isi evercore ofs initiation

October 14, 2014

Oil Services, Equipment & Drilling James West +1 212 653-9047, [email protected]

Samantha Hoh +1 212 653-9017, [email protected]

Alex Nuta +1 212 653-9044, [email protected]

Cameron Schnier +1 212 653-9041, [email protected]

Initiating Coverage: Near-Term Industry Growth Increasingly Shifting West! Our Positive View Is Contrarian To Prevailing Market Sentiment

Initiating Coverage with a Positive View. As a result of revised GDP forecasts and lackluster economic data, geopolitical tensions, dollar strength, commodity price weakness and investor re-allocations to other parts of the economy, the group has significantly underperformed the broader market since peaking in June with the OSX falling 25% compared to a modest 4% slide for the S&P 500. Investors have fled from the group and ISI’s proprietary survey of long only institutional investors suggests a 900 basis point drop in sector allocation from August to September. We suspect the October results will reveal a further decline. We believe the group is clearly under-owned, out-of-favor, and poised to outperform. We are launching coverage of the Oil Service, Equipment and Drilling group with a positive view and initiating coverage of 59 stocks.

Oil to Recover. Over the next several months we expect geopolitical tensions that are threatening world GDP (ie Russia/Ukraine) will slowly ease, the U.S. dollar’s rapid ascent will slow and perhaps stabilize, oil demand should rebound as winter sets in, and as a result global oil prices will recover some of their recent losses. OPEC may also cut production at the cartel’s November meeting if a consensus can be reached.

E&P Spending to Continue Rising. Despite a choppy third quarter reporting season and reduced expectations for the fourth quarter, global E&P spending is continuing on its upward trajectory which in 2015 and 2016 will be led by North America, most parts of Latin America, the majority of the Middle East, Sub-Saharan Africa and many countries in Southeast Asia. Successful resolutions to the conflict in Iraq and the stalemate in Ukraine would add further to E&P spending growth. We current forecast 2015 E&P spending growth of ~8-9% for North America and ~5% for International markets, with activity levels, especially abroad, outpacing E&P spending as oil companies benefit from substantially lower offshore rig costs. Contrary to the last few years we expect growth in the Western Hemisphere to outpace growth in the Eastern Hemisphere.

Time to Step in. Given the recent significant weakness in the group we would use the pullback to add to or initiate positions in certain subsectors, specifically large cap diversifieds, North American-levered SMID caps, and offshore niche technology providers and support companies. We also believe some of the major capital equipment providers are good values. While the offshore drillers in general will likely chronically underperform the group over the next year with a few exceptions; we expect these stocks to rebound sharply off oversold conditions before broadly underperforming the group.

Market “Indicators” Signaling a Bottom. Most of our “leading stock market indicators” before calling a bottom have hit recently including capitulation selling, portfolio strategist downgrades of Energy Street-wide, extremely negative and biased newsflow about oil, and oil price forecast revisions lower. The last, earnings revisions lower, have somewhat started but appear to be already reflected in the stocks.

Our Top Picks are the large cap diversifieds including BHI, HAL, SLB, and WFT. In the SMID cap area we prefer production/completion service companies such as BAS, CFW.CN, CJES, SPN, and TCW.CN while for onshore drillers we recommend PTEN and HP. Offshore niche technology providers such as DRQ, FI, and OII are also attractive and in the offshore support are our favorites are HOS and BRS. In the offshore drilling group, which we remain cautious on, two solid dividend stories are appealing, ESV and NE, while PACD and ORIG deserve some valuation differentiation due to the high quality nature of their fleets.

* See the last page of this report for an important disclosure regarding these stocks and this report.

October 14, 2014

2

Table of Contents

Comp Table: ISI Group’s Global Oil Services, Equipment & Drilling Coverage Universe 4

Our Key Calls in this Report 6

The Group is Oversold; Buying Opportunity 7

The State of the Oil Service Industry 14

Regional Outlooks 17

Oil Market Outlook 30

North America Natural Gas Outlook 36

Subsector Outlooks 41

The Major Themes 47

Company-Specific Outlooks 59

– Aspen Aerogels (ASPN) 60 – Atwood Oceanics (ATW) 65 – Baker Hughes (BHI) 70 – Basic Energy Services (BAS) 75 – Bristow Helicopters (BRS) 80 – C&J Energy Services (CJES 85 – Calfrac Well Services (CFW.CN) 90 – Cameron Int’l (CAM) 95 – Carbo Ceramics (CRR) 100 – Chart Industries (GTLS) 105 – CHC Helicopters (HELI) 110 – Core Laboratories (CLB) 115 – Diamond Offshore (DO) 120 – Dresser-Rand (DRC) 125 – Dril-Quip (DRQ) 130 – Ensco plc (ESV) 135 – Ensign Energy Services (ESI.CN) 140 – ERA Group (ERA) 145 – Exterran Holdings (EXH) 150 – FMC Technologies (FTI) 155 – Forum Energy Technologies (FET) 160 – Frank’s International (FI) 165 – Gulfmark Offshore (GLF) 170 – Halliburton (HAL) 175 – Helmerich & Payne (HP) 180 – Hercules Offshore (HERO) 185 – Hornbeck Offshore (HOS) 190 – Independence Contract Drilling (ICD) 196 – ION Geophysical (IO) 201 – Key Energy Services (KEG) 206 – MRC Global (MRC) 211 – Nabors Industries (NBR) 216 – National Oilwell Varco (NOV) 221 – Noble Corp (NE) 226

October 14, 2014

3

– North Atlantic Drilling (NADL) 231 – NOW Inc. (DNOW) 236 – Ocean Rig (ORIG) 241 – Oceaneering International (OII) 246 – Oil States International (OIS) 251 – Pacific Drilling (PACD) 256 – Paragon Offshore (PGN) 261 – Parker Drilling (PKD) 266 – Patterson-UTI Energy (PTEN) 271 – Precision Drilling (PD.CN) 276 – RPC Inc. 281 – Rowan Companies (RDC) 286 – Schlumberger (SLB) 291 – SEACOR Holdings (CKH) 296 – Seadrill Limited (SDRL) 302 – Seventy Seven Energy (SSE) 307 – Superior Energy Services (SPN) 312 – Tenaris (TS) 317 – TETRA Technologies (TTI) 322 – Thermon Group (THR) 327 – Tidewater (TDW) 332 – Transocean Inc. (RIG) 337 – Trican Well Services (TCW.CN) 342 – Vantage Drilling (VTG) 347 – Weatherford International (WFT) 352

Appendix 357

O

ctob

er 1

4, 2

014

4 Com

p Ta

ble:

ISI G

roup

’s G

loba

l Oil

Serv

ices

, Equ

ipm

ent &

Dril

ling

Cove

rage

Uni

vers

e

So

urce

: ISI

Ene

rgy

Rese

arch

, Blo

ombe

rg. N

ote:

Pric

ed a

s of 3

:25p

m o

n O

ctob

er 1

4, 2

014

Mk C

apEV

Div

Shar

eIS

ITa

rget

%Ti

cker

Com

pany

($B)

($B)

Yiel

dPr

ice

Ratin

gPr

ice

Upsid

e20

15E

Mul

tiple

2013

2014

E20

15E

2013

2014

E20

15E

2013

2014

E20

15E

2013

2014

E20

15E

Larg

e Ca

p Di

vers

ified

Serv

ices

BHI

Bake

r Hug

hes

$22.

8$2

6.4

1.3%

$52.

23Bu

y$9

582

%P/

E17

.3x

$2.6

2$4

.07

$5.5

1$3

,772

$4,8

22$5

,694

19.9

x12

.8x

9.5x

7.0x

5.5x

4.6x

HAL

Hal

libur

ton

42.1

47.5

1.2%

49.3

3Bu

y97

97%

P/E

18.2

x3.

153.

955.

316,

174

7,22

99,

127

15.7

x12

.5x

9.3x

7.7x

6.6x

5.2x

SLB

Schl

umbe

rger

115.

012

1.7

1.8%

88.3

5Bu

y12

946

%P/

E19

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4.75

5.57

6.50

12,4

1213

,610

14,9

2118

.6x

15.9

x13

.6x

9.8x

8.9x

8.2x

WFT

Wea

ther

ford

Int'l

12.2

21.2

0.0%

15.7

9Bu

y29

84%

P/E

16.5

x0.

601.

121.

752,

688

3,08

63,

792

26.3

x14

.1x

9.0x

7.9x

6.9x

5.6x

Aver

age

1.1%

77%

20.1

x13

.8x

10.4

x8.

1x7.

0x5.

9xM

edia

n1.

3%83

%19

.3x

13.5

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4x7.

8x6.

7x5.

4x

SMID

Cap

Div

ersif

ied

Serv

ices

SPN

Supe

rior E

nerg

y Se

rvic

es$3

.6$5

.11.

4%$2

3.43

Buy

$39

66%

P/E

14.9

x$1

.57

$1.8

9$2

.65

$1,1

13$1

,232

$1,4

3314

.9x

12.4

x8.

9x4.

6x4.

1x3.

6xTT

ITE

TRA

Tech

nolo

gies

0.7

1.1

0.0%

8.91

Buy

1346

%P/

E14

.0x

0.63

0.50

0.95

150

175

223

14.1

x17

.9x

9.4x

7.6x

6.5x

5.1x

Aver

age

0.7%

56%

14.5

x15

.2x

9.1x

6.1x

5.3x

4.3x

Med

ian

0.7%

56%

14.5

x15

.2x

9.1x

6.1x

5.3x

4.3x

Larg

e Ca

p Ca

pita

l Equ

ipm

ent

CAM

Cam

eron

Int'l

$11.

3$1

4.2

0.0%

$55.

55Bu

y$8

757

%P/

E16

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$3.3

0$4

.20

$5.3

0$1

,443

$1,6

33$1

,911

16.8

x13

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10.5

x9.

8x8.

7x7.

4xFT

IFM

C Te

chno

logi

es11

.512

.40.

0%48

.87

Buy

6737

%P/

E19

.0x

2.23

2.82

3.50

940

1,24

41,

506

21.9

x17

.3x

14.0

x13

.2x

10.0

x8.

3xN

OV

Nat

iona

l Oilw

ell V

arco

29.4

28.7

2.7%

68.0

8Bu

y95

40%

P/E

14.0

x5.

525.

956.

804,

143

4,59

85,

106

12.3

x11

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10.0

x6.

9x6.

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6xTS

Tena

ris23

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1%39

.31

Hol

d41

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E14

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1.31

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2,78

82,

805

3,04

330

.0x

14.3

x13

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9.6x

9.5x

8.8x

Aver

age

1.4%

35%

20.3

x14

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12.0

x9.

9x8.

6x7.

5xM

edia

n1.

4%38

%19

.4x

13.7

x12

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9.7x

9.1x

7.8x

SMID

Cap

Cap

ital E

quip

men

tDR

CDr

esse

r-Ra

nd G

roup

$6.2

$7.3

0.0%

$81.

14Se

ll$8

32%

EV/E

BITD

A13

.4x

$3.0

0$2

.57

$3.0

0$4

82$4

80$5

5427

.0x

31.6

x27

.0x

15.1

x15

.1x

13.1

xEX

HEx

terr

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oldi

ngs

2.4

4.4

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35.4

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ld40

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BITD

A6.

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781.

6060

065

074

233

.7x

45.6

x22

.2x

7.3x

6.7x

5.9x

FET

Foru

m E

nerg

y Te

chno

logi

es2.

22.

60.

0%23

.56

Buy

4070

%P/

E16

.5x

1.50

1.82

2.40

282

339

421

15.7

x13

.0x

9.8x

9.3x

7.7x

6.2x

GTL

SCh

art I

ndus

trie

s1.

31.

50.

0%43

.11

Buy

7267

%P/

E19

.0x

2.94

2.90

3.80

175

171

215

14.7

x14

.8x

11.3

x8.

3x8.

5x6.

8xO

ISO

il St

ates

Int'l

3.2

3.3

0.0%

58.1

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22%

P/E

16.5

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744.

174.

3182

252

146

410

.1x

13.9

x13

.5x

4.0x

6.3x

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THR

Ther

mon

Gro

up0.

70.

80.

0%22

.29

Buy

2512

%P/

E18

.2x

1.20

1.25

1.40

7675

8318

.6x

17.9

x15

.9x

10.0

x10

.1x

9.1x

Aver

age

0.3%

31%

20.0

x22

.8x

16.6

x9.

0x9.

1x8.

0xM

edia

n0.

0%17

%17

.1x

16.4

x14

.7x

8.8x

8.1x

6.9x

SMID

Cap

Nic

he Te

chno

logy

ASPN

Aspe

n Ae

roge

ls$0

.2$0

.20.

0%$9

.45

Buy

$17

80%

EV/E

BITD

A50

.0x

n/a

-$0.

63-$

0.15

n/a

-$8

$7n/

a-1

4.9x

-63.

2xn/

a-1

9.5x

23.8

xCL

BCo

re L

abor

ator

ies

5.9

6.3

1.3%

133.

41Bu

y15

113

%P/

E21

.5x

5.25

5.92

7.03

360

381

441

25.4

x22

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19.0

x17

.4x

16.4

x14

.2x

CRR

Carb

o Ce

ram

ics

1.2

1.1

2.6%

50.0

0Ho

ld62

24%

P/E

16.5

x3.

673.

233.

7516

815

817

713

.6x

15.5

x13

.3x

6.6x

7.0x

6.3x

DRQ

Dril-

Qui

p3.

22.

80.

0%79

.53

Buy

126

58%

P/E

19.8

x4.

165.

056.

1025

230

136

219

.1x

15.8

x13

.0x

11.3

x9.

5x7.

9xFI

Fran

k's

Int'l

2.5

2.3

3.7%

16.2

9Bu

y26

60%

P/E

19.8

x1.

691.

141.

3043

643

348

19.

6x14

.3x

12.6

x5.

3x5.

3x4.

8xO

IIO

cean

eerin

g In

t'l6.

46.

41.

8%59

.46

Buy

9356

%P/

E19

.8x

3.42

3.99

4.70

745

860

1,00

717

.4x

14.9

x12

.7x

8.6x

7.4x

6.4x

Aver

age

1.6%

49%

17.0

x11

.3x

1.2x

9.8x

4.4x

10.6

xM

edia

n1.

5%57

%17

.4x

15.2

x12

.9x

8.6x

7.2x

7.1x

Prod

uctio

n an

d Co

mpl

etio

n Se

rvic

esBA

SBa

sic

Ener

gy S

ervi

ces

$0.5

$1.3

0.0%

$12.

07Bu

y$2

510

7%EV

/EBI

TDA

4.5x

-$0.

71$0

.58

$1.4

7$2

29$3

22$4

05-1

7.0x

20.9

x8.

2x5.

7x4.

1x3.

2xCF

W.C

N1

Calfr

ac W

ell S

ervi

ces

1.3

1.9

3.7%

13.3

5Bu

y22

65%

EV/E

BITD

A6.

9x0.

300.

791.

7018

929

939

844

.5x

16.9

x7.

9x10

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6.4x

4.8x

CJES

2C&

J Ene

rgy

Serv

ices

2.4

5.8

0.0%

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y34

76%

EV/E

BITD

A6.

9x1.

221.

161.

3019

322

585

115

.8x

16.6

x14

.8x

30.2

x26

.0x

6.9x

KEG

Key

Ener

gy S

ervi

ces

0.6

1.3

0.0%

3.76

Buy

5.0

33%

EV/E

BITD

A5.

1x-0

.10

-0.3

80.

1227

016

529

7-3

7.6x

-9.8

x31

.0x

4.7x

7.7x

4.3x

RES

RPC,

Inc.

3.3

3.4

2.8%

15.1

0Bu

y23

52%

EV/E

BITD

A6.

0x0.

801.

151.

7050

463

484

018

.9x

13.1

x8.

9x6.

8x5.

4x4.

1xSS

ESe

vent

y Se

ven

Ener

gy0.

72.

30.

0%15

.19

Buy

2671

%EV

/EBI

TDA

5.0x

n/a

0.46

2.00

390

445

432

n/a

33.1

x7.

6x5.

9x5.

2x5.

3xTC

W.C

N1

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an W

ell S

ervi

ce1.

62.

22.

9%10

.50

Buy

1652

%EV

/EBI

TDA

6.9x

-0.2

7-0

.03

0.95

195

229

443

-38.

9x-3

43.8

x11

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11.2

x9.

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erag

e1.

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x9.

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8xM

edia

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16.6

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8x6.

4x4.

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e Ta

rget

EPS

EBIT

DA ($

MM

)Pr

ice

to Ea

rnin

gsEV

/EBI

TDA

O

ctob

er 1

4, 2

014

5 Com

p Ta

ble:

ISI G

roup

’s G

loba

l Oil

Serv

ices

, Equ

ipm

ent &

Dril

ling

Cove

rage

Uni

vers

e (c

ontin

ued)

So

urce

: ISI

Ene

rgy

Rese

arch

, Blo

ombe

rg. N

ote:

Pric

ed a

s of 3

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m o

n O

ctob

er 1

4, 2

014

Mk C

apEV

Div

Shar

eIS

ITa

rget

%Ti

cker

Com

pany

($B)

($B)

Yiel

dPr

ice

Ratin

gPr

ice

Upsid

e20

15E

Mul

tiple

2013

2014

E20

15E

2013

2014

E20

15E

2013

2014

E20

15E

2013

2014

E20

15E

Oilfi

eld

Dist

ribut

ors

DNO

WN

OW

Inc.

$2.9

$2.7

0.0%

$27.

32Ho

ld$2

96%

P/E

16.5

xn/

a$1

.35

$1.7

6$2

39$2

46$3

20n/

a20

.3x

15.5

x11

.3x

11.0

x8.

4xM

RCM

RC G

loba

l2.

03.

40.

0%19

.92

Buy

2946

%P/

E16

.5x

1.57

2.06

2.20

402

415

449

12.7

x9.

7x9.

0x8.

4x8.

1x7.

5xAv

erag

e0.

0%26

%12

.7x

15.0

x12

.3x

9.8x

9.6x

8.0x

Med

ian

0.0%

26%

12.7

x15

.0x

12.3

x9.

8x9.

6x8.

0x

Onsh

ore

Drill

ers

ESI.C

N1

Ensi

gn E

nerg

y Se

rvic

es$2

.1$2

.73.

5%$1

3.43

Hold

$17

27%

EV/E

BITD

A5.

1x$0

.84

$0.9

9$1

.15

$501

$540

$618

16.0

x13

.6x

11.7

x5.

3x4.

9x4.

3xH

PH

elm

eric

h &

Pay

ne8.

48.

13.

5%77

.86

Buy

114

46%

EV/E

BITD

A6.

3x5.

746.

527.

751,

394

1,63

21,

897

13.6

x11

.9x

10.0

x5.

8x5.

0x4.

3xIC

DIn

depe

nden

ce C

ontr

act D

rillin

g0.

20.

30.

0%7.

93Bu

y18

127%

EV/E

BITD

A7.

8xn/

a-0

.03

0.35

514

37n/

a-2

60.7

x22

.4x

46.2

x18

.1x

6.9x

NBR

Nab

ors

Indu

strie

s5.

08.

51.

4%16

.68

Buy

2974

%EV

/EBI

TDA

6.0x

1.02

1.21

2.00

1,59

01,

805

1,77

516

.4x

13.8

x8.

3x5.

3x4.

7x4.

8xPD

.CN

1Pr

ecis

ion

Drill

ing

2.8

3.9

2.5%

9.50

Buy

1444

%EV

/EBI

TDA

5.4x

0.66

0.84

1.20

624

816

957

14.4

x11

.3x

7.9x

6.3x

4.8x

4.1x

PKD

Park

er D

rillin

g0.

51.

00.

0%3.

89Bu

y8.

010

6%EV

/EBI

TDA

4.2x

0.18

0.44

0.74

250

279

355

21.6

x8.

9x5.

3x4.

0x3.

6x2.

8xPT

ENPa

tter

son-

UTI

Ene

rgy

3.2

3.7

1.9%

21.5

4Bu

y43

100%

EV/E

BITD

A5.

4x1.

431.

582.

7086

398

91,

258

15.1

x13

.6x

8.0x

4.3x

3.8x

3.0x

Aver

age

1.8%

75%

16.2

x-2

6.8x

10.5

x11

.0x

6.4x

4.3x

Med

ian

1.9%

74%

15.5

x11

.9x

8.3x

5.3x

4.8x

4.3x

Offsh

ore

Drill

ers

ATW

Atw

ood

Oce

anic

s$2

.5$3

.82.

6%$3

8.14

Buy

$48

26%

EV/E

BITD

A6.

0x$5

.32

$4.7

2$6

.95

$541

$541

$740

7.2x

8.1x

5.5x

7.0x

7.0x

5.1x

DO

Diam

ond

Offs

hore

5.2

6.3

9.3%

37.6

2Se

ll32

-15%

EV/E

BITD

A4.

8x4.

242.

953.

451,

207

1,03

21,

230

8.9x

12.8

x10

.9x

5.3x

6.1x

5.2x

ESV

Ensc

o PL

C8.

813

.38.

0%37

.40

Buy

4520

%EV

/EBI

TDA

6.6x

6.09

6.14

5.50

2,39

52,

380

2,27

46.

1x6.

1x6.

8x5.

6x5.

6x5.

9xHE

ROHe

rcul

es O

ffsho

re0.

21.

30.

0%1.

49Se

ll2.

034

%EV

/EBI

TDA

3.6x

0.27

0.01

0.20

295

262

357

5.5x

279.

0x7.

3x4.

3x4.

8x3.

5xN

ADL

Nor

th A

tlant

ic D

rillin

g1.

44.

116

.7%

5.77

Sell

5.8

1%EV

/EBI

TDA

7.2x

1.04

1.14

1.00

549

619

671

5.6x

5.1x

5.8x

7.5x

6.7x

6.2x

NE

Nob

le C

orp.

4.8

11.4

8.1%

18.4

5Bu

y25

36%

EV/E

BITD

A7.

2x2.

952.

762.

401,

964

1,94

21,

723

6.3x

6.7x

7.7x

5.8x

5.9x

6.6x

ORI

GO

cean

Rig

1.6

5.5

6.1%

12.4

7Bu

y34

173%

EV/E

BITD

A7.

2x0.

952.

033.

2652

590

51,

175

13.2

x6.

2x3.

8x10

.5x

6.1x

4.7x

PACD

Paci

fic D

rillin

g1.

54.

10.

0%7.

02Bu

y12

71%

EV/E

BITD

A7.

2x0.

350.

811.

1035

854

071

620

.2x

8.6x

6.4x

11.5

x7.

6x5.

7xPG

NPa

rago

n O

ffsho

re0.

52.

79.

1%5.

49Bu

y10

82%

EV/E

BITD

A3.

6xn/

a2.

401.

55n/

a38

070

5n/

a2.

3x3.

5xn/

a7.

1x3.

8xRD

CRo

wan

Dril

ling

2.7

4.3

1.9%

21.6

0Bu

y41

90%

EV/E

BITD

A6.

0x1.

952.

083.

9059

969

61,

104

11.1

x10

.4x

5.5x

7.1x

6.1x

3.9x

RIG

Tran

soce

an10

.518

.810

.4%

28.7

3Se

ll27

-6%

EV/E

BITD

A6.

0x4.

114.

593.

003,

483

3,54

82,

991

7.0x

6.3x

9.6x

5.4x

5.3x

6.3x

SDRL

Sead

rill

11.3

23.0

17.5

%22

.90

Buy

4075

%Di

v Yi

eld

10%

3.55

3.30

3.30

2,76

32,

531

2,80

36.

5x6.

9x6.

9x8.

3x9.

1x8.

2xVT

GVa

ntag

e Dr

illin

g0.

33.

00.

0%0.

94Ho

ld1.

06%

EV/E

BITD

A6.

6x0.

050.

160.

2035

742

644

618

.8x

6.0x

4.8x

8.5x

7.1x

6.8x

Aver

age

6.9%

46%

9.7x

28.0

x6.

5x7.

2x6.

5x5.

5xM

edia

n8.

0%34

%7.

1x6.

7x6.

4x7.

1x6.

1x5.

7x

Offsh

ore

Tran

spor

tatio

nBR

SBr

isto

w H

elic

opte

rs$2

.4$3

.21.

9%$6

5.95

Buy

$80

21%

EV/E

BITD

A7.

2x$4

.45

$5.1

4$5

.52

$314

$371

$398

14.8

x12

.8x

12.0

x10

.1x

8.6x

8.0x

CKH

SEAC

OR

Hold

ings

1.5

2.0

0.0%

76.4

5Ho

ld85

11%

BV1.

25x

1.39

3.34

4.45

200

268

336

55.0

x22

.9x

17.2

x10

.1x

7.5x

6.0x

ERA

Era

Gro

up0.

40.

70.

0%20

.80

Sell

19-9

%EV

/EBI

TDA

6.6x

0.77

1.19

1.36

8199

108

27.0

x17

.5x

15.3

x8.

6x6.

9x6.

4xGL

FGu

lfmar

k O

ffsho

re0.

81.

33.

6%28

.03

Buy

3525

%EV

/EBI

TDA

6.0x

2.54

3.30

4.24

161

199

242

11.0

x8.

5x6.

6x7.

9x6.

4x5.

3xH

ELI

CHC

Hel

icop

ter

0.4

1.8

0.0%

5.16

Buy

5.8

12%

EV/E

BITD

A5.

1x-3

.00

-1.3

2-0

.65

201

244

340

n/a

-3.9

x-8

.0x

8.8x

7.3x

5.2x

HOS

Horn

beck

Offs

hore

0.9

1.7

0.0%

25.2

5Bu

y50

98%

EV/E

BITD

A6.

3x2.

172.

724.

2526

931

042

011

.6x

9.3x

5.9x

6.4x

5.6x

4.1x

TDW

Tide

wat

er1.

83.

32.

7%36

.53

Hold

371%

EV/E

BITD

A6.

0x3.

563.

894.

8034

644

954

810

.3x

9.4x

7.6x

9.5x

7.3x

6.0x

Aver

age

1.2%

23%

21.6

x10

.9x

8.1x

8.8x

7.1x

5.8x

Med

ian

0.0%

12%

13.2

x9.

4x7.

6x8.

8x7.

3x6.

0x

Seism

icIO

ION

Geo

phys

ical

$0.4

$0.4

0.0%

$2.4

4H

old

$2.7

11%

SOTP

4.8x

-$0.

09$0

.03

$0.2

1$7

4$9

7$9

9-2

7.1x

70.0

x11

.7x

5.9x

4.5x

4.4x

Pric

e Ta

rget

EPS

EBIT

DA ($

MM

)Pr

ice

to Ea

rnin

gsEV

/EBI

TDA

6

Our Key Calls in this Report

We are launching coverage of the Oil Service, Equipment and Drilling industry with a positive view and initiating coverage on 59 companies. We believe the recent sharp sell-off in the group has created significant buying opportunities in certain subsectors and stocks. Our favorite sub-sectors are large cap diversifieds, SMID cap North American-leveraged companies, and offshore niche technology providers and support companies. We also believe the major capital equipment providers are good values.

We remain cautious on the offshore drillers as a group although some valuation differentiation should begin to emerge creating pair trading opportunities. We do expect the offshore drilling group to rebound sharply off recently oversold conditions before ultimately underperforming the broader group over the next several quarters.

Our Top Picks are the large cap diversifieds including Baker Hughes, Halliburton, Schlumberger, and Weatherford. In the SMID cap area we prefer production and completion service companies such as Basic Energy Services, Calfrac Well Services, C&J Energy Services, Superior Energy Services, and Trican Well Services while for onshore drillers we recommend Patterson-UTI Energy and Helmerich & Payne. Offshore niche technology providers such as Dril-Quip, Frank’s International, and Oceaneering International are also attractive and in the offshore support are our favorites are Hornbeck and Bristrow. In the offshore drilling group, which we remain cautious on, two solid dividend stories are appealing, Ensco plc and Noble, while Pacific Drilling and Ocean Rig deserve some valuation differentiation due to the high quality nature of their fleet.

Most of our “leading stock market indicators” before calling a bottom have been hit recently including capitulation selling, portfolio strategist downgrades of Energy, extremely negative and biased newsflow about oil, and oil price forecast revisions lower. The last, earnings revisions lower, have somewhat started but appear to be already reflected in the stocks.

Near-term upside catalysts include the 3Q earnings season, especially for SMID cap North American-leveraged companies. We also believe 3Q earnings will reset expectations for 4Q for the large cap diversifieds, helping these stocks to bottom and potentially rally following the revisions. For the group and Energy as a whole, the November 27th OPEC meeting could lead to a significant rally if the cartel moves forward with production cuts.

Concerns about OPEC infighting and discord appear meaningful. While a production response may prove elusive in November, stronger demand and slower growth in supply sow the seeds for recovery in 2015.

The major themes that we believe are driving growth for the industry currently are: the revolutionary change in drilling in North America, continuing growth in the international markets (especially Latam, Saudi in 2015), increasing deepwater drilling (at a moderate pace) and subsea production growth, the expansion of the installed base for capital equipment providers (the aftermarket potential), the emergence of North America as a global LNG force, the exploration/exploitation of the arctic, energy infrastructure and the “gasification” of the world, and the rise of mature field investments.

7

The Group is Oversold; Buying Opportunity

October 14, 2014

8

We Believe the Stocks are Bottoming

In our 15 years following the industry we’ve witness a multitude of corrections in the oil service group along with several industry downturns. We do not believe we are entering a downturn. Rather the softness in the stocks is a normal correction in the context of a long-term upcycle, primarily driven by macro concerns that appear to us to be overblown. During corrective periods we tend to look for several market signals to call a bottom in the group.

Most of our “stock market leading indicators” before calling a bottom have hit recently including capitulation selling, portfolio strategist downgrades, negative and biased newsflow, and oil price forecast revisions lower. The last, earnings revisions lower, are starting but also appear to be already reflected in the stocks.

Concerns that infighting at OPEC have risen in recent weeks, highlighted by Saudi Arabia and Kuwait's decision to lower prices to Asian buyers in October. Many market observers have suggested that OPEC is the most fractured than any time in its history since the cartel's founding in 1960. We do not agree. The 1980's market share battles were much more fierce and driven by massive amounts of spare capacity. Spare capacity today is minimal at best.

Sell-Off has Created Opportunities in Select Stocks

Since late June the Oil Service Index has dramatically underperformed the broader market, falling 25% since peaking on June 30 compared to a 4% slide for the S&P 500 over the same time-period. The combination of revised GDP forecasts, lackluster economic data, geopolitical tensions, falling oil prices, and investor re-allocations to other parts of the economy (i.e. Technology) has left the Energy sector and especially the Oil Service, Equipment and Drilling Group severely out-of-favor. We believe the sell-off has created significant opportunities. Since the recent June peak for the OSX, the index has dropped 25% while Brent has fallen 21% and WTI has corrected by 19%. The U.S. dollar, over the same time period has rallied 7%, adding pressure to commodities. The dollar has risen for three months straight and now sits at a 2-year high versus the Euro and a six-year high versus the Yen.

We believe the group is clearly under-owned, out-of-favor, and poised to outperform. We are launching coverage of the Oil Service, Equipment and Drilling industry with a positive view and initiating coverage of 59 stocks. Our Top Picks are the large cap diversifieds including BHI, HAL, SLB, and WFT. In the SMID cap area we prefer production/completion service companies such as BAS, CFW.CN, CJES, SPN, and TCW.CN while for onshore drillers we recommend PTEN and HP. Offshore niche technology providers such as DRQ, FI, and OII are also attractive and in the offshore support are our favorites are HOS and BRS. In the offshore drilling group, which we remain cautious on, two solid dividend stories are appealing, ESV and NE, while PACD and ORIG deserve some valuation differentiation due to the high quality nature of their fleets.

Capitulation Selling Newsflow Strategists Oil Price EPS Revision

In Progress

October 14, 2014

9

Commodity Prices have been Under Pressure, Pushing the OSX Lower Concerns over oil supplies, economic discontinuity, and geopolitics have driven down global and domestic oil prices and the oilfield service group.

Source: ISI Energy Research, Bloomberg

With the decline in cyclical sectors, the S&P 500 has been sliced by 4% since the June OSX peak. The OSX has fallen by 25%, led by Nabors’ 40% decline. We believe dollar weakness has played a significant role by pushing commodities down, and the U.S. dollar has rallied 7% since the OSX peak and is up three months in a row.

OSX has taken a Beating Despite S&P Strength as Dollar has Rallied While cyclical sectors and in particular energy have been under pressure the S&P 500 has continued higher.


$80

$85

$90

$95

$100

$105

$110

$115

$240

$250

$260

$270

$280

$290

$300

$310

Jun-14 Jul-14 Aug-14 Sep-14 Oct-14

OSX (L)

Brent (R)

WTI (R)

$1,850

$1,875

$1,900

$1,925

$1,950

$1,975

$2,000

$2,025

S&P 500 (Far L)

$79

$80

$81

$82

$83

$84

$85

$86

$87

$240

$250

$260

$270

$280

$290

$300

$310

$320

Jun-14 Jul-14 Aug-14 Sep-14 Oct-14

OSX (L)

U.S. Dollar (R)

October 14, 2014

10

Along with the sharp decline in oil prices investors have quickly moved out of energy stocks and into other parts of economy, most notably Technology. ISI’s Head of Company Surveys Oscar Sloterbeck’s Institutional Equity Sector Allocation Survey demonstrates that investors have fled from the group with the survey posting a 900 basis point drop in allocation from August to September. We suspect the October results will reveal a further decline. In addition, hedge funds have cut net exposure very sharply in the last few weeks which is typically a negative market signal.

Investor Allocations To Energy Have Recently Diminished ISI’s Head of Company Surveys Oscar Sloterbeck’s Institutional Equity Sector Allocation Survey showed a 900 basis point drop in allocations towards Energy from August to September.

Source: ISI Research

Given the pullback in the shares, valuation have improved and are particularly compelling for the large cap diversifieds, which on average are trading at ~3x multiple turns below their historical average and 3x multiple turns below the S&P 500 compared to their historical premiums to the broader market of 11%.

Forward P/E’s for the “Big Four” are Attractive The “Big Four,” including Baker Hughes, Halliburton, Schlumberger and Weatherford are the best positioned stocks for the cycle as we see it unfolding over the next several years and valuation for this group remains attractive.


25

30

35

40

45

50

J-12 A-12 J-12 O-12 J-13 A-13 J-13 O-13 J-14 A-14 J-14

Institutional equity sector allocation towards equity dropped 900bp from

August to September and remains well below 2012 weightings

5x

8x

11x

14x

17x

20x

23x

26x

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

The "big four" diversified services are trading at almost a 26% discount to their 2004-2013 average of 16.7x

October 14, 2014

11

The small and mid-cap North American-leveraged stocks and the land drillers have also experienced a sharp pull-back in valuations despite the superior outlook for growth in their main market of North America. We also believe valuations are misleading as the market traditionally underestimates the operating leverage and earnings power for this group during upturns. Our channel checks in recent weeks have suggested business conditions remain extremely robust.

SMID Cap NAM-Levered and Land Drillers have Pulled Back Sharply The North American-leveraged small and mid-cap stocks are also reasonably valued, especially given our view that consensus estimates dramatically underestimate the operational leverage and earnings power of this group.


While the capital equipment stocks are not too far below their historical multiple ranges, the valuations have slipped which has created some value opportunities. We think the market has already discounted the slowdown in offshore rig orders for NOV and CAM but investors may be missing the enormous aftermarket opportunity that record backlogs and thus a huge expansion in the installed base of equipment present.

Capital Equipment Multiples Exhibit some Value Capital equipment multiples have contracted as the market anticipates lower order rates going forward; however, the market may be not be appropriately valuing the cash harvest that is underway and the aftermarket potential from the huge buildout of the installed equipment base. Source: ISI Energy Research, Bloomberg

2x

3x

4x

5x

6x

7x

8x

9x

10x

11x

'06 '07 '08 '09 '10 '11 '12 '13 '14

Production & Completion ServicesOnshore Drillers

Onshore Drillers historically trades at a 15% discount to SMID Cap NAM services, averaging 5.0x and 5.9x

respectively from 2004-2013

5x

9x

13x

17x

21x

25x

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

The "big three" capital equipment providers averaged 16.6x from 2004-2013, in line with the "big four" diversified services, and are trading at a 24% discount currently

October 14, 2014

12

From only looking at share price performance year-to-date one might believe that the offshore drillers are inexpensive; however, we do not believe that to be the case. The group is facing heavy supply challenges and dayrates are dropping quickly and eroding earnings power. The companies are basically racing to the bottom in the floater market in order to protect utilization and in the jackup market the rate declines have only just begun. Despite this phenomenon, we do believe there is some value in a few names and we also think the market will start to differentiate between high and low quality fleets yielding pair trading opportunities. As a group, however, we expect the offshore drillers to underperform the rest of the industry until the dayrate cycle nears a bottom.

Despite Substantial Underperformance Offshore Drillers are Not Cheap While the offshore drilling group appears inexpensive on forward EV/EBITDA, the collapse in dayrates due to oversupply is likely still early in the process and significant earnings revisions lower are likely.


Despite the dayrate trends in the offshore drilling space, offshore drilling activity remains robust and we believe the offshore, and especially the deepwater rig count will continue to grow. The dayrate issue is due to oversupply, rather than a growing rig count. As a result of continued growth the niche technology providers to the offshore markets will experience solid growth over the next decade as new wells are drilling, subsea systems are installed, and well interventions occur. Given that this group has sold off with the offshore drillers has created an opportunity.

Niche Offshore Technology Providers are Attractive Given our view that the offshore rig count will continue to climb, albeit at a modest pace, we believe the offshore technology providers should trade at higher multiples and have sold off due to the issues in the offshore rig market.


Similar to offshore niche technology providers, the support companies that provide vessels and helicopters to the industry are experiencing solid demand and robust

3x

4x

5x

6x

7x

8x

9x

10x

'06 '07 '08 '09 '10 '11 '12 '13 '14

Offshore drillers are trading at 5.8x, only a 13% discount to their 6.7x average from 2006-2013

8x

11x

14x

17x

20x

23x

26x

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

Capital Technology / Equipment Providers are trading at an attractive 21% discount to their

2004-2013 average of 19.5x

October 14, 2014

13

offshore activity. Given the push into deeper waters the demand is growing more rapidly than the rig count as larger and more sophisticated equipment is required to make the longer trips from shore base to offshore rig or offshore platform.

Offshore Support Outlook Remains Healthy & Multiples could Improve Similar to our view on the offshore technology providers, in a rising rig count environment the offshore support companies will also experience rising demand for services, with a multiplier effect in place due to the continue push into deeper waters with greater distances between rigs, platforms and shore bases.


4x

5x

6x

7x

8x

9x

'06 '07 '08 '09 '10 '11 '12 '13 '14

Offshore Support companies are generally trading in line with their historical average multiple of 6.6x

14

The State of the Oil Service Industry

October 14, 2014

15

The State of the Industry and the Outlook for E&P Spending

Global E&P spending trends remain relatively strong and we forecast record expenditures this year and for the next several years in most major markets around the world, especially in North America, most parts of Latin America, the majority of the Middle East, Sub-Saharan Africa, and many countries in Southeast Asia. Successful resolutions to the conflict in Iraq and the stalemate in Ukraine (which would end the sanctions on Russia) would add further to E&P spending growth.

We currently forecast 2015 E&P spending growth of ~8-9% for North America and ~5% for International markets, with activity levels, especially abroad, outpacing E&P spending as oil companies benefit from substantially lower offshore rig costs.

Large cap diversified oil service companies have record visibility, are generating record revenue, and are chasing the largest number of contracts in their history. The capital equipment providers are sitting on record backlogs and have dramatically increased the installed base of equipment in recent years with further additions to come which will drive huge growth in aftermarket sales, while offshore technology providers and support companies are experiencing impressive demand growth reflecting the continued increase in the rig count. The one area of weakness is offshore dayrates; a trend that we expect to continue through 2015.

After fairly low levels of E&P spending in the 1980s and 1990s spare oil productive capacity shrunk significantly and when in the early 2000s China’s expansion became more rapid, oil prices, and E&P spending began to surge and the world entered a new paradigm. From 1985 to 2005 E&P spending rose 5% annually while from 2005 to 2013 E&P spending growth accelerated to 12% per year.

Global E&P Spending Levels have Entered a New Paradigm Following anemic spending throughout the 1980’s and 1990s, the 2000s experienced a surge in spending.

Source: ISI Energy Research

$0

$100

$200

$300

$400

$500

$600

$700

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Rest of the World

Canada

United States

October 14, 2014

16

Going forward we expect global E&P spending growth to slow modestly from the breakneck pace of the last four years as the Majors focus on returns, the NOCs push forward with major projects, the independents move fully into development phase in shale plays, and companies that drill offshore benefit from much lower offshore rig rates. Overall spending levels will also likely appear lower than actual drilling levels as the IOCs will be spending less on major LNG projects and more on drilling wells. We believe, however, that the risk to our estimates is to the upside as we expect higher oil prices and a resurgence in natural gas activity.

Global E&P Spending Heading Towards $1 Trillion/Yr by 2020 While we do expect E&P spending growth going forward to be more moderate, there is risk that our estimates prove too conservative.


$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Rest of the World

Canada

United States

Actual Estimates

17

Regional Outlooks

October 14, 2014

18

Global Spending Growth to Continue

While our outlook varies by region, we do anticipate most markets around the world will expand in 2015; however, the largest moves are likely to shift back to the Western Hemisphere where North and South America should experience above average growth as North American activity continues its strong upward momentum and Latin America rebounds from a lackluster 2014. We currently forecast E&P spending growth of ~5% internationally and 8-9% in North America in 2015. Spending will be once again led by the NOCs and Independents, while the IOCs continue to constrain capital investment. The NOCs and Independents represent roughly 78% of global E&P spending compared to the Majors which account for 22% of the market.

The NOC’s & Independent’s Dominate Global E&P Spending Despite popular perception in the equity markets the NOCs are the largest spenders of E&P dollars in the world at close to 40% compared to the Majors at only 22%.


North America has Momentum

Clearly the driving force in the Western Hemisphere at the moment is North America where rig counts in the U.S., and especially well counts have risen dramatically from their 2013 low and are set to continue upward momentum in 2015 and 2016. The U.S. market only five years ago was dominated by natural gas activity but currently ~85% of all rigs are targeting liquids. While the “great migration” to oil occurred primarily in 2011 and early 2012, the second half of 2012 and most of 2013 was spent delineating plays, securing geological knowledge and testing drilling and completion techniques. As we entered 2014 full scale development programs began to take hold and these are continuing to grow in scope and scale. The drive higher will incorporate not only more wells drilled, but continued increases in service intensity as more measurements, more fractures, and more proppants will be demanded to continue to optimize shale well productivity. While Canada has lagged the United States in shale exploitation the country is quickly playing catch up.

Independents39%

Majors22%

NOCs39%

October 14, 2014

19

North American Oil Production vs. Rest of the World Sharply rising North American oil production is barely offsetting stagnate production in the rest of the world.

7

Source: IEA, ISI Energy Research

Despite the recent pull-back in WTI, operators believe well economics remain healthy due to high initial flow rates and growing production levels will help drive higher cash flows (and thus higher CAPEX). We believe the E&P industry is sitting on the largest number of wells “to be drilled” in its history.

U.S. Well Count and Well to Rig Ratio

The U.S. well count increased to 9,566 during Q3:14, up 5% YoY and 1% sequentially.

Source: Baker Hughes, ISI Energy Research

After a difficult 2012 and 2013, pressure pumping fundamentals are rapidly improving with utilization 90% or higher in North America, a continued move towards greater service intensity, more horsepower required on location, and pricing inflecting higher. Average crew size have increased 20%-50% in certain regions.

40

50

60

70

80

9

11

13

15

17

'86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14E

NAM ProductionROW Production

NAM MMBbl/d ROW MMBbl/d

4.6

4.7

4.8

4.9

5.0

5.1

5.2

5.3

5.4

8,0008,2008,4008,6008,8009,0009,2009,4009,6009,800

U.S. Well Count - L Wells to Rig Ratio - R

October 14, 2014

20

Pressure Pumping Market Rebounding Solidly U.S. pressure pumping capacity increased 17% since early 2012 and PacWest forecasts another 2.4 MM HHP will be added to the system over the next several quarters, a 15% increase.

Source: PacWest Consulting, ISI Energy Research

Proppant usage per well continues to grow steadily with the average well now commanding 3.5 million pounds, up from 2 million pounds two years ago. According to Halliburton their typical job a year ago consumed roughly 4 million pounds which is the equivalent of 20 rail cars. Today, the company is working on jobs that consume 15 million pounds or the equivalent of 75 rail cars.

Proppant Demand Continues its Rapid Rise The industry fracs a steady 6,500-7,500 wells per quarter, but proppant usage has risen steadily from 2.0 MM lb per well two years ago to about 3.5 MM lb currently.

Source: PacWest Consulting, ISI Energy Research

70%

75%

80%

85%

90%

95%

100%

12

13

14

15

16

17

18

'12 '13 '14 3QE '15E

% UtilizationMM HHP Marketable Capacity Effective Utilization

Utilization dropped 2430bp in 2012

to bottom at 73.5% ...

... and has recovered to 90% this quarter

2.0

2.5

3.0

3.5

4.0

4.5

6.0

6.5

7.0

7.5

8.0

'12 '13 '14 3QE '15E

MM lbs / Well'000 Wells Wells Frac'ed Proppant per Well

About 6,500-7,500 wells are frac'ed per quarter ... ... but proppant usage per well

continues to rise

October 14, 2014

21

Following right along with the shale revolution is the growth in E&P spending in North America. We anticipate another healthy year of 8-9% growth in 2015.

North American E&P Spending (2004-2015E, $ in billions)


49 6592 99

12384 101

132 144 150 164

+8%

2530

36 32

38

25

38

4944 43

45

$0

$25

$50

$75

$100

$125

$150

$175

$200

$225

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14E '15E

October 14, 2014

22

A Rebound Coming for Latin America

While 2014 has been a lackluster year in Latin America, primarily due to Mexico and Brazil, trends for 2015 appear much stronger. Mexican energy reform passed, round zero is complete, round 0.5 is underway and round 1 is expected in 1Q. Last year we described the Mexican opportunity set as the next “El Dorado” for the oil service industry and we still expect this to be the case. The market is currently about $20 billion but we believe this could reach $80 by 2020 with about a 50/50 split between PEMEX and foreign investors. Several “mega-tenders” were awarded to oil service companies earlier this year and rigs are now being mobilized.

Mexico Round One Timeline Round One in Mexico will begin shortly with calls for the first round of bids due next month.

Source: Company Reports, ISI Energy Research

Separately, PEMEX has signed MOU’s and agreement with several Major and regional oil companies including Exxon, Petronas, and YPF, and we expect many others to be signed in the near term. In addition the Mexican government has set up four funds aimed at spreading the benefits of energy reform to the population including stabilizing and developing the economy.

Mexico Energy Reform Timeline We have been very impressed with the Mexican government’s quick move on Energy Reform, followed by very little slippage getting ready for foreign investment.


Further south, we have met with many senior executives of oil service and drilling companies in the last few weeks who recently visited with Petrobras in Brazil and almost all came away from their meetings feeling better about the Brazilian market next year. Several of the major contracts have been re-bid and awarded, Petrobas is currently expected to take 3-5 deepwater rigs from the market, and given the delivery timeline for several FPSOs the company needs to ramp up activity.

Acreage type

Open blocks & joint ventures

November 2014 January 2015 Shallow-water

December 2014 February 2015 Extra-heavy oil

January 2015 March 2015 Chicontepec/unconventionals

February 2015 April 2015 Onshore

March 2015 May 2015 Deep-water

Call for Bids Data room opening

"Round Zero"Pemex Proposals

Secondary Legislation

Government Response to Round Zero

Round One Tenders Activity Begins

March2014

April2014

September2014

1H2015

4Q2015

October 14, 2014

23

Brazil Oil & Gas Production Mexico Oil & Gas Production

Source: EIA, ISI Energy Research Source: EIA, ISI Energy Research

Both the Brazilian offshore rig count (down 44% from its 2011 peak) and the Mexican offshore and onshore (down 20% from the end of 2012) rig counts are poised to rebound.

Brazil Onshore & Offshore Rig Count Mexico Onshore & Offshore Rig Count

Source: Baker Hughes, ISI Energy Research Source: Baker Hughes, ISI Energy Research

Petrobras & Pemex Budgets ($B)


0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1

2.3

2.0

2.1

2.2

2.3

2.4

2.5

2.6

2.7

2.8

'06 '07 '08 '09 '10 '11 '12 '13

OilNatural Gas

After a few disappointing years, Brazil's oil production growth is expected to accelerate this year

Oil MMBbl/d Gas Bcf/d

3.5

4.0

4.5

5.0

2.82.93.03.13.23.33.43.53.63.73.8

'06 '07 '08 '09 '10 '11 '12 '13

OilGas

Mexico's oil production is down sharply from 2006 levels, while gas production is relatively unchanged

Oil MMBbl/d Gas Bcf/d

0

10

20

30

40

50

60

70

80

90

'06 '07 '08 '09 '10 '11 '12 '13 '14

OnshoreOffshore

Brazil's offshore rig count is down 44%from its 2011 peak

The onshore rig count is down 60% since mid

2012

0

20

40

60

80

100

120

140

'06 '07 '08 '09 '10 '11 '12 '13 '14

OffshoreOnshore

Mexico's offshore rig count is near its historical highs, but the onshore count is down almost 50% from the end of 2012

$8

$13

$18

$23

$28

2006 2007 2008 2009 2010 2011 2012 2013 2014E

Petrobras PEMEX

October 14, 2014

24

Activity in Colombia is expected to continue to ramp up and permitting issues are easing, Argentina is strong and should remain so as shale activity grows further, and several major production management projects were recently awarded in Ecuador which will drive significant growth next year. Ecuador has awarded contracts to oil and oil service companies to operate 17 mature fields in Amazon territories. Both Halliburton and Schlumberger were awarded contracts. Schlumberger has already experienced huge success in Ecuador with its Shushufendi project and now Halliburton has agreed to long-term contracts (15 years plus a potential five-year extension) to provide field development and project management on nine mature fields and will invest $1 billion in the first five years.

E&P Spending by Select Latin American Companies ($ in billions) After a somewhat disappointing year in Latin America for the oil service industry, as Petrobras and PEMEX both slowed activity, 2015 should be a much better year for the industry.


* Our estimates include Petrobras, Pemex, PDVSA, Ecopetrol SA, OGX and others.

+5.5%

$0

$10

$20

$30

$40

$50

$60

$70

2006 2007 2008 2009 2010 2011 2012 2013 2014E

October 14, 2014

25

The Middle East to Drive Eastern Hemisphere Growth; but Iraq Could Remain Challenged

While proxy wars in Syria and Iraq are a concern, the rest of the Middle East is expanding rapidly, led by Saudi Arabia. Saudi Aramco is not only boosting spending in traditional fields, the company is also pushing into unconventionals including drilling shale gas wells in the North, tight gas wells in shallow water, and deepwater wells in the red sea.

Saudi Arabia Onshore & Offshore Rig Count The Kingdom of Saudi Arabia is likely to drive Middle Eastern growth in 2015 and beyond as Saudi Aramco pushes forward with ambitious drilling programs.


Middle Eastern operators are also increasingly making investments abroad, as evidenced by Kuwait Foreign Petroleum Exploration Company’s (the international investment arm of Kuwait Petroleum Company) recent agreement to acquire a 30% stake in Chevron’s interest in the Kaybob area of Canada’s Duvernay shale.

E&P Spending by Select Middle East Companies ($ in billions)


* Our estimates include Saudi Aramco, Kuwait Oil Company, Abu Dhabi National Oil Co. (ADNOC) and others.

0

20

40

60

80

100

'06 '07 '08 '09 '10 '11 '12 '13 '14

OffshoreOnshore

Saudi's onshore rig count has ramped up sharply since late 2013 and average up 23% year to date, outpacing offshore's 13% growth

+15.5%

$0

$10

$20

$30

$40

2007 2008 2009 2010 2011 2012 2013 2014E

October 14, 2014

26

Two Sides of Africa to Perform Well; North Africa likely to Remain in Flux

While North Africa remains slow with Libya essentially shut down and Egypt and Tunisia lackluster, the growth in Africa will emerge from sub-Saharan Africa on the West Coast and gas plays on the East Coast. We anticipate strong activity growth in Angola as a number of high profile pre-salt wells are to be drilled and also the surrounding countries. In Nigeria, activity may be slow until after the elections in February, 2015.

E&P Spending by Select African Companies ($ in billions)


* Our estimates include Sonangol, Nigerian National Petroleum Company (NNPC), Sonatrach and others.

+8.5%

$0

$5

$10

$15

$20

$25

2008 2009 2010 2011 2012 2013 2014E

October 14, 2014

27

North Sea should Continue at Elevated Levels

Activity and spending levels in the North Sea have flattened out in recent years, primarily due to Statoil re-assessing its capital program. BG is also working through a portfolio review. In the near term we expect these conditions to continue.

Some Modest Lowering of the Offshore Rig Count The offshore rig count in the North Sea has moderated somewhat although remains at healthy levels.


Despite a flattish spending outlook for 2015 the North Sea remains at historically high levels.

E&P Spending by Select European Companies ($ in billions)


* Our estimates include Eni, Statoil, BG Group and others.

0

10

20

30

40

50

60

'06 '07 '08 '09 '10 '11 '12 '13 '14

The North Sea's rig count is averaging down 12% Y-Y to date, despite another pickup in spending

-0.2%

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

2006 2007 2008 2009 2010 2011 2012 2013 2014E

October 14, 2014

28

India, Asia and Australia a Mixed Bag

India and certain parts of Southeast Asia are likely to be bright spots in 2015, although China may not be one of them. The corruption probes at CNPC have slowed spending by PetroChina, CNOOC and Sinopec and this overhang is likely to persist. However, over time, the country’s aggressive goal of producing 80 bcm of unconventional natural gas by 2020 (up from a minimal amount today) will eventually spur a spending surge.

In India ONGC is preparing to tender for up to five deepwater rigs to drill off its East Coast for three to five year terms, while activity levels in Australia are set to ramp up to fuel large LNG facilities.

E&P Spending by Select Indian, Asian & Australian Companies ($ in billions)


* Our estimates include PetroChina, Sinopec, CNOOC, Petronas, ONGC and others.

+8.0%

$0$10$20$30$40$50$60$70$80$90

$100$110

2006 2007 2008 2009 2010 2011 2012 2013 2014E

October 14, 2014

29

Russia: the Great Unknown

Russia is a market that holds great promise for the oil service industry given the emerging, technically challenging plays that are opening up including oil shale and the Arctic; however, these are the same plays that U.S. and EU sanctions are targeted at stopping technology transfer. Sanctions may also hinder Russian oil companies’ abilities to tap Western capital markets for financing.

E&P Spending by Select Russian Companies ($ in billions) The Russian market is a substantial opportunity for the oil service industry as mature fields are in decline and the next wave of drilling is planned to be in more technically challenging areas like shales and the Arctic; sanctions, however, have created uncertainty that at the current time is difficult to quantify. Source: Company Reports, ISI Energy Research

* Our estimates include Gazprom, Lukoil, Rosneft and others.

+7.9%

$0$5

$10$15$20$25$30$35$40$45$50$55

2006 2007 2008 2009 2010 2011 2012 2013 2014E

30

Oil Market Outlook

October 14, 2014

31

We Expect a Year-End Oil Price Rally; and Higher Prices in 2015

Despite the relentless downward momentum in oil prices in recent weeks, a higher price environment remains possible in 2015-2016. The marginal supply from U.S. oil shale is only economic over $85-$90/bbl in our view, and any sustained period of prices below those levels would likely induce a quick supply response. Most North American liquids basins experience first year decline rates in excess of 50% and roughly 80% of new wells that are drilled only serve to maintain production. This is clearly leading to rising price elasticity. In addition, OPEC may take action at its November meeting and the continued return of Libyan and Iraqi production is anything but certain.

Rising Price Elasticity of Global Oil Supply (MMBbl/d) Oil production from the Bakken, Eagle Ford, Permian, and Niobrara is highly sensitive to oil prices, as production from new wells are needed to offset high decline rates from existing wells.


ISI’s Integrated Oil Analyst Doug Terreson recently reduced ISI’s brent forecast for the fourth quarter to $95/bbl; however, he maintained his 2015 forecast of $110/bbl (although the bias at this point may be a downward revision given the recent unexpected supply surge in OPEC). Terreson believes that organic demand will recover, additions to China’s SPR will continue and that lower oil prices will elicit a production response from non-OPEC and OPEC. We also believe the supply situation is extremely fragile in Libya and Iraq, and despite recent upside surprises, production could just as quickly fall. Other markets such as Russia, Nigeria, and Venezuela are also a concern of ours.

Oil demand trends are currently better-than-expected in North America, although below expectations in most other markets around the world. Terreson estimates global oil demand growth of 1 million and 1.2 million bbls/day in 2014 and 2015, respectively. On the supply side oil production globally is in-line with expectations with North America topping forecasts and production in Latin America, Middle East and Asia disappointing.

4,7774,880

389286

4,000

4,200

4,400

4,600

4,800

5,000

5,200

Sep Production fromnew wells

Legacy productionchange

Oct

October 14, 2014

32

Since 2010 80% of oil supply growth has come from three countries – the United States, Canada and Saudi Arabia. This is despite oil prices averaging $105/bbl suggesting very little production growth elsewhere. We believe the growth in production from the United States is decelerating.

Oil Supply Growth During $105/Bbl Brent, 2009-2014 (MMBbl/d) Production growth from the U.S., Canada, and Saudi Arabia represented 80% of global oil supply growth since 2010.


Despite heavy investment spending growth by the oil industry since 1999 global oil production has barely risen. We calculate that global E&P spending rose by 4x since 1999 while global oil production only rose 20%. In recent years the vast majority of production growth was derived from North America while the rest of the world has been flattish.

Global E&P Spending vs. Global Oil Production Global E&P spending has grown 4x since 1999, while global oil production is up only 20%.


85.2

90.092.8

4.9

-0.1 1.41.4

80

82

84

86

88

90

92

94

2009 NorthAmerica

OtherNon-OPEC

SaudiArabia

OtherOpec

2014

0102030405060708090100

$0

$100

$200

$300

$400

$500

$600

$700

$800

'99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 14E

MMBbl/d$B

ROW Spending NAM Spending Global Oil Production

October 14, 2014

33

The Majors cutting back on upstream spending is also a concerning trend as similar periods of underinvestment have led to significant oil price spikes.

Major’s Upstream Spending vs. Brent Average Underinvestment in 2002 and 2003 may have contributed to 34% oil price spike in 2004 and 45% in 2005.


We believe oil production growth in North America is slowing, with growth of 8.3% forecast for 2015, 7.6% for 2016, and 4.3% for 2017. This compares to annual production growth of more than 10% from 2012 to 2014E.

ISI Energy Research forecast total NAM crude production to reach almost 15 MMBbl/d by 2017,

but U.S. production growth is decelerating from 2013 peaks, while Canada spikes in 2016 for oil sands

Source: ISI Energy Research Source: ISI Energy Research

4%

19%

1% 0%9% 8%

15%7%

15%

0%0%

16%11% 9%

3%

34%

45%

-40%

-20%

0%

20%

40%

60%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

E

Y-Y Chg Majors' Upstream SpendingBrent Average

34%%

45%

0.0

1.5

3.0

4.5

6.0

7.5

9.0

10.5

12.0

13.5

15.0

'10 '11 '12 '13 14E 15E 16E 17E

MMBbl/d

CanadaU.S.

0%

5%

10%

15%

20%

'10 '11 '12 '13 14E 15E 16E 17E

Y-Y Growth

CanadaU.S.

October 14, 2014

34

In addition the incremental barrel is becoming harder to find and more expensive as E&P companies are moving out of the “sweet” spots in the major plays and new wells are requiring more technology, more pressure pumping horsepower, and more proppants. Logistical issues such as rail and trucking bottlenecks are only serving to increase costs. Halliburton recently stated that new wells they are fracturing are consuming 15 million pounds of proppants (75 rail cars of sand) compared to four million pounds of sand (20 railcars of sand) a year ago. We understand that some operators are testing wells that will consume 30-50 million pounds of proppants.

Oil service capacity utilization has also moved higher with the increased activity levels over the last year and we understand that both land rig and pressure pumping prices are moving higher which will only increase well costs further.

Incremental barrel is getting harder and more expensive to find The incremental cost of NAM production slowed in recent years because of oil services over capacity, but this should reverse in the not too distant future.

Source: IEA, Rystad, ISI Energy Research

In addition to our views on shale economics and production growth, 3Q and 4Q will likely see global oil inventories decline.

Global Oil Inventory Build (MM Bbl/d) ISI forecast inventory declines over the next two quarters, followed by a modest build in 2015.

Source: IEA, OPEC, EIA, ISI Energy Research

$0

$5

$10

$15

$20$25

$30

$35

$40

$45

$50

'86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14E ??E

Capex/Bbl

0.0

0.3

(0.7)(0.8)

0.5

0.8

(0.4)(0.5)

0.8 1.0

0.2 0.2

(1.0)(0.8)(0.6)(0.4)(0.2)0.00.20.40.60.81.01.2

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2013 2014E 2015E

October 14, 2014

35

Global Oil Inventory Draws Ahead (Days Demand)

Source: Bloomberg, IEA, ISI Energy Research

Stock-builds Moderate

35

40

45

50

55

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 14E 15E

OPEC Production Change

36

North America Natural Gas Outlook

October 14, 2014

37

Steady Natural Gas Prices and Rising Domestic Demand

Unlike our view on the North American oil markets we believe the gas market is truly leading to a real “revolution.” As a result we believe natural gas related activity, and production, will rebound solidly. We view North American natural gas as a triple threat: it’s 1) abundant, 2) environmentally friendly, and has 3) geopolitical implications among many other positive attributes.

The revolution in North America natural gas production is likely to have at least three major implications: 1) it will make North America a true force in the global LNG market, 2) lower prices are leading to a significant industrial & chemical renaissance in the U.S., and 3) there could be major changes to the transportation sector.

In the LNG space the U.S. is taking a leadership role with some ~12 bcf/d of export capacity already approved and more approvals likely. We understand that allies of the United States have asked the State Department for more than 70 bcf/d of LNG. (Or more natural gas than the country currently consumes).

Approved & Pending U.S. LNG Export Terminals Four projects have received all necessary approvals to export natural gas to date, but only Cheniere’s Sabine Pass has started construction with the first train available in early 2016.

Source: DOE, FERC, ISI Energy Research

Project Capacity (bcf/d)

FTA App Status

Non-FTA App Status

FERCApp Status

Start Year

Sabine Pass Liquefaction 4.1 approved approved approved 2016Dominion Cove Point 1.8 approved approved approved TBDCameron LNG 1.7 approved approved approved TBDFreeport LNG Expansion 3.2 approved approved approved TBDFreeport-McMoRan 3.2 approved pendingMain Pass Energy Hub 3.2 approved N/AGulf Coast LNG 2.8 approved pendingMagnolia LNG 2.2 approved pendingCheniere Marketing 2.1 approved pendingGolden Pass Products 2.0 approved pendingJordan Cove Energy Project 2.0 approved approvedLake Charles Exports 2.0 approved approvedTrunkline LNG 2.0 approved pendingDelfin LNG 1.8 approved pendingBarca LNG 1.6 approved pendingEos LNG 1.6 approved pendingGulf LNG Liquefaction 1.5 approved pendingExcelerate Liquefaction 1.4 approved pendingVenture Global 1.3 approved pendingLNG Development Company 1.3 approved approvedPangea LNG 1.1 approved pendingCE FLNG 1.1 approved pendingAnnova LNG 0.9 approved N/ASouthern LNG Company 0.5 approved pendingWaller LNG 0.4 approved pendingLouisiana LNG 0.3 approved pendingTexas LNG 0.3 approved pendingGasfin Development 0.2 approved pendingCarib Energy 0.1 approved approvedSB Power Solutions 0.1 approved N/AAdvanced Energy Solutions 0.0 approved N/AArgent Marine Management 0.0 approved N/ATotal Capacity (Bcf/d) 40.96 37.6

October 14, 2014

38

Canada is also likely to become a significant player in the LNG market due to its advantaged geographic position relative to the Asian markets and the loss of its major export partner, the United States.

Approved & Pending Western Canada LNG Export Terminals

Source: National Energy Board of Canada, Company Reports, ISI Energy Research

Canada is at the wrong end of the pipe and must, in our view, move forward with LNG exports to access Asian markets as its formerly key customer is sitting on a tremendous amount of reserves.

U.S. vs. Canada Gas Production As U.S. gas production has grown over the past eight years, Canada is losing its major export market.

Source: EIA, ISI Energy Research

Operator Project Location App Status Start Year

Capacity (bcf/d)

Capacity (mt/yr)

ExxonMobil WCC LNG Kitimat or Prince Rupert approved 2023 3.9 30.0Shell LNG Canada Kitimat approved 2020 3.2 24.0Nexen (CNOOC) Aurora LNG Prince Rupert approved 2021 3.2 24.0BG Group Prince Rupert LNG Prince Rupert approved 2022 2.8 21.6Petronas Pacific NorthWest LNG Lelu Island approved 2018 2.6 20.0Chevron Kitimat LNG Kitimat approved 2016 1.3 10.0AltaGas Ltd Triton LNG Kitimat or Prince Rupert approved 2017 2.3Woodfibre Natural Gas Woodfibre LNG Squamish approved 2017 0.27 2.1Douglas Channel EP BC LNG (Douglas Channel) Kitimat approved 2016 0.25 1.8Steelhead Steelhead LNG TBD, British Columbia pending TBD 3.9 30.0Orca Orca LNG Prince Rupert pending 2019 3.2 24.0Woodside Grassy Point LNG Prince Rupert pending 2021 2.6 20.0Kitsault Energy Kitsault Energy Project Kitsault pending 2018 2.6 20.0Quicksilver Discovery LNG Campbell River pending 2021 2.5 18.8Haisla Nation Cedar LNG Kitimat pending 2021 2.1 16.0WesPac Midstream WesPac Marine Terminal Delta pending 2017 0.4 3.0

13

14

15

16

17

18

19

50

52

54

56

58

60

62

64

66

68

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13

Canada Bcf/dU.S. Bcf/d

Canada's dry gas production fell 5% annually from 2007-2012 ... ... while U.S. production has

increased 4% annually since bottoming in 2005

October 14, 2014

39

Industrial, chemical, and transportation demand is increasing across the board in the United States. We estimate that the U.S. will need to produce over 90 bcf/day by 2020 due to the demand drivers mentioned above and the closing of coal-fired power generation. This compares to ~70 bcf/day of current production.

U.S. Natural Gas Industrial Demand is on the Rise (Bcf/d) Industrial demand for natural gas is expanding rapidly and new industrial plants continue to be built to take advantage of the abundant natural gas resources in the United States.

Source: EIA, ISI Energy Research

CNG and LNG fuel stations are beginning to meaningfully increase and we expect market penetration of ~5-8% by 2020, up from 1% today as adoption improves.

CNG & LNG fueling stations remain just 1% of traditional stations CNG and LNG fueling stations, while still minimal in terms of overall fueling stations, are starting to recover rapidly.

Source: Alternative Fuels Data Center, ISI Energy Research

16

17

18

19

20

21

22

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14E '15E

U.S. industrial demand hasincreased by 4% annually

since 2009

0

200

400

600

800

1,000

1,200

1,400

1,600

'92 '93 '94 '95 '96 '97 '98 '99 '01 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13

LNGCNG

The CNG & LNG fueling station count has changed in 15 years

October 14, 2014

40

The number of traditional gas stations in the United States continues to decline, although this is mostly a function of more high-volume stations replacing smaller, lower volume stations.

Traditional Gas Stations (‘000 stations) Traditional gas stations have been in decline as high-volume stations in optimized locations replace low-volume stations.

Source: Alternative Fuels Data Center, ISI Energy Research

145

150

155

160

165

170

175

180

185

'96 '97 '98 '99 '01 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

Traditional gas stationscount has fallen 1% per year

since 1996

41

Subsector Outlooks

October 14, 2014

42

Large Cap Diversifieds Still In Pole Position; Choppy 2H14 Results Already Discounted

We continue to view the large cap diversified companies as the best positioned to benefit from the growth in most international markets, the changing dynamics driving growth in North America, the continued expansion in deepwater and subsea activity, and the increased technological requirements of the modern oilfield. These companies dominate most of the advanced segments of the industry, control enormous swaths of market share in the international arena, and are increasingly returning capital to shareholders. In addition, with revenue and earnings continuing to increase and CAPEX falling both in aggregate terms and as a percentage of revenue, returns on capital are increasing which should drive stock multiples higher.

Large Cap Diversifieds ROIC, 2012-2015E


Capital Equipment Companies Shifting To Cash Harvesting And Returns To Shareholders

With capital equipment backlogs at all-time highs and 50%+ higher than last cycle, and a slowdown in orders for new rig equipment and subsea trees moderating somewhat, the large capital equipment providers are in a cash harvesting mode and are increasingly returning this capital to shareholders through higher dividends and share buybacks. For example, NOV recently announced a $3 billion buyback authorization; the first buyback in the company’s history.

The Big Three Capital Equipment Backlog ($B)


2012 2013 2014E 2015E 4 Year Average

BHI 7% 6% 8% 11% 8%

HAL 15% 14% 15% 18% 16%

SLB 13% 14% 14% 15% 14%

WFT 3% 6% 8% 12% 7%

Large Cap Average 10% 10% 11% 14% 11%

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'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '114 '15E

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CAM

NOV

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43

The Big Three Capital Equipment Cash Build ($MM)


We also believe the market may be underestimating the huge aftermarket opportunity that is being created with the massive expansion of the installed base of equipment. National Oilwell Varco, for example, has set up a separate group to focus on five-year surveys for offshore rigs. Currently the company services 35-40 rigs/year and that should grow to 110-115 rigs/year by 2017. With respect to Cameron, the company’s drilling aftermarket business in 2014 will likely surpass $1 billion in revenue compared to ~$300 million in 2009.

SMID Cap North American-Leveraged Companies Back In Action

With the North American market, and especially the United States moving quickly into full scale liquid shale development mode the once over-supplied services market is becoming quickly undersupplied. Capacity utilization is filling quickly and backlogs for land rigs are lengthening. Unless WTI breaks significantly lower (which we do not anticipate), the North American market has several more years of an upcycle to go.

Order Books for Major Land Drillers


Note: As of 9/30, 9/2, 9/9 and 7/23for HP, PTEN, PD and NBR, respectively. NBR did not provide a number of rigs contracted, but did mention a revenue backlog of greater than $800MM for its rigs under contract in the lower-48 as of 9/02. PD rig count includes 3 to Middle East, 7 to Canada and 8 to US during 2014 with 16 announced deliveries in 2015 to undisclosed locations

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HP PTEN PD NBR

Planned Newbuild Deliveries (R) % of Newbuilds Contracted (L)

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44

SMID Cap Production & Completion Services EBITDA Margins, 1Q13-4Q15E


Offshore Drilling Markets Remain Challenged; Although some Long-Term Values Emerging

As a CEO of a major offshore driller recently remarked to us “the market is terrible.” While the ultra-deep, deepwater, and mid-water rig markets have been under pressure for some time, the shallow water market is now also starting to correct. The reason is purely over-supply. Demand for offshore rigs continues to grow; however, supply of new assets is well in advance of the asset expansion.

A total of 43 newbuild floaters are available, including eight to be delivered over the next few months still without contracts.

Floater Newbuild Deliveries, 2010-2020E

Source: RigLogix, ISI Energy Research

The jackup market has even more availability in the near to medium term, with several units delivered in recent years that are ready stacked.

10%

12%

14%

16%

18%

20%

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E 4Q14E 1Q15E 2Q15E 3Q15E 4Q15E

24

32

1612

22

13 13

6 6 5

8

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6

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October 14, 2014

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Jackup Newbuild Deliveries, 2010-2017E

Source: RigLogix, ISI Energy Research

…But Offshore Niche Technologies and Logistics Remains Healthy

Despite the pricing and utilization pain which is intensifying for the offshore drillers, the rig count continues to grow which is a positive for those companies that service offshore rigs, especially the niche technology providers such as Dril-Quip, Franks International and Oceaneering International. This is also true for those companies that transport equipment and personnel to offshore rigs and offshore platforms such as Bristow Group, CHC Group, and ERA on the helicopter side and Hornbeck, GulfMark and Tidewater in the supply vessel space.

Large helicopter supply remains tight and production lines are sold out until 2016. Helicopter demand is expected to grow steadily at ~4% per year; while LACE rates have consistently outperformed offshore rig dayrates and are growing at 10% per year. Bristow believes there are 255 incremental aircraft opportunities in the next three years, compared to an order and options book for 80 aircraft.

In the offshore market the kilometers from shore base to offshore facility continue to increase, placing greater demand on equipment and driving the need for advanced, higher capacity assets. For example, transit times to wells in the deepwater Gulf of Mexico and Brazil by vessel can take six to 24 hours while in frontier areas the times are measured by days, not hours. With only ~455 OSVs under construction and ~700 (or 25% of the global fleet at 25-years or older), we believe the market for supply vessels will remain balanced and perhaps tighten further.

Exploration and Thus Seismic Activity Is Lackluster

Active tenders in the marine seismic market remain at very low levels and the trough in the seismic market, could, in our view, last through 2015. Exploration spending fell roughly 7% in 2014 and is likely to fall a 2-3% in 2015. At the same time streamer growth, while declining by 4% in 2014 is expected to grow 5% in 2015 and 4% in 2016.

Vessel owners are responding to the weak demand by stacking and in some cases scrapping vessels. Companies are also raising pre-funding requirements for multi-client work. Visibility remains limited as evidenced by Petroleum GeoServices which has 75% of its vessel time booked for 4Q but only 35% for 1Q15 and a mere 20% for 2Q15.

158

14

3125

8 4 2

5

63

6 21 52

31

70

10

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30

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2010 2011 2012 2013 2014E 2015E 2016E 2017E

Available

Contracted

October 14, 2014

46

M&A Activity Remains Brisk and is Likely to Continue

Merger and acquisition activity remains fairly healthy in the group with more deals likely in the coming quarters. The two most recent announcements were the pending purchase of Dresser-Rand by Siemens and C&J’s acquisition of Nabor’s production services business.

We believe at least five (and likely more) areas of M&A will be active over the next several years:

1. Industrial companies continuing to seek additional energy exposure.

2. More combinations of North American companies to take on the Big 4.

3. R&D-driven M&A by the largest companies to supplement their own internal

R&D efforts.

4. The reconsolidation of the offshore drilling space.

5. Rollups of emerging subsectors such as FPSOs, subsea, subsea services, fracking

technologies, and proppant companies.

47

The Major Themes

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48

Several Major Themes Characterize This Cycle

While the oilfield services, equipment and drilling market combines multiple subsectors, varying outlooks and degrees of complexity, and a large number of public and private companies, we believe looking at the industry through what we view as the major themes is a way to tie it all together. Below are eight themes that we believe will define the next part of the cycle for the industry.

A Revolutionary Change In Drilling in North America

Continuing Growth In The International Markets

Increasing Deepwater Drilling and Subsea Production Growth

The Expansion Of The Installed Base For Capital Equipment Providers

North America To Emerge As A Global LNG Force

Exploration And Exploitation Of The Final Frontier (The Arctic)

Energy Infrastructure and the “Gasification” Of The World

The Rise Of Mature Field Investments

While we briefly define and highlight these major themes in the following pages, we plan to explore them more in depth in future research reports.

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49

A Revolutionary Change in Drilling in North America

The shift to full-scale liquids shale development is a having a profound impact on global oil and refined products markets, and changing the way the service companies operate in North America.

The large-cap diversified oil service companies have successfully taken market share, about 1,000 basis points, as these companies have the scale, resources, and technology to support large-scale “manufacturing like” drilling programs. Our data suggests the Big 4 now have 25% of the North American market, up from 15% before the liquids shale revolution.

The Big Four are Taking Market Share… Big Four NAM revenues ($B) as % of total NAM upstream capex increased from 15% to 25% over the last decade.


In addition to a market share grab, the large caps are spending more on R&D to support and defend their position. While R&D spending is holding steady at ~2.5% of revenue the absolute dollar amounts continue to rise.

Partially Due to its Full Technology Suite Offering, Supported by Higher R&D Big Four spending ($MM) continues to rise, but has stabilized as a % of total global revenue.


This enhanced market share position has also led to higher capital expenditures to support the E&P spending growth and CAPEX for the Big 4 has risen by 14% annually since 2005.

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Big Four Capex ($B) Spend Has Grown by 14% CAGR Since 2005


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WFTBHIHALSLB

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Continuing Growth in the International Markets

We believe global decline rates are in the 7-8% range, forcing companies, especially large NOCs to increase investment by a similar amount each year or face declining production. This, coupled with increasing oil demand of 1-2% per annum should lead to ~10% annual growth in E&P spending and activity levels (in a stable oil service and drilling pricing environment). We do not forecast that level of growth in 2015 as companies such as the IOCs remain returns focused and constrain CAPEX and as oil companies benefit from much lower offshore rig rates.

International E&P spending trends remain relatively strong and we forecast record expenditures this year and for the next several years in most major markets around the world such as parts of Latin America, the majority of the Middle East, Sub-Saharan Africa, and many countries in Southeast Asia. Successful resolutions to the conflict in Iraq and the stalemate in Ukraine would add further to E&P spending growth.

We currently forecast 2015 E&P spending growth of ~5% for International markets, with activity levels, especially abroad, outpacing E&P spending. The growth in the International arena is part of a longer term theme that kicked in when spare capacity was fully absorbed, all prices respond to China’s awakening and the NOCs rose to the challenge. Only five times in the last 30 years has International E&Ps spending retreated.

International E&P Spending to Exceed $500 Billion/Yr in 2014


+5.3%

$200

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2006 2007 2008 2009 2010 2011 2012 2013 2014E

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52

Increasing Deepwater Drilling and Subsea Production Growth

Deepwater and subsea remain the major macro themes of this cycle. Roughly 50% of conventional discoveries over the past four years have occurred in deepwater, 10% of global reserves are in deepwater, deepwater subsea production and SURF capex are expected to increase 115% over next five years, and the subsea industry is entering its strongest years for equipment installations in history.

While 2014 is a slow year for subsea tree orders, 2015 and 2016 should return to growth in orders.

Subsea Tree Awards Worldwide, 2001-2018E Subsea tree awards, after taking a dip in 2014 to an estimated 332 are expected to rebound to 465 in 2015 and 481 in 2016.

Source: Quest Offshore estimates, ISI Energy Research

Averaging Spending $MM per Subsea Well, 1996-2018E The average cost of a subsea well has increased by 11% annually since 1996.


358276 232

364438 462 452 428

319 373 315416

553

332465 481 507 491

416

590 612672 680

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716 742838 869

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High CaseMean CaseBase CaseHistorical Awards

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Startup Subsea Wells Onstream by Water Depth Subsea well startups are ramping significantly and will jump from 328 this year to 379 in 2015, 404 in 2016, 460 in 2017 and 542 in 2018.

ANSD


Global Subsea CAPEX by Region Global subsea capex is ramping significantly and will double from 2014 t0 2018.


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>5,000'1,001-5000'0-1,000'

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Asia PacificAfrica/Med.North SeaS. AmericaN. America

October 14, 2014

54

The Expansion of the Installed Base for the Capital Equipment Providers

One of the most underappreciated and likely overlooked themes in the industry is the massive equipment buildout that is underway, especially in the offshore rig and subsea equipment markets, and what that buildout will ultimately mean for aftermarket earnings for the major capital equipment companies.

For example, Cameron’s Drilling aftermarket business has grown from ~$300 million in revenue in 2009 to what we expect to be over $1 billion in 2014.

Cameron International’s Backlog & Aftermarket ($B), 2003-2015E Cameron’s aftermarket business has doubled since 2009.


In the case of National Oilwell Varco, the company’s non-capital goods business has surged from less than $2 billion in 2009 and 2010, to well over $3 billion in 2014. NOV performed five-year surveys on 35-40 offshore rigs in 2013 and will perform five-year surveys on 125-130 by 2017.

National Oilwell Varco’s Backlog & Non-Capital Goods Revenues ($B), 2003-2015E

NOV’s non-capital goods revenue could approach $4 billion in 2015.


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In the case of FMC Technologies, the subsea industry which FTI leads is moving into the heaviest installation period in its history. In the next five years over 2,100 subsea trees will be installed, compared to 1,543 in the prior five years.

Global Subsea Trees Onstream, 1996-2018E In the next five years over 2,100 subsea trees will be installed, compared to 1,543 in the prior five years.


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October 14, 2014

56

North America to Emerge as a Global LNG Force

In both the U.S. and Canada proposed LNG export projects are proceeding at various speeds but in our view exports are definitely coming, and will alter the balance of power in the global LNG market. The U.S. is taking a leadership role with some ~12 bcf/d of export capacity already approved and more approvals likely. We understand that allies of the United States have asked the State Department for more than 70 bcf/d of LNG. (Or more natural gas than the country currently consumes).

There are currently close to 20 proposed projects for Canada’s west coast and over 30 proposals in the United States.

While in Canada, the best hopes for the country to increase natural gas sales is through exports to Asia, via LNG. In the U.S., the abundance of supply makes LNG exports a strong driver of growth and a way to influence global geopolitics.

Exploration and Exploitation of the Final Frontier (The Arctic)

There is clear interest by the Major oil companies and several of their NOC or quasi-NOC counterparts to explore and drill in the Arctic. These companies have been buying seismic in the Russian Arctic, the Norwegian Arctic and pursuing activity offshore Canada and the United States. While activity levels are small currently, they are growing and will be a part of most major oil companies’ portfolio’s in the coming years.

The Arctic is estimated to hold 25%-30% of the world’s undiscovered reserves, with 80% offshore.

Unfortunately, in the current geopolitical environment, the sanctions recently placed on Russia by the U.S. and the E.U. will likely slow exploration plans offshore Russia (Rosneft and Exxon recently announced a solid discovery). Russia is estimated to hold over half of the world’s Arctic hydrocarbons.

Estimated Arctic Reserves by Country/Region Russia Dominates Estimated Holdings of Arctic Hydrocarbons

Source: ISI Energy Research Source: USGS, ISI Energy Research

5%

11% 12%

52%

20%

Canada Greenland Norway Russia U.S.

October 14, 2014

57

Energy Infrastructure and the “Gasification” of the World

Similar to the proposed LNG exports from North America discussed earlier, on a global scale there is a huge demand for energy infrastructure to support not only the growth in oil consumption but also the general “gasification” of many countries and regions around the world, especially Latin America, the Middle East and Asia. Clearly this theme hasn’t gone unnoticed, as evidenced by the proposed acquisition of Dresser-Rand by Siemens and GE’s large push into the oil and gas business over the last decade.

Backlogs for Dresser and Chart Industries are turning up again, as the energy infrastructure buildout restarts.

Dresser Rand’s New Units Backlog ($MM), 2005-2015E


Chart Industries Backlog ($MM), 2005-2015E Chart Industries’ backlog consists of several large LNG liquefaction awards.


$688

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'05 '06 '07 '08 '09 '10 '11 '12 '13 '14E '15E

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303 365 342 302236

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BioMedicalDistribution and StorageEnergy and Chemicals

October 14, 2014

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The Rise of Mature Field Investments

Production from existing assets continues to decline globally and in order to stem these declines the industry needs to extract more from mature fields. While recovery rates for traditional oil reservoirs is about 35%, many of the large oil service companies are working on new techniques and technologies to improve ultimate recovery and in some cases by 20%. It is estimated that a 1% increase in the recovery rate of mature fields could add two years to global oil production.

With about 1.5 million producing wells in the world, and additions of ~100,000 new wells per year, mature fields already account for roughly 70% of global production. Many of these fields are already in secondary or tertiary phase of production and decline rates are roughly 8%.

Most wells go through four phases of recovery:

1. The Primary Phase. This is the initial production when hydrocarbons flow naturally due to pressure.

2. The Secondary Phase. This is when simple technologies such as water injection or the use of artificial lift occurs to create additional hydrocarbon recovery.

3. Improved Recovery Phase. After the “easy oil” has been produced this phase involves the drilling of infill wells, more sophisticated water floods, and facility upgrades.

4. Enhanced Recovery Phase. This final phase utilizes new techniques such as gas, steam or chemical injection.

Halliburton has been awarded close to $10 billion in mature field projects and is chasing another ~$20 billion of projects. The most recent award was for nine fields in Ecuador.

Estimated Recovery Potential by Stage

Source: Halliburton, ISI Energy Research

0% 10% 20% 30% 40% 50% 60%

Primary Recovery Secondary Recovery Improved Recovery Enhanced Recovery

59

Company-Specific Outlooks

October 14, 2014

60

Aspen Aerogels

Investment Thesis Aspen Aerogel produce insulation materials used in the oil and gas industry, serving the refinery, petrochem, LNG, offshore, oil sands and power gen sectors. The company is levered to the $3bn global infrastructure market, supplying it with critical thermal performance insulation for both greenfield and brownfield applications. With demand picking up sharply in recent quarters, the company has been drawing down inventories to meet orders and is aggressively adding manufacturing capacity through an expansion of its existing plant and construction of a new international plant. We rate ASPN a Buy with a $14 share price, equivalent to a 50x EBITDA multiple on our 2015 estimate, as we see substantial growth opportunities as the company increase market share (just 3% currently), penetrates new markets, and collect follow-on work from its large installed base in more than 40 countries.

Company Strategy Aspen completed its IPO in June, raising $77mm net proceeds to repay its existing debt and line of credit. With a clean balance sheet, the company is growing capacity aggressively, expanding its East Providence, Rhode Island facility which is already running at full capacity, and building a second plant in either Europe or Asia. Management is currently viewing potential sites and expects to make a decision and announcement about the international location by the end of this year, with construction starting in 2015 and for the plant to be operational in 2017, adding 50% increase in total capacity.

Outlook for 2015 Expansion of the Rhode Island manufacturing facility is expected to be complete before year end, adding 25% capacity to the facility by 1H15. Management estimate the energy insulation market will grow by almost 5% annually through 2018, driven largely by Asia Pacific, and recently booked several large purchase order for Asia petrochem projects. While the company is also considering Europe for its international plant, we believe an Asia location is more likely, though will have to take into account local operating costs, proximity to raw materials, labor, logistics, IP protection, government grant, and other factors. Revenue growth is 2015 will also be driven by offshore projects in Latin America, which is expected to double in 2015, and U.S. maintenance activity. While pricing continues to improve modestly, up about 3-5% Y-Y, the net result is neutral as pricing varies by product and region. Rather, margins should improve in 2015 from higher absorption of fixed costs with the Rhode Island facility running with 25% greater capacity.

October 14, 2014

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Aspen Aerogels

Key Thoughts and Potential Catalysts Management guided for products gross margins to increase by several points in 2H14, and we’re modeling

margins to peak at almost 20% in 3Q14, falling again in 4Q for seasonality (holiday disruptions to shipments and deliveries). Last quarter’s margins were 100bp negatively impacted by GAAP revenue recognition delays, offset by inventory drawdowns as the company full filled orders by drawing down inventories by more than 50% over the past year.

With a clean balance sheet, ASPN now has access to cheaper financing to fund its capacity addition, as well as potentially consolidate a highly fragmented industry.

October 14, 2014

62

Aspen Aerogels

Annual Income Statement, 2009-2015E ($ in millions, except per share)

2009 2010 2011 2012 2013 2014E 2015ERevenues

Product $25 $39 $43 $60 $82 $101 $123Research Services 4 5 3 3 4 3 3Other 0 0 0 0 0 0 0Total revenues $29 $43 $46 $63 $86 $104 $126

ExpensesProduct ($30) ($35) ($47) ($70) ($73) ($85) ($93)Research Services (2) (2) (2) (1) (2) (2) (2)Other 30 35 44 66 70 81 88Total Expenses ($32) ($38) ($49) ($71) ($75) ($87) ($94)

Gross ProfitProduct ($6) $3 ($4) ($10) $9 $16 $30Research Services 2 2 2 2 2 2 2Gross Profit ($4) $6 ($3) ($8) $11 $17 $32

Other ExpensesR&D ($3) ($3) ($4) ($5) ($5) ($6) ($6)Sales & Marketing (4) (5) (6) (9) (9) (11) (11)G&A (5) (6) (8) (11) (13) (18) (18)Other 0 0 0 0 (3) 0 0Operating income ($16) ($7) ($21) ($33) ($20) ($19) ($3)Interest income $0 $0 $0 $0 $0 $0 $0Interest expense (3) (2) (9) (22) (31) (50) 0Other income 0 0 (3) (1) 3 0 0Pretax income ($19) ($10) ($33) ($56) ($48) ($69) ($3)Taxes 0 0 0 0 0 0 0Minority interest 0 0 0 0 0 0 0Other (3) (57) (24) 47 49 0 0Net income ($22) ($67) ($56) ($9) $1 ($69) ($3)

Per Share DataDiluted Earnings ($22.17) ($26.17) ($21.66) ($3.41) $0.49 ($0.63) ($0.15)Dividend $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

Margins SummaryGross margins

Product -23% 9% -10% -16% 11% 15% 25%Research Services 54% 53% 53% 54% 51% 51% 56%Companywide -13% 13% -6% -13% 12% 16% 25%

EBITDA margins 0% 0% -28% -37% -12% -8% 5%Operating margins -54% -17% -45% -52% -23% -18% -3%

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Aspen Aerogels

Quarterly Income Statement, 2013-2015E ($ in millions, except per share)

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E 4Q14E 1Q15E 2Q15E 3Q15E 4Q15ERevenues

Product $16 $22 $21 $23 $21 $26 $27 $27 $28 $30 $32 $34Research Services 1 1 1 1 1 1 1 1 1 1 1 1Other 0 0 0 0 0 0 0 0 0 0 0 0Total revenues $17 $23 $22 $24 $22 $27 $27 $28 $29 $31 $32 $35

ExpensesProduct ($17) ($19) ($18) ($20) ($19) ($23) ($22) ($22) ($22) ($23) ($23) ($25)Research Services (0) (1) (1) (1) (0) (0) (0) (0) (0) (0) (0) (0)Other 16 18 17 19 18 21 20 21 21 21 22 24Total Expenses ($17) ($19) ($18) ($21) ($19) ($23) ($22) ($23) ($22) ($23) ($23) ($26)

Gross ProfitProduct ($0) $3 $3 $3 $3 $3 $5 $5 $6 $7 $9 $8Research Services 0 1 1 0 0 0 0 0 0 0 0 0Gross Profit $0 $4 $4 $4 $3 $3 $5 $5 $7 $8 $9 $9

Other ExpensesR&D ($1) ($1) ($1) ($1) ($1) ($2) ($2) ($2) ($2) ($2) ($2) ($2)Sales & Marketing (2) (2) (3) (2) (2) (3) (3) (3) (3) (3) (3) (3)G&A (3) (3) (4) (3) (3) (6) (4) (4) (4) (4) (4) (4)Other 0 0 0 (3) 0 0 0 0 0 0 0 0Operating income ($6) ($3) ($5) ($7) ($3) ($8) ($4) ($4) ($2) ($1) $0 ($0)Interest income $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Interest expense 3 (16) (8) (10) (16) (34) 0 0 0 0 0 0Other income 4 (1) 0 0 15 39 0 0 0 0 0 0Pretax income $1 ($19) ($13) ($17) ($4) ($3) ($4) ($4) ($2) ($1) $0 ($0)Taxes 0 0 0 0 0 0 0 0 0 0 0 0Minority interest 0 0 0 0 0 0 0 0 0 0 0 0Other 19 0 0 0 0 0 0 0 0 0 0 0Net income $20 ($19) ($13) ($17) ($4) ($3) ($4) ($4) ($2) ($1) $0 ($0)

Per Share DataDiluted Earnings $7.40 ($6,052) $0.00 $0.00 ($0.16) ($0.14) ($0.15) ($0.17) ($0.10) ($0.06) $0.00 ($0.00)Dividend $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00


Product -3% 13% 15% 13% 14% 12% 19% 17% 22% 24% 27% 25%Research Services 57% 51% 49% 48% 45% 53% 55% 50% 50% 58% 60% 55%Companywide 0% 15% 16% 15% 15% 13% 19% 18% 23% 25% 28% 26%

EBITDA margins -21% -1% 0% 0% -1% -21% -4% -5% 1% 4% 8% 7%Operating margins -35% -11% -21% -27% -13% -31% -13% -14% -8% -4% 0% 0%

2013 2014 2015

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64

Aspen Aerogels

Balance Sheet, 2012-2015E ($ in millions)

Cash Flow, 2011-2015E ($ in millions)

2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $1 $2 $51 $49Accounts receivable 14 19 19 24Inventories 6 7 6 7Other 0 1 1 1Current assets $22 $28 $77 $81PP&E 73 62 56 50Other 0 0 0 0Total assets $95 $90 $134 $132

Liabilities & shareholders' equityCurrent maturities $1 $19 $0 $0Accounts payable 9 7 9 10Other 11 5 5 5Current liabilities $21 $31 $14 $15LT debt 130 120 0 0Other 0 1 1 1Total liabilities $151 $152 $15 $17Minority interest 0 0 0 0Common stock (56) (62) 119 116Total $95 $90 $134 $132

2009 2010 2011 2012 2013 2014E 2015EOperating Activities

Net income ($33) ($56) ($48) ($69) ($3)Depreciation 8 10 10 10 10Other 13 27 35 56 0Working Capital Chg (12) (7) (12) (1) (5)Cash from operations ($24) ($26) ($14) ($3) $2

Investing ActivitiesCapex ($36) ($10) ($3) ($4) ($4)Other 4 0 0 0 0Cash from investing ($32) ($10) ($3) ($4) ($4)

Financing ActivitiesChange in ST debt $0 $1 ($0) ($1) $0Change in LT debt 45 25 19 (19) 0Dividend paid 0 0 0 0 0Other (4) (0) (1) 77 0Cash flow financing $40 $26 $17 $57 $0

FX and other 0 0 0 0 0

Chg in cash ($16) ($10) $0 $49 ($2)Beginning cash 27 11 1 2 51

Ending cash $11 $1 $2 $51 $49

October 14, 2014

65

Atwood Oceanics

Investment Thesis Atwood is a SMID cap offshore contract driller with a diversified fleet of mostly highly spec assets operating globally. While the company was founded in 1968, more than half of its assets were built in the last five years, including two newbuild drillships delivered in the last 12 months. With a high-quality fleet, we believe the company is well positioned for a potential market recovery in 2016, though two newbuild drillships under construction for 2015 delivery remain uncontracted. The next newbuild Atwood Admiral is being marketed for a handful of programs, but will not be contracted to potential short term programs – a contrast to other contractors that prefer shorter term contracts for now to position the rig to be available when the market recovers. Despite ongoing newbuild capex commitments, we believe the company’s new dividend is safe as the company’s existing fleet is highly contracted over the next year. We rate Atwood a Buy with a $48 price target based on 6.0x our 2015E EBITDA.

