweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Sell rating; 36% ofcompanies with this rating are investment banking clients of the Firm.Guide to the Barclays Capital Price Target:Each analyst has a single price target on the stocks that they cover. The price target represents that analysts expectation of where the stock willtrade in the next 12 months. Upside/downside scenarios, where provided, represent potential upside/potential downside to each analysts pricetarget over the same 12-month period.Barclays Capital offices involved in the production of equity research:LondonBarclays Capital, the investment banking division of Barclays Bank PLC (Barclays Capital, London)New YorkBarclays Capital Inc. (BCI, New York)TokyoBarclays Capital Japan Limited (BCJL, Tokyo)São PauloBanco Barclays S.A. (BBSA, São Paulo)Hong KongBarclays Bank PLC, Hong Kong branch (Barclays Bank, Hong Kong)TorontoBarclays Capital Canada Inc. (BCC, Toronto)JohannesburgAbsa Capital, a division of Absa Bank Limited (Absa Capital, Johannesburg)Mexico CityBarclays Bank Mexico, S.A. (BBMX, Mexico City)22 July 2011 17
  18. 18. Barclays Capital | U.S. Oil Services & DrillingIMPORTANT DISCLOSURES CONTINUEDCameron International (CAM) Stock Rating Sector ViewUSD 51.85 (21-Jul-2011) 1-OVERWEIGHT 1-POSITIVERating and Price Target Chart - USD (as of 21-Jul-2011) Currency=USD Date Closing Price Rating Price Target 65 03-Feb-2011 56.99 64.00 60 15-Dec-2010 49.24 57.00 03-Nov-2010 43.66 54.00 55 06-Aug-2010 39.07 51.00 50 17-Feb-2010 41.16 49.00 45 04-Nov-2009 38.47 46.00 40 05-Aug-2009 34.69 41.00 35 27-Mar-2009 23.32 33.00 30 04-Feb-2009 21.66 34.00 18-Nov-2008 20.92 38.00 25 31-Oct-2008 24.26 43.00 20 14-Oct-2008 29.41 45.00 15 31-Jul-2008 47.76 63.00 Jan- 09 Jul- 09 Jan- 10 Jul- 10 Jan- 11 Jul- 11 Closing Price Target PriceLink to Barclays Capital Live for interactive chartingBarclays Bank PLC and/or an affiliate is a market-maker and/or liquidity provider in securities issued by Cameron International or one of itsaffiliates.Barclays Bank PLC and/or an affiliate trades regularly in the securities of Cameron International.Barclays Bank PLC and/or an affiliate has received non-investment banking related compensation from Cameron International within the past 12months.Cameron International is, or during the past 12 months has been, a non-investment banking client (securities related services) of Barclays BankPLC and/or an affiliate.Barclays Bank PLC is associated with specialist firm Barclays Capital Market Makers, which makes a market in Cameron International stock. Atany given time, the associated specialist may have "long" or "short" inventory position in the stock; and the associated specialist may be on theopposite side of orders executed on the Floor of the Exchange in the stock.Valuation Methodology: Our $64 price target is based on 18x our 2012 EPS estimate of $3.55.Risks which May Impede the Achievement of the Price Target: A material change in commodity prices would alter our earnings outlook andpotentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economicclimate, gas storage levels, OPEC behavior, increasing non-OPEC oil production, and international political and economic risks.22 July 2011 18
  19. 19. Barclays Capital | U.S. Oil Services & DrillingIMPORTANT DISCLOSURES CONTINUEDEnsco plc (ESV) Stock Rating Sector ViewUSD 52.66 (21-Jul-2011) 1-OVERWEIGHT 1-POSITIVERating and Price Target Chart - USD (as of 21-Jul-2011) Currency=USD Date Closing Price Rating Price Target 70 15-Mar-2011 56.18 68.00 10-Feb-2011 53.41 1-Overweight 65.00 65 08-Feb-2011 51.27 55.00 60 15-Dec-2010 51.20 53.00 02-Jul-2010 40.76 43.00 55 08-Apr-2010 47.06 45.00 50 09-Mar-2010 45.57 46.00 26-Oct-2009 48.93 49.00 45 24-Apr-2009 32.58 44.00 40 02-Mar-2009 22.11 45.00 18-Nov-2008 31.66 56.00 35 24-Oct-2008 32.34 59.00 14-Oct-2008 41.20 61.00 30 Jan- 10 Jul- 10 Jan- 11 Jul- 11 25-Jul-2008 69.60 80.00 Closing Price Target Price Rating ChangeLink to Barclays Capital Live for interactive chartingBarclays Bank PLC and/or an affiliate has received compensation for investment banking services from Ensco plc in the past 12 months.Barclays Bank PLC and/or an affiliate trades regularly in the securities of Ensco plc.Barclays Bank PLC and/or an affiliate has received non-investment banking related compensation from Ensco plc within the past 12 months.Ensco plc is, or during the past 12 months has been, an investment banking client of Barclays Bank PLC and/or an affiliate.Ensco plc is, or during the past 12 months has been, a non-investment banking client (securities related services) of Barclays Bank PLC and/or anaffiliate.Valuation Methodology: Our price target is based on 8x 2012E EV/EBITDA (EV of $19.2 billion and EBITDA of $2.4 billion).Risks which May Impede the Achievement of the Price Target: A material change in commodity prices would alter our earnings outlook andpotentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economicclimate, gas storage levels, OPEC behavior, increasing non-OPEC oil production, and international political and economic risks.22 July 2011 19
  20. 20. Barclays Capital | U.S. Oil Services & DrillingIMPORTANT DISCLOSURES CONTINUEDNational Oilwell Varco (NOV) Stock Rating Sector ViewUSD 81.47 (21-Jul-2011) 1-OVERWEIGHT 1-POSITIVERating and Price Target Chart - USD (as of 21-Jul-2011) Currency=USD 125 Date Closing Price Rating Price Target 30-Jun-2011 78.21 102.00 28-Apr-2011 76.98 99.00 100 04-Feb-2011 76.45 94.00 24-Jan-2011 68.25 81.00 75 15-Dec-2010 62.22 78.00 24-Nov-2010 63.30 71.00 27-Oct-2010 54.00 62.00 50 30-Jul-2010 39.16 52.00 08-Apr-2010 42.43 48.00 25 04-Feb-2010 42.54 49.00 27-Oct-2009 43.08 47.00 24-Apr-2009 31.50 38.00 0 05-Feb-2009 28.02 42.00 Jan- 09 Jul- 09 Jan- 10 Jul- 10 Jan- 11 Jul- 11 09-Jan-2009 27.06 46.00 Closing Price Target Price 18-Nov-2008 25.35 50.00 24-Oct-2008 25.50 58.00 14-Oct-2008 29.87 69.00Link to Barclays Capital Live for interactive chartingBarclays Bank PLC and/or an affiliate has received compensation for investment banking services from National Oilwell Varco in the past 12months.Barclays Bank PLC and/or an affiliate trades regularly in the securities of National Oilwell Varco.National Oilwell Varco is, or during the past 12 months has been, an investment banking client of Barclays Bank PLC and/or an affiliate.Valuation Methodology: Our price target of $102 is based on 18.8x our 2012 earnings estimate of $5.45.Risks which May Impede the Achievement of the Price Target: A material change in commodity prices would alter our earnings outlook andpotentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economicclimate, gas storage levels, OPEC behavior, increasing non-OPEC oil production, and international political and economic risks.22 July 2011 20

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