Company Strategy Atwood has high graded its fleet in recently years, divesting older jackups and tender rigs while taking delivery of several new drillships and high spec jackups. The company has four active drillships, all built in the last four years, and five active jackups capable of working in 350 ft or deeper. With two drillships under construction scheduled for 2015 delivery, Atwood is about to wind down its $4.5bn newbuild commitment and recently initiated a quarterly cash dividend of $0.25. Management plans to grow the dividend by 10% per annum, which is achievable as it’s contracted after tax cashflow exceeds in near term capex needs. With a modern fleet, Atwood also targets 100% revenue efficiency; both the Atwood Condor and Osprey recently achieved 99% operating efficiency.

Outlook for 2015 Atwood’s fleet is 81% contracted in fiscal 2015, with the majority of its rigs contracted through early 2016 and beyond. The company does have two vessels rolling off contract next month, the 5k ft semisub Atwood Hunter and 400 ft Atwood Mako. Atwood recently reactivated the Atwood Hunter for its current program with CNOOC in Equatorial Guinea and sees additional work for the vessel in West Africa, however, we are conservatively modeling a three month gap between contracts for the rig to put it back to work in March at $325kpd, a 5% discount from its current rate. We’re modeling similar gap for the Atwood Mako, though the rig could stay busy with follow-on work in Southeast Asia and the rig’s current operator Salamander recently received regulatory approval for 18 of 20 exploratory drilling locations in the Greater Bualuang area off Thailand. Atwood has no other active units schedule to roll off contract until December 2015, but the company expects to take delivery of two newbuild drillships during the year, both of which are currently uncontracted. Scheduled to be delivered in March 2015, we’re modeling the Atwood Admiral to start work in 4Q15 at $500kpd, but don’t expect the Atwood Archer to contribute to 2015 results as this newbuild is not scheduled to be delivered until early 2015 and both units are likely to be delayed. Tendering activity for floaters has been slow, with the industry likely to see increased market weakness through 2015. Demand is expected to remain disappointing into 2016 but could be offset by older and less capable rigs being retired or stacked. Atwood is likely to divest the Southern Cross (originally built in 1976) but has only three semisubs built prior to 2010, two of which are contracted in Australia to about mid 2016.

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66

Atwood Oceanics

Key Thoughts and Potential Catalysts Atwood is poised to report sharply higher earnings this F4Q14, with a full quarter contribution from the

newbuild Atwood Advantage, mobe of newbuild Atwood Achiever, and the Atwood Eagle and Mako rolling onto higher dayrates. We expect an update on possible follow on work for the Hunter and Mako, both of which are scheduled to roll off contract in November, as well as its next available newbuild drillship Atwood Admiral.

While the market becomes increasingly concerned about a supply-driven weakness in the jackup market, Atwood is well protected as its active units are largely contracted to late 2015 and beyond. We believe the Atwood Mako is likely to be renewed by Salamander for its Greater Bualuang program, though conservatively model three months of contract gap when the unit rolls off its current $165kpd contract in November.

With a new $1.55bn revolver in place and just $1.05bn in newbuild commitments over the next two fiscal years, Atwood recently initiated a quarterly dividend of $0.25 per share, equivalent to a modest 3% yield. Atwood plans to growth the dividend by 10% per year, which we believe is feasible in the near term if the company can successfully contract the final two newbuild drillships but could be more difficult longer term as the dividend continues to grow.

Historical Multiples


2x

4x

6x

8x

10x

'06 '07 '08 '09 '10 '11 '12 '13 '14

ATWOffshore Drillers

ATW current trades at 4.9x, a -14% discount to the group's

5.8x average but a -25% discount to its historical 6.6x.

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67

Atwood Oceanics


2011 2012 2013 2014E 2015ERevenues

Total Contract Drilling $1,028 $1,112 $1,414Reimbursables 35 66 56Other 0 0 0Total revenues $645 $787 $1,064 $1,178 $1,470

ExpensesTotal Contract Drilling ($529) ($612)Reimbursables (51) (40)Other 0 0Operating costs ($228) ($348) ($459) ($580) ($652)G&A (44) (50) (58) (62) (66)EBITDA $372 $390 $547 $536 $753D&A ($44) ($71) ($118) ($147) ($175)Other 0 0 0 1 0Operating income $329 $319 $429 $390 $578Interest income $1 $0 $0 $0 $0Interest expense (5) (8) (25) (43) (58)Other income 0 2 0 0 0Pretax income $325 $313 $405 $347 $520Taxes (53) (41) (55) (43) (51)Minority interest 0 0 0 0 0Net income $272 $272 $350 $304 $469

Per Share DataDiluted Earnings $4.16 $4.14 $5.32 $4.67 $7.15Dividend $0.00 $0.00 $0.00 $0.00 $1.00

Margins SummaryGross Margin 65% 56% 57% 51% 56%EBITDA margins 58% 50% 51% 46% 51%Operating margins 51% 41% 40% 33% 39%

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68

Atwood Oceanics


1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14E 1Q15E 2Q15E 3Q15E 4Q15ERevenues

Contract Drilling $245 $242 $262 $279 $274 $260 $265 $313 $323 $338 $370 $371Reimbursables 0 11 11 13 11 13 28 14 14 14 14 14Other (0) 0 (0) 0 0 0 0 0 0 0 0 0Total revenues $245 $253 $273 $293 $285 $273 $293 $327 $337 $352 $384 $385

ExpensesContract Drilling ($112) ($99) ($110) ($112) ($123) ($137) ($129) ($137) ($146) ($148) ($155) ($163)Reimbursables 0 (9) (9) (10) (8) (9) (23) (10) (10) (10) (10) (10)Other (0) 0 0 1 0 0 0 0 0 0 0 0Operating costs ($112) ($107) ($118) ($122) ($132) ($146) ($152) ($147) ($156) ($158) ($165) ($173)G&A (17) (13) (14) (14) (20) (15) (13) (14) (15) (16) (17) (18)EBITDA $116 $132 $141 $157 $133 $112 $128 $166 $166 $178 $202 $194D&A ($28) ($28) ($30) ($31) ($33) ($37) ($38) ($40) ($42) ($43) ($45) ($46)Other 0 0 0 0 2 (0) 0 0 0 0 0 0Operating income $88 $104 $111 $126 $102 $74 $90 $126 $124 $135 $158 $148Interest income $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Interest expense (4) (7) (6) (8) (8) (12) (11) (12) (13) (14) (15) (17)Other income 0 0 0 0 0 0 0 0 0 0 0 0Pretax income $84 $97 $105 $118 $94 $63 $79 $114 $111 $121 $142 $131Taxes (11) (12) (15) (16) (11) (14) (7) (11) (11) (12) (14) (13)Minority interest 0 0 0 0 0 0 0 0 0 0 0 0Net income $73 $86 $90 $102 $83 $49 $72 $103 $100 $109 $128 $118

Per Share DataDiluted Earnings $1.10 $1.28 $1.37 $1.57 $1.28 $0.76 $1.11 $1.58 $1.54 $1.67 $1.95 $1.80Dividend $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.25 $0.25 $0.25 $0.25

Margins SummaryGross Margin 54% 58% 57% 58% 54% 46% 48% 55% 54% 55% 57% 55%EBITDA margins 47% 52% 52% 54% 47% 41% 44% 51% 49% 51% 53% 50%Operating margins 36% 41% 41% 43% 36% 27% 31% 39% 37% 38% 41% 38%

2013 2014 2015

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Atwood Oceanics



2011 2012 2013 2014E 2015EAssets

Cash & equivalents $295 $78 $89 $120 $103Accounts receivable 87 167 200 228 268Other 79 125 165 144 169Current assets $461 $371 $454 $492 $541PPE 1,887 2,537 3,165 3,961 4,326Other 488 406 493 536 650Total assets $2,375 $2,944 $3,657 $4,497 $4,976

Liabilities & shareholders' equityAccrued income taxes $8 $10 $16 $22 $26Accounts payable 113 84 96 68 80Other 38 43 36 43 51Current liabilities $159 $137 $148 $133 $157LT debt 520 830 1,271 1,767 1,767Deferred taxes 10 9 8 0 0Other LT liabilities 34 29 23 43 43Total liabilities $723 $1,004 $1,450 $1,943 $1,967Minority interest 0 0 0 0 0Common stock 1,653 1,939 2,207 2,553 3,009Total $2,375 $2,944 $3,657 $4,497 $4,976

2011 2012 2013 2014E 2015EOperating Activities

Net income $272 $272 $350 $331 $456Depreciation 49 70 118 147 175Deferred income taxes (1) (1) (1) (1) 0Other 12 12 26 (13) 0Working Capital Chg 8 (97) (61) (8) (42)Cash from operations $340 $256 $432 $457 $589

Investing ActivitiesCapex ($515) ($785) ($745) ($979) ($540)Asset sales 0 8 0 60 0Other 0 0 0 0 0Cash from investing ($515) ($777) ($745) ($920) ($540)

Financing ActivitiesChg in LT debt $295 $299 $422 $497 $0Dividend paid 0 0 0 0 (66)Other (6) 6 (98) (3) 0Cash flow financing $289 $305 $324 $494 ($66)

FX and other 0 0 0 0 0

Chg in cash $114 ($217) $11 $31 ($17)Beginning cash 181 295 78 89 120

Ending cash $295 $78 $89 $120 $103

October 14, 2014

70

Baker Hughes

Investment Thesis Baker Hughes is one of our favorite large cap stocks as 1) we believe the convergence of North American margins with its peers could drive considerable earnings upside, 2) the company has recently taken share in several key international markets, 3) the company’s cash flow profile is improving, and 4) more share buybacks are likely on the way. The transformation of Baker Hughes has unfolded and a new company focused on innovation, integration and execution has emerged. We rates the shares a Buy with a $95 price target based on a 17.3x target multiple on our 2015E EPS.

Company Strategy Back in May Baker Hughes management team laid out a new strategy for the company which included 1) changing from a world class supplier to a world class partner, 2) the delivery of earnings through the three “I”s of technology innovation, integration, and creating interdependence, and 3) the development and implementation of a new innovation process. This process includes accelerating time to market for new technologies, creating the fabric of interdependence, adding discipline to commercialization, and measurement of innovation revenues. The company committed to $6+ in EPS in 2016, to set the pace for secondary recovery in unconventionals, continued leadership in deepwater , rapid growth in the company’s midstream business, revenue growth of 10% per year for Europe, Africa, Russia, Caspian, 15% CAGR revenue growth for the company in the Middle East, Latin American margins of 17% by 2016, North American margins in 4Q14 of 15% and a minimum of “upper teens” in 2016, and $1 billion in new product revenues in 2014 and 20% per year growth going forward.

Outlook for 2015 The outlook for Baker Hughes in 2015 is solid as the company’s continues to make strides in North America, delivers on share gains in Brazil, the North Sea and Africa, introduces new, potentially game-changing technologies, and drives innovation through a more focused and energized corporation.

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71

Baker Hughes

Key Thoughts and Potential Catalysts The achievement of Baker’s margin targets for NAM in 4Q14 would likely lead to earnings revisions higher.

The company’s cash flow profile continues to improve and more returns of capital to shareholders are likely.

Recent share gains in key international regions could drive outsized growth in 2015.

Recent alignments with CGGVeritas and Aker Solutions have put Baker into both the seismic and subsea arena.

A new CFO from outside the energy industry will be a set of fresh eyes on the new organization and could spur further transformation.



4x

8x

12x

16x

20x

24x

28x

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

BHIBig Four Average

BHI current trades at 10.8x, a -7% premium to the group's 11.7x

average but a -33% discount to its historical 16.2x.

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72

Baker Hughes


2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

North America $2,540 $3,065 $4,000 $4,379 $5,163 $3,584 $6,732 $10,257 $10,836 $10,878 $11,701 $12,442Latin America 623 718 827 969 1,147 1,133 1,576 2,183 2,399 2,307 2,200 2,310Europe, Africa, CIS 1,766 2,015 2,473 3,066 3,380 2,925 3,048 3,325 3,634 3,850 4,164 4,580Middle East, APAC 1,172 1,409 1,729 2,015 2,173 2,022 2,276 2,820 3,275 4,050 4,717 5,283Industrial and Other NA NA NA NA NA NA 782 1,246 986 1,279 1,396 1,558Total revenues $6,114 $7,208 $9,027 $10,427 $11,863 $9,664 $14,414 $19,831 $21,130 $22,364 $24,178 $26,174

EBITDA $1,194 $1,622 $2,393 $2,799 $3,075 $1,693 $2,610 $4,306 $3,865 $3,799 $4,822 $5,694

D&A $366 $384 $434 $516 $637 $711 $1,069 $1,321 $1,568 $1,698 $1,805 $1,895

Operating IncomeNorth America NA NA NA NA $1,284 $331 $1,175 $2,034 $1,301 $993 $1,536 $1,927Latin America NA NA NA NA 218 140 74 291 289 183 240 268Europe, Africa, CIS NA NA NA NA 735 522 263 460 604 576 690 840Middle East, APAC NA NA NA NA 444 274 179 368 323 481 681 835Industrial and Other NA NA NA NA NA NA 82 104 101 136 153 209Corporate (208) (215) (216) (241) (243) (284) (232) (272) (301) (268) (284) (280)Operating Income $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Affiliate Income $36 $100 $60 $1 $3 $0 $0 $0 $0 $0 $0 $0Net Interest Expense (77) (54) (1) (22) (62) (121) (141) (221) (210) (234) (234) (236)Pretax income $781 $1,285 $2,018 $2,257 $2,378 $861 $1,400 $2,764 $2,107 $1,867 $2,782 $3,563Taxes 253 407 631 743 725 264 499 919 675 626 966 1,158Minority interest NA NA NA NA NA NA (7) (4) (6) (7) (26) (4)Net income $529 $878 $1,387 $1,514 $1,652 $598 $894 $1,841 $1,426 $1,234 $1,790 $2,401


Margins SummaryOperating Margins

North America NA NA NA NA 25% 9% 17% 20% 12% 9% 13% 15%Latin America NA NA NA NA 19% 12% 5% 13% 12% 8% 11% 12%Europe, Africa, CIS NA NA NA NA 22% 18% 9% 14% 17% 15% 17% 18%Middle East, APAC NA NA NA NA 20% 14% 8% 13% 10% 12% 14% 16%Industrial and Other NA NA NA NA NA NA 10% 8% 10% 11% 11% 13%Companywide 13% 17% 22% 22% 21% 10% 11% 15% 11% 9% 12% 15%

EBITDA margins 20% 22% 27% 27% 26% 18% 18% 22% 18% 17% 20% 22%

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73

Baker Hughes



North America $2,603 $2,677 $2,854 $2,744 $2,776 $2,843 $3,056 $3,026 $2,985 $3,056 $3,178 $3,222Latin America 590 557 557 603 530 544 555 572 557 571 583 600Europe, Africa, CIS 854 966 984 1,046 996 1,066 1,004 1,098 1,096 1,173 1,104 1,208Middle East, APAC 894 971 1,064 1,121 1,108 1,149 1,170 1,289 1,241 1,287 1,311 1,444Industrial and Other 289 316 328 346 321 333 344 398 369 383 396 410Total revenues $5,230 $5,487 $5,787 $5,860 $5,731 $5,935 $6,130 $6,383 $6,248 $6,470 $6,572 $6,884

EBITDA $893 $891 $1,060 $955 $1,047 $1,159 $1,269 $1,347 $1,304 $1,405 $1,442 $1,544

D&A $415 $424 $423 $436 $437 $454 $456 $459 $462 $470 $478 $485

Operating IncomeNorth America $235 $222 $295 $241 $300 $340 $452 $444 $428 $471 $507 $521Latin America 72 2 38 71 58 58 59 65 60 65 69 75Europe, Africa, CIS 93 151 170 162 148 178 168 196 195 218 198 229Middle East, APAC 116 115 156 94 141 168 171 201 184 199 206 246Industrial and Other 24 39 38 35 28 34 36 55 45 52 54 59Corporate (62) (62) (60) (84) (65) (73) (73) (73) (70) (70) (70) (70)Operating Income $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Affiliate Income $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Net Interest Expense (55) (60) (58) (61) (57) (59) (59) (59) (59) (59) (59) (59)Pretax income $423 $407 $579 $458 $553 $646 $754 $829 $783 $876 $905 $1,000Taxes 132 135 180 179 176 236 264 290 254 285 294 325Minority interest (1) (5) 1 (2) (8) (6) (6) (6) (1) (1) (1) (1)Net income $290 $267 $400 $277 $369 $404 $484 $533 $528 $590 $610 $674



North America 9% 8% 10% 9% 11% 12% 15% 15% 14% 15% 16% 16%Latin America 12% 0% 7% 12% 11% 11% 11% 11% 11% 11% 12% 12%Europe, Africa, CIS 11% 16% 17% 15% 15% 17% 17% 18% 18% 19% 18% 19%Middle East, APAC 13% 12% 15% 8% 13% 15% 15% 16% 15% 15% 16% 17%Industrial and Other 8% 12% 12% 10% 9% 10% 11% 14% 12% 14% 14% 14%Companywide 9% 9% 11% 9% 11% 12% 13% 14% 13% 14% 15% 15%

EBITDA margins 17% 16% 18% 16% 18% 20% 21% 21% 21% 22% 22% 22%

2013 2014 2015

October 14, 2014

74

Baker Hughes



2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $319 $697 $750 $1,054 $1,955 $1,595 $1,706 $1,050 $1,015 $1,399 $1,360 $2,552Short-term Investment 0 0 354 0 0 0 0 0 0 0 0 0Accounts Receivables 1,356 1,673 2,055 2,383 2,759 2,331 3,942 4,878 4,815 5,138 5,510 5,729Inventories 1,035 1,126 1,529 1,714 2,021 1,836 2,594 3,222 3,781 3,884 4,127 4,228Net Assets of Discont 0 17 0 0 0 0 0 0 0 0 0 0Other 250 327 280 304 410 463 465 647 806 874 1,019 1,066Current assets $2,960 $3,824 $4,968 $5,456 $7,145 $6,225 $8,707 $9,797 $10,417 $11,295 $12,016 $13,575PPE 1,334 1,356 1,801 2,345 2,833 3,161 6,310 7,415 8,707 9,076 9,213 9,818Goodwill 1,422 1,479 1,537 1,531 1,587 1,613 7,438 7,099 6,951 6,849 6,835 6,835Other 364 454 380 526 296 440 420 536 614 714 808 808Total assets $6,759 $7,791 $8,706 $9,857 $11,861 $11,439 $22,875 $24,847 $26,689 $27,934 $28,872 $31,036

Liabilities & shareholders' equityAccounts Payable $454 $558 $649 $704 $888 $821 $1,496 $1,810 $1,737 $2,574 $2,297 $2,501Short-Term Debt 76 10 1 15 558 15 331 224 1,079 499 657 657Accrued Empl Comp 369 566 484 457 530 448 589 704 646 778 612 694Taxes Payable 0 0 0 191 272 95 145 289 226 213 329 356Other 330 227 488 251 263 234 504 475 436 514 567 595Current liabilities $1,229 $1,361 $1,622 $1,618 $2,511 $1,613 $3,065 $3,502 $4,124 $4,578 $4,461 $4,802LT debt 1,086 1,078 1,074 1,069 1,775 1,785 3,554 4,012 3,837 3,882 3,900 3,900Deferred taxes 48 7 78 (4) 0 0 (188) (492) (114) 1 0 0Other LT liabilities 548 443 467 448 384 448 647 726 715 741 758 758Total liabilities $2,864 $3,110 $3,463 $3,551 $5,054 $4,155 $8,589 $9,050 $9,421 $10,022 $9,892 $10,233Shareholders' Equity 3,895 4,681 5,243 6,306 6,807 7,284 14,286 15,797 17,268 17,912 18,979 20,803Total $6,759 $7,791 $8,706 $9,857 $11,861 $11,439 $22,875 $24,847 $26,689 $27,934 $28,872 $31,036

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EOperating Activities

Net income $528 $874 $2,399 $1,514 $1,635 $421 $819 $1,743 $1,317 $1,103 $1,712 $2,401Depreciation 366 384 434 516 637 711 1,069 1,321 1,568 1,698 1,805 1,895Deferred income taxes 48 7 78 (4) 0 0 (188) (492) (114) 1 0 0Income of Affiliates (36) (100) (1,096) (1) (2) 0 0 0 0 0 0 0Other (36) (24) (16) (137) (209) (142) 7 368 48 (113) (48) 0Working Capital Chg (86) (329) (316) (413) (447) 564 (851) (1,433) (984) 472 (1,248) (27)Cash from operations $784 $955 $590 $1,475 $1,614 $1,239 $856 $1,507 $1,835 $3,161 $2,222 $4,270

Investing ActivitiesCapex ($348) ($478) ($922) ($1,127) ($1,303) ($1,086) ($1,491) ($2,461) ($2,910) ($2,085) ($1,903) ($2,500)Asset sales 166 137 6,188 507 253 163 208 311 389 455 203 0Acquisition (14) (124) (3,949) 0 (120) (43) (1,093) 259 0 (33) (26) 0

continued Operations (0) (0) 60 0 0 0 0 0 0 0 0 0Cash from investing ($197) ($465) $1,376 ($620) ($1,170) ($966) ($2,376) ($1,891) ($2,521) ($1,663) ($1,726) ($2,500)

Financing ActivitiesChange in Debt ($64) ($77) ($9) $14 $1,250 ($541) $1,531 $54 $847 ($571) $178 $0Change in Equity (140) 130 (1,764) (454) (540) 51 74 183 81 (249) (413) (284)Cash Dividends Paid (154) (161) (173) (166) (173) (185) (241) (261) (263) (267) (278) (294)Other 27 0 19 14 4 0 2 (6) (19) (16) (21) 0Cash flow financing ($331) ($108) ($1,926) ($592) $541 ($675) $1,366 ($30) $646 ($1,103) ($534) ($578)

FX and other (14) (4) 13 42 (84) 42 15 8 5 (11) (1) 0

Chg in cash $221 $378 $53 $304 $901 ($360) ($139) ($406) ($35) $384 ($39) $1,192Beginning cash ($13) $319 $697 $750 $1,054 $1,955 $1,595 $1,456 $1,050 $1,015 $1,399 $1,360

Ending cash $319 $697 $750 $1,054 $1,955 $1,595 $1,456 $1,050 $1,015 $1,399 $1,360 $2,552

October 14, 2014

75

Basic Energy Services

Investment Thesis We view several factors as working in Basic’s favor. Firstly, we believe pressure pumping prices began to accelerate during Q3, more than offsetting costs, and leading to net pricing gains for the segment. Additionally, BAS has been able to maintain margins and grow market share in the ultra-competitive fluid services segment by building a strong salt water disposal well network and leveraging that network to maximize utilization of its transportation assets. And thirdly, we believe the bevy of newly drilled wells will soon undergo a well servicing cycle as operators try to revive production rates for those fast-declining assets leading to higher utilization and margins. We initiate with a Buy and a $25 PT.

Company Strategy Operating in scalable business where assets are mobile has allowed BAS to thrive in both downcycles (relative to peers) and upcycles. The company’s focus on utilization may sometime hurt margins but allows the company to increase market share and then benefit from basin wide price increases with already established customer relationship. During downcycles, BAS focuses on maximizing CF by decreasing capex, maximizing utilization to protect market share and decreasing its cost structure.

Outlook for 2015 Basic’s significant presence in the Permian (45% of revenues) has paid off as activity in the basin has outpaced all other areas. We expect strong activity in the basin, and other liquids rich basins, to continue through 2015 and predict an 8%-9% increase in NAM capex in those regions.

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Key Thoughts and Potential Catalysts BAS has captured a large market share in the often overlooked yet very profitable vertical completion and

production services segment within the Permian Basin. The vertical market is high margin, high return market which encompasses more than half of the active and newly drilled wells drilled in the basin. We do not expect the permitting trend to slow in the near-term as it is much cheaper for operators to drill new vertical wells rather than horizontal wells as they explore risked acreage on the outer boundaries of the Permian and test new benches within the Wolfcamp, Spraberry and the Cline Shales. We expect strong performance from BAS in this segment for many years as the competitive environment is more favorable (less competitors and less capital equipment needed).

BAS continues to excel in the oilfield’s least prohibitive entry segment, fluid services. BAS’ integrated approach to fluid services where it pairs salt water disposal wells with trucking assets continues to pay dividends in the form of high utilization and improving margins while other public participants continually seek to exit the segment due to low barriers to entry and constant price cutting by smaller competitors.



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BAS

Production & Completion Services

BAS current trades at 3.7x, a -20% discount to the group's 4.7x average but

a -28% discount to its historical 5.2x.

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

Well Servicing $143 $222 $331 $377 $343 $161 $205 $333 $376 $363 $366 $388 Fluid Services 99 132 195 212 316 215 241 332 352 344 367 395 Completions 29 60 154 241 304 135 261 537 586 501 674 802 Drilling/Other 41 46 50 47 42 16 21 41 60 55 61 65Total revenues $312 $460 $730 $877 $1,005 $527 $728 $1,243 $1,375 $1,263 $1,468 $1,650

ExpensesWell Servicing ($98) ($137) ($186) ($228) ($215) ($122) ($157) ($229) ($268) ($265) ($265) ($273) Fluid Services Expen (65) (83) (118) (133) (203) (159) (178) (212) (237) (239) (263) (280) Completions (17) (31) (75) (126) (166) (95) (157) (297) (358) (328) (418) (479) Contract Drilling Exp 0 0 0 0 (29) (14) (15) (28) (40) (36) (41) (44)Operating costs ($212) ($283) ($415) ($519) ($613) ($390) ($507) ($766) ($903) ($868) ($987) ($1,077)G&A (36) (53) (81) (99) (115) (104) (108) (142) (167) (160) (158) (168)EBITDA $64 $124 $234 $259 $277 $33 $114 $335 $305 $235 $322 $405D&A ($29) ($37) ($62) ($93) ($119) ($133) ($135) ($154) ($187) ($210) ($215) ($235)Other Costs (4) (2) (0) (0) 0 (3) (3) (2) (2) (2) (0) 0Operating income $31 $85 $172 $166 $159 ($102) ($24) $178 $117 $23 $107 $170Interest expense, net (10) (13) (16) (27) (25) (33) (46) (52) (62) (67) (67) (66)Other income (0) (0) 1 2 (0) 2 0 1 (0) 1 1 0Pretax income $21 $72 $156 $140 $134 ($133) ($70) $127 $54 ($44) $41 $103Taxes (8) (27) (56) (53) (51) 49 25 (49) (20) 17 (17) (41)Net income $13 $45 $101 $88 $83 ($84) ($45) $78 $34 ($27) $24 $63

Per Share DataDiluted Earnings $0.00 $1.34 $2.63 $2.13 $2.01 ($2.12) ($1.14) $1.88 $0.83 ($0.66) $0.58 $1.47


Well Servicing 31% 38% 44% 40% 37% 24% 23% 31% 29% 27% 27% 30% Fluid Services 34% 38% 39% 37% 36% 26% 26% 36% 33% 30% 28% 29% Completions 40% 48% 51% 48% 46% 29% 40% 45% 39% 35% 38% 40% Contract Drilling NA NA NA NA NA NA NA NA NA NA NA 32%

EBITDA margins 19% 26% 32% 29% 28% 6% 15% 27% 22% 18% 22% 25%Operating margins 10% 18% 24% 19% 16% -19% -3% 14% 8% 2% 7% 10%

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Well Servicing $88 $94 $98 $84 $93 $90 $93 $90 $92 $95 $99 $102 Fluid Services 84 86 86 88 93 90 92 92 95 98 101 100 Completions 118 132 127 123 137 164 184 188 192 201 212 196 Drilling/Other 14 14 14 13 14 15 16 16 16 16 17 17Total revenues $304 $326 $325 $308 $337 $360 $386 $386 $396 $410 $428 $415

ExpensesWell Servicing ($65) ($68) ($71) ($61) ($70) ($65) ($66) ($64) ($66) ($67) ($69) ($71) Fluid Services Expen (58) (59) (60) (62) (67) (65) (65) (66) (68) (70) (72) (71) Completions (79) (86) (83) (80) (86) (103) (113) (116) (118) (120) (126) (116) Contract Drilling Exp (9) (10) (9) (8) (9) (11) (11) (11) (11) (11) (11) (11)Operating costs ($211) ($223) ($223) ($212) ($232) ($243) ($256) ($257) ($262) ($268) ($277) ($270)G&A (42) (41) (40) (37) (40) (38) (40) (41) (41) (42) (42) (42)EBITDA $51 $62 $62 $59 $65 $78 $90 $88 $92 $101 $109 $103D&A ($50) ($52) ($54) ($54) ($52) ($52) ($55) ($56) ($57) ($58) ($60) ($60)Other Costs (1) 0 (0) (1) 1 (1) 0 0 0 0 0 0Operating income $0 $10 $8 $4 $14 $26 $35 $32 $35 $43 $49 $43Interest expense, net (17) (17) (17) (17) (17) (17) (17) (17) (17) (17) (17) (17)Other income 0 0 0 0 0 0 0 0 0 0 0 0Pretax income ($16) ($7) ($9) ($12) ($2) $9 $18 $16 $18 $26 $32 $26Taxes 7 1 4 5 1 (4) (7) (6) (8) (10) (12) (10)Net income ($9) ($5) ($5) ($7) ($2) $5 $11 $10 $10 $16 $20 $16

Per Share DataDiluted Earnings ($0.22) ($0.13) ($0.12) ($0.18) ($0.05) $0.13 $0.27 $0.23 $0.24 $0.38 $0.47 $0.38


Well Servicing 26% 28% 27% 27% 25% 28% 29% 28% 28% 30% 30% 30% Fluid Services 31% 31% 31% 29% 28% 28% 29% 29% 29% 29% 29% 29% Completions 33% 35% 35% 35% 37% 38% 39% 38% 39% 40% 41% 41% Contract Drilling 34% 30% 34% 35% 32% 32% 32% 32% 32% 32% 32% 32%

EBITDA margins 17% 19% 19% 19% 20% 22% 23% 23% 23% 25% 25% 25%Operating margins 0% 3% 2% 1% 4% 7% 9% 8% 9% 10% 11% 10%

2013 2014 2015

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Cash Flow, 2004-2015E ($ in millions) 77

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $20 $33 $51 $92 $111 $139 $48 $78 $135 $112 $67 $145Accounts receivable 57 87 129 138 173 148 230 255 209 208 253 272Inventory 1 2 8 11 12 11 22 35 40 34 44 47Other 9 11 21 25 28 25 32 55 54 49 55 60Current assets $87 $133 $210 $267 $324 $323 $331 $423 $438 $403 $419 $524PPE 233 309 475 637 741 667 626 856 944 928 961 925Goodwill 40 48 102 205 203 3 16 83 106 111 112 112Deferred loan costs 5 5 7 6 5 8 7 16 19 16 15 15Other 2 2 3 29 38 39 50 82 89 85 82 82Total assets $368 $497 $796 $1,144 $1,311 $1,040 $1,030 $1,460 $1,596 $1,543 $1,588 $1,658

Liabilities & shareholders' equityCurrent maturities $12 $8 $12 $17 $26 $26 $24 $34 $38 $41 $41 $41Accounts payable 11 14 20 22 28 23 40 57 62 46 58 61Other 21 42 57 52 48 43 55 65 78 78 90 94Current liabilities $32 $56 $90 $92 $102 $92 $119 $156 $178 $165 $188 $196LT debt 182 119 251 406 454 476 475 749 845 847 879 879Deferred taxes 30 2 73 115 150 122 123 184 185 164 163 163Other LT liabilities 1 54 3 6 10 10 11 11 14 22 26 26Total liabilities $246 $231 $417 $619 $716 $699 $728 $1,100 $1,222 $1,198 $1,257 $1,264Shareholders Equity 122 266 379 525 595 340 302 360 374 345 331 394Total $368 $497 $796 $1,144 $1,311 $1,040 $1,030 $1,460 $1,596 $1,543 $1,588 $1,658


Net income $13 $45 $101 $88 $83 ($84) ($45) $78 $34 ($27) $24 $63D&A 29 37 62 93 119 133 135 154 187 210 215 235Other Non-Cash Exp. 14 22 11 23 58 191 3 86 39 (1) 9 0Working Capital Chg (9) (5) (26) (5) (32) 19 (45) (8) 57 (7) (35) (20)Cash from operations $47 $99 $146 $199 $213 $89 $49 $279 $304 $166 $210 $279

Investing ActivitiesCapex ($56) ($83) ($105) ($99) ($92) ($43) ($64) ($222) ($171) ($137) ($256) ($200)Asset sales (19) (25) (136) (200) (111) (8) (48) (218) 12 20 26 0Other 1 1 (1) 4 6 (12) 13 20 (91) (23) (1) 0Cash from investing ($74) ($108) ($241) ($294) ($197) ($63) ($98) ($420) ($251) ($140) ($231) ($200)

Financing ActivitiesChg in Debt $21 ($68) $101 $134 $6 $2 ($28) $220 $27 ($45) ($22) $0Change in Equity 0 89 15 (0) (10) (6) (0) 6 (18) (3) (2) 0Other 0 0 (1) 2 8 (8) (0) (55) (6) (1) (0) 0Cash flow financing $21 $21 $114 $136 $4 ($12) ($29) $171 $3 ($49) ($24) $0

FX and other $0 $0 $0 $0 $0 $0 $0 $0 $0 ($23) $0 $0

Chg in cash ($6) $13 $19 $41 $19 $14 ($77) $31 $56 ($23) ($45) $79Beginning cash 57 81 137 79 72 104 100 75 111 52 118 73

Ending cash $52 $94 $156 $119 $91 $118 $23 $105 $167 $29 $73 $152

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Bristow Helicopters

Investment Thesis As the worldwide leader in the offshore helicopter service industry, we believe Bristow is well situated to grow its revenues, margins and fleet size on the back of increased offshore drilling and continued privatization of the search and rescue (SAR) services. Offshore transportation services are one of the main beneficiaries of offshore drilling projects moving into deeper and deeper waters further and further from onshore bases as large aircrafts become more vital and trips take longer. The continued privatization of SAR is an added bonus as that work carries higher margins. One of BRS’ main competitive advantages is its balance sheet which enables the company to finance fleet expansion much easier than its overly levered peers and in turn take additional market share. These factors combine to form what we believe is a clear earnings growth story. We also applaud management for their focus on cash flow performance and history of returning capital to shareholders via large share repurchases and increasing dividend. We initiate with a Buy rating and an $80 PT based on a 17.3x target multiple on our 2015E EPS.

Company Strategy BRS is the leading provider of logistics services to the offshore E&P industry and a top provider of privatized search and rescue services to both oil and gas clients as well as governments. BRS operates across the entire lifeline of offshore development from seismic to exploration, development, production and decommissioning. BRS’ fleet is about 1/3 of the approximately 1,700 helicopters that service the worldwide oil and gas industry. Though there have been delays in rig activations, BRS’ stock has held up well as its business is more closely correlated to the number of offshore production installations (8,000) than it is to the offshore rig count which may continue to experience short term choppiness.

Outlook for 2015 With production lines sold out until 2016 and helicopter supply tightening we expect rates to increase throughout most offshore oil and gas producing regions. We see further tightening in the market occurring during 2015 and 2016 as Petrobras issues tenders for 31 total aircraft (3-7 incremental aircrafts). Beyond helicopter services, the company is in discussions to offer SAR services for governments in Australia, Brazil, the Falklands, Libya, the Netherlands and Nigeria. BRS’ SAR fleet in the UK will increase by 18 large helicopters between September 2014 and December 2015. It’s helicopter services fleet will increase by 19.5 LACE (large aircraft equivalent) between September 2014 and December 2015 with eight going to Europe, four and a half going to north America, three going to West Africa, three going to Australia and one going to another region.

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Bristow Helicopters

Key Thoughts and Potential Catalysts Bristow’s two-tiered contract structure includes both a fixed monthly standing charge to reserve helicopter

capacity and variable fees based on hours flown with fuel pass-through. As a result, 65% of oil and gas contracts earn revenue without flying and 85% of SAR contracts in the United Kingdom earn revenues without flying. This contract structure allows BRS to reduce its own costs and risk structure thus generating higher margins.

BRS offered FY2015 EPS guidance of $4.70-$5.20, implying 11% YoY EPS growth. BRS has also guided to an average LACE rate of $9.50-$10.5MM, implying 14% YoY growth at the midpoint, a LACE aircraft count of 161-167, up 2% YoY at the midpoint, and a continued dividend payout policy of 20%-30%.



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BRSOffshore Technology

BRS current trades at 8.1x, a 24% premium to the group's 6.5x average but

a 13% premium to its historical 7.1x.

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Bristow Helicopters


2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016ERevenues

North America NA NA NA NA $45 $194 $177 $225 $229 $244 $273 Europe 245 298 362 402 453 476 450 502 623 844 937 West Africa 107 131 171 192 219 226 246 282 315 352 385 Australia NA NA NA NA 131 159 148 159 149 204 229 Other 416 469 508 540 319 177 178 176 201 206 212Total revenues $769 $898 $1,040 $1,134 $1,168 $1,233 $1,199 $1,344 $1,516 $1,850 $2,036

EBITDARNorth America NA NA NA NA NA NA $31 $58 $74 $86 $99Europe NA NA NA NA NA NA 148 181 216 278 314West Africa NA NA NA NA NA NA 86 89 101 94 105Australia NA NA NA NA NA NA 36 43 29 48 55Other International NA NA NA NA NA NA 56 62 65 59 62Total Helicopter Services $0 $0 $0 $0 $0 $0 $357 $433 $485 $565 $635Corporate NA NA NA NA NA NA (7) (52) (51) (40) (40)Total EBITDAR NA NA NA NA NA NA $350 $381 $435 $525 $594Rent Expense NA NA NA NA NA NA (15) (15) (31) (150) (185)D&A (42) (43) (54) (66) (79) (85) (96) (74) (70) (101) (109)Other 0 0 0 0 0 0 (58) (68) (101) 0 0Total Operating Income $74 $115 $151 $144 $183 $193 $180 $225 $233 $273 $300Other Income 1 0 7 (9) (43) (45) (36) (43) (32) (34) (37)

Pretax Income $75 $116 $158 $135 $140 $148 $144 $182 $201 $239 $263Taxes (17) (40) (53) (34) (27) (25) (25) (39) (36) (55) (61)Minority Interest (0) (1) 0 (2) (1) (1) (2) (2) (2) (2) 0Net income $58 $74 $105 $98 $112 $123 $117 $142 $163 $182 $203

Per Share DataDiluted Earnings $2.45 $2.74 $3.46 $2.84 $3.09 $3.34 $3.19 $3.89 $4.46 $5.10 $5.70Dividend $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $1.28 $1.28

Margins SummaryEBITDAR Margin 0% 0% 0% 0% 0% 0% 29% 28% 29% 28% 29%EBITDA Margin 15% 18% 20% 18% 23% 23% 23% 24% 22% 20% 20%Operating Margin 10% 13% 15% 13% 16% 16% 15% 17% 15% 15% 15%Pretax Margin 10% 13% 15% 12% 12% 12% 12% 14% 13% 13% 13%

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Bristow Helicopters


1Q14 2Q14 3Q14E 4Q14E 1Q15E 2Q15E 3Q15E 4Q15E 1Q16E 2Q16E 3Q16E 4Q16ERevenues

North America $58 $60 $55 $56 $58 $61 $62 $63 $64 $67 $70 $73 Europe 137 156 158 171 202 209 212 221 226 234 238 239 West Africa 76 76 79 84 80 84 94 93 94 95 97 99 Australia 38 35 35 41 47 51 53 54 55 55 59 60 Other 50 51 46 54 52 52 52 51 51 52 54 55Total revenues $360 $379 $374 $405 $437 $458 $472 $482 $490 $502 $518 $526

EBITDARNorth America $17 $19 $18 $20 $23 $20 $21 $22 $26 $23 $24 $26Europe 41 55 56 64 69 68 69 73 78 77 78 81West Africa 24 23 27 28 20 22 26 25 25 26 27 27Australia 7 7 5 10 11 12 12 13 13 13 14 14Other International 22 13 10 20 15 15 15 14 15 15 16 16Total Helicopter Services $111 $117 $116 $141 $138 $137 $143 $148 $157 $153 $160 $165Corporate (9) (9) (15) (18) (10) (10) (10) (10) (10) (10) (10) (10)Total EBITDAR $102 $109 $101 $123 $128 $127 $133 $138 $146 $143 $150 $155Rent Expense 23 23 28 31 33 36 39 43 44 46 47 49D&A 23 24 24 26 25 25 25 25 26 27 28 29Other (92) (94) (104) (114) (117) (122) (129) (136) (140) (145) (150) (154)Total Operating Income $57 $61 $49 $66 $69 $66 $68 $70 $76 $71 $75 $78Other Income (8) (9) (7) (8) (7) (9) (9) (9) (9) (9) (9) (9)

Pretax Income $49 $52 $42 $58 $62 $58 $59 $61 $67 $62 $66 $68Taxes (12) (6) (10) (7) (14) (14) (14) (14) (15) (14) (15) (16)Minority Interest (0) 0 (0) (2) (1) (1) 0 0 0 0 0 0Net income $36 $46 $31 $49 $47 $43 $45 $46 $52 $48 $51 $53


Margins SummaryEBITDAR Margin 29% 29% 27% 30% 29% 28% 28% 29% 30% 29% 29% 29%EBITDA Margin 22% 23% 19% 23% 22% 20% 20% 20% 21% 19% 20% 20%Operating Margin 16% 16% 13% 16% 16% 14% 14% 14% 16% 14% 14% 15%Pretax Margin 14% 14% 11% 14% 14% 13% 13% 13% 14% 12% 13% 13%

2014 2015 2016

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Bristow Helicopters



2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016EAssets

Cash & equivalents $122 $184 $290 $301 $113 $116 $262 $216 $204 ($53) $107Accounts receivable 160 176 216 217 183 263 286 263 297 335 347Inventories 148 158 176 165 174 196 158 154 137 166 174Other 17 18 24 20 57 54 31 43 82 102 111Current assets $447 $536 $706 $703 $528 $629 $736 $676 $722 $549 $738Investments 40 47 52 20 204 209 205 272 263 266 266PP&E 616 892 1,173 1,541 1,736 1,768 1,723 1,921 2,269 2,948 2,979Goodwill 27 20 16 45 47 32 30 29 57 58 58Other 494 547 737 729 551 654 783 729 810 644 833Total assets $1,176 $1,506 $1,977 $2,335 $2,538 $2,663 $2,740 $2,951 $3,398 $3,915 $4,135

Liabilities & shareholders' equityAccounts Payable $41 $42 $50 $45 $41 $57 $56 $70 $90 $115 $125Accrued Liabilities 46 38 36 40 32 35 44 56 71 82 90Other 59 82 73 64 63 67 84 92 297 334 348Current liabilities $146 $163 $158 $149 $136 $158 $185 $218 $458 $531 $563LT debt 265 259 606 746 717 707 757 787 827 1,155 1,155Deferred Taxes 68 76 92 120 150 148 148 151 170 190 205Other 22 136 139 109 126 130 129 184 187 166 166Total liabilities $502 $634 $995 $1,124 $1,129 $1,144 $1,219 $1,340 $1,642 $2,042 $2,089

Shareholders' Equity 674 872 982 1,212 1,408 1,519 1,522 1,611 1,757 1,873 2,046Total $1,176 $1,506 $1,977 $2,335 $2,538 $2,663 $2,740 $2,951 $3,398 $3,915 $4,135

2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016EOperating Activities

Net Income $58 $74 $104 $124 $111 $133 $65 $132 $188 $180 $203Depreciation & Amortization 42 43 54 66 79 91 96 96 96 101 109Other 1 12 11 (4) 9 4 62 9 (57) 42 44Working Capital Chg (62) (24) (82) (57) 20 (77) 9 30 6 (71) (12)Cash from operations $39 $104 $88 $128 $219 $151 $232 $267 $232 $252 $344

Investing ActivitiesCapex ($140) ($305) ($338) ($455) ($300) ($146) ($326) ($571) ($629) ($802) ($300)Sale of PP&E 85 40 27 102 75 4 240 315 402 27 160

Other 0 0 1 (17) (179) 29 (2) (51) (40) 0 0Cash from investing ($54) ($264) ($310) ($370) ($404) ($113) ($89) ($308) ($266) ($775) ($140)

Financing ActivitiesChange in Debt $1 $227 $6 $225 $1 $2 ($20) $14 ($64) ($19) $0Change in Equity (7) (6) 335 91 (10) (16) 47 1 21 326 0Dividends 0 0 0 0 0 0 (22) (29) (36) (45) (44)Other 0 (5) (12) (19) (6) (1) (1) 0 90 0 0

Cash flow financing ($5) $216 $329 $298 ($15) ($15) $4 ($13) $10 $262 ($44)

FX and other ($4) $6 ($0) ($45) $12 $5 ($3) $8 $13 $4 $0

Chg in cash ($24) $62 $106 $11 ($188) $28 $145 ($46) ($11) ($258) $160Beginning cash 146 122 184 290 301 113 116 262 216 204 (53)

Ending cash $122 $184 $290 $301 $113 $116 $262 $216 $204 ($53) $107

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C&J Energy Services

Investment Thesis We think CJES offers one of the best ways to gain exposure to the recovery in U.S. land activity, with gaining momentum in C&J's own improving utilization and enhanced outlook for 2014. We continue to believe the acceleration of U.S. activity and the balancing of many product lines is being overlooked by investors and stocks levered to this theme represent some of the most compelling ideas in the group, especially CJES. We also believe C&J possesses several distinct advantages that set it apart from the multitude of companies currently competing in the U.S. shale plays, including: 1) a unique product mix that garners strong demand from the E&Ps; 2) a structural advantage to generate better returns on capital by leveraging its in-house manufacturing capability; 3) an attractive geographic footprint in the U.S., and 4) the successful integration and onboarding of the recently acquired NBR assets. CJES is also targeting fast-growing markets internationally which could help drive earnings expansion in excess of our estimates in the coming years. We rate the shares Buy with a $27 price target based on a 7.0x target multiple on our 2015E EBITDA.

Company Strategy CEO Josh Comstock founded C&J in 1997 to be the premier hydraulic fracturing company, emphasizing superior execution and efficiency for its fleets under long term take-or-pay contracts. Since the June 2011 IPO, the company has not only grown organically with incremental fleet additions, but has also expanded its service offerings and geographic footprint through acquisitions, most recently of a casedhole wireline company on the West Coast. C&J now offers a full suite of completions services, including coiled tubing and other complementary services. The planned merger with Nabor’s Completion & Production Services segment accelerates C&J’s long term growth strategy, more than doubling the company’s asset base of hydraulic horsepower, wireline trucks and coiled tubing units while also adding cementing services. The new Global Alliance Agreement provides additional opportunities to expand internationally by leveraging Nabor’s global footprint, while the Production segment provides a platform for C&J to grow its organically developed specialty chemicals business.

Outlook for 2015 With the Nabors merger expected to close by year end, C&J starts 2015 as the 5th largest completion & product services provider, edging out WFT’s 1.1MM HHP with nearly 1.2MM HHP of pressure pumping capacity across the U.S. We expect the company to restructure its financial reporting into three segments (Completion Services, Production Services, and Vertically Integrated & Other Services), making it difficult to isolate growth from recent capacity addition and utilization improvements. Nevertheless, revenues are expected to more than double to management’s guidance of $4.0-4.4bn while EBITDA margins recovering to the high teens from 14.4% last quarter. C&J plans to trim back growth capex in the near term, but further expansion through acquisitions appears likely as the company stresses financial flexibility of the combined company, with expansion into integrated downhole tools next.

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C&J Energy Services

Key Thoughts and Potential Catalysts Service line diversification brings unknown risks, but the company is experiencing benefits from recent entry

into directional drilling (technology acquired in April 2013). We see potential upside for the expansion of recently acquired Tiger Cased Hole Services into Canada, as well as potential synergies from integration with CJES’s legacy Casedhole Solutions business.

The June 25th agreement to acquire Nabor’s C&P business remains subject to shareholders approval but is expected to close before year end. The transaction should be accretive and will generate >$100mm in annual synergies by 2017, likely not yet reflected in consensus estimates.

C&J added 60k HHP over the past two quarters and has another 40K contracted to start before year end. While customers are looking for incremental capacity, additional growth capital is unlikely as the company has further opportunity to drive improvements through utilization of existing equipment. This should free cash for debt reduction by 2H15.

While C&J has traditionally shunned bundling services, a potential shift in pricing strategy could be meaningful as the company transition into a more highly diversified service company. This could increase the company’s penetration with select customers, driving margins higher through operating leverage of fixed costs.



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CJES


CJES current trades at 4.9x, a 4% premium to the group's 4.7x average but

a 29% premium to its historical 3.8x.

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C&J Energy Services


2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

Hydraulic Fracturing $620 $785 $626 $929 $1,040Coiled Tubing 97 140 141 175 189Other Services 19 16 17 23 26Wireline Operations 0 130 279 395 432Manufacturing 22 41 8 11 11NCPS 0 0 0 0 2,741Other 0 0 0 0 0Total revenues $62 $67 $244 $758 $1,112 $1,070 $1,533 $4,438

Costs & ExpensesCost of Goods Sold ($42) ($54) ($154) ($421) ($673) ($743) ($1,118) ($3,170)SG&A & R&D (9) (10) (18) (53) (102) (138) (190) (417)D&A (9) (10) (11) (23) (47) (75) (107) (308)Other 18 19 29 0 (1) 0 0 0Operating income $20 $13 $90 $262 $289 $115 $118 $543Interest expense (7) (5) (17) (4) (5) (7) (10) (15)Other income (1) (0) (0) (0) (0) 0 0 0Pretax income $13 $8 $72 $258 $284 $109 $109 $528Taxes (2) 0 (20) (91) (96) (42) (42) (195)Minority interest 0 0 0 0 0 0 0 (176)Net income $10 $8 $52 $167 $188 $67 $66 $156

Per Share DataDiluted Earnings $0.00 $0.00 $1.07 $3.26 $3.48 $1.21 $1.16 $1.30Dividend $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

Margins SummaryGross Margins 32% 19% 37% 45% 39% 31% 27% 29%Operating margins 32% 19% 37% 35% 26% 11% 8% 12%

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C&J Energy Services



Hydraulic Fracturing $174 $161 $145 $147 $187 $222 $253 $268 $260 $263 $265 $252Coiled Tubing 36 33 34 37 40 43 45 46 47 48 48 47Other Services 3 5 5 4 4 6 6 6 6 6 7 6Wireline Operations 62 68 75 74 83 94 106 112 106 109 110 106Manufacturing 1 2 3 2 2 3 3 2 2 3 3 3NCPS 0 0 0 0 0 0 0 0 645 714 733 649Other 0 0 0 0 0 0 0 0 0 0 0 0Total revenues $276 $267 $262 $265 $317 $368 $414 $434 $1,066 $1,143 $1,167 $1,063

Costs & ExpensesCost of Goods Sold ($187) ($184) ($183) ($189) ($231) ($268) ($302) ($317) ($779) ($813) ($806) ($772)SG&A & R&D (32) (30) (36) (40) (43) (47) (50) (50) (100) (107) (110) (100)D&A (17) (18) (19) (21) (22) (25) (29) (31) (71) (75) (79) (83)Other (0) 1 (0) (0) (0) 0 0 0 0 0 0 0Operating income $40 $36 $23 $15 $21 $27 $33 $36 $116 $148 $172 $108Interest expense (2) (2) (2) (2) (2) (2) (3) (3) (3) (4) (4) (4)Other income 0 0 0 (0) 0 0 0 0 (0) 0 (0) 0Pretax income $39 $34 $22 $14 $19 $25 $30 $33 $112 $144 $168 $104Taxes (14) (13) (9) (6) (8) (10) (12) (13) (41) (53) (62) (38)Minority interest 0 0 0 0 0 0 0 0 (37) (48) (56) (35)Net income $25 $21 $13 $7 $12 $16 $19 $20 $33 $43 $50 $31


Margins SummaryGross Margins 32% 31% 30% 29% 27% 27% 27% 27% 27% 29% 31% 27%Operating margins 15% 13% 9% 6% 7% 7% 8% 8% 11% 13% 15% 10%

2013 2014 2015

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89

C&J Energy Services



2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $0 $1 $3 $47 $14 $14 $82 $132Other 14 16 57 178 236 258 376 873Current assets $14 $17 $59 $224 $250 $272 $458 $1,005PP&E 71 65 88 214 434 536 738 3,450Goodwill 0 60 60 65 197 206 221 221Other 69 8 18 35 132 134 157 157Total assets $155 $150 $226 $538 $1,013 $1,148 $1,573 $4,832

Liabilities & shareholders' equityAccounts Payable $11 $15 $58 $70 $89 $151 $444Other 2 45 22 35 36 50 50Current liabilities $13 $59 $79 $105 $125 $201 $493LT debt & Capital Leases 25 67 45 0 174 164 448 1,338Other LT liabilities 4 13 64 134 163 158 158Total liabilities $84 $117 $143 $413 $452 $806 $1,989Noncontrolling interest 0 0 0 0 0 0 0 (176)Stockholder Equity 0 66 109 395 600 696 767 2,843Total $155 $150 $226 $538 $1,013 $1,148 $1,573 $4,832

2008 2009 2010 2011 2012 2013 2014E 2015EOperating Activities

Net income $0 ($2) $32 $162 $182 $66 $62 $156Depreciation 0 10 11 23 47 75 107 308Other 9 5 2 (13) 25 46 (49) (204)Cash from operations $9 $12 $45 $172 $255 $187 $120 $260

Investing ActivitiesCapex ($22) ($4) ($44) ($141) ($459) ($173) ($274) ($160)Asset sales 1 0 1 2 0 1 (36) 0Acquisitions 0 0 0 (27) 0 0 0 (2,860)Cash from investing ($21) ($4) ($44) ($166) ($458) ($171) ($310) ($3,020)

Financing ActivitiesChange in ST Debt $0 ($6) ($35) ($3) $0 ($20) $261 $450Change in LT Debt 0 (1) 39 (69) 170 0 0 390Change in Capital Leases 0 0 (0) 0 (1) (3) (2) 0Other 12 (0) (4) 110 2 7 (1) 1,920Cash flow financing $12 ($7) $1 $38 $171 ($16) $258 $2,760

Chg in cash ($0) $1 $2 $44 ($32) ($0) $68 $0Beginning cash 0 0 1 3 47 14 14 82

Ending cash $0 $1 $3 $47 $14 $14 $82 $82

October 14, 2014

90

Calfrac Well Services

Investment Thesis Calfrac is a pure play production and completion services provider, operating primarily in North America but growing international. The company has 1.2 MM HHP of pressure pumping capacity, making it the 7th largest service provider in North America. Fracturing account for 92% of the company’s revenues, followed by coiled tubing and cementing at less than 5% each. With the majority of its U.S. pressure pumping assets in the Marcellus/Utica, followed by the Eagle Ford, the company should benefit from increasing activity in these key basins. Internationally the company is well positioned in Argentina, where it recently signed a multi-year contract with YPF, as well as Mexico and Russia. We rate the shares Buy with a 7.0x target multiple on our 2015E EBITDA.

Company Strategy Industry trend towards more stages per well and greater tonnage per stage should positive impact Calfrac’s fleet of pressure pumping equipment. Though a relatively small mix of its operations currently, management plan to grow the coiled tubing and cementing business meaningfully. However, pricing remains competitive, with a modest upward bias in select basins. Meanwhile, the company likely continues to make small bulk-on acquisitions similar to its 4Q13 purchase of Mission Well Services.

Outlook for 2015 The company has a very high percentage of its fleet on 24 hour operations, with 95% in the 15 U.S. fleet and 30% of the International fleet near full utilization. About 30% of the company’s Canada operations are on 24-hour ops, with the company targeting 50% by year end 2015. With supply chain and logistics an increasing headwind, the company is investing in network optimization, leveraging the supplier landscape to better manage frac sand inventories. Calfrac recent expanded its 2014 capital program to $360mm from $150mm, but anticipates $120mm will occur in 2015, as the company adds 155K HHP of incremental capacity. The company is adding two crews in the U.S., one in Canada and another in Argentina’s Vaca Muerta shale.

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91


Key Thoughts and Potential Catalysts The YPF contract is based in U.S. dollar, which should protect the company against unfavorable

foreign currency translation effects.

Horizontal fracturing is becoming an increasingly larger mix of Calfrac’s Russia activity, expanding from 32% last year to 42% year to date and resulting in stronger margins. With the mix likely to grow as the region accelerates high grade its aging drilling fleet. While geopolitical issues had yet to impact activity, the company continues to monitory sanctions daily.



2x

3x

4x

5x

6x

7x

8x

9x

10x

11x

'06 '07 '08 '09 '10 '11 '12 '13 '14

CFW


CFW current trades at 4.8x, a 1% premium to the group's 4.7x average but


October 14, 2014

92



2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

Canada $214 $280 $318 $249 $273 $242 $507 $755 $733 $677 $795 $893United States 28 33 86 147 206 218 302 608 638 616 1,194 1,288Russia 0 1 22 64 57 67 77 116 113 159 178 190Latin America 0 0 0 0 28 65 51 58 111 112 149 208Total revenues $241 $314 $426 $460 $564 $591 $936 $1,537 $1,595 $1,564 $2,316 $2,579

ExpensesOperating Exp. ($158) ($205) ($291) ($329) ($441) ($483) ($691) ($1,047) ($1,244) ($1,280) ($1,885) ($2,033)G &A (19) (29) (28) (32) (41) (38) (60) (77) (94) (96) (131) (148)EBITDA 65 80 107 100 82 71 185 413 257 188 299 398D&A (12) (17) (26) (37) (51) (63) (78) (87) (90) (110) (136) (124)Operating Income $53 $62 $81 $63 $31 $8 $107 $325 $167 $78 $163 $274Interest Expense (1) 0 (2) (9) (12) (15) (26) (35) (36) (42) (58) (58)Other Income (0) (0) 3 (2) 2 (2) 5 10 7 (1) (9) 0Pretax income $52 $63 $81 $51 $21 ($10) $86 $299 $138 $35 $96 $216Taxes (6) (2) (9) (13) (4) 4 (23) (95) (41) (7) (30) (54)Minority interest (0) 0 0 0 0 (0) 0 0 1 1 (1) (0)Net income $47 $60 $72 $39 $18 ($6) $63 $205 $97 $29 $66 $162

Per Share DataDiluted Earnings $1.51 $1.64 $1.98 $1.06 $0.48 ($0.15) $1.44 $4.62 $2.17 $0.64 $0.79 $1.70Dividend $0.00 $0.10 $0.10 $0.10 $0.10 $0.10 $0.20 $0.18 $1.00 $1.00 $1.00 $1.00

Margins SummaryTotal Gross Profit Margin 35% 35% 32% 29% 22% 18% 26% 32% 22% 18% 19% 21%EBITDA Margin 27% 25% 25% 22% 15% 12% 20% 27% 16% 12% 13% 15%Operating Margin 22% 20% 19% 14% 5% 1% 11% 21% 10% 5% 7% 11%

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93




Canada $232 $81 $168 $197 $268 $96 $210 $221 $308 $97 $238 $251United States 127 146 154 189 211 316 340 327 279 313 345 351Russia 37 37 43 41 39 51 43 45 42 55 46 47Latin America 28 24 24 35 30 40 39 41 54 54 56 44Total revenues $423 $289 $389 $463 $548 $503 $632 $633 $683 $519 $684 $693

ExpensesOperating Exp. ($337) ($250) ($313) ($380) ($454) ($428) ($503) ($500) ($536) ($422) ($535) ($540)G &A (24) (22) (24) (26) (29) (30) (37) (35) (37) (32) (41) (37)EBITDA (63) (16) (52) (57) (64) (45) (92) (98) (110) (65) (109) (115)D&A (25) (26) (28) (31) (34) (34) (34) (34) (31) (31) (31) (31)Operating Income ($38) $10 ($24) ($26) ($31) ($10) ($58) ($64) ($79) ($34) ($78) ($84)Interest Expense 9 9 10 13 15 14 14 14 14 14 14 14Other Income (2) 0 5 (2) 4 5 0 0 0 0 0 0Pretax income ($31) $19 ($9) ($14) ($12) $9 ($44) ($50) ($64) ($19) ($63) ($70)Taxes 7 (4) 3 1 3 4 11 12 16 5 16 17Minority interest (0) (0) (0) (0) 0 0 0 0 0 0 0 0Net income ($25) $15 ($6) ($13) ($9) $13 ($33) ($37) ($48) ($14) ($47) ($52)

Per Share DataDiluted Earnings $0.54 ($0.32) $0.13 $0.28 $0.19 ($0.14) $0.34 $0.39 $0.50 $0.15 $0.50 $0.55Dividend $0.25 $0.25 $0.25 $0.25 $0.25 $0.25 $0.25 $0.25 $0.25 $0.25 $0.25 $0.25

Margins SummaryGross Margin 15% 6% 13% 12% 12% 9% 15% 15% 16% 12% 16% 17%EBITDA Margin 9% -3% 6% 6% 6% 2% 9% 10% 12% 6% 11% 12%Operating Margin 9% -3% 6% 6% 6% 2% 9% 10% 12% 6% 11% 12%

2013 2014 2015

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94




2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $28 $0 $6 $39 $36 $25 $217 $133 $42 $42 ($4) $68Accounts receivable 57 92 84 87 120 136 178 314 320 396 541 592Inventories 3 6 13 25 41 44 58 94 119 134 183 201Other 2 2 7 6 12 9 12 11 11 18 25 27Current assets $89 $100 $111 $157 $210 $214 $464 $553 $492 $591 $746 $888PP&E 121 198 328 389 460 579 589 826 1005 1245 1251 1227Goodwill 4 6 6 6 11 11 11 11 11 11 11 11Deferred Income taxes 53 32 9 5 11 37 32 16 17 24 24 24Other 0 0 0 1 0 0 0 0 0 0 0 0Total assets $266 $337 $454 $559 $692 $841 $1,096 $1,405 $1,525 $1,870 $2,032 $2,149

Liabilities & shareholders' equityShort-Term Debt $33 $47 $77 $65 $95 $82 $116 $150 $168 $246 $336 $368 Accounts Payable 0 0 0 0 15 0 0 2 0 24 18 18Other 4 14 2 0 0 3 6 2 1 0 1 1

Current liabilities $36 $61 $80 $65 $110 $85 $122 $154 $169 $271 $355 $386LT debt 4 8 60 130 160 267 443 451 441 652 652 652Finance lease obligations 0 0 0 0 0 4 3 1 0 0 0 0Deferred income taxes 48 28 6 11 27 23 24 98 133 152 208 228Other 3 6 5 2 1 1 1 1 0 0 0 0Total liabilities $91 $103 $151 $208 $298 $381 $594 $705 $744 $1,075 $1,215 $1,266

Shareholders' Equity 175 234 304 351 393 460 502 701 781 795 817 883Total $266 $337 $454 $559 $692 $841 $1,096 $1,405 $1,525 $1,870 $2,032 $2,149


Net Income $46 $60 $72 $39 $18 ($6) $49 $187 $96 $27 $66 $162Depreciation & Amortization 12 17 26 38 52 64 77 87 90 110 136 124Stock-based compensation 1 2 2 3 4 4 7 9 7 5 2 0Other 1 1 1 9 7 (7) 18 85 28 3 66 19Working Capital Chg (25) (19) 11 (8) (31) 1 (24) (138) (17) (13) (107) (39)Cash from operations $34 $62 $113 $79 $50 $56 $128 $231 $205 $132 $163 $267

Investing ActivitiesCapital Expenditures ($51) ($98) ($155) ($92) ($85) ($102) ($119) ($324) ($270) ($183) ($152) ($100)Sale of PP&E 0 0 4 0 0 2 5 4 2 2 1 0Acquisitions (2) (3) 12 (14) (6) (19) (2) 0 0 (151) 0 0

Other 0 0 0 (18) 9 (11) 0 0 0 0 0 0Cash from investing ($53) ($101) ($140) ($124) ($82) ($129) ($116) ($320) ($268) ($332) ($152) ($100)

Financing ActivitiesChange in Debt $1 $12 $57 $200 $65 $216 $474 $1 $0 $366 $32 $0Change in Equity (31) (9) (7) (108) (65) (117) (289) (8) (0) (193) (37) 0Dividends 0 (4) (4) (4) (4) (4) (5) (8) (41) (24) (62) (95)Other 61 0 (3) 1 23 (25) 6 5 12 43 18 0

Cash flow financing $31 ($0) $43 $90 $19 $70 $185 ($10) ($29) $192 ($49) ($95)

Chg in cash $13 ($39) $16 $34 ($3) ($11) $192 ($84) ($91) ($0) ($46) $72Beginning cash 15 28 (11) 6 39 36 25 217 133 42 42 (4)

Ending cash $28 ($11) $6 $39 $36 $25 $217 $133 $42 $42 ($4) $68

October 14, 2014

95

Cameron Int’l

Investment Thesis The valuations for capital equipment names have slipped recently and we believe this has created some value opportunities for stocks like CAM. We think the market has already discounted the slowdown in offshore rig orders for the company but investors may be missing the enormous aftermarket opportunity that record backlogs and thus a huge expansion in the installed base of equipment present. A rebound in offshore development should drive new orders and tie-back work for Christmas Tree systems thus adding to the backlog and sales for CAM’s Drilling & Production Systems segment. We are also confident in continued buybacks, though at a slower pace than the past four quarters. We initiate with a Buy on the stock and an $87 PT.

Company Strategy CAM has recently slimmed down through the divestiture of non -core assets and efficiency improvements in its cost structures and manufacturing systems.

Outlook for 2015 We expect CAM to continue its stellar progress with its strategic initiatives leading to a further improvement in profitability through the remainder of the year and 2015. Internal cost control efforts are improving DPS margins while additional cash infusions from non-core business divestitures are funding the buyback program. We believe CAM’s improvement story is clear and we expect continued improvement, especially as the subsea outlook comes into focus.

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96

Cameron Int’l

Key Thoughts and Potential Catalysts Recent awards to FTI and OneSubsea give us confidence in assumptions that Tree awards will rebound in

’15. Additionally, we view the fact that CAM’s award was for the first deepwater subsea field to be developed by Pemex in a very strong light given our feeling’s surrounding Mexico’s deepwater potential.

Sale of Centrifugal Compression division for after tax proceeds of $600MM will fund further stock buybacks.

Still in the early innings of cost control and manufacturing improvement initiatives which should help company wide margins, driven by the DPS segment.

The 2014 target exit rate for DPS margins has moved up nominally as the company gets more units out the door and expects margins to improve 100 bps each sequential quarter as volumes increase. CAM is targeting 18% margins for Q4 and expects to be north of 20% during 2016.

New safety and equipment requirements will drive additional opportunities in its drill equipment aftermarket segment, namely new BOP equipment, retrofit opportunities and the upgrades and inspection of BOPs and BOP control systems.



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9x

13x

17x

21x

25x

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

CAMCapital Equipment

CAM current trades at 15.5x, a -7% discount to the group's 12.6x average but a -30%

discount to its historical 17.0x.

October 14, 2014

97

Cameron Int’l


2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

Drilling & Production $1,403 $1,508 $2,113 $2,887 $3,485 $3,110 $3,782 $4,062 $4,871 $6,288 $7,583 $8,475Valves & Measurement 350 625 1,178 1,274 1,473 1,195 1,273 1,663 2,142 2,086 2,113 2,227Process & Compression 340 385 452 506 890 918 1,143 1,234 1,489 1,465 983 1,024Total revenues $2,093 $2,518 $3,743 $4,666 $5,849 $5,223 $6,199 $6,959 $8,502 $9,838 $10,679 $11,726

EBITDADrilling & Production $170 $223 $418 $555 $667 $660 $760 $797 $862 $1,030 $1,197 $1,418Valves & Measurement 50 118 215 298 334 247 230 335 467 464 465 493Process & Compression 41 42 61 90 161 170 187 154 184 179 146 234Corporate and Other (33) (43) (81) (96) (108) (109) (119) (166) (197) (213) (176) (235)EBITDA $229 $340 $613 $846 $1,053 $968 $1,058 $1,119 $1,317 $1,460 $1,633 $1,911D&A (83) (78) (101) (110) (132) (157) (202) (207) (255) (315) (334) (301)Operating Income $146 $262 $511 $737 $921 $811 $857 $912 $1,062 $1,145 $1,299 $1,609Net Interest Exp. (6) 1 6 8 (22) (88) (78) (84) (89) (100) (118) (111)Pretax income $139 $263 $517 $744 $898 $723 $778 $828 $973 $1,045 $1,181 $1,498Taxes (40) (92) (181) (254) (288) (202) (180) (165) (195) (220) (273) (346)Minority interest NA NA NA NA NA NA NA NA NA (25) (41) (87)Net income $99 $171 $336 $491 $610 $521 $599 $664 $778 $800 $866 $1,065


Margins SummaryEBITDA Margin 11% 14% 16% 18% 18% 19% 17% 16% 15% 15% 15% 16%Operating Margin 7% 10% 14% 16% 16% 16% 14% 13% 12% 12% 12% 14%

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98

Cameron Int’l



Drilling & Production $1,269 $1,438 $1,637 $1,943 $1,705 $1,903 $1,974 $2,001 $1,914 $2,123 $2,203 $2,235Valves & Measurement $522 $534 $503 $528 $492 $536 $543 $542 $517 $563 $570 $577Process & Compression $327 $315 $357 $467 $234 $202 $242 $305 $237 $212 $254 $321Total revenues $2,118 $2,287 $2,496 $2,938 $2,432 $2,641 $2,759 $2,848 $2,668 $2,898 $3,027 $3,133

EBITDADrilling & Production $198 $239 $274 $319 $249 $304 $325 $319 $297 $349 $381 $391Valves & Measurement $123 $119 $108 $114 $106 $119 $120 $120 $113 $125 $127 $128Process & Compression $31 $32 $43 $73 $23 $20 $28 $76 $55 $54 $64 $61Corporate and Other ($43) ($53) ($56) ($61) ($40) ($41) ($47) ($48) ($53) ($58) ($61) ($63)EBITDA $310 $337 $369 $445 $338 $402 $426 $466 $412 $470 $511 $517D&A ($70) ($70) ($83) ($91) ($87) ($90) ($91) ($66) ($70) ($74) ($77) ($80)Operating Income $240 $267 $285 $354 $251 $312 $336 $400 $342 $396 $434 $437Net Interest Exp. $26 $25 $23 $26 $32 $30 $28 $28 $28 $28 $28 $28Pretax income $214 $242 $262 $328 $219 $282 $308 $372 $314 $368 $406 $409Taxes $40 $45 $61 $74 $52 $65 $71 $86 $72 $87 $93 $94Minority interest NA NA $3 $22 $5 $12 $12 $13 $19 $21 $22 $24Net income $173 $196 $198 $232 $163 $205 $225 $273 $223 $261 $291 $291


Margins SummaryEBITDA Margin 15% 15% 15% 15% 14% 15% 15% 16% 15% 16% 17% 17%Operating Margin 11% 12% 11% 12% 10% 12% 12% 14% 13% 14% 14% 14%

2013 2014 2015

October 14, 2014

99

Cameron Int’l



2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $227 $362 $1,034 $740 $1,621 $1,861 $1,833 $1,322 $1,703 $1,854 $1,929 $2,215Accounts receivable 425 574 696 798 950 959 1,056 1,757 1,967 2,719 2,747 3,023Other 554 792 1,178 1,535 1,485 1,894 2,044 2,749 3,241 3,596 3,939 4,333Current assets $1,205 $1,728 $2,908 $3,072 $4,056 $4,714 $4,933 $5,829 $6,911 $8,169 $8,615 $9,571

PP&E 479 526 649 821 932 1,192 1,248 1,500 1,765 2,037 1,558 1,857Goodwill 415 577 595 648 709 1,442 1,476 1,615 1,924 2,925 2,704 2,704

Other 257 268 199 190 205 377 349 418 559 1,118 1,091 1,091Total assets $2,356 $3,099 $4,351 $4,731 $5,902 $7,725 $8,005 $9,362 $11,158 $14,249 $13,968 $15,223

Liabilities & shareholders' equityShort-Term Debt $7 $7 $207 $9 $162 $22 $520 $11 $29 $297 $562 $562 Accounts Payable & Accru 517 892 1,365 1,677 1,854 2,208 2,016 2,670 3,046 3,883 3,780 4,159 Accrued Property & Liabili 4 24 56 7 96 66 38 0 94 80 108 119

Current liabilities $528 $922 $1,628 $1,693 $2,112 $2,296 $2,574 $2,680 $3,169 $4,261 $4,450 $4,840LT debt 458 444 745 745 1,256 1,232 773 1,574 2,047 2,563 2,814 2,814Postretirement Benefits 43 40 21 16 8 0 0 0 0 0 0 0Deferred income taxes (15) 35 0 43 10 (36) (19) (22) (85) 30 34 0Other 99 97 215 182 207 277 266 400 376 510 480 480Total liabilities $1,128 $1,504 $2,609 $2,636 $3,583 $3,806 $3,613 $4,654 $5,592 $7,333 $7,744 $8,134

Shareholders' Equity 1,228 1,595 1,741 2,095 2,320 3,920 4,392 4,707 5,566 6,915 6,224 7,089Total $2,356 $3,099 $4,351 $4,731 $5,902 $7,725 $8,005 $9,362 $11,158 $14,249 $13,968 $15,223


Net Income $94 $171 $318 $501 $594 $476 $563 $522 $751 $724 $848 $1,065Depreciation & Amortizat 83 78 101 110 132 157 202 207 255 315 334 301Deferred Income Taxes (15) 35 0 43 10 (36) (19) (22) (85) 30 34 0Other 7 4 96 67 95 28 35 37 45 35 (91) 0Working Capital Chg 26 63 31 (269) 190 (11) (486) (535) (282) (266) (634) (280)Cash from operations $195 $352 $547 $452 $988 $613 $294 $209 $683 $838 $491 $1,086

Investing ActivitiesCapital Expenditures ($53) ($77) ($185) ($246) ($272) ($241) ($201) ($388) ($427) ($520) ($478) ($600)Sale of PP&E (78) 0 0 (26) 4 4 0 20 28 884 1,135 0Acquisitions (93) (329) (29) (43) (192) 11 (41) (421) (349) (9) 0 0

Other 32 5 17 2 0 0 12 (423) (94) 127 (11) 0Cash from investing ($192) ($401) ($197) ($313) ($460) ($226) ($229) ($1,213) ($843) $482 $647 ($600)

Financing ActivitiesChange in Debt ($5) ($2) $491 ($201) $667 ($150) ($8) $83 $457 $780 $259 $0Change in Equity (92) 47 (194) (261) (262) (19) (88) 7 (9) (1,448) (1,329) (200)Other 27 148 0 15 10 (0) 10 1 (4) 1 3 0

Cash flow financing ($71) $193 $297 ($447) $415 ($169) ($86) $91 $445 ($667) ($1,067) ($200)

Chg in cash ($65) $135 $672 ($294) $881 $240 ($29) ($934) $287 $627 $75 $286Beginning cash 273 208 342 1,014 720 1,602 1,842 1,813 879 1,166 1,793 1,868

Ending cash $208 $342 $1,014 $720 $1,602 $1,842 $1,813 $879 $1,166 $1,793 $1,868 $2,155

October 14, 2014

100

Carbo Ceramics

Investment Thesis Carbo is repositioning itself as a production enhancement company, providing integrated solutions to optimize a well’s EURs. Noting that over 90% of shale reservoirs are left in the ground, the company aims to create more contact area and greater conductivity in the wellbore. While the company has traditionally been a proppant company, specializing in higher priced ceramics and resin-coated sand; however, recent trends towards Northern White sand has resulted in unfavorable mix for the company. New manufacturing capacity, an expanded distribution network, and launch of KRYPTOSPHERE could offset increased pricing competition and unfavorable mix over the next several quarters, but are still unlikely to impress compared to growing sales volumes by traditional frac sand suppliers. We rate CRR a Hold with a $62 price target based on a 16.5x target multiple on our 2015E EPS, seeing few catalysts in the near term.

Company Strategy As a production enhancement company, Carbo integrated several businesses around the goal of “Higher Production & EUR.” Engineers in StrataGen, FRACPRO design and monitor data to optimize a well, using proppants supplied by Carbo. Management believes that ceramics have the highest conductivity and EUR, while sand crushes into fine particles that result in loss of frac width, plugging flow channels, and loss in conductivity that lowers the EUR of a well over time. However, operators continue to experiment with lower priced sand, dramatically increasing volume per well. Meanwhile, competition from foreign ceramic manufacturers have lowered pricing for Carbo’s core product line, just as the company brings on new production capacity and investing in expanding its distribution network.

Outlook for 2015 Management recently lowered guidance for 3Q14, citing increased pricing competition in ceramics from both domestic and international manufacturers, as operators continue to experiment with the use of lower priced Northern While sand in their well completions. We expect an unfavorable mix to pressure the stock for the foreseeable future, as CRR’s average selling price trend lower from a higher mix of Northern White Sand priced at just $0.03 per lb vs. $0.33 per lb for ceramics last quarter. Despite recent penetration with new clients in several new oil and gas basins, we expect competition to remain fierce from traditional frac sand suppliers as they continue to add significant new capacity. Longer term the company’s new KRYPTOSPHERE targeting U.S. GOM Lower Tertiary completion activity could provide some upside to 2015 results, with management noting that it is likely to be expanded into the Miocene and internationally.

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Carbo Ceramics

Key Thoughts and Potential Catalysts Management guided 3Q ceramics volume to be like 1Q14, with pricing lower for increased competition from

both domestic and international manufacturers, especially in the Bakken. While imports of Chinese ceramics tends to be volatile, Carbo tested Chinese ceramics to be of lower quality and lower conductivity than their CARBOECONOPROP low density ceramics, resulting in 20% lower production in the initial 30 days of the well and ultimately lower EUR of 120,000 Bbl of oil.

PacWest forecast ceramics demand to grow by just 2% annually in North America through 2016, well below the 24% growth in frac sand demand and 9% growth in resin-coated sand. Making up just 4% of the North America proppant market, ceramics is most popularly used in the Bakken with 8% market share of all horizontal wells in the basin. PacWest forecast ceramics pricing to grow by a modest 2% over the next several years, driven by logistic bottlenecks at the well pad due to a shortage of railcars and trucks.



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CRRNiche Offshore Technology Providers

CRR current trades at 14.0x, a -8% discount to the group's 15.3x average but a -32% discount to its historical 20.7x.

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Carbo Ceramics


2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues $233 $253 $312 $340 $388 $342 $473 $626 $646 $667 $644 $766EBITDA $78 $84 $100 $99 $112 $104 $147 $234 $204 $172 $158 $177

ExpensesFloaters ($142) ($154) ($196) ($221) ($260) ($221) ($298) ($364) ($422) ($474) ($440) ($508)G&A (25) (27) (35) (40) (38) (41) (53) (62) (64) (68) (70) (81)Other 232 251 312 339 385 342 471 624 645 667 619 717Operating income $65 $70 $81 $78 $87 $79 $120 $198 $159 $125 $110 $128Interest income $1 $2 $2 $0 $0 $0 $0 $0 $0 $1 $0 $0Other income 0 0 1 3 1 (0) (0) (0) (0) (0) 0 0Pretax income $66 $72 $84 $81 $88 $80 $119 $197 $159 $125 $111 $128Taxes (25) (25) (30) (28) (28) (27) (41) (67) (52) (40) (36) (42)Minority interest 0 0 0 0 0 0 0 0 0 0 0 0Net income $42 $47 $54 $54 $60 $53 $79 $130 $107 $85 $74 $86


Margins SummaryGross margins 39% 39% 37% 35% 33% 35% 37% 42% 35% 29% 32% 34%EBITDA margins 33% 33% 32% 29% 29% 31% 31% 37% 32% 26% 25% 23%Operating margins 28% 28% 26% 23% 22% 23% 25% 32% 25% 19% 17% 17%

Proppant Sales Volume (MM lbs)Ceramic 1,281 1,477 1,618 1,719 1,609 1,853Resin-Coated Sand 67 128 57 241 166 141Northern White Sand 0 0 6 100 1,512 3,856Total 1,348 1,605 1,681 2,060 3,287 5,851

Avg Selling Price $0.277 $0.293 $0.320 $0.320 $0.322 $0.315 $0.322 $0.360 $0.343 $0.297 $0.196 $0.131

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Carbo Ceramics


1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E 4Q14E 1Q15E 2Q15E 3Q15E 4Q15ERevenues $148 $154 $201 $165 $149 $177 $150 $169 $176 $187 $197 $206EBITDA $37 $35 $56 $43 $39 $46 $34 $39 $41 $43 $46 $48

ExpensesFloaters ($105) ($114) ($139) ($116) ($104) ($123) ($100) ($113) ($117) ($124) ($130) ($136)G&A (17) (15) (19) (17) (17) (19) (16) (18) (19) (20) (21) (22)Other 148 154 201 165 149 176 138 157 164 175 185 194Operating income $25 $24 $44 $31 $27 $34 $22 $27 $28 $31 $33 $35Interest income $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Other income (0) (0) 0 (0) (0) 0 0 0 0 0 0 0Pretax income $26 $24 $44 $31 $28 $34 $22 $27 $28 $31 $33 $35Taxes (8) (8) (14) (10) (9) (11) (7) (9) (9) (10) (11) (12)Minority interest 0 0 0 0 0 0 0 0 0 0 0 0Net income $18 $16 $30 $21 $18 $23 $15 $18 $19 $21 $22 $24



Proppant Sales Volume (MM lbs)Ceramic 398 378 534 409 373 454 372 410 430 451 474 498Resin-Coated Sand 25 68 59 89 48 43 40 36 35 35 35 35Northern White Sand 22 11 16 51 157 271 434 650 813 935 1,028 1,080Total 445 457 609 549 578 768 845 1,096 1,278 1,422 1,538 1,613

Avg Selling Price $0.302 $0.303 $0.306 $0.300 $0.238 $0.210 $0.177 $0.154 $0.138 $0.132 $0.128 $0.128

2013 2014 2015

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Carbo Ceramics



2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $34 $20 $25 $12 $155 $70 $47 $41 $91 $94 $48 $73Other 112 129 119 132 141 149 191 261 259 277 285 285Current assets $146 $148 $144 $144 $296 $219 $238 $303 $350 $371 $333 $358PP&E 125 180 232 276 245 271 338 393 426 479 561 591Goodwill 22 22 22 23 5 14 13 12 12 12 12 12Other 4 6 7 10 4 10 10 33 21 17 17 17Total assets $298 $356 $405 $453 $549 $513 $600 $741 $809 $879 $923 $979

Liabilities & shareholders' equityCurrent liabilities $29 $36 $34 $33 $84 $32 $51 $79 $51 $57 $57 $57Deferred taxes 24 26 28 30 23 24 26 32 45 54 54 54Stockholder Equity 244 293 343 389 443 457 522 630 713 769 811 867Total $298 $356 $405 $453 $549 $513 $600 $741 $809 $879 $923 $979


Net income $42 $47 $54 $54 $110 $53 $79 $130 $106 $85 $74 $86Depreciation 12 14 20 21 25 25 28 36 45 47 48 49Deferred income taxes 5 1 1 (1) (6) 1 3 4 11 10 2 0Other 2 2 1 (1) (53) 1 5 5 5 6 4 0Working Capital Chg 3 (10) (24) (14) (1) (57) (22) (64) (10) (11) (14) 0Cash from operations $64 $53 $51 $60 $76 $22 $92 $111 $156 $138 $114 $135

Investing ActivitiesCapex ($22) ($68) ($70) ($65) ($23) ($46) ($97) ($90) ($77) ($100) ($125) ($80)Acquisitions 0 0 0 (3) 0 (23) 0 0 0 0 0 0Dispositions 0 0 0 0 142 0 0 0 0 0 0 0Other (46) 4 34 6 141 0 0 0 0 0 0 0Cash from investing ($68) ($64) ($36) ($62) $118 ($69) ($96) ($90) ($77) ($100) ($125) ($80)

Financing ActivitiesChg in ST debt $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Chg in LT debt 0 0 0 0 0 0 0 0 0 0 0 0Dividend paid (7) (9) (11) (13) (15) (16) (18) (20) (24) (26) (29) (30)Stock repurchases 0 0 0 0 (43) (23) (2) (8) (8) (7) (6) 0Other 6 6 1 2 7 1 1 1 1 0 0 0Cash flow financing ($1) ($3) ($9) ($11) ($51) ($38) ($18) ($26) ($30) ($33) ($34) ($30)

FX and other 0 (0) (0) 0 (0) (0) 0 0 0 (1) (1) 0

Chg in cash ($5) ($14) $5 ($13) $143 ($85) ($23) ($5) $49 $4 ($46) $25Beginning cash 39 34 20 25 12 155 70 47 41 91 94 48

Ending cash $34 $20 $25 $12 $155 $70 $47 $41 $91 $94 $48 $73

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Chart Industries

Investment Thesis Chart Industries report three operating segments (Energy & Chemical, Distribution & Storage, and BioMedical) as the company serves many sectors of the economy, but with Energy companies represent 53% of end-users, we especially like the company’s exposure to LNG and natural gas liquids. Chart produces mission-critical equipment used in the infrastructure buildout around natural gas globally, such as for commercial trucking fleets, rail, marine vessels, drilling rigs, mining, etc. Although the company recently lowered guidance for delays in China due to new fuel station regulations, we expect production from new facilities in China and the U.S. to ramp up over the next few years, resulting in strong earnings growth and margins expansion. We rate GTLS Buy with a $78 price target based on a 20.6x target multiple on our 2015E EPS, seeing the “gasification” of global energy supply as a mega-trend in the oilfield services industry.

Company Strategy Management has been strategically adding manufacturing capacity in lower-cost countries and near centers of end market demand, positioning itself for the LNG buildout in China and the U.S. which combined account for almost 75% of annual sales. The company has exposure to the entire LNG value chain, from liquefaction to distribution to storage to the end user, offering a vertically integrated solution to its customers. Orders and backlog providing strong earnings visibility to near term, with the backlog up 5% Y-Y and near record levels.

Outlook for 2015 We expect results to remain mixed in the near term, with the Energy & Chemical segment reporting lower Y-Y margins for an unfavorable mix while the Distribution & Storage margins benefit from higher Europe & North America LNG sales. Orders will likely remain strong with ongoing LNG buildouts in China and North America, with four LNG export terminals having received all necessary approvals in the U.S. while nine have been approved in Western Canada. Meanwhile, midstream projects are also likely to accelerate, with management seeing an increased demand for 100-450k gallon/day plants in the U.S. East Coast, Gulf Coast, West Coast and Canada. New flaring rules in the Bakken region could also stimulate demand for LNG liquefiers, with the company’s La Crosse, Wisconsin E&C facility now capable of producing a standard LNG plant in just 12-16 months.

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Chart Industries

Key Thoughts and Potential Catalysts Management lowered its FY14 sales guidance to $1.22-1.27bn (from $1.25-1.30bn) for delays in Distribution &

Storage segment operations in China, resulting in lower EPS guidance of $2.85-3.15 from $3.00-3.40 previously. New regulations are causing a delay in shipment for IMCs or packaged skid mounted fuel stations, but management expect these new rules to be published shortly as national standards, with the company set to ship 50 permanent LNG fuel stations over the next 30 months. In addition, GTLS’ China business is diversifying beyond PetroChina with CNOOC, Sinopec, and third party entrepreneurs increasing quoting activity, with higher volumes to leverage recent manufacturing capacity expansion.

We expect Chart’s slightly higher capex ($70-80mm) to be funded from existing cash and cash from operation, noting the company’s healthy balance sheet and positive free cash flow gives it additional fire power to reduce debt and potentially return cash to shareholders.

LNG orders increased 18% Q-Q last quarter, but can swing widely based on the timing of large project awards. We expect strong companywide orders in 3Q, exceeding 1.0 book-to-bill, driven by LNG liquefaction equipment.



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GTLS

SMID Cap Capital Equipment

GTLS current trades at 12.8x, a -7% discount to the group's 13.9x average but a

-22% discount to its historical 16.6x.

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Chart Industries


2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

Energy & Chemicals $70 $121 $191 $254 $313 $255 $138 $205 $324 $319 $370 $416Dist'n & Storage 163 209 268 323 336 247 268 390 476 593 611 687BioMedical 73 73 78 90 96 90 148 199 215 266 258 276Other 0 0 0 0 0 0 0 0 0 0 0 0Total revenues $306 $403 $537 $666 $744 $592 $554 $795 $1,014 $1,177 $1,239 $1,379

Gross ProfitEnergy & Chemicals $21 $34 $40 $58 $103 $95 $31 $59 $99 $89 $104 $118Dist'n & Storage 47 62 87 101 101 74 77 109 137 169 178 201BioMedical 26 24 28 31 35 33 60 82 69 94 88 95Other 26 24 28 31 35 33 60 82 69 94 88 95Total Gross Profit $94 $119 $155 $190 $239 $202 $168 $250 $305 $352 $370 $414

Operating IncomeEnergy & Chemicals $22 $19 $34 $71 $62 $6 $27 $65 $60 $68 $76Dist'n & Storage 43 55 66 64 40 42 61 81 94 98 119BioMedical 15 16 18 21 16 35 41 29 43 31 40Other (2) (7) (7) (1) 1 5 7 (17) (5) (18) (7)Operating Income $37 $63 $67 $93 $133 $103 $53 $96 $129 $148 $148 $188

Other ExpensesInterest Expense ($5) ($27) ($25) ($23) ($19) ($17) ($18) ($20) ($17) ($18) ($18) ($18)Other 0 0 0 (0) (3) 1 0 1 (1) 0 (1) 0Pretax income $33 $36 $43 $70 $110 $86 $36 $77 $110 $131 $130 $170Taxes (10) (14) (13) (15) (28) (26) (10) (22) (33) (35) (38) (51)Minority interest (0) (0) (0) 0 (0) (0) (0) (0) (1) (2) (1) (1)Net income $23 $22 $29 $55 $83 $60 $26 $55 $76 $93 $90 $118



Energy & Chem 31% 28% 21% 23% 33% 37% 23% 29% 30% 28% 28% 28%Dist'n & Storage 29% 30% 33% 31% 30% 30% 29% 28% 29% 28% 29% 29%BioMedical 35% 32% 36% 34% 36% 37% 41% 41% 32% 35% 34% 34%Companywide 31% 30% 29% 28% 32% 34% 30% 32% 30% 30% 30% 30%

EBITDA margins 15% 18% 17% 17% 21% 19% 12% 14% 14% 14% 14% 15%Operating margins

Energy & Chem 18% 10% 13% 23% 24% 4% 13% 20% 19% 18% 18%Dist'n & Storage 21% 20% 21% 19% 16% 16% 16% 17% 16% 16% 17%BioMedical 20% 20% 20% 22% 18% 24% 21% 13% 16% 12% 14%Companywide 16% 12% 14% 18% 17% 10% 12% 13% 13% 12% 14%

OrdersEnergy & Chemicals $198 $230 $408 $221 $76 $166 $392 $385 $295 $330 $350Dist'n & Storage 237 296 325 368 209 288 436 531 720 726 795BioMedical 76 79 94 94 93 151 204 208 256 251 270Total Orders $393 $511 $606 $827 $683 $377 $605 $1,032 $1,125 $1,271 $1,306 $1,415

Book-to-Bill 1.3x 1.3x 1.1x 1.2x 0.9x 0.6x 1.1x 1.3x 1.1x 1.1x 1.1x 1.0x

BacklogEnergy & Chemicals $148 $208 $359 $266 $88 $116 $303 $365 $342 $302 $236Dist'n & Storage 80 105 107 126 88 109 169 228 363 473 581BioMedical 6 6 9 7 10 12 16 24 23 17 11Total Backlog $129 $234 $319 $475 $399 $185 $236 $489 $617 $729 $792 $828

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Chart Industries



Energy & Chemicals $81 $79 $80 $79 $86 $93 $96 $95 $96 $104 $108 $107Dist'n & Storage 129 147 153 164 130 149 161 172 142 167 181 196BioMedical 64 72 69 61 51 65 72 70 54 69 77 75Other 0 0 0 0 0 0 0 0 0 0 0 0Total revenues $274 $298 $302 $304 $266 $307 $329 $337 $293 $340 $367 $378

Gross ProfitEnergy & Chemicals $21 $23 $22 $24 $25 $25 $26 $28 $28 $28 $30 $32Dist'n & Storage 37 42 43 47 36 46 46 50 40 52 52 57BioMedical 22 25 24 23 16 22 25 25 18 24 27 26Other 22 25 24 23 16 22 25 25 18 24 27 26Total Gross Profit $79 $90 $89 $94 $78 $92 $97 $103 $86 $103 $109 $116

Operating IncomeEnergy & Chemicals $13 $15 $14 $17 $17 $16 $17 $19 $18 $17 $19 $22Dist'n & Storage 19 23 22 29 18 24 26 29 23 32 30 34BioMedical 8 14 11 11 2 7 11 11 7 10 12 11Other (4) 1 (0) (3) (12) (4) (1) (1) (5) (2) (0) (0)Operating Income $29 $40 $37 $43 $23 $36 $42 $47 $37 $47 $49 $55

Other ExpensesInterest Expense ($4) ($4) ($4) ($4) ($4) ($4) ($4) ($4) ($4) ($4) ($4) ($4)Other (0) (0) 0 0 (0) (0) 0 0 0 0 0 0Pretax income $24 $35 $33 $39 $18 $31 $38 $43 $32 $43 $45 $51Taxes (7) (10) (7) (11) (5) (9) (11) (13) (10) (13) (13) (15)Minority interest (1) (1) (0) (1) (0) (0) (0) (0) (0) (0) (0) (0)Net income $16 $25 $25 $27 $13 $22 $26 $30 $22 $29 $31 $35






OrdersEnergy & Chemicals $39 $78 $93 $85 $65 $57 $110 $98 $75 $85 $100 $90Dist'n & Storage 133 222 219 146 143 163 210 210 155 180 230 230BioMedical 72 70 58 56 55 61 65 70 60 65 70 75Total Orders $244 $370 $370 $287 $263 $281 $385 $378 $290 $330 $400 $395

Book-to-Bill 0.9x 1.2x 1.2x 0.9x 1.0x 0.9x 1.2x 1.1x 1.0x 1.0x 1.1x 1.0x

BacklogEnergy & Chemicals $323 $323 $336 $342 $321 $285 $299 $302 $281 $262 $253 $236Dist'n & Storage 231 310 380 363 372 385 435 473 485 498 547 581BioMedical 33 31 27 23 28 25 17 17 23 19 11 11Total Backlog $587 $664 $743 $729 $722 $695 $751 $792 $789 $779 $812 $828

2013 2014 2015

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Chart Industries



2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $15 $11 $19 $93 $122 $211 $165 $257 $141 $137 $143 $189Accounts receivable 46 62 77 97 92 78 95 132 150 224 219 246Other 79 93 135 139 191 126 146 209 265 288 342 384Current assets $139 $167 $231 $329 $405 $414 $406 $598 $556 $649 $704 $818PP&E 42 64 86 100 102 111 116 137 170 224 267 302Goodwill 75 237 247 248 262 265 275 289 399 399 407 407Other 51 168 161 149 141 136 157 151 203 189 189 189Total assets $307 $636 $725 $826 $909 $927 $955 $1,174 $1,328 $1,462 $1,566 $1,717

Liabilities & shareholders' equityCurrent maturities $15 $21 $1 $0 $1 $0 $0 $11 $4 $4 $0 $0Accounts payable 27 30 48 65 45 38 64 84 101 102 120 134Other 34 47 90 110 148 106 101 170 169 394 151 169Current liabilities $76 $98 $138 $175 $194 $144 $165 $265 $274 $499 $270 $303LT debt 76 345 290 250 242 242 242 242 242 242 242 242Other 39 76 76 73 68 62 64 72 102 79 80 80Total liabilities $191 $519 $504 $498 $504 $448 $471 $580 $618 $821 $593 $625Minority interest 0 0 0 0 0 0 0 0 0 0 0 0Common stock 116 116 220 328 405 478 501 614 710 641 973 1,091Total $307 $636 $724 $826 $909 $927 $972 $1,193 $1,328 $1,462 $1,566 $1,717


Net income $23 $8 $27 $44 $79 $61 $21 $44 $72 $87 $89 $118Depreciation 8 11 22 19 21 21 21 28 32 40 41 44Stock Option Expense 0 0 2 9 3 3 4 5 7 10 6 0Other 6 18 (6) (5) (10) (5) 7 11 11 11 5 0Working Capital Chg (2) (7) (9) 16 5 6 (21) (7) (35) (89) (49) (36)Cash from operations $35 $30 $36 $83 $98 $87 $31 $82 $88 $60 $91 $126

Investing ActivitiesCapex ($9) ($17) ($22) ($19) ($14) ($13) ($17) ($22) ($44) ($73) ($75) ($80)Asset sales 6 2 0 2 0 0 0 0 2 1 2 0Acquisitions 0 (12) (16) 0 (19) (18) (9) (38) (182) (3) (12) 0Other 0 (356) (0) (2) (33) 30 (0) 0 (0) 0 0 0Cash from investing ($3) ($383) ($39) ($19) ($66) ($1) ($27) ($60) ($224) ($75) ($85) ($80)

Financing ActivitiesChange in Equity $0 $2 $217 $43 $0 $1 $0 ($11) ($1) $3 ($3) $0Change in Debt (36) 349 (57) (41) (7) 0 (17) 80 12 (1) 3 0Other (0) 0 (150) 5 3 0 (3) (2) 6 5 (0) 0Cash flow financing ($36) $350 $9 $7 ($4) $1 ($19) $68 $17 $8 ($0) $0

FX and other 0 (1) 1 3 2 2 1 2 4 3 (1) 0

Chg in cash ($4) ($3) $8 $74 $30 $89 ($14) $92 ($115) ($4) $5 $46Beginning cash 19 15 11 19 93 123 212 198 290 175 170 176

Ending cash $15 $11 $19 $93 $123 $212 $198 $290 $175 $170 $176 $222

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CHC Helicopter

Investment Thesis We believe increased offshore drilling and continued privatization of search and rescue (SAR) services set a strong fundamental industry backdrop for HELI. Offshore transportation services are one of the main beneficiaries of offshore drilling projects moving into deeper and deeper waters further and further from onshore bases. The continued privatization of SAR is an added bonus as that work carries higher margins. However, one of HELI’s main competitive disadvantages is its balance sheet. High levels of rental and interest expenses hamper HELI’s growth opportunities as it is instead forced to partially redirect expansionary capex in order delever. We believe this diversion will cause the company to slightly lose market share as competitors with stronger balance sheets increase their aircraft count and emphasize growth in frontier regions. With that being said we do acknowledge that the company’s recent equity infusion leaves it in a much stronger position and other mechanisms (improvements in working capital, divestiture of non-core aircrafts) exist to increase free cash flow. Overall we believe the industry fundamentals and HELI’s deleverage mechanisms will overcome the growth limitation posed by the balance sheet issues, and so we initiate with a Buy rating and a $5.80 PT based on a 5.1x target multiple on our 2015E EBITDA.

Company Strategy HELI’s short-term focus is to maximize FCF in order to decrease fixed rental and interest expense by upgrading its fleet, divesting older aircraft and improving working capital.

Outlook for 2015 With production lines sold out until 2016 and helicopter supply tightening we expect rates to increase throughout most offshore oil and gas producing regions. We see further tightening in the market occurring during 2015 and 2016 as Petrobras issues tenders for 31 total aircraft (3-7 incremental aircrafts). The company has identified Canada, Brazil, Nigeria, Africa & Euro-Asia and the western North Sea as growth markets where it intends to grow its fleet. HELI expects to accept delivery of 12-15 new deliveries and divest some of its older, non-core aircraft.

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111

CHC Helicopter

Key Thoughts and Potential Catalysts HELI’s August convertible preferred shares offering will accelerate plans to decrease net debt and reduce fixed

charges leading to an improved FCF profile. It does open the possibility for significant dilution however.

HELI expects mid to high single digit growth in revenue with mid-single digit growth in Helicopter Services and mid teen to low-20% growth in Heli-One revenue. EBITDAR is expected to grow in the high single to low double-digit thanks to mid-single digit in helicopter service rates. The helicopter count is expected to remain relatively flat. The company forecasts a free cash flow spend of $180-$210MM. In the long run, HELI expects to remain free cash flow negative until FY2017 and expects long-term revenue growth in the high single-digit to mid-teen range with EBITDAR margins in the high teens to mid-20% range.

The accelerated disposal of legacy aircraft will help the company in paying for 13-15 new deliveries which should improve the overall mix of the fleet and free cash flow generation. In addition management has outlined improvements in supply chain efficiency and a reduction in days sales outstanding and retables as additional tools it will use to increase FCF.



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HELIOffshore Technology

HELI current trades at 6.8x, a 4% premium to the group's

6.5x average.

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CHC Helicopter


2012 2013 2014E 2015E 2016ERevenues

Eastern North Sea $328 $344 $374 $416Western North Sea 355 379 432 478Americas 271 249 265 289Asia-Pacific 311 309 294 318Africa Euro-Asia 167 167 177 184Fleet, Corp. & Other 9 5 7 7Heli-Services $1,407 $1,440 $1,453 $1,548 $1,692Reimbursables Rev 115 164 165 198 198Heli-Services Gross Revenue $1,530 $1,609 $1,618 $1,746 $1,890Heli-One 3rd Party Revenue 166 140 147 189 235Internal Revenue 166 140 147 189 235Heli-One Gross Revenue 445 427 307 304 494Total Operating Revenue $1,574 $1,580 $1,600 $1,737 $1,926Total Revenue $1,689 $1,744 $1,765 $1,935 $2,124

EBITDARHeli-Services Costs ($1,123) ($1,141) ($1,111) ($1,211) ($1,253)Earnings from Equity Investm 3 5 7 11 11Heli-Services EBITDAR $410 $473 $514 $546 $647Heli-One Costs (353) (335) (278) (246) (371)Heli-One EBITDAR $92 $91 $29 $58 $123G&A (72) (75) (95) (83) (90)Corporate & Other (6) 0 0 (5) (11)Inter-segment/Equity Costs (3) (2) (3) (0) (16)Adjusted EBITDAR $421 $486 $445 $516 $653Rent Expense (177) (202) (228) (268) (283)EBITDA $244 $285 $217 $248 $370Depreciation 113 132 145 139 154Other (14) (36) (106) (30) 61EBIT $99 $96 $39 $109 $216Interest Expense (117) (127) (153) (160) (166)Other (13) (30) 4 (1) 0Pre-Tax Income ($31) ($61) ($111) ($52) $49Tax Expense (48) (54) (28) (36) (50)Non-Controlling Interest (12) (3) (7) (31) (31)Net Income available to CHC ($91) ($118) ($146) ($119) ($32)

Per Share DataDiluted Earnings ($1.18) ($1.53) ($1.89) ($1.48) ($0.39)Dividend $0.00 $0.00 $0.00 $0.00 $0.00

Margins SummaryHeli-Service EBITDAR Margin 29% 33% 35% 35% 38%Heli-One EBITDAR Margin 21% 21% 10% 19% 25%Firmwide EBITDAR Margin 25% 28% 25% 27% 31%EBITDA Margin 14% 16% 12% 13% 17%

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113

CHC Helicopter


1Q14 2Q14 3Q14E 4Q14E 1Q15E 2Q15E 3Q15E 4Q15E 1Q16E 2Q16E 3Q16E 4Q16ERevenues

Eastern North Sea $84 $87 $85 $87 $93 $93 $94 $94 $98 $102 $106 $111Western North Sea 90 93 97 99 107 108 108 109 113 117 122 126Americas 52 65 69 62 66 66 66 67 67 71 74 77Asia-Pacific 76 78 81 74 73 73 74 74 75 78 81 84Africa Euro-Asia 42 43 43 39 44 44 44 44 45 46 46 47Fleet, Corp. & Other 1 1 1 2 2 2 2 2 2 2 2 2Heli-Services Operating Reve $345 $368 $375 $364 $384 $386 $388 $390 $399 $415 $431 $447Reimbursables Rev 42 40 42 41 40 53 53 53 54 46 48 50Heli-Services Gross Revenue $387 $408 $417 $405 $424 $439 $441 $443 $454 $461 $479 $497Heli-One 3rd Party Revenue 28 35 37 48 37 42 48 62 46 53 60 76Internal Revenue 37 43 33 46 24 31 30 30 45 69 71 74Heli-One Gross Revenue 65 79 70 94 61 73 78 92 92 122 131 150Total Operating Revenue $373 $403 $412 $412 $421 $428 $436 $452 $445 $468 $490 $523Total Revenue $415 $443 $454 $453 $461 $481 $489 $505 $500 $514 $538 $573

EBITDARHeli-Services Costs ($264) ($289) ($291) ($267) ($300) ($306) ($304) ($301) ($303) ($305) ($318) ($328)Earnings from Equity Investm 2 2 2 1 3 3 3 3 3 3 3 3Heli-Services EBITDAR $126 $120 $128 $140 $127 $135 $140 $144 $154 $159 $164 $171Heli-One Costs (61) (70) (64) (83) (56) (60) (60) (70) (69) (91) (98) (113)Heli-One EBITDAR $4 $8 $6 $10 $5 $13 $18 $22 $22 $30 $33 $37G&A (18) (21) (39) (17) (20) (21) (21) (22) (21) (23) (22) (24)Corporate & Other 0 0 0 0 0 0 (2) (2) (2) (3) (3) (3)Inter-segment/Equity Costs (1) (1) (0) (2) (0) (0) (0) (0) (4) (4) (4) (4)Adjusted EBITDAR $111 $108 $95 $131 $112 $128 $134 $142 $149 $160 $168 $177Rent Expense (55) (55) (56) (61) (63) (68) (68) (68) (68) (70) (72) (73)EBITDA $56 $53 $39 $70 $49 $59 $66 $74 $80 $90 $96 $104Depreciation 32 39 35 38 34 34 35 36 36 37 39 42Other (16) (43) (32) (15) (19) (9) (4) 2 9 15 18 20EBIT $16 ($4) $3 $24 $15 $25 $31 $38 $45 $52 $57 $62Interest Expense (39) (39) (40) (36) (35) (42) (42) (42) (42) (42) (42) (42)Other (7) (2) (4) 16 (1) 0 0 0 0 0 0 0Pre-Tax Income ($30) ($45) ($40) $4 ($21) ($17) ($11) ($4) $3 $11 $15 $20Tax Expense (5) (5) (7) (11) (8) (8) (9) (10) (11) (12) (13) (14)Non-Controlling Interest (3) 0 (2) (3) (8) (8) (8) (8) (8) (8) (8) (8)Net Income available to CHC ($38) ($50) ($49) ($9) ($37) ($33) ($28) ($22) ($15) ($9) ($5) ($2)

Per Share DataDiluted Earnings ($0.49) ($0.64) ($0.63) ($0.12) ($0.46) ($0.41) ($0.34) ($0.27) ($0.19) ($0.12) ($0.07) ($0.02)Dividend $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

Margins SummaryHeli-Service EBITDAR Margin 36% 33% 34% 38% 33% 35% 36% 37% 39% 38% 38% 38%Heli-One EBITDAR Margin 6% 11% 9% 11% 9% 18% 23% 24% 25% 25% 26% 25%Firmwide EBITDAR Margin 27% 24% 21% 29% 24% 27% 27% 28% 30% 31% 31% 31%EBITDA Margin 14% 12% 9% 15% 11% 12% 14% 15% 16% 17% 18% 18%

2014 2015 2016

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CHC Helicopter



2012 2013 2014E 2015E 2016EAssets

Cash & equivalents $56 $124 $303 $228 $105Accounts receivable 266 317 292 331 356Inventories 90 106 131 142 141Other 84 104 105 115 124Current assets $495 $651 $831 $816 $726PP&E 1,027 1,075 1,051 1,158 1,280Investments 24 27 31 33 33Goodwill & Intangibles 652 628 610 602 602Other (134) (117) (29) (14) (3)Total assets $2,716 $2,893 $3,104 $3,198 $3,240

Liabilities & shareholders' equityAccounts Payable $363 $419 $355 $352 $367Accrued & Other 44 48 42 44 44Other 122 107 152 119 119Current liabilities $529 $574 $550 $514 $529LT debt 1,269 1,475 1,546 1,846 1,846Deferred Income taxes 20 11 11 11 11Other 235 302 369 375 403Total liabilities $2,054 $2,362 $2,475 $2,745 $2,789

Shareholders' Equity 662 531 629 495 495Total $2,716 $2,893 $3,104 $3,241 $3,283

2012 2013 2014E 2015E 2016EOperating Activities

Net Income ($95) ($116) ($171) ($93) ($1)Depreciation & Amortization 113 132 145 139 154Other 20 31 36 (3) 17Working Capital Chg (23) (48) 3 (88) (18)Cash from operations $16 ($1) $12 ($45) $153

Investing ActivitiesCapital Expenditures ($377) ($428) ($647) ($504) ($504)Dispositions 218 353 618 277 277Other (59) (75) (112) (43) (50)Cash from investing ($218) ($150) ($141) ($270) ($277)

Financing ActivitiesChange in Debt $81 $193 $170 $364 $0Change in Equity 100 25 318 0 0Dividends to parent 0 0 (25) 0 0Other 26 3 (140) (123) 0Cash flow financing $207 $221 $323 $241 $0

FX and other ($19) ($2) ($16) ($0) $0

Chg in cash ($13) $68 $179 ($74) ($124)Beginning cash 69 56 124 302 228Ending cash $56 $124 $302 $228 $105

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115

Core Laboratories

Investment Thesis The recent weakness in Core Labs stock price following the Q2 guide down, Q2 financials and the recent energy sell off present long-term buying opportunities for one of the segment’s most technologically advanced companies. We remain very positive on deepwater fundamentals and believe the ongoing lull in offshore project startups and the decreased sentiment surrounding offshore E&P spending is only temporary, with a rebound meaning big business for the company’s reservoir description business. We also believe the shale revolution provides a strong backlog of future work for CLB’s Production Enhancement segment given the steep decline rates shale wells face. In addition we are confident about continued share buybacks ($93.6MM during Q3, or 1.5% of current market cap ain’t too shabby) through the next six quarters and increasing dividends as soon as late 2015 when we model the payback ratio to dip below 30%. We initiate with a Buy and an $151 PT. Company Strategy CLB focus on the more stable production and production enhancement components of E&P budgets minimize volatility in company revenues, while an emphasis on developing new technologies and acquiring complementary technologies and leveraging those products via its global distribution system makes for a strong margin growth story. Together these two strategies form the backbone of a stable, growing, high-return company.

Outlook for 2015 We expect CLB to continue its operational excellence in 2015 piggybacking off international growth, a slight resurgence in deepwater activity as operators resume their development of high impact hydrocarbon finds , and the continued development of high complexity horizontal drilling in NAM.

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Core Laboratories

Key Thoughts and Potential Catalysts Reservoir description margins have been affected by recent low levels of deepwater activity in 4 of

last 5 quarters but the company is confident that its DW focus will increase reservoir description margins in the long-term.

New EOR Techniques will be able to generate higher margin revenues over the next decade-plus FlowProfiler and KODIAK-related technologies should generate increased levels of revenue, EBIT and

FCF in H2:14. 20% of revenue converted to FCF. NAM Activity will continue to increase for emerging unconventional oil plays and activity will remain

at reduced yet stable levels in established unconventional tight-oil and gas plays. CLB anticipates higher numbers of DW coring programs especially in DW GOM. HPHT reservoir fluid phase behavior projects is also expected to remain high. CLB's portfolio of Reservoir Management work in W. and E. African DW projects in Cote d'Ivoire,

Senegal, Tanzania and Mozambique has continued to increase. June Production Enhancement numbers were the company's strongest and those have continue to

improve through July. Geopolitical tensions in the Ukraine have actually benefited CLB as they have been called back to

revisit some previously done work in Germany and Poland. International revenue growth is expected to relatively low at 1-2% for '14, but the company is

excited about the possibilities for 2015 and beyond. Dependent on adaptation in horizontal well construction, CLB see its FLOWPROFILER product as a

potential $60MM opportunity.



8x

12x

16x

20x

24x

28x

32x

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

CLBNiche Offshore Technology Providers

CLB current trades at 21.2x, a 37% premium to the group's 15.3x average but in line with

its historical average.

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117

Core Laboratories


2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

Canada $259 $281 $315 $374 $435 $415 $426 $470 $496 $522 $528 $578United States 147 176 223 245 293 231 314 371 404 452 471 521Russia 21 27 38 51 52 50 55 66 82 99 107 113Total revenues $427 $483 $576 $671 $781 $696 $795 $908 $981 $1,074 $1,106 $1,211

ExpensesTotal Operating Exp. $361 $393 $435 $478 $539 $487 $543 $624 $663 $714 $725 $770EBITDA $67 $91 $141 $193 $241 $209 $252 $284 $318 $360 $381 $441D&A (17) (16) (17) (19) (22) (24) (23) (23) (23) (24) (26) (30)Operating Income $49 $74 $124 $174 $220 $185 $229 $261 $295 $336 $355 $411Interest Expense (8) (8) (6) (2) (1) (16) (17) (10) (9) (9) (12) (14)Other Income 0 0 0 0 0 0 0 (0) 0 0 0 0Pretax income $41 $66 $118 $171 $218 $170 $212 $251 $286 $327 $343 $398Taxes 11 20 35 52 71 54 64 68 72 82 79 95Minority interest 0 1 1 1 0 0 0 0 6 9 0 0Net income $30 $46 $83 $119 $147 $116 $148 $183 $214 $245 $263 $302


Margins SummaryTotal Operating Margin 12% 15% 21% 26% 28% 27% 29% 29% 30% 31% 32% 34%EBITDA Margin 16% 19% 24% 29% 31% 30% 32% 31% 32% 34% 34% 36%Pretax Margin 10% 14% 20% 26% 28% 24% 27% 28% 29% 30% 31% 33%

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Core Laboratories



Canada $125 $129 $132 $136 $125 $131 $133 $139 $141 $144 $143 $150United States 107 110 120 115 110 111 125 124 121 125 138 136Russia 28 24 22 25 27 26 27 27 29 27 28 29Total revenues $261 $263 $273 $276 $263 $268 $285 $290 $291 $296 $309 $315

ExpensesTotal Operating Exp. $176 $174 $181 $183 $172 $178 $187 $188 $186 $188 $196 $200EBITDA $85 $89 $92 $94 $91 $89 $98 $102 $105 $108 $113 $115D&A 6 6 7 5 7 6 6 7 7 7 8 8Operating Income $79 $84 $85 $88 $84 $83 $92 $96 $98 $100 $106 $107Interest Expense (2) (2) (2) (2) (2) (3) (3) (3) (3) (3) (3) (3)Other Income 0 0 0 0 0 0 0 0 0 0 0 0Pretax income $77 $81 $83 $86 $82 $80 $89 $92 $95 $97 $102 $104Taxes 20 20 21 21 20 17 20 22 23 23 25 25Minority interest 6 6 6 9 5 0 0 0 0 0 0 0Net income $57 $61 $62 $65 $62 $63 $68 $70 $72 $74 $78 $79


Margins SummaryTotal Operating Margin 30% 32% 31% 32% 32% 31% 32% 33% 34% 34% 34% 34%EBITDA Margin 33% 34% 34% 34% 35% 33% 34% 35% 36% 36% 37% 36%Operating Margin 29% 31% 30% 31% 31% 30% 31% 32% 33% 33% 33% 33%

2013 2014 2015

October 14, 2014

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Core Laboratories



2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $16 $14 $54 $26 $36 $181 $134 $29 $19 $25 $56 $93Accounts receivable 95 99 112 137 144 134 155 171 185 201 206 224Inventories 29 29 30 29 35 32 34 53 49 47 50 54Other 11 11 29 28 27 44 27 27 44 31 26 28Current assets $152 $153 $226 $221 $242 $391 $349 $281 $297 $304 $338 $399PP&E 80 81 88 93 103 99 104 115 125 139 158 184Goodwill 157 139 139 146 192 169 182 171 172 174 175 175Deferred Income taxes 0 21 49 45 0 0 0 38 42 44 48 48Total assets $389 $395 $501 $505 $538 $658 $636 $605 $637 $661 $719 $807

Liabilities & shareholders' equityShort-Term Debt $0 $0 $0 $0 $0 $0 $148 $2 $0 $0 $0 $0Accounts Payable 29 33 37 40 42 33 45 58 55 51 59 64Other 38 34 49 55 54 73 (60) 75 85 85 90 97Current liabilities $67 $67 $86 $95 $96 $106 $132 $135 $141 $136 $148 $161LT debt 111 89 303 300 239 209 0 223 234 267 383 408Minority Interest 0 1 1 1 0 0 0 0 6 9 0 0Other 21 26 42 46 45 61 212 65 74 80 88 91Total liabilities 199 183 432 443 379 376 343 423 454 492 619 660

Shareholders' Equity 190 212 69 62 158 282 293 182 182 169 100 146Total $389 $395 $501 $505 $538 $658 $636 $605 $637 $661 $719 $807


Net Income $28 $31 $83 $121 $144 $114 $145 $185 $217 $243 $264 $302Depreciation 17 16 17 19 22 24 23 23 23 24 26 30Other 5 19 14 2 2 20 15 16 21 31 6 0Working Capital Chg 4 8 7 (17) (12) 24 22 (20) (23) (0) 14 (8)Cash from operations $54 $75 $120 $126 $155 $182 $206 $204 $237 $298 $309 $324

Investing ActivitiesCapital Expenditures ($11) ($19) ($24) ($24) ($31) ($17) ($28) ($30) ($31) ($35) ($34) ($26)Sale of PP&E 1 4 3 14 4 1 1 1 1 1 1 0

Other 15 (1) (2) (10) (14) (2) (12) (23) (4) (9) (4) 0Cash from investing $6 ($16) ($24) ($20) ($41) ($19) ($39) ($52) ($34) ($43) ($38) ($26)

Financing ActivitiesChange in Debt ($17) ($27) $211 $0 ($56) $0 ($82) $69 $9 $22 $116 $25Change in Equity (43) (33) (236) (163) (20) (9) (92) (280) 2 (196) (269) (200)Dividends 0 0 0 0 (28) (27) (40) (46) (53) (59) (89) (86)Other (0) (0) (31) 29 0 17 (0) 1 (171) 3 1 0

Cash flow financing ($60) ($61) ($56) ($134) ($104) ($18) ($214) ($257) ($213) ($230) ($241) ($261)

Chg in cash $0 ($2) $40 ($29) $11 $145 ($47) ($105) ($10) $25 $31 $37Beginning cash 17 16 14 54 26 36 181 134 29 19 44 74

Ending cash $17 $14 $54 $26 $36 $181 $134 $29 $19 $44 $74 $112

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120

Diamond Offshore

Investment Thesis One of the lowest cost offshore drilling contractors, Diamond operates a fleet of aging assets with a high mix of midwater floaters and standard specification jackups. The company has taken steps to high grade its fleet in recent years, acquiring some distressed spec ultra deepwater newbuilds in 2009/2010, ordering four UDW newbuilds and upgrading two deepwater units. However, a series of unforeseen events has plagued the shares in recent years, with investors increasingly concerned the dividend is at risk. The company indicated it may consider a dividend cut to take advantage of distressed assets in the current downturn, as it did twice in 2010. But with two newbuilds under construction still available, and debt levels rising, we think a dividend cut may be prudent to shore up the balance sheet. We rate the shares Sell with a $32 price target based on a 4.8x target multiple on our 2015E EBITDA.

Company Strategy CEO Marc Edwards recently outlined three main value drivers for Diamond Offshore: 1) investment excellence to include asset optimization and capital efficiency allocation, 2) commercial excellence centered around customer relationships, pricing, utilization and fleet positioning; and 3) operational excellence to minimize downtime and maintain discipline in operating expense and SG&A. With a new Chief Commercial Officer responsible for marketing and contract acquisition activities, the company is overhauling its supply chain to drive costs lower. Retiring older assets should lower stacking costs in the short term, with the company holding four units for sale currently while taking. Having taken delivery of recent newbuilds, Diamond plans to retire some older assets in the near term.

Outlook for 2015 With the Ocean Vanguard unexpected released early this summer by Statoil and the Ocean Star mobbing from Brazil to the U.S. GOM, Diamond currently has eight floaters available, including four 2nd and 3rd Gen units held for sale. We expect the company to bid the Star and other moored semisubs to Pemex, where it currently has three midwaters contracted, with the NOC likely renewing the Ocean Yorktown when it roll off contract in March. Diamond also have seven floaters rolling off contract with Petrobras in 2015, with the company waiting on final approval for the Ocean Valor and Ocean Courage in the $460-505kpd range (up slightly from the current $407-440kpd range) and the Ocean Baroness at less than $400kpd (vs. current $277kpd). With the Ocean Yatzy, Worker and Winner at risk of being released by Petrobras in the next six months, we expect the company to incur higher costs to mobe these units back to the U.S. GOM or new markets. Meanwhile, newbuild Ocean BlackLion remain available, currently scheduled for 2Q15 delivery as the company faces another year of large capex commitments.

October 14, 2014

121

Diamond Offshore

Key Thoughts and Potential Catalysts Diamond surprised the market but swapping the Ocean BlackRhino for the remainder of the Ocean

Confidence’s contract with Murphy, including options for a lower dayrate of $495kpd (from current $550kpd) in exchange for a three year term. While operating the BlackRhino in the U.S. GOM rather than in West Africa justifies a lower dayrate, we were surprised by the rig swap as management had previously indicated it was in advanced customer discussion for the Rhino.

Diamond has been growing its market share in Mexico, where it operates three jackups and three midwater floaters. We believe the company could place more midwaters in this market, as the NOC has shown a preference towards established operators, potentially expanding into the ultra-deepwater as the market expands.

With nine floaters contracted to Petrobras currently, Diamond has among the highest mix of assets in Brazil. Contract negotiations for three deepwater units have been lengthy at about a year, but are expected to be finalized shortly, helping shore up contract coverage over the next few years.

Diamond unexpectedly return cash to shareholders in the form of buybacks during 1Q14, taking advantage of market downturn with the repurchase of 1.86mm shares for $86.4mm. Majority shareholder Loews Corp. noted Diamond may have the change to buy rigs at distressed prices, though also stressing paying a dividend is also a top priority.



3x

4x

5x

6x

7x

8x

9x

10x

'06 '07 '08 '09 '10 '11 '12 '13 '14

DOOffshore Drillers

DO current trades at 4.8x, a -20% discount to the group's 5.8x


October 14, 2014

122

Diamond Offshore


2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

Floaters $906 $1,552 $2,060 $2,951 $3,079 $2,962 $3,057 $2,776 $2,717 $2,531 $2,865Jackups 272 435 446 525 457 268 198 161 174 174 166Total Contract Drilling $1,179 $1,987 $2,506 $3,476 $3,537 $3,230 $3,254 $2,936 $2,891 $2,704 $3,031Reimbursables 42 65 62 68 95 93 68 50 77 152 171Other 0 0 0 0 0 0 0 0 0 0 0Total revenues $1,221 $2,053 $2,568 $3,544 $3,631 $3,323 $3,322 $2,987 $2,967 $2,857 $3,202

ExpensesFloaters ($505) ($627) ($807) ($950) ($965) ($1,181) ($1,357) ($1,401) ($1,411) ($2,855) ($1,578)Jackups (124) (159) (185) (225) (236) (185) (170) (107) (115) (98) (84)Total Contract Drilling ($628) ($787) ($991) ($1,175) ($1,201) ($1,366) ($1,527) ($1,508) ($1,526) ($3,003) ($1,712)Reimbursables (36) (57) (53) (64) (93) (91) (66) (49) (75) (151) (169)Other (10) (25) (20) (12) (23) (19) (22) (29) (46) 1,411 0Operating costs ($674) ($870) ($1,064) ($1,251) ($1,317) ($1,476) ($1,615) ($1,585) ($1,647) ($1,743) ($1,881)G&A (37) (42) (53) (60) (63) (67) (65) (65) (63) (82) (90)EBITDA $510 $1,141 $1,450 $2,233 $2,252 $1,780 $1,643 $1,337 $1,257 $1,032 $1,230D&A ($184) ($201) ($235) ($287) ($346) ($393) ($399) ($393) ($388) ($449) ($526)Other 0 (0) (0) 0 0 0 0 0 0 0 0Operating income $326 $941 $1,215 $1,946 $1,905 $1,387 $1,244 $944 $869 $583 $704Interest income $26 $38 $34 $12 $4 $3 $7 $5 $1 $1 $0Interest expense (37) (24) (19) (10) (50) (91) (73) (46) (25) (75) (83)Other income (2) 12 9 (21) 8 5 (10) (3) (3) (9) (11)Pretax income $313 $967 $1,238 $1,927 $1,868 $1,304 $1,168 $899 $842 $499 $610Taxes (80) (260) (339) (561) (492) (370) (246) (207) (178) (93) (132)Minority interest 0 0 0 0 0 0 0 0 0 0 0Net income $233 $707 $899 $1,367 $1,376 $934 $922 $692 $663 $406 $478



Floaters 44% 60% 61% 68% 69% 60% 56% 50% 48% 43% 45%Jackups 54% 63% 59% 57% 48% 31% 14% 34% 34% 43% 50%Companywide 45% 58% 59% 65% 64% 56% 51% 47% 44% 39% 41%

EBITDA margins 42% 56% 56% 63% 62% 54% 49% 45% 42% 36% 38%Operating margins 27% 46% 47% 55% 52% 42% 37% 32% 29% 20% 22%

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Diamond Offshore



Floaters $661 $704 $710 $642 $638 $604 $643 $646 $653 $713 $749 $749Jackups 39 41 51 43 47 45 40 41 41 41 42 42Total Contract Drilling $700 $745 $761 $685 $685 $650 $683 $687 $694 $755 $791 $791Reimbursables 30 13 15 19 24 43 43 43 43 43 43 43Other 0 0 0 0 0 0 0 0 0 0 0 0Total revenues $730 $758 $776 $703 $709 $692 $726 $729 $737 $797 $834 $834

ExpensesFloaters ($336) ($328) ($380) ($368) ($330) ($353) ($379) ($383) ($382) ($394) ($400) ($402)Jackups (30) (27) (29) (29) (28) (30) (20) (20) (20) (21) (21) (21)Total Contract Drilling ($366) ($355) ($409) ($397) ($370) ($395) ($412) ($416) ($415) ($427) ($434) ($436)Reimbursables (29) (13) (15) (18) (24) (42) (42) (42) (42) (42) (42) (42)Other (10) (14) (11) (12) 0 0 0 0 0 0 0 0Operating costs ($404) ($382) ($434) ($427) ($393) ($438) ($454) ($458) ($457) ($470) ($476) ($478)G&A (17) (16) (15) (15) (23) (20) (19) (20) (21) (22) (23) (24)EBITDA $309 $360 $327 $262 $293 $234 $253 $251 $259 $306 $335 $331D&A ($97) ($97) ($97) ($97) ($107) ($109) ($114) ($119) ($124) ($129) ($134) ($139)Other 0 0 0 0 0 0 0 0 0 0 0 0Operating income $212 $263 $230 $165 $186 $125 $139 $132 $135 $177 $201 $192Interest income $1 $0 $0 ($0) $0 $0 $0 $0 $0 $0 $0 $0Interest expense (8) (8) (2) (7) (18) (19) (19) (20) (20) (21) (21) (22)Other income (0) 1 (4) (0) (1) (3) (3) (3) (3) (3) (3) (3)Pretax income $204 $256 $224 $157 $168 $104 $117 $110 $112 $153 $177 $168Taxes (29) (71) (54) (24) (22) (21) (26) (24) (24) (33) (38) (36)Minority interest 0 0 0 0 0 0 0 0 0 0 0 0Net income $175 $185 $170 $134 $146 $83 $91 $86 $88 $120 $138 $132



Floaters 49% 53% 46% 43% 48% 42% 41% 41% 42% 45% 47% 46%Jackups 24% 33% 44% 32% 40% 34% 50% 50% 51% 50% 49% 49%Companywide 45% 50% 44% 39% 45% 37% 37% 37% 38% 41% 43% 43%


2013 2014 2015

October 14, 2014

124

Diamond Offshore



2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $843 $525 $638 $336 $376 $464 $334 $335 $347 ($150) ($1,568)Accounts receivable 357 567 523 575 791 610 564 500 469 574 656Other 82 389 104 556 556 789 1,095 1,298 1,902 562 592Current assets $1,282 $1,482 $1,265 $1,467 $1,723 $1,863 $1,993 $2,133 $2,718 $986 ($320)PPE 2,302 2,628 3,040 3,399 4,432 4,284 4,667 4,865 5,467 6,967 8,413Goodwill 0 0 0 0 0 0 0 0 0 0 0Other 23 23 36 73 109 580 304 237 206 229 228Total assets $3,607 $4,133 $4,341 $4,939 $6,264 $6,727 $6,964 $7,235 $8,391 $8,182 $8,322

Liabilities & shareholders' equityAccounts payable $61 $122 $132 $509 $75 $0 $0 $0 $0 $0 $132Accrued liabilities 169 185 236 0 302 626 427 486 496 437 456Taxes payable 39 27 82 0 32 0 0 0 0 0 0Other 0 0 0 0 4 0 0 0 0 0 0Current liabilities $269 $334 $449 $509 $413 $626 $427 $486 $496 $437 $589LT debt 978 964 507 503 1,495 1,496 1,496 1,496 2,494 2,494 2,494Deferred taxes 445 448 398 459 546 542 537 491 526 534 534Other LT liabilities 62 67 111 119 179 201 171 186 239 237 237Total liabilities $1,754 $1,813 $1,464 $1,590 $2,634 $2,865 $2,631 $2,659 $3,754 $3,702 $3,854Noncontrolling interest 0 0 0 0 0 0 0 0 0 0 0Common stock 1,853 2,320 2,877 3,349 3,631 3,862 4,333 4,576 4,637 4,480 4,468Total $3,607 $4,133 $4,341 $4,939 $6,264 $6,727 $6,964 $7,235 $8,391 $8,182 $8,322

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EOperating Activities

Net income $260 $707 $847 $1,311 $1,376 $955 $963 $720 $549 $413 $478Depreciation 184 201 235 287 346 393 399 393 388 449 526Deferred income taxes 65 2 1 66 86 (7) 7 (47) 34 9 0Other (40) (12) (12) (6) (8) (34) (12) (18) 2 (9) 0Working Capital Chg (81) (137) 138 (39) (284) (25) 63 263 93 (238) 39Cash from operations $389 $760 $1,208 $1,620 $1,517 $1,282 $1,420 $1,311 $1,066 $624 $1,044

Investing ActivitiesCapex ($294) ($551) ($647) ($667) ($412) ($434) ($775) ($702) ($958) ($1,961) ($1,972)Acquisitions 77 5 11 6 (910) 188 6 138 5 16 0Sale (purchase) of securities 666 (285) 313 (395) 0 (210) (292) (252) 4,650 6,150 0Securities repurchased 1 5 8 (17) (28) 0 0 0 (5,249) (4,400) 0Other 0 3 0 0 0 0 0 0 0 0 0Cash from investing $450 ($824) ($315) ($1,073) ($1,350) ($456) ($1,061) ($816) ($1,552) ($195) ($1,972)

Financing ActivitiesChg in LT debt ($212) $0 $0 $0 $987 ($4) $0 $0 $998 $0 $1,600Preferred issuance (redemption) 0 0 0 0 0 0 0 0 0 0 0Common issuance (redemption) 12 5 16 3 0 0 0 0 0 (91) (6)Dividend paid (48) (258) (796) (852) (1,115) (734) (490) (490) (490) (485) (485)Other (13) (1) 0 (0) 2 0 0 (4) (10) (0) 1Cash flow financing ($262) ($254) ($780) ($849) ($126) ($738) ($490) ($494) $498 ($576) $1,110

Chg in cash $577 ($318) $113 ($302) $40 $88 ($131) $2 $12 ($147) $182Beginning cash 266 843 525 638 336 376 464 334 335 347 200

Ending cash $843 $525 $638 $336 $376 $464 $334 $335 $347 $200 $382

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Dresser-Rand

Investment Thesis Order slippage and poor financial guidance have raised questions about Dresser’s business in recent years; however, the stock has done well from a combination of activist interest and M&A speculation. Long viewed as a potential M&A target, Dresser-Rand agreed to be acquired by Siemens for $7.6bn or $83 per share in an all cash deal on September 21st. We rate DRC Sell with an $83 PT, seeing no competitive buyers at this time.

Company Strategy Although CEO Vince Volpe has traditionally stressed the company is not for sale, sentiments appeared to have shifted in July when media outlets reported Siemens was preparing for a takeover of Dresser-Rand, driven by its desire to expand in the U.S. shale infrastructure buildout. Dresser does sell standardized high speed reciprocating equipment for pipeline buildouts, but it’s strength is in more highly engineered and customized equipment for large upstream, offshore, and LNG development projects. For example, the company is providing large diameter boosting stations for the West-East pipeline across China and has received orders for several miniLNG plants along the coastline. Unfortunately upstream and offshore development projects are prone to delays, particularly as IOC customers have been under pressure to improve returns in recent years, causing Dresser to miss its 2012 & 2013 bookings targets. But with a high 40% share of the global installed base of its traditional equipment, Dresser continues to generate stable to growing aftermarket revenues, which accounts for about two-thirds of operating income. Meanwhile the company has been expanding into new markets recently, booking its first projects from several new R&D initiatives at recent technology-driven acquisitions.

Outlook for 2015 Siemens expects to close its acquisition of Dresser-Rand in the summer of 2015, with each month’s delay starting March 1st adding $0.55/shr to the purchase price. Dresser should host a special shareholder meeting to vote on the deal by the middle of next year, but operationally 2015 could be significant for the company as well as it executes on the first order of several recent new technology initiatives. The company’s first LNGo unit should be fully operational by the start of the year, with demonstrated field performance from an existing installation potentially leading to more orders from other customers. Management estimate LNGo could generate $100mm in revenue in 2015, increasing over time as the technology expands internationally (China, Europe) and from aftermarket opportunities. Dresser will also be delivering its first compressed air energy storage (CAES) order in 2015 and testing its first subsea integrated compression system (ICS) with Statoil, accumulating thousands of hours of performance in the process of qualifying the compression & separation equipment with an important customer. Dresser also recently booked its first magnetic bearing technology order, but this as more of a 2016 event.

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Dresser-Rand

Key Thoughts and Potential Catalysts Operationally Dresser is starting to see improvements in upstream bookings, with four offshore

projects booked in 2Q. With “well over $100mm” in new unit orders booked in July, the company raised its FY booking guidance to “at least” +10% Y-Y from 5-10% previously. We’re forecasting $400mm in bookings in 3Q, but see potential risk to our $98mm operating income estimates (vs. management’s $80-100mm guidance range) from a stronger US dollar that likely has a negative effect on DRC’s results.

CEO Vince Volpe is optimistic on FPSOs, seeing potentially 20 units built or contracted in 2014. An estimated 160 FPSOs will be ordered by the industry over the next five years, needing $15bn worth of compressor equipment and $15bn in power generation, with 20-25 orders per year qualifying as a good year as projects are prone to costly delays. However, Dresser’s mission critical equipment for compressing high pressure gas is less likely to face cost cutting pressure and the company booked five of six FPSO orders in 1H14.

Working capital improvements continue to be an important object for Dresser, but management recently eased away from its 15% of sales target by year end, citing it is more stubborn than expected. Net working capital is now expected to be flat-to-down slightly over the course of 2014 at an adjusted 22% vs. the historical 12% average.



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'06 '07 '08 '09 '10 '11 '12 '13 '14

DRC current trades at 14.1x, a 54.% premium to its historical

8.5x.

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

New Units $345 $577 $750 $813 $1,203 $1,259 $959 $1,082 $1,302 $1,524 $1,552 $1,634Aftermarket 570 632 752 852 992 1,031 994 1,230 1,435 1,509 1,488 1,564Other 0 0 0 0 0 0 0 0 0 0 0 0Total revenues $915 $1,208 $1,502 $1,665 $2,195 $2,290 $1,954 $2,312 $2,736 $3,033 $3,040 $3,199

Operating incomeNew Units $3 $21 $47 $59 $132 $172 $130 $110 $118 $140 $147 $178Aftermarket 116 141 204 216 277 267 228 252 323 296 349 383Other (44) (46) (63) (70) (78) (84) (95) (104) (105) (115) (115) (122)Operating income $75 $116 $189 $205 $330 $355 $263 $257 $336 $321 $382 $440Interest (6) (57) (47) (35) (29) (32) (33) (55) (60) (52) (60) (68)Other Income 0 (3) 9 7 (7) 1 (0) (5) 0 (9) (8) (15)Pretax income $69 $56 $151 $178 $294 $324 $229 $198 $276 $260 $314 $357Taxes (19) (15) (60) (65) (101) (103) (69) (67) (93) (89) (107) (114)Minority interest 0 0 0 0 0 0 0 0 0 0 (5) 0Net income $49 $41 $92 $113 $193 $220 $160 $130 $183 $171 $202 $243


Margins SummaryGross margins 25% 24% 27% 28% 23% 28% 28% 28% 28% 28% 30% 30%EBITDA margins 15% 16% 15% 17% 18% 16% 14% 15% 14% 16% 17%Operating margins 8% 10% 13% 12% 15% 16% 13% 11% 12% 11% 13% 14%

New Units 1% 4% 6% 7% 11% 14% 14% 10% 9% 9% 9% 11%Aftermarket 20% 22% 27% 25% 28% 26% 23% 20% 23% 20% 23% 25%

BookingsNew Units $121 $772 $1,002 $1,322 $1,429 $727 $1,210 $1,500 $1,630 $1,331 $1,467 $1,530Aftermarket 97 674 837 873 1,094 934 1,026 1,358 1,533 1,610 1,544 1,720Total Bookings $218 $1,446 $1,839 $2,195 $2,523 $1,662 $2,236 $2,859 $3,163 $2,941 $3,010 $3,250

BacklogNew Units $489 $688 $982 $1,543 $1,831 $1,371 $1,611 $2,075 $2,371 $2,188 $2,209 $2,105Aftermarket 148 197 286 316 421 341 354 477 575 661 652 807Total Backlog $638 $885 $1,267 $1,859 $2,252 $1,712 $1,965 $2,553 $2,946 $2,849 $2,861 $2,913

Book-to-BillNew Units 0.4x 1.3x 1.3x 1.6x 1.2x 0.6x 1.3x 1.4x 1.3x 0.9x 0.9x 0.9xAftermarket 0.2x 1.1x 1.1x 1.0x 1.1x 0.9x 1.0x 1.1x 1.1x 1.1x 1.0x 1.1xTotal Book-to-Bill 0.2x 1.2x 1.2x 1.3x 1.1x 0.7x 1.1x 1.2x 1.2x 1.0x 1.0x 1.0x

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Dresser-Rand



New Units $443 $420 $273 $388 $391 $303 $347 $512 $352 $363 $381 $537Aftermarket 323 385 361 439 308 326 354 501 329 342 357 536Other 0 0 0 0 0 0 0 0 0 0 0 0Total revenues $766 $805 $634 $827 $699 $628 $700 $1,013 $682 $705 $739 $1,073

Operating incomeNew Units $29 $26 $34 $52 $16 $27 $38 $67 $18 $36 $48 $77Aftermarket 66 93 75 62 50 71 88 140 63 75 93 153Other (30) (31) (27) (27) (25) (31) (29) (29) (30) (30) (31) (31)Operating income $66 $87 $81 $87 $40 $66 $98 $178 $50 $82 $110 $199Interest (14) (13) (13) (11) (13) (13) (17) (17) (17) (17) (17) (17)Other Income (1) 2 0 (10) 3 (4) (4) (4) (4) (4) (4) (4)Pretax income $50 $76 $68 $66 $31 $50 $77 $157 $29 $61 $89 $178Taxes (16) (21) (16) (36) (14) (21) (24) (49) (9) (19) (28) (57)Minority interest (2) (1) (1) 2 0 0 (3) (3) (1) (1) (1) (1)Net income $33 $53 $51 $32 $17 $29 $50 $106 $19 $40 $59 $120



New Units 6% 6% 12% 14% 4% 9% 11% 13% 5% 10% 13% 14%Aftermarket 21% 24% 21% 14% 16% 22% 25% 28% 19% 22% 26% 29%

BookingsNew Units $269 $432 $265 $365 $244 $343 $400 $480 $340 $370 $390 $430Aftermarket 399 436 406 369 351 348 410 435 400 420 440 460Total Bookings $668 $868 $671 $734 $594 $691 $810 $915 $740 $790 $830 $890

BacklogNew Units $2,208 $2,254 $2,225 $2,188 $2,040 $2,188 $2,241 $2,209 $2,197 $2,204 $2,213 $2,105Aftermarket 656 691 761 661 704 661 718 652 722 801 883 807Total Backlog $2,864 $2,945 $2,986 $2,849 $2,744 $2,849 $2,959 $2,861 $2,920 $3,004 $3,096 $2,913

Book-to-BillNew Units 0.6x 1.0x 1.0x 0.9x 0.6x 1.1x 1.2x 0.9x 1.0x 1.0x 1.0x 0.8xAftermarket 1.2x 1.1x 1.1x 0.8x 1.1x 1.1x 1.2x 0.9x 1.2x 1.2x 1.2x 0.9xTotal Book-to-Bill 0.9x 1.1x 1.1x 0.9x 0.9x 1.1x 1.2x 0.9x 1.1x 1.1x 1.1x 0.8x

2013 2014 2015

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Dresser-Rand



2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $112 $98 $147 $206 $147 $223 $421 $128 $123 $190 $31 $264Accounts receivable 265 269 305 312 366 290 304 477 566 727 908 963Inventories 176 146 183 265 329 353 292 409 553 716 1,003 1,079Other 22 37 34 42 66 70 68 137 115 102 161 170Current assets $575 $549 $669 $826 $908 $936 $1,084 $1,151 $1,356 $1,736 $2,103 $2,476PPE 227 229 223 217 250 269 278 466 467 472 461 407Goodwill 903 854 857 888 871 917 913 1,350 1,418 1,407 1,389 1,389Other 47 26 22 21 23 28 29 75 92 123 150 150Total assets $1,751 $1,658 $1,771 $1,951 $2,052 $2,150 $2,305 $3,042 $3,333 $3,738 $4,103 $4,422

Liabilities & shareholders' equityCurrent maturities $4 $0 $0 $0 $0 $0 $0 $39 $36 $40 $34 $34Accounts payable 271 303 304 358 431 412 401 595 600 729 800 860Other 54 90 168 262 305 173 268 292 327 201 282 303Current liabilities $330 $393 $472 $621 $736 $585 $669 $927 $963 $970 $1,116 $1,197LT debt 817 598 506 370 370 370 370 988 1,015 1,247 1,254 1,254Other 152 152 162 155 186 182 178 256 260 220 214 214Total liabilities $1,298 $1,143 $1,139 $1,146 $1,292 $1,138 $1,217 $2,171 $2,238 $2,436 $2,585 $2,666Minority interest 0 0 0 0 0 0 0 0 4 4 4 4Common stock 453 515 632 805 760 1,013 1,087 872 1,091 1,297 1,515 1,753Total $1,751 $1,658 $1,771 $1,951 $2,052 $2,150 $2,305 $3,042 $3,333 $3,738 $4,103 $4,422


Net income $7 $37 $79 $107 $198 $211 $147 $120 $183 $169 $202 $238Depreciation 16 61 50 49 49 52 52 80 86 92 99 114Other 4 14 34 13 (2) 17 24 45 39 75 20 0Working Capital Chg (10) 100 1 47 (9) (150) 152 (137) (215) (403) (403) (58)Cash from operations $17 $212 $164 $216 $235 $130 $376 $108 $93 ($67) ($83) $293

Investing ActivitiesCapex ($2) ($16) ($20) ($24) ($40) ($41) ($33) ($51) ($73) ($83) ($62) ($60)Acquisitions (1,125) (55) 0 (8) (91) (13) (69) (284) (49) 0 0 0Asset sales 0 1 0 6 0 1 0 1 1 2 1 0Other 0 10 0 0 (5) (10) (5) (12) (3) (3) (22) 0Cash from investing ($1,127) ($59) ($20) ($26) ($136) ($63) ($106) ($346) ($124) ($84) ($83) ($60)

Financing ActivitiesChange in Equity $437 $609 $0 $0 ($150) $2 ($71) ($499) $3 $4 ($2) $0Change in Debt 814 (211) (100) (141) (0) (0) 0 458 21 228 2 0Other (33) (558) 0 0 1 0 2 (12) 4 2 2 0Cash flow financing $1,218 ($160) ($100) ($141) ($149) $2 ($68) ($53) $27 $234 $2 $0

FX and other 3 (6) 4 10 (9) 7 (4) (1) (1) (14) 4 0

Chg in cash $112 ($13) $49 $59 ($59) $76 $198 ($293) ($5) $69 ($160) $233Beginning cash 0 112 98 147 206 147 223 421 128 123 190 31

Ending cash $112 $98 $147 $206 $147 $223 $421 $128 $123 $192 $31 $264

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130

Dril-Quip

Investment Thesis Dril-Quip is a vertically integrated manufacture of onshore and offshore equipment, best known for its leading market share in deepwater wellheads. The company also manufacturers subsea & surface trees, control systems and manifolds, as well as equipment for drilling rigs and floating production systems, though they are less of a driver for the stock. Not one to chase the large nameplate awards for trees, Dril-Quip view its sweet spot as in the 5-15 trees award range, preferring to target customers that maybe be neglected by the larger capital equipment providers when their order books are full. The company uncharacteristically lowered earnings guidance a few quarters back, citing a key customer not accepting delivery, raising concern a large frame contract may be at risk. But with a strong balance sheet and no debt, we believe the shares are attractively price as the company could be an acquisition candidate. We rate Dril-Quip Buy with a $126 price target based on a 19.8x target multiple on our 2015E EPS.

Company Strategy Lumped in with the negative offshore sentiment, DRQ argues that lower rig dayrate can be good for their business as it can motivate independents to pick up rigs to work in shallower water. Driven by the number of rigs working and the number of wells drilled, management has been adding manufacturing capacity worldwide, serving its customers from Houston, Aberdeen, Singapore, and Macae.

Outlook for 2015 The company recently completed the repurchase of $100mm in stock, with the Board authorizing another $100mm program that is likely to be fulfilled by the end of 2015 with the company generating substantial free cash flow. While uncertainty exist for the Petrobras wellhead frame, orders are likely to pick up after the elections and accelerate in 2015. Petrobras guaranteed 80% the frame ($650mm over four years) and ordered more than 100% of the prior award, but while contracts have been retendered for drilling and other services, equipment associated with a production wells are likely less at risk.

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Dril-Quip

Key Thoughts and Potential Catalysts A strong U.S. dollar is likely to have unfavorable foreign currency transaction losses for the

company.

Petrobras rejected equipment in 1Q14, asserting it did not satisfy certain contractual requirements. While the NOC place incremental orders in the quarter, it is tracking well below the average for the 3 year frame. Taking only equipment it needs and letting DRQ keep the remainder on its balance sheet, the situation is unlikely to change until at least after the elections.

Dril-Quip appears to be picking up share in subsea trees, with 23 ordered year to date vs. the prior three year total of just nine trees. The company does not report its trees award to Quest Offshore each quarter.

With the most vertically integrated manufacturing system in key geography markets, DRQ has been adding machinery to existing roofline, growing the ratio of machinist to machine to almost 1.45x from about 1.1x three years ago. This allows the company to maintain stable margins that average well above subsea equipment provider peers.



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'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

DRQNiche Offshore Technology Providers

DRQ current trades at 14.5x, a -5% discount to the group's 15.3x average but a -28% discount to its historical 20.4x.

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Dril-Quip


2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

Products $183 $291 $373 $417 $453 $456 $486 $512 $610 $732 $783 $928 Services 39 50 70 78 89 84 80 90 123 141 144 160Total revenues $222 $341 $443 $496 $543 $540 $566 $601 $733 $872 $927 $1,089

ExpensesExpenses ($142) ($216) ($242) ($270) ($295) ($293) ($303) ($339) ($425) ($485) ($476) ($552)SG&A (33) (41) (46) (49) (59) (55) (61) (68) (82) (95) (104) (120)R&D (17) (21) (20) (23) (26) (27) (29) (35) (37) (40) (47) (56)EBITDA $30 $63 $135 $154 $162 $164 $173 $160 $188 $253 $301 $362D&A (12) (13) (15) (16) (17) (17) (19) (23) (26) (29) (31) (36)Operating Income $18 $49 $120 $138 $145 $147 $153 $137 $162 $224 $270 $326Interest Expense (1) (2) 3 8 3 0 0 0 0 1 1 1Other Income 0 0 0 (0) (0) 0 0 (0) 0 0 0 0Pretax income $17 $47 $123 $146 $149 $148 $154 $137 $162 $224 $271 $327Taxes (5) (15) (38) (43) (40) (39) (41) (37) (43) (54) (66) (79)Net income $12 $33 $85 $103 $108 $109 $112 $100 $119 $170 $205 $248


Margins Summary Gross Margin 36% 37% 45% 46% 46% 46% 46% 44% 42% 44% 49% 49% EBITDA Margin 14% 18% 31% 31% 30% 30% 31% 27% 26% 29% 32% 33% Operating Margin 8% 14% 27% 28% 27% 27% 27% 23% 22% 26% 29% 30% Pretax Margin 8% 14% 28% 30% 27% 27% 27% 23% 22% 26% 29% 30%

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Dril-Quip



Products $160 $189 $187 $195 $172 $190 $204 $217 $203 $224 $242 $260 Services 33 33 37 38 32 40 35 37 35 38 41 47Total revenues $193 $222 $225 $232 $204 $230 $239 $254 $237 $262 $283 $306

ExpensesExpenses ($109) ($126) ($125) ($125) ($103) ($118) ($124) ($131) ($121) ($134) ($143) ($154)SG&A (16) (23) (30) (26) (24) (26) (26) (28) (26) (29) (31) (34)Product Development (9) (9) (11) (11) (11) (11) (12) (13) (12) (13) (14) (16)EBITDA $59 $64 $59 $71 $66 $76 $76 $82 $78 $86 $94 $103D&A (7) (7) (7) (8) (8) (7) (8) (8) (8) (9) (9) (9)Operating Income $52 $56 $52 $63 $59 $69 $68 $74 $69 $78 $85 $94Interest Expense (0) (0) (0) (0) (0) (0) (0) (0) (0) (0) (0) (0)Other Income 0 0 0 0 0 1 1 1 1 1 1 1Pretax income $52 $56 $52 $63 $59 $69 $69 $74 $70 $78 $86 $94Taxes (12) (13) (12) (16) (15) (16) (16) (18) (17) (19) (21) (23)Net income $40 $43 $40 $47 $43 $53 $52 $57 $53 $59 $65 $71


Margins Summary Gross Margin 43% 43% 44% 46% 49% 49% 48% 48% 49% 49% 50% 50% EBITDA Margin 31% 29% 26% 30% 32% 33% 32% 32% 33% 33% 33% 34% Operating Margin 27% 25% 23% 27% 29% 30% 29% 29% 29% 30% 30% 31% Pretax Margin 27% 25% 23% 27% 29% 30% 29% 29% 29% 30% 30% 31%

2013 2014 2015

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Dril-Quip



2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $5 $33 $135 $202 $96 $198 $246 $299 $257 $384 $436 $531Accounts receivable 63 108 145 142 172 131 159 180 263 279 350 421Inventories 111 155 163 183 222 251 243 278 362 368 403 485Other 11 15 22 26 24 37 40 43 42 47 59 72Current assets $190 $311 $465 $553 $514 $617 $688 $799 $924 $1,079 $1,247 $1,509PP&E 113 117 129 142 161 195 247 275 296 305 320 343Other 0 0 1 6 6 5 13 12 11 11 11 11Total assets $304 $428 $595 $700 $681 $817 $949 $1,086 $1,231 $1,395 $1,579 $1,863

Liabilities & shareholders' equity Accrued Compensati $6 $9 $10 $10 $10 $11 $12 $13 $15 $22 $19 $19Accounts Payable 27 48 39 27 32 25 31 36 28 39 61 72Other 19 33 69 61 72 69 68 103 112 82 104 119Current liabilities $52 $90 $118 $98 $114 $105 $111 $151 $155 $143 $185 $210LT debt 28 3 3 2 1 0 0 0 0 0 0 0Deferred Taxes 7 9 15 16 16 25 22 24 24 25 30 36Other (0) (4) (9) (9) (9) (17) (13) (14) (14) (15) (21) (27)Total liabilities $87 $99 $127 $107 $121 $112 $121 $161 $165 $153 $194 $220

Shareholders' Equity 216 329 467 592 559 705 828 925 1,066 1,242 1,384 1,643Total $304 $428 $595 $700 $681 $817 $949 $1,086 $1,231 $1,395 $1,579 $1,863


Net Income $12 $33 $87 $108 $106 $105 $102 $95 $119 $170 $203 $248Depreciation 12 13 15 16 17 18 21 23 26 29 31 36Other (0) (4) (3) 1 3 (3) 5 4 6 8 6 6Working Capital Chg 1 (59) (6) (42) (84) 16 (21) (21) (160) (45) (60) (135)Cash from operations $25 ($17) $93 $83 $41 $136 $107 $102 ($8) $162 $180 $155

Investing ActivitiesCapital Expenditures ($17) ($21) ($24) ($25) ($50) ($45) ($75) ($56) ($51) ($43) ($43) ($60)Sale of PP&E 0 1 1 0 1 0 2 2 2 1 0 0

Other 0 0 0 0 0 0 0 0 0 0 0 0Cash from investing ($17) ($19) ($23) ($25) ($50) ($44) ($73) ($54) ($49) ($42) ($43) ($60)

Financing ActivitiesChange in Debt $0 $85 $19 $5 ($100) $14 $15 $4 $11 $1 ($89) $0Change in Equity (11) (25) (1) (1) (1) (1) (1) (0) (0) 0 0 0Other (0) 3 18 6 1 0 0 1 1 3 0 0

Cash flow financing ($11) $63 $37 $10 ($100) $13 $15 $5 $12 $3 ($88) $0

FX and other ($1) $1 ($4) ($2) $3 ($4) ($1) ($0) $4 $3 $3 $0

Chg in cash ($3) $28 $103 $66 ($106) $102 $48 $53 ($41) $127 $51 $95Beginning cash 8 5 33 135 202 96 198 246 299 257 384 436

Ending cash $5 $33 $135 $202 $96 $198 $246 $299 $257 $384 $436 $531

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Ensco plc

Investment Thesis Ensco is best positioned for a potential turnaround in offshore drilling in 2016, in our view. While the company continues to successfully navigate through the current downturn by 1) maintaining its high cash dividend and 2) continuing to high grade its fleet. With a fully available $2bn revolver and manageable newbuild capex, we believe Ensco’s $3.00/share dividend is safe, supported by available cash from potential asset sales. Ensco recently completed a fleet review under new CEO Carl Trowell, identifying five floaters to divest that will lower the average age of the remaining fleet to among the youngest in the industry. In summary, Ensco has one of the highest quality fleets, solid execution, and reasonable newbuild capex commitments that should enable the company to weather the downturn and maintain one of the highest dividends in the industry. An accelerated share buyback ($2bn authorized) could support the stock. We rate the shares a Buy with a $45 price target based on a 6.6x target multiple on our 2015E EBITDA.

Company Strategy In his inaugural debut, new CEO Carl Trowell identified three areas of strength and opportunity for Ensco: 1) develop and deploy new rig technologies and related services to drive performance and cost savings, 2) leverage the company’s global footprint and cost structure to drive industry leading margins higher, and 3) formulate a strategic direction for the next five-to-ten years with a wide range of customers in mind. We expect to hear more details on potential new initiatives in the near-to-medium term, but note Ensco was a pioneer in the fleet standardization strategy when it transitioned to a pure play offshore driller in 2007. The company entered the floater market with the construction of its first 8500 series semisub, fine tuning the rig design, construction schedule, and start-up into an efficient serial build program copied by its peers. The acquisition of Pride International greatly expanded the company’s fleet and geographic footprint, but also increased its exposure to lower spec commoditized assets. While the company has successfully divested select jackups in onesies and twosies over the years, Ensco recently completed a fleet review to take costs out of the system, taking impairment charges on eight floaters and identifying five for divestiture.

Outlook for 2015 With just one newbuild floater available in 2H15, we see relatively low risks to new assets going idle, but are concerned about potential contract gaps for several 8500 series in the U.S. GOM over the next six months, some of which could be mobed to international markets. In addition, the company plans to mobe the ENSCO DS-2 to Spain from Angola for stacking when it rolls off contract in October, with the high cost of relocating and stacking a DP drillship putting our cost estimates at risk. On the jackup side, Ensco has two older units idled in the US GOM and four newbuilds available, but its international rigs in Europe, Asia, and especially the Middle East are highly contracted to mid-2015 and beyond. We expect Saudi Aramco to renew three jackups rolling off contract in early 2015, as well as Pemex and Maersk to renew three and two jackups respectively throughout the year. We expect Ensco to maintain essentially flat Y-Y revenue, EBITDA and earnings in 2015, as the start-up of newbuilds (ENSCO 121 and 122 in 2014, ENSCO DS-8 and DS-9 in 2015) and reactivation of the ENSCO 5004, 5005 and 5006 in 2014 offset five floaters held for sale and lower dayrates on existing rigs. We forecast the company to remain modestly free cash flow positive in 2015, despite management guiding to almost $2bn in capex ($1.6bn for newbuilds), but note the company is well funded having recently priced $1.2bn of senior notes for general corporate purposes including newbuild construction.

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Ensco plc

Key Thoughts and Potential Catalysts Since the company’s September 16 fleet status report, Stone Energy announced it has contracted

the ENSCO 8503 for 30 months commencing 2Q15 at $350kpd, in line with recent short term rates. We’re modeling two months of downtime for the 8503 upon completion of its current contract in early February, but view this contract as a potential indicator the market could be close to bottoming, with operators locking in rates for lengthy term.

Shareholders recently approved a capital reorganization proposal and proxy – unique to UK companies – and Ensco now has “the maximum flexibility to return cash though dividends and share repurchases.” With a $2bn share buyback program authorized and a $2bn revolver fully available, the company could aggressively execute its buyback program upon finalizing budgets for 2015, particularly with newbuild capex projected to fall sharply to only $400mm in 2016 from $1.6bn in 2015. We do not expect the company to order any additional newbuild floaters until the DS-10 is contracted.

While investors are concerned about a potential over supply of newbuild jackups, we believe Ensco’s four available newbuilds are less at risk as they are all heavy duty harsh environment (HDHE) units, which remain undersupplied in the North Sea especially. Ensco targets being a leader in premium jackups and we believe the company could divest some lower spec 250’ units in the US GOM.

Ensco has five floaters available for sale and management expects the ENSCO 7500 to be taken for drilling operations. We estimate the 7500 could fletch close to $200mm, not included in our cash flow assumption.

Ensco has relatively modest exposure to the costly Brazil market, with just four floaters contracted to Petrobras through 4Q16 and beyond. With the majority of its recent newbuild floaters working in Angola and the US GOM, we believe the company could mobe some 8500 series from the US GOM to markets in Asia and potentially to Brazil to work for non-Petrobras operators.



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ESVOffshore Drillers

ESV current trades at 5.7x, a -1% discount to the group's 5.8x

average but in line to its historical average.

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Ensco plc


2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

Floaters $24 $52 $61 $73 $84 $254 $475 $1,559 $2,708 $3,137 $2,996 $2,973Jackups 702 959 1,732 2,071 2,366 1,692 1,217 1,232 1,517 1,735 1,841 1,979Other 42 32 32 23 14 0 0 52 83 75 66 66Total revenues $768 $1,043 $1,825 $2,167 $2,465 $1,946 $1,693 $2,843 $4,308 $4,947 $4,903 $5,018

ExpensesFloaters ($16) ($21) ($26) ($29) ($31) ($108) ($176) ($787) ($1,243) ($1,498) ($1,384) ($1,421)Jackups (382) (417) (538) (645) (769) (617) (584) (627) (745) (835) (1,319) (1,453)Other (28) (17) (12) (11) (11) 0 0 (44) (70) (59) 319 280Operating costs ($426) ($454) ($577) ($684) ($811) ($726) ($760) ($1,459) ($2,059) ($2,392) ($2,385) ($2,593)G&A (26) (29) (45) (60) (54) (64) (86) (121) (146) (147) (139) (151)EBITDA $316 $559 $1,203 $1,423 $1,600 $1,156 $847 $1,263 $2,103 $2,409 $2,380 $2,274D&A ($144) ($155) ($176) ($184) ($192) ($206) ($219) ($419) ($568) ($612) ($577) ($580)Other 279 0 305 (5) 0 0 0 0 0 0 0 0Operating income $452 $404 $1,332 $1,234 $1,408 $951 $627 $844 $1,535 $1,797 $1,803 $1,694Interest income $4 $7 $15 $26 $14 $0 $0 $15 $23 $17 $13 $13Interest expense (37) (29) (17) (2) 0 0 0 (72) (124) (159) (147) (176)Other income 0 2 (4) 13 (18) 12 51 (5) 3 5 8 8Pretax income $419 $384 $1,326 $1,272 $1,404 $963 $678 $782 $1,438 $1,659 $1,678 $1,539Taxes (36) (102) (254) (262) (248) (177) (92) (140) (166) (234) (232) (231)Minority interest 0 0 0 0 0 (5) (6) (4) (7) (10) (14) (12)Net income $383 $282 $1,073 $1,010 $1,156 $780 $580 $638 $1,265 $1,416 $1,433 $1,296





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Floaters $719 $823 $815 $779 $741 $721 $762 $773 $720 $750 $735 $768Jackups 411 404 460 461 430 466 473 473 475 498 502 505Other 20 20 19 16 17 17 16 17 16 17 17 17Total revenues $1,150 $1,248 $1,293 $1,256 $1,187 $1,203 $1,251 $1,262 $1,211 $1,264 $1,254 $1,289

ExpensesFloaters ($345) ($377) ($383) ($393) ($420) ($330) ($322) ($311) ($314) ($333) ($365) ($409)Jackups (200) (214) (210) (211) (197) (234) (261) (262) (267) (278) (288) (294)Other (16) (16) (15) (12) (11) (12) (12) (12) (12) (12) (12) (12)Operating costs ($561) ($607) ($608) ($616) ($628) ($576) ($595) ($585) ($592) ($623) ($664) ($714)G&A (38) (36) (37) (35) (38) (36) (32) (32) (36) (38) (38) (39)EBITDA $551 $605 $648 $605 $521 $591 $624 $645 $583 $604 $552 $536D&A ($149) ($153) ($153) ($157) ($160) ($139) ($138) ($140) ($141) ($143) ($148) ($149)Other 0 0 0 0 0 0 0 0 0 0 0 0Operating income $402 $452 $494 $448 $361 $451 $486 $505 $442 $461 $404 $387Interest income $3 $5 $4 $4 $4 $4 $3 $3 $3 $3 $3 $3Interest expense (39) (44) (40) (35) (35) (36) (37) (39) (40) (42) (47) (48)Other income 0 (0) 3 2 2 2 2 2 2 2 2 2Pretax income $366 $412 $462 $419 $331 $421 $455 $472 $407 $425 $363 $345Taxes (52) (50) (81) (50) (54) (48) (59) (71) (61) (64) (54) (52)Minority interest (3) (2) (3) (3) (4) (3) (3) (3) (3) (3) (3) (3)Net income $311 $361 $378 $366 $274 $370 $392 $398 $343 $358 $305 $290





2013 2014 2015

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Ensco plc



2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $267 $269 $566 $630 $790 $1,141 $1,051 $431 $487 $166 $909 $319Accounts receivable 183 269 339 383 483 325 215 838 811 856 885 904Other 44 41 83 117 129 187 171 376 425 514 826 844Current assets $494 $578 $987 $1,129 $1,401 $1,653 $1,437 $1,645 $1,724 $1,535 $2,620 $2,066PPE 2,431 2,664 2,960 3,359 3,871 4,477 5,050 12,424 13,146 14,311 13,748 15,140Goodwill 341 336 336 336 336 336 336 3,289 3,274 3,274 3,274 3,274Other 56 40 51 144 222 281 229 514 422 353 340 340Total assets $3,322 $3,618 $4,334 $4,969 $5,830 $6,747 $7,052 $17,871 $18,565 $19,473 $19,982 $20,820

Liabilities & shareholders' equityCurrent maturities $23 $17 $167 $19 $17 $17 $17 $173 $48 $48 $48 $48Accounts payable 16 19 12 19 30 159 164 644 942 1,000 1,059 1,293Accrued liabilities 177 195 205 466 381 309 168 515 0 0 0 0Current liabilities $216 $231 $385 $504 $428 $485 $349 $1,332 $990 $1,047 $1,107 $1,340LT debt 527 475 309 291 274 257 240 4,878 4,798 4,719 5,929 5,929Deferred taxes 375 345 357 352 341 377 358 340 352 362 317 317Other LT liabilities 22 33 69 70 111 121 139 446 573 546 592 592Total liabilities $1,140 $1,085 $1,118 $1,217 $1,153 $1,240 $1,087 $6,995 $6,713 $6,674 $7,945 $8,179Minority interest 0 0 0 0 0 0 0 0 0 0 0 0Common stock 2,182 2,533 3,216 3,752 4,677 5,507 5,965 10,876 11,852 12,799 12,037 12,641Total $3,322 $3,618 $4,334 $4,969 $5,830 $6,747 $7,052 $17,871 $18,565 $19,473 $19,982 $20,820


Net income $103 $294 $766 $992 $1,151 $785 $586 $606 $1,222 $1,428 ($83) $1,296Depreciation 144 155 175 184 190 206 216 419 559 612 556 580Deferred income taxes 24 2 16 0 2 20 14 0 18 0 (8) 0Tax benefit 2 5 18 30 27 36 45 48 0 0 0 0Loss on asset sale 0 (7) (1) 0 24 0 (26) 0 0 0 0 0Impairment of assets 0 0 0 0 0 0 0 0 0 0 992 0Amortization of other 6 6 6 8 33 32 31 (42) (27) 0 (4) 0Other 4 7 1 0 4 (3) 8 (33) 1 43 593 0Working Capital Chg (25) (106) (38) 27 (289) 148 (57) (264) 427 (103) (52) 197Cash from operations $258 $356 $944 $1,242 $1,140 $1,222 $817 $732 $2,200 $1,980 $1,994 $2,073

Investing ActivitiesCapex ($305) ($478) ($529) ($520) ($772) ($861) ($875) ($742) ($1,802) ($1,779) ($1,776) ($1,972)Asset sales 3 140 27 8 50 8 158 47 0 0 0 0Other (11) (4) 0 0 0 0 2 (2,661) (42) 39 19 0Cash from investing ($313) ($343) ($502) ($512) ($722) ($854) ($716) ($3,356) ($1,845) ($1,740) ($1,757) ($1,972)

Financing ActivitiesChg in LT debt ($23) ($58) ($18) ($171) ($19) ($17) ($17) $2,343 ($173) ($52) $1,226 $0Dividend paid (15) (15) (15) (15) (14) (14) (154) (292) (348) (526) (697) (692)Other 7 64 (115) (479) (227) (3) (22) (46) 85 1 (13) 0Cash flow financing ($31) ($9) ($148) ($665) ($260) ($34) ($193) $2,004 ($436) ($577) $516 ($692)

FX and other (2) (2) 4 (1) 2 18 1 (1) 136 16 (9) 0

Chg in cash ($87) $1 $297 $64 $160 $352 ($91) ($620) $56 ($322) $744 ($591)Beginning cash 354 267 269 566 630 790 1,141 1,051 431 487 166 909

Ending cash $267 $269 $566 $630 $790 $1,141 $1,051 $431 $487 $166 $909 $319

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Ensign Energy Services

Investment Thesis Ensign operates a fleet of 273 drilling rigs and 136 service rigs globally, with the fleet and revenue base fairly evenly distributed geographically. The Canadian driller source the majority of its revenue in the U.S., where revenue has grown by 22% annually since 2009. Internationally Ensign is the largest drilling contractors in Australia and has established strong footholds in Oman and Kurdistan. In additional to drilling services, the company has a relatively small Completion & Production Services segment, accounting for just 10% of revenue. Seeing relatively limited upside for the shares, we rate the shares Hold with a $16 price target based on a 5.0x target multiple on our 2015E EBITDA.

Company Strategy Ensign has been high grading its fleet, repositioning itself for the growth in horizontal unconventional drilling in North America and the increasing demand for high complexity horizontal wellbores, which now makes up almost 75% of the company’s drilling jobs vs. about 30% 20 years ago. Viewing dividend growth as an important value creation driver, the company has growth its quarterly dividend by 16% annually since 1995 and now pays a leading 3.45 for Onshore Drillers.

Outlook for 2015 The company plans to deliver 34 newbuild Automated Drill Rig (ADR) by the end of 2015, which should drive earnings growth, dayrates and utilization higher as the company expands the fleet worldwide. With a typical rig representing one-third of the total daily well costs, Ensign is likely to expand into complementary services, utilization its strong balance sheet with bolt-on acquisitions.

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Key Thoughts and Potential Catalysts Canada activity exhibit significant seasonality, with 2Q the lowest quarter due to the annual spring

breakup. Softening land prohibit oilfield services equipment to move during this time of the year, resulting in lower margins from lower activity and higher planned maintenance costs with companies opportunistically scheduling maintenance during this period. Changes in the length, intensity, and start & stop of the break-up period can make results incomparable from year to year.

With more than half of its revenue generated outside of the U.S., a weakening U.S. dollar is likely to impact Ensign’s near term results.

With operations in Venezuela, the company is exposed to customer payment delay risks.



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ESI

Onshore Drillers

ESI current trades at 4.4x, a -7% discount to the group's 4.7x average but a -22%


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2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

Canada $777 $743 $426 $546 $786 $774 $661 $685 $746United States 555 635 407 493 728 945 891 1,007 1,094International 245 327 304 316 377 478 546 675 757Total revenues $1,578 $1,706 $1,138 $1,356 $1,890 $2,197 $2,098 $2,366 $2,597

ExpensesOilfield services expense ($1,054) ($1,146) ($781) ($992) ($1,323) ($1,556) ($1,524) ($1,727) ($1,872)Total Gross Profit $523 $560 $357 $364 $567 $642 $574 $639 $725General & Administrative Exp (55) (63) (51) (53) (70) (81) (88) (98) (107)Total EBITDA $468 $497 $306 $311 $497 $561 $486 $540 $618D&A (93) (126) (111) (136) (178) (220) (248) (297) (320)Operating Income $376 $371 $195 $175 $319 $341 $238 $243 $297Net Interest Exp. (5) (7) (1) (1) (6) (18) (17) (22) (24)Other income 7 (1) (6) 14 (2) (3) (23) 11 0Pretax income $378 $363 $188 $188 $312 $320 $197 $233 $273Income Tax Expense (128) (103) (62) (67) (99) (102) (68) (81) (96)Net income $250 $260 $125 $121 $212 $218 $129 $152 $178

Per Share DataDiluted Earnings $1.61 $1.68 $0.82 $0.79 $1.39 $1.42 $0.84 $0.99 $1.15Dividend $0.32 $0.33 $0.34 $0.36 $0.39 $0.43 $0.45 $0.47 $0.47

Margins SummaryGross Margin 33% 33% 31% 27% 30% 29% 27% 27% 28%EBITDA Margin 30% 29% 27% 23% 26% 26% 23% 23% 24%Operating Margin 24% 22% 17% 13% 17% 16% 11% 10% 11%

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Canada $256 $85 $161 $158 $226 $111 $172 $176 $249 $121 $185 $191United States 200 220 235 236 248 246 251 261 266 272 274 281International 125 133 147 142 149 155 180 190 172 191 194 201Total revenues $581 $438 $543 $536 $624 $512 $603 $627 $687 $583 $654 $673

ExpensesOilfield services $397 $329 $399 $400 $442 $391 $440 $455 $483 $439 $467 $483Total Gross Profit $184 $109 $144 $136 $182 $121 $163 $172 $204 $144 $187 $190G&A 20 24 21 24 22 24 24 28 25 26 26 30Total EBITDA $164 $86 $123 $112 $160 $97 $139 $144 $179 $117 $161 $160D&A 57 55 66 69 73 69 77 78 79 74 83 84Operating Income $107 $30 $57 $43 $87 $28 $62 $66 $100 $43 $78 $77Net Interest Exp. (4) (4) (4) (5) (5) (5) (5) (6) (6) (6) (6) (6)Other income (3) (17) (2) (2) 10 1 0 0 0 0 0 0Pretax income $101 $9 $51 $37 $92 $24 $57 $60 $94 $37 $72 $71Income Tax Expense (36) (6) (17) (10) (31) (9) (20) (21) (33) (13) (25) (25)Net income $65 $3 $34 $27 $60 $15 $37 $39 $61 $24 $47 $46


Margins SummaryGross Margin 32% 25% 27% 25% 29% 24% 27% 28% 30% 25% 29% 28%EBITDA Margin 28% 20% 23% 21% 26% 19% 23% 23% 26% 20% 25% 24%Operating Margin 18% 7% 10% 8% 14% 5% 10% 11% 15% 7% 12% 11%

2013 2014 2015

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2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $2 $96 $135 $90 $3 $33 $79 $34 $42Accounts receivable 302 360 242 331 477 423 441 516 553Inventories 90 61 61 68 82 76 67 78 84Other 2 1 7 0 0 0 9 5 5Current assets $396 $518 $445 $489 $562 $533 $595 $632 $685

PP&E 1,391 1,711 1,675 1,730 2,480 2,533 2,788 3,014 3,119Note receivable 0 0 8 7 7 5 4 4 4

Total assets $1,787 $2,229 $2,128 $2,225 $3,048 $3,071 $3,388 $3,651 $3,808

Liabilities & shareholders' equityAccount payable $178 $236 $154 $213 $290 $245 $307 $359 $386Short-Term Debt 118 169 169 159 238 232 327 437 462Dividends payable 13 13 13 15 16 17 18 18 18Other 27 (7) 1 17 28 25 15 13 13

Current liabilities $336 $411 $337 $404 $572 $519 $666 $827 $878LT debt 0 20 0 0 406 297 317 319 319Share-based compensation 8 4 1 11 16 14 15 13 13Deferred income taxes (15) 28 23 50 72 57 25 18 0Other 214 215 235 213 258 327 402 430 448

Total liabilities $542 $678 $597 $677 $1,325 $1,213 $1,425 $1,607 $1,658Shareholders' Equity 1,244 1,551 1,531 1,548 1,723 1,858 1,963 2,044 2,150

Total $1,787 $2,229 $2,128 $2,225 $3,048 $3,071 $3,388 $3,651 $3,808

2007 2008 2009 2010 2011 2012 2013 2014E 2015EOperating Activities

Net Income $250 $260 $125 $119 $212 $218 $129 $152 $178Depreciation & Amortization 93 126 111 133 178 220 248 297 320Deferred Income Taxes (15) 28 23 50 72 57 25 18 0Other (31) (7) (2) (2) 13 8 34 (9) 0Working Capital Chg (41) (40) 39 (28) (72) 15 41 (27) (17)Cash from operations $255 $367 $296 $272 $403 $517 $476 $432 $481

Investing ActivitiesCapital Expenditures ($272) ($294) ($133) ($255) ($387) ($307) ($342) ($503) ($425)Acquisition 0 0 (53) 0 (497) 0 (76) 0 0

Other 0 0 0 0 0 0 0 0 0Cash from investing ($272) ($294) ($185) ($255) ($884) ($307) ($419) ($503) ($425)

Financing ActivitiesChange in Debt $48 $51 ($0) ($1) $74 ($1) $76 $111 $25Change in Equity (49) (51) (52) (55) (60) (65) (69) (72) (73)Other 5 21 (19) (2) 382 (114) (4) (5) 0

Cash flow financing $4 $22 ($72) ($58) $396 ($180) $3 $34 ($48)change on cash and other

Chg in cash ($13) $94 $39 ($41) ($85) $30 $61 ($37) $8Beginning cash 15 2 96 135 90 3 33 78 33

Ending cash $2 $96 $135 $90 $3 $33 $78 $33 $41

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Era Group

Investment Thesis We believe increased offshore drilling and continued privatization of search and rescue (SAR) services set a strong fundamental industry backdrop for ERA. Offshore transportation services are one of the main beneficiaries of offshore drilling projects moving into deeper and deeper waters further and further from onshore bases. The continued privatization of SAR is an added bonus as that work carries higher margins. However, we believe ERA’s strategy and competitive profile set the company up to underperform its peers. Its fleet is comprised of mostly older, smaller helicopters which are incapable of operating in the deepwater/ultra deepwater space where profitability potential is greater on a per trip basis and activity seems poised to surge over the coming years. Additionally, we view the Alaskan market, where ERA derives 16% of its LTM Oil & Gas revenues, in a much more negative light compared to other offshore regions. For these reasons we believe the company will underperform its competitors and initiate with a Sell rating and a $19 PT.

Company Strategy ERA is in the process of attempting to upgrade its fleet with 14 heavy helicopters on order between now and 2017 and the option to order an additional 15 heavy helicopters and 4 medium helicopters. We agree with this strategy but do not believe it is material enough in the short-term to lift the company’s prospects. The company is also expanding and upgrading its Houma, LA base to increase future growth as well as safety capabilities. We feel the company still has several legs to travel on its journey to becoming a more focused oil & gas pure play.

Outlook for 2015 Even as the industry backdrop seems poised for accelerated growth, ERA’s limited large aircraft exposure limits the company’s opportunities. ERA’s fleet of 166 helicopters (including owned, join ventured, leased-in and managed helicopters) is comprised of mostly medium (37%, average age of 12.5 years) and light weight (58%, average age of 10.8 years) helicopters that are unable to command the same premium dayrates as their competitors’ newer, heavier fleets. We also feel the company has been too quick to expand and as a result finds itself operating in many regions without a critical mass. This, in conjunction with the companies various product line, has caused SG&A expenses as a percentage of revenue to be higher than its competitors.

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Era Group

Key Thoughts and Potential Catalysts The company’s NAV model interprets company as significantly undervalued. The company calculates

its NAV per share (excluding maintenance capex as well as the fair market value of leased-in or managed helicopters) at $34.34.

Alaskan flightseeing business (3.4% of Q2 14 sales) generates no revenues during Q1 and Q2 due to seasonality.

Recent CEO departure.



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ERAOffshore Technology

ERA current trades at 6.4x, a -1% discount to the group's 6.5x average.

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Era Group


2010 2011 2012 2013 2014E 2015ERevenues

Operating Revenue $235 $258 $273 $299 $324 $340Operating Expenses (147) (163) (159) (185) (198) (204)SG&A (26) (32) (35) (39) (40) (39)Depreciation (43) (43) (43) (46) (46) (49)Gains on Asset Disposals 1 15 4 18 11 11Operating Income $20 $36 $40 $48 $52 $58 Interest Expense (22) (25) (11) (18) (16) (18) Other (6) (9) (1) 1 0 0Pretax income ($8) $2 $29 $31 $36 $41 Income Tax Expense (4) 0 7 12 13 14 Equity in Earnings 0 0 (6) 1 1 1Other 8 (1) (23) (24) (26) (28)Net income ($4) $2 $8 $20 $24 $28

Per Share DataDiluted Earnings $0.00 $0.18 $0.32 $0.97 $1.19 $1.36Dividend $0.00 $0.00 ($4.45) ($4.95) $0.00 $0.00

Margins SummaryGross Margin 37% 37% 42% 38% 39% 40%EBITDAR Margin 28% 26% 29% 27% 28% 30%EBITDA Margin 26% 30% 28% 32% 31% 32%Pre-Tax Margin -3% 1% 11% 10% 11% 12%

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Era Group



Operating Revenue $68 $74 $81 $76 $79 $87 $82 $77 $76 $87 $92 $84Operating Expenses 43 47 49 45 50 55 48 45 46 54 55 48SG&A 9 10 10 11 11 10 9 9 9 10 11 10Depreciation 12 11 11 11 11 11 12 12 12 12 12 12Gains on Sales (117) (131) (138) (133) (142) (149) (137) (129) (132) (150) (154) (138)Operating Income $15 $11 $13 $10 $10 $14 $15 $13 $12 $13 $17 $17 Interest Expense (5) (5) (4) (4) (4) (4) (4) (4) (5) (5) (5) (5) Other (0) 0 0 0 0 0 0 0 0 0 0 0Pretax income $10 $7 $9 $6 $6 $10 $11 $9 $7 $9 $12 $12 Income Taxes 4 2 3 3 3 4 4 3 3 3 4 4 Equity in Earnings 1 1 1 (1) 0 1 0 0 0 0 0 0Other (8) (5) (5) (6) (5) (7) (7) (6) (5) (6) (9) (8)Net income $6 $5 $7 $2 $4 $7 $7 $6 $5 $6 $8 $8

Per Share DataDiluted Earnings $0.28 $0.25 $0.35 $0.09 $0.22 $0.33 $0.35 $0.30 $0.25 $0.30 $0.40 $0.40Dividend ($4.95) $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

Margins SummaryGross Margin 36% 37% 39% 41% 38% 37% 41% 41% 40% 38% 40% 43%EBITDAR Margin 25% 27% 30% 27% 25% 27% 31% 31% 30% 28% 30% 32%EBITDA Margin 39% 31% 31% 26% 27% 29% 33% 33% 32% 30% 32% 34%Pre-Tax Margin 14% 9% 12% 7% 8% 11% 13% 12% 10% 10% 13% 14%

2013 2014 2015

October 14, 2014

149

Era Group



2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $4 $79 $12 $31 $8 $34 Trade Receivables 41 43 49 38 36 37

Inventories 23 25 27 27 23 24Other 4 11 10 9 8 7Current assets $72 $158 $97 $105 $75 $103PP&E 612 709 788 804 864 863Investments 28 50 35 35 36 36Goodwill 0 0 0 0 0 0Other 7 15 18 14 16 16Total assets $719 $933 $938 $959 $991 $1,018

Liabilities & shareholders' equityAccounts Payable $0 $0 $16 $13 $20 $17Current Portion of LT Debt 0 0 3 3 3 3Other 29 78 11 14 14 16Current liabilities $29 $78 $30 $30 $37 $36LT debt 36 285 277 279 275 275Deferred Income Taxes 2 2 4 2 2 2Other 489 152 208 211 215 215Total liabilities $555 $518 $518 $523 $529 $528Preferred Stock 0 140 144 0 0 0Shareholders' Equity 164 275 275 436 462 490Total $719 $933 $938 $959 $991 $1,018

2010 2011 2012 2013 2014E 2015EOperating Activities

Net Income ($4) $2 $8 $19 $20 $28Depreciation & Amortization 43 43 43 46 37 49Other 43 5 14 (10) 24 0Working Capital Chg 1 (9) (51) 10 2 (2)Cash from operations $84 $41 $14 $64 $82 $74

Investing ActivitiesCapital Expenditures ($131) ($159) ($113) ($110) ($119) ($68)Sale of PP&E 1 26 5 65 18 20

Other (3) (16) (7) 1 1 0Cash from investing ($133) ($149) ($115) ($43) ($100) ($48)

Financing ActivitiesChange in Debt $0 $0 $50 $0 $0 $0Change in Equity 39 246 (13) 2 (7) 0Dividends 0 0 (4) (5) 0 0Other 8 (63) 0 1 1 0

Cash flow financing $47 $183 $33 ($2) ($6) $0

FX and other

Chg in cash ($4) $75 ($68) $20 ($24) $26Beginning cash 0 0 79 12 31 8

Ending cash $0 $0 $12 $31 $8 $34

October 14, 2014

150

Exterran Holdings

Investment Thesis Exterran is a leading natural gas compression company, providing products and services critical to the production, processing, transportation and storage of natural gas. The company operates the largest contract compression fleet in the U.S., adding capacity organically as well as through acquisitions, partly funded by the MLP Exterran Partners. Meanwhile, growing the contract compression business Internationally has been more difficult due to project delays. Exterran also reports Fabrications and Aftermarket segments, where it sells packaged compression units. We rate Exterran Hold with a $45 price target based on 6.6x our 2015E EBITDA.

Company Strategy Poised to take advantage of the U.S. natural gas infrastructure build-out (gas lifts), EXH has been growing its contract compression fleet in liquids basins while trimming back in traditional dry gas plays. The company recently restructured the business, consolidating pricing and purchasing across the basins, and has been growing the fleet organically, targeting low teens returns. However, with just 1MM HP of contract compression left to drop down to the MLP, the company is likely to fund additional acquisitions through the MLP. Meanwhile with gross margins improvement, EXH expects to eliminate the cost-cap reimbursement to EXLP by the end of this year.

Outlook for 2015 EXH expects the midstream market to pick up in 2H14, potentially driving the contract compression business higher in 2015. While gross margins have improved about 500bp over the last few years, we’re modeling relatively modest margin expansion of 80bp over the next year, seeing modest opportunity for pricing with the fleet averaging about 85% utilization (unchanged over the past two and half years.) Internationally the fleet is only 77% utilized, with pricing generally flat as well. While EXH has yet to see delays in the availability of components from OEM suppliers, the lack of a vertically integrated Fabrications segment could be a risk as the North America natgas buildout accelerates. Approximately 45% of the backlog is for NAM-based projects and labor cost inflation in key high growth basins are likely to intensify in the near term.

October 14, 2014

151

Exterran Holdings

Key Thoughts and Potential Catalysts Fabrications backlog rose sharply last quarter, as the company had solid bookings at 1.5x bill, the

highest in two years driven by strong demand across North America and in the Eastern Hemisphere.

With only a million HP sitting on the parent level available for drop downs, not all of which is contracted, Exterran is likely to seek further fleet growth through acquisitions.

Dry gas stops decelerated over recent quarters, but continues to more than offset organic HP additions in growth areas.

EXH could benefit from exports of condensates through the sale of stabilizers for distillation towers, offered by the Fabrication segment’s Production Equipment unit. However, pricing can vary with smaller units handling 5-5,000 Bbl/d selling for a couple hundred thousand to $1mm, while larger units handling 10k Bbl/d are over $1mm.



4.5x

5.5x

6.5x

7.5x

8.5x

9.5x

'06 '07 '08 '09 '10 '11 '12 '13 '14

EXH current trades at 6.3x, a -55% discount to

its historical 6.6x.

October 14, 2014

152

Exterran Holdings


2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

NAM CO $342 $351 $384 $548 $791 $695 $608 $604 $609 $631 $717 $799Int'l CO 215 233 263 340 517 424 465 445 464 476 494 534Aftermarket 180 226 225 407 382 311 322 409 394 396 412 424Fabrication 429 540 733 1,277 1,490 1,319 1,066 1,225 1,348 1,661 1,302 1,485Total revenues $1,165 $1,350 $1,605 $2,571 $3,179 $2,750 $2,462 $2,683 $2,815 $3,164 $2,925 $3,242

ExpensesNAM CO ($145) ($139) ($153) ($228) ($342) ($299) ($301) ($310) ($291) ($285) ($309) ($338)Int'l CO (64) (77) (97) (128) (191) (162) (175) (184) (185) (197) (182) (203)Aftermarket (136) (169) (184) (333) (304) (247) (276) (349) (312) (309) (324) (335)Fabrication (387) (482) (617) (1,047) (1,220) (1,106) (905) (1,102) (1,192) (1,409) (1,088) (1,221)Total COGS ($732) ($867) ($1,050) ($1,736) ($2,058) ($1,814) ($1,657) ($1,945) ($1,980) ($2,200) ($1,902) ($2,097)G&A (173) (182) (204) (271) (375) (344) (358) (359) (378) (359) (372) (403)EBITDA $261 $300 $351 $564 $746 $592 $446 $379 $458 $606 $650 $742D&A ($175) ($183) ($181) ($257) ($374) ($364) ($401) ($366) ($353) ($328) ($399) ($418)Other 0 0 0 0 0 0 0 0 0 0 0 0Operating income $85 $117 $170 $308 $373 $229 $45 $13 $105 $278 $250 $324Interest income $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Interest expense (147) (137) (118) (126) (130) (123) (136) (149) (134) (116) (112) (100)Other income 32 10 63 54 43 41 9 5 0 23 (3) 0Pretax income ($29) ($9) $115 $236 $286 $147 ($83) ($131) ($29) $186 $135 $224Taxes (25) (28) (39) (72) (102) (79) 2 39 (18) (84) (55) (84)Minority interest 0 0 0 (6) (12) (4) 11 (1) (2) (33) (25) (25)Other 10 (1) 11 (122) (1,119) (316) (77) (243) 41 44 46 19Net income ($44) ($38) $87 $35 ($948) ($251) ($147) ($336) ($10) $114 $101 $133

Per Share DataDiluted Earnings ($0.64) ($0.41) $0.72 $1.79 $2.58 $1.05 ($1.11) ($1.49) ($0.78) $1.05 $0.80 $1.60Dividend $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.60 $0.60


NAM CO 58% 60% 60% 58% 57% 57% 51% 49% 52% 55% 57% 58%Int'l CO 70% 67% 63% 62% 63% 62% 62% 59% 60% 59% 63% 62%Aftermarket 25% 25% 18% 18% 20% 21% 14% 15% 21% 22% 21% 21%Fabrication 10% 11% 16% 18% 18% 16% 15% 10% 12% 15% 16% 18%Companywide 37% 36% 35% 32% 35% 34% 33% 28% 30% 30% 35% 35%


Compressor Fleet SummaryNumber of Units 12,947 12,987 11,597 9,609 9,548 8,683 8,757Aggregate HP (K) 5,735 5,869 6,014 5,961 6,074 5,555 4,901 4,892 4,641 4,684 5,354 5,414% Utilization (period end)

NAM CO 82% 86% 86% 80% 76% 66% 77% 79% 86% 84% 87% 91%Int'l CO 93% 96% 94% 90% 91% 84% 82% 76% 80% 79% 78% 81%Total Utilization 84% 88% 88% 83% 79% 70% 78% 78% 84% 83% 85% 89%

Fabrications SummaryBacklog

Compression $57 $85 $325 $322 $395 $297 $220 $250 $256 $158Prod'n & Processing 234 288 483 788 733 516 483 416 564 476Installation 0 0 0 0 0 0 0 0 246 46Total Backlog $291 $373 $808 $1,110 $1,128 $812 $704 $666 $1,066 $680 $954 $1,143

Implied Bookings 567 622 1,167 1,579 1,508 1,004 957 1,257 1,679 1,275 1,576 1,674Book-to-Bill 1.3x 1.2x 1.6x 1.2x 1.0x 0.8x 0.9x 1.0x 1.2x 0.8x 1.2x 1.1x

October 14, 2014

153

Exterran Holdings



NAM CO $159 $164 $153 $155 $157 $182 $188 $191 $194 $198 $202 $205Int'l CO 110 118 118 131 111 134 122 126 130 134 135 135Aftermarket 84 99 102 110 88 100 106 117 91 103 109 121Fabrication 459 456 403 342 287 323 340 353 328 368 387 402Total revenues $811 $837 $776 $739 $643 $739 $756 $787 $743 $803 $833 $863

ExpensesNAM CO ($72) ($71) ($71) ($70) ($71) ($78) ($80) ($81) ($82) ($84) ($85) ($87)Int'l CO (46) (50) (51) (50) (41) (47) (47) (48) (49) (51) (51) (51)Aftermarket (65) (78) (81) (85) (68) (79) (84) (93) (72) (82) (86) (95)Fabrication (402) (382) (328) (296) (230) (280) (282) (296) (269) (299) (317) (336)Total COGS ($586) ($581) ($531) ($502) ($410) ($483) ($492) ($517) ($472) ($516) ($540) ($569)G&A (85) (91) (94) (89) (93) (96) (92) (92) (95) (101) (103) (105)EBITDA $140 $166 $151 $149 $141 $160 $172 $177 $176 $187 $190 $189D&A ($83) ($81) ($81) ($83) ($86) ($112) ($100) ($102) ($103) ($104) ($105) ($106)Other 0 0 0 0 0 0 0 0 0 0 0 0Operating income $58 $85 $70 $66 $55 $48 $72 $75 $73 $83 $85 $83Interest income $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Interest expense (28) (30) (29) (29) (28) (33) (26) (25) (25) (25) (25) (25)Other income 10 7 4 2 (2) (2) 0 0 0 0 0 0Pretax income $40 $62 $45 $39 $26 $14 $46 $50 $48 $58 $60 $58Taxes (17) (26) (18) (23) (9) (10) (17) (19) (18) (22) (22) (22)Minority interest (9) (15) (4) (5) (2) (8) (8) (6) (5) (10) (5) (5)Other 32 (16) 18 11 19 18 5 5 5 5 5 5Net income $46 $5 $41 $23 $33 $13 $25 $30 $29 $31 $37 $36



NAM CO 55% 57% 53% 55% 55% 57% 58% 58% 58% 58% 58% 58%Int'l CO 58% 58% 57% 62% 63% 65% 62% 62% 62% 62% 62% 62%Aftermarket 22% 22% 21% 23% 23% 21% 21% 21% 21% 21% 21% 21%Fabrication 12% 16% 19% 14% 20% 13% 17% 16% 18% 19% 18% 17%Companywide 28% 31% 32% 32% 36% 35% 35% 34% 36% 36% 35% 34%


Compressor Fleet SummaryNumber of UnitsAggregate HP (K) 4,671 4,669 4,680 4,684 4,730 5,224 5,344 5,354 5,369 5,384 5,399 5,414% Utilization (period end)

NAM CO 86% 84% 83% 84% 83% 86% 86% 87% 88% 89% 90% 91%Int'l CO 79% 79% 78% 79% 78% 77% 77% 78% 80% 82% 81% 81%Total Utilization 84% 83% 82% 83% 82% 84% 84% 85% 86% 87% 88% 89%

Fabrications SummaryBacklog

Compression $202 $194 $177 $158 $177 $193Prod'n & Processing 584 424 358 476 434 532Installation 208 129 85 46 59 93Total Backlog $994 $747 $619 $680 $669 $818 $903 $954 $1,035 $1,083 $1,117 $1,143

Implied Bookings 387 209 276 403 277 472 424 403 409 415 422 428Book-to-Bill 0.8x 0.5x 0.7x 1.2x 1.0x 1.5x 1.3x 1.1x 1.2x 1.1x 1.1x 1.1x

2013 2014 2015

October 14, 2014

154

Exterran Holdings



2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $38 $48 $73 $149 $126 $84 $45 $22 $35 $36 $5 $62Accounts receivable 206 244 283 516 625 448 429 463 452 477 531 580Other 305 412 524 811 943 888 687 639 752 709 768 859Current assets $549 $704 $881 $1,477 $1,695 $1,419 $1,161 $1,124 $1,238 $1,221 $1,304 $1,501PP&E 1,877 1,823 1,863 3,534 3,674 3,404 3,093 3,004 2,842 2,820 3,336 3,333Goodwill 240 245 237 1,767 640 469 479 232 175 165 204 204Other 97 91 90 86 84 0 9 0 0 21 20 20Total assets $2,762 $2,863 $3,071 $6,864 $6,093 $5,293 $4,742 $4,361 $4,255 $4,227 $4,863 $5,057

Liabilities & shareholders' equityCurrent maturities $7 $5 $5 $1 $0 $0 $16 $6 $0 $0 $0 $0Accounts payable 57 93 137 221 224 131 157 216 232 177 199 219Other 182 254 412 584 693 706 585 447 542 463 423 465Current liabilities $246 $353 $554 $806 $917 $837 $758 $670 $775 $641 $622 $684LT debt 1,637 1,474 1,365 2,333 2,512 2,261 1,897 1,773 1,566 1,502 2,038 2,188Deferred taxes 53 76 77 282 226 182 120 125 121 198 208 208Other 312 404 615 1,093 1,323 1,214 1,103 1,027 1,092 897 890 952Total liabilities $2,002 $1,953 $2,057 $3,708 $4,061 $3,657 $3,121 $2,924 $2,779 $2,597 $3,135 $3,348Minority interest 0 0 0 (6) (12) (4) 11 (1) (2) (33) (25) (25)Common stock 760 910 1,014 3,162 2,044 1,640 1,609 1,437 1,479 1,662 1,753 1,735Total $2,762 $2,863 $3,071 $6,864 $6,093 $5,293 $4,742 $4,361 $4,255 $4,227 $4,863 $5,057


Net income ($44) ($38) $87 $35 ($947) ($545) ($113) ($340) ($37) $156 $102 $115Depreciation 175 183 181 253 374 353 401 366 351 328 399 418Deferred income taxes 12 19 0 (43) (48) (7) (129) (52) (94) 22 (13) 0Other 5 28 (113) 97 1,199 628 137 287 132 (16) (6) 0Working Capital Chg (16) (69) 54 (101) (93) 49 69 (140) 38 (134) (169) (78)Cash from operations $132 $122 $209 $240 $484 $478 $364 $120 $390 $356 $314 $455

Investing ActivitiesCapex ($90) ($155) ($247) ($352) ($509) ($369) ($236) ($283) ($429) ($392) ($508) ($500)Acquisitions 0 (3) 0 0 (134) 0 0 (3) 0 0 (496) 0Asset sales 29 54 78 36 57 75 141 336 36 101 13 0Other 73 1 0 14 3 (7) 102 0 187 94 85 85Cash from investing $11 ($104) ($168) ($302) ($583) ($301) $6 $51 ($205) ($196) ($905) ($415)

Financing ActivitiesChg in ST debt ($152) ($229) $7 ($752) ($76) $335 ($380) ($142) ($229) ($88) $339 $0Chg in LT debt (20) 41 (28) 966 254 (497) 0 0 0 0 185 150Stock Issuance 10 184 6 27 9 3 3 2 117 10 181 0Stock Repurchase 0 0 0 (100) (101) (1) (2) (3) (2) (5) (6) 0Dividend paid 0 0 0 0 0 0 0 0 0 0 (41) (43)Dividend to NCI 0 0 0 (3) (14) (15) (18) (40) (57) (62) (77) (90)Other (0) (3) (2) (2) 15 (51) (11) (8) 0 (12) (16) 0Cash flow financing ($162) ($7) ($18) $136 $86 ($226) ($408) ($191) ($171) ($157) $564 $17

FX and other 1 (1) 2 3 (10) 7 (2) (3) (0) (1) (4) 0

Chg in cash ($19) $10 $25 $76 ($23) ($43) ($39) ($23) $13 $1 ($31) $57Beginning cash 57 38 48 73 149 126 84 45 22 35 36 5

Ending cash $38 $48 $73 $149 $126 $84 $45 $22 $35 $36 $5 $62

October 14, 2014

155

FMC Technologies

Investment Thesis FMC Technologies design and manufacturers equipment for onshore and offshore production, though the company is best known for its highly engineered subsea systems including trees, manifolds, etc. The company recently expanded its subsea offerings to include ROVs and aftermarket services, though Subsea processing is the most exciting new area of growth for the company. The only company to have certain equipment installed currently, FTI is well position to take advantage of the industry’s moving key separation and boosting equipment from the platform to the sea floor. FTI also has a growing surface business, selling wellheads to key MidEast and Africa markets, as well as fluid control to production & completions providers. We rate the shares Buy with a $67 price target based on a 19.0x target multiple on our 2015E EPS.

Company Strategy The company recently pushed through several cost cutting initiatives, trimming back its operations in Europe and shortening leadtime and costs for fluid control in the Surface Technologies segment. Management target mid-teens subsea margins by the back half of 2014 and is on track to achieve $5 billion in orders despite no single large bookings, though expect bookings to strengthen in 2015. In the surface segment, orders for fluid control rebounded earlier this year as customers restocked depleted inventories, though the company had yet to see capital equipment orders as NAM production & completion services company add incremental capacity. Meanwhile, FTI is pushing forward a standardization initiative, partnering with four key offshore customers to develop, qualify and build equipment for U.S. GOM Lower Tertiary development.

Outlook for 2015 Despite few large subsea awards booked year to date, FTI has a near record backlog to work through over the next several quarters. Margins should get a boost from higher priced orders in the backlog and improving execution, as well as the growing services segment, now about 30% of segment revenues and at much higher margins. FTI should take delivery of its fourth intervention stack by early 2015, potentially launching construction of boat five and six by year end with partner EdisonChouest. In the surface segment, the company should see higher pump awards in fluid control, though wellheads may take a pause of international activity slows.

October 14, 2014

156

FMC Technologies

Key Thoughts and Potential Catalysts We believe 3Q subsea bookings will likely be strong, with the company receiving orders for five

subsea manifolds for Petrobras pre-salt field. Representing the balance of the 16 manifold award ordered the 2013 frame, FTI has booked a total of 19 manifolds to date for Petrobras pre-salt field. Meanwhile, the recently announced $280mm Wintershall award will be booked in 4Q.

Less impacted by offshore development delays than Dresser-Rand, FMC expects BP to sanction the Mad Dog 2 (GOM), Persephone (Australia) and Thunderhorse South (GOM) projects before year end. FTI is partner with BP in its 20k Project.

About nine named subsea processing projects were expected to be awarded this year, with five to six for boosting equipment, but only one project has been awarded to date and the rest are likely to be delayed, as large projects are prone to be. For example, Shell postponed the Ormen Lange compression project it has been working on since 2008, claiming “the updated reservoir analysis show that offshore compression timing is not critical to the ultimate recovery of the field.”



5x

9x

13x

17x

21x

25x

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

FTICapital Equipment

FTI current trades at 10.7x, a 22% premium to the group's


October 14, 2014

157

FMC Technologies


2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

Subsea Technologies $2,731 $2,988 $3,088 $2,731 $3,288 $4,007 $4,727 $5,248 $5,704Surface Technologies 954 985 818 954 1,311 1,598 1,807 2,030 2,246Energy Infrastructure 454 597 524 454 503 574 617 632 695Intercompany Eliminations (14) (20) (24) (14) (1) (28) (25) (13) (15)Total revenues $3,908 $4,126 $4,551 $4,405 $4,126 $5,101 $6,151 $7,126 $7,896 $8,631

Operating IncomeSubsea Technologies $415 $422 $320 $432 $548 $732 $870Surface Technologies 138 173 250 284 257 333 399Energy Infrastructure 66 38 49 68 74 89 111Corporate Expense (35) (40) (39) (42) (46) (67) (64)Total Operating Income $367 $492 $556 $526 $544 $557 $641 $776 $1,010 $1,240Net Interest expense (7) (9) (2) (10) (9) (8) (27) (34) (33) (33)Pretax income $360 $482 $554 $516 $536 $549 $614 $743 $977 $1,207Taxes (122) (164) (167) (155) (175) (157) (166) (213) (306) (374)Net income $238 $318 $387 $361 $360 $393 $448 $530 $671 $833

Per Share DataDiluted Earnings $1.69 $2.38 $2.99 $2.88 $2.94 $1.61 $1.86 $2.22 $2.82 $3.50Dividend $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

Margins SummaryTotal Operating Margin 9% 11% 11% 12% 13% 11% 10% 11% 13% 14%EBITDA Margin 11% 13% 14% 14% 16% 13% 13% 14% 16% 17%

October 14, 2014

158

FMC Technologies



Subsea $1,093 $1,124 $1,120 $1,390 $1,202 $1,329 $1,349 $1,369 $1,382 $1,422 $1,450 $1,451Surface 422 440 456 489 480 511 501 538 527 562 552 605Infrastructure 134 158 152 173 146 149 160 177 160 164 176 195Eliminations (4) (14) (4) (4) (3) (3) (3) (4) (4) (4) (4) (4)Total revenues $1,646 $1,708 $1,725 $2,048 $1,824 $1,985 $2,007 $2,080 $2,066 $2,144 $2,174 $2,247

Operating IncomeSubsea $97 $120 $121 $210 $142 $194 $197 $200 $204 $212 $226 $227Surface 57 57 75 68 88 79 75 91 90 99 98 112Infrastructure 12 22 18 23 16 18 24 31 24 25 28 34Corporate Expense (10) (13) (10) (13) (15) (17) (18) (18) (16) (16) (16) (16)Operating Income $139 $165 $185 $288 $210 $257 $258 $285 $283 $301 $318 $338Net Interest expense 8 9 8 9 8 8 8 8 8 8 8 8Pretax income $131 $156 $176 $280 $202 $248 $249 $276 $275 $293 $310 $329Taxes 29 41 52 91 67 77 77 85 85 91 96 102Net income $102 $114 $125 $189 $135 $172 $172 $191 $190 $202 $214 $227


Margins SummaryOperating Margin 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%EBITDA Margin 11% 13% 14% 18% 14% 16% 16% 17% 17% 17% 18% 18%

2013 2014 2015

October 14, 2014

159

FMC Technologies



2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $80 $130 $340 $461 $316 $344 $342 $399 $633 $1,125Accounts receivable 903 957 996 879 1,103 1,342 1,766 2,067 2,221 2,490Inventories 589 675 559 592 567 712 965 980 1,075 1,173Other 119 343 548 294 360 390 416 576 601 650Current assets $1,690 $2,104 $2,444 $2,226 $2,345 $2,788 $3,488 $4,023 $4,530 $5,438Investments 26 34 151 142 148 161 37 44 40 40PP&E 446 579 495 582 609 768 1,244 1,349 1,498 1,632Goodwill 187 273 199 427 415 394 945 896 879 879Total assets $2,483 $3,211 $3,586 $3,510 $3,644 $4,271 $5,903 $6,606 $7,236 $8,278

Liabilities & shareholders' equityShort-Term Debt $6 $7 $23 $29 $12 $588 $60 $43 $21 $21Accounts Payable 423 504 1,266 344 344 547 664 751 746 806Other 780 1,274 673 1,306 1,139 1,099 1,246 1,822 1,856 2,005Current liabilities $1,209 $1,785 $1,963 $1,679 $1,495 $2,233 $1,970 $2,615 $2,623 $2,832LT debt 213 122 472 392 351 36 1,580 1,330 1,289 1,289Other 186 282 455 328 475 564 499 325 311 311Total liabilities $1,607 $2,190 $2,890 $2,398 $2,322 $2,833 $4,050 $4,269 $4,223 $4,431

Shareholders' Equity 876 1,022 697 1,112 1,322 1,438 1,853 2,336 3,013 3,846Total $2,483 $3,211 $3,586 $3,510 $3,644 $4,271 $5,903 $6,606 $7,236 $8,278

2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EOperating Activities

Net Income $212 $308 $353 $361 $376 $404 $435 $507 $728 $833Depreciation & Amortization 71 84 73 93 101 108 146 210 235 266Deferred Income Taxes 0 0 63 4 0 (15) (10) (20) 5 0Other (2) 0 73 98 1 57 160 118 (33) 0Working Capital Chg (126) 183 (301) 41 (282) (389) (593) (19) (273) (207)Cash from operations $155 $575 $262 $597 $195 $165 $138 $795 $663 $892

Investing ActivitiesCapital Expenditures ($139) ($203) ($165) ($110) ($113) ($274) ($406) ($314) ($356) ($400)Acquisitions (10) (64) (121) (153) 0 0 (616) 0 0 0Other 54 74 (1) 9 3 0 1 3 109 0Cash from investing ($94) ($193) ($288) ($254) ($109) ($274) ($1,020) ($312) ($247) ($400)

Financing ActivitiesChange in Debt ($38) ($98) $369 ($80) ($58) $264 $983 ($270) ($67) $0Change in Equity (99) (249) (123) (153) (162) (113) (90) (116) (72) 0Dividends 0 0 6 (5) (11) (10) (11) (36) (43) $0Cash flow financing ($137) ($347) $253 ($238) ($231) $141 $881 ($422) ($182) $0

FX and other $3 $15 ($5) $17 ($0) ($4) ($2) ($5) $0 $0

Chg in cash ($73) $50 $211 $121 ($145) $28 ($2) $57 $234 $492Beginning cash 172 99 149 360 480 335 363 362 419 653Ending cash $99 $149 $360 $480 $335 $363 $362 $419 $653 $1,144

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Forum Energy Technologies

Investment Thesis Forum Energy Technologies provides consumables and capital equipment for the oil services industry, with exposure to all areas of operations but especially to North America and the horizontal well count. More than half of revenue comes from consumables – parts that need to be replaced every few months to every five years –with consumables historically accounting for 2/3 of the Drilling & Subsea segment. Orders can be lumpy for capital equipment companies, with the group generally trading on book-to-bill ratios with the backlog providing earnings visibility. But with most orders fulfilled within 30 days, Forum views the backlog as a negative indicator as its backlog is generally made up of orders that can’t be manufactured within six months. While Forum’s higher mix of consumables exposes the company to shorter cycle risks, i.e. the 2012/2013 slowdown in US pressure pumping when clients cannibalized existing equipment and worked down inventories, the next few quarters look promising with customers restocking Flow Equipment inventories and the company set to deliver record Drilling Technologies and Subsea Technologies orders. We rate FET a Buy with a $44 price target based on an 18.2x target multiple on our 2015E EPS.

Company Strategy Forum focuses on three avenues for driving organic growth: 1) consolidating operations, 2) product development, and 3) acquisitions where it competes against private equity in deals priced at 4-6x EBITDA. Formed through a series of acquisitions by SCF Partners, FET views M&A as a core competency but recently took a pause from acquisitions to focus on integrating six companies acquired since its April 2012 IPO. Management consolidated offices and manufacturing facilities, resulting in better absorption of fixed costs, and next plans to consolidate procurement to drive shorter cycle times and shorter lead times. In the near term Forum is reinvesting these savings into product development, though R&D remain modest relatively to the large caps at 0.5% of 2013 sales, with management focusing not on new technologies but expanding its range of offerings within existing product lines. Meanwhile, a recent acquisition of a Canadian wireline company demonstrates the company’s strategy of acquiring respected and developed brands it can scale up and expand globally, with Forum planning to add 10-40% capacity over the next 12 months. Forum is actively targeting new acquisitions in well intervention and downhole products (highest margin business line), but doesn’t expect to act on large deals.

Outlook for 2015 With customers restocking inventories, FET is ramping up capacity with a new pressure pumping consumables manufacturing center to be completed before year end. Existing facilities are running two-to-three shifts each, and the new facility and machinery should drive significant operating leverage in 2015 as the company sees a pick up for consumables (treating iron) for new pressure pumping capacity put into service over the past year. We also anticipates a new upgrade/repair/maintenance cycle for Forum’s high installed base of 400 active Perry™ ROVs. In contrast to OII’s higher mix of drilling-based ROVs, FET competes with FTI’s Schilling Robotics to supply workclass ROVs to vessel-based contractors like Subsea7 for use in installing record subsea equipment ordered in recent years. Meanwhile in the Production & Infrastructure segment, petrochem opportunities are expected to move ahead, a positive for Valve Solutions.

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Key Thoughts and Potential Catalysts Forum guided to 3Q14 EPS of $0.42-0.48, with risk to the downside if planned shipments don’t occur

in the quarter as expected. With the company scheduled to delivery record Drilling and Subsea capital equipment orders booked in the first half (27 ROVs ordered YTD is more than double the total booked last year), any issues in consolidating manufacturing facilities or supply chain could impact near term earnings momentum.

The company established a sustainable EBITDA margins target of 20%, which looks very achievable with margins up 300bp Y-Y to 19.4% last quarter. While stressing that maximizing margins is not its ultimate goal, investors may be disappointed if margins don’t continue to move steadily higher over time.

FET has been steadily paying down its revolver with healthy positive free cash flow. With total debt to EBITDA falling to 1.3x from 2.2x a year ago, well below the company’s 2-3x comfort zone, a dividend or buy back could be a near term catalyst.

Public offerings by majority shareholder SCF Partners (24mm shares or 26% stake) creates some overhang.



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FET


FET current trades at 12.6x, a -9% discount to the group's 13.9x average and a -3%


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2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

Drilling & Subsea $659 $455 $474 $659 $827 $941 $1,140 $1,455Production & Infrastructure 314 222 273 469 589 585 595 642Other 0 0 0 0 (1) (1) (1) (1)Total revenues $973 $677 $747 $1,128 $1,415 $1,525 $1,733 $2,096

Operating incomeDrilling & Subsea $67 $38 $54 $118 $161 $156 $207 $276Production & Infrastructure 23 12 23 78 97 87 105 115Other 0 0 (3) (35) (16) (24) (35) (36)Operating income $90 $50 $73 $160 $242 $219 $276 $355Interest expense (23) (18) (29) (19) (16) (18) (31) (33)Other income (0) (1) 0 (0) (2) (5) (5) 0Pretax income $67 $31 $44 $141 $224 $195 $240 $322Taxes (33) (11) (20) (47) (69) (54) (67) (93)Minority interest (0) (0) (0) (0) (0) 0 0 0Net income $34 $20 $24 $94 $155 $141 $174 $230


Margins SummaryEBITDA margins

Drilling & Subsea 14% 15% 19% 23% 24% 21% 22% 22%Production & Infrastructure 10% 9% 13% 19% 19% 17% 20% 20%Companywide 13% 13% 17% 18% 21% 18% 20% 20%

Operating marginsDrilling & Subsea 10% 8% 11% 18% 20% 17% 18% 19%Production & Infrastructure 7% 5% 8% 17% 17% 15% 18% 18%Companywide 9% 7% 10% 14% 17% 14% 16% 17%

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Drilling & Subsea $222 $209 $248 $261 $262 $279 $291 $308 $327 $349 $378 $401Production & Infrastructure 151 159 143 133 143 149 156 147 154 161 168 159Other (0) (0) (1) (0) (0) (0) (0) (0) (0) (0) (0) (0)Total revenues $373 $368 $390 $394 $404 $428 $446 $455 $481 $510 $546 $559

Operating incomeDrilling & Subsea $35 $33 $43 $45 $47 $50 $52 $57 $63 $64 $71 $78Production & Infrastructure 21 23 21 21 24 27 28 26 25 30 31 29Other (7) (9) (1) (7) (9) (10) (8) (8) (9) (9) (9) (9)Operating income $49 $47 $64 $59 $62 $67 $72 $75 $79 $85 $93 $98Interest expense (3) (3) (4) (8) (8) (8) (8) (8) (8) (8) (8) (8)Other income 2 (1) (4) (1) (1) (3) 0 0 0 0 0 0Pretax income $47 $43 $55 $50 $53 $56 $64 $67 $71 $77 $85 $89Taxes (15) (13) (13) (13) (15) (14) (19) (19) (20) (22) (24) (26)Minority interest 0 0 0 0 0 0 0 0 0 0 0 0Net income $32 $30 $42 $37 $38 $42 $45 $48 $51 $55 $61 $64



Drilling & Subsea 21% 20% 21% 22% 22% 21% 22% 22% 22% 22% 22% 22%Production & Infrastructure 16% 16% 17% 18% 18% 20% 20% 20% 19% 20% 20% 20%Companywide 17% 16% 20% 19% 19% 19% 20% 20% 20% 20% 20% 20%

Operating marginsDrilling & Subsea 16% 16% 17% 17% 18% 18% 18% 19% 19% 18% 19% 19%Production & Infrastructure 14% 14% 15% 16% 17% 18% 18% 18% 17% 18% 18% 18%Companywide 13% 13% 16% 15% 15% 16% 16% 16% 16% 17% 17% 17%

2013 2014 2015

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2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $20 $27 $20 $21 $41 $40 $89 $129Other 313 322 598 734 786 854 1,050Current assets $340 $342 $619 $775 $825 $943 $1,179PP&E 109 97 91 125 153 180 188 182Goodwill 301 294 601 696 1,098 1,120 1,120Other 103 91 263 269 81 77 77Total assets $961 $840 $818 $1,607 $1,893 $2,185 $2,328 $2,558

Liabilities & shareholders' equityCurrent maturities $35 $3 $98 $21 $1 $1 $1Other 114 124 157 260 227 240 240Current liabilities $149 $127 $255 $281 $228 $240 $240LT debt 322 237 205 660 400 512 437 437Other LT liabilities 52 24 37 50 114 118 118Total liabilities $438 $355 $952 $731 $854 $795 $795Noncontrolling interest (0) (0) (0) (0) (0) 0 0 0Stockholder Equity 377 402 463 654 1,162 1,330 1,533 1,762Total $961 $840 $818 $1,607 $1,893 $2,185 $2,328 $2,558


Net income $34 $19 $24 $94 $152 $130 $169 $230Depreciation 21 24 22 41 52 61 64 66Other 57 64 20 (95) (58) 21 (32) (196)Cash from operations $112 $108 $66 $39 $145 $211 $200 $100

Investing ActivitiesCapex ($40) ($15) ($20) ($41) ($50) ($60) ($60) ($60)Asset sales 13 6 0 1 5 0 9 0Acquisitions (134) (2) 0 (510) (140) (229) (38) 0Cash from investing ($161) ($11) ($19) ($550) ($185) ($289) ($89) ($60)

Financing ActivitiesProceeds from LT debt $132 $8 $324 $520 $203 $808 $0 $0Repayment of LT debt (96) (102) (407) (62) (454) (716) (76) 0Payment of contingent consideration 0 0 0 0 (18) (11) 0 0Other 23 (0) 29 52 328 (4) 11 0Cash flow financing $59 ($95) ($54) $510 $59 $77 ($64) $0

FX and other (23) 5 1 1 1 (1) 2 0

Chg in cash ($13) $7 ($7) $0 $21 ($2) $49 $40Beginning cash 33 20 27 20 21 41 40 89

Ending cash $20 $27 $20 $21 $41 $40 $89 $129

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Frank’s International

Investment Thesis FI has fallen 47% over the past 12 months, due partially from self-inflicted wounds in its U.S. onshore business, but also due to investor pessimism across all sectors tied to offshore drilling activity. Though Frank’s is a strong way to gain exposure to the deepwater offshore market, the company does generate ~30% of its revenue from onshore tubular services. This favorable mix helps shield the company from the current slowdown in deepwater startups, especially as North American unconventional drilling continues to thrive. We see significant upside with the shares trading at a 23% discount to its historical 17.7x forward P/E multiple, well below its IPO price of $22 and only 13x consensus 2015E earnings). We rate the shares Buy with a $26 price target based on a 19.8x target multiple on our 2015E EPS, supported by potential dividend increases (currently paying 3.6% yield).

Company Strategy FI prides itself on being the industry-leading provider of engineered tubular services with a focus on the most complex jobs throughout the world, undertaken by a highly trained suite of employees using differentiated, customized and proprietary tools. Its growth strategy is centered on taking market share in the North Sea, the Middle East and SE Asia, as well as an increased rig count in West Africa and the Gulf of Mexico. Additionally, the company’s strong balance sheet ($444MM of cash and essentially no debt) has encouraged persistent questions regarding M&A activity. Frank’s is not against making a large splash if the right opportunity arises, but will more than likely continue to make smaller, tuck-in acquisitions primarily focused on new products and technology within well construction and tubular services order to enhance the company’s portfolio. If no feasible acquisition opportunities are identified, FI has repeatedly stated that it intends to return cash to shareholders via special dividends or an increase to its quarterly dividend.

Outlook for 2015 As the cost, complexity and critical nature of wellbore construction keeps increasing, FI is in a prime position to benefit as an industry leader. We expect 2014 EBITDA margins to decline to 38%, down from 41.5% during 2013, due to competitive U.S. land pricing and reduced offshore rig startups. Meanwhile, 2015 should see improvement as the company right sizes its U.S. business and offshore activity hastens, leading to sustainable margins in the 40% range.

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Key Thoughts and Potential Catalysts Dividend growth/special dividend. As of 6/30/14, Frank’s had a cash balance of $443.7MM and no

debt. The company has repeatedly stated that if it cannot find ideally suited acquisitions, it will return cash to shareholders in the form of a special dividend or increases to the regular dividend. We project that the dividend will increase to $0.20/quarter from its current $0.15 per quarter.

FI is in the process of building out its tubular business for the jackup market, and though this will temporarily serve as a drag on margins (headcount and G&A increases without revenue recognition), we view this as a strong avenue of growth for the company, especially considering FI’s expertise in the offshore market. The casing process amounts to only 2-5% of the total well cost but is an integral part of the drilling process. An inadequately sealed well can potentially delay the process for multiple weeks while a sidetrack well is drilled. And thus the benefit for marginal savings by an operator is greatly outweighed by the risk of a poorly done job. As the search for hydrocarbons takes operators into harsher and harsher frontier environments (Arctic, HPHT), the need for longer, heavier, higher-quality tubing and FI’s proprietary equipment (elevators and spiders) becomes more apparent, thus playing into FI’s strengths.

U.S. land revenues have fallen as the company gives up market share to maintain margins. In addition, the company has suffered from decline in equipment and head count utilization due to its decentralized structure, which has hurt EBITDA margins. FI has appointed a Head of U.S. Land operations and believes it is well underway to resolving these issues.

As a public company for just fourteen months, FI is still experiencing growing pains with its financial forecasting. Adding to this difficulty is the fact that FI is the only public, pure-play casing running company; as a result FI may be hesitant to publicize certain facts and expectations which would alleviate investor fears due to competitor concerns. As the company transitions to a more detailed, bottoms-up budgeting process and improves on its accuracy, revenue and margin guidance should improve in precision, giving investors and analysts alike more confidence in guidance for the company.



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FINiche Offshore Technology Providers

FI current trades at 13.5x, a -11% discount to the group's 15.3x average but a -23% discount to its historical 17.7x.

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2012 2013 2014E 2015ERevenues

International Services $469 $475 $521 $561U.S. Services 445 435 439 491Tubular Sales 215 167 174 181Intersegment purchases (73) 0 0 0Total revenues $1,052 $1,078 $1,134 $1,232

Adjusted EBITDAInternational Services $219 $208 $206 $232U.S. Services 199 198 186 209Tubular Sales 28 41 41 42Corporate (0) 1 0 0Adjusted EBITDA $447 $447 $433 $484D&A 66 78 89 105Operating income $380 $370 $344 $379Net Interest Expense 0 (0) 0 0Foreign Currency Loss (0) (3) 0 0Other Income (0) (4) (38) (22)Pretax income $380 $363 $306 $357Taxes (32) (40) (69) (80)Net income $348 $318 $237 $277

Per Share DataDiluted Earnings $1.88 $1.74 $1.14 $1.33Dividends $0.00 $0.08 $0.45 $0.60


INTL. Services 47% 44% 40% 41%U.S. Services 45% 46% 42% 43%Pipe and Products 13% 24% 24% 23%

EBITDA margins 42% 42% 38% 39%Operating margins 36% 34% 30% 31%

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International Services $110 $121 $122 $122 $119 $129 $133 $140 $133 $141 $143 $143U.S. Services 98 116 108 114 104 106 111 119 121 122 122 126Tubular Sales 25 56 40 46 42 38 44 50 44 39 45 52Intersegment purchas 0 0 0 0 0 0 0 0 0 0 0 0Total revenues $233 $293 $270 $282 $264 $273 $287 $309 $298 $302 $311 $321

Adjusted EBITDAInternational Services $50 $54 $57 $46 $51 $49 $51 $55 $54 $59 $60 $60U.S. Services 43 59 47 49 42 45 48 52 51 52 52 54Tubular Sales 7 14 5 15 9 9 10 12 10 9 11 12Corporate (0) 0 1 0 0 0 0 0 0 0 0 0Adjusted EBITDA $99 $128 $110 $110 $102 $103 $109 $119 $115 $119 $123 $126D&A 17 19 20 21 21 22 22 24 26 26 26 26Operating income $82 $109 $90 $89 $81 $81 $87 $95 $88 $93 $97 $100Net Interest Expense 0 (0) 0 (0) (0) 0 0 0 0 0 0 0Foreign Currency Los (4) (2) 0 (5) (5) (15) (9) (9) (6) (6) (6) (6)Other IncomePretax income $78 $107 $90 $83 $76 $66 $78 $86 $83 $88 $92 $95Taxes (6) (6) (22) (6) (16) (16) (17) (19) (19) (20) (21) (21)Net income $72 $101 $68 $77 $60 $50 $60 $67 $64 $68 $71 $73

Per Share DataDiluted Earnings $0.42 $0.59 $0.36 $0.37 $0.29 $0.24 $0.29 $0.32 $0.31 $0.33 $0.34 $0.35Dividends $0.00 $0.00 $0.00 $0.08 $0.08 $0.08 $0.15 $0.15 $0.15 $0.15 $0.15 $0.15


INTL. Services 45% 45% 47% 38% 43% 38% 38% 39% 40% 41% 42% 42%U.S. Services 44% 51% 44% 43% 40% 43% 43% 43% 42% 43% 43% 43%Pipe and Products 27% 25% 13% 32% 22% 25% 24% 23% 23% 23% 23% 24%


2013 2014 2015

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2012 2013 2014E 2015EAssets

Cash & equivalents $153 $405 $369 $520Accounts receivable 314 365 408 424Inventory 109 186 242 251Other 17 16 16 16Current assets $592 $971 $1,034 $1,210PPE 427 511 612 595Goodwill 15 15 15 15Intangible assets 2 0 0 0Other assets 73 64 64 64Total assets $1,108 $1,561 $1,725 $1,884

Liabilities & shareholders' equityCurrent maturities $330 $0 $0 $0Accounts payable 19 22 18 19Other 22 (15) 16 6Current liabilities $477 $176 $184 $191LT debt 147 0 0 0Deferred taxes 7 13 15 15Other LT liabilities 31 38 41 41Total liabilities $661 $227 $240 $247Shareholder's Equity 447 1,334 1,485 1,637Total $1,108 $1,561 $1,725 $1,884

2012 2013 2014E 2015EOperating Activities

Net income $351 $351 $237 $277D&A 66 78 89 105Deferred tax provision 1 4 3 0Provision for (recovery of) bad d (0) 13 (0) 0Gain on sale of assets (3) (40) (0) 0Changes in value of marketable (2) (4) (1) 0Other-CF (4) 8 20 0Change in working capital (65) (132) (87) (18)Cash from operations $345 $277 $262 $363

Investing ActivitiesCapex ($180) ($185) ($190) ($88)Asset sales $5 $51 $2 $0Marketable Securities (3) (2) (2) 0Other (5) (2) 0 0Cash from investing ($183) ($138) ($189) ($88)

Financing ActivitiesChg in Debt ($20) ($473) ($0) $0Change in Equity 0 712 0 0Distributions to stockholders (87) (128) (108) (125)Other 0 0 0 0Cash flow financing ($107) $110 ($108) ($125)

FX and other ($0.7) $1.8 ($1.2) $0.0

Chg in cash $54.3 $252.0 ($36.2) $151.2Beginning cash 99 153 407 369

Ending cash $153 $405 $371 $521

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Gulfmark Offshore

Investment Thesis We believe the offshore outlook remains fundamentally strong in spite of short term hiccups concerning floater rig deliveries and temporary excess supply of vessels. As the deepwater rig count continues to outpace the overall offshore rig count, the premium afforded to companies with first-class assets like Gulfmark should increase as larger and more complex equipment is required to make the longer trips from shore base facilities to offshore rigs and platforms. Additionally, energy reform in Brazil and the UK holds the possibility of significantly increasing offshore activity in those two regions, a major positive considering GLF’s market share in the regions. We rate Gulfmark Offshore Buy with a $35 price target based on a 6.0x target multiple on our 2015E EBITDA.

Company Strategy GLF chooses to keep a sizeable portion of its fleet in the spot market to exploit temporary shortages in OSV supply. As of 6/30/14, the company’s forward contract coverage for its fleet for the remainder of 2014 and 2015 is 56% and 20%, respectively. This strategy allows for significant upside during times of OSV undersupply, but also opens up the possibility of lower utilization during times of market oversupply.

Outlook for 2015 IOCs have temporarily reined in capital spending due to investor concerns about poor cash flow and have instead shifted their focus from large, capital-intensive projects towards lower cost onshore projects that generate quicker short-term returns. We view this trend as temporary and expect IOCs to return to large offshore exploration and development projects, particularly as LNG related spending rolls off and companies seek to increase their reserve to production ratios. What does this mean for GLF and other offshore levered companies? With ten percent of global reserves and half of the conventional discoveries over the past four years made in the deepwater space, it is clear that offshore drilling is an integral part of future oil supply plans. As a result we expect activity to continue to moderately grow through the remainder of 2014 and beyond. With a modern well positioned fleet, GLF is poised to benefit from the future exploration and development of offshore fields in the Gulf of Mexico, Brazil, the North Sea, and Southeast Asia.

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Gulfmark Offshore

Key Thoughts and Potential Catalysts According to ODS-Petrodata, the global PSV and AHTS fleet stands at 1,448 active vessels with an

additional 306 vessels under construction. Of the 3,269 vessels in service approximately 642 (20%)of them are over 25 years old with no DP capabilities, introducing the possibility of obsolescence and retirement for a significant portion of the fleet serving to reduce the OSV supply and thus increasing rates and utilization.

While the global service vessel fleet shrinks, 142 jackups and 92 floaters are under construction or planned, adding incremental capacity to the worldwide rig count and increasing demand for offshore service vessels. GLF predicts the delivery of eight North Sea floaters, five North Sea jackups, and 12 GOM floaters through 2015, adds 22%, 14% and 32% respectively to the rig count.

ODS-Petrodata count one rig undergoing acceptance testing, two rigs en route, two rigs under construction and five rigs either in the yard undergoing work or hot stacked with contracts slated to begin in the next six months. The commencement of these 10 contracts, as well as the departure of several competitor OSV vessels due to the temporary weakness, should cause significant market tightening that should benefit GLF due to the high number of vessels it operates in the spot-market.

The October 26th Brazilian election holds the possibility to significantly alter the dynamics of Brazil’s energy industry. Currently, Petrobras is legally required to be the lead operator with a minimum 30% stake in all new pre-salt fields, utilizing platforms and other equipment built in country, as well as sell gasoline below-market prices. These mandates have caused cost overruns and equipment shortages, placing immense financial burden on the company and discouraging foreign investments. A change in regime could change the course of direction in Brazil, lifting import restrictions and trade barriers, as well as further opening up the industry to foreign companies and issue offshore licenses at a faster pace. We believe these developments would lead to increased offshore activity in turn benefitting Gulfmark, as the company owns and operates four OSVs.

About 57% of revenues are derived from IOCs and NOCs, customers who are generally less sensitive to commodity price swings and more steadfast in their development plans, thus providing a more stable, predictable revenue source for the company. Additionally 12% of revenues are from the U.S. government for non-oil related work, providing further insulation from volatility in commodity prices.



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GLFOffshore Technology

GLF current trades at 5.9x, a -8% discount to the group's 6.5x average but a -15% discount to its historical 7.0x.

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Gulfmark Offshore


2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

North Sea $160 $199 $242 $226 $165 $149 $172 $164 $184 $229 $236Southeast Asia 20 27 41 78 77 67 64 61 65 71 72Americas 24 24 23 108 147 144 146 164 206 224 278Total revenues $204 $251 $306 $412 $389 $360 $382 $389 $455 $525 $586

ExpensesSubsea Technologies ($83) ($92) ($108) ($144) ($162) ($171) ($183) ($198) ($217) ($238) ($247)Surface Technologies (9) (9) (13) (11) (16) (22) (16) (33) (24) (28) (35)Energy Infrastructure (20) (25) (32) (40) (43) (44) (45) (49) (52) (60) (62)Other (4) 0 0 2 0 0 (0) 0 (0) 0 0EBITDA $89 $125 $153 $219 $168 $123 $138 $109 $161 $199 $242D&A (29) (28) (31) (44) (53) (57) (60) (60) (64) (76) (83)Operating Income $60 $97 $122 $174 $115 $66 $78 $49 $97 $123 $159Interest Expense (19) (16) (8) (14) (20) (22) (22) (20) (24) (30) (35)Other 1 11 15 3 (2) 1 (2) (0) (1) 2 0Pretax Income $42 $93 $129 $163 $93 $45 $54 $29 $72 $94 $125Taxes (3) (3) (30) (13) (6) (2) (5) (3) (6) (7) (12)Net income $38 $90 $99 $150 $87 $43 $50 $26 $66 $87 $112


Margins SummaryGross Margin 59% 62% 64% 65% 58% 52% 52% 49% 52% 55% 58%EBITDA Margin 43% 49% 50% 53% 42% 34% 36% 28% 35% 38% 41%Operating Margin 29% 37% 40% 42% 29% 18% 20% 12% 21% 23% 27%

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Gulfmark Offshore



North Sea $41 $43 $51 $50 $53 $58 $60 $59 $58 $58 $60 $60Southeast Asia 10 17 19 20 18 17 18 18 18 18 18 18Americas 47 52 52 55 49 56 58 62 66 70 70 72Total revenues $97 $111 $122 $125 $120 $131 $135 $138 $141 $146 $148 $151

ExpensesSubsea Technologies ($53) ($53) ($55) ($56) ($56) ($60) ($61) ($61) ($61) ($62) ($62) ($62)Surface Technologies (9) (9) (2) (4) (7) (5) (8) (8) (8) (9) (9) (9)Energy Infrastructure (11) (14) (14) (13) (14) (15) (15) (15) (15) (15) (16) (16)Other 0 (0) 0 (0) 0 0 0 0 0 0 0 0EBITDA $24 $34 $51 $52 $42 $52 $51 $54 $56 $60 $62 $64D&A (15) (15) (16) (18) (18) (19) (19) (20) (20) (21) (21) (22)Operating Income $9 $19 $34 $34 $23 $33 $32 $35 $36 $39 $41 $43Interest Expense (6) (5) (5) (7) (7) (7) (8) (8) (8) (9) (9) (9)Other 1 (1) (1) (0) 1 1 0 0 0 0 0 0Pretax Income $3 $13 $29 $27 $17 $26 $24 $27 $28 $31 $32 $34Taxes (0) (2) (2) (1) (1) (2) (2) (2) (3) (3) (3) (3)Net income $3 $11 $26 $26 $17 $24 $22 $24 $25 $28 $29 $30


Margins SummaryGross Margin 45% 52% 55% 55% 53% 55% 55% 56% 56% 58% 58% 59%EBITDA Margin 25% 31% 42% 41% 35% 40% 38% 39% 40% 41% 42% 43%Operating Margin 9% 17% 28% 27% 19% 25% 24% 25% 26% 27% 28% 28%

2013 2014 2015

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Gulfmark Offshore



2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $24 $83 $40 $101 $92 $97 $129 $232 $69 $68 $156Accounts receivable 38 54 87 101 77 67 85 86 100 123 137Other 7 6 7 11 16 27 28 34 29 40 45Current assets $69 $143 $134 $213 $185 $191 $242 $352 $199 $231 $339PP&E 485 525 641 1,035 1,164 1,191 1,143 1,136 1,317 1,603 1,808CIP 25 47 113 134 40 3 37 169 178 12 0Goodwill 28 30 34 157 7 59 56 55 49 48 48Other 6 6 12 17 169 20 22 33 30 21 21Total assets $614 $751 $934 $1,557 $1,566 $1,464 $1,500 $1,746 $1,773 $1,916 $2,215

Liabilities & shareholders' equityAccounts Payable $16 $17 $21 $15 $33 $15 $14 $29 $27 $25 $25Accrued & Other 16 21 29 60 64 41 46 51 46 45 46Current liabilities $32 $37 $50 $75 $97 $56 $61 $80 $74 $70 $71LT debt 250 160 160 463 326 326 307 501 501 546 496Deferred Income taxes 9 7 3 116 113 103 105 106 105 105 105Other 35 42 96 123 139 90 95 111 104 102 102Total liabilities $294 $209 $258 $702 $578 $518 $508 $718 $710 $752 $703

Shareholders' Equity 320 541 676 855 987 946 992 1,028 1,063 1,163 1,512Total $614 $751 $934 $1,557 $1,566 $1,464 $1,500 $1,746 $1,773 $1,916 $2,215


Net Income $38 $90 $99 $184 $51 ($35) $50 $19 $71 $77 $112Depreciation 29 28 31 44 53 57 60 60 64 76 83Deferred income tax pr 1 (2) 0 7 (3) (8) (0) (3) 0 1 2Other 3 (6) (6) (25) 51 98 (12) 4 6 37 47Working Capital Chg (7) (5) 5 (5) 19 (20) 0 22 (14) (37) (19)Cash from operations $65 $105 $129 $205 $171 $92 $97 $103 $127 $154 $225

Investing ActivitiesCapital Expenditures ($43) ($47) ($191) ($109) ($77) ($73) ($52) ($192) ($262) ($175) ($61)Dispositions 0 19 16 43 9 20 3 41 14 0 0Other 0 0 0 (122) 0 0 0 0 0 0 0Cash from investing ($43) ($28) ($175) ($187) ($68) ($54) ($49) ($152) ($248) ($175) ($61)

Financing ActivitiesChange in Debt ($17) ($98) ($1) $56 ($123) ($103) ($19) $193 $0 $45 ($50)Change in Equity 2 1 1 0 1 2 3 2 (12) 1 0Cash flow financing 0 77 0 0 2 1 0 (26) (26) (27) (26)Other 0 0 0 0 0 68 0 (19) (2) 0 0Cash flow financing ($16) ($21) $0 $57 ($120) ($33) ($16) $151 ($40) $19 ($76)

FX and other $1 $3 $4 ($15) $9 $0 ($0) $2 ($2) $0 $0

Chg in cash $7 $59 ($43) $61 ($9) $5 $32 $103 ($163) ($1) $88Beginning cash 18 24 83 40 101 92 97 129 232 60 68Ending cash $24 $83 $40 $101 $92 $97 $129 $232 $69 $68 $156

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Halliburton

Investment Thesis Halliburton is our favorite stock in the group and one that we believe has considerable upside as the North American recovery continues, growth in Latin America accelerates, revenue expansion in the Eastern Hemisphere continues at a moderate pace, and returns to shareholders through buybacks and increased dividends unfold. Halliburton is also the least expensive of the large cap diversified companies. We rate the shares Buy with a $97 price target based on an 18.2x target multiple on our 2015E EPS.

Company Strategy Halliburton’s corporate and financial strategy is clear and consistent with the goals laid out almost four years ago. The company is 1) committed to outgrow the deepwater market by 25% through 2016, 2) planning to triple revenue from mature field work to $9 billion in 2016, and 3) add 500 basis points of margin expansion (without price increases) in North American unconventionals. Other financial targets include a 200 basis point improvement in North American margins by the end of 2014, into the low 20% range in the short-term and back to mid-20% eventually. The company expects international margins to rise to upper teens on average for 2014 and to normalize out in the low 20% range in in the next few years with revenue approaching 60% of the company’s total. Additionally the tax rate is expected to drop by 100-150 basis points, the company plans to reduce DSOs by 10 days (freeing up $1 billion in liquidity), returns should migrate back to 20% (ROCE) by 2016 (from 11% in 2013), use of cash for shareholder returns will move to 35%, and EPS of $7 per share in the next few years assuming market growth and some modest pricing gains.

Outlook for 2015 As the industry moves into 2015 the outlook for Halliburton is very bright. The company will benefit from its leading position in North America as liquid shale activity continues to grow, Eastern Hemisphere drilling plans move modestly higher, especially in most parts of the Middle East, Sub-Saharan Africa, Southeast Asia, and Latin America rebounds in both Mexico and Brazil.

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176

Halliburton

Key Thoughts and Potential Catalysts Halliburton is the least expensive large cap diversified stock in the group.

The company has a sizeable share buyback authorization and the Macondo liability is mostly gone.

Recent wins in Mexico and the unfolding Energy reform will be particularly beneficial to Halliburton as a leader in that market.

Sizeable contract awards in Ecuador are pushing the company further into mature field activity.

The re-contracting in Brazil will be highly accretive to margins.

Multiple re-rating is deserved.



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'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

HALBig Four Average

HAL current trades at 10.8x, a -7% discount to the group's 11.7x


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Halliburton


2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

North America $3,609 $4,819 $6,458 $7,133 $8,340 $5,662 $8,827 $14,413 $16,004 $15,212 $17,303 $19,501Latin America 1,082 1,344 1,514 1,798 2,425 2,181 2,229 2,982 3,694 3,909 3,875 4,326Europe, Africa, CIS 1,665 2,274 2,750 3,700 4,346 3,948 3,914 3,956 4,510 5,225 5,777 6,531Middle East, APAC 1,642 1,663 2,185 2,633 3,168 2,884 3,003 3,478 4,295 5,056 5,896 6,871Total revenues $20,466 $10,100 $12,907 $15,264 $18,279 $14,675 $17,973 $24,829 $28,503 $29,402 $32,851 $37,229

EBITDA $1,760 $2,668 $3,724 $4,109 $4,728 $2,987 $4,178 $6,215 $6,115 $6,185 $7,229 $9,127

D&A $509 $504 $527 $583 $738 $931 $1,119 $1,359 $1,628 $1,900 $2,121 $2,369

Operating IncomeNorth America $701 $1,411 $2,071 $1,980 $2,045 $459 $1,876 $3,982 $2,980 $2,613 $3,098 $3,882Latin America 123 203 300 349 521 381 290 464 607 526 485 705Europe, Africa, CIS 175 410 539 744 857 703 584 332 593 698 894 1,277Middle East, APAC 230 340 510 669 814 699 545 453 687 877 1,018 1,307Corporate (80) (200) (223) (215) (247) (186) (236) (375) (380) (429) (388) (413)Operating Income $1,251 $2,164 $3,197 $3,526 $3,990 $2,056 $3,059 $4,856 $4,487 $4,285 $5,108 $6,758

Net Interest Expense ($185) ($143) ($13) ($31) ($121) ($285) ($297) ($262) ($296) ($331) ($375) ($376)Currency Gains (Losse (3) (13) (22) (3) 0 0 0 0 0 0 0 0Other Income 2 (14) 0 (5) (16) (15) (26) (25) (39) (43) (55) 0Pretax income $1,065 $1,994 $3,162 $3,487 $3,853 $1,756 $2,736 $4,569 $4,152 $3,911 $4,678 $6,382Taxes (392) (555) (1,127) (1,106) (1,191) (543) (850) (1,473) (1,355) (1,057) (1,313) (1,819)Minority interest (25) (56) (33) (29) (19) (10) (5) (3) (10) (10) 3 (4)Net income $648 $1,383 $2,002 $2,352 $2,643 $1,203 $1,881 $3,093 $2,787 $2,844 $3,367 $4,559



North America 19% 29% 32% 28% 25% 8% 21% 28% 19% 17% 18% 20%Latin America 11% 15% 20% 19% 21% 17% 13% 16% 16% 13% 13% 16%Europe, Africa, CIS 11% 18% 20% 20% 20% 18% 15% 8% 13% 13% 15% 20%Middle East, APAC 14% 20% 23% 25% 26% 24% 18% 13% 16% 17% 17% 19%Companywide 6% 21% 25% 23% 22% 14% 17% 20% 16% 15% 16% 18%

EBITDA margins 9% 26% 29% 27% 26% 20% 23% 25% 21% 21% 22% 25%

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Halliburton



North America $3,706 $3,802 $3,881 $3,823 $3,901 $4,344 $4,534 $4,524 $4,681 $4,829 $5,014 $4,976Latin America 945 944 1,002 1,018 859 897 1,040 1,079 970 1,024 1,144 1,187Europe, Africa, CIS 1,187 1,299 1,340 1,399 1,299 1,381 1,474 1,623 1,494 1,554 1,658 1,826Middle East, APAC 1,136 1,272 1,249 1,399 1,289 1,429 1,499 1,679 1,573 1,643 1,724 1,931Total revenues $6,974 $7,317 $7,472 $7,639 $7,348 $8,051 $8,547 $8,905 $8,719 $9,051 $9,541 $9,919

EBITDA $1,350 $1,513 $1,643 $1,679 $1,480 $1,718 $1,923 $2,108 $2,048 $2,187 $2,373 $2,519

D&A $448 $474 $481 $497 $510 $524 $534 $553 $572 $586 $599 $612

Operating IncomeNorth America $605 $666 $691 $651 $602 $790 $857 $850 $895 $951 $1,030 $1,006Latin America 109 101 159 157 100 61 152 172 154 164 188 199Europe, Africa, CIS 121 161 207 209 146 186 246 316 271 292 328 387Middle East, APAC 187 219 207 264 211 264 229 314 262 293 329 422Corporate (120) (108) (102) (99) (89) (107) (94) (98) (105) (100) (103) (107)Operating Income $902 $1,039 $1,162 $1,182 $970 $1,194 $1,390 $1,554 $1,476 $1,601 $1,774 $1,907

Net Interest Expense ($71) ($71) ($91) ($98) ($93) ($94) ($94) ($94) ($94) ($94) ($94) ($94)Currency Gains (Losse 0 0 0 0 0 0 0 0 0 0 0 0Other Income (14) (11) (12) (6) (31) (24) 0 0 0 0 0 0Pretax income $817 $957 $1,059 $1,078 $846 $1,076 $1,296 $1,460 $1,382 $1,507 $1,680 $1,813Taxes (191) (276) (312) (278) (229) (299) (369) (416) (394) (429) (479) (517)Minority interest (2) (4) (2) (2) 6 (1) (1) (1) (1) (1) (1) (1)Net income $624 $677 $745 $798 $623 $776 $925 $1,043 $987 $1,076 $1,200 $1,296



North America 16% 18% 18% 17% 15% 18% 19% 19% 19% 20% 21% 20%Latin America 12% 11% 16% 15% 12% 7% 15% 16% 16% 16% 16% 17%Europe, Africa, CIS 10% 12% 15% 15% 11% 13% 17% 19% 18% 19% 20% 21%Middle East, APAC 16% 17% 17% 19% 16% 18% 15% 19% 17% 18% 19% 22%Companywide 13% 14% 16% 15% 13% 15% 16% 17% 17% 18% 19% 19%

EBITDA margins 19% 21% 22% 22% 20% 21% 23% 24% 23% 24% 25% 25%

2013 2014 2015

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Halliburton



2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $2,808 $2,391 $4,379 $1,847 $1,124 $2,082 $1,398 $2,698 $2,484 $2,356 $2,553 $4,654Accounts receivable 5,751 4,608 4,674 3,093 3,795 2,964 3,924 5,084 5,787 6,181 7,500 8,355Inventories 723 953 1,261 1,459 1,828 1,598 1,940 2,570 3,186 3,305 3,903 4,348Other-CA 680 1,375 869 1,174 664 1,994 1,624 1,225 1,629 1,862 1,653 1,842Current assets $9,962 $9,327 $11,183 $7,573 $7,411 $8,638 $8,886 $11,577 $13,086 $13,704 $15,609 $19,199PPE 2,553 2,648 3,048 3,630 4,782 5,759 6,842 8,492 10,257 11,322 12,515 13,646Goodwill 795 0 0 790 1,072 1,100 1,315 1,776 2,135 2,168 2,267 2,267Deferred Taxes 780 0 0 348 157 0 0 0 0 0 0 0Other 815 2,832 2,589 794 963 1,041 1,254 1,832 1,932 2,029 2,375 2,375Total assets $14,905 $14,807 $16,820 $13,135 $14,385 $16,538 $18,297 $23,677 $27,410 $29,223 $32,766 $37,487

Liabilities & shareholders' equityShort-Term Debt $347 $361 $45 $159 $26 $750 $0 $0 $0 $0 $0 $0Accounts Payable 2,271 1,967 1,931 768 898 787 1,139 1,826 2,041 2,365 3,016 3,360Accrued Empl Comp 473 648 496 575 643 514 716 862 930 1,029 1,040 1,158Taxes Payable 0 0 146 209 67 0 0 0 0 0 0 0Other 1,012 2,109 2,751 700 1,147 838 902 1,433 1,781 1,632 1,882 2,097Current liabilities $4,103 $5,085 $5,369 $2,411 $2,781 $2,889 $2,757 $4,121 $4,752 $5,026 $5,938 $6,615LT debt 3,593 2,813 2,786 2,627 2,586 3,824 3,824 4,820 4,820 7,816 7,816 7,816Deferred taxes 427 1,388 1,484 1,137 1,274 1,068 1,329 1,520 2,048 2,766 2,712 2,712Other LT liabilities (25) (56) (33) (29) (19) (10) (5) (3) (10) (10) 3 (4)Total liabilities $8,231 $9,431 $9,708 $6,269 $6,660 $7,810 $7,924 $10,479 $11,645 $15,642 $16,491 $17,168Shareholders Equity $6,674 $5,376 $7,112 $6,866 $7,725 $8,728 $10,373 $13,198 $15,765 $13,581 $16,275 $20,319Total $14,905 $14,807 $16,820 $13,135 $14,385 $16,538 $18,297 $23,677 $27,410 $29,223 $32,766 $37,487


Net income ($979) $2,358 $2,348 $3,499 $1,538 $1,155 $1,842 $2,844 $2,645 $2,135 $3,359 $4,559Depreciation 1,364 (1) 10 (944) 423 9 (40) 166 (58) (19) 0 0Deferred income taxes 509 504 527 583 738 931 1,119 1,359 1,628 1,900 2,121 2,369Income of Affiliates (176) (235) 682 (111) 0 274 124 (30) 165 (132) 0 0Other (220) (151) (199) (23) 885 (417) (177) (6) 300 1,000 0 0Working Capital Chg 430 (459) (27) (278) (910) 0 (656) (649) (1,026) (437) (1,032) (811)Cash from operations $928 $2,017 $3,491 $2,726 $2,674 $2,406 $2,212 $3,684 $3,654 $4,447 $4,448 $6,117

Investing ActivitiesCapex ($575) ($651) ($891) ($1,583) ($1,824) ($1,864) ($2,069) ($2,953) ($3,566) ($2,934) ($3,300) ($3,500)Sales of PP&E 166 132 158 203 191 0 0 0 395 241 0 0Acq. & Sales 102 191 347 (493) (183) (1,375) (523) (880) (214) (94) 0 0Other 81 838 (40) (1,775) (40) 154 837 643 (303) (83) (145) 0CF from Disc. Ops 0 0 0 0 0 0 0 0 0 0 0 0Cash from investing ($226) $510 ($426) ($3,648) ($1,856) ($3,085) ($1,755) ($3,190) ($3,688) ($2,870) ($3,445) ($3,500)

Financing ActivitiesChange in Debt $469 ($789) ($357) $2 ($861) $1,944 $0 $978 $0 $2,968 $0 $0Change in Equity 56 330 (672) (1,264) (343) (17) 0 117 74 (4,356) (500) 0Dividends (221) (254) (306) (314) (319) (324) (336) (330) (333) (465) (510) (515)Other 81 838 (40) (1,775) (40) 154 837 643 (303) (83) (145) 0CF from Disc. Ops 0 0 0 0 0 0 0 0 0 0 0 0Cash flow financing $283 ($720) ($1,280) ($1,570) ($1,523) $1,670 ($387) $833 ($172) ($1,754) ($780) ($515)

FX and other 8 (17) 38 (27) (7) (33) (18) (27) (8) 49 (27) 0

Chg in cash $993 $1,790 $1,823 ($2,519) ($712) $958 $52 $1,300 ($214) ($128) $197 $2,101Beginning cash 1,925 2,918 4,708 6,531 4,012 3,300 4,258 4,310 5,610 5,396 5,268 $5,464

Ending cash $2,918 $4,708 $6,531 $4,012 $3,300 $4,258 $4,310 $5,610 $5,396 $5,268 $5,464 $7,566

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180

Helmerich & Payne

Investment Thesis As the horizontal well count increases, laterals get longer, and pad drilling offers additional efficiencies for operators, we believe AC rigs (like HP’s FlexRig) will enjoy increased demand and the North American land drilling business will remains robust. As a result of higher rig demand, we expect dayrates will continue to climb, term lengths will increase, and utilization will remain high; even as the supply of AC rigs in the industry increases. Additionally, we believe an increased fleet size (4 deliveries per month) will allow HP to increase margins through operating leverage of fixed costs. Internationally, HP has a strong foothold in Argentina, which has the potential to be a strong market for the company given the optimism surrounding the Vaca Meurta Shale, with seven active rigs and six rigs in-transit for a project with YPF on five-year contracts. We rate the shares Buy with a $108 price target based on 6.0x our 2015E EBITDA. Company Strategy HP, with the most modern and capable land drilling fleet, remains at the forefront of the North American shale revolution. The company has built the most modern and capable land drilling fleet and in doing so offers its clients a value proposition unmatched by competitors. HP’s domestic fleet of 338 rigs (90% AC drive FlexRigs) allows for efficiencies unmatched by mechanical and SCR rigs. AC drive FlexRigs offer increased drilling productivity and reliability, greater rig move capabilities and a safer workplace leading to decreased well costs for operators, even at premium dayrates, and as a result will continue to replace older generation rigs. With an increased newbuild cadence of four rigs, HP will likely continue to lead the land rig market. Outlook for 2015 HP’s future outlook for 2015 is positive. We predict E&P capex budgets will increase 8-9% in 2015 setting a positive backdrop for the oilfield services industry as a whole. In regards to land drillers, we believe dayrates will continue to increase and we expect HP to gain a higher share of this growing pie as it most highly levered to premium AC than any of its competitors is growing its fleet at the fastest pace. HP has publically declared its intention to build four rigs per month through at least September 2015, with the possibility of increasing that cadence to five rigs per month, dependent upon demand remaining healthy and supply chain logistics. Internationally, we view HP’s foothold in Argentina as a possible game changer for the company in the long-term but do not expect much more growth in the immediate term (14 of HP’s 36 international rigs making it the company’s biggest international market).

October 14, 2014

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Helmerich & Payne

Key Thoughts and Potential Catalysts Average dayrates over the past seven quarters have stayed flat at approximately $28,000/day as

improving spot rates have offset the detrimental effect of term contracts signed during stronger markets rolling off into the spot market or being renewed at lower rates. HP stated that spot rates are still 4% below historical highs, and the company is optimistic it can exit FY15 at or above those levels. Anecdotally, we have been told by a private, high-spec land drilling company that the only impediment to $30,000 rates is the fact that operators have never signed contracts at those rates before.

The build out of approximately 500 rigs between 2012 and 2015 has increased concerns over an impending cliff for dayrates and utilization among certain investors. We feel those fears are overblown as North American horizontal drilling activity continues to remain robust, offering HP an opportunity to displace older rigs currently undertaking those jobs. There are over 1,000 mechanical and SCR rigs operating in the US, with 75% drilling horizontal wells, and an even larger amount of legacy rigs internationally. One last fact, talk of three year contracts for newbuilds and payback periods of 42-48 months for mid-teen returns give us additional room for optimism.

Vaca Viva. A survey by the EIA has estimated potential reserves in the Vaca Meurta shale at ~67.5 Bboe, making it the second largest shale formation in the world and turning the dead cow into the living cow. The potential is obviously there but regulatory headwinds remain with the current government energy policy (price controls and export taxes), the recent government debt default and Argentina’s nationalization of YPF from Repsol all serving as impediments for needed investment. We view large scale development of Argentina as unlikely to accelerate until after the 2015 presidential elections.



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'06 '07 '08 '09 '10 '11 '12 '13 '14

HP

Onshore Drillers

HP current trades at 4.6x, a -1% discount to the group's 4.7x average but a -10%


October 14, 2014

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Helmerich & Payne


2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

Total Domestic Drilling $613 $962 $1,284 $1,696 $1,646 $1,615 $2,302 $2,868 $3,007 $3,357 $3,891International Operations 177 253 334 328 237 254 227 270 362 344 451Total Contract Drilling $790 $1,214 $1,618 $2,025 $1,883 $1,869 $2,529 $3,138 $3,369 $3,701 $4,342Other 11 10 11 12 11 13 15 14 13 14 17Total Revenue $801 $1,225 $1,630 $2,037 $1,894 $1,882 $2,544 $3,152 $3,382 $3,715 $4,359

ExpensesTotal Domestic Drilling ($347) ($487) ($664) ($861) ($797) ($904) ($1,252) ($1,534) ($1,561) ($1,737) ($2,030)International Operations (136) (173) (197) (225) (214) (173) (176) (216) (282) (264) (351)Intersegment Eliminations (2) (2) (3) (3) (2) 0 0 0 0 0 0Total Contract Drilling ($481) ($658) ($858) ($1,083) ($1,009) ($1,077) ($1,428) ($1,750) ($1,843) ($2,002) ($2,381)Other (4) (4) (4) (4) (2) (2) (2) (0) 0 7 13Total Operating Expenses ($484) ($662) ($862) ($1,087) ($1,011) ($1,079) ($1,430) ($1,751) ($1,843) ($1,995) ($2,368)G&A (41) (52) (47) (57) (59) (82) (91) (112) (141) (145) (156)EBITDA $275 $511 $720 $893 $824 $721 $1,023 $1,289 $1,398 $1,575 $1,835D&A ($96) ($102) ($146) ($199) ($236) ($267) ($315) ($374) ($456) ($508) ($572)Other Income $5 $10 $3 $5 ($7) ($6) ($14) ($1) ($0) $0 $1Operating income $184 $420 $577 $699 $581 $448 $693 $914 $943 $1,068 $1,264Interest expense 12 (7) (10) (19) (10) (16) (15) (7) (4) (4) (4)Pretax income $196 $414 $567 $680 $571 $432 $678 $898 $938 $1,064 $1,261Taxes (71) (145) (205) (248) (231) (155) (249) (328) (326) (375) (441)Minority interest 2 7 10 17 10 0 0 0 0 0 0Net income $127 $276 $371 $449 $350 $276 $429 $571 $613 $689 $820


Margins SummaryGross Margin 40% 46% 47% 47% 47% 43% 44% 44% 46% 46% 46%EBITDA Margin 34% 42% 44% 44% 44% 38% 40% 41% 41% 42% 42%Operating Margin 22% 33% 35% 34% 31% 24% 28% 29% 28% 29% 29%Pretax Margin 24% 34% 35% 33% 30% 23% 27% 29% 28% 29% 29%

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Helmerich & Payne



Total Domestic Drilling $754 $741 $750 $763 $791 $805 $867 $894 $933 $945 $991 $1,022International Operations 87 89 87 99 95 86 81 82 99 113 118 121Total Contract Drilling $841 $830 $837 $861 $886 $891 $948 $976 $1,032 $1,058 $1,109 $1,143Other 4 3 4 3 3 3 4 4 4 4 4 4Total Revenue $845 $833 $840 $865 $889 $893 $952 $980 $1,036 $1,062 $1,113 $1,148

ExpensesTotal Domestic Drilling ($398) ($386) ($383) ($393) ($402) ($417) ($451) ($467) ($487) ($493) ($517) ($532)International Operations (69) (72) (68) (74) (72) (64) (64) (65) (78) (88) (92) (94)Intersegment Eliminations 0 0 0 0 0 0 0 0 0 0 0 0Total Contract Drilling ($467) ($458) ($451) ($467) ($474) ($481) ($515) ($532) ($565) ($581) ($608) ($626)Other 0 0 0 0 (0) 0 3 3 3 3 3 3Total Operating Expenses ($467) ($458) ($451) ($467) ($474) ($480) ($512) ($529) ($562) ($578) ($605) ($623)G&A (36) (37) (35) (34) (37) (38) (38) (32) (38) (39) (39) (40)EBITDA $342 $339 $354 $364 $379 $375 $402 $419 $436 $445 $469 $485D&A ($107) ($112) ($118) ($119) ($120) ($124) ($129) ($134) ($138) ($141) ($145) ($148)Other Income ($2) $0 ($1) $3 ($0) ($0) $0 $0 $0 $0 $0 $0Operating income $233 $226 $235 $248 $258 $251 $273 $285 $299 $304 $325 $337Interest expense (1) (1) (2) (1) (1) (1) (1) (1) (1) (1) (1) (1)Pretax income $232 $232 $232 $232 $232 $232 $232 $232 $232 $232 $232 $232Taxes (82) (79) (77) (86) (88) (91) (93) (102) (104) (106) (113) (118)Minority interest 0 0 0 0 0 0 0 0 0 0 0 0Net income $150 $146 $156 $161 $169 $159 $179 $182 $194 $197 $210 $218


Margins SummaryGross Margin 45% 45% 46% 46% 47% 46% 46% 46% 46% 46% 46% 46%EBITDA Margin 40% 41% 42% 42% 43% 42% 42% 43% 42% 42% 42% 42%Operating Margin 28% 27% 28% 28% 29% 28% 29% 29% 29% 29% 29% 29%Pretax Margin 28% 27% 28% 29% 29% 28% 29% 29% 29% 29% 29% 29%

2013 2014 2015

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Helmerich & Payne



2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $289 $83 $90 $122 $141 $63 $364 $96 $448 $376 $1,155Accounts receivable 163 289 340 463 247 458 461 620 621 717 734Inventories 21 26 29 33 45 43 54 79 89 109 92Prepaid Expenses and Other 27 31 40 73 77 89 77 100 100 91 103Current assets $500 $429 $499 $691 $523 $653 $956 $895 $1,258 $1,293 $2,085PPE 982 1,483 2,153 2,682 3,266 3,275 3,677 4,352 4,676 5,187 5,196Investments 178 218 223 199 356 321 348 451 316 254 150Other 3 5 10 16 16 17 23 23 14 20 20Total assets $1,663 $2,135 $2,885 $3,588 $4,161 $4,265 $5,004 $5,721 $6,265 $6,754 $7,450

Liabilities & shareholders' equityAccounts Payable $45 $139 $125 $154 $70 $81 $104 $159 $144 $144 $231Accrued Liabilities 45 97 102 128 127 152 198 182 193 196 280Current Maturities 0 0 0 0 0 0 0 0 0 115 115Current liabilities $89 $236 $227 $282 $197 $233 $302 $341 $337 $454 $626LT debt 200 200 445 502 525 360 350 235 80 80 80Deferred taxes 247 270 364 480 682 771 975 1,209 1,223 1,231 1,231Other LT liabilities 48 43 35 59 75 94 107 101 66 60 56Total liabilities $584 $749 $1,070 $1,323 $1,478 $1,458 $1,734 $1,886 $1,706 $1,825 $1,993Common stock 1,079 1,386 1,816 2,265 2,683 2,807 3,270 3,835 4,559 4,929 5,457Total $1,663 $2,135 $2,885 $3,588 $4,161 $4,265 $5,004 $5,721 $6,265 $6,754 $7,450


Net income $127 $276 $371 $449 $350 $276 $429 $571 $613 $689 $820Depreciation 96 102 146 199 236 267 315 374 456 508 572Deferred income taxes 17 4 6 12 0 2 188 197 (2) (1) 0Other (16) 21 (20) 25 234 39 (34) (113) (100) (95) (35)Working Capital Chg (11) (106) 57 (74) 77 (122) 80 (28) 31 (51) 190Cash from operations $212 $296 $561 $611 $897 $462 $978 $1,000 $997 $1,049 $1,547

Investing ActivitiesCapex ($87) ($529) ($894) ($706) ($881) ($330) ($694) ($1,098) ($809) ($1,000) ($580)Asset sales 29 12 52 23 1 8 23 40 28 21 0

Sale (purchase) of equity securiti 61 (35) 128 26 9 13 4 0 232 75 103Other 0 3 16 2 (13) (0) 0 8 15 0 0Cash from investing $3 ($549) ($699) ($655) ($884) ($309) ($668) ($1,050) ($534) ($903) ($477)

Financing ActivitiesChg in LT debt $0 $4 $241 $57 $23 ($167) ($10) ($115) ($40) $0 $0Chn in equity 0 (28) (18) 39 0 0 28 (78) 21 25 11Dividend paid (17) (18) (19) (19) (21) (22) (27) (30) (93) (265) (302)Other 25 40 (12) 0 5 3 0 4 6 23 0Cash flow financing $8 ($2) $193 $77 $7 ($186) ($9) ($218) ($112) ($217) ($291)

Chg in cash $223 ($257) $55 $32 $20 ($33) $302 ($268) $352 ($72) $779Beginning cash 65 289 83 90 122 141 63 364 96 448 376

Ending cash $289 $32 $138 $122 $141 $108 $365 $96 $448 $376 $1,155

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Hercules Offshore

Investment Thesis Hercules operates a fleet of 26 domestic and 12 international jackups, as well as 23 liftboats in West Africa. Following a long period of steady dayrate improvement in the U.S. GOM, rate momentum began to decelerate in 2014 and several of the company’s domestic jackups are now idle. We believe there are risks that several jackups could be cold stacked in the near term, adding to the pool of potential candidates for divestiture. Four of the company’s international jackups are currently idle as well, but HERO expects three to return to work in the next few months at slightly lower rates, as the industry absorbs more than 140 newbuilds over the next several years. Meanwhile, HERO’s liftboats are concentrated in West Africa and the Middle East, where offshore activity continues to grow. While we applaud some of HERO’s recent moves to high-grade its fleet, we think the unfolding bifurcation between new and older equipment poses a structural disadvantage to the company’s aging fleet. As a result, we rate the shares Sell with a $2 price target, based on a target multiple of 3.6x our 2015E EBITDA.

Company Strategy Over the past few years, Hercules has pushed through aggressive efforts to high-grade its fleet by: 1) selling four jackups year to date (250, 258, 2002, 2500), and 2) diversifying its revenue mix towards international markets and higher specification assets. Recent efforts include expansion into the North Sea and West Africa, where the company is currently marketing the Hercules Triumph, 260 and 267. The company is currently constructing newbuild Hercules Highlander, contracted to Maersk for five years at about $225kpd. Expected to go on rate by mid-2016 in the HPHT Culzean gas field, the Highlander significantly improves HERO’s earnings visibility for 2016 & beyond. We expect the company to continue divesting its cold stacked domestic jackups in the near term, as the company institutes various cost reduction measures in its domestic offshore segment to address near term demand weakness, such as deferring equipment upgrades and other capital projects. Labor reduction through natural attrition is expected to lower domestic offshore capex by almost 50% on idle equipment. Outlook for 2015 HERO expects the Hercules Triumph to be back on rate by the end of this year or early 2015, with potential North Sea weather delays pushing back the start to 2Q15. We’re modeling the 400’ jackup to be on rate by May at $175kpd, while two other available international jackups (267, 260) return to work over the next couple of quarters at $100s. Domestic activity is expected to pick up by year end following hurricane season and the company is tracking more than 30 rig prospects for short term work in the Gulf. New operators picked up leases during the March lease sale and decent 3D wide-azimuth seismic activity suggests stronger activity in 2015. Capital expenditures are expected to fall in 2015, likely for just maintenance capex and a 10% progress payment on the newbuild Highlander.

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Hercules Offshore

Key Thoughts and Potential Catalysts We’re forecasting HERO to report an EPS loss of $0.04 for 3Q14, on lower Q-Q utilization for all

three reporting segments. While the company expects domestic offshore weakness to persist through the hurricane season, we are concerned recent commodity price weakness could delay HERO’s higher mix of independent E&P operators restarting operations. Meanwhile, extended downtime on older jackups could motivate HERO to cold stack these units, several of which were built in the late 1970s and are likely to be retired.

The industry estimates about 10 jackups need to be retired per year, as the market absorb more than 140 newbuilds being delivered over the next few years. Several of these are expected to replace existing assets due for retirement, but approximately 25% are believed to be non-marketable as they are being built by unexperienced shipyards with untested equipment. HERO is doing its part by divesting four jackups year to date for $28mm, following 12 jackups sold the prior three years, as well as a fleet of inland and platform barges and submersible. The company continues to have a large fleet of cold stacked assets that are candidates for retirement, with proceeds to be reinvested in the fleet (80% of the Highlander payment is due at delivery in 2016).



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HEROOffshore Drillers

HERO current trades at 4.0x, a -30% discount to the group's


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Hercules Offshore


2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

Domestic Offshore Drilling $103 $161 $241 $382 $141 $124 $217 $356 $523 $518 $556International Offshore Drilling 0 30 145 328 394 292 237 124 190 282 383International Liftboats 0 19 63 86 89 117 116 127 145 124 127Other 58 134 317 317 120 125 92 92 19 0 0Total revenues $161 $344 $767 $1,113 $743 $657 $662 $699 $877 $924 $1,067

ExpensesDomestic Offshore Drilling ($48) ($52) ($122) ($228) ($175) ($148) ($201) ($246) ($265) ($274) ($299)International Offshore Drilling 0 (13) (60) (148) (169) (130) (134) (112) (134) (218) (242)International Liftboats 0 (10) (32) (39) (48) (56) (58) (69) (81) (80) (86)Other (29) (49) (163) (219) (121) (95) (74) (69) (18) 0 0Total COGS ($78) ($124) ($376) ($634) ($514) ($429) ($468) ($496) ($498) ($571) ($627)G&A (14) (30) (50) (78) (93) (57) (66) (69) (80) (78) (84)EBITDA $70 $190 $341 $402 $136 $171 $129 $133 $299 $275 $356D&A ($14) ($32) ($109) ($193) ($201) ($191) ($174) ($166) ($158) ($174) ($195)Other 0 0 0 0 0 0 0 0 0 0 0Operating income $56 $158 $231 $209 ($65) ($20) ($45) ($33) $141 $102 $161Interest income $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Interest expense (10) (9) (36) (59) (78) (83) (80) (79) (75) (101) (114)Other income 1 4 8 3 4 4 (4) 2 (2) 1 1Pretax income $47 $153 $204 $153 ($139) ($99) ($128) ($111) $65 $1 $48Taxes (4) (53) (64) (58) 64 46 44 19 (27) 6 (16)Minority interest 0 0 0 0 0 0 0 0 0 0 0Net income $43 $99 $139 $95 ($75) ($53) ($85) ($92) $39 $8 $33

Per Share DataDiluted Earnings $1.71 $3.06 $2.34 $1.07 ($0.77) ($0.46) ($0.65) ($0.59) $0.24 $0.05 $0.20Dividend $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

Margins SummaryGross margins 52% 64% 51% 43% 31% 35% 29% 29% 43% 38% 41%EBITDA margins 43% 55% 44% 36% 18% 26% 19% 19% 34% 30% 33%Operating margins 35% 46% 30% 19% -9% -3% -7% -5% 16% 11% 15%

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Hercules Offshore



Domestic Offshore Drilling $121 $127 $139 $136 $143 $140 $121 $114 $124 $130 $134 $168International Offshore Drilling 32 49 46 64 81 72 69 61 80 101 102 100International Liftboats 33 36 40 36 33 31 29 31 31 33 31 32Other 19 0 0 0 0 0 0 0 0 0 0 0Total revenues $205 $211 $225 $235 $257 $243 $219 $206 $235 $265 $267 $300

ExpensesDomestic Offshore Drilling ($61) ($66) ($74) ($65) ($73) ($71) ($65) ($65) ($65) ($71) ($77) ($85)International Offshore Drilling (32) (34) (28) (40) (48) (55) (58) (58) (57) (58) (59) (67)International LiftboatsOther (38) (20) (21) (21) (20) (19) (20) (20) (21) (21) (22) (23)Total COGS ($131) ($119) ($123) ($126) ($141) ($145) ($143) ($143) ($143) ($151) ($158) ($174)G&A (20) (21) (19) (20) (18) (23) (19) (19) (20) (21) (22) (23)EBITDA $55 $71 $83 $90 $98 $76 $57 $44 $73 $94 $87 $103D&A ($41) ($38) ($38) ($41) ($40) ($44) ($45) ($45) ($47) ($48) ($50) ($51)Other 0 0 0 0 0 0 0 0 0 0 0 0Operating income $14 $33 $45 $49 $58 $32 $12 ($1) $26 $46 $37 $52Interest income $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Interest expense (18) (18) (19) (19) (23) (26) (26) (26) (27) (28) (29) (30)Other income 0 (2) (0) 0 0 0 0 0 0 0 0 0Pretax income ($4) $14 $26 $30 $35 $6 ($13) ($26) ($1) $18 $8 $23Taxes 2 (12) (8) (8) 1 (13) 6 12 0 (6) (3) (7)Minority interest 0 0 0 0 0 0 0 0 0 0 0 0Net income ($3) $2 $17 $22 $36 ($6) ($7) ($15) ($0) $12 $6 $15

Per Share DataDiluted Earnings ($0.02) $0.01 $0.11 $0.14 $0.22 ($0.04) ($0.05) ($0.09) ($0.00) $0.07 $0.03 $0.09Dividend $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00


2013 2014 2015

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Hercules Offshore



2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $48 $73 $212 $106 $141 $148 $144 $261 $198 $109 $54Accounts receivable 38 89 222 293 134 144 154 168 220 168 245Other 14 18 158 60 47 37 52 49 38 57 83Current assets $100 $180 $592 $460 $321 $329 $350 $479 $456 $334 $382PPE 247 416 2,060 2,089 1,924 1,635 1,592 1,463 1,809 1,819 1,804Goodwill 0 0 940 0 0 0 0 0 0 0 0Other 7 9 50 42 32 32 65 75 26 27 27Total assets $355 $606 $3,643 $2,591 $2,277 $1,995 $2,007 $2,017 $2,291 $2,180 $2,213

Liabilities & shareholders' equityAccounts payable $13 $29 $106 $100 $52 $52 $49 $59 $80 $70 $70Other 15 39 137 152 120 90 104 136 155 45 45Current liabilities $29 $68 $242 $252 $172 $142 $153 $194 $235 $115 $115LT debt 95 93 912 1,054 862 858 840 865 1,211 1,211 1,211Deferred taxes 16 43 457 330 246 136 84 57 4 15 15Other LT liabilities 0 7 20 47 20 7 21 18 18 7 7Total liabilities $139 $211 $1,631 $1,683 $1,299 $1,142 $1,098 $1,134 $1,467 $1,348 $1,348Noncontrolling interest 0 0 0 0 0 0 0 0 0 0 0Common stock 216 395 2,011 908 979 853 909 883 824 832 864Total $355 $606 $3,643 $2,591 $2,277 $1,995 $2,007 $2,017 $2,291 $2,180 $2,213


Net income $27 $119 $137 ($1,071) ($92) ($135) ($76) ($127) ($68) $5 $33Depreciation 14 32 109 193 201 191 174 166 163 174 195Deferred income taxes 15 27 3 (112) (89) (98) (59) (33) (31) (5) 0Other 5 2 6 1,299 66 122 (7) 50 147 (3) 0Working Capital Chg (8) (57) (76) (40) 53 (56) 20 12 (29) (98) (103)Cash from operations $53 $124 $178 $270 $139 $24 $52 $68 $182 $73 $125

Investing ActivitiesAcquisitions $0 ($125) ($728) ($321) $0 ($22) ($25) ($40) ($201) $0 $0Capex ($168) ($80) ($155) ($264) ($76) $0 ($39) ($127) ($537) ($190) ($180)Asset sales 0 6 110 39 26 23 80 73 117 24 0Other (5) (76) (779) (291) (10) (45) (73) 2 (153) 9 0Cash from investing ($173) ($150) ($825) ($516) ($61) ($21) ($33) ($52) ($573) ($158) ($180)

Financing ActivitiesChg in LT debt $39 ($1) $801 $186 ($120) ($8) ($22) $19 $339 $0 $0Issuance (repurchase) of preferred $0 ($4) $0 $0 $0 $0 $0 $0 $0 $0 $0Issuance (repurchase) of equity $116 $55 $0 ($44) $90 $0 $0 $97 $0 $0 $0Dividend paid 0 0 0 0 0 0 0 0 0 0 0Other (2) 1 (14) (2) (14) 0 0 (7) (9) (4) 0Cash flow financing $153 $51 $786 $140 ($44) ($7) ($22) $109 $329 ($4) $0

Chg in cash $33 $25 $140 ($106) $34 ($4) ($2) $125 ($61) ($89) ($55)Beginning cash 14 48 73 212 106 141 137 134 259 198 109

Ending cash $48 $73 $212 $106 $141 $137 $134 $259 $198 $109 $54

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Hornbeck Offshore

Investment Thesis We believe the offshore outlook remains fundamentally strong in spite of the short term hiccups concerning floater rig deliveries to the GOM and temporary excess supply of OSVs in the region. As the deepwater rig count continues to outpace the overall offshore rig count, the premium afforded to companies with premium assets like Hornbeck should increase as larger and more complex equipment is required to make the longer trips from shore base facilities to offshore rigs and platforms. Additionally, energy reform in Brazil and Mexico holds the possibility of significantly increasing offshore activity in those two regions, a major positive considering HOS’ market share in the regions. We rate the shares Buy with a $52 price target based on a 6.5x target multiple on our 2015E EBITDA. Company Strategy HOS chooses to keep a sizeable portion of its fleet in the spot market to exploit temporary shortages in OSV supply. As of 6/30/14, the company’s forward contract coverage for its current and projected fleet of OSVs for the remainder of 2014 and 2015 was 61% and 25%, respectively. Also as of 6/30/14, HOS’ forward contract coverage for its current and projected fleet for the remainder of 2014 and 2015 is 69% and 20%, respectively. This strategy allows for significant upside during times of OSV undersupply but also opens up the possibility of lower utilization during times of OSV oversupply.

Outlook for 2015 IOCs have temporarily reined in capital spending due to investor concerns about returns and have instead shifted their focus from large, capital-intensive projects towards lower cost onshore projects which generate quicker short-term returns. We view this trend as temporary and expect IOCs to return to large exploration and development projects as LNG related spending rolls off and companies seek to increase their reserve to production ratios. What does this mean for HOS and other offshore levered companies? With ten percent of global reserves and half of the conventional discoveries over the past four years made in the deepwater space, it is clear that offshore drilling is an integral part of future oil supply plans. As a result we expect activity to continue to moderately grow through the remainder of 2014 and beyond. HOS, with a modern, best-in-class fleet, is extremely well positioned to benefit from the further exploration and development of the Gulf of Mexico’s and Brazil’s offshore fields.

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Hornbeck Offshore

Key Thoughts and Potential Catalysts According to IHS-Petrodata, the global PSV fleet stands at 1,448 active vessels with an additional 306

vessels under construction. Of the 1,448 vessels in service approximately 212 (15%) of them are over 25 years old with no DP capabilities, introducing the possibility of obsolescence and retirement for a significant portion of the fleet serving to increase rates and utilization.

In addition to a smaller worldwide service vessel fleet, 142 jackups and 92 floaters are either under construction or planned for construction. Though some of these rigs will serve as replacements, many will be incremental to the worldwide rig count leading to increased demand for offshore service vessels.

According to IHS-Petrodata, there is currently one rig undergoing acceptance testing, two rigs en route, two rigs under construction and five rigs either in the yard undergoing work or hot stacked with contracts slated to begin in the next six months. The commencement of these 10 contracts as well as the departure of several competitor OSV vessels due to the temporary weakness will cause a significant tightening of the market which should see HOS benefit due to the high number of vessels it operates in the spot-market.

About 76% of Hornbeck’s 2013 revenues were generated domestically with the vast majority coming from the Gulf of Mexico where 57% of HOS’ total vessels and 85% of HOS’s U.S. vessels operate, as of Q2 2014. We consider the U.S. Gulf to be the strongest offshore region due to its robust permitting activity, projected increases in active drilling rigs, stable political/operating environment stability and vast potential resources and thus view it as the ideal region for service vessel operators.

Reform to Mexico’s energy sector is well underway and the hopes are that opening the industry to foreign investments will lead to increased deepwater activity. Mexico’s deepwater potential is enormous with over 50% of the country’s 52.6 Bboe of prospective resources located in the deepwater space. Currently, Mexico’s offshore activity is mostly limited to the shallow water market being served by new gen OSVs, but the deepwater space, with its longer transit times, has significantly more revenue potential. HOS recognizes the potential opportunity and is currently pursuing additional organic and acquisitive fleet growth in Mexico, which HOS can add to its existing asset base with no hindrance from Mexican seafaring laws (unlike other non-Mexican competitors). Additionally, the nationalization of Oceanografia following allegations of fraud has caused short-term supply disruptions further benefitting HOS.

The October 26th Brazilian election holds the possibility to significantly alter the dynamics of Brazil’s energy industry. Currently, Petrobras, Brazil’s national oil company, is legally required to be the lead operator with a minimum stake of 30% in all new pre-salt fields, use oil platforms and other heavy equipment built in Brazil and sell gasoline at below-market prices. These mandates have caused cost overruns, equipment shortages thus placing an immense financial burden on the company and discouraging foreign operators. These factors, enacted by current President Dilma Rousseff and her predecessor Luiz Inácio Lula da Silva (of the same political party: Workers’ Party) and allegations of corruption, also leveled at the current administration, have stymied Brazilian activity. If elected, Aecio Neves, the opposition candidate, is expected to undo, at least partially, many of these import restrictions and trade barriers as well as further open up the industry to foreign companies and issue offshore licenses at a faster pace. We believe these developments would lead to increased offshore activity in turn benefitting Hornbeck where the company owns and operates four OSVs. So

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far, just the possibility of Neves’ election has increased the equity value of Petrobras and the foreign exchange rate of the Brazilian Real, exhibiting the promise his election would hold.

About 57% of revenues are derived from IOCs and NOCs, customers who are generally less sensitive to commodity price swings and more steadfast in their development plans thus providing a more stable, predictable revenue source in the face of oil price swings. Additionally 12% of revenues are from the U.S. government for non-oil related work, providing further insulation from volatility in commodity prices.



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HOSOffshore Technology

HOS current trades at 4.6x, an -28% discount to the group's 6.5x average and


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Hornbeck Offshore


2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

Upstream $75 $117 $166 $228 $334 $323 $375 $331 $463 $548 $670 $867Other 57 66 108 111 98 59 46 51 49 32 0 0Total revenues $132 $183 $275 $339 $432 $382 $421 $382 $513 $580 $670 $867

ExpensesUpstream $30 $36 $55 $79 $111 $121 $170 $179 $229 $239 $300 $379Other 29 31 40 48 53 40 30 30 29 14 na naTotal Expenses $59 $67 $96 $127 $164 $161 $200 $209 $258 $254 $300 $379

G&A $15 $20 $29 $33 $37 $31 $37 $36 $48 $55 $61 $68EBITDA $59 $95 $151 $180 $230 $190 $184 $137 $209 $271 $310 $420

D&A $23 $27 $32 $36 $52 $67 $72 $82 $88 $93 $117 $124Operating Income $36 $68 $119 $144 $178 $123 $112 $55 $121 $179 $193 $296

Interest Expense $18 $13 $18 $16 ($6) ($21) ($55) ($60) ($58) ($47) ($34) ($51) Interest Income 0 3 16 18 2 0 1 1 2 3 1 1 Other Income 0 1 0 (0) 0 (1) 0 (1) (0) 0 0 0Pretax income $36 $68 $119 $144 $178 $123 $57 ($4) $65 $134 $160 $247Taxes 6 22 42 53 62 38 21 (1) 25 49 60 91Net income $29 $46 $76 $91 $116 $85 $36 ($3) $41 $85 $100 $156

Per Share DataDiluted Earnings $1.53 $1.99 $2.78 $3.42 $4.31 $3.16 $1.33 ($0.20) $1.13 $2.33 $2.72 $4.25

Margins SummaryGross Margins

Upstream 61% 70% 67% 66% 67% 62% 55% 46% 50% 56% 55% 56%Other 49% 53% 63% 56% 46% 33% 35% 41% 42% 55% na naCompanywide 56% 63% 65% 63% 62% 58% 52% 45% 50% 56% 55% 56%

EBITDA margins 45% 52% 55% 53% 53% 50% 44% 36% 41% 47% 46% 48%Operating Margin 27% 37% 43% 43% 41% 32% 27% 14% 24% 31% 29% 34%

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Hornbeck Offshore



Upstream $133 $138 $133 $145 $137 $171 $174 $189 $201 $211 $222 $233Other 15 17 na na na na na na na na na naTotal revenues $148 $154 $133 $145 $137 $171 $174 $189 $201 $211 $222 $233

ExpensesUpstream $56 $59 $59 $65 $69 $71 $77 $83 $89 $93 $97 $101Other 7 7 na na na na na na na na na naTotal Expenses $63 $66 $59 $65 $69 $71 $77 $83 $89 $93 $97 $101

G&A $14 $14 $14 $13 $14 $15 $15 $16 $16 $17 $17 $18EBITDA $70 $75 $60 $67 $54 $84 $82 $89 $96 $102 $108 $114

D&A $23 $24 $22 $23 $29 $28 $29 $31 $31 $31 $31 $31Operating Income $47 $51 $37 $44 $25 $57 $53 $59 $65 $71 $77 $83

Interest income ($14) ($13) ($12) ($9) ($7) ($7) ($9) ($11) ($13) ($13) ($13) ($13)

Interest expense (0) 0 0 0 (0) 0 0 0 0 0 0 0Pretax income $34 $38 $26 $36 $18 $50 $44 $48 $53 $58 $65 $71Taxes 13 14 8 14 7 19 16 18 20 22 24 26Net income $21 $24 $18 $22 $11 $31 $27 $30 $33 $37 $41 $44

Per Share DataDiluted Earnings $0.59 $0.65 $0.49 $0.60 $0.31 $0.85 $0.74 $0.82 $0.90 $1.00 $1.15 $1.20


Upstream 57% 57% 55% 55% 50% 58% 56% 56% 56% 56% 56% 57%Other 54% 56% na na na na na na na na na naCompanywide 57% 57% 55% 55% 50% 58% 56% 56% 56% 56% 56% 57%

EBITDA margins 48% 48% 45% 46% 40% 49% 47% 47% 48% 48% 49% 49%Operating Margin 32% 33% 28% 30% 18% 33% 30% 31% 32% 34% 35% 36%

2013 2014 2015

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Hornbeck Offshore



2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $54 $272 $474 $174 $20 $51 $127 $357 $577 $439 $194 $437Accounts receivable 22 36 46 78 88 62 72 86 103 94 138 163 Prepaid Insurance 1 1 0 0 0 0 0 0 0 0 0 0 Property Taxes Recei 3 4 0 0 0 0 0 0 0 0 0 0 Other Current Assets 2 3 7 9 26 14 18 26 52 88 98 93Current assets $82 $316 $527 $261 $134 $127 $216 $469 $732 $621 $430 $693PPE 361 462 532 953 1,405 1,603 1,606 1,606 1,812 2,125 2,462 2,463Goodwill 3 3 3 0 0 0 0 0 0 0 0 0Deferred Taxes 15 16 32 41 38 41 41 48 75 74 80 80Other 0 0 5 8 18 16 15 14 13 14 15 15Total assets $461 $797 $1,098 $1,262 $1,596 $1,786 $1,878 $2,136 $2,632 $2,834 $2,987 $3,250

Liabilities & shareholders' equity Accounts Payable $5 $16 $18 $16 $17 $16 $25 $37 $48 $53 $75 $73 Accrued Interest 2 2 2 2 2 10 9 9 15 15 17 21 Accrued Expenses 4 7 8 11 10 7 13 13 14 13 13 27 Current Maturities 15 0 0 0 0 0 0 0 0 0 0 0 Other 2 1 9 17 39 8 7 9 28 20 17 61

Current liabilities $29 $25 $38 $46 $68 $41 $54 $67 $105 $102 $123 $182Credit Facility 0 0 0 0 125 0 0 0 0 0 0 0LT Debt 225 299 549 550 494 747 758 771 1,089 1,064 1,069 1,069Deferred Taxes 22 42 54 101 170 199 222 224 270 368 432 519Other Liabilities 1 1 2 3 2 3 2 2 1 5 2 2Total liabilities $278 $367 $644 $700 $859 $989 $1,037 $1,073 $1,466 $1,539 $1,627 $1,772Shareholders Equity $183 $429 $455 $562 $737 $797 $842 $1,063 $1,166 $1,295 $1,360 $1,478Total $461 $797 $1,098 $1,262 $1,596 $1,786 $1,878 $2,136 $2,632 $2,834 $2,987 $3,250


Net income ($2) $37 $76 $95 $117 $50 $36 ($3) $37 $64 $100 $156Depreciation 23 27 32 35 52 93 77 82 88 86 117 124Deferred income taxes (0) 0 0 0 1 (1) (0) 1 2 0 0 0Income of Affiliates (1) 22 42 48 45 24 21 (2) 22 32 58 87Other 24 0 4 7 4 21 13 21 27 68 11 0Working Capital Chg (22) (11) (22) (51) (20) (4) (25) 0 (27) (29) (65) 38Cash from operations $21 $76 $132 $135 $199 $183 $131 $64 $145 $222 $221 $405

Investing ActivitiesCapex ($42) ($72) ($62) ($236) ($452) ($257) ($36) ($43) ($239) ($465) ($398) ($124)Acquisition of Vessels (10) (46) (16) (186) (12) 0 0 0 0 0 0 0Acq. & Sales 0 4 4 6 18 11 5 11 4 16 0 0Other 0 0 0 0 0 0 0 0 0 0 0 0Cash from investing ($61) ($121) ($87) ($439) ($480) ($263) ($57) ($62) ($260) ($527) ($473) ($170)

Financing ActivitiesChange in Equity $81 $207 ($11) $3 $2 $0 $2 $243 $53 $10 $6 $9Change in Debt 5 55 174 0 125 108 (0) 0 375 (50) 0 0Other (4) 0 (5) (0) (0) 2 0 (15) (93) 208 0 0Cash flow financing $81 $262 $158 $3 $127 $111 $2 $229 $334 $167 $7 $9

FX and other 0 0 0 0 0 0 0 (0) (0) (1) 0 0

Chg in cash $41 $217 $203 ($301) ($153) $31 $76 $230 $220 ($137) ($245) $243Beginning cash 13 54 272 474 174 20 51 127 357 577 439 194

Ending cash $54 $272 $474 $174 $20 $51 $127 $357 $577 $439 $194 $437

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Independent Contract Drilling

Investment Thesis A pure play land drilling contractor with a fleet consisting of only AC rigs operating in the Permian? What’s not to love. There are AC rigs and there are ShaleDrillers. ICD’s aptly named fleet consists of 1,500-hp AC rigs all of which are bi-fuel capable with pad optimized omnidirectional walking capabilities, making it one of, if not the most, the premier drilling fleets. As the horizontal well count increases, laterals get longer, and pad drilling offers additional efficiencies for operators, we believe AC rigs (like ICD’s ShaleDriller) will enjoy increased demand and the North American land drilling business will remains robust. As a result of increased rig demand, we expect spot rates will continue to climb, term lengths will increase, and utilization will remain high all leading to better margins; even as the supply of AC rigs in the industry increases. Additionally, we believe an increased fleet size (more than doubling in size) will allow ICD to increase margins through operating leverage of fixed costs. Company Strategy ICD, with one of the most modern and capable land drilling fleet, remains at the forefront of the North American shale revolution. The company has built the most modern and capable land drilling fleet and in doing so offers its clients a value proposition unmatched by competitors. ICD’s ShaleDriller fleet allows for efficiencies unmatched by mechanical and SCR rigs. AC drive ShaleDrillers offer increased drilling productivity and reliability, greater rig move capabilities and a safer workplace leading to decreased well costs for operators, even at premium dayrates, and as a result will continue to replace older generation rigs.

Outlook for 2015 ICD’s future outlook for 2015 is positive. We predict NAM E&P capex budgets will increase 10% in 2015 setting a positive backdrop for the oilfield services industry as a whole, we wouldn’t be surprised to see a higher increase in the Permian as companies enter developmental phase in the basin. In regards to land drillers, we believe dayrates will continue to increase as the benefits offered by premium AC rigs are better understood by the market.

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Key Thoughts and Potential Catalysts Continuing improvements in U.S. land pricing. ICD’s gross margins per rig averaged $9.3K per day

during Q2. Commentary from recent competitor conference calls suggest that spot rates have at least 5% upside from current leading edge levels of $26-$28K/d and ICD’s 2015 margin exit rate guidance of $11K/d-$12.5K/d suggest dayrates have significant upside. Anecdotally, we have been told by a private, high-spec land drilling company that the only impediment to $30,000 rates is the fact that marketers have never signed contracts at those rates before. `

Oversupply? The current build out of approximately 500 rigs between 2012 and 2015 has increased concerns over an impending cliff for dayrates and utilization amongst certain investors. We feel those fears are overblown as North American horizontal drilling activity continues to remain robust, offering ICD an opportunity to displace older rigs currently undertaking those jobs. ICD is particularly well insulated since it operates exclusively in the Permian Basin, the hottest NAM shale play where only 49% of horizontal wells are drilled by AC rigs, and its equipment is all state of the art. One last fact, talk of three year contracts for newbuilds and payback periods of 42-48 months for mid-teen returns give us additional room for optimism.

Economies of Scale. – ICD currently has nine rigs in operation, with a tenth rig currently mobilizing after being fitted with an omnidirectional walking system. ICD’s 11th rig is scheduled for completion in December and the company plans to deliver seven and nine newbuilds during 2015 and 2016, respectively. As the fleet grows EBITDA margins should also increase as fairly consistent G&A expenses will be spread over a larger revenue base and opex related to training costs and mobilization fees should decrease on a per rig basis as ICD achieves partial economies of scale.

Adjacent basins provide opportunities for expansion. ICD has stated that it will eventually look to expand to regions outside the Permian and specifically mentioned other areas of Texas, Louisiana, New Mexico and Oklahoma as potential areas. The company has historically worked in both the Eagle Ford and the Mid-Continent. We believe ICD would do well in both of these oil provinces as AC rigs drill only 41% of the horizontal wells in aggregate, affording the company a strong opportunity to displace older rigs.



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Onshore DrillersICD current trades at 7.5x, a 57%

premium to the group's 4.7x average.

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2012 2013 2014 2015Revenues:

Total revenues $15.1 $42.8 $66.0 $126.8

Total Expenses ($15.4) ($28.4) ($41.8) ($76.5)

G&A ($7.8) ($8.9) ($10.4) ($13.6)Other Exp. 0.0 0.1 0.2 0.0EBITDA ($8.1) $1.2 $14.0 $36.7

D&A (5.9) (10.2) (15.5) (24.3)Operating Income ($14.0) ($4.7) ($1.5) $12.4

Interest Income 0.0 0.0 0.0 0.0Interest Expense (0.0) (0.3) (1.1) (1.0)Other Income 0.0 0.0 0.0 0.0Pretax income ($14.0) ($4.9) ($2.5) $11.4Taxes 6.7 1.9 2.0 (3.4)Net income ($7.3) ($3.0) ($0.5) $8.0

Per Share DataDiluted Earnings ($0.72) ($0.25) ($0.03) $0.35

Margins SummaryOperating Margins -93% -11% -2% 10%EBITDA margins -53% 3% 21% 29%Gross Margin -2% 34% 37% 40%

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Total revenues $8.3 $9.8 $0.0 $0.0 $13.5 $14.7 $18.1 $19.7 $24.3 $28.4 $34.0 $40.1

Total Expenses ($5.9) ($6.8) $0.0 $0.0 s ($8.8) ($9.3) ($11.3) ($12.4)s ($15.1) ($17.3) ($20.4) ($23.7)

G&A ($2.1) ($2.0) $0.0 $0.0 e ($2.1) ($2.1) ($3.3) ($3.0)e ($2.6) ($3.1) ($3.7) ($4.3)Other Exp. 0.0 0.0 0.0 0.0 s 0.2 0.0 0.0 0.0 s 0.0 0.0 0.0 0.0

EBITDA $0.2 $1.0 $0.0 $0.0A $2.9 $3.3 $3.5 $4.3A $6.6 $8.0 $9.9 $12.1

D&A (2.1) (2.4) 0.0 0.0 (3.4) (3.9) (3.9) (4.3) (4.7) (5.5) (6.8) (7.3)Operating Income ($1.9) ($1.4) $0.0 $0.0 ($0.5) ($0.6) ($0.4) $0.0 $1.9 $2.5 $3.2 $4.8

Interest Income 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Interest Expense 0.0 (0.1) 0.0 0.0 (0.4) (0.6) (0.1) 0.0 (0.1) (0.3) (0.3) (0.3)Other Income 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Pretax income ($1.9) ($1.5) $0.0 $0.0 ($0.9) ($1.2) ($0.5) $0.0 $1.7 $2.2 $2.9 $4.5Taxes 0.6 0.4 0.0 0.0 1.9 0.0 0.1 (0.0) (0.5) (0.7) (0.9) (1.4)Net income ($1.3) ($1.0) $0.0 $0.0 $0.9 ($1.2) ($0.3) $0.0 $1.2 $1.5 $2.0 $3.2

Per Share DataDiluted Earnings ($0.11) ($0.08) #DIV/0! #DIV/0! $0.08 ($0.09) ($0.02) $0.00 $0.05 $0.07 $0.09 $0.14


EBITDA margins 3% 10% #DIV/0! #DIV/0! 21% 23% 19% 22% 27% 28% 29% 30%Gross Margin 28% 31% #DIV/0! #DIV/0! 35% 37% 37% 37% 38% 39% 40% 41%

2013 2014 2015

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2012 2013 2014 2015Assets

Cash & equivalents $2.7 $8.7 $3.4Accounts receivable 9.1 13.6 27.7Inventory 1.1 2.5 5.0Vendor Advances 6.2 10.4 21.2Prepaid expenses and other 2.0 5.3 10.9Current Assets $21.2 $40.5 $68.2PPE 129.5 210.6 346.3Goodwill & Intangibles 33.4 32.0 32.0Other 1.0 (2.6) (11.4)Total Assets $185.0 $280.6 $435.1

Liabilities & shareholders' equityCurrent Maturities $0.0 $0.0 $0.0Accounts payable 9.1 22.1 42.1Accrued Liabilities and Other 4.5 7.2 13.8Current liabilities $13.5 $29.3 $55.9LT Debt 19.8 0.0 120.0Deferred Taxes 3.6 2.4 2.4Other Liabilities 3.2 1.8 1.8Total liabilities $40.1 $33.5 $180.1Common stock $144.9 $247.1 $255.1Total $185.0 $280.6 $435.1

2012 2013 2014 2015Operating Activities

Net income ($4.9) ($2.0) ($2.5) $8.0Depreciation 5.9 10.2 15.5 24.3Deferred taxes (5.4) (2.0) (1.2) 0.0Other (1.5) 0.8 (0.4) 0.0Working Capital Chg (2.4) (1.2) (3.9) (6.4)CF from ops ($8.3) $6.0 $10.7 $26.6

Investing ActivitiesCapex ($66.9) ($59.7) ($93.7) ($160.0)Asset Disposal 0.0 0.4 0.5 0.0Other 17.1 0.0 6.1 8.2CF from investing ($49.7) ($59.3) ($87.1) ($151.8)

Financing ActivitiesChange in LT debt ($2.1) $19.8 ($19.8) $120.0Chg. in Preferred Equity 0.0 0.0 0.0 0.0Chg. in Common Equity 97.8 0.0 103.5 0.0Dividend Paid 0.0 0.0 0.0 0.0Other 0.0 (1.2) (1.2) (0.0)CF from financing $95.7 $18.6 $82.4 $120.0

FX and other $0.0 $0.0 $0.0 $0.0

Chg in cash $37.6 ($34.7) $6.0 ($5.3)Beginning cash 0.0 37.4 2.7 8.7

Ending cash $37.6 $2.7 $8.7 $3.4

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201

ION Geophysical

Investment Thesis We believe the company’s Ocean Bottom Services Segment has the potential to significantly change the company’s fortunes. It is the fastest-growing segment within the company with ~400% growth since 2006 and is more skewed towards the development and production phase of the E&P lifecycle thus outperforming exploration focused segments. However, the company still has underperforming lines that we believe inhibit the company from reaching its full potential and should be divested. Though the stock does look cheap at current levels, unprofitable business lines and significantly reduced exploration activity levels lead us to initiate the company with a Hold rating and a $3 PT. Company Strategy In an attempt to better position itself for a resumption in seismic activity the company is diversifying itself across higher value areas of the E&P lifecycle while managing the business conservatively and focusing on cash generation. The company is also in the process of restructuring its systems and data processing businesses for profitability. Outlook for 2015 We believe the company’s Ocean Bottom Services Segment has the potential to significantly change the company’s fortunes. It is the fastest-growing segment within the company with ~400% growth since 2006 and is more skewed towards the development and production phase of the E&P lifecycle thus outperforming exploration focused segments. However, the company still has underperforming lines that we believe inhibit the company from reaching its full potential and should be divested. Though the stock does look cheap at current levels, unprofitable business lines and significantly reduced exploration activity levels lead us to initiate the company with a Hold rating and a $3 PT.

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ION Geophysical

Key Thoughts and Potential Catalysts IO is systematically moving away from equipment sales (sold its marine source product line) and

gradually shifting to E&P solutions, where it expects to generate 80% of its revenue during 2014, up from 45% of 2009 revenues. As part of this shift it made Calypso exclusive to OceanGeo and is leveraging capex to develop next gen solution for Ocean Bottom Services.



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IO current trades at 2.1x, a -69% discount to its historical 7.1x.

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ION Geophysical


2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

Systems $112 $153 $132 $122 $95 $99Software 37 38 43 39 42 45Total I/O Systems $196 $241 $357 $540 $420 $251 $148 $191 $175 $162 $121 $145Solutions 44 122 147 173 259 180 277 263 351 387 306 319Ocean Bottom Service 0 0 0 0 0 0 0 0 0 0 99 106Corporate and Other 1 0 0 0 0 0 0 0 0 0 0 0Total Revenue $241 $363 $504 $713 $680 $431 $425 $455 $526 $549 $542 $570

COGS (175) (256) (349) (509) (458) (295) (279) (281) (311) (348) (355) (357)Gross Profit $66 $106 $154 $204 $222 $136 $147 $173 $216 $201 $187 $213Operating Expenses (69) (82) (114) (139) (155) (147) (113) (107) (128) (143) (147) (153)Other 0 0 0 (0) 0 1 19 3 0 3 0 0Income from Operatio ($3) $25 $40 $65 $67 ($10) $53 $70 $87 $61 $40 $60Interest Expense (6) (6) (6) (6) (10) (29) (12) (6) (5) (12) (20) (20)Other 1 2 (0) 1 11 4 (14) (17) (1) (8) (8) 7Pretax Income ($8) $20 $34 $59 $68 ($35) $27 $47 $81 $40 $13 $47Taxes (1) (1) (6) (9) (3) (4) (6) (11) (18) (2) (5) (12)Net income ($9) $19 $29 $50 $65 ($39) $21 $36 $63 $38 $7 $35

Per Share DataDiluted Earnings ($0.12) $0.18 $0.30 $0.52 $0.61 ($0.39) $0.08 $0.22 $0.39 $0.23 $0.03 $0.21

Margins Summary EBITDA Margin 9% 16% 17% 18% 27% 20% 38% 35% 38% 30% 18% 17% Operating Margin -1% 7% 8% 9% 10% -2% 12% 15% 17% 11% 7% 10% Pretax Margin -3% 6% 7% 8% 10% -8% 6% 10% 15% 7% 2% 8% Net Margin -4% 5% 5% 7% 9% -10% 4% 8% 12% 7% 1% 6%

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ION Geophysical



Systems $32 $24 $26 $40 $25 $22 $21 $27 $25 $25 $22 $28Software 9 8 10 12 10 11 10 12 11 11 11 13Total I/O Systems $41 $32 $36 $53 $35 $33 $31 $38 $36 $36 $33 $41Solutions 89 89 43 166 89 63 69 84 92 72 68 88Ocean Bottom Service 0 0 0 0 21 26 26 26 26 26 26 26Corporate and Other 0 0 0 0 0 0 0 0 0 0 0 0Total Revenue $130 $121 $80 $219 $145 $121 $127 $149 $154 $134 $127 $155

COGS (95) (84) (53) (116) (88) (83) (85) (100) (106) (86) (75) (90)Gross Profit $35 $37 $27 $103 $57 $38 $42 $50 $47 $49 $52 $65Operating Expenses (33) (30) (41) (39) (37) (34) (36) (40) (36) (37) (38) (41)Other 3 0 0 0 0 0 0 0 0 0 0 0Income from Operatio $5 $7 ($15) $64 $20 $4 $6 $10 $11 $11 $14 $24Interest Expense (1) (3) (4) (4) (5) (5) (5) (5) (5) (5) (5) (5)Other 2 (3) (7) (1) (3) (2) (2) (0) 2 2 2 2Pretax Income $6 $1 ($26) $59 $12 ($3) ($1) $5 $8 $8 $11 $21Taxes (2) (0) 6 (6) (5) (0) (0) 0 (2) (2) (3) (5)Net income $4 $1 ($19) $53 $7 ($4) ($1) $5 $6 $6 $8 $15

Per Share DataDiluted Earnings $0.02 $0.00 ($0.12) $0.33 $0.04 ($0.03) ($0.00) $0.03 $0.03 $0.03 $0.05 $0.09

Margins Summary EBITDA Margin 21% 24% 6% 48% 30% 23% 9% 10% 13% 16% 19% 21% Operating Margin 4% 6% -18% 29% 14% 3% 5% 7% 7% 8% 11% 15% Pretax Margin 5% 0% -32% 27% 8% -3% -1% 3% 5% 6% 8% 13% Net Margin 3% 0% -24% 24% 4% -4% -1% 3% 4% 4% 6% 10%

2013 2014 2015

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ION Geophysical



2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $16 $16 $17 $36 $35 $16 $84 $42 $61 $148 $118 $113Accounts receivable 89 121 168 188 151 111 95 131 127 149 105 109Inventory (41) 8 (33) (11) (90) 19 (16) (7) (7) (9) (16) (3)Other 163 109 194 188 428 250 276 136 193 144 204 209Current assets $226 $254 $346 $401 $523 $396 $439 $302 $374 $433 $412 $429PPE 24 29 38 37 59 79 (60) 25 34 47 85 110Goodwill 155 155 156 153 50 52 52 54 55 56 52 52 Net Multi-client Data 16 19 33 60 90 131 131 176 230 239 246 246Other 83 81 82 58 140 91 91 117 127 80 85 85Total assets $504 $538 $655 $709 $861 $748 $653 $674 $821 $854 $879 $922

Liabilities & shareholders' equity Accrued Expenses $29 $49 $51 $67 $77 $66 $60 $61 $124 $73 $97 $88Accounts payable 24 32 48 45 95 40 74 22 29 23 43 39Other 28 20 77 54 46 77 91 49 53 67 53 41Current liabilities $82 $100 $176 $166 $218 $183 $225 $133 $206 $163 $194 $168LT debt 79 71 72 25 233 151 151 105 105 220 180 180Deferred taxes 5 4 4 3 23 1 1 0 0 0 0 0Other LT liabilities 5 4 5 4 4 4 4 8 8 211 143 143Total liabilities $170 $179 $256 $198 $536 $466 $354 $246 $319 $594 $517 $491Shareholders Equity $334 $358 $399 $511 $325 $282 $299 $428 $501 $260 $362 $430Total $504 $538 $655 $709 $861 $748 $653 $674 $821 $854 $879 $922


Net income ($9) $19 $29 $50 $65 ($39) $21 $36 $63 $38 $7 $35D&A 24 34 47 64 114 96 111 91 105 105 57 39Other Non-Cash Exp. 3 1 6 2 (42) (15) 50 8 16 (15) 7 9Working Capital Chg (38) (52) (24) (23) (25) 10 (48) (6) (15) 19 (1) (23)Cash from operations ($20) $2 $58 $94 $112 $52 $133 $130 $169 $148 $71 $60

Investing ActivitiesCapex ($5) ($5) ($14) ($11) ($18) ($3) ($7) ($11) ($15) ($17) ($15) ($17)Investments in MCL (4) (20) (39) (64) (110) (90) (64) (144) (146) (115) (58) (48)Other (164) (3) 3 (0) (227) 1 99 (27) 16 (27) 13 0Cash from investing ($174) ($28) ($50) ($76) ($355) ($92) $27 ($182) ($144) ($159) ($60) ($65)

Financing ActivitiesChg in Debt ($6) ($4) ($10) ($8) $208 ($15) ($129) ($6) ($5) $108 ($41) $0Change in Equity 155 32 4 5 35 38 38 0 0 (2) 0 0Dividends 0 (2) (2) (2) (4) (4) (2) (1) (1) (1) 0 0Other 0 (0) (2) 4 1 (4) (1) 16 (2) (7) (0) 0Cash flow financing $149 $28 ($8) $1 $244 $20 ($93) $10 ($7) $99 ($41) $0

FX and other $0 ($1) $1 $1 ($3) $1 $0 ($0) $0 ($0) ($0) $0

Chg in cash ($45) $1 $1 $19 ($1) ($19) $68 ($42) $19 $87 ($30) ($5)Beginning cash 60 15 16 17 36 35 16 84 42 61 148 118

Ending cash $15 $16 $17 $36 $35 $16 $84 $42 $61 $148 $118 $113

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Key Energy Services

Investment Thesis Key’s extensive product lines give the company exposure to the entire well life cycle as well as various geographic regions within the U.S. As a result KEG stands to benefit significantly from the improving dynamics in the U.S. land market. There are some short-term headwinds though as well intervention demand, KEG’s bread and butter, has lagged behind drilling and completion activity. Slightly offsetting these headwinds is KEG’s completion products (Coiled Tubing and Fishing and Rentals). Mexican exposure has also served as a hindrance for the company, though activity in the region should return following Mexico’s energy reform. All in, we are bullish about KEG’s prospects if the company executes its strategy properly, though exact timing remains difficult to predict. We rate the shares Buy with a $26 price target based on a 5.0x target multiple on our 2015E EBITDA.

Outlook for 2015 As laterals get longer and the stage count per well continues to increase, KEG’s completion driven business will perform strongly. The real opportunity for Key comes from its production services business which is responsible for 60% of the company’s revenues and could see similar growth to the completion business. Most North American liquids basins experience first year decline rates in excess of 50%, to offset that decline operators have been drilling new wells. As most plays enter the development stage, we believe workover activity will increase in relationship to new drilling activity as inventories deplete and operators look for new ways to increase production. Internationally, Mexican reform is progressing well and round one bids for unconventionals and onshore activity are expected in January and February and data rooms are opening in March and April, respectively.

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Key Energy Services

Key Thoughts and Potential Catalysts Changes in Organizational Structure. The company has experienced several setbacks over the past

couple quarters including possible violations of the Foreign Corrupt Practices Act in Russia and Mexico and a slow response in reducing the company’s fixed cost base in Mexico following the downturn in activity. To combat and prevent many of these issues from repeating, KEG has changed its historically centralized management structure to a direct reporting structure where each line of business reports directly to the CEO. Linking management and revenue generating employees should give management a better grip on operations and improve execution of the company’s strategy.

Rig Services. Although NAM land activity has surged over the past few years, KEG has not benefitted as much as the drilling and completion levered companies. KEG has felt the brunt of E&P operators decision to prioritize drilling new wells and adding inventory via capex instead of spending opex on well interventions focused on repair and maintenance, as a result production markets continue to lag drilling and completion demand. We believe the capex versus opex competition will move back into balance, possibly hastened by depressed commodity prices, which should revitalize KEG’s Rig Services segment (48% of Q2:14 revenue).

Mexico. KEG continues to rotate rigs out of Mexico, and we predict operations in the region will remain challenged through the rest of 2014 as PEMEX again limits capital spending during its energy reform process. We believe the prospects for 2015, especially in the north Chicontepec region where KEG is most active, are exciting. Part of the formation will be operated exclusively by PEMEX with the remainder being run by incentivized contracts and partnerships. This gives KEG the opportunity to expand its customer base in the area beyond its traditional customer (PEMEX). Furthermore, if optimism surrounding the potential of the Eagle Ford in Mexico turns into concrete development activity, KEG stands to benefit as it already has a foothold with PEMEX.



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Key Energy Services


Revenues Rig Services $494 $562 $726 $789 $673 $680 $769 Fluid Management Services 169 228 388 354 272 253 279 Coiled Tubing Services 32 88 232 216 193 188 212 Fishing and Rental Services 63 83 184 269 239 212 244

Total U.S. Operations $758 $961 $1,530 $1,627 $1,377 $1,333 $1,505 International Operations 197 192 317 333 215 112 156

Total Revenue $988 $1,190 $1,546 $1,662 $1,972 $956 $1,154 $1,847 $1,960 $1,592 $1,445 $1,661

EBITDA $140 $259 $430 $446 $464 $31 $133 $1,847 $1,960 $1,592 $1,445 $1,661

Direct Operating Expenses (690) (782) (938) (986) (1,250) (779) (930) (1,197) (1,309) (1,114) (1,061) (1,123)Gross Income (298) (408) (608) (676) (722) (176) (223) (650) (651) (477) (384) (538)G&A 158 149 178 230 258 179 197 232 230 220 221 241D&A 103 112 126 130 171 170 144 170 214 225 209 217

Operating Income U.S. Operations (64) 132 358 285 195 119 196 International Operations 31 (23) 27 63 (18) (16) 24 Functional Support (106) (120) (139) (141) (135) (147) (140)Total Operating Income $37 $147 $304 $316 $293 ($139) ($11) $246 $207 $42 ($44) $80

Net Interest Expense (27) (38) (45) (41) (42) (39) (42) (43) (54) (55) (54) (49)Other (38) (25) 15 13 10 0 3 4 7 1 3 (1)Pretax income ($28) $84 $274 $289 $261 ($178) ($50) $208 $160 ($13) ($95) $29Taxes 3 (35) (103) (111) (99) 32 13 (75) (57) 1 36 (11)Minority interest (1) 0 0 0 0 1 3 1 (2) (1) 0 0Net income ($27) $49 $171 $177 $162 ($145) ($34) $134 $101 ($12) ($59) $19

Per Share DataDiluted Earnings ($0.20) $0.37 $1.27 $1.33 $1.29 ($1.19) ($0.27) $0.91 $0.67 ($0.08) ($0.38) $0.12Dividend $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

Margins SummaryU.S. Operations 0% 0% 0% 0% 0% -8% 14% 23% 18% 14% 9% 13%International Operations 0% 0% 0% 0% 0% 16% -12% 9% 19% -8% -14% 15%Total Operating Margin 4% 12% 20% 19% 15% -15% -1% 13% 11% 3% -3% 5%EBITDA Margin 14% 22% 28% 27% 24% 3% 12% 23% 21% 17% 11% 18%Pretax Margin -3% 7% 18% 17% 13% -19% -4% 11% 8% -1% -7% 2%

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Key Energy Services



Rig Services $162 $174 $172 $166 $165 $170 $174 $171 $185 $195 $196 $192 Fluid Management 70 70 67 64 62 62 64 65 66 71 72 70 Coiled Tubing 49 54 48 41 44 43 50 51 50 52 55 56 Fishing and Rental 65 64 58 53 53 49 54 56 61 57 62 64

Total U.S. $346 $362 $345 $324 $324 $325 $342 $342 $363 $375 $385 $382 International 82 50 45 38 32 26 27 27 45 37 37 37

Total Revenue $428 $411 $390 $362 $356 $351 $368 $370 $408 $412 $422 $419

EBITDA $428 $411 $390 $362 $356 $351 $368 $370 $408 $412 $422 $419

Direct Expenses (299) (287) (268) (260) (258) (263) (270) (270) (290) (276) (278) (279)Gross Income (129) (124) (121) (102) (98) (88) (99) (100) (117) (136) (144) (140)G&A 61 58 53 48 53 58 55 55 59 60 61 61D&A 54 58 57 56 51 52 53 53 53 54 55 55

Operating Income U.S. 38 57 52 47 36 24 31 28 35 52 57 53 International 12 (6) (7) (17) (9) (7) (1) 1 4 5 7 7 Support (38) (35) (33) (29) (31) (38) (39) (39) (35) (35) (35) (35)Total Operating Incom $12 $17 $12 $2 ($5) ($21) ($9) ($9) $5 $22 $28 $25

Interest Expense (14) (14) (14) (14) (14) (13) (13) (13) (12) (12) (12) (12)Other 1 (0) 0 (0) 0 3 0 (0) (0) (0) (0) (0)Pretax income ($1) $2 ($2) ($12) ($18) ($32) ($23) ($23) ($8) $9 $16 $12Taxes 2 (0) (3) 2 8 15 7 7 3 (3) (6) (4)Minority interest (0) (0) (0) 0 0 0 0 0 0 0 0 0Net income $1 $2 ($5) ($10) ($11) ($17) ($16) ($16) ($5) $6 $10 $8

Per Share DataDiluted Earnings $0.01 $0.01 ($0.03) ($0.06) ($0.07) ($0.11) ($0.10) ($0.10) ($0.03) $0.04 $0.06 $0.05Dividend $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

Margins SummaryU.S. Operations 11% 16% 15% 14% 11% 7% 9% 8% 10% 14% 15% 14%International Operations 14% -12% -16% -44% -29% -27% -5% 5% 10% 15% 18% 19%Total Operating Margin 3% 4% 3% 0% -1% -6% -2% -2% 1% 5% 7% 6%EBITDA Margin 15% 18% 18% 16% 13% 9% 12% 12% 14% 18% 20% 19%Pretax Margin 0% 1% -1% -3% -5% -9% -6% -6% -2% 2% 4% 3%

2013 2014 2015

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210

Key Energy Services



2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $59 $93 $37 $57 $35 $46 $28 ($11) ($15)Accounts receivable 343 377 215 262 421 404 349 344 377Inventories 23 35 27 24 34 39 32 43 21Deferred Taxes Assets 28 27 25 32 57 0 0 0 0Other 3 (16) 0 36 (22) (43) 6 (5) 22Current assets $488 $559 $384 $414 $601 $590 $506 $463 $470PPE 911 1,052 865 937 1,210 1,437 1,366 1,301 1,284Goodwill 424 321 346 448 623 626 625 602 602Other 36 85 70 95 165 109 91 78 78Total assets $1,859 $2,017 $1,664 $1,893 $2,599 $2,762 $2,587 $2,444 $2,434

Liabilities & shareholders' equityAccounts Payable $35 $46 $46 $56 $79 $104 $59 $68 $72Short-Term Debt 2 26 10 4 2 0 4 0 0Accrued Liabilities 183 197 131 217 198 201 170 168 184Other 13 (21) (7) 0 11 0 0 0 0Current liabilities $233 $248 $180 $278 $290 $305 $232 $235 $256LT debt 497 659 535 431 774 848 764 719 669Deferred taxes 160 189 147 144 0 259 284 276 276Other LT liabilities 80 61 61 58 321 62 56 58 58Total liabilities 970 1,156 922 911 1,384 1,474 1,336 1,287 1,259Shareholders Equity 889 861 743 982 1,215 1,287 1,251 1,157 1,176Total $1,859 $2,017 $1,664 $1,893 $2,599 $2,762 $2,587 $2,444 $2,434


Net income ($32) $46 $171 $169 $84 ($156) $70 $101 $9 ($21) ($96) $19Depreciation 103 112 126 130 171 170 144 170 214 225 209 217Deferred income taxes (11) 14 7 25 30 (41) (12) 86 36 (12) (8) 0Other 54 37 (0) 14 93 169 (141) 52 100 16 43 0Working Capital Chg (44) 11 (45) (87) (10) 44 69 (220) 11 20 5 10Cash from operations $70 $219 $259 $250 $367 $185 $129 $188 $370 $229 $154 $246

Investing ActivitiesCapex ($53) ($118) ($196) ($213) ($219) ($128) ($180) ($546) ($447) ($164) ($151) ($200)Asset sales (17) 19 12 (150) 8 6 258 14 19 17 7 0Acquisition 0 6 (61) 62 (118) 0 (87) 12 0 1 0 0Other 5 60 0 (2) 0 12 0 0 (1) (15) 2 0Cash from investing ($64) ($33) ($246) ($303) ($329) ($111) ($9) ($520) ($429) ($161) ($142) ($200)

Financing ActivitiesChange in Debt ($90) ($111) ($17) $37 $123 ($126) ($103) $305 $73 ($80) ($49) ($50)Change in Equity 2 0 (1) (14) (139) (0) 1 2 (8) (3) (2) 0Other 54 37 (0) 14 93 169 (141) 52 100 16 43 0Cash Flow from Financing ($88) ($111) ($19) $23 ($8) ($127) ($100) $306 $74 ($85) ($52) ($50)

FX and other ($0) ($1) ($0) ($0) $4 ($2) ($2) $10 ($4) $0 ($0) $0

Chg in cash ($83) $74 ($6) ($30) $34 ($55) $19 ($16) $11 ($18) ($40) ($4)Beginning cash 103 20 94 88 58 93 37 57 41 51 34 (6)

Ending cash $20 $94 $88 $58 $93 $37 $57 $41 $51 $34 ($6) ($10)

October 14, 2014

211

MRC Global

Investment Thesis As the largest distributor of PVF (Pipe, Valves and Fitting Products) to the energy industry, MRC is well positioned for the ongoing acceleration of NAM activity. We believe this is proven by the company’s record Q2 backlog of $1.125B. Internationally, the company’s recent acquisition spree has increased its international profile and has provided the company with another avenue of growth. We initiate with a Buy and a $30 PT

Company Strategy MRC is a well-diversified energy behemoth offering integrated supply chain services to its customers in the downstream, midstream and upstream markets. MRC strives to add value to its customers by offering cost savings, technical assistance, warehouse and logistics management, inventory consignment, and customized IT solutions. With ~25% of revenues from both the downstream and midstream segments and slightly less than 50% of revenues from the upstream segment the company makes it a point to remain well diversified across each segment . Geographically, 87% of revenues are from NAM (14% Canada vs. 86% USA) with the remainder coming from Asia and Europe. We view this mix positively as we predict NAM capex will outpace growth from the ROW. We believe the company will eventually extend its reach in the Middle East and South America markets as prospects for those markets are very strong, we view an entry via acquisition as likely strategy considering the company’s past acquisitions.

Outlook for 2015 As NAM capex across the three energy sub-sectors outpaces spending growth in the rest of the world, we expect 2015 to be another year of record backlog for MRC as well as record earnings, characterized by higher margins thanks to this year’s record backlog.

October 14, 2014

212

MRC Global

Key Thoughts and Potential Catalysts Projected increased spending by Williams (WMB), one of MRC’s bigger midstream customers, could

catalyze growth for MRC in the segment. The upstream arena should experience the strongest growth during 2014, management noted that the segment’s core business could grow ten percent YoY.



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'06 '07 '08 '09 '10 '11 '12 '13 '14

MRC

DNOW

MRC current trades at 7.7x, a -3.% discount to its historical

8.0x.

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213

MRC Global


2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

Upstream $2,365 $1,620 $1,744 $2,262 $2,535 $2,315 $2,742 $2,919Midstream 1,261 883 927 1,239 1,527 1,491 1,576 1,620Downstream 1,629 1,159 1,174 1,332 1,510 1,425 1,499 1,583Total Revenue $5,255 $3,662 $3,845 $4,832 $5,573 $5,231 $5,816 $6,122Cost of Sales (4,273) (3,114) (3,256) (4,057) (4,557) (4,276) (4,741) (4,943)

Total Gross Income $982 $548 $589 $776 $1,014 $955 $1,027 $1,084SG&A (482) (387) (520) (581) (607) (636) (714) (735)

Operating Income $500 $121 $69 $195 $407 $319 $314 $350Net Interest expense (85) (117) (128) (128) (114) (61) (61) (80)Other (9) 11 (16) (11) 7 (7) 0 5

Pretax Income $407 $15 ($75) $56 $300 $251 $252 $275Income Tax 153 (15) (23) 27 106 87 89 96Net Income $253 $30 ($51) $29 $194 $164 $163 $179Increase in LIFO Reserve 126 (116) 75 74 (24) (20) 4 2Amortization of Intangibles 44 47 54 51 49 52 70 54Tax Impact of Adjustments (64) (67) (48) (52) (9) (12) (26) (20)Adjusted Net Income $360 ($105) $29 $101 $211 $185 $211 $225

Depreciation & Amortization 11 15 17 17 19 22 22 23EBITDA (GAAP) $511 $135 $85 $212 $426 $341 $335 $373Adjusted EBITDA $744 $589 $225 $360 $463 $386 $415 $449

Per Share DataDiluted Earnings $3.26 $0.38 ($0.61) $0.34 $1.99 $1.60 $1.60 $1.75Adjusted Diluted EPS $4.63 ($1.32) $0.34 $1.20 $2.18 $1.82 $2.06 $2.20Dividend $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

Margins SummaryGross Margin 19% 15% 15% 16% 18% 18% 18% 18%Adjusted Gross Margin 20% 16% 19% 19% 19% 19% 19% 19%Operating Margin 10% 3% 2% 4% 7% 6% 5% 6%EBITDA Margin 10% 4% 2% 4% 8% 7% 6% 6%

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214

MRC Global



Upstream $578 $542 $588 $606 $635 $700 $714 $693 $714 $728 $728 $748Midstream 346 376 377 392 307 420 428 420 329 422 428 441Downstream 381 350 348 346 364 377 381 377 393 398 394 398Total Revenue $1,305 $1,268 $1,314 $1,344 $1,306 $1,497 $1,523 $1,490 $1,436 $1,548 $1,551 $1,587Cost of Sales (1,059) (1,024) (1,075) (1,118) (1,074) (1,238) (1,227) (1,202) (1,161) (1,251) (1,253) (1,278)

Total Gross Income $247 $244 $238 $226 $232 $259 $272 $263 $252 $273 $274 $285SG&A (161) (154) (159) (162) (171) (180) (181) (181) (172) (186) (186) (190)

Operating Income $86 $90 $79 $64 $61 $79 $91 $82 $79 $88 $88 $95Net Interest expense (15) (15) (15) (15) (15) (15) (15) (15) (20) (20) (20) (20)Other 1 (12) (0) 4 (4) 1 1 1 1 1 1 1

Pretax Income $71 $63 $64 $53 $42 $65 $77 $68 $61 $69 $70 $76Income Tax 25 19 22 20 13 22 29 25 21 24 24 27Net Income $46 $44 $41 $33 $29 $43 $49 $43 $39 $45 $45 $49Increase in LIFO Reserve (3) (13) (6) 1 1 1 1 1 0 0 0 0Amortization of Intangibles 13 13 13 13 16 18 18 18 18 18 18 18Tax Impact of Adjustments (4) (0) (3) (5) (5) (6) (7) (7) (6) (6) (6) (6)Adjusted Net Income $53 $44 $46 $42 $40 $55 $60 $55 $51 $56 $57 $61

Depreciation & Amortization 5 6 6 6 5 5 5 6 6 6 6 6EBITDA (GAAP) $91 $96 $85 $69 $66 $85 $97 $88 $85 $93 $94 $100Adjusted EBITDA $104 $99 $96 $87 $84 $106 $117 $108 $104 $112 $113 $120

Per Share DataDiluted Earnings $0.45 $0.43 $0.40 $0.32 $0.28 $0.42 $0.48 $0.42 $0.39 $0.44 $0.44 $0.48Adjusted Diluted EPS $0.52 $0.43 $0.45 $0.41 $0.39 $0.54 $0.59 $0.54 $0.50 $0.55 $0.55 $0.60Dividend $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

Margins SummaryGross Margin 19% 19% 18% 17% 18% 17% 18% 18% 18% 18% 18% 18%Adjusted Gross Margin 20% 20% 19% 18% 19% 19% 19% 19% 19% 19% 19% 19%Operating Margin 7% 7% 6% 5% 5% 5% 6% 6% 6% 6% 6% 6%EBITDA Margin 7% 8% 6% 5% 5% 6% 6% 6% 6% 6% 6% 6%

2013 2014 2015

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215

MRC Global



2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $12 $56 $55 $46 $37 $25 $165 $304Accounts receivable 545 606 596 791 823 812 1,033 1,096Inventories 830 804 765 899 970 972 1,075 1,191Other-CA 39 42 42 11 20 37 43 46Current assets $1,426 $1,508 $1,458 $1,748 $1,851 $1,846 $2,317 $2,638PPE 108 109 105 107 122 119 126 133Goodwill 544 551 549 561 610 632 866 866Deferred Taxes 839 831 817 772 749 708 721 650Other 1,003 84 59 39 37 30 27 27Total assets $3,920 $3,083 $2,988 $3,228 $3,370 $3,336 $4,056 $4,312

Liabilities & shareholders' equityAccounts Payable $362 $371 $427 $480 $438 $550 $650 $692Taxes Payable 0 0 0 12 0 0 0 0Other 168 205 198 182 212 212 235 270Current liabilities $530 $576 $625 $673 $650 $762 $884 $962LT debt 1,749 1,453 1,360 1,527 1,250 979 1,390 1,390Deferred taxes 310 307 297 289 261 241 246 246Other LT liabilities (282) 11 20 18 22 15 28 28Total Liabilities $2,307 $2,347 $2,302 $2,507 $2,184 $1,997 $2,548 $2,626Common Shareholders' Equit $987 $744 $687 $721 $1,186 $1,338 $1,507 $1,686Total $3,294 $3,090 $2,988 $3,228 $3,370 $3,336 $4,056 $4,312


Net income ($28) ($38) ($51) $29 $118 $152 $155 $179Depreciation 35 53 70 68 68 74 91 94Other 22 54 71 82 96 (7) (4) 0Working Capital Chg (31) (42) 22 (281) (41) 104 (149) (104)Cash from operations ($1) $27 $113 ($103) $240 $324 $93 $169

Investing ActivitiesCapex ($6) ($10) ($11) ($15) ($26) ($22) ($21) ($30)Business Acquisition (3) (12) (12) (40) (152) (47) (347) 0Other 5 4 7 7 (4) (1) 0 0Cash from investing ($4) ($18) ($16) ($48) ($183) ($69) ($367) ($30)

Financing ActivitiesChange in Long Term Debt ($3) ($11) ($94) $141 ($375) ($269) $411 $0Change in Equity 0 0 0 0 335 5 1 0Other 0 0 (4) 0 (20) (1) (0) 0Net Cash From Financing ($3) ($11) ($98) $141 ($60) ($265) $412 $0

FX and other -4 0 2 0 -6 -1 2 0

Chg in cash ($11) ($2) ($0) ($10) ($9) ($12) $140 $139Beginning cash 11 0 56 56 46 37 25 165Ending cash $0 ($2) $56 $46 $37 $25 $165 $304

October 14, 2014

216

Nabors Industries

Investment Thesis As a pure play contract driller, Nabors should benefit from strengthening activity in its core U.S. land market, where activity and pricing is inflecting higher. The company is also expanding Internationally, particularly in the Middle East and Argentina, where demand is strengthening for NBR’s high spec newbuild PACE-X rigs. We added upside from ownership interest in CJES shares post the merger with Nabor’s C&P segment, we rate NBR Buy with a $29 price target based on a target multiple of 6.0x our 2015E EBITDA.

Company Strategy Nabors is transitioning to a pure play global contract drilling company with the planned merger of its Completions & Productions business to C&J Energy Services. The company will receive $940mm cash and retain a 53% stake or 62.5mm shares of the new C&J, valuing the transaction at $2.86bn or about 8x our 2014E EBITDA. Owning shares of the new C&J allow NBR shareholders to benefit directly from C&J’s growing international expansion and potential valuation uplift, while eliminating the highly cyclical C&P segment allows Nabors to streamline its operations around its core competency. The company combined multiple engineering organizations into a single group, which should lower capex and concentrate human and financial capital over time. The transaction also free up capital for expansion of NBR’s high-spec AC fleet (95% utilization). Having received significant awards for 62 rigs (40 PACE-X) since 2012, Nabors is aggressively building land drilling rigs on spec and plans to build four per month by January for both domestic and international deployment. The company also has some shallow water assets (barges, jackups), but these are likely to be divested over time, with proceeds returned to shareholders in the form of both a higher regular dividend and share repurchases.

Outlook for 2015 Shareholders are expected to vote on the proposed NCPS and CJES merger later this year, with the deal closing before year end and be immediately accretive to earnings. We estimate the recent $250mm share repurchases account for an extra $0.05-0.10 to our 2015E EPS estimate. With plans to build four PACE-X rigs per month by January, Nabor’s PACE-X fleet count should ramp up sharply from almost 35 at the end of this year (vs. just one in 1Q13). We believe another dividend increase and more share repurchases are likely in 2015, as the company continues to generate significant cash from operations, but expect the year to be relatively uneventful for Nabors as management executes on its recent strategic transformation. The company has relatively modest exposure to geographically sensitive areas with six rigs in Russia, three in Iraq/Kurdistan and two in Yemen of 119 international rigs currently. New rigs are going to relatively safe Saudi Arabia and Argentina, as the company continues to high grade the Lower 48 with new AC rigs for pad drilling.

October 14, 2014

217

Nabors Industries

Key Thoughts and Potential Catalysts Nabors operates in 25 international countries and the new Global Alliance Agreement with C&J

Energy Services serves to accelerate the company’s international expansion by leveraging NBR’s existing footprint and relationships. While the company retains a 53% stake in the new CJES, Nabors is not required to contribute capital for CJES’s fleet growth or geographic expansion, which should allow NBR’s capex to fall from $1.8bn in 2014. Meanwhile NBR shareholders retain upside potential in CJES shares through possible cash distribution and/or public offering of its 62.5mm shares.

We forecast NBR to generate significant free cash flow in 2015, freeing cash to further lower debt (total debt currently 2.3x LTM EBITDA) and return to shareholders (not yet incorporated in our estimates). In addition to a 50% increase in its regular dividend effective this quarter, the company recently repurchased $250mm of stock or about 10% of shares outstanding. We believe additional share repurchases are likely with shares trading down sharply in recent months and the company poised to collect $940mm in cash from the C&J merger.



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7x

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9x

'06 '07 '08 '09 '10 '11 '12 '13 '14

NBR

Onshore Drillers

NBR current trades at 4.3x, a -8% discount to the group's 4.7x average but


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218

Nabors Industries


2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

U.S. $749 $1,307 $1,890 $1,711 $1,878 $1,083 $1,598 $1,999 $1,860 $1,915 $2,187 $2,512Canada 427 578 687 545 503 297 271 426 573 362 335 310International 444 553 746 1,095 1,372 1,265 1,094 1,104 1,265 1,464 1,704 2,117Rig Services 206 331 627 646 683 448 427 674 840 595 582 617Total Drilling 1,826 2,768 3,950 3,996 4,436 3,093 3,390 4,204 4,538 4,336 4,808 5,556Completion Services 0 0 0 0 0 0 321 1,237 1,463 1,049 1,236 0Production Services 360 492 704 715 759 412 563 850 858 1,035 1,073 0Total C&P Services 360 492 704 715 759 412 884 2,087 2,320 2,084 2,308 0Other 418 537 813 873 337 218 (106) 126 69 (192) (242) (213)Revenues $2,604 $3,797 $5,468 $5,585 $5,532 $3,723 $4,168 $6,418 $6,927 $6,228 $6,874 $5,343

EBITDAU.S. $651 $803 $917 $756 $841 $996Canada 74 147 151 119 109 104International 502 397 422 524 621 795Rig Services 71 90 124 44 63 66Total Drilling 1,298 1,437 1,613 1,443 1,634 1,961Completion Services 99 331 301 176 109 0Production Services 121 177 213 191 246 0Total C&P Services 220 508 514 367 354 0Other (107) (154) (153) (149) (184) (186)EBITDA $1,410 $1,791 $1,974 $1,661 $1,805 $1,775

Operating IncomeU.S. $94 $465 $829 $596 $629 $295 $335 $443 $510 $315 $361 $444Canada 91 137 187 87 61 (7) 18 89 91 61 53 50International 89 136 212 332 408 366 255 124 91 178 230 309Rig Services (5) 34 77 57 69 14 42 56 79 4 33 35Total Drilling 269 771 1,305 1,073 1,166 667 651 712 772 558 676 838Completion Services 0 0 0 0 0 0 67 229 189 52 3 0Production Services 58 108 213 156 149 29 37 80 109 102 128 0Total C&P Services 58 108 213 156 149 29 103 309 297 154 130 0Other (2) 35 62 44 38 (32) (105) (153) (150) (146) (186) (122)Operating income $324 $914 $1,580 $1,272 $1,352 $664 $649 $867 $919 $566 $620 $716

Interest expense (49) (45) (47) (54) (92) (265) (273) (256) (252) (223) (184) (185)Other income 45 117 127 (7) (654) (421) 26 371 650 55 10 0Pretax income $321 $986 $1,661 $1,212 $607 ($22) $402 $982 $1,317 $398 $446 $531Taxes (37) (229) (448) (240) (340) (48) (49) (170) (192) (35) (85) (98)Minority interest 0 0 16 8 0 0 0 0 (68) (11) (3) 150Net income $284 $756 $1,229 $981 $266 ($70) $353 $812 $1,057 $352 $358 $583



Drilling 38% 34% 36% 33% 34% 35%C&P 25% 24% 22% 18% 15%Companywide 34% 28% 28% 27% 26% 33%

Operating marginsDrilling 15% 28% 33% 27% 26% 22% 19% 17% 17% 13% 14% 15%C&P 16% 22% 30% 22% 20% 7% 12% 15% 13% 7% 6%Companywide 12% 24% 29% 23% 24% 18% 16% 14% 13% 9% 9% 13%

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219

Nabors Industries



U.S. $485 $467 $492 $471 $510 $533 $568 $575 $619 $634 $643 $615Canada 127 65 81 89 112 55 86 82 77 56 90 87International 322 351 384 408 375 391 447 490 464 498 564 591Rig Services 179 152 131 133 144 162 138 139 152 171 146 147Total Drilling 1,112 1,036 1,088 1,100 1,141 1,141 1,239 1,287 1,312 1,359 1,444 1,440Completion Services 262 254 267 266 228 277 361 370 0 0 0 0Production Services 252 245 247 292 275 258 274 264 0 0 0 0Total C&P Services 514 499 513 558 503 535 635 635 0 0 0 0Other (45) (41) (53) (53) (57) (59) (59) (67) (68) (46) (48) (51)Revenues $1,582 $1,493 $1,548 $1,605 $1,587 $1,616 $1,815 $1,855 $1,244 $1,314 $1,395 $1,389

EBITDAU.S. $185 $179 $205 $187 $188 $206 $221 $226 $249 $248 $254 $245Canada 46 18 26 29 40 14 28 27 30 15 30 29International 107 117 143 158 138 139 162 182 187 180 207 222Rig Services 20 8 11 6 16 17 15 15 16 18 16 16Total Drilling 357 322 384 380 382 377 425 450 483 461 505 512Completion Services 47 33 40 56 (7) 28 43 44 0 0 0 0Production Services 51 48 51 41 60 58 64 63 0 0 0 0Total C&P Services 98 82 91 96 53 86 107 108 0 0 0 0Other (32) (42) (36) (39) (44) (46) (46) (46) (46) (46) (46) (46)EBITDA $423 $361 $439 $437 $391 $416 $486 $511 $436 $415 $459 $465

Operating IncomeU.S. $78 $70 $93 $75 $72 $90 $98 $101 $110 $110 $114 $111Canada 31 4 12 15 26 0 13 14 21 1 14 15International 21 32 54 70 48 51 60 71 76 67 79 88Rig Services 8 (4) 2 (2) 9 9 8 8 9 10 8 8Total Drilling 137 102 162 157 156 150 178 193 215 187 215 222Completion Services 18 7 13 14 (34) (1) 11 26 0 0 0 0Production Services 26 23 26 27 31 30 34 34 0 0 0 0Total C&P Services 44 30 39 41 (3) 29 44 59 0 0 0 0Other (32) (42) (35) (39) (43) (46) (46) (51) (10) (35) (37) (39)Operating income $150 $91 $166 $160 $109 $133 $177 $201 $205 $152 $177 $182

Interest expense (60) (60) (56) (47) (45) (46) (46) (46) (46) (46) (46) (46)Other income 27 15 1 12 2 7 0 0 0 0 0 0Pretax income $117 $45 $111 $124 $67 $94 $131 $154 $158 $106 $131 $136Taxes (2) (7) (52) 26 (14) (18) (24) (29) (29) (20) (24) (25)Minority interest (1) (6) 0 (4) (1) (1) 0 0 37 37 37 37Net income $113 $32 $59 $147 $51 $75 $107 $126 $166 $124 $144 $148



Drilling 32% 31% 35% 35% 34% 33% 34% 35% 37% 34% 35% 36%C&P 19% 16% 18% 17% 11% 16% 17% 17%Companywide 27% 24% 28% 27% 25% 26% 27% 28% 35% 32% 33% 33%

Operating marginsDrilling 12% 10% 15% 14% 14% 13% 14% 15% 16% 14% 15% 15%C&P 9% 6% 8% 7% -1% 5% 7% 9%Companywide 9% 6% 11% 10% 7% 8% 10% 11% 16% 12% 13% 13%

2013 2014 2015

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Nabors Industries



2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash $813 $1,424 $1,140 $767 $584 $1,091 $801 $941 $1,162 $750 $468 $496Accounts receivable 540 822 1,110 1,039 1,161 724 1,117 1,577 1,383 1,400 1,617 1,211Other 228 372 255 399 422 362 695 571 588 604 731 542Current assets $1,581 $2,617 $2,505 $2,205 $2,167 $2,177 $2,613 $3,088 $3,133 $2,754 $2,817 $2,250PP&E 3,275 3,887 5,410 6,689 7,332 7,646 7,815 8,630 8,712 8,598 9,127 6,198Goodwill 327 342 362 368 176 164 494 501 472 513 513 2,433Other 679 384 865 841 844 658 724 693 339 295 279 3,139Total assets $5,863 $7,230 $9,142 $10,103 $10,518 $10,645 $11,647 $12,912 $12,656 $12,160 $12,736 $14,020

Liabilities & shareholders' equityAccounts payable $212 $337 $459 $349 $425 $226 $355 $783 $499 $546 $689 $503Other 183 248 395 446 479 382 420 744 633 756 783 571Current liabilities $395 $585 $854 $794 $904 $608 $775 $1,527 $1,132 $1,301 $1,472 $1,074Total debt 2,006 2,020 4,004 4,006 3,826 3,941 4,443 4,624 4,380 3,914 4,156 3,406Deferred taxes 386 717 584 542 623 673 770 798 599 516 482 482Other 146 151 163 247 262 240 246 293 519 378 597 597Total liabilities $2,933 $3,472 $5,606 $5,589 $5,614 $5,463 $6,235 $7,242 $6,630 $6,109 $6,707 $5,558Minority Interest 0 0 0 0 0 0 0 0 0 0 200 1,470Preferred stock 0 0 0 0 0 0 69 69 69 69 0 0Common stock 2,929 3,758 3,537 4,514 4,904 5,182 5,343 5,601 5,957 5,981 6,029 6,542Total $5,863 $7,230 $9,142 $10,103 $10,518 $10,645 $11,647 $12,912 $12,656 $12,160 $12,736 $13,570


Net income $302 $649 $1,021 $931 $551 ($86) $95 $244 $164 $140 $348 $583Depreciation 300 339 410 544 658 679 794 972 1,056 1,100 1,180 1,123Deferred income taxes 13 195 218 (25) 62 (219) 56 (35) (145) (103) (10) 25Other (52) (152) (163) (80) 175 1,242 163 276 488 282 94 217Cash from operations $563 $1,030 $1,486 $1,370 $1,446 $1,617 $1,107 $1,456 $1,563 $1,418 $1,613 $1,948

Investing ActivitiesCapex ($544) ($907) ($1,927) ($2,014) ($1,490) ($1,093) ($930) ($2,043) ($1,519) ($1,178) ($1,795) ($1,100)Asset sales 0 27 18 356 70 31 31 211 309 321 69 2,860Acquisitions 0 (82) (47) (8) (0) 0 (734) (55) 0 (117) (10) 0Other (5) 4 188 204 (20) (101) (40) 27 30 159 21 (940)Cash from investing ($549) ($958) ($1,768) ($1,463) ($1,440) ($1,163) ($1,673) ($1,859) ($1,180) ($815) ($1,715) $820

Financing ActivitiesChg in LT debt ($302) $10 $1,952 $0 $143 $43 $285 $146 ($246) ($690) $170 ($750)Dividend paid 0 0 0 0 0 0 0 0 0 (47) (59) (70)Other 93 99 (1,533) (79) (238) (24) (5) 17 (8) 8 (232) (1,920)Cash flow financing ($209) $109 $418 ($79) ($95) $19 $280 $163 ($254) ($730) ($120) ($2,740)

Chg in cash ($195) $180 $136 ($164) ($89) $486 ($286) ($243) $126 ($135) ($230) $28Beginning cash 580 385 565 701 531 442 928 642 399 525 390 160

Ending cash $385 $564 $701 $536 $442 $928 $642 $399 $525 $390 $160 $188

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National Oilwell Varco

Investment Thesis NOV is a large cap capital equipment provider for the oil services industry, with its primary product line being drilling rigs used in all environments. The company pioneered the offshore drilling “kit”, working with shipyard to package equipment used in drilling from the top drive to BOPs. Plans to expand into floating production platforms have been slow, due to the nature of these large investments. However, the company appears to be winning market share with its land drilling and production & completions equipment. While choppiness in the offshore rig markets will likely weigh on new order in the near term, the company is working on a record backlog that should yield strong cash flow. NOV recently announced a large buy-back program that should be highly accretive to the stock. We believe NOV is one of the best ways to invest in the oilfield equipment revolution, rating the shares Buy with a $101 price target based on a 14.9x target multiple on our 2015E EPS.

Company Strategy The company recently announced a $3bn share repurchase program over three years, funded by U.S. cash or borrowing from time-to-time; however, we think the pace will be even faster with the company generate substantial cash build over the next several quarters. With a larger installed base of NOV built-rigs, the company is seeing growing demand for aftermarket parts and services, with revenues increasing in the low single digits range and steady margins for the foreseeable future.

Outlook for 2015 Despite a near record backlog, margins have been flat due to an unfavorable mix and higher cost from capacity expansion, though NOV expects pricing increases and manufacturing efficiencies from new capacity additions could provide “modest” margins expansion in 2015. Orders are likely to remain low with the offshore floating rig market downturn extending into 2016, though NOV may see orders for rigs with Arctic capabilities, 20k PSI, or for invention and well construction activity. Demand for jackups is expected to remain steady, though there are currently very few floater deliveries scheduled for 2017. Demand for land rig is expected to remain strong for the next several quarters, though not enough to offset falling floater demand. NOV’s wellbore technology segments is also adding significant roofline capacity and machinery investments, targeting downhole tools, instrumentation and solids control.

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Key Thoughts and Potential Catalysts NOV’s Rig Systems segment average normalized margins in the low 20% range, with aftermarket

margins very steady in the high teens. While new capital equipment orders can swing from quarter to quarter, the company continues to build a large installed base for its aftermarket services.

Bookings in the Completion & Production segment should continue to improve, with growing demand for well intervention and stimulation equipment, as well as improved revenues for FPSOs.

NOV closed five M&A deals in the first half of 2014 for $110mm, paying an average of less than 6x TTM EBITDA. The company continues to pursue a number of smaller transactions, though are unlikely to pursue larger deals as it seeks to optimize the balance sheet and capital structure to enhance shareholder value.

NOV expects to share detailed strategic plans with investors in November.



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'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

NOVCapital Equipment

NOV current trades at 10.7x, a -15% discount to the group's


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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

Rig Systems $9,479 $9,685Rig Aftermarket $3,116 $3,298Wellbore Technologies $5,747 $6,333Completion & Production Solutions $4,613 $5,812Eliminations ($1,822) ($1,900)Total Revenue $4,645 $7,026 $9,789 $13,431 $12,712 $12,156 $14,658 $20,041 $22,869 $21,133 $23,228Rig Technology $2,217 $3,585 $5,745 $7,528 $8,093 $6,965 $7,788 $10,107 $11,716Petroleum Services and Supplies $1,646 $2,425 $3,061 $4,651 $3,745 $4,182 $5,654 $6,967 $7,184Distribution and Transmission $1,075 $1,370 $1,424 $1,772 $1,350 $1,546 $1,873 $3,927 $5,117Eliminations ($293) ($354) ($440) ($520) ($476) ($537) ($657) ($960) ($1,148)

Operating IncomeRig Systems $1,976 $2,096Rig Aftermarket $845 $914Wellbore Technologies $1,070 $1,250Completion & Production Solutions $670 $886Eliminations ($808) ($875)Total Operating Income $546 $1,119 $2,044 $3,010 $2,549 $2,465 $2,978 $3,688 $3,468 $3,753 $4,270Rig Technology $264 $621 $1,394 $1,970 $2,287 $2,071 $2,070 $2,380 $2,447Petroleum Services and Supplies $306 $556 $732 $1,131 $453 $585 $1,095 $1,519 $1,305Distribution and Transmission $47 $96 $94 $130 $50 $78 $136 $253 $274Corporate ($70) ($155) ($175) ($220) ($241) ($269) ($323) ($464) ($558)

Net Interest Income (Expense) ($52) ($31) $2 ($23) ($44) ($37) ($22) ($38) ($99) ($87) ($83)Equity Income in Unconsolidated Aff $0 $0 $0 $53 $47 $36 $46 $58 $63 $86 $101Other $5 ($31) ($18) $24 ($110) ($22) ($39) ($60) ($32) $0 ($92)Pretax income $499 $1,057 $2,029 $3,065 $2,442 $2,442 $2,963 $3,648 $3,400 $3,753 $4,195Income Tax ($162) ($358) ($676) ($999) ($789) ($739) ($945) ($1,118) ($1,037) ($1,197) ($1,364)Minority Interest ($4) ($10) ($16) ($17) ($4) $8 $7 ($7) ($1) ($3) ($4)Net Income $333 $689 $1,337 $2,049 $1,649 $1,711 $2,025 $2,523 $2,362 $2,553 $2,828

Total EBITDA $660 $1,280 $2,259 $3,412 $3,039 $2,972 $3,533 $4,316 $4,232 $4,598 $5,106Depreciation & Amortization $115 $161 $214 $402 $490 $507 $555 $628 $764 $782 $836



Rig Technology OP NA 17% 24% 26% 28% 30% 27% 24% 21% 21% 23%Petroleum Services and Supplies OP NA 23% 24% 24% 12% 14% 19% 22% 18% 18% 19%Distribution and Transmission OP 4% 7% 7% 7% 4% 5% 7% 6% 5% 5% 6%Companywide 12% 16% 21% 22% 20% 20% 20% 18% 15% 18% 18%EBITDA margins 14% 18% 23% 25% 24% 24% 24% 22% 19% 22% 22%

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Rig Systems $2,372 $2,408 $2,444 $2,480 $2,480 $2,356 $2,368Rig Aftermarket 785 801 781 800 816 833 849Wellbore Technologies 1,446 1,504 1,519 1,564 1,525 1,602 1,642Completion & Production Solutions 1,127 1,212 1,272 1,348 1,416 1,487 1,561Eliminations (475) (475) (475) (475) (475) (475) (475)Total Revenue $5,307 $5,601 $5,789 $6,172 $5,777 $5,255 $5,449 $5,540 $5,718 $5,763 $5,802 $5,945Rig Technology 2,628 2,833 2,945 3,310 3,009Petroleum Services 1,701 1,749 1,809 1,925 1,789Distribution 1,227 1,295 1,342 1,253 1,281Eliminations? (249) (276) (307) (316) (302)

Operating IncomeRig Systems $501 $508 $516 $527 $527 $520 $522Rig Aftermarket 217 221 216 222 226 231 235Wellbore Technologies 269 286 291 307 295 318 330Completion & Production Solutions 158 179 190 203 215 227 240Eliminations (200) (207) (209) (218) (217) (219) (222)Total Operating Income $816 $826 $853 $973 $880 $945 $988 $1,003 $1,041 $1,046 $1,078 $1,106Rig Technology 557 587 606 697 635Petroleum Services 311 304 324 366 326Distribution 65 71 78 60 68Corporate (117) (136) (155) (150) (149)

Interest Income (25) (27) (24) (23) (22) (22) (22) (21) (21) (21) (21) (20)Equity Income 19 15 13 16 10 23 25 28 25 25 25 26Other (13) 13 (15) (17) 0 (21) (21) (21) (23) (23) (23) (23)Pretax income $797 $827 $827 $949 $868 $925 $970 $989 $1,021 $1,027 $1,060 $1,088Income Tax (246) (259) (255) (277) (266) (295) (315) (322) (332) (334) (344) (354)Minority Interest 2 0 0 (3) 0 (1) (1) (1) (1) (1) (1) (1)Net Income $553 $568 $572 $669 $602 $630 $654 $667 $688 $692 $714 $733

Total EBITDA $990 $1,016 $1,053 $1,173 $1,075 $1,135 $1,184 $1,204 $1,247 $1,254 $1,286 $1,319Depreciation 174 190 200 200 195 190 197 200 206 208 208 214



Rig Technology 21% 21% 21% 21% 21% 21% 21% 22% 22% 22% 23% 24%Petroleum Services 18% 17% 18% 19% 18% 18% 18% 19% 19% 19% 19% 20%Distribution 5% 5% 6% 5% 5% 5% 5% 5% 6% 6% 6% 6%Companywide 15% 15% 15% 16% 15% 18% 18% 18% 18% 18% 19% 19%EBITDA margins 19% 18% 18% 19% 19% 22% 22% 22% 22% 22% 22% 22%

2013 2014 2015

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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $209 $957 $1,842 $1,543 $2,622 $3,333 $3,535 $3,319 $3,436 $4,641 $5,209Accounts Receivable 1,139 1,615 2,100 3,136 2,187 2,425 3,291 4,320 4,896 4,667 5,008Inventories 1,198 1,829 2,575 3,806 3,490 3,388 4,030 5,891 5,603 5,097 5,469Deferred Income Taxes 0 0 132 209 290 316 336 349 373 349 374Costs in Excess of Billings 59 70 644 619 740 815 593 1,225 1,539 1,652 1,773Other 393 464 303 283 269 258 325 574 576 627 673Current assets $2,999 $4,934 $7,594 $9,595 $9,598 $10,535 $12,110 $15,678 $16,423 $17,034 $18,507PPE 878 1,022 1,197 1,677 1,836 1,840 2,445 2,945 3,408 3,381 3,145Deferred Taxes 52 78 56 109 92 341 267 413 372 472 472Goodwill 2,118 2,937 2,445 5,225 5,489 5,790 6,151 7,172 9,049 8,640 8,640Intangibles 0 0 774 4,300 4,052 4,103 4,073 4,743 5,055 4,808 4,808Other 633 26 49 494 465 441 469 533 505 464 464Total Assets $6,679 $8,997 $12,115 $21,399 $21,532 $23,050 $25,515 $31,484 $34,812 $34,799 $36,036

Liabilities & shareholders' equityAccounts Payable $568 $1,044 $604 $852 $584 $628 $901 $1,200 $1,275 $1,242 $1,333Accrued Liabilities 0 564 1,761 2,376 2,267 2,105 2,376 2,571 2,763 3,012 3,232Billings in Excess of Costs 0 0 1,396 2,161 1,090 511 865 1,189 1,771 2,294 2,462Accrued Income Taxes 613 1,039 112 233 226 919 923 688 868 742 796Other 6 6 153 4 7 373 351 1 1 0 0Current liabilities $1,187 $2,653 $4,027 $5,627 $4,174 $4,536 $5,416 $5,649 $6,678 $7,290 $7,823LT debt 836 835 738 874 876 514 159 3,148 3,149 3,148 3,148Deferred taxes 373 378 564 2,042 2,091 1,885 1,852 1,997 2,292 2,002 2,002Other LT liabilities 88 107 62 128 163 253 360 334 363 344 344Minority Interest 0 0 63 96 115 114 109 117 0 0 0Total Liabilities $2,484 $3,973 $5,454 $8,766 $7,419 $7,302 $7,896 $11,245 $12,482 $12,784 $13,317

Shareholders' equity $4,195 $5,024 $6,661 $12,633 $14,113 $15,748 $17,619 $20,239 $22,330 $22,015 $22,719Total $6,679 $8,997 $12,115 $21,399 $21,532 $23,050 $25,515 $31,484 $34,812 $34,799 $36,036


Net income $287 $684 $1,337 $1,952 $1,473 $1,659 $1,985 $2,483 $2,328 $2,478 $2,828Depreciation 115 161 214 402 490 507 555 628 755 778 836Other 48 45 84 86 154 7 (233) 45 (174) 110 0Working Capital Chg (372) 327 (447) (145) (22) (631) (164) (2,536) 488 (188) (373)Cash from operations $78 $1,217 $1,188 $2,294 $2,095 $1,542 $2,143 $620 $3,397 $3,177 $3,291

Investing ActivitiesPP&E ($126) ($200) ($252) ($379) ($250) ($232) ($483) ($583) ($669) ($638) ($600)Acquisition 164 (330) (324) (2,207) (573) (556) (1,038) (2,880) (2,367) (102) 0Other 0 0 1 112 271 45 63 35 72 (252) 0Net Cash From Investing $38 ($530) ($575) ($2,473) ($552) ($743) ($1,458) ($3,428) ($2,964) ($992) ($600)

Financing ActivitiesChange in Debt ($152) ($5) $35 ($189) ($40) ($13) ($391) $2,637 ($1) $0 $0Change in Equity 112 46 114 115 8 83 96 138 58 (296) (1,320)Cash Dividends Paid 0 0 0 0 (460) (172) (191) (209) (389) (703) (803)Other 0 0 0 0 1 0 22 17 27 12 0Cash flow financing ($40) $41 $150 ($74) ($491) ($102) ($464) $2,583 ($305) ($987) ($2,123)

FX and other ($8) $20 $122 ($46) $27 $14 ($19) $9 ($11) $7 $0

Chg in cash $67 $748 $884 ($299) $1,079 $711 $202 ($216) $117 $1,205 $568Beginning cash 143 210 958 1,842 1,543 2,622 3,333 3,535 3,319 3,436 4,641

Ending cash $210 $958 $1,842 $1,543 $2,622 $3,333 $3,535 $3,319 $3,436 $4,641 $5,209

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226

Noble Corp.

Investment Thesis Noble is a diversified offshore contract driller, with a balanced fleet of 19 floaters and 12 jackups. The majority of the fleet is considered high spec, averaging 12 years old. A high mix of newer drillships are in US GOM earning above average margins, but the company also has several older but upgraded semisubs in the region at risk of going idle. Brazil risk has been reduced with company mobbing recently released units to Eastern Hemisphere, but with others following same strategy is finding it difficult to put those assets to work. The jackup fleet is very solid, with high exposure to top customers in the Eastern Hemisphere. We expect the company to weather through the downturn and maintain its dividend, with newbuild commitments wrapping up timely, but remain cautious as there are uncertainties about the potential next step for the company, particularly if the company pursues a potential MLP IPO or M&A activities. We rate the shares Buy with a $25 price target based on a 7.2x target multiple on our 2015E EBITDA.

Company Strategy Noble Corp. recently completed its strategic transformation into a high specification offshore contractor. The company is now in harvest mode and about to start-up the last of its fourth Gusto P10000 newbuild drillship on a 3-yr contract in the U.S. GOM. Noble will take delivery of the final two F&G JU-3000N newbuild jackups next year, one of which is uncontracted, but the company will have largely completed its newbuild program with just one until under construction for 2016 delivery. Longer term Noble plans to divest five standard specification assets it retained for strategic reason, leaving it with an even greater mix of premium assets but similar jackups and floaters mix. The company could expand its fleet through potential M&A, possibly funded by an MLP, or a newbuild backed by a contract.

Outlook for 2015 Noble staunchly defends it will at least maintain its current $1.50 annual dividend (8% yield), as the company expects to turn free cash flow positive early in 2015 with just two newbuild jackups being delivered. Given the sharp share price correction, we believe reactivation of the share repurchase program is increasingly likely, though it will require shareholder approval at the April Annual General Meeting. If the market downturn persist, M&A could also be likely, with Noble targeting premium assets in select locations with select customer exposure, possibly funded by a potential MLP. Operationally the company is optimistic for a market recovery in 2016, but expects dayrates to adjust lower before the bottom is realized, signaled by more rigs going back to work. While Noble has just one semisub contracted to Petrobras in Brazil (Dave Beard through April 2016), the NOC could possibly call the market bottom by taking more rigs than expected in an upcoming tender. With a highly contracted drillship and jackup fleet, Noble has little availability outside of five semisubs (Danny Adkins, Max Smith, Noble Driller, Paul Wolff, and Homer Ferrington) in 2015, two in the U.S. GOM and the other three in Eastern Hemi.

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Noble Corp

Key Thoughts and Potential Catalysts Noble’s October 9th fleet status report detailed incremental downtime for the Globetrotter I and

later contract starts for the Amos Runner and David Tinsley, putting management’s 2014 unpaid fleet operational downtime target of 5% at risk. We’re modeling 3Q14 contract drilling costs near the midpoint of management’s $375-425mm guidance range, but note consensus estimate implies costs closer to $385mm. Last quarter management noted it was seeing “early signs” of support in the floater market with a slight pickup in activity, but this appears to have faded as few term contracts were announced in 3Q.

Noble believes 25% of jackups under construction won’t make it to the market and we believe the company is well protected from a potential supply-driven downturn having divested the majority of its standard specification assets to Paragon Offshore. With the exception of a few units working for key Middle East customers, almost all of Noble’s jackups were built in 2009 or more recently. We expect all three (of 15) units rolling off contract over the next 12 months to remain active at attractive dayrates, seeing potential upside from the final F&G JU-3000N newbuild Noble Sam Hartley starting up ahead of our 2H15 target at rates above our $183kpd estimate.

We’re modeling all three (of 11) available semisubs (Paul Wolff, Max Smith, Homer Ferrington) to earn zero rate indefinitely but make no assumptions about potential capex needs to upgrade these rigs in the near term. We’re concerned the Noble Driller and Paul Romano may experience extended gap time when they roll off contracts at year end, particularly as the company lost out on a recent Pemex midwater tender and has no exposure to the region currently, which could make it more difficult for Noble to gain share in the post-reform deepwater market (likely a 2017-2019 event).

Having completed its spin-off of Paragon Offshore, NE is re-evaluating the MLP structure. We view an MLP IPO as unlikely in the next 12 months.



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'06 '07 '08 '09 '10 '11 '12 '13 '14

NEOffshore Drillers

NE current trades at 6.4x, an 10% premium to the group's

5.8x average and a 7% premium to its historical 5.9x.

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Noble Corp


2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

Contract drilling services $937 $1,209 $1,887 $2,714 $3,299 $3,510 $2,695 $2,557 $3,349 $4,052 $3,991 $3,546Reimbursables 50 86 92 121 91 99 77 79 115 112 132 127Other 79 86 121 160 57 32 35 60 82 52 33 33Total revenues $1,066 $1,382 $2,100 $2,995 $3,447 $3,641 $2,807 $2,696 $3,547 $4,216 $4,156 $3,706

ExpensesContract drilling services ($522) ($599) ($696) ($880) ($1,012) ($1,007) ($1,178) ($1,384) ($1,776) ($2,025) ($1,950) ($1,745)Reimbursables (45) (76) (80) (106) (79) (85) (59) (58) (94) (86) (98) (90)Other (70) (81) (108) (143) (43) (19) (22) (34) (47) (37) (25) (25)Operating costs ($636) ($757) ($884) ($1,129) ($1,134) ($1,111) ($1,259) ($1,477) ($1,917) ($2,147) ($2,073) ($1,860)G&A (34) (40) (46) (86) (74) (80) (92) (91) (100) (118) (102) (86)EBITDA $396 $585 $1,170 $1,780 $2,239 $2,450 $1,456 $1,128 $1,530 $1,951 $1,981 $1,761D&A (209) (242) (253) (293) (357) (408) (540) (659) (759) (879) (823) (682)Other 0 0 0 0 0 0 0 0 0 0 0 0Operating income $187 $343 $917 $1,487 $1,882 $2,042 $916 $469 $771 $1,072 $1,158 $1,079Interest Expense (34) (20) (16) (13) (4) (2) (9) (56) (86) (106) (147) (170)Interest Income 9 11 10 11 8 7 10 1 5 0 (2) 0Other 0 0 0 0 0 (17) (7) (4) (5) 0 0 0Pretax income $162 $334 $911 $1,485 $1,886 $2,030 $909 $411 $685 $966 $1,010 $909Taxes (16) (62) (187) (282) (347) (342) (143) (67) (158) (167) (183) (173)Minority interest 0 0 0 0 0 0 (0) 7 (34) (68) (86) (91)Net income $146 $272 $723 $1,203 $1,539 $1,687 $766 $352 $493 $732 $742 $645



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Noble Corp



Contract drilling $929 $957 $1,041 $1,125 $1,206 $1,200 $798 $786 $834 $864 $884 $965Reimbursables 21 28 29 33 37 32 32 32 32 32 32 32Other 21 14 9 9 8 8 8 8 8 8 8 8Total revenues $971 $999 $1,079 $1,167 $1,251 $1,240 $838 $826 $873 $904 $924 $1,005

ExpensesContract drilling ($484) ($492) ($488) ($560) ($561) ($577) ($400) ($412) ($415) ($430) ($441) ($459)Reimbursables (15) (23) (24) (24) (31) (22) (22) (22) (22) (22) (22) (22)Other (12) (9) (8) (7) (6) (6) (6) (6) (6) (6) (6) (6)Operating costs ($511) ($524) ($520) ($591) ($598) ($606) ($428) ($440) ($444) ($459) ($470) ($488)G&A (26) (27) (34) (32) (26) (27) (25) (24) (23) (22) (21) (20)EBITDA $434 $448 $525 $544 $628 $607 $385 $361 $407 $423 $433 $497D&A (206) (213) (224) (237) (246) (254) (160) (163) (166) (169) (172) (175)Other 0 0 0 0 0 0 0 0 0 0 0 0Operating income $228 $236 $301 $307 $382 $353 $225 $198 $241 $254 $261 $322Interest Expense (27) (25) (23) (31) (40) (36) (33) (38) (40) (42) (44) (46)Interest Income (0) 1 1 (1) (1) (0) 0 0 0 0 0 0Other 0 0 0 0 (4) (4) 0 0 0 0 0 0Pretax income $200 $212 $279 $275 $336 $313 $192 $161 $201 $213 $218 $277Taxes (34) (36) (45) (52) (62) (54) (37) (31) (38) (40) (41) (53)Minority interest (18) (17) (19) (15) (17) (23) (23) (23) (23) (23) (23) (23)Net income $149 $159 $216 $208 $257 $236 $133 $108 $140 $150 $154 $201



2013 2014 2015

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Noble Corp



2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $59 $122 $62 $161 $513 $735 $338 $239 $282 $114 $91 $918Accounts receivable 205 277 408 613 645 647 387 587 744 949 593 721Other 161 124 100 86 82 100 187 233 274 327 254 309Current assets $425 $522 $570 $860 $1,240 $1,483 $912 $1,060 $1,300 $1,391 $938 $1,948PP&E 2,744 2,999 3,858 4,796 5,643 6,634 10,048 11,897 13,026 14,558 15,551 14,869Other 139 825 158 220 219 279 343 538 276 269 304 304Total assets $3,308 $4,346 $4,586 $5,876 $7,102 $8,397 $11,302 $13,495 $14,603 $16,218 $16,793 $17,121

Liabilities & shareholders' equityAccounts payable $83 $94 $196 $198 $259 $198 $375 $436 $350 $347 $266 $294Accrued payroll 61 79 93 116 75 100 126 118 133 151 108 119Other 62 78 127 168 172 136 221 273 423 554 281 311Current liabilities $206 $250 $417 $482 $506 $434 $721 $827 $906 $1,052 $655 $725LT debt 512 1,138 694 785 923 751 2,767 4,072 4,634 5,556 6,014 6,014Deferred taxes 207 228 220 241 265 300 259 243 226 225 233 233Other LT liabilities 8 6 34 66 121 123 268 255 348 334 339 339Total liabilities $932 $1,623 $1,364 $1,573 $1,816 $1,608 $4,015 $5,397 $6,114 $7,168 $7,241 $7,311Noncontrolling interes (9) (8) (7) (6) (4) 0 125 691 765 727 725 725Common stock 2,384 2,732 3,229 4,308 5,291 6,788 7,163 7,407 7,723 8,323 8,826 9,085Total $3,308 $4,346 $4,586 $5,876 $7,102 $8,397 $11,302 $13,495 $14,603 $16,218 $16,793 $17,121


Net income $146 $297 $732 $1,206 $1,561 $1,679 $773 $364 $556 $850 $771 $645Depreciation 209 242 253 293 357 408 540 659 759 879 823 682Other (23) (9) 4 (85) (29) 50 341 (282) 67 (28) 1 0Cash from operations $332 $529 $989 $1,414 $1,888 $2,137 $1,654 $740 $1,382 $1,702 $1,595 $1,327

Investing ActivitiesNew construction ($111) ($212) ($671) ($755) ($800) ($717) ($580) ($1,671) ($587) ($1,527) ($1,400) ($525)Major projects (150) (222) (382) (424) (324) (595) (657) (657) 0 0 0 0Other capex (73) (80) (69) (108) (108) (119) (104) (170) (947) (846) (600) (600)Capitalized interest 0 0 31 45 41 0 (83) (122) (136) (115) (57) (60)Asset sales 2 1 695 18 39 0 0 0 0 61 0 0Other 34 (635) 46 0 22 (64) (1,490) 100 (121) (59) (12) 0Cash from investing ($297) ($1,147) ($350) ($1,224) ($1,129) ($1,495) ($2,914) ($2,522) ($1,791) ($2,485) ($2,069) ($1,185)

Financing ActivitiesChange in ST debt ($25) $635 ($135) $100 ($100) $0 $40 $935 ($635) $1,221 $1,207 $100Change in LT debt (53) (9) (313) (10) 239 (173) 1,238 1,088 1,187 (300) (250) 0Dividend paid 0 (14) (22) (32) (244) (48) (227) (151) (138) (300) (385) (387)Other 39 69 (229) (149) (301) (199) (189) (190) 39 (6) (41) 0Cash flow financing ($39) $681 ($699) ($91) ($407) ($419) $862 $1,683 $452 $615 $531 ($287)

FX and other (77) 0 0 0 0 0 0 0 0 0 0 0

Chg in cash ($81) $63 ($60) $99 $352 $222 ($398) ($99) $43 ($168) $57 ($145)Beginning cash 139 59 122 62 161 513 735 338 239 282 114 171

Ending cash $59 $122 $62 $161 $513 $735 $338 $239 $282 $114 $171 $27

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North Atlantic Drilling

Investment Thesis North Atlantic Drilling is an offshore drilling contractor specializing in harsh environment. The company has a fleet of six floaters (five semisubs, one drillship) and five jackups, several of which are contracted to Rosnef in a multi-year multi-rig package.

Company Strategy In August 2014, North Atlantic entered into agreement with Russia’s largest oil producer, Rosneft to sell a 30% ownership stake in exchange for approximately 150 land drilling rigs and accompanying five-year contracts for six rigs. Adding $4.1bn to the backlog, the transaction is expected to close in 4Q14. Majority shareholder Sea drill will continue to own more than 50% of NADL, as well as providing managerial services.

Outlook for 2015 NADL is more than 90% sold out in 2015, with exposure only in the West Venture and West Phoenix when they roll off contract with Statoil and Total in July and October 2015, respectively. We’re modeling both semisubs to stay on rate, with the West Venture incurring 50 days for five-year certifications. Management indicated it is in the process of ordering two jackups for 2017 delivery, suggesting orders could be placed in the next few quarters.

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Key Thoughts and Potential Catalysts The company estimates that 100s wells need to be drilled in Russia over the next decade, signing an

Investment & Cooperation Agreement with Rosneft for onshore & offshore markets through 2022. Plans to acquire 150 land rigs with 5+ year contracts on each rig should be finalized shortly, with the companies working in the integration phase currently. NADL plan to record cash proceeds from the transaction, likely to repay the drawn credit facility and secure more drilling capacity.

The company continues to monitory sanctions.



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NADLOffshore Drillers

NADL current trades at 5.1x, a -11% discount to the group's 5.8x average.

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2011 2012 2013 2014E 2015ERevenues

Floaters $707 $793 $873 $853 $925Jackups 111 234 236 302 350Total Contract Drilling $672 $955 $1,117 $1,112 $1,275Reimbursables 25 89 194 180 180Related Party 0 0 12 32 0Other 14 0 12 32 0Total revenues $711 $1,045 $1,323 $1,323 $1,455

ExpensesFloaters ($189) ($264) ($284) ($304) ($353)Jackups (44) (91) (95) (148) (178)Total Contract Drilling ($238) ($346) ($527) ($459) ($531)Reimbursables (22) (82) (184) (169) (169)Gross Profit $451 $617 $612 $695 $755G&A (26) (50) (65) (76) (84)EBITDA $425 $567 $548 $619 $671D&A ($106) ($163) ($188) ($200) ($224)Other 0 0 0 0 0Operating income $319 $404 $360 $419 $447Interest expense, net (61) (83) (85) (118) (181)Other income (57) (29) (12) 0 0Pretax income $201 $291 $264 $301 $266Taxes (21) (55) (29) (27) (24)Minority interest 0 0 0 0 0Net income $181 $237 $235 $275 $243

Per Share DataDiluted Earnings $0.18 $1.07 $1.03 $1.14 $1.00Dividend $0.12 $0.90 $0.91 $0.95 $0.96

Margins SummaryGross margins 63% 59% 46% 53% 52%EBITDA margins 60% 54% 41% 47% 46%Operating margins 45% 39% 27% 32% 31%

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Floaters $210 $223 $228 $213 $212 $200 $219 $222 $188 $220 $248 $269Jackups 59 59 59 59 55 70 88 88 86 87 88 88Total Contract Drilling $272 $280 $294 $271 $226 $268 $307 $310 $274 $307 $337 $357Reimbursables 46 94 28 27 32 58 45 45 45 45 45 45Related Party 0 0 0 12 16 16 0 0 0 0 0 0Other 0 0 0 12 16 16 0 0 0 0 0 0Total revenues $318 $374 $321 $310 $274 $343 $352 $355 $319 $352 $381 $402

ExpensesFloaters ($69) ($70) ($72) ($73) ($72) ($74) ($77) ($81) ($82) ($86) ($91) ($94)Jackups (23) (24) (24) (24) (32) (37) (39) (41) (41) (43) (46) (48)Total Contract Drilling ($125) ($136) ($134) ($132) ($107) ($115) ($117) ($121) ($123) ($130) ($136) ($142)Reimbursables (42) (90) (26) (26) (29) (55) (42) (42) (42) (42) (42) (42)Gross Profit $151 $148 $161 $153 $137 $173 $193 $192 $154 $180 $203 $218G&A (15) (16) (18) (16) (18) (19) (19) (20) (20) (21) (21) (22)EBITDA $135 $131 $144 $138 $119 $154 $174 $172 $133 $159 $182 $197D&A ($44) ($45) ($51) ($48) ($48) ($49) ($51) ($52) ($54) ($55) ($57) ($58)Other 0 0 0 0 0 0 0 0 0 0 0 0Operating income $92 $86 $93 $89 $71 $105 $123 $120 $80 $104 $125 $138Interest expense, net (19) (21) (21) (24) (23) (27) (31) (35) (39) (43) (47) (50)Other income (10) 6 (1) (6) 0 0 0 0 0 0 0 0Pretax income $62 $71 $71 $60 $48 $77 $92 $84 $40 $61 $78 $88Taxes (7) (8) (2) (12) (2) (9) (8) (7) (4) (5) (7) (8)Minority interest 0 0 0 0 0 0 0 0 0 0 0 0Net income $55 $63 $69 $48 $45 $68 $84 $77 $37 $55 $71 $80



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2011 2012 2013 2014E 2015EAssets

Cash & equivalents $98 $84 $326 $385Restricted cash 24 25 14 14Accounts receivable 212 222 282 319Other 295 52 84 89Current assets $629 $383 $706 $808Goodwill 481 481 481 481Deferred tax assets 10 3 5 5Newbuildings 249 313 169 209Drilling units 2,416 2,378 2,924 2,760Other 155 142 142 142Total assets $3,939 $3,699 $4,426 $4,404

Liabilities & shareholders' equityCurrent Portion of LT Debt 167 167 218 218Related Party Liabilities 47 13 18 18Trade Accounts Payable 6 10 13 15Tax Payable 71 18 1 1Deferred Taxes 12 0 0 0Other 399 223 239 239Current liabilities $702 $431 $489 $491LT debt 1,583 1,581 2,312 2,188Related Party Liabilities 703 700 365 905Deferred taxes 12 0 0 0Other LT liabilities 101 129 162 162Total liabilities $3,100 $2,842 $3,328 $3,746Noncontrolling interest 0 0 0 0Common stock 838 858 1,098 658Total $3,939 $3,699 $4,426 $4,404


Net income $237 $236 $241 $243Depreciation 163 188 200 224Deferred income taxes 1 20 47 189Other (43) (126) (305) (698)Working Capital Chg (94) 107 74 11Cash from operations $264 $425 $258 ($31)

Investing ActivitiesAdditions to newbuildings ($195) ($64) ($455) ($40)Additions to rigs and equipment ($4) ($37) ($35) ($60)Additions to other fixed assets ($1) ($1) $0 $0Other (11) (1) 1 4Cash from investing ($211) ($104) ($489) ($96)

Financing ActivitiesEquity issuance $147 $0 $103 $0Dividend paid (198) (205) (229) (231)Other (52) (129) 597 416Cash flow financing ($102) ($334) $471 $185

FX and other 0 (2) 3 0

Chg in cash ($49) ($14) $242 $59Beginning cash 0 98 84 326

Ending cash ($49) $84 $326 $385

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NOW Inc.

Investment Thesis Spun off from National Oilwell Varco’s Distribution business, NOW Inc. is a leading distributor of oilfield equipment and supply chain management services to the upstream, midstream, downstream and industrial markets. The company offers a diverse range of products including MRO supplies, pipes, valves, fittings, mill and industrial supplies, tools, safety products, and artificial lift systems. DNOW also provides supply chain services including inventory and warehouse management, logistics, business processing and business process and performance metrics reporting. DNOW leverages the scale of its customers’ collective demand for supplies through a network of more than 300 branches worldwide, serving customers in over 90 countries around the world and in turn providing a highly diversified revenue stream. With the shares trading at a premium to MRC Global, we rate DNOW Hold with a $30 price target based on a 17.3x target multiple on our 2015E EPS.

Company Strategy With a clean balance sheet, NOW Inc. plans to consolidate the oilfield distribution industry, which consists of several regional players. Management has a target list of more than two dozen targets, though we expect the purchase price is similar to NOV, which traditionally pays about 6.0x TTM EBITDA. With about 50% of the company’s cash situated outside of the U.S., we believe the company is likely to target international expansion in the Middle East and Asia.

Outlook for 2015 Efforts to integrated DNOW, overhaul the company’s sourcing methodology, consolidate facilities, and a new single ERP system are expected to product significant margin expansion in 2015-16, with the company targeting +8% EBITDA margins by year end 2015.

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NOW Inc.

Key Thoughts and Potential Catalysts NOW Inc’s business model is highly scalable with low fixed costs and minimum capital requirements.

Pricing remains competitive, with companies increasing looking to lower costs by improving operating efficiencies.

The company guide to mid-to-high single digit growth, and is taking steps to improve working capital, targeting 60 DSO.

Spin related costs negatively impacted results the last few quarters, but is expected to wind down to just $4mm of incremental costs in 3Q14.



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DNOW

MRC

DNOW current trades at a 19% premium to MRC

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NOW Inc.


2011 2012 2013 2014E 2015ERevenues:

U.S. $917 $2,257 $2,863 $2,757 $3,014Canada 305 591 773 679 736International 419 566 660 687 722Total revenues $1,641 $3,414 $4,296 $4,123 $4,472

Total Expenses ($1,277) ($2,791) ($3,482) ($3,251) ($3,466)

Warehousing Exp. (157) (315) (412) (438) (493)G&A (73) (128) (161) (188) (192)Other Exp. 0 0 0 0 0EBITDA $134 $180 $118 $246 $320

D&A (6) (12) (17) (22) (26)Operating Income $128 $168 $224 $224 $294

Interest Income 0 0 0 0 0Interest Expense 0 0 0 0 0Other Income 0 (3) (2) 0 0Pretax income $128 $165 $222 $224 $294Taxes (43) (57) (75) (79) (103)Net income $85 $108 $147 $145 $191

Per Share DataDiluted Earnings $1.37 $1.35 $1.76


U.S. 8% 4% 5% 5% 6%Canada 10% 6% 6% 6% 6%International 6% 7% 7% 8% 8%Companywide 8% 5% 5% 5% 7%

EBITDA margins 8% 5% 3% 6% 7%Gross Margin 22% 18% 19% 21% 22%

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NOW Inc.



U.S. $712 $742 $704 $662 $679 $712 $729 $745 $762 $779Canada 215 172 191 125 169 194 198 148 193 197International 145 156 373 290 337 366 373 327 375 383Total revenues $1,072 $1,070 $1,077 $952 $1,016 $1,078 $1,102 $1,072 $1,137 $1,161

Total Expenses ($870) ($871) ($865) ($753) ($795) ($838)s ($857) ($837) ($878) ($893)

Warehousing Exp. (101) (103) (102) (105) (112) (119)) (121) (118) (125) (128)G&A (39) (40) (44) (45) (48) (51)e (47) (46) (49) (50)Other Exp. 0 0 0 0 0 0 s 0 0 0 0

EBITDA $62 $56 $66 $49 $61 $71A $76 $70 $84 $90

D&A (4) (3) (4) (6) (6) (6) (7) (7) (7) (6)Operating Income $58 $53 $62 $43 $55 $64 $69 $64 $78 $84

Interest Income 0 0 0 0 0 0 0 0 0 0Interest Expense 0 0 0 0 0 0 0 0 0 0Other Income 2 2 0 0 0 0 0 0 0 0Pretax income $60 $55 $62 $43 $55 $64 $69 $64 $78 $84Taxes (19) (22) (21) (16) (19) (22) (24) (22) (27) (29)Net income $41 $33 $41 $27 $35 $42 $45 $41 $51 $54

Per Share DataDiluted Earnings $0.38 $0.31 $0.38 $0.25 $0.33 $0.39 $0.41 $0.38 $0.46 $0.50


U.S. 5% 6% 4% 4% 4% 5% 6% 6% 7% 7%Canada 8% 3% 8% 2% 6% 7% 7% 3% 7% 7%International 6% 4% 9% 8% 8% 8% 8% 8% 8% 8%Companywide 5% 5% 6% 5% 5% 6% 6% 6% 7% 7%

EBITDA margins 6% 5% 6% 5% 6% 7% 7% 7% 7% 8%Gross Margin 19% 19% 20% 21% 22% 22% 22% 22% 23% 23%

2013 2014 2015

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NOW Inc.



e 2012 2013 2014E 2015EAssets

Cash & equivalents $138 $101 $126 $330Accounts receivable 692 661 875 943Inventory 1,015 850 999 1,076Prepaid expenses and other 37 50 62 67Current assets $1,882 $1,662 $2,063 $2,416PPE 61 102 136 121Deferred Taxes 11 15 8 8Goodwill & Intangibles 417 401 400 400Other 2 3 1 1Total assets $2,373 $2,183 $2,607 $2,946

Liabilities & shareholders' equityCurrent Maturities $0 $0 $0 $0Accounts payable 272 264 446 476Accrued Liabilities and Other 119 99 119 127Current liabilities $391 $363 $565 $603LT Debt 0 0 0 110Deferred Taxes 11 15 8 8Other Liabilities 2 2 2 2Total liabilities $402 $381 $572 $720Common stock $1,971 $1,802 $2,035 $2,226Total $2,373 $2,183 $2,607 $2,946


Net income $85 $108 $147 $145 $191Depreciation 6 12 17 22 26Deferred taxes (11) (7) 3 1 0Other 4 7 12 5 0Working Capital Chg (87) (132) 138 (184) (112)CF from ops ($3) ($12) $317 ($10) $106

Investing ActivitiesCapex ($4) ($14) ($55) ($48) ($12)Asset disposal (acquisitio (30) (1,113) 0 0 0Other 0 0 1 8 0CF from investing ($34) ($1,127) ($54) ($40) ($12)

Financing ActivitiesChange in LT debt $0 $0 $0 $0 $110Preferred issuance 0 0 0 0 0Common issuance 0 0 0 0 0Contributions from NOV (37) 1,185 (298) 74 0Dividend Paid 0 0 0 0 0Other 4 7 12 5 0CF from financing ($38) $1,184 ($299) $74 $110

FX and other 3 2 (1) 1 0

Chg in cash ($72) $47 ($37) $25 $204Beginning cash 163 91 138 101 126

Ending cash $91 $138 $101 $126 $330

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Ocean Rig

Investment Thesis Ocean Rig is a deepwater offshore contractor, operating a fleet of two harsh environment semisubs and 11 high specification drillships. The company has three ultra-deepwater drillships under construction available, with the first Ocean Rig Santorini scheduled for June 2016 delivery while the other two other units for 2017 delivery were ordered earlier this year. The majority of ORIG’s fleet is contracted through 2016 and beyond, however, the company has two drillships rolling off contract with Petrobras within the next six-to-eight months while the Eirik Raude rolls off its current contract in the Falkland Island at the end of 2015. With more than 70% of available days in 2015 contracted and the two Petrobras rollovers in advanced discussions for long term contracts, the company recently initiated a $0.19 quarterly dividend. Meanwhile, plans to create an MLP structure with three existing units has been repeatedly delayed, though we expect the transaction to occur by mid-2015 or earlier. With a highly contracted fleet operating at among the highest gross margins for the group and potential cash monetization from a potential MLP, we rate ORIG a Buy with a $34 price target based on a 7.2x target multiple on our 2015E EBITDA.

Company Strategy Spun off from DryShips in 2011, Ocean Rig is a pure play deepwater contract driller, with a young fleet of high spec assets that operate at very high >95% operating efficiency. While the company has accumulated significant debt from its fleet addition in recent years, management has taken all necessary steps to create an MLP structure that should monetize the existing fleet and provide cash to delever and increase distribution to shareholders. The only issue now is a matter of timing the IPO, as initial plans call for the MLP to begin with one-third interest in three existing units (still yet to be finalized), with ORIG maintaining 85% of the MLP’s cash flow. With a smaller fleet and pipeline of newbuilds than RIGP or SDLP, the company plans to drop down assets with minimum four-year term and at fractional interest of 20-40% over time, with the first drop down to take place six months after the IPO and another at the one year anniversary.

Outlook for 2015 We expect contract renewals for the Ocean Corcovado and Mykonos to be announced before the end of this year, with Petrobras keeping both units employed until 2018 which should extend the company’s contracted status to 86% in 2015. Management indicated it is also in discussion with Total to extend the Olympia, the only other unit with 2015 availability, through 2016. Meanwhile, plans to launch an MLP IPO has been repeatedly delayed, but we believe the transaction will happen by mid 2015 as management sees significant valuation uplift with driller MLP peers trading as much as $1.2bn EV per UDW unit recently vs. the company’s implied sub $450mm EV per UDW unit currently.

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Ocean Rig

Key Thoughts and Potential Catalysts Management indicated it is seeing increased interest for the Ocean Rig Santorini, its next available

newbuild scheduled to be delivered in June 2016, for projects in the U.S. GOM, Brazil, West Africa, and the Black Sea.

Ocean Rig estimates the cash flow breakeven for its ultra deepwater rigs is about $350kpd, which includes $10kpd for principal repayment and $90kpd for cash interest expense. With an average dayrate for the fleet at $516kpd, the company generates $60mm of annual free cash flow per unit and $540mm on a 9-fleet basis, poised to increase with three newbuilds under construction.

Petrobras is expected to renew the Ocean Rig Corcovado and Mykonos, which is already outfitted with dual activity drilling. Management estimate the Mykonos recently completed a well 29% faster than an older single-activity drilling unit, providing substantial cost savings for the NOC. Dayrates for Petrobras renewals are estimated in the $460-505kpd range for newer units and less than $400kpd for older assets, with Petrobras widely expected to call the market bottom for the industry.



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ORIGOffshore Drillers

ORIG current trades at 6.0x, an 3.% premium to the group's 5.8x average but a -19% discount to its

historical 7.4x.

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Ocean Rig


2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

Drilling revenues $1,587 $1,896Amortization of deferred revenue 183 154Total revenues $219 $388 $406 $700 $942 $1,180 $1,770 $2,049

ExpensesDirect & onshore ($595) ($734)Amortization of deferred (113) (81)Other (27) 81Operating costs ($86) ($133) ($119) ($282) ($500) ($505) ($735) ($734)G&A (15) (20) (21) (43) (84) (127) (129) (140)EBITDA $117 $234 $266 $375 $360 $542 $905 $1,175D&A (45) (75) (75) (163) (224) (235) (325) (353)Other (762) 0 (1) 0 0 0 0 0Operating income ($690) $159 $189 $212 $136 $307 $579 $822Interest expense (72) (46) (8) (57) (98) (150) (241) (291)Other income 1 16 (26) (16) (27) 12 (6) 0Pretax income ($760) $129 $155 $140 $11 $169 $332 $532Taxes (3) (13) (20) (27) (43) (45) (64) (104)Minority interest (3) 0 0 0 0 0 0 0Net income ($766) $116 $135 $113 ($32) $124 $268 $429

Per Share DataDiluted Earnings ($7.43) $1.12 $1.30 $0.86 ($0.24) $0.94 $2.03 $3.26Dividend $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.57 $0.76

Margins SummaryGross margins 61% 66% 71% 60% 47% 57% 59% 64%EBITDA margins 54% 60% 65% 54% 38% 46% 51% 57%Operating margins -315% 41% 47% 30% 14% 26% 33% 40%

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Ocean Rig



Drilling revenues $328 $393 $441 $426 $420 $488 $494 $494Amortization of deferred revenue 33 49 53 48 40 38 38 38Total revenues $246 $260 $329 $345 $361 $441 $494 $474 $460 $526 $532 $532

ExpensesDirect & onshore ($128) ($144) ($161) ($162) ($165) ($187) ($190) ($192)Amortization of deferred (20) (30) (33) (30) (24) (19) (19) (19)Other (121) (117) (129) (138) (4) (10) (7) (7) 24 19 19 19Operating costs ($121) ($117) ($129) ($138) ($152) ($183) ($201) ($199) ($165) ($187) ($190) ($192)G&A (23) (24) (40) (41) (35) (28) (33) (33) (35) (35) (35) (35)EBITDA $103 $113 $160 $166 $172 $230 $261 $242 $260 $305 $306 $304D&A (53) (56) (61) (65) (77) (81) (83) (84) (86) (87) (89) (90)Other 0 0 0 0 0 0 0 0 0 0 0 0Operating income $50 $58 $99 $101 $96 $149 $178 $157 $174 $217 $217 $214Interest expense (31) (30) (41) (47) (53) (58) (63) (68) (73) (73) (73) (73)Other income 2 22 (7) (5) (2) (7) 1 1 1 1 1 1Pretax income $21 $49 $50 $49 $40 $85 $116 $91 $103 $146 $146 $143Taxes (14) (10) (11) (9) (8) (15) (23) (18) (20) (28) (28) (28)Minority interest 0 0 0 0 0 0 0 0 0 0 0 0Net income $6 $39 $39 $40 $31 $70 $94 $73 $83 $118 $118 $115



2013 2014 2015

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Ocean Rig



2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $273 $234 $96 $251 $510 $659 $83 $139Other 93 324 576 246 242 401 556 624Current assets $366 $559 $672 $496 $753 $1,060 $639 $763Capex advances 0 1,178 1,888 755 993 662 562 562PP&E 1,377 1,318 1,249 4,539 4,399 5,777 6,653 7,227Other 17 55 534 225 80 121 214 214Total assets $1,761 $3,110 $4,344 $6,015 $6,225 $7,620 $8,067 $8,766

Liabilities & shareholders' equityTotal debt $1,673 $1,345 $1,365 $2,736 $2,853 $3,993 $4,397 $5,197Other liabilities 64 64 98 281 463 647 695 695Total liabilities $1,737 $1,409 $1,463 $3,017 $3,317 $4,641 $5,093 $5,893Noncontrolling interest 0 0 0 0 0 0 0 0Common stock 24 1,701 2,881 2,998 2,909 2,980 2,975 2,874Total $1,761 $3,110 $4,344 $6,015 $6,225 $7,620 $8,067 $8,766


Cash from operations $21 $211 $222 $271 $278 $333 $152 ($68)

Investing ActivitiesCapex advances ($1,865) ($212) ($233) ($232) $0Capex (17) (14) (7) (82) (98) (1,051) (727) (574)Other 385 (10) 139 (25) 0Cash from investing ($1,021) ($147) ($1,441) ($1,562) ($320) ($1,144) ($984) ($574)

Financing ActivitiesProceeds from LT debt $2,420 $800 $2,800 $950 $100Payments on LT debt (927) (672) (1,622) (561) 700Dividend paid 0 0 0 (75) (101)Other (48) (20) (78) (4) 0Cash flow financing $1,257 ($103) $1,081 $1,446 $109 $1,099 $309 $699

Chg in cash $258 ($39) ($138) $155 $66 $288 ($523) $57Beginning cash 15 273 234 96 251 317 605 83

Ending cash $273 $234 $96 $251 $317 $605 $83 $139

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Oceaneering

Investment Thesis Oceaneering is a pioneer in underwater robotics, contracting ROVs for drill support services and vessel-based services. With a higher mix of its ROVs on new ultra deepwater rigs, OII has relatively lower risks from floaters rolling off contract, with upside from vessel works for subsea equipment installation. The company adds about 20 new ROVs to its fleet each year, all fully contracted by oil & gas operators, while retiring 12-15 units annually. While the majority operating income is sourced from ROVs, management views the Subsea Products segment as its main source for growth. Subsea hardware and tools focus on the construction side, for the life of the field, while the umbilicals market remains more than 2x oversupplied. With Douglas-Westwood forecasting an 80% pickup in subsea systems spending over the next five years, we rate OII shares Buy with a $93 price target based on a 19.8x target multiple on our 2015E EPS.

Company Strategy The majority of OII’s ROVs operate in the U.S. GOM and Africa, with the company sharply trimming back its Brazil exposure a few years back. ROV has 60% market share in the drill support market, but this is likely much higher among ultra deepwater rigs as the company wins the majority of ROV awards on newbuild rigs. With cash building, OII prioritize the use of cash for organic growth, bolt-on acquisitions, dividends, and share repurchases. The company recently increased its regular quarterly dividend and has been buying back stock opportunistically.

Outlook for 2015 The longer term outlook for OII remains positive, with global demand driven by deepwater drilling support, field development, as well as inspection, maintenance and repair (IMR) activity. Average ROV dayrates on hire continues to trend higher with customers not pushing back on pricing, offsetting a pause in fleet utilization at about 85%. However, Subsea Products backlog is likely to trend lower as the company executes the large Angola project for BP, with margins expect to improve Y-Y.

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Oceaneering

Key Thoughts and Potential Catalysts Management guided to 3Q EPS of $1.10-1.15, with all segment revenue up Y-Y.

OII ROVs have been contracted on 19 of 21 recent newbuilds, with the company maintaining very high market share on the newest ultra deepwater rigs.

When a rig goes off rate, operators have the option to pay for ROV equipment to be taken off the rig. OII is more likely to leave the equipment on the rig if it is likely to be picked up by a new customer, but would demobe if the rig is going to be cold stacked. The small ROV crew immediately goes off payroll, eliminating all costs except depreciation.



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OIINiche Offshore Technology Providers

OII current trades at 13.5x, a -11% discount to the group's 15.3x average but a -21% discount to its historical 17.1x.

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Oceaneering


2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

ROVs $224 $315 $410 $531 $626 $649 $662 $755 $854 $982 $1,086 $1,257Subsea Products 160 239 365 522 650 488 549 770 829 1,028 1,249 1,362Subsea Projects 70 122 155 258 257 241 248 167 380 509 577 635Asset Integrity 146 155 169 220 249 216 223 267 435 482 511 572Advanced Technolog 131 118 128 162 157 194 235 233 285 286 268 284Other 49 50 53 50 39 33 0 0 0 0 0 0Total Revenue $780 $999 $1,280 $1,743 $1,977 $1,822 $1,917 $2,193 $2,783 $3,287 $3,690 $4,110

EBITDA $131 $180 $278 $380 $436 $413 $455 $468 $605 $747 $860 $1,007D&A 66 80 80 94 115 123 143 151 176 202 233 264

Operating IncomeROVs $44 $64 $109 $144 $190 $208 $208 $225 $249 $282 $325 $394Subsea Products 13 17 53 93 96 61 109 142 171 231 274 289Subsea Projects 4 21 58 89 73 67 52 14 63 94 108 130Asset Integrity 4 9 16 23 31 26 26 31 45 55 60 72Advanced Technolog 15 11 11 14 10 12 17 17 21 25 5 5Other 15 14 15 11 10 7 0 0 0 0 0 0Unallocated Expenses (29) (34) (65) (89) (89) (90) (100) (112) (121) (142) (145) (148)Operating Income $66 $100 $197 $286 $321 $290 $311 $317 $429 $545 $627 $742

Net interest expense (7) (10) (12) (14) (13) (7) (3) (0) (2) (2) (1) (0)Affiliate Income 8 11 12 4 2 3 2 4 2 0 (0) 0Other (2) (1) (3) (2) 0 2 (3) (1) (6) (1) (0) 0Pretax Income $65 $101 $194 $274 $311 $288 $308 $320 $422 $542 $626 $742Taxes (23) (36) (67) (96) (109) (101) (106) (96) (133) (171) (192) (223)Net income $42 $65 $126 $178 $202 $187 $202 $224 $289 $372 $434 $520



ROV 20% 20% 26% 27% 30% 32% 31% 30% 29% 29% 30% 31% Subsea Products 8% 7% 15% 18% 15% 12% 20% 18% 21% 22% 22% 21% Subsea Projects 6% 17% 37% 35% 28% 28% 21% 9% 17% 18% 19% 21% Asset Integrity 3% 5% 9% 10% 12% 12% 12% 11% 10% 11% 12% 13% Advanced Technolog 11% 9% 9% 9% 6% 6% 7% 7% 7% 9% 2% 2%Companywide 8% 10% 15% 16% 16% 16% 16% 14% 15% 17% 17% 18%

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Oceaneering



ROVs $230 $242 $255 $255 $256 $268 $283 $279 $293 $315 $327 $322Subsea Products 214 258 264 292 260 327 369 292 299 352 397 314Subsea Projects 88 118 143 160 138 136 143 160 152 150 157 176Asset Integrity 115 125 119 124 124 130 131 126 139 146 146 141Advanced Technolog 72 77 73 64 62 65 69 71 66 69 73 75Other 0 0 0 0 0 0 0 0 0 0 0 0Total Revenue $719 $820 $853 $895 $840 $927 $995 $927 $949 $1,032 $1,101 $1,028

0 $158 $197 $205 $188 $186 $217 $232 $224 $233 $251 $272 $251D&A 50 50 51 51 53 56 60 64 65 66 67 68

Operating IncomeROVs $66 $69 $75 $72 $77 $76 $82 $91 $93 $98 $102 $101Subsea Products 43 62 62 64 55 79 79 60 62 75 86 66Subsea Projects 12 24 31 28 21 26 28 33 31 30 32 38Asset Integrity 12 17 16 10 14 16 18 12 16 19 22 16Advanced Technolog 9 10 6 (0) 3 0 1 1 3 0 1 1Other 0 0 0 0 0 0 0 0 0 0 0 0Unallocated Expenses (33) (36) (36) (37) (36) (36) (36) (36) (37) (37) (37) (37)Operating Income $108 $146 $154 $137 $133 $161 $172 $161 $168 $185 $206 $183

Net interest expense (1) (0) (1) 0 (0) (0) (0) (0) (0) (0) (0) (0)Affiliate Income 0 (0) 0 0 (0) 0 0 0 0 0 0 0Other 1 (2) (1) (0) 0 (0) 0 0 0 0 0 0Pretax Income $109 $144 $152 $136 $133 $161 $172 $161 $168 $185 $206 $183Taxes (34) (45) (48) (43) (42) (50) (52) (48) (50) (56) (62) (55)Net income $75 $99 $104 $93 $91 $110 $120 $112 $118 $130 $144 $128



ROV 29% 29% 29% 28% 30% 28% 29% 33% 32% 31% 31% 31% Subsea Products 20% 24% 23% 22% 21% 24% 22% 21% 21% 21% 22% 21% Subsea Projects 13% 20% 21% 17% 15% 19% 20% 21% 20% 20% 20% 21% Asset Integrity 11% 13% 14% 8% 11% 12% 14% 9% 12% 13% 15% 11% Advanced Technolog 12% 13% 9% 0% 5% 0% 1% 1% 5% 0% 1% 1%Companywide 15% 18% 18% 15% 16% 17% 17% 17% 18% 18% 19% 18%

2013 2014 2015

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Oceaneering



2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $17 $26 $26 $27 $11 $162 $245 $106 $121 $91 $165 $287 Accounts Receivable 191 244 315 371 447 435 424 550 667 769 843 934Inventories 69 124 182 273 290 277 314 328 416 573 584 647Other 0 0 (0) (0) (0) 0 0 0 (0) 0 0 0Current assets $277 $394 $524 $671 $748 $874 $984 $984 $1,203 $1,433 $1,593 $1,869PPE 401 409 524 638 697 766 786 893 1,025 1,189 1,425 1,631Goodwill 63 85 87 112 119 131 143 333 363 344 371 371Investments 0 0 0 65 64 59 52 50 43 37 35 35Other 79 102 108 46 42 50 66 140 134 125 134 134Total assets $820 $990 $1,242 $1,531 $1,670 $1,880 $2,031 $2,401 $2,768 $3,129 $3,557 $4,040

Liabilities & shareholders' equity Accounts Payable $47 $64 $71 $77 $93 $86 $86 $111 $130 $130 $176 $195 Accrued Liabilties 112 142 180 236 244 256 314 335 408 517 495 548Accrued Empl Comp 11 16 29 26 21 46 40 55 78 81 96 106Current Maturities 0 0 0 0 0 0 0 0 0 0 0 0Current liabilities $171 $223 $280 $339 $357 $389 $440 $501 $617 $727 $767 $850LT debt 142 174 194 200 229 120 0 120 94 0 80 80Other LT liabilities 52 57 72 77 116 147 200 221 241 358 363 363Total liabilities $365 $453 $545 $616 $702 $656 $640 $843 $953 $1,085 $1,210 $1,294Shareholders Equity $454 $536 $697 $915 $968 $1,224 $1,390 $1,558 $1,815 $2,043 $2,346 $2,747Total $820 $990 $1,242 $1,531 $1,670 $1,880 $2,031 $2,401 $2,768 $3,129 $3,557 $4,040


Net income $40 $63 $124 $180 $199 $188 $201 $236 $289 $372 $434 $520Depreciation 66 80 80 94 115 123 154 151 176 202 233 264Other 10 (8) 8 16 5 33 42 (2) 44 73 28 0Working Capital Chg (16) (41) (62) (81) (72) 74 45 (96) (70) (117) (65) (72)Cash from operations $100 $94 $151 $209 $248 $418 $442 $289 $439 $529 $631 $712

Investing ActivitiesCapex ($153) ($142) ($194) ($234) ($209) ($175) ($207) ($235) ($301) ($383) ($457) ($471)Asset sales 1 3 7 7 6 13 15 44 4 12 2 0Other 0 0 0 0 (43) 0 0 (292) (9) (7) (37) 0Cash Provided From I ($153) ($139) ($187) ($227) ($246) ($162) ($192) ($483) ($306) ($378) ($493) ($471)

Financing Activities Change in Debt $19 $32 $20 $6 $29 ($109) ($120) $120 ($27) ($94) $80 0 Change in Equity 32 23 16 13 (53) 4 (47) (16) (17) 4 (32) 0Dividends paid 0 0 0 0 0 0 0 (49) (75) (91) (112) (120)Other 0 0 0 0 7 0 0 0 0 0 0 0Cash flow financing $51 $55 $36 $19 ($17) ($105) ($167) $55 ($118) ($180) ($64) ($120)

Chg in cash ($2) $10 ($0) $1 ($16) $151 $83 ($139) $14 ($29) $74 $122Beginning cash 18 17 26 26 27 11 162 245 106 121 91 165

Ending cash $17 $26 $26 $27 $11 $162 $245 $106 $121 $91 $165 $287

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251

Oil States International

Investment Thesis States is a SMID cap capital equipment provider. The company has been restructuring its business, selling off the accommodations unit and refocusing on completion & drilling services at the well site and offshore products. With exposure to both the key U.S. land basins and the global offshore We rate the company Buy with a $71 price target based on a 16.5x target multiple on our 2015E EPS.

Company Strategy Now a smaller more focused company, OIS is seeking new M&A opportunities, targeting tuck-in acquisitions to expand its technology offering or into new geographic markets. Having added new capacity in India, Thailand, Tulsa, Vietnam, the U.K. and Brazil over the last two years, the company is now likely to target smaller private companies in the $40-75mm range, though management has indicated it may look towards further share repurchases if it cannot find attractive deals.

Outlook for 2015 Book to bill in Offshore Products has been, with the company maintaining a record backlog at likely higher margins. Less exposed to offshore development delays or weakness in the offshore rig construction market as only 10% of revenue is from rig construction, OIS produces connectors and other pipeline equipment for both deepwater and shallow water environments. The company’s well site operations is highly levered to North America land drilling, with isolation tools, well testing and flowback, wireline, and coiled tubing, just to name a few of the company’s offerings. OIS’s fleet of fit-for-purpose land rigs include 34 semi-automatic units, operating primarily in West Texas and the Rockies. Drilling services utilization should continue to improve steadily over time, though a 10% drop in utilization is equivalent to about a $5,400/day drop in cash margins. We’re modeling the company to grow revenue and expand margins in both operating segments, though expect margins to remain below their historical peaks.

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Key Thoughts and Potential Catalysts With Well Site Services, OIS expects demand for completion services to strengthen, somewhat offset

by slightly lower contribution from drilling services with utilization sliding to 85% from 91% last quarter. Management guided for margins to improve sequentially in this segment to 32-34%.

Revenue from Offshore Products is expected to range $250-260mm in 3Q14, with margins slipping to 20-22% from 22.4% last quarter.

Interest expense drops substantially in 3Q, with a substantial of the company’s debt transferred to Civeo, the former Accommodations business.

The company aggressively bought back stock over the last quarter, with the average share count dropping to 50.4mm from 53.1mm the prior quarter, a 5% decline and adding $0.05 to our 3Q EPS estimates. While OIS did not extend the share repurchase program, continued weakness in stock makes it a strong possibility the company will likely keep buying back shares



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OIS


OIS current trades at 14.1x, in line with the group's average but a 110% premium to its historical 6.68x.

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2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

Completion Services $260 $356 $234 $343 $488 $523 $578 $643 $733Drilling Services 143 177 71 133 166 191 170 196 201Offshore Products 528 528 509 429 586 804 883 964 984Accommodations 313 427 481 538 867 1,113 1,046 253 0Tubular Services 844 1,460 812 969 1,375 1,782 1,110 0 0Total revenues $2,088 $2,948 $2,108 $2,950 $4,346 $5,522 $4,569 $2,055 $1,918

EBITDACompletion Services 96 111 37 88 163 177 194 220 252Drilling Services 67 68 10 25 41 58 48 57 60Offshore Products 93 100 92 72 107 149 175 207 210Accommodations 109 156 179 202 361 488 439 96 0Tubular Services 41 172 45 38 67 86 33 0 0Corporate and Elimina (21) (27) (30) (40) (41) (46) (52) (58) (58)Total EBITDA $386 $581 $333 $386 $698 $913 $836 $521 $464D&A (71) (103) (118) (124) (188) (230) (278) (164) (133)Other Costs (17) (9) (1) (0) (2) (9) (4) (2) 0Operating income $298 $469 $213 $262 $508 $673 $555 $355 $331Interest expense, net (14) (18) (15) (15) (56) (67) (74) (25) (6)Affiliates income 3 4 1 0 (0) 0 (0) 0 0Other 14 5 (0) (0) 2 9 0 2 (0)Pretax Income $300 $460 $200 $247 $454 $615 $481 $332 $325

Income Tax Expense (97) (161) (56) (73) (132) (174) (135) (115) (106)Minority Interest 0 0 0 1 1 1 1 0 0

Net Income $203 $299 $144 $175 $322 $441 $346 $217 $219

Per Share DataDiluted Earnings $4.00 $5.83 $2.86 $3.31 $5.86 $7.96 $6.23 $4.17 $4.31Dividend $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

Margins SummaryGross marginsCompletion Services 0% 31% 16% 26% 33% 34% 34% 34% 34%Drilling Services 237% 38% 14% 19% 25% 30% 28% 29% 30%Offshore Products 133% 19% 18% 17% 18% 19% 20% 21% 21%EBITDA margins 100% 20% 16% 13% 16% 17% 18% 25% 24%Operating margin 14% 16% 10% 9% 12% 12% 12% 17% 17%

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Completion Services $137 $144 $152 $145 $146 $156 $169 $172 $174 $180 $185 $194Drilling Services 40 44 44 42 47 53 48 48 48 50 51 52Offshore Products 201 204 242 235 212 251 254 246 218 253 261 253Accommodations 297 249 246 254 253 0 0 0 0 0 0 0Tubular Services 394 406 310 0 0 0 0 0 0 0 0 0Total revenues $1,069 $1,047 $684 $675 $658 $460 $471 $466 $439 $484 $497 $498

EBITDACompletion Services 40 48 53 53 50 51 59 59 60 60 65 67Drilling Services 10 13 11 13 13 16 14 14 14 15 15 15Offshore Products 36 42 46 52 43 56 54 53 46 53 56 55Accommodations 136 98 102 103 96 0 0 0 0 0 0 0Tubular Services 16 17 13 0 0 0 0 0 0 0 0 0Corporate and Elimina (14) (14) (13) (11) (15) (14) (15) (15) (15) (15) (15) (15)Total EBITDA $224 $204 $198 $210 $187 $109 $113 $112 $105 $114 $122 $123D&A (67) (69) (70) (72) (70) (31) (31) (32) (32) (33) (34) (34)Other Costs (0) (1) (4) 0 (1) (1) 0 0 0 0 0 0Operating income $157 $135 $125 $138 $115 $77 $82 $80 $73 $81 $89 $88Interest expense, net (20) (19) (18) (17) (16) (6) (2) (2) (2) (2) (2) (2)Affiliates income (1) (0) 0 0 0 0 0 0 0 0 0 0Other 1 1 4 (5) 1 1 (0) (0) (0) (0) (0) (0)Pretax Income $138 $116 $110 $117 $100 $72 $81 $79 $71 $79 $87 $87

Income Tax Expense (38) (33) (29) (35) (28) (26) (31) (30) (23) (26) (28) (28)Minority Interest 0 0 0 0 0 0 0 0 0 0 0 0

Net Income $100 $84 $81 $82 $72 $47 $50 $49 $48 $53 $59 $59


Margins SummaryGross marginsCompletion Services 29% 34% 35% 37% 34% 33% 35% 35% 34% 33% 35% 35%Drilling Services 25% 30% 26% 31% 28% 29% 30% 29% 30% 30% 30% 30%Offshore Products 18% 20% 19% 22% 20% 22% 21% 22% 21% 21% 22% 22%EBITDA margins 21% 19% 29% 31% 28% 24% 24% 24% 24% 23% 25% 25%Operating margin 15% 13% 18% 20% 17% 17% 17% 17% 17% 17% 18% 18%

2013 2014 2015

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2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $31 $30 $90 $96 $72 $253 $599 $158 $426Accounts receivable 450 576 386 479 732 833 620 553 592Inventory 349 612 423 501 654 701 267 263 281Other 36 19 27 23 32 39 40 58 63Current assets 866 1,237 926 1,100 1,490 1,826 1,526 1,033 1,361PPE 587 695 750 1,253 1,557 1,852 1,903 580 617Goodwill 392 305 219 475 467 521 514 254 254Deferred loan costs 0 0 0 139 128 146 134 54 54Other 85 60 38 49 62 95 55 24 24Total assets $1,930 $2,299 $1,932 $3,016 $3,704 $4,440 $4,131 $1,945 $2,310

Liabilities & shareholders' equityAccounts payable $239 $372 $209 $305 $349 $388 $281 $179 $192Income taxes 0 53 14 5 10 30 33 8 8Current maturities 5 5 0 181 34 30 1 1 1Other 61 107 92 64 81 71 60 50 50Current liabilities $305 $537 $315 $554 $475 $519 $374 $238 $251LT debt 487 449 164 732 1,143 1,280 973 188 188Deferred taxes 0 16 (15) 21 27 17 (8) 39 61Other LT liabilities 12 13 16 20 26 47 37 16 16Total liabilities $845 $1,063 $550 $1,387 $1,740 $1,974 $1,506 $469 $481Shareholder's Equity $1,085 $1,236 $1,382 $1,629 $1,963 $2,466 $2,625 $1,476 $1,829Total $1,930 $2,299 $1,932 $3,016 $3,704 $4,440 $4,131 $1,945 $2,310


Net income $223 $60 $169 $323 $450 $423 $163 $219D&A 103 118 124 188 230 278 192 133Other Non-Cash Exp. 104 100 38 45 32 (101) 176 93Working Capital Chg (172) 176 (100) (340) (75) 87 (189) (8)Cash from operations $257 $453 $231 $216 $637 $687 $342 $438

Investing ActivitiesCapex ($30) $0 ($710) ($2) ($80) ($44) $4 $0Asset sales (247) (124) (182) (487) (488) (458) (243) (170)Other 80 96 2 (3) (7) (122) 107 0Cash from investing ($246) ($103) ($890) ($489) ($577) $108 ($241) ($170)

Financing ActivitiesChg in Debt ($3) ($300) $648 $266 $126 ($341) ($93) $0Change in Equity (1) 3 23 2 (2) (92) (141) 0Other 3 (1) (22) (9) (4) 2 (307) 0Cash flow financing ($2) ($297) $649 $258 $121 ($431) ($541) $0

FX and other (10) 6 16 (9) 1 (19) (2) 0

Chg in cash $0 ($0) $60 $7 ($25) $182 $346 ($442) $268Beginning cash 56 61 0 90 96 72 253 600 158

Ending cash $56 $61 $60 $96 $72 $253 $600 $158 $426

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Pacific Drilling

Investment Thesis PACD is developing a solid reputation for operational and technological excellence. The company is an ultra-deepwater pure play with a growing asset base and strong customer relationships. While the ultra-deepwater market is currently undergoing a supply-driven softening, we continue to think long-term fundamentals remain attractive. We rate the shares Buy with a $12 price target based on 7.2x our 2015E EBITDA.

Company Strategy With among the youngest fleet of ultra deepwater drillships, Pacific Drilling benefits from lower maintenance and operating costs for a standardized fleet of 10-12k ft. drillships from Samsung Heavy Industries. All six active floaters are working in the Golden Triangle, allowing the company to post almost the strongest gross margins for offshore contract drillers at almost 60% last quarter. Revenue and EBITDA should ramp up in the near term from the start-up of the newest drillship Pacific Sharav and the Pacific Bora rolling onto a higher dayrate of $586kpd vs. $474kpd previously; however, the next newbuild Pacific Meltem faces uncertain contract risk as the $600mm drillship remains available but is undergoing final testing in the shipyard for early 4Q14 delivery. While the company has traditionally built on spec, management is deferring further fleet additions until it secures commitment for at least one of two uncontracted newbuilds, with the final Pacific Zonda likely at least three months delayed from its current 1Q15 expected delivery.

Outlook for 2015 Management indicated the Meltem could start work in 1Q15 through direct negotiations, and we are modeling the 12k ft capable drillship to start work in February at a rate of $505kpd. We believe Pacific’s newest drillship could be picked up by Petrobras at similar rates as the Pacific Mistral, which we are modeling to renew for 3-years following its current 3-year $458kdp contract in February. Our estimates are likely below consensus as we’re modeling downtime in 2015 for the Mistral for managed pressure drilling upgrades, but expect the loss in revenue to be offset by the Sharav and Meltem, while margins remain relatively steady as costs are capitalized. With an $800mm undrawn credit facility available and positive operating cash flow, Pacific should have adequate financial flexibility for its remaining $940mm in newbuild commitments and new 2015 cash distribution. Shareholders approved the $0.17 quarterly dividend commencing 1Q15 and management expects to fund it with cash from operations. With the final newbuild payment scheduled for mid-2015, we forecast Pacific’s free cash flow to ramp up sharply for debt reduction, with management targeting 3.0-3.5x EBITDA and 40-50% net-debt-to-cap within five years (vs. the current 5.5x and 50% respectively).

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Pacific Drilling

Key Thoughts and Potential Catalysts Pacific narrowed its 3Q14 operating fleet revenue efficiency to 93.5-94.5% from 93-96% in its

October 3rd fleet status report, suggesting the company incurred greater unexpected downtime during the quarter vs. the strong 97.1% revenue efficiency booked in 2Q. While the full year guidance range of 90-93% remains unchanged, we see risk to the downside as the recent start-up of newbuild Pacific Sharav is likely to experience greater shakedown in its initial few quarters of operation.

Petrobras’ renewal of the Pacific Mistral has been delayed by several quarters, with the NOC likely re-negotiating for more favorable terms in recent quarters as industry dayrates continue to trend lower. With Petrobras reportedly renewing all six ultra deepwater floaters and potentially taking two-to-three incremental units, we believe Petrobras could signal a market bottom for UDW dayrates but see a potential recovery as still several quarters away.

The company expects to generate $365mm and $535mm in cash from operations in 2014 and 2015, above our $300mm and $450mm estimates, suggesting potential upside for accelerated debt reduction and/or return of cash to shareholders. Shareholders need to approve the dividend annually during the May general meeting

While Pacific let the option for a 9th drillship lapse in 4Q13, we expect the company to order another newbuild before the end of 2015. Only two floaters have been ordered year to date from non-Chinese shipyards, suggesting hungry shipyards are likely to continue to offer high spec floaters in the low $600mm range for 2018 delivery.



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PACDOffshore Drillers

PACD current trades at 5.9x, an 1.% premium to the group's 5.8x average but a -33% discount to its historical 8.9x.

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Pacific Drilling


2009 2010 2011 2012 2013 2014E 2015ERevenues

Direct dayrate revenues $955 $1,262Amortization of deferred revenues 106 77Other 0 0Total revenues $0 $0 $65 $638 $746 $1,061 $1,339

ExpensesDirect operating expenses ($352) ($467)Reimbursable costs (22) (21)Shore-based & other support costs (38) (40)Amortization of deferred costs (52) (28)Total expenses $0 $0 ($32) ($331) ($337) ($465) ($556)G&A (9) (20) (53) (45) (49) (57) (67)Other 0 0 19 24 0 0 0EBITDA ($9) ($20) ($1) $285 $360 $540 $716Depreciation & Amortization ($0) ($0) ($12) ($128) ($149) ($203) ($290)Other (0) 0 0 0 0 0 0Operating income ($9) ($20) ($12) $157 $210 $337 $426Equity in earnings from jv $4 $56 $19 $0 $0 $0 $0Interest income 2 2 0 0 0 0 0Interest expense 0 (1) (10) (102) (94) (115) (132)Other income 5 56 23 3 (2) (3) (2)Pretax income ($2) $37 $0 $59 $115 $219 $292Taxes (0) 0 (3) (23) (22) (40) (47)Minority interest 0 0 0 0 0 0 0Net income ($2) $37 ($3) $36 $93 $179 $245

Per Share DataDiluted Earnings ($0.02) $0.25 ($0.01) $0.16 $0.43 $0.81 $1.10Dividend $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.69

Margins SummaryGross margin 48% 55% 56% 58%EBITDA margins 45% 48% 51% 53%Operating margins 25% 28% 32% 32%

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Pacific Drilling



Direct revenues $0 $0 $0 $0 $198 $233 $243 $281 $279 $280 $340 $364Deferred revenues 0 0 0 0 28 28 26 24 21 19 19 18Other 175 177 193 201 0 0 0 0 0 0 0 0Total revenues $175 $177 $193 $201 $226 $261 $270 $305 $300 $299 $359 $381

ExpensesDirect opex $0 $0 $0 $0 ($83) ($81) ($84) ($104) ($102) ($106) ($126) ($133)Reimbursable costs 0 0 0 0 (7) (4) (6) (6) (5) (5) (5) (5)Shore-based & other 0 0 0 0 76 72 77 97 99 105 125 132Deferred costs 0 0 0 0 (13) (14) (13) (12) (9) (7) (7) (6)Total expenses ($84) ($79) ($83) ($91) ($111) ($108) ($113) ($133) ($126) ($128) ($148) ($154)G&A (11) (12) (13) (13) (13) (14) (15) (16) (16) (17) (17) (18)Other 0 0 0 0 0 0 0 0 0 0 0 0EBITDA $80 $86 $97 $97 $102 $139 $142 $157 $159 $154 $194 $210D&A ($37) ($37) ($37) ($40) ($46) ($46) ($51) ($60) ($69) ($69) ($75) ($78)Other 0 0 0 0 0 0 0 0 0 0 0 0Operating income $43 $49 $61 $57 $56 $93 $91 $97 $90 $85 $119 $132Equity in JV earnings $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Interest income 0 0 0 0 0 0 0 0 0 0 0 0Interest expense (23) (22) (24) (26) (26) (29) (30) (31) (32) (33) (34) (35)Other income 0 (0) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1)Pretax income $20 $27 $36 $31 $29 $63 $61 $66 $58 $52 $85 $97Taxes (5) (5) (6) (5) (7) (13) (9) (11) (11) (10) (13) (13)Minority interest 0 0 0 0 0 0 0 0 0 0 0 0Net income $15 $22 $30 $26 $22 $50 $51 $56 $47 $42 $72 $84


Margins SummaryGross margin 52% 55% 57% 55% 51% 59% 58% 57% 58% 57% 59% 60%EBITDA margins 45% 49% 50% 48% 45% 53% 53% 51% 53% 52% 54% 55%Operating margins 25% 28% 31% 29% 25% 36% 34% 32% 30% 29% 33% 35%

2013 2014 2015

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2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $40 $107 $606 $204 $135 $187Accounts receivable 18 63 152 206 185 231Other 36 292 166 143 324 405Current assets $94 $462 $924 $553 $644 $822PPE 1,893 3,436 3,760 4,512 5,632 5,994Other 284 287 209 99 86 238Total assets $2,272 $4,184 $4,894 $5,164 $6,362 $7,054

Liabilities & shareholders' equityAccounts payable $7 $27 $30 $54 $58 $67Accrued expenses 9 39 39 66 84 98Other 64 280 332 131 145 169Current liabilities $80 $346 $402 $251 $287 $334Total debt 400 1,456 2,035 2,423 3,388 3,788Deferred revenue 12 73 97 88 113 113Other LT liabilities 5 35 45 1 4 4Total liabilities $497 $1,910 $2,579 $2,764 $3,792 $4,239Noncontrolling interest 0 0 0 0 0 0Common stock 1,775 2,274 2,315 2,400 2,570 2,815Total $2,272 $4,184 $4,894 $5,164 $6,362 $7,054

2009 2010 2011 2012 2013 2014E 2015EOperating Activities

Net income ($2) $37 ($3) $34 $25 $179 $245Depreciation 0 0 12 128 149 203 290Deferred income taxes 0 (0) (3) (4) (4) 3 0Deferred revenue 0 0 (9) (96) (70) (56) 0Other (6) (58) (10) 90 57 36 0Working Capital Chg 1 (9) (52) 33 45 (63) (80)Cash from operations ($7) ($30) ($64) $185 $202 $303 $456

Investing ActivitiesCapex ($146) ($884) ($1,540) ($450) ($898) ($1,328) ($652)Increase in restricted cash (1) (61) (315) 205 172 0 0Other (37) 0 0 0 0 0 0Cash from investing ($184) ($945) ($1,855) ($245) ($726) ($1,328) ($652)

Financing ActivitiesChg in LT debt $0 $450 $1,225 $579 $137 $956 $400Dividend paid 0 0 0 0 0 0 (152)Other 199 108 761 (20) (105) (0) 0Cash flow financing $199 $1,008 $1,986 $559 $33 $956 $248

Chg in cash $7 $33 $67 $499 ($491) ($69) $52Beginning cash 0 7 40 107 606 204 135

Ending cash $7 $40 $107 $606 $115 $135 $187

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Paragon Offshore

Investment Thesis Spun out of Noble Corp in July 2014, Paragon Offshore has a fleet of 39 standard specification assets (6 floaters, 33 jackups). While the average age of PGN’s jackup fleet is almost 35 years old, many aspects of each rig has been replaced in recent years, with the fleet age more comparable to 15 year old vessels. Although the industry has become increasingly concerned about potential over supply in the jackup market, Chinese shipyards account for 55 of 98 available newbuilds under construction, about half of which has unproven Chinese equipment that is not competitive in the global market and likely to sit idle in the yard without a contract. With only 39% of the jackup fleet and 66% of floaters committed thus far in 2015, investors are understandably concerned about near term earnings visibility. We see no risk to the $0.125 quarterly dividend for now (8% yield), but expect margins to deteriorate as the company is likely to experience gaps between contracts for several units rolling over in the next six-to-12 months.

Company Strategy Paragon Offshore staunchly defends the superior operating efficiency and safety record of its asset base, citing a higher average fleet utilization and operational downtime of only 2% vs. the industry’s 4-5% and 8% for newbuilds. With global decline rates accelerating, management sees no change in demand over the next five years for experienced assets and crews, with Mexico and the North Sea the two brightest markets currently. A low annual maintenance capex of only $70-190mm and no newbuild commitments leaves PGN with significant free cash flow to return to investors. The company recently instituted a regularly quarterly dividend of $0.125 per share and repurchased $60m of senior notes on the open market at an attractive discount of 85.7%. The Board authorized another $40m of debt repurchases that is likely to be executed in the next six months with cash from operation, as PGN maintain financial flexibility for potential acquisitions in the future. Seeing itself as a natural consolidator for the industry, the company identified 50+ used rigs with existing infrastructure for potential acquisitions, likely targeting multi-rig deals in under-represented markets (i.e. India/Asia). However PGN is unlikely to act in the next 12-18 months as it does not anticipate a jump in incremental demand, suggesting cash in 2015 are likely to be returned to shareholders in the form of a dividend increase, share repurchases and/or early debt retirement.

Outlook for 2015 The company forecast lower cost inflation in the near term, a positive side effect of the current weakness in the industry, with margins to remain relatively flat in the low 50% range. We’re modeling contract drilling margins to deteriorate modestly in 2015, as the company will likely experience gaps for several units rolling off contract over the next few quarters. Paragon has two floaters scheduled to roll with Petrobras and both units are unlikely to continue working. We’re modeling the DPDS1 (5k ft drillship built in 1979) to go off rate for 45 days before rolling onto a new contract at a 10% discount, while the MSS2 (4k ft semisub built in 1977) is released in October upon the completion of its current $270kpd contract. In addition, we’re conservatively modeling 90 days of gap time for three MidEast jackups rolling off contract in the next 12 months, as logistics (i.e. visas for crews) could cause start-up delays. On the bright side we expect Pemex to renew all seven of 10 active jackups rolling over in the next six months at the same rate, but make no assumption the available L1116 returns to work. Potential upside could also come from two jackups rolling off contract in the North Sea in January, as we’re currently modeling 31 days of downtime each before returning to work at flat rates.

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Paragon Offshore

Key Thoughts and Potential Catalysts Unlikely to comfort jittery investors, we expect Paragon to report a messy quarter in its first as an

independent company, with earnings falling sequentially for one-time non-operating costs and an unusually high tax rate of 48-52%. Although the company instituted a $0.125 quarterly dividend (8% yield), we expect PGN shares to remain under pressure until earnings visibility for 2015 and 2016 improves. The company has several jackups and floaters at risk of going idle over the next 12 months, and we’re conservatively modeling more than 450 and 90 incremental non-revenue days for the jackup and floater fleet respectively (representing 4% of available days each).

Already one of the largest operators in Mexico, reform could present Paragon with opportunities to expand through acquisitions or mobilization of nearby idle assets. We expect Pemex to renew all seven of 10 active jackups rolling over in the next six months, as the NOC ramp up its rig count to 70 by year end 2015 and 80 by year end 2016 from 50 currently (44 jackups, 6 floaters). With 13 jackups ready stacked in country including three newbuilds delivered in the past year, management believes some Mexican contractors are not set-up to operate.

Despite instituting a $152mm annual dividend, Paragon retains ample financial flexibility for potential acquisitions and recently retired $60m of senior debt on the open market. While some investors may have been disappointed with the conservative starting dividend, preferred by rating agencies, management plans to grow the dividend steadily over time. We believe the dividend is safe despite risk to earnings in the near term, but prefer cash be used opportunistically to retire debt or buy back stock, with the shares trading at a significant discount to the group (3.7x EV/EBITDA vs. group average 5.7x).



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'06 '07 '08 '09 '10 '11 '12 '13 '14

PGNOffshore Drillers

PGN current trades at 3.5x, a -38% discount to the group's

5.8x average.

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Paragon Offshore


2010 2011 2012 2013 2014E 2015ERevenues

Contract drilling services $1,260 $1,615 $1,696 $1,676Reimbursables 50 46 34 30Labor contract drilling services 37 35 33 33Other 0 0 0 0Total revenues $1,346 $1,696 $1,762 $1,738

ExpensesContract drilling services ($794) ($836) ($850) ($925)Reimbursables (39) (35) (23) (19)Labor contract drilling services (22) (24) (25) (25)Other 0 0 0 (0)Operating costs ($855) ($895) ($898) ($969)G&A (54) (58) (56) (64)EBITDA $437 $742 $809 $705D&A ($322) ($367) ($406) ($411)Other 0 (24) 0 0Operating income $115 $351 $402 $294Interest Expense ($4) ($106) ($104) ($98)Other 2 (2) 1 1Pretax income $113 $243 $299 $196Taxes (44) (71) (96) (65)Minority interest 0 0 0 0Net income $69 $172 $204 $131

Per Share DataDiluted Earnings $0.00 $2.03 $2.40 $1.55Dividend $0.00 $0.00 $0.13 $0.50


Contract drilling 37% 48% 50% 45%Companywide 37% 47% 49% 44%

EBITDA margins 32% 42% 28% 41%Operating margins 9% 21% 23% 17%

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Paragon Offshore



Contract drilling services $436 $421 $410 $428 $392 $421 $435 $427Reimbursables 12 7 7 7 7 7 7 7Labor contract drilling services 8 8 8 8 8 8 8 8Other 0 0 0 0 0 0 0 0Total revenues $456 $437 $426 $444 $407 $437 $451 $443

ExpensesContract drilling services ($209) ($206) ($217) ($219) ($222) ($229) ($235) ($238)Reimbursables (9) (5) (5) (5) (5) (5) (5) (5)Labor contract drilling services (6) (6) (6) (6) (6) (6) (6) (6)Other 0 (0) (0) (0) (0) (0) (0) (0)Operating costs ($224) ($216) ($227) ($230) ($233) ($240) ($246) ($249)G&A (12) (12) (17) (16) (16) (16) (16) (16)EBITDA $220 $209 $182 $198 $158 $180 $189 $178D&A ($100) ($101) ($103) ($103) ($103) ($103) ($103) ($103)Other 0 0 0 0 0 0 0 0Operating income $120 $107 $79 $96 $55 $78 $86 $75Interest Expense ($26) ($28) ($25) ($26) ($25) ($25) ($25) ($25)Other 0 0 0 0 0 0 0 0Pretax income $94 $80 $55 $70 $31 $53 $62 $51Taxes (18) (21) (28) (30) (10) (18) (20) (17)Minority interest 0 0 0 0 0 0 0 0Net income $76 $59 $28 $41 $21 $36 $41 $34



Contract drilling 52% 51% 47% 49% 43% 46% 46% 44%Companywide 51% 50% 47% 48% 43% 45% 45% 44%

EBITDA margins 0% 0% 43% 45% 39% 41% 42% 40%Operating margins 26% 25% 19% 22% 14% 18% 19% 17%

2013 2014 2015

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Paragon Offshore



2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $76 $71 $86 $324Accounts receivable 205 322 329 328Other 70 73 111 111Current assets $351 $466 $526 $763PPE 3,374 3,552 2,888 2,657Other 142 101 95 247Total assets $3,867 $4,118 $3,510 $3,667

Liabilities & shareholders' equityAccounts payable $149 $128 $123 $134

related costs 59 58 52 57Other 20 25 123 133Current liabilities $228 $212 $298 $323LT debt 975 340 1,667 1,667Deferred taxes 111 97 79 79Other LT liabilities 111 104 107 107Total liabilities $1,425 $753 $2,151 $2,175Noncontrolling interest 0 0 0 0Common stock 2,442 3,365 1,359 1,492Total $3,867 $4,118 $3,510 $3,667

2010 2011 2012 2013 2014E 2015EOperating Activities

Net income $461 $105 $126 $172 $68 $133Depreciation 297 349 368 367 206 411Deferred income taxes 8 (27) (14) 0 0Other 21 11 19 0 0Working Capital Chg 242 29 (93) 10 26Cash from operations $1,030 $466 $406 $284 $570

Investing ActivitiesCapex ($409) ($518) ($532) ($359) ($210) ($180)Change in accrued capex $10 $7 ($8) $0 $0Refund from contract extinguishme 0 19 0 0 0Other (1,325) 0 0 0 0Cash from investing ($1,724) ($493) ($541) ($210) ($180)

Financing ActivitiesChg in LT debt $40 $935 ($635) ($60) $0Issuance (repurchase) of preferred $0 ($3) ($5) $0 $0Issuance (repurchase) of equity $654 ($906) $771 $0 $0Other 0 0 0 0 (152)Cash flow financing $694 $26 $130 ($60) ($152)

Chg in cash ($1) ($1) ($5) $2 $13 $238Beginning cash 77 77 76 71 73 86

Ending cash $77 $76 $71 $73 $86 $324

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266

Parker Drilling

Investment Thesis We are positive on PKD as we believe the trajectory for utilization within the U.S. rental tools business remains upward sloping, international rental tools is set to enjoy stronger utilization and pricing after transitory issues in Q2, GOM barge drilling activity and rates will continue to increase and utilization for international drilling increases in the long run. Pricing for domestic rental tools is a major question mark but believe increased activity is a sign that pricing inflection is coming. We rate the shares Buy with a $7 price target based on a 4.0x target multiple on our 2015E EBITDA.

Company Strategy PKD aims to add value for its customers by providing innovative, reliable and efficient services across the rental tools, international land drilling and GOM barge drilling businesses. It’s key priorities in its rental tools business is to seek further activity and pricing gains on rising U.S. land drilling activity, expand its position in the high margin GOM offshore market, and to improve revenues and margins in its international business through structural changes. On the drilling side PKD aims to maximize the company benefit from additions and enhancements to its barge rig fleet, sustain high international rig fleet utilization and complete regional redeployments, and increase the scale with new rigs and operations and maintenance contracts in core international regions. The company has strong exposure to the Middle East and Central Asia where footage drilled is expected to increase 34% markets, providing the company with a very strong growth opportunity.

Outlook for 2015 Recent downward movement in oil prices give us some pause on the barge and rental tools side but we believe long-term picture remains intact and thus are not overtly worried. The barge drilling business could even see a bump in utilization as customers renew contracts after potentially delaying them due to hurricane season. The international drilling picture remains positive in the long term as most of Parker’s customers are major NOCs and IOCs who possess longer investment horizons and are less sensitive to short-term commodity price swings, but geopolitical issues may cause delays and idling.

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Parker Drilling

Key Thoughts and Potential Catalysts PKD is targeting long-term margins in the mid to upper 30% range for International Rental Tools and

expects to see some improvement during 2H14, up from a base of 12% for 1H14. To accomplish this PKD recently hired new business leaders, allocated senior operation leadership from within PKD, and completed most of its facility moves and refurbishments during 2Q14. Domestically, the August operational report showed a 260 basis point month over month improvement to 92.9% for tubular goods utilization, the highest level in the past 12 months. The ops report also showed increased rental tools inventory which we believe is indicative of PKD’s confidence in penetrating new shale plays as well as the unfolding expansion in the working floater count in the GOM (25% of domestic rental revenues and a more favorable margin profile).

According to the August operational report, dayrates continue to increase which we view as representative of the tightening within the market (of which PKD has a 50% market share) as well as a favorable business mix (the lower depth 12B barge going uncontracted before being upgraded in January ‘15). Utilization through August during Q3 fell 1200 bps to 78%, but we expect this to rebound after the upgrades to rig 12B and the rig returns to work in January. Additionally, we believe the decrease in utilization was partially due to customers choosing not to contract rigs during Hurricane season in order to avoid potential exposure to storms. Finally, our numbers contain significant upside if gas prices were to return to the $5/Mcf range as gas reserves in the shallow water GOM are typically found at much deeper depths than oil, thus enabling barge drillers to charge premium dayrates. We are not calling for an immediate spike in gas prices but do believe the potential exists for a strong gas cycle in 2016 and beyond.

The near term outlook is much choppier than it was just three months ago due to the recent security issues in Kurdistan where two rigs from Tunisia were expected to mobilize to and Russian sanctions open the possibility of delaying work for Parker. We still expect the Tunisian rigs to eventually mobilize to the region but the timing of the move has been delayed. IN relationship to Russia, we are unsure what the exact implications are but we expect more color on the Q3 conference call. On a positive note, we expect one and possibly two of PKD’s Colombian rigs to return to work in that country.



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'06 '07 '08 '09 '10 '11 '12 '13 '14

PKD

Onshore Drillers

PKD current trades at 3.1x, a -33% discount to the group's 4.7x average but


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Parker Drilling


2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

U.S. Barge Drilling $128 $191 $231 $174 $50 $65 $94 $124 $137 $158 $202U.S. Drilling 0 0 0 0 0 0 0 1 67 81 85International Drilling 309 273 285 325 293 220 226 292 334 365 415Rental Tools 95 122 138 172 115 173 237 247 310 351 416Technical Services 0 0 0 160 295 202 130 14 26 43 30Total revenues $532 $586 $655 $830 $753 $659 $687 $678 $874 $998 $1,148

ExpensesU.S. Barge Drilling (67) (83) (98) (84) (48) (53) (65) (69) (71) (78) (100)U.S. Drilling 0 0 0 0 0 0 (1) (10) (55) (60) (63)International Drilling (237) (220) (215) (231) (191) (169) (171) (232) (264) (290) (328)Rental Tools (38) (46) (54) (67) (53) (60) (74) (89) (163) (210) (228)Technical Services 0 0 0 (138) (263) (180) (107) (14) (19) (41) (29)Segment Operating Expe ($342) ($350) ($368) ($521) ($555) ($463) ($418) ($414) ($573) ($680) ($748)G&A (27) (32) (25) (26) (34) (24) (29) (30) (45) (39) (45)EBITDA $163 $205 $262 $282 $164 $172 $240 $310 $254 $280 $355D&A (67) (69) (86) (117) (114) (115) (112) (113) (134) (143) (147)Operating Income $96 $136 $176 $165 $50 $57 $128 $197 $120 $137 $207Net Interest expense (44) (40) (30) (26) (29) (27) (23) (34) (50) (44) (43)Other income 6 17 9 2 3 1 3 1 8 3 1Pretax Income $58 $113 $155 $141 $24 $31 $108 $164 $78 $95 $165Taxes (12) (35) (52) (48) (10) (21) (47) (35) (31) (41) (74)Net income $45 $78 $103 $94 $14 $10 $60 $129 $46 $54 $91



U.S. Barge Drilling 48% 56% 57% 51% 3% 17% 31% 44% 48% 50% 50%U.S. Drilling 0% 0% 0% 0% 0% 0% 0% -588% 18% 26% 26%International Drilling 23% 20% 25% 29% 35% 23% 24% 21% 21% 21% 21%Rental Tools 60% 62% 61% 61% 54% 65% 69% 95% 47% 40% 45%Technical Services 0% 0% 0% 13% 11% 11% 18% -1% 26% 5% 4%EBITDA Margin 31% 35% 40% 34% 22% 26% 35% 46% 29% 28% 31%Operating Margin 18% 23% 27% 20% 7% 9% 19% 29% 14% 14% 18%

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Parker Drilling



U.S. Barge Drilling $30 $38 $34 $35 $30 $40 $42 $46 $48 $49 $52 $53U.S. Drilling 12 18 19 19 19 20 21 21 21 21 22 22International Drilling 65 83 89 98 85 92 88 100 101 104 104 107Rental Tools 57 82 90 81 81 87 90 93 96 102 108 109Technical Services 4 5 7 11 13 15 7 7 7 7 8 8Total revenues $167 $226 $238 $243 $229 $254 $248 $267 $273 $284 $293 $298

ExpensesU.S. Barge Drilling (17) (18) (18) (17) (19) (19) (20) (21) (29) (23) (24) (24)U.S. Drilling (11) (14) (15) (15) (14) (15) (15) (16) (16) (16) (16) (16)International Drilling (60) (63) (65) (76) (69) (73) (70) (78) (81) (82) (81) (83)Rental Tools (25) (44) (49) (46) (52) (54) (53) (52) (54) (56) (59) (60)Technical Services (4) (4) (7) (5) (13) (14) (7) (7) (7) (7) (7) (7)Segment Operating E ($117) ($144) ($154) ($158) ($166) ($175) ($164) ($175) ($186) ($184) ($188) ($191)G&A (9) (11) (9) (15) (9) (9) (11) (11) (11) (11) (11) (11)EBITDA $41 $71 $75 $70 $54 $71 $72 $81 $76 $89 $94 $96D&A (30) (32) (36) (36) (34) (36) (36) (37) (37) (37) (37) (37)Operating Income $11 $40 $39 $31 $20 $36 $36 $45 $39 $52 $57 $59Net Interest expense (10) (13) (13) (14) (12) (11) (11) (11) (11) (11) (11) (11)Other income 0 4 1 2 1 1 0 0 0 0 0 0Pretax Income $1 $31 $26 $19 $9 $27 $25 $34 $29 $42 $46 $49Taxes 1 (14) (12) (7) (3) (11) (11) (15) (13) (19) (21) (22)Net income $3 $17 $14 $12 $5 $15 $14 $19 $16 $23 $25 $27



U.S. Barge Drilling 42% 52% 47% 50% 39% 53% 52% 53% 39% 54% 53% 54%U.S. Drilling 3% 20% 21% 22% 29% 25% 25% 26% 26% 26% 26% 26%International Drilling 7% 24% 26% 22% 19% 20% 21% 21% 20% 21% 21% 22%Rental Tools 56% 47% 46% 44% 36% 38% 42% 44% 44% 45% 46% 45%Technical Services 9% 3% 3% 58% 5% 7% 3% 3% 4% 4% 4% 4%EBITDA Margin 24% 32% 31% 29% 24% 28% 29% 30% 28% 31% 32% 32%Operating Margin 7% 18% 16% 13% 9% 14% 15% 17% 14% 18% 19% 20%

2013 2014 2015

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Parker Drilling



2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $60.2 $92.2 $60.1 $172.3 $108.8 $51.4 $97.9 $87.9 $148.7 $86.6 $187.5Accounts receivable 105 112 167 186 189 169 184 169 258 280 295Inventories 18 15 24 30 32 26 30 29 42 48 43Other 98 98 72 85 114 122 56 68 71 73 72Current assets $281 $318 $323 $473 $444 $368 $368 $353 $519 $488 $598PP&E 355 435 586 676 717 816 720 786 871 917 922Goodwill 108 100 100 0 0 0 0 0 0 0 0Other 57 48 60 57 83 90 129 117 144 158 158Total assets $802 $901 $1,069 $1,206 $1,243 $1,275 $1,216 $1,256 $1,535 $1,563 $1,678

Liabilities & shareholders' equityAccounts Payable $141 $102 $104 $78 $95 $163 $135 $62 $182 $197 $221Accrued Liabilities 10 0 0 75 82 0 5 80 0 0 0Current Maturities 0 0 0 0 0 0 0 0 25 10 10Total Current Liabilities $151 $102 $104 $153 $177 $163 $140 $142 $207 $207 $231LT Debt 380 329 374 441 424 473 483 479 629 610 610Deferred Income Taxes 0 0 0 8 16 20 16 21 39 48 48Other LT Liabilities 11 11 56 21 30 30 33 23 27 20 20Total Liabilities $542 $442 $534 $624 $647 $686 $672 $665 $902 $886 $910Shareholders' Equity $260 $459 $535 $582 $596 $588 $545 $591 $633 $677 $768Total $802 $901 $1,069 $1,206 $1,243 $1,275 $1,216 $1,256 $1,535 $1,563 $1,678


Net Income $67 $81 $104 $26 $9 ($15) ($51) $37 $27 $36 $91Depreciation 99 69 86 117 114 115 112 113 134 143 147Deferred Income taxes (45) 16 20 10 (15) (1) (48) 16 13 (8) 0Other (16) 9 11 109 17 23 179 23 22 38 0Working Capital Chg 17 (8) (147) (42) (15) 2 33 1 (34) (22) 15Cash from operations $123 $167 $74 $220 $111 $124 $226 $190 $161 $188 $253

Investing ActivitiesCapex ($69) ($195) ($242) ($197) ($160) ($219) ($190) ($192) ($156) ($190) ($153)Asset Sales 61 51 23 5 9 6 6 4 8 3 0Other Investing (4) (50) 66 (4) 0 0 1 0 (118) 0 0Cash Flow From Investin ($13) ($195) ($153) ($197) ($151) ($213) ($184) ($188) ($265) ($187) ($153)

Financing ActivitiesChange in Debt ($101) ($50) $40 $88 ($22) $31 $4 ($11) $175 ($30) $0Change in Equity 7 107 4 0 0 0 0 0 0 0 0Other 0 2 2 0 (2) 1 1 (1) (10) (33) 0Cash flow financing ($94) $60 $47 $88 ($24) $32 $5 ($12) $165 ($63) $0

Chg in cash $16 $32 ($32) $112 ($63) ($57) $47 ($10) $61 ($62) $101Beginning cash 44 60 92 60 172 109 51 98 88 149 87

Ending cash $60 $92 $60 $172 $109 $51 $98 $88 $149 $87 $188

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Patterson-UTI Energy

Investment Thesis As the horizontal well count increases, laterals get longer, and pad drilling offers additional efficiencies for operators, we believe AC rigs (like PTEN’s APEX Rigs) will enjoy increased demand and the North American land drilling business will remains robust. As a result of increased rig demand, we expect spot rates will continue to climb, term lengths will increase, and utilization will remain high; even as the supply of AC rigs in the industry increases. Additionally, we believe an increased fleet size (2 deliveries per month) will allow PTEN to increase margins through operating leverage of fixed costs. Pumping seems to now be serving as a tailwind for the company as it has been able to push pricing in several areas and increases its fleet size, though only enough to offset cost increases.

Company Strategy PTEN, with large, modern land drilling fleet, remains at the forefront of the North American shale revolution. The company has built a capable land drilling fleet and in doing so offers its clients a value proposition unmatched by competitors. PTEN’s fleet of 139 APEX rigs (~65% of total fleet) allows for efficiencies unmatched by mechanical and SCR rigs. AC drive FlexRigs offer increased drilling productivity and reliability, greater rig move capabilities and a safer workplace leading to decreased well costs for operators, even at premium dayrates, and as a result will continue to replace older generation rigs. On the pumping front, the company’s operations are split between Texas and Appalachia two very strong pumping markets.

Outlook for 2015

PTEN’s future outlook for 2015 is positive. We predict E&P capex budgets will increase 10% in 2015 setting a positive backdrop for the oilfield services industry as a whole. On the land drilling side of the business, we believe dayrates will continue to increase as the benefits offered by premium AC rigs are better understood by the market and that PTEN’s APEX rigs will continue to displace older rigs. PTEN has publically declared its intention to build two rigs per month through at least June 2015. On the pressure pumping side, much of the additional capacity coming to market is serving as spare and replacement capacity and so we expect marketed utilization to remain high, though maybe not as high as current levels of 90%, and for pricing to also increase.

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Key Thoughts and Potential Catalysts Continuing improvements in U.S. land pricing. Average dayrates over the past four quarters have

increased almost $1K/d on a per rig basis; we believe that will continue to improve as leading edge dayrates of $26-$28K/d (with upside from current levels) push contract terms up. Anecdotally, we have been told by a private, high-spec land drilling company that the only impediment to $30,000 rates is the fact that marketers have never signed contracts at those rates before.

Oversupply? The current build out of approximately 500 rigs between 2012 and 2015 has increased concerns over an impending cliff for dayrates and utilization amongst certain investors. We feel those fears are overblown as North American horizontal drilling activity continues to remain robust, offering PTEN an opportunity to displace older rigs currently undertaking those jobs. There are over 1,000 mechanical and SCR rigs operating in the US, with 75% drilling horizontal wells. One last fact, talk of three year contracts for newbuilds and payback periods of 42-48 months for mid-teen returns give us additional room for optimism.

Pressure Pumping fundamentals improving. North American fundamentals are rapidly improving as utilization exceeds 90% in North America, service intensity increases, horsepower required on location increases and crew sizes/costs increase. A combination of these factors is responsible for the pricing inflection that has recently begun. PTEN expects to increase its HHP count to 1.1MM by June 2015 through acquisitions and new orders.



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Onshore Drillers

PTEN current trades at 3.6x, a -23% discount to the group's 4.7x average but


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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

Contract Drilling $810 $1,486 $2,169 $1,742 $1,804 $599 $1,082 $1,670 $1,822 $1,617 $1,857 $2,109Completion 67 93 146 203 217 161 351 846 842 979 1,247 1,898Eliminations 34 40 39 42 42 21 30 51 60 57 49 52Total revenues $1,001 $1,740 $2,547 $2,114 $2,209 $847 $1,463 $2,566 $2,723 $2,653 $3,153 $4,059

ExpensesContract Drilling (557) (776) (1,002) (963) (1,038) (358) (656) (973) (1,075) (969) (1,084) (1,206)Eliminations (38) (55) (78) (105) (133) (111) (235) (561) (581) (744) (996) (1,504)Other (8) (10) (13) (11) (13) (7) (7) (10) (11) (13) (12) (12)Total Cost Of Sales ($679) ($939) ($1,244) ($1,188) ($1,311) ($537) ($898) ($1,544) ($1,668) ($1,726) ($2,091) ($2,722)G&A (32) (39) (55) (65) (68) (62) (51) (64) (64) (72) (78) (80)Other expense (22) (24) (14) (0) (0) (8) 3 4 4 1 5 1EBITDA $268 $738 $1,234 $861 $830 $240 $517 $961 $995 $856 $988 $1,258 Depreciation (119) (156) (196) (249) (268) (281) (333) (422) (514) (560) (620) (653)Operating Income $148 $581 $1,038 $612 $562 ($41) $184 $540 $481 $297 $368 $604Net interest expense (2) (4) (7) (5) (2) (5) (10) (16) (23) (29) (29) (29)Other income 21 28 15 5 4 1 4 1 3 4 2 2Earnings Before Tax $168 $605 $1,045 $612 $563 ($44) $178 $525 $460 $271 $341 $577Income tax (58) (219) (373) (212) (200) 15 (67) (194) (171) (99) (111) (185)Net income $110 $386 $673 $401 $364 ($29) $111 $331 $289 $172 $230 $393


Margins SummaryGross MarginsContract Drilling Rigs 31% 48% 54% 45% 42% 40% 39% 42% 41% 40% 42% 43%Pressure Pumping 44% 41% 47% 48% 39% 31% 33% 34% 31% 24% 20% 21%Other (Oil & Gas) 76% 76% 66% 74% 70% 65% 77% 81% 81% 77% 76% 77%Companywide 32% 46% 51% 44% 41% 37% 39% 40% 39% 35% 34% 33%Operating Margin 15% 33% 41% 29% 25% -5% 13% 21% 18% 11% 12% 15%

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Contract Drilling $419 $390 $395 $413 $426 $439 $485 $508 $509 $511 $547 $541Completion 231 255 259 234 240 307 338 362 454 474 491 479Eliminations 17 15 14 12 12 12 12 13 12 13 13 14Total revenues $667 $659 $668 $659 $678 $757 $835 $883 $975 $998 $1,052 $1,033

ExpensesContract Drilling (247) (243) (240) (239) (251) (255) (281) (296) (297) (292) (309) (307)Eliminations (168) (188) (204) (184) (200) (242) (267) (287) (358) (375) (389) (381)Other (3) (3) (4) (3) (3) (3) (3) (3) (3) (3) (3) (3)Total Cost Of Sales ($418) ($434) ($447) ($426) ($454) ($500) ($551) ($586) ($659) ($670) ($701) ($692)G&A (17) (18) (18) (19) (20) (20) (20) (20) (20) (20) (20) (20)Other expense (0) 1 1 2 2 3 0 0 0 0 0 0EBITDA $231 $207 $203 $216 $206 $241 $265 $277 $297 $308 $330 $322 Depreciation (136) (137) (141) (145) (147) (153) (158) (161) (162) (163) (164) (164)Operating Income $95 $70 $62 $70 $59 $87 $107 $116 $135 $145 $167 $157Net interest expense (7) (7) (8) (7) (7) (7) (7) (7) (7) (7) (7) (7)Other income 0 1 1 1 0 0 0 0 0 0 0 0Earnings Before Tax $88 $63 $55 $64 $52 $80 $100 $109 $128 $139 $160 $151Income tax (32) (23) (20) (23) (17) (26) (32) (35) (41) (44) (51) (48)Net income $56 $40 $35 $41 $35 $54 $67 $74 $87 $94 $109 $102


Margins SummaryGross MarginsContract Drilling Rigs 41% 38% 39% 42% 41% 42% 42% 42% 42% 43% 44% 43%Pressure Pumping 27% 26% 21% 22% 17% 21% 21% 21% 21% 21% 21% 20%Other (Oil & Gas) 83% 78% 74% 73% 73% 76% 77% 77% 76% 77% 77% 77%Companywide 37% 34% 33% 35% 33% 34% 34% 34% 32% 33% 33% 33%Operating Margin 14% 11% 9% 11% 9% 12% 13% 13% 14% 15% 16% 15%

2013 2014 2015

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $112 $136 $13 $17 $81 $50 $28 $24 $111 $250 $4 $419Federal Tax Receivabl 0 0 5 0 10 119 75 0 0 0 3 3Accounts Receivable 214 422 484 373 415 164 337 518 466 452 592 693Other 61 79 150 132 135 124 118 223 124 108 148 173Current assets 387 638 653 523 641 457 557 765 700 809 747 1,288PP&E $765 $1,054 $1,436 $1,841 $1,937 $2,110 $2,621 $3,167 $3,615 $3,636 $4,166 $4,113Goodwill 99 99 99 96 86 86 180 176 171 167 177 177Investments 0 0 0 0 0 0 0 0 0 0 0 0Other 6 5 5 5 48 8 65 114 70 75 99 99Total assets $1,257 $1,796 $2,193 $2,465 $2,713 $2,662 $3,423 $4,222 $4,557 $4,687 $5,190 $5,678

Liabilities & shareholders' equityAccounts Payable $68 $119 $157 $157 $170 $84 $162 $242 $189 $173 $374 $442Accrued Liabilities 83 137 161 138 133 110 147 177 165 171 202 239Current Maturities 0 0 0 0 0 0 0 0 0 10 10 10Current liabilities $152 $255 $318 $295 $303 $193 $310 $419 $354 $354 $587 $690LT debt 0 0 120 50 0 0 399 493 699 683 678 678Deferred income taxes 140 169 188 219 278 382 511 787 857 888 898 948Other 3 4 4 4 6 5 16 7 7 6 8 8Total liabilities $295 $429 $630 $569 $586 $580 $1,235 $1,705 $1,916 $1,931 $2,171 $2,324

Shareholders' Equity $962 $1,367 $1,562 $1,896 $2,127 $2,082 $2,188 $2,517 $2,641 $2,756 $3,019 $3,354Total $1,257 $1,796 $2,193 $2,465 $2,713 $2,662 $3,423 $4,222 $4,557 $4,687 $5,190 $5,678


Net Income $110 $386 $673 $401 $364 ($29) $111 $331 $289 $172 $230 $393Depreciation 123 156 196 249 268 290 333 437 527 597 620 653Deferred Taxes 15 17 (4) 38 66 101 147 159 160 51 15 50Other (4) 14 29 45 26 13 (4) 8 0 39 8 0Working Capital Chg (40) (113) (57) 79 (49) 78 (62) (67) 29 30 (49) (23)Cash from operations $203 $460 $837 $812 $675 $454 $526 $869 $1,005 $889 $825 $1,073

Investing ActivitiesCapital Expenditures ($175) ($454) ($598) ($608) ($449) ($453) ($738) ($1,012) ($974) ($662) ($1,100) ($600)Sale of PP&E (30) 13 11 5 12 3 (209) 48 66 10 15 0Other 2 2 0 0 0 (0) 43 0 0 0 0 0Cash from investing ($203) ($439) ($587) ($602) ($437) ($449) ($904) ($964) ($908) ($652) ($1,085) ($600)

Financing ActivitiesChange in Debt $0 $0 $120 ($70) ($50) $0 $388 $104 $189 ($6) ($5) $0Change in Equity 0 43 (449) (70) (71) (2) (1) 12 (169) (67) 69 0Dividends (10) (27) (46) (69) (93) (31) (31) (31) (30) (29) (58) (58)Other 22 (12) 2 2 42 (6) 0 6 0 5 9 0Cash flow financing $12 $4 ($373) ($206) ($172) ($38) $356 $92 ($11) ($97) $14 ($58)

Chg in cash $12 $25 ($123) $4 $66 ($31) ($22) ($4) $87 $139 ($245) $414Beginning cash 100 112 136 13 17 81 50 28 24 111 250 4Ending cash $112 $138 $13 $17 $83 $50 $28 $24 $111 $250 $4 $419

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Precision Drilling

Investment Thesis Precision operates a fleet of contract land drilling rigs in the U.S. and Canada, ideally situated across the most active NAM regions. International expansion has been slower, with the company operating just 11 rigs and targeting Kuwait and Mexico for incremental growth. Precision’s alliance with Schlumberger should position it to take advantage of the 16% annual growth in unconventional horizontal development driving the U.S. land rig count higher. The company is also the largest well service provider in Canada, with a growing presence in the U.S. We rate PD Buy with a $16 price target based on a 6.0x target multiple on our 2015E EBITDA.

Company Strategy Traditionally a leading contract driller in Canada, the company has been expanding in the U.S. and Internationally, though International expansion has been slower. The company has been winning market share in the Marcellus and Bakken, as well as the Permian and Niobrara. Precision has an alliance with Schlumberger, marrying Precision’s field execution and customer interface with Schlumberger’s tools, technology, training and engineering support.

Outlook for 2015 The company is ramping up newbuilding activity, with plans to add 18 rigs in 2014 and 15 in 2015, with 30% of the growth targeting its U.S. operations while the balance goes towards Canada and the Middle East. Having shortened lead-times for newbuild rigs, the pace of deliveries should accelerate to two-to-three rigs per month. The company plans to deploy 3-4 rigs per year Internationally. PD also upgraded about 20 rigs in 2014, which should command higher dayrates and utilization in 2015. While the company anticipate ongoing demand for its high spec Tier 1 rigs from the proposed LNG buildout in Western Canada, dayrate growth are expected to remain relatively modest. However, recent cost control initiatives should drive margins.

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Precision Drilling

Key Thoughts and Potential Catalysts PD has grown international revenues at a compounded quarterly growth rate of 29% from ~$6MM

in Q1 2012 to $46MM during Q2 2014. The company has six rigs in Mexico where it focuses on IPM support and seven rigs (nine rigs deployed) in the Middle East (Kurdistan, Kuwait and Saudi Arabia) where it focuses on HPHT drilling for customers with specialized needs. We view both of these markets as very strong, high margin markets, especially given the expectations for increased capital spending in both Mexico and the Middle East.

PD is the best position driller for Western Canadian LNG and Duverney.

PD has a large mix of Tier 1 and Tier 2 rigs, making up 66% and 28% of the fleet respectively. The company’s high performance Tier 1 super series rigs are designed to be horizontal drilling machines, with small footprint and walking/skidding systems. Horizontal activity account for 86% of the company’s U.S. and 93% of the company’s Canada operations.



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PD

Onshore Drillers

PD current trades at 4.1x, a -12% discount to the group's 4.7x average but


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278

Precision Drilling


2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

Contract Drilling $916 $1,010 $694 $809 $1,031 $1,213 $1,632 $1,725 $1,720 $2,077 $2,392C&P 370 441 327 309 176 228 330 326 323 372 465Eliminations (17) (13) (13) (16) (10) (11) (11) (11) (13) (11) (13)Total revenues $1,269 $1,438 $1,009 $1,102 $1,197 $1,430 $1,951 $2,041 $2,030 $2,438 $2,844

ExpensesContract Drilling (449) (471) (345) (425) (578) (739) (931) (1,037) (1,019) (1,205) (1,408)C&P (232) (232) (184) (189) (124) (159) (211) (217) (243) (268) (314)Eliminations 39 14 13 16 10 11 11 11 13 11 13Operating Expenses ($642) ($688) ($516) ($598) ($692) ($887) ($1,131) ($1,243) ($1,249) ($1,462) ($1,708)G&A (76) (81) (56) (67) (98) (108) (125) (127) (143) (160) (179)EBITDA $529 $667 $437 $437 $407 $435 $695 $671 $639 $816 $957D&A (72) (73) (78) (84) (138) (183) (251) (308) (333) (428) (451)Operating Income $457 $594 $359 $353 $269 $253 $444 $363 $306 $388 $505Interest Expense (29) (8) (7) (14) (147) (211) (112) (88) (93) (103) (88)Other income 3 1 (2) 2 123 13 24 (3) 9 4 0Pretax Income $432 $587 $349 $341 $244 $54 $356 $273 $222 $288 $418Income Tax Expense (103) (15) (6) (38) (26) 8 (87) (40) (30) (42) (63)Net income $329 $572 $343 $303 $219 $62 $268 $232 $191 $247 $355



Contract Drilling 51% 53% 50% 47% 44% 39% 43% 40% 41% 42% 41%Completion 37% 47% 44% 39% 30% 30% 36% 33% 25% 28% 33%Total Gross Margin 48% 52% 49% 46% 42% 38% 42% 39% 38% 40% 40%Operating Margin 36% 41% 36% 32% 22% 18% 23% 18% 15% 16% 18%EBITDA Margin 42% 46% 43% 40% 34% 30% 36% 33% 31% 33% 34%

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Precision Drilling



Contract Drilling $496 $327 $412 $484 $572 $411 $520 $574 $674 $489 $599 $630C&P 104 55 79 85 103 67 88 114 136 96 110 123Eliminations (4) (4) (2) (3) (3) (2) (3) (3) (4) (3) (3) (3)Total revenues $596 $379 $488 $567 $672 $475 $605 $685 $807 $582 $706 $750

ExpensesContract Drilling (277) (213) (256) (273) (319) (250) (303) (333) (382) (307) (352) (367)C&P (69) (49) (59) (65) (79) (57) (58) (74) (92) (70) (72) (80)Eliminations 4 4 2 3 3 2 3 3 4 3 3 3Operating Expenses ($342) ($259) ($313) ($335) ($395) ($304) ($358) ($404) ($470) ($375) ($420) ($444)G&A (39) (32) (38) (34) (40) (41) (37) (42) (50) (39) (43) (46)EBITDA $215 $88 $138 $198 $237 $130 $210 $239 $287 $168 $242 $260D&A (85) (73) (86) (90) (106) (106) (107) (109) (110) (112) (114) (116)Operating Income $130 $16 $52 $108 $132 $24 $103 $129 $178 $56 $128 $144Interest Expense (23) (24) (23) (23) (24) (26) (27) (27) (22) (22) (22) (22)Other income 3 5 (3) 4 4 0 0 0 0 0 0 0Pretax Income $111 ($3) $26 $88 $111 ($1) $76 $103 $156 $34 $106 $122Income Tax Expense (18) 4 4 (20) (9) (6) (11) (15) (23) (5) (16) (18)Net income $93 $0 $29 $68 $102 ($7) $65 $87 $132 $29 $90 $104



Contract Drilling 44% 35% 38% 44% 44% 39% 42% 42% 43% 37% 41% 42%Completion 33% 11% 25% 24% 23% 15% 34% 35% 33% 27% 35% 35%Total Gross Margin 43% 32% 36% 41% 41% 36% 41% 41% 42% 36% 40% 41%Operating Margin 22% 4% 11% 19% 20% 5% 17% 19% 22% 10% 18% 19%EBITDA Margin 36% 23% 28% 35% 35% 27% 35% 35% 36% 29% 34% 35%

2013 2014 2015

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Precision Drilling



2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $0 $0 $0 $62 $131 $257 $467 $153 $81 $427 $105Accounts receivable 501 355 257 602 284 415 576 510 550 664 727Inventories 7 9 9 9 9 5 7 14 12 15 16Other 0 9 6 13 26 0 0 0 0 8 9Current assets $508 $372 $272 $685 $449 $677 $1,051 $676 $643 $1,114 $858PP&E 944 1,108 1,211 3,243 2,914 2,532 2,942 3,243 3,562 3,754 4,033Goodwill 267 281 281 842 761 285 364 311 312 312 312Deferred Income taxes 0 0 0 58 65 65 65 65 58 58 58Other 0 0 0 6 3 6 6 6 4 4 4Total assets $1,719 $1,761 $1,763 $4,834 $4,192 $3,565 $4,428 $4,300 $4,579 $5,243 $5,265

Liabilities & shareholders' equityShort-Term Debt $20 $37 $14 $49 $0 $0 $0 $0 $0 $0 $0Accounts Payable 134 130 81 270 128 218 437 334 333 402 440Other 200 39 36 21 0 1 4 64 4 5 5Current liabilities $355 $206 $131 $340 $129 $219 $440 $398 $337 $407 $446LT debt 97 141 120 1,368 749 804 1,240 1,219 1,323 1,716 1,416Deferred income taxes 193 175 182 771 703 578 588 486 487 498 498Other 0 23 14 31 27 30 27 26 32 37 37Total liabilities $644 $544 $447 $2,510 $1,607 $1,632 $2,295 $2,129 $2,180 $2,657 $2,396

Shareholders' Equity $1,075 $1,217 $1,317 $2,324 $2,585 $1,933 $2,133 $2,171 $2,399 $2,586 $2,869Total $1,719 $1,761 $1,763 $4,834 $4,192 $3,565 $4,428 $4,300 $4,579 $5,243 $5,265


Net Income $221 $573 $343 $303 $162 $62 $193 $52 $191 $247 $355Depreciation 72 73 78 84 138 183 251 308 333 428 451Other (82) 3 (1) 42 32 130 147 239 (62) 23 0Working Capital Chg (12) (39) 64 (85) 173 (69) (60) (89) 91 (41) (27)Cash from operations $198 $610 $484 $344 $505 $305 $533 $510 $553 $656 $780

Investing ActivitiesCapital Expenditures ($155) ($263) ($187) ($230) ($193) ($176) ($726) ($868) ($536) ($653) ($730)Sale of PP&E 15 29 6 10 16 12 16 31 13 17 0Acquisitions (30) (16) 0 (768) 0 0 (93) (0) 0 0 0

Other 1,313 15 (10) (33) (33) 46 88 (93) (4) 0 0Cash from investing $1,142 ($235) ($191) ($1,020) ($210) ($118) ($715) ($930) ($527) ($636) ($730)

Financing ActivitiesChange in Debt ($621) ($381) ($293) $898 ($593) ($33) $407 $0 $30 $406 ($300)Change in Equity 44 6 0 0 413 0 2 2 51 6 0Dividends 0 0 0 0 0 0 (1) (14) (58) (70) (71)Other (886) 0 0 (160) (22) (25) (41) (3) (1) (10) 0

Cash flow financing ($1,463) ($375) ($293) $738 ($201) ($59) $367 ($15) $22 $331 ($371)

FX and other

Chg in cash ($122) $0 ($0) $62 $69 $126 $211 ($440) $53 $346 ($321)Beginning cash 70 (52) (52) (52) 9 78 205 415 (25) 28 374

Ending cash ($52) ($52) ($52) $9 $78 $205 $415 ($25) $28 $374 $53

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RPC Inc.

Investment Thesis RPC Inc. is a SMID cap production and completion services provider, serving primarily U.S. land-based independents in unconventional basins. Leveraged to the oil and natural gas liquids, a growing mix of U.S. activity, the company is focused on returns while maintaining among the lowest debt-to-capital ratio of its peers at just 11%. The company offers a full suite of products and services, with the majority of revenue driven from pressure pumping followed by downhole tools and coiled tubing. Seeing little holes in its product and service offerings, we rate RES Buy with a $23 price target based on 6.0x our 2015E EBITDA.

Company Strategy With a high exposure to the Permian and the Eagle Ford, RES’s pressure pumping fleet is ideally situated in the strongest U.S. land basins. Operating the brand name of Cudd Energy Services, RES has a fleet of 710K HHP and is the 8th largest provider in the U.S. land market. Downhole tools are an increasingly important revenue contributor, providing strong margins in multi-stage completions. Coiled tubing account for 9% of RPC’s revenue, with industry utilization and pricing falling dramatically in recent quarters from equipment over capacity. Meanwhile, rental tools and workover services are a relatively small contributor to RES’s top line.

Outlook for 2015 Completion service intensity continues to grow, driven by higher rig efficiency and pad drilling, resulting in more frac stages and more proppant used per stage. The company recently announced a 28% increase to its pressure pumping fleet over the next 12 months.

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RPC Inc.

Key Thoughts and Potential Catalysts RES increased its quarterly dividend by 23% annually over the last 16 years and is likely to increase

the dividend again in 2015. Stock buybacks have been more infrequent.

Due to the high revenue mix of pressure pumping and downhole tools, RES average higher return on invested capital than its production & completion services peers.



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RPC Inc.


2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

Technical Services $279 $363 $495 $575 $746 $513 $980 $1,664 $1,794 $1,730 $2,197 $2,746Support Services 57 64 102 115 131 75 117 146 151 132 150 163Other 4 0 0 0 0 0 0 0 0 0 0 0Total revenues $340 $428 $597 $689 $877 $588 $1,096 $1,810 $1,945 $1,861 $2,346 $2,909

EBITDA $86 $137 $225 $220 $263 $98 $374 $662 $657 $489 $634 $840

Operating incomeTechnical Services $47 $84 $153 $116 $111 ($20) $217 $451 $420 $276 $397 $579Support Services 8 12 31 30 37 (2) 31 52 46 26 33 41Corporate (9) (10) (12) (11) (4) (6) (13) (17) (18) (18) (17) (14)Other (335) (416) (600) (692) (881) (590) (1,093) (1,814) (1,951) (1,871) (2,353) (2,914)Operating income $51 $98 $169 $133 $139 ($30) $239 $482 $442 $275 $406 $600Interest expense (0) 0 (0) (4) (5) (2) (3) (3) (2) (2) (0) (0)Interest expense (0) 0 (0) (4) (5) (2) (3) (3) (2) (2) (0) (0)Other income 2 3 10 10 4 (2) 3 2 2 3 3 3Pretax income $53 $101 $179 $139 $138 ($33) $239 $481 $443 $276 $409 $604Taxes (18) (34) (68) (53) (54) 11 (91) (182) (168) (109) (160) (236)Minority interest 0 0 0 0 0 0 0 0 0 0 0 0Net income $35 $66 $111 $86 $83 ($23) $148 $298 $274 $167 $249 $368


Margins SummaryEBITDA Margins 25% 32% 38% 32% 30% 17% 34% 37% 34% 26% 27% 29%Operating margins

Technical Services 17% 23% 31% 20% 15% -4% 22% 27% 23% 16% 18% 21%Support Services 15% 19% 30% 26% 28% -2% 27% 35% 30% 20% 22% 25%Companywide 15% 23% 28% 19% 16% -5% 22% 27% 23% 15% 17% 21%

October 14, 2014

284

RPC Inc.



Technical Services $394 $424 $458 $454 $467 $544 $596 $590 $584 $680 $745 $737Support Services 32 34 33 33 35 38 38 38 38 42 41 42Other 0 0 0 0 0 0 0 0 0 0 0 0Total revenues $426 $458 $491 $487 $502 $583 $634 $628 $622 $722 $786 $779

EBITDA $110 $121 $139 $119 $121 $160 $183 $170 $162 $211 $242 $225

Operating incomeTechnical Services $59 $66 $86 $65 $65 $100 $124 $109 $99 $145 $177 $158Support Services 6 7 6 7 7 9 8 9 9 11 10 11Corporate (5) (4) (5) (4) (5) (4) (4) (4) (4) (3) (3) (3)Other (428) (459) (492) (491) (504) (584) (635) (629) (623) (724) (787) (780)Operating income $57 $68 $86 $65 $65 $103 $126 $112 $103 $151 $182 $164Interest expense (0) (1) (0) (0) (0) (0) (0) (0) (0) (0) (0) (0)Interest expense (0) (1) (0) (0) (0) (0) (0) (0) (0) (0) (0) (0)Other income 1 (0) 1 1 0 1 1 1 1 1 1 1Pretax income $57 $67 $87 $65 $65 $104 $127 $113 $104 $152 $183 $165Taxes (22) (26) (33) (28) (26) (41) (50) (44) (40) (59) (71) (64)Minority interest 0 0 0 0 0 0 0 0 0 0 0 0Net income $35 $40 $54 $38 $39 $63 $77 $69 $63 $93 $112 $101


Margins SummaryEBITDA Margins 26% 26% 28% 24% 24% 27% 29% 27% 26% 29% 31% 29%Operating margins

Technical Services 15% 16% 19% 14% 14% 18% 21% 18% 17% 21% 24% 21%Support Services 20% 21% 18% 21% 21% 23% 20% 23% 24% 26% 23% 26%Companywide 13% 15% 17% 13% 13% 18% 20% 18% 17% 21% 23% 21%

2013 2014 2015

October 14, 2014

285

RPC Inc.



2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $30 $13 $3 $6 $3 $4 $9 $7 $14 $9 $62 $269Other 96 130 183 229 290 215 390 619 554 596 746 746Current assets $126 $143 $186 $235 $293 $219 $399 $627 $568 $605 $808 $1,015PP&E 114 141 263 433 470 396 453 675 756 726 815 976Goodwill 20 24 24 24 24 24 24 24 24 32 32 32Other 3 4 5 9 6 9 12 12 19 21 22 22Total assets $263 $312 $478 $701 $793 $649 $888 $1,338 $1,367 $1,384 $1,677 $2,045

Liabilities & shareholders' equityAccounts Payable $23 $30 $51 $61 $61 $50 $79 $123 $110 $119 $594 $604Other 25 20 24 29 31 18 39 56 55 49 (389) (398)Current liabilities $48 $50 $75 $91 $92 $68 $118 $179 $165 $168 $205 $205LT debt 2 0 36 156 174 90 121 203 107 53 131 131Other LT liabilities 31 29 32 45 78 81 110 193 196 194 172 172Total liabilities $82 $79 $143 $292 $344 $239 $349 $576 $468 $415 $509 $509Minority Interest 0 0 0 0 0 0 0 0 0 0 0 0Stockholder Equity 181 233 335 409 449 410 539 763 899 969 1,168 1,536Total $263 $312 $478 $701 $793 $649 $888 $1,338 $1,367 $1,384 $1,677 $2,045


Net income $35 $66 $111 $87 $83 ($23) $147 $296 $274 $167 $249 $368Depreciation 34 39 47 79 118 131 133 180 215 213 227 240Other (19) (39) (39) (24) (24) 61 (111) (90) 71 (14) (123) 0Cash from operations $50 $66 $118 $142 $177 $169 $169 $386 $560 $366 $353 $607

Investing ActivitiesCapex ($50) ($73) ($160) ($249) ($170) ($68) ($187) ($416) ($329) ($202) ($375) ($400)Other 13 10 9 9 11 7 16 25 13 (6) 15 0Cash from investing ($37) ($62) ($151) ($240) ($159) ($61) ($172) ($392) ($316) ($208) ($360) ($400)

Financing ActivitiesDividend Paid ($3) ($7) ($13) ($19) ($23) ($22) ($21) ($47) ($114) ($88) ($46) $0Other (2) (14) 36 121 2 (85) 28 51 (123) (76) 69 0Cash flow financing ($6) ($21) $23 $101 ($22) ($106) $8 $4 ($237) ($163) $23 $0

Chg in cash $7 ($17) ($10) $4 ($3) $1 $5 ($2) $7 ($5) $16 $207Beginning cash 22 30 13 3 6 3 27 9 7 14 40 55

Ending cash $30 $13 $3 $6 $3 $4 $31 $7 $14 $9 $55 $263

October 14, 2014

286

Rowan Companies

Investment Thesis RDC is a diversified offshore contract driller, operating a fleet of 30 jackups, one drillship and has three drillships under construction. While the company has traditionally been known as an efficient shallow water contractor, averaging very low operational downtime that often falls below its 2.5% target, Rowan recently expanded into the ultra deepwater market with its first newbuild drillship. The company plans to operate all four contracted floaters with less than 5% operational downtime after a six months to one year break-in period, while renewing focus on cost control and overhauling maintenance procedures. With a high mix its jackups under long term contracts in the Middle East and North Sea, we believe Rowan is mostly insulated from the unfolding supply-driven weakness in the jackup market. With among the strongest earnings and cash flow visibility over the next several years, we rate RDC Buy with a $41 price target based on a 6.0x target multiple on our 2015E EBITDA.

Company Strategy Over the past several years, Rowan has been transitioning into a pure play offshore contract drilling services company, divesting its manufacturing segment, while repositioning its jackup fleet and expanding into the ultra deepwater market with four newbuild drillships. The company started operations of its first drillship, Rowan Renaissance, earlier this year and expects to have the second, Rowan Resolute, operating in the U.S. GOM by year end, while the 3rd and 4th unit will be delivered in the next six month and working on long term contracts by the end of 2015. Longer term the company plans to grow the ultra deepwater fleet to six or seven units, but is taking a pause from ordering newbuilds on spec in the current market. Meanwhile, Rowan has been expanding its high spec jackup fleet into new geographic markets, entering Norway with the Skeie Drilling acquisition in 2010, and Southeast Asia in 2011. The company wants to expand into West Africa next, where it currently operates its first UDW drillship, but is unlikely to build high spec jackups in the near term as returns are less attractive than for ultra deepwater floaters (target 12% IRR). With an attractive mix of 19 high spec and 8 premium jackups, out of a fleet of 30, Rowan is well positioned to take advantage of potential distressed asset sales in the near term, though the company believe only 23 of 123 available newbuild jackups are truly competitive with Rowan’s assets.

Outlook for 2015 Rowan expects to renew all three jackups rolling off contract with Saudi Arabia in the near term, keeping the exposure to the Kingdom at a very high level of 9 of the company’s 27 cantilever jackup fleet. With the company’s Norway fleet also highly contracted to 2016 and beyond, Rowan has fairly limited availability with its Southeast Asia and US GOM fleet, where the markets for lower spec units are seeing pressure on term and rates. But in contrast to Hercules which currently has a high mix of cold stacked and idle jackups, we expect Rowan’s jackups to experience little gap in between contracts as they tend to work for larger E&Ps less influenced by short term commodity price weakness. Meanwhile, all four of Rowan’s UDW drillships are expected to be on rate by early 3Q15, providing significant earnings growth for the next several quarters, as we expect the floater market to improve before the first unit is available in April 2017. With a $1bn revolving credit facility fully available and newbuild capex winding down sharply, management expects to realize significant cash build starting in 2H15 and recently initiated a modest $0.10 quarterly dividend that it plans to grow in 2015. Opportunistic share buy backs are also a possibility in late 2015, when the company has more financial flexibility while maintaining an investment grade rating.

October 14, 2014

287

Rowan Companies

Key Thoughts and Potential Catalysts On July 21, “friendly” activist Blue Harbour disclosed it is now Rowan’s second largest shareholder

with 6.45% stake. Though the hedge fund’s intentions and recommendations remain to be seen, recent activists in offshore drilling has pushed for more aggressive return of cash to shareholders.

We do not expect new CEO Tom Burke to change the strategic direction of the company, but instead make his mark on the company’s renewed focus on cost control. Although the company has beat on cost the last seven quarters, this has been discounted by the Street as it was partly driven by delayed repair & maintenance expenses. Management plans to overhaul maintenance systems in the near term and capitalize consumables as inventories instead of its traditional method of expensing them, which could generate $300mm in cost savings over time.

We believe Rowan is unlikely to pursue an MLP in the near-to-medium term given its small floater fleet has generally shorter term contracts of three years (vs. dropdowns averaging five year terms) and the company already has very low tax rate in the high single digits. Despite its $3bn newbuild drillship program, leverage is in line with the industry while the company’s total debt/EBITDA should fall naturally below the company’s 3x target as earnings ramp up with the start-up of the UDW drillships. We expect the company to delever slowly over time, seeing no immediate need for capital from a potential MLP structure.



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'06 '07 '08 '09 '10 '11 '12 '13 '14

RDCOffshore Drillers

RDC current trades at 4.5x, an -21% discount to the group's 5.8x average and a

-19% discount to its historical 5.6x.

October 14, 2014

288

Rowan Companies


2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

Floaters $610Jackups 1,818Total Contract Drilling $522 $785 $1,067 $1,383 $1,452 $1,215 $1,209 $983 $1,393 $1,579 $1,791 $2,428Other 290 293 443 717 761 555 610 0 0 0 0 0Total revenues $812 $1,078 $1,511 $2,100 $2,213 $1,770 $1,819 $983 $1,393 $1,579 $1,791 $2,428

ExpensesFloaters ($279)Jackups (861)Total Contract Drilling ($364) ($402) ($512) ($591) ($630) ($525) ($553) ($529) ($752) ($861) ($962) ($1,139)Other (271) (254) (372) (597) (624) (476) (513) 0 0 0 0 0Operating costs ($635) ($656) ($884) ($1,188) ($1,255) ($1,001) ($1,066) ($529) ($752) ($861) ($962) ($1,139)G&A (27) (47) (71) (95) (115) (103) (133) (90) (100) (131) (132) (158)EBITDA $150 $375 $555 $817 $843 $667 $620 $364 $541 $587 $698 $1,131D&A (91) (81) (90) (119) (141) (171) (187) (192) (248) (271) (316) (394)Other 0 0 0 0 0 0 0 0 0 1 (2) 0Operating income $59 $294 $465 $698 $702 $495 $434 $172 $293 $317 $380 $737Interest income 4 17 28 5 5 0 0 0 0 0 0 0Interest expense (19) (22) (21) 0 0 0 0 (18) (44) (71) (104) (169)Other income 1 2 0 0 (9) (0) (19) (4) 0 0 0 0Pretax income $45 $291 $473 $703 $697 $495 $415 $150 $249 $247 $276 $568Taxes (18) (102) (164) (243) (238) (157) (112) (2) (1) (4) (16) (51)Net income $27 $189 $309 $460 $460 $338 $304 $148 $248 $243 $260 $517



October 14, 2014

289

Rowan Companies



Floaters $47 $71 $117 $153 $184 $157Jackups 418 455 449 446 465 458Total Contract Drilling $394 $409 $383 $393 $378 $423 $465 $526 $566 $598 $649 $615Other 0 0 0 0 0 0 0 0 0 0 0 0Total revenues $394 $409 $383 $393 $378 $423 $465 $526 $566 $598 $649 $615

ExpensesFloaters ($43) ($48) ($65) ($67) ($73) ($74)Jackups (202) (204) (207) (214) (219) (221)Total Contract Drilling ($210) ($216) ($212) ($224) ($220) ($245) ($245) ($252) ($272) ($281) ($292) ($295)Other 0 0 0 0 0 0 0 0 0 0 0 0Operating costs ($210) ($216) ($212) ($224) ($220) ($245) ($245) ($252) ($272) ($281) ($292) ($295)G&A (29) (33) (33) (35) (30) (29) (36) (37) (38) (39) (40) (41)EBITDA $155 $160 $138 $135 $127 $149 $184 $237 $255 $279 $317 $279D&A (65) (67) (69) (71) (71) (78) (81) (86) (91) (96) (101) (106)Other (0) 0 0 1 (1) (1) 0 0 0 0 0 0Operating income $90 $93 $69 $65 $56 $71 $103 $151 $164 $183 $216 $173Interest income 0 0 0 0 0 0 0 0 0 0 0 0Interest expense (19) (18) (17) (17) (21) (28) (26) (31) (36) (41) (45) (49)Other income 0 0 0 0 0 0 0 0 0 0 0 0Pretax income $71 $75 $52 $48 $35 $43 $78 $120 $129 $142 $172 $125Taxes (3) (5) 1 4 (1) (2) (5) (8) (12) (13) (15) (11)Net income $68 $70 $52 $53 $34 $42 $72 $112 $117 $130 $157 $114



2013 2014 2015

October 14, 2014

290

Rowan Companies



2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $466 $676 $258 $285 $222 $640 $437 $439 $1,024 $1,093 $149 ($65)Restricted cash 0 0 0 0 0 0 15 0 0 0 0 0Accounts receivable 144 253 419 478 485 344 418 284 424 345 526 615Inventories 172 196 345 456 551 452 348 0 0 0 0 0Prepaid expenses & other 33 83 81 84 110 115 106 99 105 91 90 105Current assets $815 $1,208 $1,103 $1,303 $1,369 $1,550 $1,325 $822 $1,553 $1,529 $764 $654PPE 1,662 1,721 2,133 2,488 3,148 3,580 4,793 5,679 6,072 6,386 8,163 8,798Goodwill 0 0 0 0 0 0 0 0 0 0 0 0Other 16 46 199 85 32 81 99 919 75 61 67 67Total assets $2,492 $2,975 $3,435 $3,875 $4,549 $5,211 $6,217 $6,598 $7,700 $7,976 $8,994 $9,519

Liabilities & shareholders' equityAccounts payable $30 $83 $141 $101 $235 $125 $117 $111 $83 $124 $121 $142Other 140 193 311 330 445 379 360 192 211 231 182 213Current liabilities $170 $276 $452 $431 $680 $503 $477 $303 $294 $355 $304 $355Total debt 639 615 550 485 420 852 1,186 1,134 2,010 2,009 2,808 2,808Deferred taxes 163 315 347 0 427 0 551 476 0 430 432 432Other LT liabilities 111 150 212 611 362 745 251 358 864 289 293 293Total liabilities $1,083 $1,355 $1,561 $1,527 $1,889 $2,100 $2,465 $2,272 $3,168 $3,082 $3,836 $3,887Noncontrolling interest 0 0 0 0 0 0 0 0 0 0 0 0Common stock 1,409 1,620 1,874 2,348 2,660 3,110 3,752 4,326 4,532 4,894 5,159 5,632Total $2,492 $2,975 $3,435 $3,875 $4,549 $5,211 $6,217 $6,598 $7,700 $7,976 $8,994 $9,519


Net income ($1) $230 $318 $484 $428 $368 $280 $731 $181 $253 $277 $517Depreciation and amortization 96 81 90 119 141 171 187 205 248 271 316 394Deferred income taxes 1 122 94 51 51 16 45 (31) (5) (34) 1 0Other 6 4 14 0 0 0 0 0 0 0 0 0Working Capital Chg 12 (67) 24 24 32 0 0 0 0 32 12 0Net (gain) loss on asset disposal 18 (102) (31) (41) (31) (6) 1 (881) (3) (20) (0) 0Impairment of assets 0 0 0 0 14 0 0 0 7 0 8 0Chg in Working Capital (14) 65 (218) (214) 59 (5) (4) 383 (65) 121 (225) (53)Cash from operations $117 $333 $292 $423 $694 $544 $508 $407 $363 $623 $389 $858

Investing ActivitiesCapex ($137) ($200) ($479) ($463) ($773) ($566) ($508) ($1,594) ($641) ($607) ($2,107) ($1,029)Asset disposal (acquisitions) 132 111 37 46 42 9 3 1,566 11 45 8 0Other 0 10 (154) 106 50 0 (15) 15 0 0 0 0Cash from investing ($5) ($79) ($596) ($311) ($681) ($558) ($520) ($13) ($631) ($563) ($2,099) ($1,029)

Financing ActivitiesChange in LT debt $15 ($24) ($65) ($65) ($65) $427 ($199) ($119) $254 $0 $793 $0Preferred issuance (redemption) 0 0 0 0 0 0 0 0 0 0 0 0Common issuance (redemption) 265 34 9 13 35 4 8 19 0 3 12 15Dividend Paid 0 (54) (60) (44) (45) 0 0 0 0 0 (38) (58)Other 16 0 2 1 0 0 0 0 1 6 (1) 0Cash flow financing $296 ($44) ($114) ($95) ($75) $431 ($190) ($100) $255 $8 $766 ($43)

Chg in cash $408 $210 ($418) $17 ($62) $417 ($202) $294 ($12) $69 ($944) ($214)Beginning cash 58 466 676 258 285 222 640 437 439 1,024 1,093 149

Ending cash $466 $676 $258 $275 $222 $640 $437 $732 $427 $1,093 $149 ($65)

October 14, 2014

291

Schlumberger

Investment Thesis The industry bellwether remains one of our favorite stocks in the group as the company is the best positioned and primary beneficiary of the multi-year deepwater, subsea, and global E&P spending upcycle that remains in its early days. Best in class execution and returns, ramping cash flow and share buybacks, and a narrow premium to the group all make Schlumberger one of the most attractive stocks we cover. We rate the shares Buy with a $129 price target based on a 19.8x target multiple on our 2015E EPS.

Company Strategy Schlumberger is targeting revenue growth in excess of industry growth (7-8%), incremental margins higher than 40%, new technology to represent more than 25% of sales and integration to represent over 30% of sales, a 10x increase in equipment reliability, a 100% increase in asset utilization, productivity from employees to rise by 20% and a reduction in inventory of 25% and support costs by 10% -- all by 2017. If accomplished this should drive 2017 EPS into the $9-$10 range, a ROCE of over 20%, and free cash flow conversion of greater than 75%.

Outlook for 2015 Schlumberger’s key strengths of people, size and footprint, M&A capabilities, and flawless execution should help the company attain outsized earnings growth in 2015 as the international markets continue to march higher, Latin America rebounds, and the North American cycle pushes forward.

October 14, 2014

292

Schlumberger

Key Thoughts and Potential Catalysts The stock currently trades at a ~30% discount to its historical average despite superior growth, best

in class returns, a robust buyback program and significant earnings upside from current levels.

CEO Paal Kipsgaard has laid out ambitious but achievable goals to recreate/remold/re-energize the Schlumberger machine.

The company’s technology and integration focus is clearly designed to create a step change in drilling and completion activity.

Seismic could be a headwind in 4Q.

With the most exposure to Russia Schlumberger will be more impacted by the decline in the ruble and the sanctions than others.



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'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

SLBBig Four Average

SLB current trades at 14.3x, a 22% premium to the group's


October 14, 2014

293

Schlumberger


2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

North America $3,107 $3,761 $5,273 $5,343 $5,920 $3,705 $5,988 $12,273 $13,448 $13,898 $15,639 $16,904Latin America 1,746 2,209 2,563 3,295 4,232 4,225 4,656 6,454 7,529 7,751 7,583 8,071Europe/CIS/WA 2,788 3,530 5,054 6,590 8,190 7,140 7,565 9,762 11,524 12,365 12,937 14,144Middle East & Asia 2,477 3,033 3,724 4,880 5,720 5,230 6,066 8,065 9,180 10,909 12,092 13,820Eliminations & Other 122 1,795 2,615 3,169 3,101 2,377 2,368 399 467 441 311 352Other 1,715 124 172 245 283 238 835 2,593 693 0 0 0Total revenues $11,955 $14,452 $19,401 $23,522 $27,446 $22,915 $27,478 $39,546 $42,841 $45,364 $48,563 $53,291

EBITDA $3,043 $4,249 $6,676 $8,634 $9,365 $6,809 $7,468 $10,098 $11,187 $12,345 $13,610 $14,921D&A 1,308 1,351 1,566 1,922 2,269 2,476 2,775 3,280 3,501 3,666 3,998 4,084

Operating IncomeNorth America 934 1,604 1,536 1,370 217 1,007 3,051 2,737 2,735 2,885 3,175Latin America 330 495 754 858 754 756 1,072 1,382 1,589 1,637 1,765Europe, Africa, CIS 705 1,291 1,880 2,244 1,706 1,380 1,489 2,253 2,590 2,736 2,991Middle East, APAC 870 1,195 1,713 2,006 1,694 1,726 1,867 2,155 2,761 3,286 3,869Industrial and Other 285 871 1,135 861 282 201 (174) (179) (271) (83) (94)Corporate (226) (346) (305) (242) (320) (407) (590) (697) (725) (849) (870)Operating Income $1,735 $2,898 $5,110 $6,713 $7,097 $4,333 $4,693 $6,818 $7,686 $8,679 $9,612 $10,837

Net Interest Expense (143) (98) (119) (113) (128) (161) (156) (254) (303) (347) (149) 46Pretax income $1,592 $2,799 $4,991 $6,600 $6,968 $4,171 $4,537 $6,564 $7,383 $8,332 $9,464 $10,883Taxes (343) (683) (1,189) (1,441) (1,454) (801) (932) (1,575) (1,757) (1,903) (2,139) (2,503)Minority interest (20) (91) (52) 0 (25) (8) (2) (16) (30) (42) (80) (92)Net income $1,228 $2,026 $3,750 $5,159 $5,489 $3,362 $3,603 $4,973 $5,596 $6,387 $7,245 $8,288



North America 0% 25% 30% 29% 23% 6% 17% 25% 20% 20% 18% 19%Latin America 0% 15% 19% 23% 20% 18% 16% 17% 18% 21% 22% 22%Europe/CIS/WA 0% 20% 26% 29% 27% 24% 18% 15% 20% 21% 21% 21%Middle East & Asia 0% 29% 32% 35% 35% 32% 28% 23% 23% 25% 27% 28%Companywide 15% 20% 26% 29% 26% 19% 17% 17% 18% 19% 20% 20%EBITDA margins 25% 29% 34% 37% 34% 30% 27% 26% 26% 27% 28% 28%

October 14, 2014

294

Schlumberger



North America $3,290 $3,357 $3,602 $3,649 $3,684 $3,888 $3,962 $4,105 $4,052 $4,180 $4,259 $4,413Latin America 1,904 1,913 1,934 2,000 1,758 1,852 1,953 2,020 1,916 1,991 1,992 2,172Europe/CIS/WA 2,851 3,125 3,178 3,211 2,881 3,268 3,416 3,372 3,241 3,521 3,673 3,709Middle East & Asia 2,505 2,667 2,801 2,936 2,845 2,966 3,081 3,200 3,343 3,411 3,466 3,600Eliminations & Other 118 120 93 110 71 80 80 80 88 88 88 88Other 0 0 0 0 0 0 0 0 0 0 0 0Total revenues $10,668 $11,182 $11,608 $11,906 $11,239 $12,054 $12,493 $12,777 $12,641 $13,191 $13,479 $13,981

EBITDA $2,754 $3,007 $3,248 $3,336 $3,099 $3,400 $3,500 $3,611 $3,539 $3,685 $3,768 $3,928D&A 896 910 931 929 932 995 1,036 1,034 1,017 1,020 1,022 1,025

Operating IncomeNorth America 627 662 730 716 683 700 722 779 758 774 798 844Latin America 371 394 399 425 371 393 423 450 414 432 433 487Europe, Africa, CIS 508 643 714 725 585 723 723 705 659 743 789 800Middle East, APAC 609 655 730 767 749 826 832 879 929 953 970 1,017Industrial and Other (89) (76) (77) (29) (20) (21) (21) (21) (23) (23) (24) (24)Corporate (168) (181) (179) (197) (201) (216) (216) (216) (215) (215) (220) (220)Operating Income $1,858 $2,097 $2,317 $2,407 $2,167 $2,405 $2,463 $2,577 $2,523 $2,665 $2,746 $2,903

Net Interest Expense (87) (88) (86) (86) (90) (78) 9 10 10 11 12 13Pretax income $1,771 $2,009 $2,231 $2,321 $2,077 $2,327 $2,473 $2,587 $2,533 $2,676 $2,758 $2,916Taxes (412) (468) (506) (517) (469) (506) (569) (595) (583) (616) (634) (671)Minority interest (8) (5) (10) (19) (16) (21) (21) (22) (22) (23) (23) (24)Net income $1,351 $1,536 $1,715 $1,785 $1,592 $1,800 $1,883 $1,970 $1,928 $2,038 $2,100 $2,222



North America 19% 20% 20% 20% 19% 18% 18% 19% 19% 19% 19% 19%Latin America 19% 21% 21% 21% 21% 21% 22% 22% 22% 22% 22% 22%Europe/CIS/WA 18% 21% 22% 23% 20% 22% 21% 21% 20% 21% 21% 22%Middle East & Asia 24% 25% 26% 26% 26% 28% 27% 27% 28% 28% 28% 28%Companywide 17% 19% 20% 20% 19% 20% 20% 20% 20% 20% 20% 21%EBITDA margins 26% 27% 28% 28% 28% 28% 28% 28% 28% 28% 28% 28%

2013 2014 2015

October 14, 2014

295

Schlumberger



2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $224 $191 $166 $197 $189 $243 $1,764 $1,705 $1,905 $3,472 $2,779 $6,151Short-Term Investmen 2,774 3,305 2,833 2,972 3,503 4,373 3,226 3,122 4,369 4,898 4,432 4,432Receivables 2,664 3,384 4,242 5,361 6,258 6,088 8,278 9,500 11,351 11,497 12,986 14,210Inventories 820 1,010 1,247 1,638 1,919 1,866 3,804 4,700 4,785 4,603 5,056 5,533Deferred Taxes 239 233 163 183 184 154 51 456 343 288 249 273Other 340 431 535 704 842 926 975 1,056 1,403 1,467 1,547 1,692Current assets $7,060 $8,554 $9,186 $11,055 $12,894 $13,650 $18,098 $20,539 $24,156 $26,225 $27,049 $32,291PPE 3,762 4,201 5,576 8,008 9,690 9,660 12,071 12,993 14,780 15,096 15,686 15,853Goodwill 2,789 3,242 5,896 6,045 6,009 6,091 19,114 19,036 19,387 19,415 19,958 19,958Deferred Taxes 239 233 163 183 184 154 51 456 343 288 249 273Other 2,151 1,847 2,011 2,563 3,214 3,910 2,433 2,177 2,881 6,076 6,722 6,698Total assets $16,001 $18,077 $22,832 $27,853 $31,991 $33,465 $51,767 $55,201 $61,547 $67,100 $69,664 $75,072

Liabilities & shareholders' equityShort-Term Debt $716 $797 $1,322 $1,672 $1,597 $681 $2,595 $1,377 $2,121 $2,783 $1,505 $1,505Accounts Payable and 3,015 3,565 3,848 4,551 5,268 5,003 6,488 7,579 8,453 8,837 9,213 10,082Liability for Taxes 859 1,029 1,137 1,072 1,007 878 1,493 1,245 1,426 1,490 1,621 1,773Dividend Payable 111 125 149 211 252 253 289 337 368 415 525 525Total Current Liabilit $4,701 $5,515 $6,455 $7,505 $8,125 $6,815 $10,865 $10,538 $12,368 $13,525 $12,864 $13,885Long-Term Debt 3,944 3,591 4,664 3,794 3,694 4,355 5,517 8,556 9,509 10,393 11,740 11,740Postretirement Benefit 671 707 1,036 840 2,369 1,660 1,262 1,732 2,169 670 699 699Other Liabilities 151 673 257 838 941 962 2,679 2,983 2,643 2,877 2,694 2,694Total Liabilities 9,468 10,486 12,412 12,977 15,128 13,792 20,323 23,809 26,689 27,465 27,997 29,018Shareholders' Equity 6,533 7,592 10,420 14,876 16,862 19,673 31,444 31,392 34,858 39,635 41,811 46,486Total $16,001 $18,077 $22,832 $27,853 $31,991 $33,465 $51,767 $55,201 $61,547 $67,100 $69,808 $75,504


Net income $1,228 $2,026 $3,750 $5,159 $5,489 $3,362 $3,603 $4,973 $5,596 $6,387 $7,245 $8,288Depreciation 1,308 1,351 1,561 1,954 2,269 2,476 2,759 3,281 3,500 3,666 4,068 4,084Other (29) 9 (208) (23) (21) (309) (845) (40) (102) 282 172 0Working Capital Chg (661) (382) (321) (831) (838) (218) (23) (2,045) (2,180) (547) (1,851) (849)Cash from operations $1,846 $3,004 $4,782 $6,259 $6,898 $5,311 $5,494 $6,169 $6,814 $9,788 $9,633 $11,523

Investing ActivitiesCapex ($1,168) ($1,593) ($2,637) ($2,931) ($3,723) ($2,625) ($2,914) ($4,016) ($4,695) ($3,943) ($3,800) ($4,250)Acquisition 2,990 (454) (2,300) (1,119) (690) (1,627) (702) (186) (2,073) (1,258) (848) 0Other (140) 2 (160) (550) (729) 228 678 292 (406) (776) 54 (288)Cash from investing $1,682 ($2,044) ($5,097) ($4,600) ($5,143) ($4,024) ($2,938) ($3,910) ($7,174) ($5,977) ($4,594) ($4,538)

Financing ActivitiesDividends Paid ($441) ($482) ($568) ($771) ($964) ($1,006) ($1,040) ($1,300) ($1,432) ($1,608) ($1,750) ($1,613)Change in Equity (42) (296) (658) (658) (1,330) (290) (1,302) (2,560) (562) (2,059) (3,508) (2,000)Change in Debt (3,107) (216) 1,516 (201) 470 108 933 1,773 1,636 1,450 (427) 0Other 0 0 0 0 0 0 0 (613) 19 18 (32) 0Cash flow financing ($3,590) ($994) $291 ($1,630) ($1,824) ($1,188) ($1,409) ($2,700) ($339) ($2,199) ($5,717) ($3,613)

Change in Cash (12) (31) (25) 28 (6) 99 1,147 (441) 187 1,582 (678) 3,372Translation Effect on Ca 1 (1) (0) 3 (0) 0 0 (3) 13 (15) (15) 0

Beginning cash $234 $224 $191 $166 $197 $191 $243 $1,390 $946 $1,146 $2,713 $2,020Ending cash $224 $191 $166 $197 $191 $290 $1,390 $946 $1,146 $2,713 $2,020 $5,392

October 14, 2014

296

SEACOR Holdings

Investment Thesis We believe the offshore outlook remains fundamentally strong in spite of the short term hiccups concerning floater rig deliveries in the GOM and temporary excess supply of vessels. As the deepwater rig count continues to outpace the overall offshore rig count, the premium afforded to companies with quality assets like CKH should increase as larger and more complex equipment is required to make the longer trips from shore base facilities to offshore rigs and platforms. Additionally, energy reform in Brazil, Mexico and the UK holds the possibility of significantly increasing offshore activity in those three regions, a major positive considering CKH’s fleet exposure in the regions. CKH’s steady investor

Company Strategy CKH’s investment and operational approach highlights four main strategies. The company focuses on risk adjusted return on equity and capital, maintaining capital discipline, investing in long-term appreciation all why staying flexible and pursuing diversification. The company prides itself on the fact that they are not just operators but opportunistic investors focused not on profit but on returns.

Outlook for 2015 Beyond offshore marine services which are explored above, CKH also operates in shipping services and inland river services. Our outlook on shipping services is mild. We recognize the benefit CKH stands to gain due to the retirement of competitor’s older vessels due to incremental regulations as well as increased demand for vessels thanks to increased domestic gas and oil production, our optimism is tempered by the amount of excess capital being put to work. We are more optimistic about inland river as increased domestic crude production from ND is being transported and stored in terminals and barges along the MS river to gulf coast refineries.

October 14, 2014

297

SEACOR Holdings

Key Thoughts and Potential Catalysts Attrition. According to ODS-Petrodata, the global PSV fleet stands at 1,448 active vessels with an

additional 306 vessels under construction. Of the 1,448 vessels in service approximately 212 (15%) of them are over 25 years old with no DP capabilities, introducing the possibility of obsolescence and retirement for a significant portion of the fleet serving to increase rates and utilization.

Global Rig Growth. In addition to a smaller worldwide service vessel fleet, 142 jackups and 92 floaters (according to ODS-Petrodata) are either under construction or planned for construction. Though some of these rigs will serve as replacements, many will be incremental to the worldwide rig count leading to increased demand for offshore service vessels.

Temporary OSV Supply Overhang in the GOM. According to ODS-Petrodata, there is currently one rig undergoing acceptance testing, two rigs en route, two rigs under construction and five rigs either in the yard undergoing work or hot stacked with contracts slated to begin in the next six months. The commencement of these 10 contracts as well as the departure of several competitor OSV vessels due to the temporary weakness should cause a significant tightening of the market.

Brazilian elections. The October 26th Brazilian election holds the possibility to significantly alter the dynamics of Brazil’s energy industry. Currently, Petrobras, Brazil’s national oil company, is legally required to be the lead operator with a minimum stake of 30% in all new pre-salt fields, use oil platforms and other heavy equipment built in Brazil and sell gasoline at below-market prices. These mandates have caused cost overruns, equipment shortages thus placing an immense financial burden on the company and discouraging foreign operators. These factors, enacted by current President Dilma Rousseff and her predecessor Luiz Inácio Lula da Silva (of the same political party: Workers’ Party) and allegations of corruption, also leveled at the current administration, have stymied Brazilian activity. If elected, Aecio Neves, the opposition candidate, is expected to undo, at least partially, many of these import restrictions and trade barriers as well as further open up the industry to foreign companies and issue offshore licenses at a faster pace. We believe these developments would lead to increased offshore activity in turn benefitting GulfMark where the company owns and operates four OSVs. So far, just the possibility of Neves’ election has increased the equity value of Petrobras and the foreign exchange rate of the Brazilian Real, exhibiting the promise investors believe his election would hold.

Mexican reform. Reform to Mexico’s energy ministry is well underway and the hopes are that opening the industry to foreign investments will lead to increased deepwater activity. Mexico’s deepwater potential is enormous with over 50% of the country’s 52.6 Bboe of prospective resources located in the deepwater space. Currently, Mexico’s offshore activity is limited to the shallow water market being served by new gen OSVs, but the deepwater space, with its longer transit times, has significantly more revenue potential. Additionally, the nationalization of Oceanografia following allegations of fraud has caused short-term supply disruptions further benefitting CKH.

October 14, 2014

298

SEACOR Holdings



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'06 '07 '08 '09 '10 '11 '12 '13 '14

CKHOffshore Technology

CKH current trades at 7.2x, a 11% premium to the group's 6.5x average but a 29% premium to its historical 5.6x.

October 14, 2014

299

SEACOR Holdings


2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

Offshore Marine $287 $480 $683 $692 $709 $566 $521 $377 $520 $567 $579 $649 Shipping Services NA 72 145 116 114 93 76 93 126 194 217 229 Inland River Services 67 123 147 121 144 155 162 188 227 216 238 244 Aviation Services NA 128 156 215 249 236 235 258 202 0 0 0 Alcohol Manufacturing 28 32 49 60 281 537 815 1,026 660 194 279 305 Other 110 136 143 155 159 128 846 201 83 77 35 37Total revenues $492 $972 $1,323 $1,359 $1,656 $1,715 $2,655 $2,142 $1,817 $1,247 $1,348 $1,463

EBITDA $76 $274 $450 $380 $410 $370 $532 $246 $241 $197 $268 $336D&A (58) (125) (167) (154) (156) (162) (163) (157) (163) (134) (134) (141)

Offshore Marine 10 99 216 206 205 155 109 12 53 60 58 104 Shipping Services NA 5 19 (18) 3 6 3 9 9 24 53 64 Inland River Services 17 41 60 41 37 38 33 33 25 19 22 25 Aviation Services NA 5 (0) 11 11 29 19 21 28 0 0 0 Alcohol Manufacturing (5) (13) 7 2 19 4 10 18 (1) 1 55 62 Other (4) 12 (18) (16) (21) (24) 194 (4) (35) (41) (53) (58)Operating Income $18 $149 $283 $225 $254 $208 $369 $89 $78 $63 $134 $196Interest Expense (14) (29) (16) (4) (32) (55) (35) (27) (31) (27) (26) (20)Other Income 20 74 79 130 104 52 43 29 44 35 36 23Pretax income $24 $194 $346 $351 $326 $206 $377 $91 $92 $71 $144 $199Taxes (9) (76) (125) (130) (113) (79) (142) (36) (32) (28) (46) (70)Minority interest 4 6 14 21 11 13 12 9 (10) 13 (19) (23)Net income $20 $124 $234 $242 $224 $139 $247 $63 $50 $55 $79 $106


Margins SummaryEBITDA Margin 16% 28% 34% 28% 25% 22% 20% 11% 13% 16% 20% 23%Operating Margin 4% 15% 21% 17% 15% 12% 14% 4% 4% 5% 10% 13%Pretax Margin 5% 20% 26% 26% 20% 12% 14% 4% 5% 6% 11% 14%

October 14, 2014

300

SEACOR Holdings



Offshore Marine $124 $139 $156 $148 $129 $138 $159 $152 $141 $154 $179 $175 Shipping Services 46 48 48 51 52 54 55 57 54 56 58 60 Inland River Services 50 47 53 65 58 56 57 67 59 57 58 69 Aviation Services 0 0 0 0 0 0 0 0 0 0 0 0 Alcohol Manufacturing 33 61 53 47 59 73 74 74 75 76 77 77 Other 14 20 27 16 12 8 8 8 9 9 9 10Total revenues $267 $316 $337 $328 $310 $328 $352 $358 $338 $352 $381 $391

EBITDA $31 $41 $66 $60 $53 $62 $72 $82 $76 $75 $87 $98D&A (34) (34) (34) (34) (33) (33) (34) (34) (35) (35) (35) (36)

Offshore Marine Servic 3 10 30 16 3 15 19 21 19 23 30 32 Shipping Services 7 5 7 5 12 13 14 14 14 15 16 18 Inland River Services 3 1 4 12 7 (0) 4 12 7 0 5 12 Aviation Services 0 0 0 0 0 0 0 0 0 0 0 0 Alcohol Manufacturing (3) 0 (2) 6 10 15 15 15 15 15 16 16 Other (12) (9) (7) (12) (12) (14) (14) (14) (14) (14) (15) (15)Operating Income ($3) $7 $32 $26 $20 $28 $38 $48 $42 $40 $52 $63Interest Expense (10) (5) (6) (7) (7) (4) (7) (7) (5) (5) (5) (5)Other Income 3 17 20 (5) 6 17 8 5 6 6 6 6Pretax income ($10) $20 $47 $14 $18 $41 $39 $46 $42 $40 $53 $64Taxes 2 (8) (16) (5) (6) (13) (12) (15) (15) (14) (19) (22)Minority interest (0) 11 3 (1) 0 (7) (6) (6) (6) (6) (6) (6)Net income ($9) $22 $33 $8 $12 $21 $21 $26 $22 $20 $29 $36

Per Share DataDiluted Earnings ($0.44) $0.91 $1.36 $0.41 $0.56 $0.86 $0.86 $1.06 $0.89 $0.85 $1.20 $1.50Dividend $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

Margins SummaryEBITDA Margin -1% 2% 10% 8% 6% 9% 11% 13% 12% 11% 14% 16%Operating Margin -4% 6% 14% 4% 6% 13% 11% 13% 12% 11% 14% 16%Pretax Margin -4% 6% 14% 4% 6% 13% 11% 13% 12% 11% 14% 16%

2013 2014 2015

October 14, 2014

301

SEACOR Holdings



2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $214 $526 $507 $537 $275 $466 $370 $468 $444 $789 $742 $824Resreicted Cash 144 146 42 31 21 34 13 21 28 12 14 14Accounts receivable 163 242 264 268 317 301 451 335 280 264 265 274Other 222 72 126 142 136 243 311 217 66 59 68 70Current assets $743 $986 $939 $978 $749 $1,044 $1,145 $1,041 $818 $1,124 $1,089 $1,182Investments 48 37 76 109 150 187 182 252 273 441 484 484PP&E 926 1,759 1,770 1,943 2,140 2,079 1,969 2,186 1,585 1,476 1,638 1,677Goodwill 0 0 81 91 80 78 83 87 33 30 29 29Other 50 103 388 448 341 336 382 363 55 45 49 49Total assets $1,766 $2,885 $3,253 $3,569 $3,460 $3,724 $3,760 $3,928 $2,764 $3,116 $3,290 $3,422

Liabilities & shareholders' equityShort-Term Debt $13 $8 $12 $10 $35 $37 $16 $43 $22 $45 $44 $44 Accounts Payable & Accr 108 73 89 119 103 135 323 203 151 85 117 145Other 21 168 195 259 139 142 197 156 63 124 130 158

Current liabilities $143 $248 $296 $389 $277 $315 $536 $402 $236 $254 $291 $347LT debt 582 950 941 929 903 755 697 995 655 834 830 830 Deferred Income Taxes 212 242 359 480 515 575 568 575 426 458 456 456Other 36 83 101 149 122 112 162 148 123 144 175 175Total liabilities $972 $1,524 $1,696 $1,947 $1,817 $1,758 $1,963 $2,120 $1,440 $1,691 $1,753 $1,809

Shareholders' Equity $794 $1,361 $1,557 $1,622 $1,642 $1,966 $1,797 $1,808 $1,324 $1,425 $1,537 $1,613Total $1,766 $2,885 $3,253 $3,569 $3,460 $3,724 $3,760 $3,928 $2,764 $3,116 $3,290 $3,422


Net Income $20 $124 $234 $242 $224 $145 $246 $0 $5 $0 $47 $106Depreciation & Amortiza 58 125 167 154 156 162 163 157 163 134 134 141Deferred income taxes 7 0 101 117 39 63 0 0 3 0 0 0Other (25) 3 (67) (130) (156) (27) (117) 50 36 51 41 0Working Capital Chg (27) (14) (69) 3 28 (45) 107 0 (30) 0 23 45Cash from operations $33 $238 $366 $386 $292 $298 $399 $207 $176 $185 $245 $292

Investing ActivitiesCapital Expenditures ($200) ($250) ($382) ($538) ($428) ($180) ($251) ($332) ($327) ($196) ($374) ($220)Sale of PP&E 68 324 285 450 172 104 362 102 20 264 98 40Acquisitions (118) (67) (8) (45) 0 (4) (6) (91) (148) (11) 0 0

Other (66) 160 (177) 23 10 (21) (86) (11) 317 (188) (83) 0Cash from investing ($317) $167 ($281) ($109) ($246) ($102) $19 ($332) ($139) ($131) ($359) ($180)

Financing ActivitiesChange in Debt $245 ($118) ($18) ($41) ($67) $37 ($76) $282 ($90) $160 ($7) $0Change in Equity (14) (14) (58) (213) (240) (46) (457) (59) (214) 47 (72) (30)Other 1 0 12 7 8 2 26 (2) 11 15 142 0

Cash flow financing $232 ($132) ($64) ($247) ($298) ($6) ($507) $221 ($293) $223 $63 ($30)

FX and other 3 (3) 2 1 (9) 1 (8) 2 3 0 1 0

Chg in cash ($49) $270 $23 $30 ($262) $190 ($96) $98 ($176) $277 ($50) $82Beginning cash 263 214 484 507 537 275 466 370 468 444 789 742

Ending cash $214 $484 $507 $537 $275 $466 $370 $468 $444 $789 $742 $824

October 14, 2014

302

Seadrill Limited

Investment Thesis Seadrill as a unique opportunity in offshore driller, pioneering a complex capital structure with holdings in several entities (North Atlantic Drilling, Seadrill Limited Partners, Sevan Drilling). Despite a high debt level, the company pays a high dividend (17%) and continues to aggressively grow the fleet. However the company has not been immune to the recent downturn, with the shares trading off sharply with investors concerned the dividend may be at risk. With CEO Per Wullf defending the high dividend for the foreseeable future, likely supported by future drop downs to the MLP, we rate SDRL a Buy with a $40 share price based on a 10% target dividend yield.

Company Strategy CEO Per Wullf defends the company’s high dividend for the foreseeable future, likely supported by additional drop downs to the MLP SDLP. The company’s 2014 and 2015 capex is also fully funded with contracted assets, secured bank financing, ECAs, bonds, TLBs and MLP dropdowns. Longer term the company plans to expand into the Mexico ultra deepwater market, where it currently operates one rig for Pemex, but targeting IOCs. Not shying away from more newbuilds despite the current downturn, Seadrill is having conversations with customers for 2015 deliveries and could place incremental orders for 2017/2018, financed by cash on hand or equity for the initial 20-30% down payment.

Outlook for 2015 Seadrill’s floater and jackup fleet is almost 80% and 75% sold out in 2015, giving management confidence it can support the dividend with cash from operations. Petrobras is expected to renew two ultra deepwater floaters, which should improve the company’s contracted status. Average uptime for the fleet has been high in the mid 90s for floaters, but management target a high 90s run rate for both floaters and jackups, which would be among the highest in the industry.

October 14, 2014

303

Seadrill Limited

Key Thoughts and Potential Catalysts Management guided to 3Q EBITDA roughly in line or just above 2Q’s $641mm on a consolidated

basis, and we are modeling $639mm with slightly higher costs for downtime in Brazil and the U.S. GOM. The company does not provide estimated downdays on a fleet by fleet basis in its fleet status report.

With one vessel running at 98% uptime, Seadrill’s Brazil JV is developing a PLSV newbuild program.

Seadrill expects all 6-Gen floaters to have managed pressure drilling over time, with the Tellus the first likely unit to be converted for a cost of $18-35mm.

With the most exposure in newbuild floater availability, management was notably more optimistic last quarter than three months ago, indicating conversations were commencing with customers for 2015 deliveries. Seadrill has two floaters being delivered later this year, as well as four in 2015, all of which are available.



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SDRLOffshore Drillers

SDRL current trades at 9.9x, a 70% premium to the group's 5.8x average but only a 1% premium to its historical 9.8x.

October 14, 2014

304

Seadrill Limited


2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

Contract Revenues 4,892 4,572 5,390Reimbursable Revenues 278 218 218Other 112 256 256Total revenues $28 $1,155 $1,676 $2,186 $3,304 $4,030 $4,193 $4,479 $5,282 $5,046 $5,864

ExpensesContract Expense ($1,977) ($2,009) ($2,523)Reimbursable Expense (257) (202) (202)Other 0 0 0Operating costs ($25) ($691) ($902) ($1,178) ($1,402) ($1,773) ($1,676) ($1,821) ($2,234) ($2,211) ($2,725)G&A (9) (70) (103) (126) (154) (178) (202) (250) (300) (304) (336)EBITDA ($5) $394 $672 $882 $1,747 $2,079 $2,315 $2,408 $2,748 $2,531 $2,803D&A (10) (168) (183) (233) (396) (480) (562) (614) (711) (680) (706)Other 0 0 0 0 0 0 0 0 0 0 0Operating income ($15) $226 $489 $649 $1,351 $1,599 $1,753 $1,794 $2,037 $1,851 $2,097Interest income 2 14 24 31 78 43 20 24 24 43 0Interest expense (3) (80) (113) (130) (228) (312) (296) (340) (445) (508) (604)Other income 3 107 37 (657) 272 120 (351) (61) 192 619 816Pretax income ($14) $267 $437 ($107) $1,473 $1,450 $1,126 $1,417 $1,808 $2,005 $2,309Taxes (2) (22) (102) (48) (120) (174) (179) (176) (115) (210) (466)Minority interest 0 (31) (13) (42) (92) (55) (87) (111) (133) (170) (192)Net income ($15) $214 $322 ($197) $1,261 $1,222 $860 $1,130 $1,560 $1,625 $1,651

Per Share DataDiluted Earnings ($0.17) $0.56 $0.82 ($0.49) $3.01 $2.64 $1.76 $2.31 $3.18 $3.29 $3.30Dividend $0.00 $0.00 $0.00 $0.00 $0.50 $2.41 $3.14 $4.11 $3.72 $4.00 $4.00

Margins SummaryGross Margin 12% 40% 46% 46% 58% 56% 60% 59% 58% 56% 54%EBITDA margins -18% 34% 40% 40% 53% 52% 55% 54% 52% 50% 48%Operating margins -54% 20% 29% 30% 41% 40% 42% 40% 39% 37% 36%

October 14, 2014

305

Seadrill Limited



Contract Revenues 1,195 1,145 1,188 1,364 1,092 1,114 1,175 1,191 1,256 1,329 1,373 1,432Reimbursable Revenu 64 110 55 49 36 73 55 55 55 55 55 55Other 6 13 37 56 93 35 64 64 64 64 64 64Total revenues $1,265 $1,268 $1,280 $1,469 $1,221 $1,222 $1,293 $1,310 $1,375 $1,447 $1,492 $1,551

ExpensesContract Expense ($482) ($439) ($491) ($565) ($492) ($437) ($527) ($554) ($579) ($611) ($643) ($690)Reimbursable Expense (59) (100) (48) (50) (32) (69) (51) (51) (51) (51) (51) (51)Other 0 0 0 0 0 0 0 0 0 0 0 0Operating costs ($541) ($539) ($539) ($615) ($524) ($506) ($577) ($604) ($630) ($661) ($694) ($741)G&A (72) (64) (78) (86) (73) (75) (77) (79) (81) (83) (85) (87)EBITDA $652 $665 $663 $768 $624 $641 $639 $627 $664 $703 $713 $723D&A (161) (158) (192) (200) (174) (165) (170) (172) (174) (176) (178) (180)Other 0 0 0 0 0 0 0 0 0 0 0 0Operating income $491 $507 $471 $568 $450 $476 $469 $455 $490 $527 $536 $544Interest income 4 6 6 8 11 32 0 0 0 0 0 0Interest expense (108) (96) (107) (134) (118) (124) (130) (136) (142) (148) (154) (160)Other income 36 126 5 25 7 204 204 204 204 204 204 204Pretax income $423 $543 $375 $467 $350 $588 $543 $523 $552 $583 $586 $588Taxes (38) (15) (60) (2) (4) 114 (163) (157) (112) (118) (118) (119)Minority interest (31) (23) (29) (50) (26) (48) (48) (48) (48) (48) (48) (48)Net income $354 $505 $286 $415 $320 $654 $332 $318 $393 $418 $419 $421



2013 2014 2015

October 14, 2014

306

Seadrill Limited



2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash $460 $755 $483 $318 $744 $235 $531Restricted cash 142 155 232 184 168 237 237Marketable securities 742 598 24 333 416 0 0Accounts receivable 452 697 720 918 1,042 883 1,046Other 465 678 505 602 464 695 822Current assets $2,261 $2,883 $1,964 $2,355 $2,834 $2,050 $2,636PPE 8,945 12,043 13,754 14,776 20,612 17,396 18,962Investment in associated companies 321 205 721 509 140 3,294 3,294Goodwill 1,596 1,677 3,790 1,993 2,714 3,524 3,524Other 708 690 (1,964) 0 0 0 0Total assets $13,831 $17,497 $18,265 $19,633 $26,300 $26,264 $28,416

Liabilities & shareholders' equityCurrent liabilities $1,260 $1,534 $1,289 $1,495 $2,259 $1,956 $1,956Total debt 7,396 9,591 10,428 11,696 14,881 13,060 15,560Deferred income taxes 125 181 34 77 60 73 73Other long-term liabilities 238 255 188 288 898 768 768Total liabilities $9,019 $11,561 $11,939 $13,556 $18,098 $15,857 $18,357Noncontrolling interest 634 539 331 693 690 615 615Common stock 4,179 5,398 5,995 5,384 7,512 9,792 9,444Total $13,831 $17,497 $18,265 $19,633 $26,300 $26,264 $28,416


Net income $1,353 $1,172 $1,506 $1,257 $2,786 $4,398 $1,651Depreciation 396 480 563 615 711 680 706Gain on disposals (71) (26) (22) (86) (1,349) (2,779) 0Other (243) (2) (302) (139) (463) (215) 0Working Capital Chg 17 (323) 71 (57) 11 (317) (290)Cash from operations $1,452 $1,300 $1,816 $1,590 $1,696 $1,767 $2,067

Investing ActivitiesCapex ($1,369) ($2,367) ($2,543) ($1,557) ($4,273) ($2,446) ($2,272)Asset sales 393 55 245 65 2,006 673 0Other 53 15 (335) 132 (697) 2,670 0Cash from investing ($924) ($2,297) ($2,633) ($1,360) ($2,964) $897 ($2,272)

Financing ActivitiesChg in LT Debt ($126) $1,998 $1,764 $1,214 $2,266 ($1,305) $2,500Chg in treasury shares 9 299 (109) 16 (34) (14) 0Dividend paid (199) (990) (1,440) (1,925) (1,287) (1,915) (1,999)Other (137) (15) 323 300 749 79 0Cash flow financing ($454) $1,293 $538 ($395) $1,694 ($3,155) $501

FX and other 9 (1) 7 0 0 (17) 0

Chg in cash $84 $295 ($272) ($165) $426 ($509) $296Beginning cash 376 460 755 483 318 744 235

Ending cash $460 $755 $483 $318 $744 $235 $531

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Seventy Seven Energy

Investment Thesis A recent spinoff of Chesapeake Energy (CHK), SSE is a geographically diverse oilfield company mainly levered to the drilling and completion segments of the well life cycle, also with limited exposure to the production segment as well through its fluids and rental businesses. SSE is in the progress of transforming its current 86 rig drilling fleet from older, mostly mechanical rigs to a more technically AC rigs. SSE has committed to adding 6 AC drive PeakeRigs by year end 2014 and 10 additional rigs during 2015 and plans to divest its older, “tier 3” rigs by year end 2015. In doing so, premium rigs will comprise 42% of the company’s fleet, up from 24%, allowing the company to benefit from the ongoing trend in horizontal drilling that emphasizes the efficiencies in productivity, reliability and safety offered by AC rigs. SSE’s other main business is its pressure pumping fleet where it operates the 14th largest U.S. pressure pumping fleet with 360K HHP and adding a 10th fleet by year end which will increase the HHP count to 400K. We believe pressure pumping will continue to enjoy strong utilization with prices accelerating beyond just offsetting costs. We view both company’s main businesses in an increasingly optimistic light and so rate SSE Buy with a $26 PT based on a target multiple of 5.0x our 2015E EBITDA.

Company Strategy SSE is well levered to the North American shale revolution. The company has built a capable land drilling fleet and is in the process of further upgrading it. It is also growing its pressure pumping fleet into a bigger force which may allow for margin increases through scalable G&A expenses. We believe SSE’s biggest concern remains its relationship with CHK which currently accounts for 82% of the company’s revenues, a downturn in CHK’s activity will severely hamper the company’s activity.

Outlook for 2015 SSE’s future outlook for 2015 is positive. We predict E&P capex budgets will increase 10% in 2015 setting a positive backdrop for the oilfield services industry as a whole. On the land drilling side of the business, we believe dayrates will continue to increase as the benefits offered by premium AC rigs are better understood by the market. On the pressure pumping side, much of the additional capacity coming to market is serving as spare and replacement capacity and so we expect marketed utilization to remain high, though maybe not as high as current levels of 90%, and for pricing to also increase.

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Key Thoughts and Potential Catalysts Average dayrates over the past four quarters have hovered between $23K/d and $23.5K/d on a per

rig basis; we believe that will continue to improve as leading edge dayrates of $26-$28K/d (with upside from current levels) improve contract terms. Anecdotally, we have been told by a private, high-spec land drilling company that the only impediment to $30,000 rates is the fact that marketers have never signed contracts at those rates before.

The current build out of approximately 500 rigs between 2012 and 2015 has increased concerns over an impending cliff for dayrates and utilization amongst certain investors. We feel those fears are somewhat valid for SSE as a large percentage of their rigs are lower-spec mechanical and SCR rigs. With over 1,000 mechanical and SCR rigs operating, and 75% of those rigs drilling horizontal wells, a strong possibility exists that many of them will be displaced as additional AC rigs are deployed, though the company’s relationship with CHK will artificially protect some of its rigs. This will issue should subside as the company’s percentage of AC rigs continues to increase.

North American fundamentals are rapidly improving as utilization exceeds 90% in North America, service intensity increases, horsepower required on location increases and crew sizes/costs increase. A combination of these factors is responsible for the pricing inflection that has recently begun. SSE has conservatively guided for flat pricing but does expect additional stages completed per active spread.

As of 6/30/14 82% of SSE’s YTD revenue came from CHK. The company’s long-term target is to decrease that amount to 50%. We believe the company’s transition is well underway as it has increased its contract drilling revenues from outside customers to 42% from 9% at the beginning of 2012.



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SSE current trades at 4.4x, a -5% discount to the group's 4.7x average.

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2011 2012 2013 2014 2015Revenues:

Drilling $855 $915 $741 $765 $883Hyrdaulic Fracturing 13 415 898 890 951Oilfield Rentals 246 234 160 156 173Oilfield Trucking 127 226 244 204 190Other Operations 63 129 145 75 0Total revenues $1,303 $1,920 $2,188 $2,090 $2,196

ExpensesDrilling (685) (668) (543) (487) (536)Hyrdaulic Fracturing (22) (303) (740) (719) (757)Oilfield Rentals (115) (134) (102) (102) (108)Oilfield Trucking (109) (173) (208) (187) (169)Other Operations (55) (112) (125) (62) 0Total Expenses ($986) ($1,391) ($1,718) ($1,557) ($1,571)

G&A (37) (66) (80) (77) (77)Other Corp Exp. 1 (63) (72) (15) 0Other Exp. (2) 2 2 1 0EBITDA $279 $402 $320 $443 $548

D&A (176) (231) (290) (298) (330)Operating Income $103 $170 $30 $144 $218

Interest Income 0 0 0 0 0Interest Expense (49) (54) (57) (67) (72)Loss in Equity 0 (0) (1) (5) 0Pretax income $54 $116 ($28) $71 $146Taxes (26) (47) 8 (27) (56)Net income $28 $70 ($20) $44 $90

Adj. Net income $28 $70 ($20) $30 $90

Per Share DataDiluted Earnings $1.48 ($0.42) $0.65 $1.89

Margins SummarySegment Gross Margin:

Drilling 20% 27% 27% 36% 39%Hyrdaulic Fracturing -68% 27% 18% 19% 20%Oilfield Rentals 53% 43% 37% 35% 37%Oilfield Trucking 14% 23% 15% 8% 11%Other Operations 12% 13% 14% 18% n/a

Operating Margins 8% 9% 1% 7% 10%EBITDA margins 21% 21% 15% 21% 25%Gross Margin 24% 28% 22% 26% 28%

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Drilling $185 $189 $188 $179 $180 $189 $193 $202 $206 $217 $227 $233Hyrdaulic Fracturing 215 250 227 206 202 226 228 234 238 238 238 238Oilfield Rentals 48 42 36 35 36 39 40 41 41 43 44 45Oilfield Trucking 61 63 63 57 56 55 46 46 46 47 48 49Other Operations 35 39 36 35 36 40 0 0 0 0 0 0Total revenues $544 $583 $550 $511 $510 $549 $507 $524 $532 $544 $556 $564

ExpensesDrilling (139) (147) (141) (117) (124) (118) (120) (124) (126) (132) (137) (141)Hyrdaulic Fracturing (168) (200) (201) (172) (177) (179) (179) (184) (188) (188) (190) (190)Oilfield Rentals (28) (27) (24) (23) (26) (25) (25) (26) (26) (27) (27) (28)Oilfield Trucking (51) (51) (54) (52) (54) (51) (41) (41) (41) (42) (43) (43)Other Operations (30) (33) (31) (30) (29) (33) 0 0 0 0 0 0Total Expenses ($415) ($457) ($452) ($394)s ($410) ($407) ($365) ($375)s ($382) ($389) ($398) ($402)

G&A (20) (21) (19) (20)e (21) (19) (18) (18)e (19) (19) (20) (20)Other Corp Exp. (0) (5) (23) (43)s (21) 6 0 0 s 0 0 0 0Other Exp. 1 (0) 0 1 e 0 0 0 0 e 0 0 0 0

EBITDA $108 $100 $57 $55A $59 $130 $124 $130A $131 $136 $139 $142

D&A (70) (72) (73) (74) (72) (72) (76) (78) (79) (81) (84) (86)Operating Income $38 $27 ($16) ($19) ($14) $58 $48 $52 $52 $55 $55 $56

Interest Income 0 0 0 0 0 0 0 0 0 0 0 0Interest Expense (14) (14) (14) (15)e (15) (18) (17) (18) (18) (18) (18) (18)Loss in Equity (0) (1) 0 (0) (1) (5) 0 0 0 0 0 0Pretax income $24 $12 ($30) ($34) ($29) $36 $31 $34 $34 $37 $37 $38Taxes (10) (5) 11 11 11 (14) (12) (12) (13) (14) (14) (15)Net income $14 $7 ($19) ($22) ($19) $22 $20 $21 $21 $23 $23 $23

Adj. Net income $14 $7 ($19) ($22) A ($19) $8 $20 $21 $21 $23 $23 $23

Per Share DataDiluted Earnings $0.30 $0.15 ($0.40) ($0.48) ($0.40) $0.17 $0.42 $0.45 $0.44 $0.48 $0.48 $0.49

Margins SummarySegment Gross Margin:

Drilling 25% 22% 25% 35% 31% 37% 38% 39% 39% 39% 39% 40%Hyrdaulic Fracturing 22% 20% 11% 17% 12% 21% 21% 21% 21% 21% 20% 20%Oilfield Rentals 42% 36% 33% 34% 28% 37% 37% 37% 37% 37% 37% 37%Oilfield Trucking 17% 19% 15% 9% 5% 7% 11% 11% 11% 11% 11% 11%Other Operations n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a

Operating Margins 7% 5% -3% -4% -3% 11% 10% 10% 10% 10% 10% 10%EBITDA margins 20% 17% 10% 11% 12% 24% 24% 25% 25% 25% 25% 25%Gross Margin 24% 22% 18% 23% 20% 26% 28% 28% 28% 29% 29% 29%

2013 2014 2015

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2012 2013 2014 2015Assets

Cash & equivalents $1 $2 $128 ($20)Accounts receivable 364 375 360 388Inventory 52 45 29 31Deferred Income Tax 3 5 8 8Prepaid expenses and other 24 20 15 16Current assets $445 $448 $540 $423PPE 1,582 1,497 1,853 2,076Investments 18 13 8 8Goodwill & Intangibles 54 50 33 33Other 21 19 35 35Total assets $2,120 $2,027 $2,469 $2,575

Liabilities & shareholders' equityCurrent Maturities $0 $0 $4 $4Accounts payable 60 65 58 62Accrued Liabilities and Other 228 210 168 181Current liabilities $288.7 $275.0 $230.2 $246.5LT Debt 1,068 1,055 1,768 1,768Deferred Taxes 150 146 158 158Other Liabilities 16 4 4 4Total liabilities $1,523 $1,480 $2,160 $2,177Common stock $597 $547 $308 $398Total $2,120 $2,027 $2,469 $2,575

2011 2012 2013 2014 2015Operating Activities

Net income $28 $70 ($20) $44 $90Depreciation 176 231 290 298 330Deferred taxes 26 46 (9) 3 0Asset Disposal (4) 2 (3) (8) 0Impairment 3 36 52 15 0Amortization (6) (6) (13) (1) 0Other 11 1 3 7 0Working Capital Chg 6 (169) 37 (39) (15)CF from ops $240 $211 $337 $318 $404

Investing ActivitiesCapex ($413) ($623) ($350) ($533) ($553)Asset disposal (229) 47 51 61 0Other (17) (2) 2 (0) 0CF from investing ($658) ($577) ($297) ($472) ($553)

Financing ActivitiesChange in LT debt ($24) $389 ($13) $705 $0Chg. in Preferred Equity 0 0 0 0 0Chg. in Common Equity 0 0 0 0 0Dividend Paid 453 (22) (30) (422) 0Other (10) 0 3 (2) 0CF from financing $419 $367 ($40) $281 $0

Chg in cash $0 $1 $0 $127 ($149)Beginning cash 0 1 1 2 128

Ending cash $1 $1 $2 $128 ($20)

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Superior Energy Services

Investment Thesis Superior is a SMID cap diversified services company, highly leveraged to the U.S. land market with the acquisition of Complete Production Services. Traditionally known as a U.S. GOM plug & abandonment company, the company is also selectively growing its key international markets. While still a relatively small part of its business representing just 15% of total revenues, transfer of coiled tubing into Argentina, Middle East and Asia markets can help improve asset utilization and returns for the company. With significant operating leverage potential as activity improves, we rate SPN shares Buy with a $39 price target based on a 14.9x target multiple.

Company Strategy The company recently divested some operations in the Subsea & Technical Solutions segment, which should reduce margins variability and lower G&A spend. With cash building, Superior recently instituted a regular quarterly dividend and accelerated share repurchases, retiring 5.2mm shares for $164mm year to date. Hurt by the pullback in coiled tubing activity in Mexico, the company is more cautious on Mexico’s reform that some of its peers, preferring to wait to work for IOCs rather than rush to win share with Pemex. However, the company is bidding on Pemex’s tender for five modern stimulation vessels targeting shallow water developments, competing with SLB, HAL, BHI and Island Offshore.

Outlook for 2015 Management called for an inflection point in U.S. land activity in 2Q14, driven by higher activity in the Permian, but has been more cautious on pricing, with revenue driven by higher equipment efficiency and activity. While smaller production & completion services companies have been ordering pressure pumping HP, SPN still has idle capacity on the sideline. Needing only four-to-six weeks for a fleet to be fully stacked, SPN view sand to be an important factor in how capacity is deployed in the near term as mines are backed up currently.

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Key Thoughts and Potential Catalysts Superior provides limited guidance, which combines with a rather unique reporting structure

detailing regional revenue within each segment, makes it compare to compare results with peers.

While peers have been rushing to order new pressure pumping equipment, SPN suspects not all equipment is for incremental capacity but instead to replace equipment worn down during the recent market weakness. SPN maintains high maintenance standards and its three idle fleets is in perfect condition to return to work, needing only labor. Management expects one of these idle fleets to return to work by year end.

SPN prefers to enter new international market with rental tools, establishing a foothold through small acquisitions, and then pulling through additional product and service offerings. Management estimates the international market opportunity for its business is about $35bn, of which it has less than $1bn market share currently, and target Argentina, Brazil, Colombia, Australia, Indonesia, Malaysia, Saudi Arabia, Kuwait, and India as its core markets for international expansion.



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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

Fluids $153 $225 $246 $282 $293 $226 $276 $305 $335 $383 $448 $513Prod'n Enhancement 66 106 151 189 224 169 185 236 315 316 359 383Offshore Services 135 201 392 526 492 485 412 300 225 206 214 224Other (0) (0) (1) (2) (1) (0) (1) 0 0 (0) (1) (1)Total revenues $353 $531 $788 $995 $1,009 $879 $873 $840 $875 $904 $1,021 $1,120

Gross ProfitFluids $31 $53 $86 $50 $56 $56 $38 $57 $79 $100Prod'n Enhancement 20 40 59 74 86 47 51 78 100 69Offshore Services 31 41 114 116 75 114 87 (2) 37 46Corporate 0 (0) (1) (1) (2) (3) 2 13 (1) (2)Total Gross Profit $81 $134 $258 $238 $215 $213 $178 $147 $216 $213

Operating IncomeFluids $29 $15 $32 $51 $69 $76 $90Prod'n Enhancement 35 33 52 62 34 40 65Offshore Services 99 66 38 25 33 11 16Corporate (58) (53) (57) (60) (61) (61) (64)Total Operating Incom ($49) $60 $165 $137 $110 $106 $60 $65 $78 $75 $66 $106

ExpensesInterest expense (2) (6) (13) (17) (17) (13) (17) (16) (17) (17) (19) (18)Other income 0 3 5 3 12 13 24 16 15 16 18 18Pretax income ($50) $57 $157 $123 $106 $106 $67 $65 $77 $74 $66 $106Taxes (8) (19) (54) (26) 19 (11) (16) (21) (26) (23) (24) (35)Minority Interest 0 0 0 0 0 0 0 (1) (3) (3) (4) 4Net income ($59) $38 $103 $97 $124 $95 $44 $43 $49 $49 $39 $75



Fluids 20% 24% 35% 18% 19% 25% 14% 19% 24% 26%Prod'n Enhance't 30% 38% 39% 39% 38% 28% 27% 33% 32% 22%Offshore Services 23% 21% 29% 22% 15% 23% 21% -1% 16% 22%Companywide 23% 25% 33% 24% 21% 24% 20% 17% 25% 24%

EBITDA margins -5% 20% 32% 28% 32% 31% 36% 17% 19% 19% 17% 20%Operating margins

Fluids 13% 5% 11% 15% 18% 17% 17%Prod'n Enhance't 21% 18% 22% 20% 11% 11% 17%Offshore Services 20% 16% 13% 11% 16% 5% 7%Companywide -14% 11% 21% 14% 11% 13% 9% 4% 9% 9% 8% 12%

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Fluids $94 $100 $100 $89 $105 $117 $125 $102 $121 $134 $141 $117Prod'n Enhancement 85 75 77 78 73 73 104 110 78 78 110 117Offshore Services 28 44 76 57 34 51 69 60 35 55 73 62Other (0) 0 0 0 0 (0) (0) (0) (0) (0) (0) (0)Total revenues $207 $219 $253 $224 $211 $241 $297 $271 $233 $267 $324 $296

Gross ProfitFluids $24 $26 $29 $21 $24 $26 $0 $0 $0 $0 $0 $0Prod'n Enhancement 20 16 16 17 12 15 0 0 0 0 0 0Offshore Services (2) 13 24 11 (5) 7 0 0 0 0 0 0Corporate (1) (1) (1) (1) (1) (1) 0 0 0 0 0 0Total Gross Profit $42 $54 $68 $48 $31 $48 $0 $0 $0 $0 $0 $0

Operating IncomeFluids $17 $18 $21 $14 $18 $17 $21 $19 $22 $20 $25 $22Prod'n Enhancement 12 7 8 7 2 6 14 17 12 13 19 21Offshore Services (5) 10 21 8 (8) 4 9 6 (4) 4 9 7Corporate (15) (15) (16) (16) (17) (15) (15) (15) (16) (16) (16) (16)Total Operating Incom $8 $20 $34 $12 ($4) $12 $30 $28 $14 $21 $37 $34

ExpensesInterest expense (4) (4) (4) (5) (5) (5) (5) (5) (5) (5) (5) (5)Other income 3 4 4 5 4 5 5 5 5 5 5 5Pretax income $7 $20 $34 $12 ($5) $12 $30 $28 $14 $21 $37 $34Taxes (3) (7) (11) (2) (0) (4) (10) (9) (5) (7) (12) (11)Minority Interest (1) (0) (1) (1) (1) (1) (1) (1) 1 1 1 1Net income $4 $13 $22 $9 ($5) $7 $19 $18 $10 $15 $26 $24

Per Share DataDiluted Earnings $0.06 $0.18 $0.28 $0.12 ($0.07) $0.10 $0.24 $0.23 $0.13 $0.19 $0.33 $0.30Dividend $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00


Fluids 26% 26% 29% 24% 23% 23%Prod'n Enhance't 24% 21% 21% 22% 17% 21%Offshore Services -5% 30% 31% 19% -15% 13%Companywide 20% 25% 27% 22% 15% 20%


Fluids 18% 18% 21% 15% 18% 15% 17% 19% 19% 15% 18% 19%Prod'n Enhance't 14% 10% 11% 9% 3% 8% 14% 21% 15% 16% 17% 23%Offshore Services -18% 22% 27% 13% -24% 8% 13% 11% -11% 8% 13% 11%Companywide 4% 10% 14% 7% -1% 8% 12% 12% 8% 10% 13% 13%

2013 2014 2015

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $6 $2 $6 $22 $4 $33 $65 $204 $74 $39 ($141) ($406)Restricted cash 1 1 1 4 2 0 0 9 6 9 9 9Accounts receivable 87 148 243 215 225 181 162 142 176 181 149 177Inventories 54 77 119 119 118 122 104 100 103 101 81 148Other 11 22 40 64 86 54 83 74 76 45 40 43Current assets $158 $249 $408 $423 $435 $391 $415 $529 $435 $374 $139 ($29)PP&E 369 354 508 696 807 816 740 529 553 573 585 585Other 0 124 170 176 170 140 145 146 274 260 287 287Total assets $527 $727 $1,086 $1,296 $1,413 $1,348 $1,300 $1,203 $1,262 $1,207 $1,011 $843

Liabilities & shareholders' equityAccounts payable $34 $56 $79 $108 $84 $57 $56 $46 $67 $69 ($125) ($136)Other 27 79 83 134 128 185 161 186 189 104 162 57Current liabilities $61 $135 $162 $242 $212 $242 $217 $232 $257 $173 $38 ($79)Long-Term Debt 144 157 336 358 407 310 305 305 331 388 327 327Deferred taxes 26 32 51 46 65 56 47 49 42 18 8 8Other LT liabilities 42 118 116 201 213 162 215 48 39 31 29 20Total liabilities $273 $443 $666 $848 $897 $771 $783 $634 $669 $609 $401 $276Minority interest 0 0 0 0 0 0 0 0 0 0 0 0Common stock 254 284 420 448 516 576 516 569 593 597 609 567Total $527 $727 $1,086 $1,296 $1,413 $1,348 $1,300 $1,203 $1,262 $1,207 $1,011 $843


Net income $18 $38 $102 $29 ($12) $69 ($44) $5 $19 $3 $29 $75Depreciation 33 45 83 130 159 149 148 95 76 81 90 94O&G Impairment 0 2 1 72 0 20 89 94 0 0 0 0Deferred Taxes 6 (3) 23 1 (1) 21 (45) (6) (2) (10) (13) 0Doubtful Accounts (0) 1 0 1 3 3 (0) 1 (0) 0 (0) 0Other (3) 2 (29) (20) 79 (33) (11) (160) (47) (38) (31) (105)Chg in Working Cap 3 (32) (126) (4) (38) 43 16 15 (27) 13 (167) (214)Cash from operations $56 $53 $54 $209 $190 $272 $153 $44 $18 $50 ($91) ($150)

Investing ActivitiesCapex ($55) ($89) ($261) ($276) ($262) ($152) ($108) $48 ($108) ($101) ($99) ($115)Asset sales 0 6 3 55 0 16 3 0 (104) 2 (14) 0Other (154) (0) 10 (15) 0 (14) (11) (2) 5 (0) (1) 0Cash from investing ($208) ($84) ($248) ($235) ($261) ($150) ($116) $47 ($207) ($100) ($114) ($115)

Financing ActivitiesProceeds from debt $274 $82 $322 $117 $182 $198 $90 $0 $88 $141 $76 $0Payment on debt (136) (62) (148) (101) (131) (295) (92) 0 (29) (121) (48) 0Stock issuance 2 8 24 25 5 1 1 54 1 2 0 0Other 0 0 0 0 2 0 (5) (3) (4) (7) (3) 0Cash flow financing $140 $28 $198 $41 $57 ($96) ($6) $51 $56 $16 $26 $0

FX and other 1 (0) 1 1 (4) 3 0 (2) 2 (1) (1) 0

Chg in cash ($11) ($3) $4 $16 ($18) $30 $32 $139 ($130) ($35) ($180) ($265)Beginning cash 17 6 2 6 22 4 33 65 204 74 39 (141)

Ending cash $6 $2 $6 $22 $4 $33 $65 $204 $74 $39 ($141) ($406)

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Tenaris

Investment Thesis We are confident that TS will benefit from the increase in global capex, but timing does remain an issue over the next 18-24 months. Though we are confident about the long-term fundamentals in both Brazil and Saudi Arabia, we expect inventory levels to decrease in both countries as Petrobras continues to suffer from project delays and Saudi Aramco reduces their Oil Country Tubular Goods (OCTG) inventory. The reduction in sales to Saudi Aramco will hurt both margins and revenues as that product mix tends to lean towards premium products. With that being said we do see some strong tailwinds, including the recent ITC decision regarding protective tariffs for producers of U.S. OCTG and strong medium to long-term growth projections for TS in LAM. The convergence of these factors lead us to rate the stock Hold with a price target of $43 based on 14.9x our 2015E EPS.

Company Strategy TS’ mission is to deliver value to its customers through product development, manufacturing excellence, and supply chain management. The company accomplishes this by encouraging continuous improvement amongst its employees by sharing knowledge across a single global organization. Customers include most of the world’s leading oil & gas companies as well as engineering companies engaged in constructing oil & gas gathering, transportation and processing facilities. The company’s principal products include casing, tubing, line pipe, and mechanical and structural pipes and so its results are tied to new well construction.

Outlook for 2015 Following the ITC confirmation, we see upside to TS’ guidance of zero percent revenue growth YoY as we now expect higher U.S. sales but wouldn’t be surprised to see margin degradation as TS sells a higher mix of low-end API product.

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Tenaris

Key Thoughts and Potential Catalysts In late August the International Trade Commission confirmed The U.S. Department of Commerce’s

decision to impose duties on the import of Oil Country Tubular Goods (OCTG; i.e. drill pipe and casing) from six countries including: South Korea, India, Taiwan, Turkey, Ukraine and Vietnam. Imports from these countries represented 29% of U.S. OCTG demand. U.S. sales represented 45% of TS’ revenues and so this provides a very strong boost to the company as both pricing and volume should improve U.S. producers.

TS is bullish that PEMEX energy reform will increase activity across Mexico’s shale and deepwater plays. Current spending in Mexico has been crippled as PEMEX activity has temporarily ceased. TS is also optimistic about the possibilities in Argentina where management believes that development of the Vaca Muerta shale will begin in the medium-term and serve as a strong growth opportunity for the company. These positive developments will be offset by a reduction in Brazilian inventory levels as Petrobras limits short-term financial spending, though we believe long-term fundamentals remain strong there as well.



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TSCapital Equipment

TS current trades at 11.7x, a 15% discount to the group's

12.6x average but a 12.% premium to its historical 13.0x.

October 14, 2014

319

Tenaris


2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues










October 14, 2014

320

Tenaris












2013 2014 2015

October 14, 2014

321

Tenaris



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FX and other 1 (0) 1 1 (4) 3 0 (2) 2 (1) (1) 0


Ending cash $6 $2 $6 $22 $4 $33 $65 $204 $74 $39 ($141) ($406)

October 14, 2014

322

Tetra Technologies

Investment Thesis Tetra is a SMID cap diversified oil and gas services provider, offering a full range of products and services such as fluid management, production testing, compression and offshore services. Tetra is the market leader in a variety of niche markets that span the entire well life cycle, from drilling and completion through to the abandonment stage. The company has a strong global presence and derives roughly 30% of revenues from international operations. Approximately 65% of revenues are derived from onshore applications, with the balance earned offshore. Divided into three segments, the company also has a stake in a compression MLP that should provide cash and a valuation lift in the years to come. We rate the shares Buy with a $16 price target based on a 16.5x target multiple.

Company Strategy The company recently implemented various cost cutting initiatives, attacking the business’s cost structure and corporate SG&A spend. Operating margins are expected to exit the year in the low double digits, we’re modeling 10% currently, but reined in free cash flow target from $80mm to a more realistic $60-70mm. A lower tax rate is the next objective.

Outlook for 2015 Production Testing margins are expected to average low-to-mid teens in 2015, though the historical 20s peak are unrealistic without Mexico activity coming back. Having closed the CSI acquisition recently, distribution per unit is expected to growth from their current annualized rate by 12-14%, with the company likely to reach the high 50/50 splits by year end 2015. This could provide additional valuation lift for TTI shares, as the market tend to value GP cash flow at 20-30x.

October 14, 2014

323

Tetra Technologies

Key Thoughts and Potential Catalysts Management guided to FY14 EPS of $0.50-0.60, with Production Testing margins to exit the year in

low double digits with no help from pricing.

With the vast majority of CSI contracts MLP-able, we expect the company to drop down compression contracts to Compressco within the next 12-18 months.

The company’s Fluids segment should see a pick-up in demand from U.S. GOM activity and U.S. land completions, with water management having a record month in May.

The Production Testing business is now right sized at 50% U.S. / 50% International.

The Offshore Services segment exhibit significant seasonality, with delays in activity for weather and other unusual items.



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'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

TTI current trades at 11.1x, a -17% discount to its

historical 13.5x.

October 14, 2014

324

Tetra Technologies


2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues










October 14, 2014

325

Tetra Technologies












2013 2014 2015

October 14, 2014

326

Tetra Technologies



2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets







FX and other 1 (0) 1 1 (4) 3 0 (2) 2 (1) (1) 0


Ending cash $6 $2 $6 $22 $4 $33 $65 $204 $74 $39 ($141) ($406)

October 14, 2014

327

Thermon Group

Investment Thesis We believe THR’s has favorable tailwinds across each end market in which it operates in (energy, chemical, power, commercial/other)resulting from growing customer capex budgets. The company’s highly engineered products comprise a small portion of total project costs, but are critical to the efficient, safe and continuous operation of projects/facilities thus making the likelihood of losing business by lower prices, lower quality competitors very unlikely. This protective barrier along with the high switching costs (switching complications and compatibility concerns) once installed create a vibrant after market for the company. We believe the critical nature of the company’s products coupled with a strong management team set the stage for a long-term growth story and so we initiate with a Buy rating and a $25 PT.

Company Strategy THR aims to drive growth through alliances with major customers and suppliers and pursue value added acquisitions.

Outlook for 2015 We believe THR’s prospects for 2015 are strong based on the organic growth opportunities presented by the commercial and steam-to-electric conversion markets. We are also bullish on the company’s opportunities to leverage its installed base and expand its recurring revenue stream. Furthermore, minimal ongoing maintenance capex, high free cash flow generation and a flexible cost structure lead us to believe that the company’s history of financial results are replicable in the long term, especially given the strong growth profile and minimal capital requirements.

October 14, 2014

328

Thermon Group

Key Thoughts and Potential Catalysts We believe the company’s net debt will fall to zero within the next four quarters opening up the

possibility of significant shareholder returns through a new dividend, reduction of debt and in turn interest expense, a major acquisition, or a combination of all three. We believe this will be the next near-term catalyst for the stock.



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THR


THR current trades at 16.0x, a 15% premium to the group's 13.9x average but a -15% discount to its historical

18.8x.

October 14, 2014

329

Thermon Group


2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues










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330

Thermon Group












2013 2014 2015

October 14, 2014

331

Thermon Group



2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets







FX and other 1 (0) 1 1 (4) 3 0 (2) 2 (1) (1) 0


Ending cash $6 $2 $6 $22 $4 $33 $65 $204 $74 $39 ($141) ($406)

October 14, 2014

332

Tidewater

Investment Thesis TDW is the largest OSV operator in the world and is well positioned to benefit from the expected offshore rig count growth. We think OSV fundamentals as a whole are strong in the long run but do have concerns regarding a slowdown in North Sea activity as well as weakness in the AHTS market. Additionally, we believe the shares are fairly valued at 6x 2015E EBITDA and so initiate on TDW with a hold and a $37 PT.

Company Strategy TDW prides itself on an exemplary safety record, disciplined deployment of cash as its newbuild/enhancement program finishes and is instead shifted to the ROV business, consistent dividend payments and opportunistic share repurchases when FCF allows for it.

Outlook for 2015 We expect this operating record to continue but do not expect FCF to turn quick enough for a large share repurchase or increase in dividend that will warrant an increase in multiple. Additionally TDW has lower operating leverage than its two main competitors and so will not benefit as much through the upturn.

October 14, 2014

333

Tidewater

Key Thoughts and Potential Catalysts According to IHS-Petrodata, the global AHTS and PSV fleet stands at 3,272 active vessels with an

additional 460 vessels under construction. Of the 3,269 vessels in service approximately 642 (20%)of them are over 25 years old with no DP capabilities, introducing the possibility of obsolescence and retirement for a significant portion of the fleet serving to reduce the OSV supply and thus increasing rates and utilization.

In addition to a smaller worldwide service vessel fleet, 142 jackups and 92 floaters are either under construction or planned for construction. Though some of these rigs will serve as replacements, many will be incremental to the worldwide rig count leading to increased demand for offshore service vessels.

With ten percent of global reserves and half of the conventional discoveries over the past four years made in the deepwater space, it is clear that offshore drilling is an integral part of future supply plans. TDW, with a global, modern fleet (average age of 6.9 years for its 244 “new” vessels), is extremely well positioned to benefit from the further exploration and development of W. Africa and Brazil’s pre-salt fields and other offshore frontiers.

As of 6/30/14, TDW has only 2 ROVs and 33 vessels remaining under its newbuild program and expects to spend only $730MM in aggregate capex during FY2015-FY2017, versus ~$1.5B spent in aggregate capex during FY2012-14. The significant reduction in projected capex coupled with higher operating cash flow should lead to an increase in free cash flow, which we believe will be used to either hasten the retirement of debt or return cash to shareholders.

TDW has a fledgling ROV business with six vessels in service and two more on order. Commercial operations are underway with additional opportunities expected in America, Sub-Sahara Africa, Europe and the Americas. TDW is currently experiencing minor-startup losses but expects to be cash breakeven by the second half of FY15; we believe this segment will eventually be accretive to margins.



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TDWOffshore Technology

TDW current trades at 6.3x, an -2% discount to the group's 6.5x average but a -4% discount to its historical 6.6x.

October 14, 2014

334

Tidewater


2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016ERevenues

Americas - - - - - - - - $244 $327 $411 $487 $521 Asia/Pacific - - - - - - - - 118 184 155 179 227 Middle East/N. Africa - - - - - - - - 83 149 187 236 276 Sub-Saharan Africa - - - - - - - - 362 562 667 682 729 Brokered Vessels 27 37 31 28 55 35 30 4 7 14 17 17 22 Other 626 656 847 1,098 1,215 1,356 1,138 1,051 253 0 0 0 0Total revenues $653 $692 $878 $1,125 $1,270 $1,391 $1,169 $1,056 $1,067 $1,237 $1,435 $1,601 $1,775

ing CostsExpenses

Vessel OpEx ($395) ($402) ($431) ($498) ($585) ($661) ($605) ($639) ($638) ($709) ($800) ($881) ($958)G&A (68) (73) (86) (99) (127) (136) (139) (135) (157) (170) (179) (201) (202)Other costs (22) (29) (24) (24) (47) (29) (27) (5) (7) (12) (34) (44) (46)EBITDA $169 $187 $336 $505 $511 $564 $397 $278 $265 $345 $422 $474 $568D&A (99) (100) (108) (116) (121) (126) (130) (141) (138) (147) (171) (178) (185)Operating Income $70 $88 $228 $388 $391 $438 $267 $137 $127 $197 $251 $297 $384Interest income 3 3 10 20 17 7 7 5 4 3 2 2 0Interest expense (4) (7) (9) (10) (7) (1) (2) (11) (22) (30) (44) (52) (52)Other income 11 16 26 24 25 47 41 32 34 11 20 28 13Pretax income $81 $100 $255 $423 $426 $492 $314 $163 $142 $182 $229 $275 $344Taxes (22) (30) (62) (83) (77) (85) (41) (43) (41) (42) (46) (66) (86)Minority interest (0) (0) (0) (0) (0) 0 0 0 0 0 0 (0) (0)Net income $59 $70 $193 $339 $349 $407 $273 $119 $101 $141 $183 $209 $258

Per Share DataDiluted Earnings $1.04 $1.22 $3.33 $6.01 $6.40 $7.90 $5.27 $2.32 $1.98 $2.83 $3.68 $4.16 $5.03Dividend $0.60 $0.60 $0.60 $0.60 $0.60 $1.00 $0.63 $1.00 $1.00 $1.00 $1.00 $1.00 $0.99

Margins SummaryEBITDA Margin 26% 27% 38% 45% 40% 41% 34% 26% 25% 28% 29% 30% 32%Operating Margin 11% 13% 26% 35% 31% 32% 23% 13% 12% 16% 17% 19% 22%Pre-tax Margin 12% 14% 29% 38% 34% 35% 27% 15% 13% 15% 16% 17% 19%

October 14, 2014

335

Tidewater


1Q14 2Q14 3Q14 4Q14 1Q15 2Q15E 3Q15E 4Q15E 1Q16E 2Q16E 3Q16E 4Q16ERevenues

Americas $90 $102 $110 $109 $120 $123 $123 $121 $125 $129 $134 $134 Asia/Pacific 43 37 36 38 40 44 46 49 52 57 60 59 Middle East/N. Africa 41 45 51 49 56 58 61 62 64 69 72 71 Sub-Saharan Africa 157 179 163 167 166 167 173 176 178 182 188 181 Brokered Vessels 2 4 5 5 4 4 4 5 5 6 6 6 Other 160 183 168 172 170 171 178 180 183 187 194 187Total revenues $334 $368 $365 $368 $386 $396 $408 $412 $423 $441 $459 $451

ExpensesVessel OpEx ($200) ($195) ($198) ($207) ($217) ($217) ($223) ($224) ($231) ($238) ($248) ($242)G&A (46) (42) (46) (46) (51) (50) (50) (50) (50) (50) (50) (50)Other costs (2) (8) (10) (14) (11) (11) (11) (11) (11) (11) (12) (12)EBITDA $86 $123 $112 $102 $106 $118 $123 $127 $131 $142 $149 $148D&A (40) (46) (42) (43) (43) (44) (45) (46) (46) (46) (46) (46)Operating Income $46 $77 $70 $59 $63 $74 $79 $82 $84 $95 $102 $101Interest income 1 1 0 1 1 1 1 1 0 0 0 0Interest expense (9) (10) (12) (13) (13) (13) (13) (13) (13) (13) (13) (13)Other income 4 7 4 5 7 7 7 7 3 3 3 3Pretax income $42 $74 $62 $51 $57 $68 $73 $76 $75 $85 $93 $92Taxes (10) (17) (11) (8) (14) (16) (18) (18) (19) (21) (23) (23)Minority interest 0 0 0 0 0 0 0 0 0 0 0 0Net income $32 $57 $50 $43 $44 $52 $56 $58 $56 $64 $69 $69


Margins SummaryEBITDA Margin 26% 33% 31% 28% 28% 30% 30% 31% 31% 32% 32% 33%Operating Margin 14% 21% 19% 16% 16% 19% 19% 20% 20% 22% 22% 22%Pre-tax Margin 13% 20% 17% 14% 15% 17% 18% 19% 18% 19% 20% 20%

2014 2015 2016

October 14, 2014

336

Tidewater



2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016EAssets

Cash & equivalents $18 $15 $246 $394 $270 $251 $270 $246 $321 $41 $60 ($70) $33Accounts receivable 166 170 237 237 309 329 293 272 309 393 682 729 799

Marine Op. Supplies 38 39 41 41 46 49 38 51 54 62 57 67 74Other 3 4 4 4 5 6 12 10 10 12 21 35 39Current assets $225 $228 $529 $677 $631 $634 $613 $579 $694 $508 $820 $762 $945

Investments in Co. 34 32 34 34 27 37 34 39 46 46 64 68 68 Property and Equipment 1,342 1,452 1,374 1,374 1,679 2,013 2,324 2,702 2,906 3,190 3,622 3,871 3,851 Goodwill 329 329 329 329 329 329 329 329 298 298 284 284 284

Other 152 172 99 99 86 60 95 99 118 126 96 93 93Total assets $2,082 $2,213 $2,365 $2,512 $2,752 $3,074 $3,395 $3,748 $4,062 $4,168 $4,886 $5,077 $5,241

Liabilities & shareholders' equity Current Maturities on Cap $0 $0 $0 $0 $10 $0 $25 $0 $0 $0 $10 $10 $10 Accounts Payable and Ac 60 82 97 97 148 163 150 166 209 223 318 346 380 Accrued Property and Lia 9 9 7 7 6 6 5 4 4 4 4 3 4

Other 3 1 11 11 35 35 40 14 26 40 71 76 84Current liabilities $72 $92 $116 $116 $199 $203 $220 $184 $239 $267 $402 $437 $478Total debt 325 380 300 300 300 300 375 700 950 1,000 1,505 1,489 1,493Deferred income taxes 212 184 175 175 190 201 206 217 215 190 109 110 110Other 107 114 114 114 133 125 137 134 132 150 184 187 187Total liabilities $716 $771 $706 $706 $822 $829 $938 $1,234 $1,535 $1,606 $2,200 $2,223 $2,268

Shareholders' Equity 1,366 1,443 1,659 1,807 1,930 2,245 2,457 2,514 2,526 2,562 2,685 2,854 2,973Total $2,082 $2,213 $2,365 $2,512 $2,752 $3,074 $3,395 $3,748 $4,062 $4,168 $4,886 $5,077 $5,241

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016EOperating Activities

Net income $42 $101 $236 $357 $349 $407 $256 $106 $79 $151 $140 $209 $258Depreciation 99 100 108 116 121 126 130 141 138 147 171 178 185Deferred income taxes (18) (34) 56 7 7 8 (14) (7) (21) (12) (35) 2 0Other 25 (6) (78) (35) (14) (18) 5 3 25 7 48 (2) 0Working Capital Chg (18) (1) (23) (10) 27 (0) (12) 22 5 (85) (217) (44) (43)Cash from operations $129 $160 $297 $435 $489 $523 $365 $264 $227 $209 $105 $344 $400

Investing ActivitiesCapital Expenditures ($298) ($207) ($172) ($235) ($354) ($469) ($513) ($615) ($466) ($441) ($595) ($430) ($250)Sale of PP&E 11 18 226 74 82 30 125 37 25 22 322 17 0Acquisitions 0 0 0 0 0 0 0 0 0 0 (128) 0 0

Other 1 (0) 0 10 0 0 0 8 0 (0) (3) 0 0Cash from investing ($285) ($189) $53 ($151) ($272) ($438) ($388) ($570) ($441) ($418) ($404) ($413) ($250)

Financing ActivitiesChange in Debt $186 $55 ($94) ($1) ($46) ($10) $100 $390 $250 $50 $357 ($16) $0Change in Equity 5 6 9 (101) (263) (50) (26) (10) 1 (81) 12 4 4Dividend (34) (34) (35) (34) (33) (51) (32) (51) (51) (50) (50) (50) (51)Other 0 0 0 0 0 0 0 0 0 0 0 0 0

Cash flow financing $156 $27 ($120) ($136) ($341) ($112) $42 $328 $199 ($81) $319 ($62) ($47)

Chg in cash ($0) ($2) $231 $148 ($124) ($27) $19 $23 ($15) ($291) $20 ($130) $103Beginning cash 18 18 15 246 394 270 251 270 246 321 41 60 (70)

Ending cash $18 $15 $246 $394 $270 $244 $270 $293 $231 $30 $60 ($70) $33

October 14, 2014

337

Transocean Inc.

Investment Thesis With a fleet of 95 jackups and floaters, Transocean is the largest offshore contract driller and most at risk to dayrate declining with a majority of its floating rigs available in 2015. More negatively impacted by the current market downturn than its peers, management aggressively sought to raise capital through asset sales and financial engineering, raising more than $2bn in proceeds from asset sales and $420mm in net proceeds from the recent RIGP IPO. We expect the company to generate cash from sale of interest in existing rigs and drop downs to RIGP in the near term, but see a potential divestiture of Transocean’s eight U.K. semisubs as Caledonia Offshore as unlikely to generate cash in an IPO, while dividend growth is increasingly unlikely due to the prolonged floater downturn. Though the company has largely closed the book on several of its legal issues, we view Transocean’s fleet a significant issue and rate the shares Sell with a $27 price target based on 6.0x our 2015E EBITDA.

Company Strategy During its November 2013 analyst day, Transocean outlined three areas of focus for generating shareholder value: 1) maximizing financial flexibility, 2) reinvestment in the fleet, and 3) returning capital to investors. The company believes the market places a premium on a sustainable and growing dividend, while financial flexibility is necessary to compete for the long term in a cyclical industry. Having divested 63 rigs for more than $2bn in proceeds in recent years, Transocean plans to accelerate its efforts to divest lower spec commodity floaters, including one of the largest midwater and lower generation deepwater fleet in the industry. Targeting a fleet mix of 60% floaters (UDW, harsh environments) and 40% jackups within five years, Transocean rejected its traditional strategy of not adding incremental market capacity and ordered two speculative ultra deepwater drillships for 2017 and 2018 delivery. The company estimates its fleet renewal strategy will require $1.5-2.0bn in annual capex over the next five to ten years, partly funded by an annual cash proceed of $1bn from RIGP through an equity and/or debt issuance. While also emphasizing debt reduction with a recent $207mm early redemption, the company plans to achieve $800mm in margin improvement from cost savings ($300mm from shore-base initiatives) and operational efficiencies ($500mm from 55% higher revenue, 45% lower costs), and is working on a three-year initiative with Shell to develop more reliable subsea control systems to reduce downtime.

Outlook for 2015 Transocean views the 2014 market as like 2002/2004 time period and expects the market to be stagnant over the next 14-20 months, though remains bullish on long term fundamentals as growing global energy demand is likely to be sourced from deepwater and harsh environment resources. We expect the company to keep making modest progress on its revenue efficiency metric, now at its highest level since early 2008, but expect utilization levels to fall as the list of available floaters is likely to grow from the current three (of 34) ultra deepwater, three (of 12) deepwater, and six (of 21) midwater. Having divested its standard specification units, Transocean’s high spec jackup fleet is relatively well contracted with just the GSF Galaxy III (of 10 units) available, while the first of five available newbuilds are scheduled for 1Q16 delivery. Having achieved most of its $300mm shore-based initiatives, the company expects to close the EBITDA margin gap to its peers by the end of 2015. We expect Transocean to divest additional interest in the initial three rigs to RIGP by January, with potential drop down of the Deepwater Invictus before year end.

October 14, 2014

338

Transocean Inc.

Key Thoughts and Potential Catalysts We expect Transocean to release a more detailed fleet status report later this month, disclosing the

high spec jackup Galaxy III is now idle, as well as the ultra deepwater GSF Explorer, Deepwater Discovery, and GSF C.R. Luigs. Our estimates currently do not adjust for the transfer of 47% stake of three existing rigs (Discoverer Inspiration, Discoverer Clear Leader, Development Driller III) to RIGP, with 3Q likely a messy quarter for the transaction that closed on July 31st.

With an activist investor and a stated goal of a sustainable and growing dividend, Transocean is under pressure to propose a higher 2015 dividend in November, to be voted by shareholders at the April Annual General Meeting. We believe a higher dividend would be imprudent at this time, particularly without substantial cash flow from RIGP or IPO proceeds from Caledonia Offshore.

Management plans to establish Caledonia in 4Q14 and separate the company at a later date, either through a direct sale to the public or private buyer, spin or public offering. Made up of eight U.K. North Sea midwater floaters (Sedco 704, Sedco 711, Sedco 712, Sedco 714, Transocean John Shaw, Transocean Prospect, GSF Arctic III, and J.W. McLean), the objective is to “maximize the value of these assets in the context of their capability, age, cash flow, backlog, and unique market in which they operate.”



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RIGOffshore Drillers

RIG current trades at 5.8x, a 1% premium to the group's 5.8x average but a -14%


October 14, 2014

339

Transocean Inc.


2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

High-Spec Floaters $1,658 $2,132 $3,039 $4,457 $5,341 $5,306 $5,725 $6,775 $6,816 $6,539 $6,398Midwater Floaters 492 847 1,728 2,812 2,507 2,092 1,461 1,572 1,658 1,729 1,796High-Spec Jackups 418 521 682 1,122 3,437 2,725 1,542 1,121 787 582 583 587Other Revenues 370 86 84 188 1,278 702 538 790 496 414 197 200Contract Drilling $2,416 $2,757 $3,745 $6,077 $11,984 $11,275 $9,478 $9,097 $9,630 $9,470 $9,048 $8,981Other 198 135 137 300 690 281 98 45 42 14 8 0Total revenues $2,614 $2,892 $3,882 $6,377 $12,674 $11,556 $9,576 $9,142 $9,672 $9,484 $9,056 $8,981

ExpensesCOGS ($1,719) ($1,724) ($2,155) ($2,722) ($5,311) ($5,008) ($4,982) ($5,907) ($5,793) ($5,653) ($5,291) ($5,790)G&A (67) (75) (90) (119) (199) (209) (242) (293) (268) (291) (216) (200)EBITDA $828 $1,093 $1,637 $3,536 $7,164 $6,339 $4,352 $2,942 $3,611 $3,540 $3,548 $2,991D&A (525) (406) (401) (499) (1,384) (1,464) (1,568) (1,449) (1,254) (1,109) (1,152) (1,242)Other 0 0 0 0 0 0 0 0 0 0 0 0Operating Income $303 $687 $1,236 $3,037 $5,780 $4,875 $2,784 $1,493 $2,357 $2,431 $2,396 $1,749Interest income 9 20 21 30 32 5 23 44 56 52 40 29Interest expense (172) (111) (115) (172) (469) (484) (567) (621) (723) (584) (462) (448)Other income 13 17 9 19 28 (33) 34 (72) (33) (28) 19 32Pretax income $153 $612 $1,151 $2,914 $5,371 $4,363 $2,274 $844 $1,657 $1,871 $1,993 $1,361Taxes (57) (81) (199) (328) (757) (698) (317) (362) (325) (376) (274) (211)Minority interest 3 0 0 (2) 2 11 (27) (50) (17) 0 (40) (40)Net income $100 $531 $952 $2,584 $4,616 $3,676 $1,930 $432 $1,315 $1,495 $1,679 $1,111



October 14, 2014

340

Transocean Inc.



High-Spec Floaters $1,583 $1,775 $1,822 $1,636 $1,742 $1,673 $1,585 $1,539 $1,559 $1,549 $1,601 $1,688Midwater Floaters 429 381 419 429 411 441 439 439 429 452 459 456High-Spec Jackups 124 158 157 143 135 160 141 146 134 150 151 151Other Revenues 52 76 156 130 47 50 50 50 50 50 50 50Contract Drilling $2,188 $2,390 $2,554 $2,338 $2,335 $2,324 $2,215 $2,174 $2,172 $2,200 $2,262 $2,346Other 9 7 4 (6) 4 4 0 0 0 0 0 0Total revenues $2,197 $2,397 $2,558 $2,332 $2,339 $2,328 $2,215 $2,174 $2,172 $2,200 $2,262 $2,346

ExpensesCOGS ($1,301) ($1,378) ($1,442) ($1,532) ($1,265) ($1,213) ($1,411) ($1,403) ($1,400) ($1,426) ($1,483) ($1,482)G&A (67) (65) (84) (75) (57) (55) (53) (51) (50) (49) (50) (51)EBITDA $829 $954 $1,032 $725 $1,017 $1,060 $751 $720 $722 $726 $729 $813D&A (275) (286) (273) (275) (273) (288) (293) (298) (303) (308) (313) (318)Other 0 0 0 0 0 0 0 0 0 0 0 0Operating Income $554 $668 $759 $450 $744 $772 $458 $422 $419 $418 $416 $495Interest income 17 11 11 13 10 15 8 7 7 7 7 7Interest expense (157) (146) (142) (139) (126) (112) (112) (112) (112) (112) (112) (112)Other income (7) (15) (4) (2) (5) 8 8 8 8 8 8 8Pretax income $407 $518 $624 $322 $623 $683 $362 $325 $322 $321 $320 $399Taxes (78) (122) (121) (55) (95) (73) (56) (50) (50) (50) (50) (62)Minority interest 8 (4) (2) (2) (10) (10) (10) (10) (10) (10) (10) (10)Net income $337 $392 $501 $265 $518 $600 $296 $265 $262 $261 $260 $327



2013 2014 2015

October 14, 2014

341

Transocean Inc.



2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $451 $445 $467 $1,241 $963 $1,130 $3,394 $4,017 $5,134 $3,243 $1,596 $710Accounts receivable 427 583 946 2,370 2,864 2,385 2,000 2,049 1,940 2,162 2,068 2,231Materials 145 156 160 333 432 462 517 627 610 743 1,466 1,582Deferred income taxes 19 23 16 119 63 104 115 142 142 151 151 163Other 68 72 67 233 1,027 395 169 774 821 473 419 452Current assets $1,109 $1,279 $1,656 $4,296 $5,349 $4,476 $6,195 $7,609 $8,647 $6,772 $5,700 $5,139PP&E 7,005 6,748 7,326 20,930 20,827 23,018 21,458 22,529 20,880 21,707 22,936 23,670Goodwill 2,252 2,209 2,195 8,219 8,128 8,134 8,132 3,205 2,987 2,987 2,987 2,987Other 392 221 299 919 867 808 1,026 1,745 1,741 1,080 953 981Total assets $10,758 $10,457 $11,476 $34,364 $35,171 $36,436 $36,811 $35,088 $34,255 $32,546 $32,576 $32,777

Liabilities & shareholders' equityAccounts payable $181 $254 $477 $805 $914 $780 $847 $880 $1,047 $1,106 $883 $933Accrued income taxes 17 28 98 99 317 240 116 89 116 53 96 101Other 213 242 369 826 806 730 886 2,350 2,933 2,235 2,765 2,921Current liabilities $411 $524 $944 $1,730 $2,037 $1,750 $1,849 $3,319 $4,096 $3,394 $3,744 $3,956Total debt 2,482 1,597 3,295 17,257 14,186 11,717 11,221 13,536 12,459 10,539 10,445 10,421Deferred income taxes 19 23 16 119 63 104 115 142 142 151 151 163Other 454 331 385 2,692 2,361 2,306 2,251 2,400 1,828 1,777 1,446 1,434Total liabilities $3,366 $2,476 $4,640 $21,798 $18,647 $15,877 $15,436 $19,397 $18,525 $15,861 $15,786 $15,974Minority interest 0 0 0 0 0 0 0 0 0 0 11 11Common stock 7,393 7,982 6,836 12,566 16,524 20,559 21,375 15,691 15,730 16,685 16,779 16,793Total $10,758 $10,457 $11,476 $34,364 $35,171 $36,436 $36,811 $35,088 $34,255 $32,546 $32,576 $32,777


Net income $152 $716 $1,385 $3,131 $4,202 $3,170 $988 ($5,632) ($221) $1,407 $1,624 $1,111Depreciation 525 406 401 499 1,436 1,464 1,589 1,449 1,123 1,109 1,152 1,242Deferred income taxes 19 23 16 119 63 104 115 142 142 151 151 163Impairment of assets 0 0 0 0 336 334 1,012 5,229 1,126 95 65 0Other (65) (146) (478) (418) (757) 92 (167) (148) 26 (28) (31) (167)Working Capital Chg (27) (135) (87) (258) (321) 434 409 745 512 (816) (994) (113)Cash from operations $604 $864 $1,237 $3,073 $4,959 $5,598 $3,946 $1,785 $2,708 $1,918 $1,967 $2,235

Investing ActivitiesCapex ($127) ($182) ($876) ($1,380) ($2,208) ($3,052) ($1,411) ($1,020) ($1,409) ($2,238) ($2,626) ($1,972)Asset disposal (acqui 50 74 461 379 (42) 18 60 202 958 378 235 0Other 625 276 0 (4,676) 54 340 630 (1,078) 62 202 (12) 0Cash from investing $549 $169 ($415) ($5,677) ($2,196) ($2,694) ($721) ($1,896) ($389) ($1,658) ($2,403) ($1,972)

Financing ActivitiesChange in LT debt ($1,207) ($880) $1,700 $13,466 ($3,086) ($2,739) ($704) $442 ($941) ($1,692) ($255) ($24)Preferred issuance 0 0 0 0 0 0 0 0 0 0 0 0Common issuance 30 (170) (2,532) (10,087) 51 27 (240) 1,211 0 0 0 0Dividend Paid 0 0 0 0 0 0 0 (763) (278) (606) (1,019) (1,097)Other 1 11 32 (1) (6) (25) (17) (156) 17 147 64 (28)Cash flow financing ($1,176) ($1,039) ($800) $3,378 ($3,041) ($2,737) ($961) $734 ($1,202) ($2,151) ($1,210) ($1,149)

Chg in cash ($23) ($6) $22 $774 ($278) $167 $2,264 $623 $1,117 ($1,891) ($1,647) ($886)Beginning cash 473 451 445 467 1,241 963 1,130 3,394 4,017 5,134 3,243 1,596

Ending cash $451 $445 $467 $1,241 $963 $1,130 $3,394 $4,017 $5,134 $3,243 $1,596 $710

October 14, 2014

342

Trican Well Service

Investment Thesis Trican is a small cap production and completion services company, with operations in Canada, the U.S. and select international countries. The company offers a full suite of services to maximize well recovery, including fracturing, cementing, coiled tubing, and others, and is poised to benefit from industry trends of increasing fracturing intensity per well. We believe Trican is one of the best ways to gain leverage to the Western Canada LNG export cycle and rate the shares Buy with a $17 price target based on a 7.0x target multiple on our 2015E EBITDA.

Company Strategy The company has a number of initiatives under way to boost margins, but continues to battle rising costs for transportation, wage inflation, diesel and a weaker Canadian dollar. As a result, margins expansion is more likely to be driven by new pricing implemented in May, partially to offset higher costs. The company anticipates that 60% of customers will be on the new pricing book in the third quarter, with the balance implemented by year end. Margins in Canada tends to peak in 4Q, however, TCW’s U.S. business average more than a 10% point gap in margins and the company target double digit U.S. EBITDA margins by year end, a 1400bp improvement Y-Y.

Outlook for 2015 The outlook for Canada’s upcoming winter drilling season looks strong, with TCW forecasting 10% Y-Y increase in activity and higher pricing from LNG-related work. Trican’s U.S. operations are strategically placed in South Texas, the Bakken and Marcellus shale, but the company is likely to expand into the Permian shortly by mobilizing existing inactive fleets from South Texas. But in contrast to peers that are raising budgets for incremental fleet growth, Trican is lowering its capital expenditures on a year over year basis, making no change to its 2014 plans for now. The company continues to look for opportunities to deploy additional equipment from idle fleets over the next year.

October 14, 2014

343

Trican Well Service

Key Thoughts and Potential Catalysts As with other Canadian operators, 2Q tends to be the weakest quarter for TCW, as a wet ground

makes it difficult to move equipment from one well site to another. Favorable weather in April could prove to be difficult comps in 2015, pending weather and other uncontrollable factors.

The company’s core pressure pumping and industrial services activities are concentrated in Canada and the U.S., as well as Russia, Kazakhstan, Algeria, and Saudi Arabia.

A third of Trican’s fracturing fleets are fueled by a combination of natural gas sourced on site and diesel, which can generate significant cost savings for customers.



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TCW

Production & CompletionServices

TCW current trades at 5.6x, a 17% premium to the group's 4.7x average but


October 14, 2014

344

Trican Well Service


2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

Canada $474 $555 $416 $858 $1,283 $1,139 $1,021 $1,199 $1,429United States 106 166 157 361 739 798 769 1,093 1,432Russia 474 555 416 858 1,283 1,139 1,021 1,199 1,429Total revenues $836 $1,016 $811 $1,478 $2,310 $2,213 $2,115 $2,656 $3,252

ExpensesCanada (339) (405) (336) (552) (791) (804) (793) (961) (1,099)United States (59) (126) (153) (285) (536) (806) (719) (988) (1,204)International (200) (241) (192) (225) (250) (239) (291) (302) (310)Corporate Exp (4) (8) (9) (15) (22) (24) (25) (28) (35)

Operating Expenses ($603) ($780) ($690) ($1,077) ($1,598) ($1,873) ($1,826) ($2,280) ($2,648)G&A (38) (54) (52) (69) (97) (100) (109) (148) (161)EBITDA $195 $182 $70 $332 $615 $243 $182 $229 $443D&A (63) (93) (97) (111) (127) (153) (213) (205) (205)Operating Income $132 $88 ($27) $221 $488 $90 ($31) $24 $238Interest Expense (9) (14) (10) (9) (20) (30) (35) (40) (43)Other 22 8 7 (1) 10 (1) 6 1 0Pretax income $146 $83 ($30) $211 $478 $58 ($60) ($15) $195Income Tax Expense (31) (23) 21 (59) (140) (5) 26 9 (52)Minority Interest (3) (0) 0 0 0 0 1 2 2Net income $112 $60 ($9) $152 $339 $54 ($32) ($4) $145

Per Share DataDiluted Earnings $0.91 $0.48 ($0.07) $1.08 $2.30 $0.36 ($0.22) ($0.03) $0.95Dividend $0.10 $0.10 $0.10 $0.10 $0.10 $0.20 $0.30 $0.30 $0.30

Margins SummaryCanada 28% 27% 19% 36% 38% 29% 22% 20% 23%United States 44% 24% 3% 21% 28% -1% 6% 10% 16%International 22% 19% 20% 13% 13% 13% 12% 17% 21%Companywide 28% 23% 15% 27% 31% 15% 14% 14% 19%EBITDA margin 23% 18% 9% 22% 27% 11% 9% 9% 14%

October 14, 2014

345

Trican Well Service



Canada $339 $116 $280 $287 $353 $172 $335 $339 $418 $203 $393 $415United States 211 202 183 173 211 268 308 306 346 367 359 360Russia 339 116 280 287 353 172 335 339 418 203 393 415Total revenues $618 $397 $548 $552 $643 $535 $731 $748 $853 $670 $845 $884

ExpensesCanada (241) (121) (201) (229) (283) (172) (253) (253) (309) (201) (287) (302)United States (186) (187) (171) (175) (205) (247) (269) (267) (295) (305) (301) (302)International (68) (71) (72) (81) (73) (74) (72) (83) (72) (79) (74) (85)Corporate Exp (7) (5) (6) (7) (6) (6) (8) (8) (9) (7) (9) (9)

Operating Expenses ($502) ($384) ($449) ($491) ($568) ($498) ($601) ($612) ($685) ($593) ($672) ($699)G&A (30) (27) (26) (26) (33) (35) (40) (40) (43) (38) (40) (40)EBITDA $86 ($15) $75 $36 $42 $1 $89 $96 $125 $40 $134 $145D&A (47) (51) (55) (61) (53) (49) (50) (53) (53) (52) (51) (49)Operating Income $39 ($66) $21 ($25) ($10) ($48) $39 $43 $72 ($12) $83 $96Interest Expense (8) (9) (9) (9) (10) (10) (10) (10) (12) (10) (10) (10)Other 4 3 (6) 6 5 (4) 0 0 0 0 0 0Pretax income $34 ($71) $6 ($28) ($16) ($61) $29 $33 $60 ($23) $72 $85Income Tax Expense (10) 21 2 14 7 17 (7) (8) (15) 7 (20) (24)Minority Interest 0 0 0 0 1 0 0 0 0 0 0 0Net income $25 ($51) $8 ($14) ($8) ($43) $22 $25 $46 ($15) $53 $62

Per Share DataDiluted Earnings $0.17 ($0.34) $0.05 ($0.10) ($0.06) ($0.29) $0.15 $0.17 $0.30 ($0.10) $0.35 $0.40Dividend $0.15 $0.00 $0.15 $0.00 $0.15 $0.00 $0.15 $0.00 $0.15 $0.00 $0.15 $0.00

Margins SummaryCanada 29% -5% 28% 20% 20% 0% 24% 25% 26% 1% 27% 27%United States GM 12% 7% 7% -1% 3% 8% 13% 13% 15% 17% 16% 16%International 2% 10% 19% 12% 7% 22% 19% 19% 19% 21% 20% 22%Companywide 19% 3% 19% 11% 12% 7% 18% 18% 20% 12% 21% 21%EBITDA margin 14% -4% 14% 6% 7% 0% 12% 13% 15% 6% 16% 16%

2013 2014 2015

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346

Trican Well Service



2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $23 $56 $26 $81 $126 $114 $64 $49 $109Accounts receivable 138 232 181 365 608 437 459 598 707Inventories 93 108 91 107 174 212 233 299 353Other 21 33 9 15 34 34 40 54 63Current assets $276 $428 $307 $568 $941 $796 $796 $1,000 $1,232PP&E 555 632 535 700 1,178 1,459 1,374 1,270 1,148Goodwill 167 36 37 37 44 44 59 59 59Deferred Income taxes 1 86 105 74 33 76 123 142 142Intangible Assets 41 39 28 21 15 10 44 40 40Other 9 12 18 13 6 12 17 14 14Total assets $1,049 $1,233 $1,030 $1,413 $2,217 $2,397 $2,414 $2,525 $2,636

Liabilities & shareholders' equityShort-Term Debt $16 $61 $29 $0 $25 $9 $80 $45 $50Trade and Other Payables 71 117 98 209 288 229 302 409 483Other 8 8 15 0 6 11 1 0 0Current liabilities $94 $187 $141 $209 $319 $249 $382 $454 $533LT debt 189 242 176 107 400 695 594 707 707Deferred Tax Liabilities 68 82 65 98 132 77 87 84 80Other 15 2 0 0 0 0 0 0 0Total liabilities $365 $513 $383 $414 $852 $1,021 $1,063 $1,245 $1,321

Shareholders' Equity $684 $720 $647 $999 $1,366 $1,376 $1,351 $1,280 $1,315Total $1,049 $1,233 $1,030 $1,413 $2,217 $2,397 $2,414 $2,525 $2,636


Net Income $112 ($71) ($9) $152 $339 $53 ($47) ($5) $145Depreciation & Amortization 63 93 97 111 127 153 222 205 205Stock-based compensation 13 12 10 12 12 10 8 4 0Other (55) 132 (63) 58 74 (88) (54) (51) (69)Working Capital Chg (1) (67) 65 (139) (241) 59 42 (127) (97)Cash from operations $131 $99 $99 $192 $311 $186 $172 $26 $184

Investing ActivitiesCapital Expenditures ($160) ($124) ($46) ($279) ($574) ($445) ($108) ($106) ($84)Sale of PP&E 0 0 3 1 2 3 7 1 0Acquisitions (256) (22) (3) (6) (9) 0 (37) 0 0Other (11) (17) 8 27 1 1 1 2 0Cash from investing ($427) ($164) ($38) ($257) ($580) ($440) ($137) ($103) ($84)

Financing ActivitiesChange in Equity $21 $35 $0 $230 $33 ($9) $1 $9 $0Change in Debt 218 76 (78) (97) 294 279 (42) 98 5Dividend paid (12) (12) (13) (13) (15) (29) (44) (45) (46)Other (0) (1) (0) 0 0 0 0 0 0Cash flow financing $226 $97 ($90) $120 $313 $241 ($85) $62 ($41)

FX and other (2) 0 (1) 0 1 0 1 (1) 0

Chg in cash ($71) $33 ($30) $55 $45 ($12) ($50) ($15) $60Beginning cash 95 23 56 26 81 126 114 64 49Ending cash $23 $56 $26 $81 $126 $114 $64 $49 $109

October 14, 2014

347

Vantage Drilling

Investment Thesis We believe that Vantage is a good way to gain exposure to ultra-deepwater drilling market and the international jackup market. Vantage has a solid management team and a strong international track record with various top-tier clients and is well positioned to accelerate debt (a strategic priority) reduction in 2014 and 2015. However, we maintain a selective approach to the offshore drillers currently and think there are better opportunities at current levels in the group. We rate the shares Hold with a $1 price target based on a 6.6x target multiple on our 2015E EBITDA.

Company Strategy Vantage specializes in high specification offshore drilling rigs, with a fleet of four jackups and four drillships operating globally. All four drillships are Daewoo Shipyard’s DSME 12000s, with the first unit delivered only four years ago and the 4th and final unit to be delivered in 3Q15. While the Cobalt Explorer remains uncontracted, the other three drillships are contracted through 2015 and beyond, providing significant earnings visibility and cash flow for the company during the current market downturn. On the jackup side, Vantage has a fleet of Baker Marine Pacific Class rigs delivered by Singapore’s PPL Shipyard in 2008/2009. All four units are working in the Eastern Hemisphere (Southeast Asia, West Africa) but scheduled to complete existing term contracts in the next 12 months. Confident it will not be incurring significant gap between contracts for its first available jackup, the company accelerated debt reduction efforts and is poised to exceed its FY 2014 debt reduction target of $175mm. Another $200mm is targeted for 2015, though with $2.7bn outstanding, Vantage has a long way to go before its net debt/EBITDA ratio falls to the industry’s 2-3x average.

Outlook for 2015 The Aquamarine Driller is scheduled to roll off its $155kpd contract with Petronas Carigali next month and we’re modeling the 375’ jackup to roll onto a new contract at the same rate following a two week gap. We make the same assumptions about the other three jackups rolling over in 2015, but make no incremental down day assumptions for the floater fleet in 2015. Currently working in Equatorial Guinea, the Titanium Explorer is expected to mobe to the US GOM later this year. We see risk the mobe could drag into the start of the 1Q and are conservatively modeling the 12,000k ft drillship to resume operations in early January. Although we’re modeling Vantage to remain cash positive in 2015, paying down debt steadily as expected, the company will take delivery of the Cobalt Explorer late next year and has significant newbuild commitments to be financed with new debt. Possible shipyard delays could push the final $540mm payment into 2016.

October 14, 2014

348

Vantage Drilling

Key Thoughts and Potential Catalysts Vantage has one newbuild drillship available, the Cobalt Explorer scheduled to be delivered in 4Q15

but likely to be about three months delayed. We expect a term contract to be announced in the next 12 months, likely at only $500kpd, with the rate potentially lower with management trading $5-10kpd for each year of incremental term.

Management guided to 3Q14 EBITDA of $90-105mm, we are in line at $102mm but expect 4Q guidance to fall sequentially with both the Titanium Explorer and Tungsten Explorer scheduled for mobe in the quarter. We forecast 4Q EBITDA to fall to just $88mm but expect the company to remain cash flow positive to fund its $50m quarterly debt reduction target.

Vantage plans to put its share of the Sigma JV’s $65mm refund guarantee into the construction cost of the Cobalt Explorer, with more funds available potentially as Sigma seek additional compensation from STX shipyard. Meanwhile, a favorable ruling from the lawsuit Vantage Drilling Company vs. Hsin-Chi Su a/k/a Nobu Su could also recover actual and punitive damages for the company to be applied to further debt reduction and newbuild commitments.



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VTGOffshore Drillers

VTG current trades at 6.6x, a 14% premium to the group's 5.8x average but only a 4%

premium to its historical 6.3x.

October 14, 2014

349

Vantage Drilling


2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

Floaters $557 $642Jackups 237 226Other 24 0Total revenues $0 $1 $111 $278 $485 $471 $732 $819 $867

ExpensesFloaters ($197) ($231)Jackups (113) (139)Other (46) 0Operating costs $0 ($5) ($66) ($176) ($284) ($230) ($331) ($356) ($370)G&A (1) (9) (16) (22) (26) (26) (33) (36) (51)EBITDA ($1) ($14) $30 $80 $175 $215 $369 $426 $446D&A (0) (0) (11) (33) (64) (69) (107) (127) (129)Other 0 (38) 0 0 0 0 0 0 0Operating income ($1) ($52) $18 $47 $110 $147 $262 $299 $317Loss on Debt Extinguishment 0 0 0 (28) (25) (3) 0 0 0Interest income 0 4 0 1 0 0 0 0 0Interest expense 0 (0) (8) (50) (155) (149) (214) (217) (213)Other income 8 0 1 2 1 1 2 0 0Pretax income $7 ($48) $11 ($29) ($69) ($4) $50 $83 $104Taxes (2) 1 (2) (19) (11) (19) (31) (29) (43)Net income $4 ($47) $9 ($48) ($80) ($23) $18 $53 $61

Per Share DataDiluted Earnings $0.13 ($0.76) $0.09 ($0.18) ($0.28) ($0.08) $0.06 $0.16 $0.20Dividend $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

Margins SummaryGross margins 41% 37% 41% 51% 55% 56% 57%EBITDA margins 27% 29% 36% 46% 50% 52% 51%Operating margins 16% 17% 23% 31% 36% 37% 37%

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350

Vantage Drilling



Floaters $159 $145 $136 $117 $157 $160 $162 $162Jackups 62 62 58 56 57 55 55 59Other 12 13 0 0 0 0 0 0Total revenues $147 $171 $176 $239 $232 $220 $194 $173 $214 $215 $217 $221

ExpensesFloaters $0 $0 $0 $0 ($56) ($51) ($49) ($40) ($54) ($57) ($58) ($61)Jackups 0 0 0 0 (24) (22) (33) (33) (34) (35) (35) (36)Other (75) (77) (79) (99) (22) (24) 0 0 0 0 0 0Operating costs ($75) ($77) ($79) ($99) ($102) ($98) ($83) ($74) ($88) ($92) ($94) ($96)G&A (7) (7) (9) (9) (8) (8) (9) (10) (11) (12) (13) (14)EBITDA $64 $86 $88 $130 $123 $113 $102 $88 $115 $111 $110 $110D&A (25) (25) (25) (32) (32) (32) (32) (32) (32) (32) (32) (33)Other 0 0 0 0 0 0 0 0 0 0 0 0Operating income $39 $61 $63 $98 $91 $82 $70 $56 $83 $79 $78 $77Loss on Debt Extinguishment 0 0 0 0 0 0 0 0 0 0 0 0Interest income 0 0 0 0 0 0 0 0 0 0 0 0Interest expense (60) (51) (47) (56) (54) (54) (54) (54) (54) (53) (53) (53)Other income 1 1 0 (1) 1 (1) 0 0 0 0 0 0Pretax income ($19) $11 $16 $42 $37 $27 $16 $3 $29 $26 $24 $24Taxes (6) (7) (7) (11) (12) (11) (6) (1) (11) (11) (11) (11)Net income ($25) $4 $8 $30 $25 $16 $10 $2 $19 $15 $14 $13



2013 2014 2015

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351

Vantage Drilling



2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $1 $17 $16 $120 $110 $503 $55 $36 $94Restricted cash 273 2 29 29 7 4 2 0 0Accounts receivable 0 3 18 50 101 119 169 122 156Inventories 0 0 11 20 24 38 56 61 61Prepaid expenses & other 0 2 8 11 17 25 24 15 19Current assets $274 $24 $81 $231 $259 $689 $305 $233 $330PPE 0 631 888 1,718 1,805 2,718 3,191 3,111 3,662Goodwill 0 0 0 0 0 0 0 0 0Investments in JV 0 0 120 0 0 0 0 0 0Other 1 11 29 54 317 124 133 115 115Total assets $276 $665 $1,119 $2,003 $2,123 $3,530 $3,628 $3,460 $4,107

Liabilities & shareholders' equityAccounts payable 0 4 16 32 46 51 67 43 57Accrued expenses 9 15 14 75 104 123 97 76 100Other 0 0 0 0 0 0 0 0 0Current liabilities $9 $19 $30 $107 $150 $174 $164 $120 $156Total debt 0 150 412 1,112 1,246 2,742 2,916 2,736 3,286Deferred taxes 0 0 0 0 0 0 0 0 0Other LT liabilities 79 0 0 13 30 46 43 48 48Total liabilities $89 $169 $442 $1,233 $1,426 $2,962 $3,123 $2,903 $3,490Noncontrolling interest 0 0 0 0 0 0 0 0 0Common stock 187 496 677 770 696 568 505 557 618Total $276 $665 $1,119 $2,003 $2,123 $3,530 $3,628 $3,460 $4,107


Net income $4 ($47) $9 ($48) ($80) ($145) ($82) $47 $61Depreciation and amortization 0 0 11 33 64 69 107 127 129Deferred income taxes (0) (2) 1 1 (4) 4 1 (0) 0Other 0 30 (19) 39 52 35 19 20 0Chg in Working Capital 1 14 (32) (10) (17) (112) (98) 20 (2)Cash from operations $5 ($6) ($30) $16 $16 ($151) ($53) $214 $188

Investing ActivitiesCapex ($0) ($171) ($314) ($566) ($145) ($874) ($585) ($60) ($680)Asset sale (acquisitions) 0 (213) 0 (80) 0 0 0 0 0Chg in restricted cash (273) 273 0 0 0 0 0 0 0Other (274) 273 (157) 0 0 (31) 0 0 0Cash from investing ($274) ($111) ($471) ($646) ($144) ($905) ($585) ($60) ($680)

Financing ActivitiesProceeds from LT debt $0 $139 $273 $964 $241 $2,527 $1,230 $0 $750Payments on LT debt 0 0 (19) (293) (110) (1,006) (1,028) (186) (200)Debt issuance costs 0 (9) (12) (32) (13) (72) (30) (0) 0Proceeds from share issuance 262 0 255 0 0 0 0 0 0Other 8 2 4 102 0 0 0 0 0Cash flow financing $270 $132 $500 $740 $118 $1,448 $172 ($186) $550

Chg in cash $1 $15 ($1) $111 ($10) $393 ($466) ($32) $58Beginning cash 0 1 17 16 120 110 503 55 36

Ending cash $1 $17 $16 $127 $110 $503 $37 $23 $94

October 14, 2014

352

Weatherford

Investment Thesis A new version of Weatherford is slowly emerging after four years of significant pain and suffering. This new Weatherford is more focus, disciplined, has higher returns, will generate cash, and is an attractive stock in our view; for investors and potential suitors. We rate the shares Buy with a $29 price target based on a 16.5x target multiple on our 2015E EPS.

Company Strategy Starting in 2013 the company shifted strategies completely and is now evolving into an organization that has a disciplined focus on capital efficiency, cash harvesting, and operational excellence. Weatherford is well down the path of shedding non-core assets, evolving into a leaner, better positioned company with core strengths, de-leveraging, derisking, maximizing margins, reducing costs, and lowering capital intensity.

Outlook for 2015 The company’s outlook is improving for 2015 as evidence of cost-cutting should emerge, the balance sheet and corporate structure will be cleaner, the organization more focused and disciplined and the earnings leverage more evident. Weatherford’s core businesses of well construction, artificial lift, and formation evaluation should outgrow the market will the company’s stimulation business is undergoing a solid rebound.

October 14, 2014

353

Weatherford

Key Thoughts and Potential Catalysts The third quarter cash build is likely to be significant with the sale of the company’s pipeline

inspection business and its Russian and Venezuelan land rigs completed for a total of $750 million.

The almost $500 million of annual cost that were removed in 1Q and 2Q should be evident in 3Q results.

Weatherford has maintained its free cash flow target of $500 million for this year.

The IPO/Spin-off of the company’s remaining land rigs should occur in early 2015.

The Iraqi business, which had been a serious drag, is now minimal.

The “noise” that has plagued Weatherford in the past appears to now be behind the company.



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WFTBig Four Average

WFT current trades at 10.8x, a -7% discount to the group's

11.7x average but a -31% discount to its historical

15.9x.

October 14, 2014

354

Weatherford


2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015ERevenues

North America $1,670 $2,401 $3,673 $3,937 $4,460 $2,766 $4,164 $6,023 $6,824 $6,390 $6,835 $7,429MidEast/N. Africa/Asia NA NA 1,353 1,824 2,392 2,368 2,450 2,441 2,795 3,344 3,265 3,642Europe/SSA/Russia NA NA 827 1,189 1,539 1,616 1,981 2,300 2,519 2,693 3,034 3,441Latin America 301 424 726 882 1,210 2,077 1,617 2,227 3,077 2,836 2,352 2,532Other 1,161 1,509 0 0 0 0 0 0 0 0 0 0Total revenues $3,132 $4,333 $6,579 $7,832 $9,601 $8,827 $10,211 $12,991 $15,215 $15,263 $15,486 $17,044

EBITDA $672 $1,030 $1,849 $2,255 $2,750 $1,695 $2,032 $2,622 $2,682 $2,651 $3,086 $3,792

D&A (256) (334) (483) (606) (732) (891) (1,048) (1,143) (1,283) (1,402) (1,342) (1,280)

Operating IncomeNorth America NA NA 1,028 1,011 1,125 197 695 1,261 1,078 822 1,094 1,454MidEast/N. Africa/Asia NA NA 273 416 561 442 282 104 64 230 309 455Europe/SSA/Russia NA NA 171 288 383 252 230 306 315 298 480 690Latin America NA NA 133 203 277 282 165 255 395 365 317 347R&D (84) (107) (149) (169) (193) (195) (214) (249) (257) (266) (279) (277)Corporate (56) (74) (95) (106) (135) (174) (175) (198) (196) (200) (178) (157)Operating Income $416 $695 $1,366 $1,648 $2,018 $804 $983 $1,479 $1,399 $1,249 $1,744 $2,512Net Interest Expense ($60) (68) (103) (172) (244) (367) (406) (453) (486) (516) (496) (485)Other ($4) 8 (22) (9) (45) (38) (50) (107) (100) (77) (66) (76)Pretax income $352 $635 $1,241 $1,468 $1,730 $400 $528 $919 $813 $656 $1,181 $1,951Taxes (92) (169) (348) (290) (296) (10) (89) (373) (539) (162) (264) (507)Minority interest 0 0 (4) (20) (34) (26) (15) (13) (28) (31) (45) (56)Net income $260 $467 $891 $1,160 $1,400 $364 $424 $533 $246 $463 $873 $1,388



North America NA NA 28% 26% 25% 7% 17% 21% 16% 13% 16% 20%MidEast/N. Africa/Asia NA NA 20% 23% 23% 19% 12% 4% 2% 7% 9% 12%Europe/SSA/Russia NA NA 21% 24% 25% 16% 12% 13% 13% 11% 16% 20%Latin America NA NA 18% 23% 23% 14% 10% 11% 13% 13% 13% 14%Total Operating Margins 13% 16% 21% 21% 21% 9% 10% 11% 9% 8% 11% 15%Total EBITDA Margin 21% 24% 28% 29% 29% 19% 20% 20% 18% 17% 20% 22%

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North America $1,692 $1,529 $1,597 $1,572 $1,610 $1,659 $1,792 $1,774 $1,739 $1,808 $1,917 $1,964Middle East/North Afr 785 919 819 821 781 754 811 920 859 867 904 1,011Europe/SSA/Russia 633 681 691 688 664 750 760 860 797 863 836 946Latin America 727 739 713 657 541 548 606 657 595 595 636 706Other 0 0 0 0 0 0 0 0 0 0 0 0Total revenues $3,837 $3,868 $3,820 $3,738 $3,596 $3,711 $3,969 $4,210 $3,990 $4,132 $4,294 $4,628

EBITDA $663 $627 $744 $617 $637 $754 $804 $891 $840 $900 $965 $1,088

D&A (346) (341) (352) (363) (351) (355) (328) (308) (311) (317) (323) (329)

Operating IncomeNorth America 224 167 215 216 201 252 312 330 316 343 387 408Middle East/North Afr 45 66 69 50 54 73 78 105 96 98 111 149Europe/SSA/Russia 65 83 103 47 54 126 127 172 150 173 164 203Latin America 98 90 115 62 93 68 68 88 73 72 87 115Research & Developm (67) (71) (65) (63) (69) (75) (66) (68) (66) (68) (69) (74)Corporate (48) (49) (45) (58) (47) (45) (42) (44) (40) (37) (39) (42)Operating Income $317 $286 $392 $254 $286 $399 $476 $582 $528 $582 $642 $759Net Interest Expense (131) (128) (129) (128) (126) (128) (121) (121) (121) (121) (121) (121)Other (13) (18) (30) (16) (9) (19) (19) (19) (19) (19) (19) (19)Pretax income $173 $140 $233 $110 $151 $252 $336 $442 $388 $442 $502 $619Taxes (48) (17) (47) (50) (43) (54) (72) (95) (101) (115) (131) (161)Minority interest (8) (7) (9) (7) (9) (12) (12) (12) (14) (14) (14) (14)Net income $117 $116 $177 $53 $99 $186 $252 $335 $273 $313 $358 $444



North America 13% 11% 13% 14% 12% 15% 17% 19% 18% 19% 20% 21%Middle East/North Afr 6% 7% 8% 6% 7% 10% 10% 11% 11% 11% 12% 15%Europe/SSA/Russia 10% 12% 15% 7% 8% 17% 17% 20% 19% 20% 20% 21%Latin America 13% 12% 16% 9% 17% 12% 11% 13% 12% 12% 14% 16%Total Operating Margi 8% 7% 10% 7% 8% 11% 12% 14% 13% 14% 15% 16%Total EBITDA Margin 17% 16% 19% 17% 18% 20% 20% 21% 21% 22% 22% 24%

2013 2014 2015

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015EAssets

Cash & equivalents $317 $134 $126 $171 $238 $253 $416 $371 $300 $435 $354 $280Accounts Receivable 742 1,260 1,561 1,962 2,443 2,505 2,619 3,235 3,885 3,594 3,705 4,073Inventories 680 890 1,239 1,608 2,088 2,240 2,592 3,158 3,675 3,371 3,818 4,197Other 204 355 434 732 801 1,143 1,336 935 1,169 1,374 2,771 3,046Total Current Assets $1,943 $2,639 $3,360 $4,472 $5,570 $6,141 $6,962 $7,699 $9,029 $8,774 $10,647 $11,595PPE 1,377 2,367 3,004 4,154 5,922 6,992 6,940 7,283 8,299 8,368 7,204 7,723Goodwill 1,670 3,430 3,607 3,358 4,232 4,935 4,926 5,133 4,637 4,335 4,044 4,044Investments 170 37 0 369 516 543 540 616 646 296 262 262Other 383 108 168 838 236 256 247 454 184 204 201 201Total assets $5,543 $8,580 $10,139 $13,191 $16,477 $18,866 $19,615 $21,185 $22,795 $21,977 $22,358 $23,825

Liabilities & shareholders' equityShort-Term Debt $22 $955 $649 $774 $1,256 $870 $235 $1,320 $1,585 $1,666 $2,404 $2,404Accounts Payable 280 476 512 613 886 1,002 1,335 1,567 2,108 2,091 2,067 2,352Other Accrued Liabilities 358 567 882 815 880 925 994 1,326 2,017 1,942 1,787 1,960Total Current Liabilities $660 $1,998 $2,043 $2,202 $3,022 $2,797 $2,564 $4,213 $5,710 $5,699 $6,258 $6,715Long-Term Debt 1,404 632 1,565 3,066 4,564 5,847 6,530 6,286 7,049 7,061 6,521 6,521Minority Interest 0 0 (4) (20) (34) (26) (15) (13) (28) (31) (45) (56)Deferred Tax and Other 31 88 136 197 229 0 0 0 0 0 0 0Other Liabilities 135 195 220 318 296 423 563 1,133 1,218 1,014 941 941

Total Liabilities $2,230 $2,913 $3,964 $5,784 $8,110 $9,067 $9,657 $11,632 $13,977 $13,774 $13,720 $14,177Shareholders Equity $3,313 $5,667 $6,175 $7,407 $8,366 $9,799 $9,958 $9,553 $8,818 $8,203 $8,638 $9,648

Total $5,543 $8,580 $10,139 $13,191 $16,477 $18,866 $19,615 $21,185 $22,795 $21,977 $22,358 $23,825


Net income $330 $467 $896 $1,071 $1,354 $280 $246 $278 ($750) ($314) $423 $1,388Depreciation 256 334 483 606 732 907 1,048 1,135 1,282 1,402 1,342 1,280Deferred Income Taxes 0 0 0 29 (41) (110) (112) 149 (13) (33) 16 0Other (64) 18 7 (833) 9 54 219 162 1,024 438 301 0Working Capital Chg (18) (317) (299) 0 (949) (516) (406) (891) (322) (264) (1,518) (943)Cash from operations $503 $503 $1,087 $873 $1,105 $614 $995 $833 $1,221 $1,229 $564 $1,726

Investing ActivitiesCapex ($331) ($527) ($1,071) ($1,635) ($2,484) ($1,569) ($977) ($1,524) ($2,177) ($1,575) ($1,414) ($1,800)Acquisition (26) (991) (194) (275) (799) (10) (58) (144) (165) 471 517 0Other 253 263 23 (323) 273 62 209 (6) 36 0 23 0Cash from investing ($105) ($1,255) ($1,242) ($2,233) ($3,010) ($1,517) ($826) ($1,674) ($2,306) ($1,104) ($874) ($1,800)

Financing ActivitiesChange of Debt ($268) $380 $623 $1,589 $1,956 $834 $43 $798 $990 $12 $202 $0Change in Equity 128 191 (479) (212) 10 0 0 0 65 0 22 0Other (0) (2) 4 25 11 72 (7) (2) (43) (6) (2) 0Cash flow financing ($140) $569 $148 $1,402 $1,978 $906 $36 $796 $1,012 $6 $222 $0

Effect of Exchange Rate $0 $0 $0 $0 ($4) $11 ($23) ($0) $2 $4 $7 $0

Beginning cash $48 $307 $124 $116 $157 $229 $232 $414 $369 $298 $433 $351Ending cash $307 $124 $116 $157 $229 $232 $414 $369 $298 $433 $351 $277

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Appendix

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358

Aspen Aerogels

Company Description Aspen Aerogels is a company that designs and manufactures high-performance

aerogel insulation used in large scale energy infrastructure projects. Insulation is critical in maintaining the optimal temperature of piping and storage tanks, in turn protecting the plant and equipment from risk of fire and other harmful elements. Aspen manufactures aerogel insulation in blanket form that is more durable and effective in a wider range of temperatures than traditional insulation, and also reduces the risk of corrosion under insulation. Aerogel is a low density solid with low thermal conductivity, and is functional from -200C to 650C. Aspen has a broad geographic footprint with an installed base that spans more than 40 countries. The company generates roughly one third of revenues in the U.S. and one third in the Asia Pacific. Europe accounts for about 18% of revenues, with the balance made up by Canada and Latin America. Thus far the company has initial installations in approximately 30% of the world’s refineries, and has served 24 of the 25 largest refining companies, including ExxonMobil, Petrobas and Chevron.

Products

Aspen’s aerogel blankets are made from two core materials, Pyrogel and Cyrogel, which are then used by many of the largest oil producers, refiners and petrochemical companies. The products are produced in a single manufacturing facility located in Rhode Island. Aspen’s business is divided into two segments: Products and Research Services. The Products unit ultimately defines the company and accounts for approximately 95% of revenues.

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Atwood Oceanics

Company Description

Atwood Oceanics is an up-and-coming offshore contract driller engaged in the drilling and completion of exploratory and development wells. The company has a diverse drilling fleet that consists of two ultra-deepwater drillships, two ultra-deepwater semisubmersibles, three deepwater semisubmersibles, and five jackups. The company has been pursuing an aggressive newbuild program, having received five units in the past two years. Two ultra-deepwater drillships are under construction (neither under contract) and an additional high-specification jackup expected to be delivered within the next two years. While historically a shallow-water operator, Atwood has been increasing its leverage to the ultra-deepwater, while continuing to focus on the Asia Pacific market, and to a lesser extent, West Africa.

Ultra-deepwater

Atwood has two ultra-deepwater semisubs and two ultra-deepwater drillships, with an additional two to be delivered in early 2015 and late 2016. The company expects both drillships will be contracted prior to their respective delivery dates. The Atwood Advantage commenced drilling in the Gulf of Mexico in April 2014 and is contracted through April 2017, while the Atwood Achiever was delivered in late August of 2014 and will soon embark on a three-year drilling program in Morocco.

Deepwater Atwood has a fleet of three deepwater semisubmersibles. The Atwood Flacon and

Atwood Eagle are operating offshore Australia and are contracted through March 2016 and September 2016, respectively. The Atwood Hunter is contracted through November 2014 in Equatorial Guinea.

Jackup The company has a fleet of five high specification jackups, including three 400-foot

water depth Pacific Class jackups working in Southeast Asia in one of the most promising offshore basins. The fleet is rounded out by the Atwood Aurora, a 350-foot water depth jackup operating offshore West Africa, and the 400-foot water depth Atwood Beacon, operating in the Mediterranean Sea. The fleet is largely booked into 2015 with the exception of the Atwood Mako, which is currently contracted for follow on work in Thailand through December 2014.

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360

Baker Hughes

Company Description Baker Hughes is one of the largest diversified oilfield services companies in the world,

with a rich tradition of technological innovation that stretches back over 100 years. Baker has developed an exceptional product reputation introducing some 1,700 product lines over the years. The company’s strength lies in its cutting edge tools, equipment and product offerings, including drill bits, specialty chemicals, electric submersible pumps and completion tools. Baker’s international presence has been expanding in recent years, and the company now has operations in over 80 countries. The company’s operations are categorized by four regional segments: North America, Middle East/ Asia Pacific, Europe/ Africa/ Russia Caspian, and Latin America. Baker has significant exposure to North America, as the region accounted for nearly half of total revenues. Baker’s geomarket structure was implemented in 2009, the latest among its big four counterparts, so there may be some lingering growing pains.

Segments

Baker’s oilfield products and services are separated into two categories: Drilling and Evaluation and Completion and Production. The Drilling and Evaluation segment aims to assist clients locate the wellbore and maximize the efficiency of the entire drilling process. Primary products and services include drill bits, drilling services, wireline services, rotary steerable systems (SSE), measurement-while-drilling (MWD), surface-data-logging, logging-while-drilling (LWD), and drilling and completion fluids. Drilling services (includes both conventional and rotary steerable systems used to drill directionally and horizontally) is the segments biggest revenue driver, accounting for nearly 40% of segment revenues. Completion & Production (C&P) generates the bulk of the company’s revenue, accounting for roughly 60% per annum. Baker occupies a market leading position in completion equipment, specialty chemicals, and electric submersible pumps. Additional products and services include pressure pumping, completion systems, wellbore intervention, artificial lift, and tubulars The pressure pumping business in the segments primary earnings driver, accounting for nearly half of the segment’s revenues. Baker also operates an Industrial Services segment that consists primarily of downstream chemicals, and process and pipeline services businesses. The segment is mostly comprised of assets from the B&J Services acquisition in 2010. The unit contributed only 6% of revenue in 2010.

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Company Description

Basic Energy is a diversified oilfield services company that offers products and services for every stage of the well’s life cycle, from initial drilling to abandonment. The company has a significant presence in most major shale plays in the U.S., but its core market is the Permian Basin, the source of approximately 45% of revenues. In addition to upgrading its existing offerings, Basic has completed a string of acquisitions in recent years, extending both their geographic footprint and product offerings.

Fleet

The company operates in 4 primary business segments: 1) Completion and Remedial Services; 2) Fluid Services 3) Well Servicing; and 4) Contract Drilling. Completion and Remedial Services – The completion and remedial services segment is the most profitable unit, accounting for approximately 40% of revenues and an analogous gross margin. The segment operates a fleet of pumping units used for cementing, acidizing, fracturing and workover work. Additional offerings include coiled tubing units, snubbing services, thru-tubing, cased-hole wireline units, air compressor packages, fishing tools and rental equipment, and nitrogen units. Fluid Services – Basic has fleet of roughly 1,000 trucks used for the transportation and disposal of fluids used in fracturing and drilling activity. Segment also includes portable frac and test tank rentals and oilfield wastewater disposal wells. Well Servicing – Provides workover work, service work, completion work, and plugging and abandonment of completed wells. Consists of approximately 420 rigs, with nearly half operating in the Permian Basin. Contract Drilling – Consists of a fleet of 12 drilling rigs (6 mechanical) in the Permian Basin; contributes less than 5% of revenues.

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362

Bristow Helicopters

Company Description Bristow Group is a leading provider of helicopter services to the worldwide offshore

energy industry. The company principally charters helicopters to clients for the transportation of personnel and time-sensitive equipment to offshore production platforms and drilling rigs around the world. The largest markets include the North Sea, Nigeria, and the U.S. Gulf of Mexico. Bristow’s broad client base includes major integrated, national and independent offshore energy companies, with Chevron and ConocoPhillips the two largest clients, combining to account for nearly 20% of annual revenues. Helicopter Services segment are conducted through five primary business units: Europe, North America, West Africa, Australia, and Other International, which extends through most of the other major offshore energy producing regions of the world. Europe is the largest segment, accounting for roughly 40% of annual revenues.

Fleet

Bristow currently has a diverse fleet of helicopters, consisting of 28 different sub-fleet types, though the company plans to simplify its fleet to just five types within the next ten years. Bristow’s helicopter fleet includes approximately 350 wholly owned helicopters and another 150 that are owned and operated by unconsolidated affiliates. Roughly three quarters of the aircrafts are used for transportation purposes, with the balance used for training purposes. The majority of the fleet are large (16-20 max. passenger capacity) or medium (12-13) sized helicopters, which are capable of traveling faster, further and with greater payloads than small helicopters. Medium and large helicopters are thus often preferred in international, deepwater locations where offshore facilities tend to be remote, whereas small helicopters tend to operate primarily over the shallow waters offshore the Gulf of Mexico and Nigeria. SAR aircrafts are generally medium or large helicopters. Bristow also provides sector search and rescue services (SAR) to private sector clients in Australia, Canada, Norway, Russia, and Trinidad, and public sector services in the U.K. In 2013, the company was awarded a ten-year contract to provide SAR services to the entire U.K., in which they will provide 20 aircrafts to ten bases. In addition, the company offers technical services to commercial and military outfits through its Scotland-based flight training unit, Bristow Academy.

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363

C&J Energy Services

Company Description C&J is one of the largest completion and production services companies in North

America. Core focuses include hydraulic fracturing, coiled tubing services and wireline services. C&J has grown organically and through a series of acquisitions since 2012, which have increased both the breadth of the company’s product offerings and its geographic reach. Notable transactions include the recently announced merger with Nabors’ Completion & Production Services business (subject to shareholder vote; expected to close by year-end), which includes over 650 workover rigs, 1,500 fluid management trucks and over 800,000 HHP of pressure pumping capacity. C&J shareholders will own approximately 47% of the combined entity, which will led by the C&J management team. The deal significantly increases C&J’s presence in many major basins across the U.S. and Canada, particularly the Rockies and the Marcellus. Operations are principally located in the North America, though C&J has been gradually expanding internationally, and has established a growing albeit not yet profitable operation in the Middle East.

Fleet

The new C&J has three primary business units: 1) Completion Services; 2) Vertically Integrated & Other Services; and 3) Production Services. Completion Services Completion services includes hydraulic fracturing, coiled tubing, wireline services and cementing. Significantly strengthened by the Nabors deal, the combined fleet offers roughly 1.1MM HHP, with over 30 coiled tubing units and over 100 wireline trucks. Hydraulic fracturing has traditionally been C&J’s primary source of earnings, accounting for approximately 60% of revenues in 2013 and 70% in 2012. Vertically Integrated & Other Services Includes equipment manufacturing, specialty chemicals, downhole tools and directional drilling. Production Services Offers fluid management services, workover and well servicing and other specialized services. The company is capable of serving a large and diverse customer base, supported by the largest fluid services fleet in the industry with roughly 1,500 trucks in addition to over 650 workover rigs, operating in the major shale plays across the U.S.

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Company Description Calfrac Well Services is the seventh largest pressure pumper in North America. The

company operates in Canada, the U.S., Russia, Mexico, and Latin America, and offers range of specialized services including hydraulic fracturing, coiled tubing, cementing and other well stimulation services. Fracturing accounts for more than 90% of revenues and remains the company’s core competency. Calfrac’s worldwide fleet consists of 1.2MM hydraulic horsepower (HHP), 39 fracturing spreads, 31 cementing crews and 35 coiled tubing crews. The company has been investing in new specialized equipment while concurrently rebuilding and restoring older equipment and as part of a multi-year fleet overhaul program that will deliver an additional 155K HHP in 2015. Calfrac is the second largest pressure pumper in Canada, occupying roughly 18% of market share in terms of HHP. Their Canadian operations comprise mainly fracturing and coiled tubing services and are carried out by a fleet of 17 fracturing spreads totaling 384K HHP and 17 coiled tubing crews.

Fleet

Calfrac’s U.S. operations are centered in the Bakken, the Marcellus and the Eagle Ford, the latter only recently entered with the purchase of Mission Well Services in 2013. The U.S. fleet consists of 660K HHP across 15 fracturing spreads, and also features 18 cementing crews, and 8 coiled tubing crews. Calfrac’s Russian fleet has 7 fracturing spreads with 70K HHP and 7 coiled tubing crews. Approximately 35% of their fracturing work in Russia was focused on horizontal drilling in 2013, a number that figures to grow as the pace of adoption quickens. In Latin America, the company provides fracturing services to clients in Mexico and cementing services to customers in Colombia. Calfrac maintains operating bases in Argentina, Mexico and Colombia. The Latin America fleet has 103K HHP, with 13 cementing crews and four coiled tubing crews.

October 14, 2014

365

Cameron International

Company Description Cameron is a leading provider of flow equipment products, systems and services to

the oil and gas industry. CAM has a significant international presence, with operations in over 300 locations around the world, and more than two thirds of revenue generated internationally. The company offers a comprehensive array of products and services involved in the downstream, midstream and upstream segments, both onshore and offshore. However, more than 40% of revenues are derived from deepwater projects, an area the company continues to invest in. Cameron also owns a 60% stake in OneSubsea, a joint venture with Schlumberger that provides products and services for the subsea oil and gas market. Cameron operates through three primary business segments; 1) Drilling & Production Systems (DPS); 2) Valves & Measurement (V&M); 3) Process & Compression Systems (PCS). In addition to the proprietary goods and services offered by each segment, CAM has significant aftermarket offerings, which provides a more stable revenue stream less prone to cyclicality.

Product Segments

Drilling & Production Systems (DPS) The DPS segment includes businesses that provide systems and equipment used to drill, control pressures and direct flows of oil and gas wells. DPS products include drilling equipment packages, blow out preventers, drilling risers, top drives, draw works, complete wellhead and Christmas tree systems, and subsea production systems. DPS revenues jumped 60% in 2013 following the acquisition of several businesses. Valves & Measurement (V&M) Provides valves and measurement systems primarily used to control, direct and measure the flow of oil and gas from individual wellheads through flow lines, gathering lines and transmission systems to refineries, petrochemical plants and industrial centers for processing. Products include an array of valves, actuators, chokes, and measurement products. Process & Compression Systems (PCS) Includes businesses that provide separation equipment, heaters, dehydration and desalting units, gas conditioning units, membrane separation systems, water processing systems, reciprocating and integrally geared centrifugal compression equipment.

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366

Carbo Ceramics

Company Description CARBO Ceramics is a leading provider of proppants that are used in the hydraulic

fracturing process. The three types of proppants used in hydraulic fracturing include ceramic, resin-coated sand and raw sand. CARBO is the world’s largest provider of ceramic proppants, but has expanded operations in 2013 to include the sale of raw frac sand. Additional operations include the sale of fracturing simulation software and fracture design services. Halliburton and Schlumberger are major customers, each accounting for over 10% of revenues. Roughly 80% of revenues are generated within the United States, with the balance from Canada, China, Russia, Mexico and Africa, among others. The company has six production plants located in Georgia, Louisiana, Alabama, China and Russia, and a sand processing plant in Wisconsin. Domestic distribution is facilitated by rail (2,000 leased railcars by YE 2014) and international by sea. CARBO utilizes a just-in-time delivery method so that customers do not have to maintain cumbersome inventories. Efficient distribution and delivery is key to maintaining profit margins, especially as the industry increasingly shifts towards lower margin sands.

Fleet

The company manufactures several proppants that are designed for a variety of well conditions, with the newer blends catering to deeper and more complex well designs. Ceramic proppants are engineered products that offer the highest conductivity and are priced accordingly. Sand is the least expensive and conducive proppant, more suited for shorter fractures. CARBO’s nascent raw sand operation has increased dramatically since its inception in 2013, as recent demand trends have favored the cheaper ceramic alternative. Northern White sand (raw sand) accounted for roughly one third of revenues through 1H14, though ceramics continues to account for the majority of revenues.

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367

Chart Industries

Company Description Chart Industries is a global manufacturer of highly engineered cryogenic equipment

used throughout the LNG supply chain, including separation, liquefaction, purification, production, storage, and end use. More than half of the end-use applications are energy related, with the balance used for biomedical and general industrial purposes. The company’s core focus is on cryogenic systems and equipment. Products offerings include vacuum insulated containment vessels, heat exchangers and cold boxes. Chart has a large global footprint, enhanced by manufacturing plants in North America, Europe and Asia and more than 2,000 customers worldwide. More than half of revenues are generated outside of North America, a third of which derive from Asia and roughly 15% from European nations.

Fleet

Chart operates in three segments; Energy & Chemicals (E&C); Distribution & Storage (D&S); and Biomedical. All three segments rely on Chart’s cryogenic and low-temperature storage expertise. The D&S unit is Chart’s primary earnings driver, accounting for more than half of annual revenues. The E&C and D&S segments produce mission critical LNG equipment (distinguished by end-market) which is used in the separation, liquefaction, purification and storage of natural gas. Products include cold boxes, heat exchangers, and natural gas processing systems. The Biomedical operations are driven by the sale of medical respiratory products for hospitals, nursing homes and long-term care facilities. Additional products include cold storage systems and oxygen generating units.

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368

CHC Helicopters

Company Description CHC Group is a leading provider of commercial helicopter services to the offshore oil

and gas industry. CHC has a fleet of roughly 250 aircraft operating in most of the major offshore markets around the world. CHC Group is one of the two (Bristow the other) global providers of helicopter services, with over 70 bases in approximately 30 countries around the world. Despite their vast geographic footprint, the company is rather levered towards the North Sea region where the company derives roughly 50% of its revenues. The company operates in two segments, Helicopter Services, which transports personnel to offshore sites and provides search & rescue service; and Heli-One, which provides maintenance, repair and overhaul (MRO) services to both CHC’s own fleet (roughly 2/3 of segment revenue) and, to a lesser extent, an external client base in Europe, Asia and North America. Helicopter services remain the company’s core focus, generating roughly 90% of the company’s total revenues.

The Heli-services fleet consists of heavy and medium helicopters designed to serve deepwater and ultra-deepwater locations, which are usually located in remote locations unsuited for smaller aircraft. The helicopters are primarily used to transport crew members between offshore locations and bases onshore, which occurs frequently and usually on a pre-set schedule. The company has committed to a multi-year of purchase 28 new helicopters to service deepwater and ultra-deepwater locations, as exploration and drilling efforts continue to move farther offshore.

October 14, 2014

369

Core Laboratories

Company Description Core Laboratories is a leading provider of proprietary and patented reservoir

description, production enhancement, and reservoir management services. Core Lab’s operational focus is on crude oilfield development projects, aiming to assist clients maximize production returns. The company targets the production and production enhancement components of oil company’s budgets, which tend to be more stable than other aspects of the capital budget. Core has an expansive geographic footprint, with offices in more than 50 countries around the world, with a presence in every major oil producing region. The company focuses on both innovating new technologies and on international expansion via acquisitions that add new services or technologies or enhance their presence in certain markets.

Segments

Core has three primary operating divisions: Reservoir Description, Production Enhancement, and Reservoir Management. Reservoir Description accounts for nearly 50% of Revenues, followed by roughly 42% for Production Services. Reservoir Management is the lowest grossing segment, contributing less than 10% of total revenues in 2013. The Reservoir Description segment involves the characterization of petroleum reservoir rock, fluid and gas samples. The company offers a host of laboratory-based services that characterize properties of crude oil and petroleum products and help determine probable versus proven reserves in-place. Production Enhancement includes products and services designed to minimize formation damage and maximize flow rates. The company offers field-based products and services that are used during well completions, perforations, stimulation, and production. Approximately two thirds of revenue is generated in North America. The Reservoir Management segment conducts multi-client geological and petrophysical studies to create rock property databases. By combining and integrating information from the reservoir description and production enhancement services, Core Lab’s is able to assist customers increase production and recovery from reservoirs.

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Diamond Offshore

Company Description Diamond Offshore is a leading offshore contract driller, with a total fleet of 44

offshore drilling rigs, including five rigs under construction. The company’s fleet is relatively old and three of its mid-water semisubmersible drilling rigs cold stacked. The Ocean Vanguard, which had its contract terminated with Statoil in June due to technological aspects of the rig, is currently ready stacked. The company has been undergoing a fleet renewal program in recent years however, with a focus on upgrading their deepwater and ultra-deep capabilities (the majority of their vessels are currently rated to operate in the midwater). The company expects two ultra-deepwater drillships for delivery by the end of 2014 and three for 2015 and beyond, one of which is rated for harsh environments. A significant relationship exists with Petrobas, which has accounted for more than a third of the firm’s revenue in each of the past three years.

Floaters

The company has a fleet of 38 floaters, including five that are under construction. The average age of the floater fleet is 33 years old. The fleet is comprised of 33 semisubmersibles and five drillships, four of which are currently under construction. The semisub fleet is mostly rated to work in the midwater (1,200’ to 5,000’) and primarily serves the Gulf of Mexico and Brazil. The drillships are all rated to work in the ultra-deepwater (>7,500’), and four of the five have been delivered within the past two years or are under construction.

Jackups Diamond Offshore has six jackups, on average over thirty years old, deployed in the

Gulf of Mexico and Ecuador. Five of the six jackups are currently under contract, including three with Pemex.

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Dresser-Rand

Company Description Dresser Rand is one of the largest suppliers of infrastructure equipment to the global

energy industry. Product offerings include centrifugal and reciprocating gas compressors, gas and steam turbines, gas expanders, and diesel and gas engines. The company has two business units, new units and aftermarket parts and services, which contribute evenly to the total revenue mix. Dresser owns dozens of established and well-known brands that serve the downstream, midstream and upstream segments of the global energy industry. Dresser’s geographic footprint spans 150 countries and is bolstered by a physical presence in 32 countries, enabling rapid response times – of particular importance for aftermarket activities.

Fleet

The business is divided into two segments; 1) new units, and 2) aftermarket parts and services. New units include both standardized equipment and highly engineered, client-specific solutions, which contributes the lion’s share of the segment’s revenues. Sales, cyclical by nature, tend to be strongly correlated to the overall level of capital spending. The company attempts to minimize the adverse margin impact of cycles by employing a flexible manufacturing model, which reduces the amount of outsourced work during downturns. The aftermarket parts and services segment includes engineering, installation, project management, repairs and refurbishments. Sales tend to be more stable, as its offerings are generally necessary for operations of end users and have predictable useful lives. Despite nearly equivalent top line contributions, the aftermarket parts and services unit is higher margin business and accounts for roughly 70% of operating profits.

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Dril-Quip

Company Description Dril-Quip, Inc. designs and manufactures offshore drilling and production equipment

specifically designed for deepwater, harsh environments and severe service applications. The company has a successful history of innovation, introducing several technologically advanced products that have become the industry standard in certain niche markets. Dril-Quip’s core products include subsea and surface wellheads; subsea and surface production trees; subsea control systems and manifolds; mudline hanger systems; specialty connectors and associated pipe, drilling, and production riser systems; and wellhead connectors and diverters. The company also offers onsite installation of its equipment, retrieval services, reconditioning services and equipment rentals. Approximately three quarters of revenues are generated through product sales, with services generating the remainder.

Segments

DRQ has a strong global presence, supported by manufacturing locations in Houston, Singapore, Scotland, and Brazil, in addition to a dozen sales, service and reconditioning facilities located around the world. Operations are divided into three geographic segments: Western Hemisphere (including North and South America), Eastern Hemisphere (including Europe and Africa); and Asia-Pacific (including the Pacific Rim, Southeast Asia, Australia, India and the Middle East). More than half of total revenues are derived from the Western Hemisphere. The Eastern Hemisphere has the most balanced revenue mix, with services accounting for more than 20% of revenues.

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Ensco plc

Company Description Ensco plc is one of the largest offshore contract drillers, with amongst the most

diversified fleet of floaters and jackups operating globally. The company acquired Pride International in 1Q11, greatly increasing its floater fleet and geographic footprint. Since then the company has pushed forward with high grading its fleet, ordering 13 floaters and 7 jackups since 2010, while slowly divested lower spec commoditized assets including five floaters currently held for sale. The company has three floaters under construction, only one of which is uncontracted, and four 400’ heavy duty harsh environment (HDHE) jackups available in late 2015 and beyond.

Floaters

Excluding five units held for sale, Ensco has a fleet of 24 floaters. The average age of Ensco’s floater fleet is 14 years currently, but will fall to just nine years with management’s planned asset sale. Including three units under construction, Ensco has a fleet of 10 drillships all rated to work in the ultra-deepwater (>7000’ water depth). The remaining fleet of semisubs are rated mostly to work in the midwater (1,500’ to 7,000’). Combined, Ensco has 18 ultra-deepwater, five deepwater and just one midwater floater – ENSCO 5004 is contracted to Mellitah Oil & Gas through January 2017.

Jackups Including four jackups under construction, Ensco has a fleet of 46 jackups, the largest

of the offshore drillers in our coverage universe. Seven of these jackups are rated to work in harsh environments, including all four recently build 120 series. With plans to become a leader in the premium jackup market, we expect Ensco to continue to high grade its jackup fleet, which currently averages 26 years old. The company recently ordered two jackups for the Middle East (140 series) and has options for two more, where its current fleet of 10 units average 31 years but the majority are under long term contract with Saudi Aramco.

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Company Description Ensign Energy, together with its subsidiaries, is one of the largest land-based drillers

and well servicing providers in Canada. The company specializes in directional and horizontal drilling, and provides a myriad of additional services, including well servicing, production testing, wireline services and equipment rentals. Though the bulk of the company’s operations are located in Canada and the U.S., Ensign has a vast geographic footprint that spans South America, the Middle East, Africa, Southeast Asia and Australia. The company has been growing rapidly through a sizeable newbuild program and a string of acquisitions, notably the asset purchases from Departure Energy Services and Enviro Group in 2013. Ensign operates through two primary business units: Drilling & Rig Services and Completion & Production Services. The former accounts for approximately 90% of revenues.

Contract Drilling Services

Ensign’s land drilling fleet consists of over 300 contract drilling rigs and 135 service rigs. Though the majority of the drilling rigs are currently conventional, more than one hundred of them are Automated Drill Rigs (“ADR”), a number that figures to grow as the company continues to upgrade its fleet. The ADR is a self-moving, highly efficient rig designed for horizontal drilling, and can be deployed up to three times faster than a conventional rig, significantly reducing well development time and thus operator costs. The company plans to deliver 34 newbuild ADR’s by the end of 2015. The company is also currently building a 2,000-horsepower version of the ADR (currently 1,500 HP), as well as the Automated Service Rig (“ASR”), a fully automated service rig designed specifically to service high pressure wellbores.

Completion and Production Services

Ensign, through its fleet of over 100 well servicing rigs and nearly 100 frac flow units, provides services for all stages of well servicing, including completions, abandonments, and production workovers. Enisgn is also one of the largest suppliers of underbalanced drilling and managed pressure drilling services as well as production testing and wireline completion services. The company’s oilfield rental equipment business was effectively doubled following a significant asset purchase from the Enviro Group of Companies in 2013.

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ERA Group

Company Description Era Group Inc. is a global provider of helicopter services to the offshore petroleum

industry. The company is primarily involved with transporting personnel to and from offshore installations. Additional operations include Search & Rescue services, dry-leasing helicopters to third-party operators, air medical services, and flightseeing tours. Era operates mainly in the U.S., where they derive more than three quarters of their total revenue. Their greatest presence is in the Gulf of Mexico, accounting for 60% of revenues, followed by Alaska (18%). The company has a growing international presence, and often seeks to penetrate new markets through joint ventures and equity interests in local operators, including a 50% stake in Aeroleo (Brazil). Era Group became an independent entity following the completion of a spin-off from SEACOR in 2013.

Fleet

Era owns or operates a total fleet of approximately 170 helicopters, the majority of which are either are medium or light helicopters. Medium helicopters typically fit between 11 and 12 passengers, and can be used for a variety of offshore transportation purposes as well as search & rescue. Light helicopters typically fit between five and nine passengers and usually service the shallow water. Despite more than half of the fleet consisting of light helicopters, the medium and heavy helicopters represent 80% of fleet value on a dollar weighted basis. Though the average age of the owned fleet is 12 years, roughly a quarter of the fleet is less than five years old. The company has been upgrading its fleet in recent years, investing mainly in new heavy helicopters to diversify and expand its fleet capabilities.

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Exterran Holdings

Company Description Exterran is a leading natural gas compression company, providing products and

services critical to the production, processing, transportation and storage of natural gas. Exterran controls the largest contract operations service in the U.S. with over 3.5MM HHP in operations. The company significantly increased its geographic presence and total horsepower with the purchase of assets from MidCon Compression earlier this year. Exterran operates throughout North America, both onshore and offshore, and maintains a strong international presence with operations in approximately 30 countries. Approximately 40% of revenues are derived from operations outside of North America, 23% in the Eastern Hemisphere and 18% in Latin America.

Fleet

Exterran has four primary operating segments: 1) North American Contract Operations; 2) International Contract Operations; 3) Aftermarket Services; and 4) Fabrication. The North American contract operations unit is the most lucrative segment, contributing roughly 35-40% of gross profits. The segment primarily provides natural gas compression services to customers in the U.S. Exterran operates in most of the country’s major shale plays and basins, including a particularly strong presence in the Gulf Coast and West Texas. International Contract Operations account for about 30% of gross profits. Unlike the U.S. segment, the international segment is involved in the construction of large natural gas compression stations and processing facilities. The Aftermarket segment provides ongoing maintenance and parts to existing customers. The business is characterized by relatively stable margins, but contributes less than 10% of overall profits. The fabrication business involves design, installation and sale of natural gas compression units. It is the company’s biggest revenue driver, accounting for roughly half of all revenues, but has a relatively high expense ratio and contributes less than a quarter of total gross profits.

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FMC Technologies

Company Description FTI Technologies designs and manufactures highly engineered systems and products

for the energy industry. Core products include subsea production and processing systems, surface wellhead production systems, high pressure fluid control equipment and marine loading systems. The company has made several recent acquisitions that have strengthened their core business units and geographic footprint. FTI derives roughly two thirds of revenue from deepwater and subsea applications. The company currently has processing projects in every major deepwater basin.

Segments

FTI has three primary operating units: Subsea Technologies, Surface Technologies and Energy Infrastructure. Subsea Technologies – Designs and manufactures several specialized products and services used for deepwater E&P applications, specifically focused on controlling the flow of oil and gas from producing wells. They are the market leader in subsea tree units with approximately 40% market share. The acquisition of Schilling Robotics significantly enhanced FTI’s subsea ROV capabilities. Statoil is the largest customer, accounting for approximately 12% of consolidated revenue. Surface Technologies designs and manufactures products and services involved in land and offshore exploration and production. Surface wellheads account for roughly 13-14% of annual revenues. Additional revenue sources include completion services; flowline products; completion services; high pressure valves; and pumps and fittings used in stimulation activities. Energy Infrastructure – Principal products and services include; measurement systems used in the transfer of oil and gas; land and marine-based fluid loading and transfer systems; material handling systems; systems that separate production flows from wells into oil, gas, sand and water; and automation and control systems.

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Company Description Forum Technologies is a global oilfield products company serving the drilling,

completion, production, infrastructure and subsea sectors of the oil and gas industry. The company designs and manufactures proprietary products and aftermarket products that serve the downstream, midstream, and upstream markets. The diverse product offering is comprised of nearly 50 legacy brands that are highly specialized and geared towards the increasing complexities of well construction. Forum generates approximates 40% of revenues from aftermarket goods and services, providing for a more stable revenue source than specialized products that are highly levered to E&P spending. Operations are mainly conducted in the U.S., though the company has a mounting presence in Europe, Africa, Canada and the Asia Pacific, and incremental exposure to Latin America and the Middle East. Onshore operations have historically accounted for the lion’s share of revenues, though this stands to change as the company continues to invest in the development of subsea technologies.

Fleet

The company primarily operates in two segments, 1) Drilling and Subsea; and 2) Production and Infrastructure. Drilling and Subsea Segment includes an array of products and services relating to drilling, well construction, completion, intervention and subsea construction and services markets. Focal areas include designing and manufacturing subsea ROVs, downhole products that serve well construction and production enhancement markets. The company also provides drilling consumables and capital equipment, with a core focus on tubular handling products. Production and Infrastructure Designs and manufactures products and services for the well stimulation, completion, production and infrastructure markets, including flow equipment, production and process equipment and a range of industrial and process valves.

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Company Description Frank’s International is a global provider of highly engineered tubular services and

casing services to the E&P companies. Casing is set inside the drilled well to isolate the wellbore from surrounding geological formations and support structural integrity; tubular services involves the installation of pipe joints and a smaller pipe inside a cased wellbore, allowing hydrocarbons to flow freely to the surface. The company has a vast geographic footprint that spans over 60 countries in both offshore and onshore markets, and a concurrently diverse customer base. Frank’s tends to bolster its global presence via strategic acquisitions in foreign markets, executing more than 50 transactions since 1982. Frank’s designs proprietary equipment for complex drilling operations. With a focus on technically demanding, complex well structures, continual innovation is essential to maintaining market share. The company has been issued more than 250 patents, including roughly 20 thus far in 2014. Many of the patents are specifically oriented to deepwater projects, which are increasingly complex and have little room for error.

Fleet

Frank’s operates in three primary business segments: 1) International Services; 2) U.S. Services; and 3) Tubular Sales. The International Services segment operates in approximately 60 countries and serves primarily NOCs and Supermajors, typically on high-profile, complex projects. Historically the company’s most lucrative segment, producing more than double the adjusted EBITDA output of the U.S. services segment in 2011; the gap has been narrowing considerably however, and the U.S. now contributes on a nearly par basis. The U.S. services segment operates offshore in the GoM and in most of the country’s active onshore drilling regions. The Tubular Sales segment contributes roughly 10% of EBITDA. It offers an array of products and services, including OD pipe connectors; third part OD pipe distribution; and specialized fabrication and welding service that support deepwater projects in the US GoM, including production risers, flowlines, and pipeline end terminations, and long length tubulars for use as caissons or pilings. Additionally, the segment designs and manufactures equipment used by both the International and U.S. Services segments.

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Gulfmark Offshore

Company Description Gulfmark Offshore is a leading provider of marine transportation services to the

offshore oil and gas industry. The company owns, operates and manages a fleet of new generation supply vessels that carry out a full range of services and are able to work in most environments around the world. Through a combination of newbuilds, acquisitions and divestures, the company has produced one of the youngest, most technologically advanced fleets in the industry. The fleet operates in three core regions – the North Sea, Southeast Asia and the Americas, and has a small yet growing presence in Brazil and Australia. The company operates the largest fleet of PSVs in the North Sea, and continues to reinforce their North Sea supremacy through newbuild PSVs designed specifically for harsh environments. Gulfmark established its presence in the Americas with its acquisition of Rigdon Marine in 2008.

Fleet

Gulfmark’s owned fleet includes nearly 80 vessels, consisting of roughly 65% PSVs, 20% AHTS, and the balance FSVs and SPVs. The vessels transport materials, supplies and personnel to offshore facilities, as well as move and position drilling structures. Gulfmark has a history of upgrading its fleet through newbuilds and acquisitions, while divesting older assets to optimize fleet composition. In 2008, the average fleet age was 12 years, which has since dropped to four years- one of the youngest in the industry. The company is midst of a $500M newbuild program, constructing twelve new generation vessels, eight of which have been delivered since 2013 and the remainder expected for delivery by YE 2015.

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Halliburton

Company Description Halliburton is the largest diversified oilfield services company in North America, and

the second-largest in the world behind only Schlumberger. The company aims to serve the upstream oil and gas industry throughout the entire lifecycle of the well, including locating hydrocarbons and managing geological data, drilling and formation evaluation, well construction and completions, and optimizing production of mature assets. HAL has a leading market share in many of its businesses, including pressure pumping and completion services, in addition to several others. The company’s growth strategy remains focused on deepwater, unconventional and mature assets. HAL’s operations are categorized by four regional segments: North America; Middle East/ Asia; Europe/ Africa/ CIS; and Latin America. Halliburton has traditionally derived approximately half of total revenues from operations in North America. This percentage has been decreasing in recent years however, falling over 500 bps since 201- a trend that is likely to persist as HAL continues to direct capital towards international expansion.

Segments

Halliburton’s oilfield products and services are separated into two categories: Completion & Production and Drilling & Evaluation. The Completion & Production segment revenue tends to be skewed towards North America, accounting for 65% of segment revenues in 2013 (and 70% in 2012). C&P consists of pressure pumping (cementing and stimulation), intervention, pressure control, specialty chemicals, artificial lift, and completion services. The segment consists of six business lines: Production Enhancement, Cementing, Completion Tools, Halliburton Boots & Coots, Multi-Chem, and Halliburton Artificial Lift. C&P contributes about 60% of overall revenues. C&P has historically been the better margin business, averaging 20% since 2010 versus 15% for D&E. The Drilling & Evaluation segment achieves a more balanced revenue mix than C&P, deriving roughly one third of revenues from North America. D&E provides field and reservoir modeling, drilling, evaluation, and precise wellbore placement solutions that enable customers to model, measure, drill, and optimize their well construction activities. Seven business lines make up HAL’s D&E business: Aroid, Sperry Drilling, Wireline and Perforating, Drill Bits and Services, Landmark Software and Services, Testing and Subsea, and Consulting and Project Management.

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Helmerich & Payne

Company Description Helmerich & Payne is a contract drilling company with land and offshore operations in

the United States, South America, Africa and the Middle East. H&P is the leading U.S. unconventional land driller in the U.S., and maintains one of the, newest and the sophisticated fleets in the industry, including more than 300 domestic rigs, 36 international rigs and nine offshore platforms. Over 300 of the rigs are AC Drive FlexRigs and the balance SCR Fleet. AC Drive FlexRigs are electronically operated rigs well-suited for multi-pad development of unconventional shale resources. Given the trend towards more complex drilling methods, HP has established itself as the market leader with the buildup of its AC rig count.

Fleet

H&P has over 285 active rigs in the United States, with operations in all the largest shale plays. The company is exceptionally well represented in the Permian Basin and Eagle Ford Shale, with over 90 rigs in each region. More than 85% of their active rigs drilling horizontal or directional well paths. The International segment includes 30 rigs, with operations in Ecuador, Colombia, Argentina, Tunisia, Bahrain and United Arab Emirates. Argentina remains the company’s largest international exposure, currently with seven active rigs and six additional FlexRigs in transit. The company’s offshore fleet consists of nine offshore platform rigs primarily operated in the Gulf of Mexico, with operations offshore California and Equatorial Guinea as well.

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383

Hercules Offshore

Company Description Hercules is a leading provider of shallow-water drilling and marine services that

primarily serves the Gulf of Mexico region. The company owns a diverse fleet comprised of jackup rigs, liftboats, barge rigs, submersibles, and one platform rig. The company’s fleet of jackup rigs operates in shallow water and tends to service the lower-specification end of the jackup market. Hercules also operates two Keppel FELs Super A high specification harsh environment jackup rigs via an equity investment in Discovery Offshore. The company’s fleet is relatively old, with an average age of 32 years, with 10 jackups that are currently cold stacked. Hercules is making progress towards high-grading its fleet however, taking delivery of three jackups in the past two years.

Offshore Drilling

Hercules operates a fleet of 39 jackup rigs, including one in construction. 27 of the company’s 39 jackup rigs located in the Gulf of Mexico, with the balance located internationally. The average age of the domestic fleet it 35 years and nearly 90% of the domestic jackup rigs are mat-supported, a type of jackup characterized by mats that sink into the ocean seabed that are deployed primarily in the Gulf of Mexico. 20 of these mat-supported jackups were acquired from Seahawk Drilling in 2011. The company also has 10 jackup rigs internationally, including two under construction, located in West Africa, Southeast Asia and the Middle East. The average age of the international fleet is 24 years.

Liftboats

Liftboats, viewed as an alternative to derrick vessels, are self-propelling and self-elevating vessels that provide a work platform for a variety of services. Hercules operates 41 liftboats in the Gulf of Mexico, where the company maintains over 40% of the total market share, nearly twice as much as the nearest competitor. The company also operates the largest international fleet of liftboats with 23 marketable units primarily located in West Africa and the Middle East.

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Hornbeck Offshore

Company Description Hornbeck is a global provider of marine transportation services and vessels to the oil

and gas industry. The company operates a young, technologically advanced fleet of Offshore Supply Vessels (OSVs) and Multi-Purpose Support Vehicles (MPSVs) which operate mostly in deepwater and ultra-deepwater markets. Hornbeck divested its downstream segment (consisting of nine tank barges and nine tugs) in 2013 and redirected the proceeds towards the company’s fifth OSV newbuild program, expected to cost approximately $1.25B. The U.S. GoM continues to serve as Hornbeck’s core operating market, though the company has been expanding its international presence in Brazil, Mexico, Latin America and the Middle East. Major customers include major oil companies, NOCs and the U.S. government. Drilling rigs typically require 2-4 OSVs in the U.S. GoM, and even more are needed in international locations where there are greater logistical challenges.

Fleet

With an average age of eight years, Hornbeck’s OSV fleet is one of the youngest in the industry, where the OSV average fleet age is closer to 12 years. The current fleet, comprised of 58 new gen OSVs and 4 MPSVs, will tick up to 77 units (68 OSVs and nine MPSVs) by 2016, following the completion of their latest OSV newbuild program. Hornbeck’s OSVs are all equipped with dynamical positioning systems and feature larger cargo capacity to support deepwater projects located increasingly farther offshore. OSVs are used to transport drill pipe, drummed material and equipment, liquid mud, potable and drilling water, fuel, dry bulk cement and personnel to offshore locations. MPSVs are more versatile vessels, designed to support a range of deepwater oilfield applications, including subsea-to-surface construction, inspection, repair and maintenance; well intervention, decommissioning projects and flotel services; and pipeline and subsea wellhead installations with saturation diving systems and flexible umbilical and pipe laying capabilities.

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Independence Contract Drilling

Company Description Independence Contract Drilling is an up and coming provider of land-based contract

drilling services for oil and natural gas producers in the United States. The company owns and operates a newly constructed fleet rigs specifically designed to target unconventional resource plays. The company went public in August 2014 following the success of the ShaleDriller series rig, which first began drilling in May 2012. Independence has expanded rapidly, with 10 rigs now in operation and an additional eight expected by the end of 2015. The ShaleDriller is designed to be fast moving between drill sites and is equipped with a multi-directional walking system, enabling it to walk between wellbores and over existing wellheads. The rigs are also AC programmable to allow precise control over certain drilling parameters, allowing for significantly faster drill time than its mechanical counterparts, which are becoming increasingly technologically and economically obsolete.

Fleet

Independence constructs, owns, and operates its own fleet of custom ShaleDriller rigs, contracting them out to customers on a dayrate basis. Their fleet consists of 11 ShaleDriller 1500’s, nine of which are equipped with a multi-directional walking system. One of the eleven rigs is under construction, scheduled for deployment in December 2014. In addition, the company intends to use proceeds from the IPO to fund the construction of eight additional rigs for completion in 2015. All of the rigs currently in operation are under contract and are currently drilling in the Permian Basin. Though some rigs have previously operated in the Eagle Ford Shale and Mid-Continent region, the company is currently operating only in the Permian Basin with intermediate plans to expand to adjacent basins.

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ION Geophysical

Company Description ION Geophysical is a provider of integrated geophysical solutions to the E&P industry.

The company serves customers in all of the major oil and gas producing regions of the world from offices in 21 cities located across six continents. ION’s products and services are used by E&P operators and seismic contractors to generate high-resolution images of the subsurface during exploration. These images are used to identify sources of hydrocarbons and target drilling locations for wells. Key offerings include acquisition equipment, software, planning and seismic processing services and seismic data libraries. ION also conducts land seismic operations through a 49% interest in INOVA Geophysical, a joint venture with BGP Inc.

Segments

ION operates in four primary business segments: Solutions, Ocean Bottom Services, Software, and Systems. The solutions segment is the highest grossing segment, accounting for roughly half of total revenues. The solutions segment focuses on provides products and services for challenging and complex environments including the Arctic frontier, deepwater subsurface salt formations in the Gulf of Mexico and offshore West Africa and Brazil. The segment offers two primary services: GeoVentures services and GXT Imaging Solutions. GeoVentures manages the entire seismic process, from survey planning and data acquisition to final subsurface imaging and reservoir characterization. GXT Imaging Solutions group maintains more than 14 petabytes of seismic data information that is designed to help E&P customers reduce exploration and production risk. The data library covers significant portions of many of the frontier basins in the world. The software business provides marine imaging, seabed imaging, survey design, planning, optimization, and command & control software. The systems segment is primarily a repair and refurbishment business for the company’s other segments, providing a more predictable revenue stream. ION’s Ocean Bottom Services unit offers seabed seismic acquisition services to E&P customers. The business took off following the acquisition of OceanGeo and has been the company’s fastest growing segment since 2006.

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Key Energy Services

Company Description Key Energy Services is one of the largest onshore, rig-based well servicers in the

world. The company has four key business lines: Rig-Based Services; Fluid Management Services; Coiled Tubing Services; and Fishing and Rental Services. By rig count, Key is the largest U.S. onshore, rig-based well services company with approximately 20% market share. Not surprisingly, rig-based services account for nearly half of total revenues. Key primarily operates domestically, but has exposure to Mexico, Columbia, Ecuador, the Middle East and Russia. The Permian Basin represents the largest domestic exposure, contributing nearly a third of revenues, though the company maintains diverse operations spread across most of the major resource plays in the continental U.S.

Service Lines

The company operates in 4 primary business segments: 1) Rig-Based Services; 2) Fluid Management Services 3) Coiled Tubing Services; and 4) Fishing and Rental Services. Rig-Based Services The rig-based services segment has a total fleet of approximately 800 rigs worldwide, 700 located domestically. Services include completion of newly-drilled horizontal and vertical wellbores, recompletion of existing wellbores, maintenance of well bores, workover work, and plugging and abandonment of wellbores. Fluid Management Services Involves the transportation and disposal of fluids used in the drilling and completion process. The company owns a fleet of more than 1,000 fluid trucks, 4,000 frac trucks and 75 saltwater disposal wells. Business is characterized by relatively low barriers to entry and downward pressure on pricing during periods of decelerating growth. Coiled Tubing Services Coiled tubing services include wellbore clean-outs, nitrogen jet lifts, through-tubing fishing, and formation stimulations utilizing acid and chemical treatments. Approximately 40% of segment revenues are derived from the Eagle Ford Shale. Fishing and Rental Services. Fishing services involve recovering equipment that is lost or stuck in a wellbore utilizing certain tools, which include drill pipe, pumps, rods and blowout preventers. Key has nearly 800 blowout preventers, and 135 HydraWalk pipe-handling units.

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388

MRC Global

Company Description MRC global is the largest global industrial distributor of pipe, valves and fittings (PVF)

to the energy industry. The company offers a multitude of PVF products and services specifically designed for a range of downstream, midstream and downstream applications. Key products include piping systems, fittings, tubing, flanges, line pipe, tubular goods and a variety of valves. These products are used in the construction, maintenance, and repair of equipment that is used in extreme operating conditions such as high pressure, extreme temperatures, and/or highly corrosive environments. Additional services include zone store management, valve tagging, and information systems that assist customers with supply chain services. Over 70% of revenues are attributable to multi-year maintenance, repair and operations (MRO), for which they have a contract retention rate of approximately 95%. MRC has a vast geographic footprint, with a presence in over 45 countries and more than 400 locations throughout North America, Europe, Asia and Australia. The company has been increasingly levering their international exposure through strategic acquisitions, including the purchase of Stream AS in Norway– bolstering their offshore capabilities and presence in one of the biggest offshore E&P markets in the world.

Products

MRC operates in there segments distinguished by geography, U.S., Canada and International. The U.S. segment accounted for approximately 76% of revenues in 2013, with a network comprised of over 130 branch locations, eight distribution centers, 13 valve automation service centers and over 95 third-party pipe-yards. U.S. operations have a strong presence in most major basins across the country, with a particularly strong presence in the Eastern U.S. and Gulf Coast. The Canada segment accounted for 14% of revenue, earned by over 40 branch locations, one distribution center, one valve automation service center and 24 third-party pipe yards. MRC has been expanding its international segment, which now has over 55 branch locations, six distribution centers, 13 valve automation centers and ten pipe yards.

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Nabors Industries

Company Description Nabors Industries is a global provider of land-based drilling and rig services, as well as

completion and production services. The company provides services for every phase of an oil or gas well, from construction through abandonment. Nabors also provides a number of ancillary well-site services, including engineering; transportation and disposal; well logging; directional drilling and rig instrumentation. Their customer base is quite diverse, consisting of major, national and independent oil and gas companies, with no customer accounting for more than 10% of revenues. Nabors entered into an agreement in August to combine its completion & production services business with C&J Energy Services. Nabors will retain approximately 53% of the combined entity, to be called C&J Energy Services Ltd and managed by the C&J management team. The company’s scale was largely achieved through a series of strategic acquisitions- an average of one per year for the past five years- aimed to increase the scope and reach of the company’s operations. Nabors has also shed certain noncore assets in recent years through a series of divestitures, recycling older assets in an effort to high grade the expansive fleet. Nabors became one of the ten largest pressure pumpers in North America following its acquisition of Superior Well Services in 2008.

Fleet

The company operates in two segments; 1) Drilling & Rig Services; and 2) Completion & Production Services. The Drilling & Rig Services segment is comprised of the company’s drilling rig operations and drilling-related services, which includes equipment manufacturing, instrumentation optimization and directional drilling services. Nabors operates the largest land based drilling fleet in the world, with approximately 500 land drilling rigs operating worldwide (375 of which are North America-based and 125 located internationally). The Completion & Production includes 550 rigs for land well-servicing and workover, with roughly 450 in the United States and 100 in Canada. The segment is comprised of all operations involved in the completion, maintenance, and abandonment of a well, which encompasses stimulation, coiled-tubing, cementing, wireline, workover, well-servicing and fluids management. The company also has 36 platforms, seven jackups, one barge rig, and a large number of fluid hauling vehicles operating throughout the United States and internationally.

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390


Company Description National Oilwell Varco, Inc. is a leading provider of capital equipment and

components to the upstream oil and gas industries. The company is a worldwide leader in providing mechanical components for land and offshore drilling rigs, well servicing rigs ,tubular inspection and internal tubular coatings, drill string equipment, extensive lifting and handling equipment, and a wide variety of drilling motors, bits and tools. NOV has a worldwide presence, with over 800 manufacturing, sales and services centers around the world. Consolidation has been a common theme in the industry, and the company largely achieved its current scale though acquisitions of smaller competitors, coupled with organic growth. However, in light of recent industry trends, NOV completed the spin-off of its distribution business, NOW Inc., in 2014, shifting focus back towards its core competencies and higher margin businesses. NOV subsequently recast their reporting segments into four distinct units: Rig Systems, Rig Aftermarket, Wellbore Technologies and Completion & Production Solutions.

Products

The rig systems segment primarily supports land and offshore drillers. The company designs and manufactures equipment for drilling oil and gas wells, including substructures, derricks, masts, cranes, mud pumps, blowout preventers, and power transmission systems. The segment tends to be highly leveraged towards capital spending on rig construction and refurbishment. The business is also NOV’s biggest earnings driver, generating more than half of total operating profit. The Rig Aftermarket segment performs maintenance work and replacement parts and services for components manufactured by the rig systems segment. The segment primarily supports land and offshore drillers. Demand is driven mostly by the overall level of oilfield drilling activity, which drives the need for replacement parts and maintenance work. The rig aftermarket segment generates roughly three times less revenue than rig systems, but the margins are considerably higher and tend to be more stable. The Wellbore Technologies segment designs, manufactures, rents, and sells a variety of equipment and technologies used to perform drilling operations, Primary functions include solids control, waste management equipment and services, tubular inspection and coating services, instrumentation, drilling fluids, premium drill pipe, wired pipe, downhole tools, and drill bits. Wellbore Technologies is the second highest revenue generating unit behind rig systems. Completion & Production Solutions integrates technologies for well completions and gas production. The segment designs and manufactures equipment used for hydraulic fracture stimulation, well intervention, onshore production and offshore production. The broad range of equipment includes pressure pumping trucks and pumps, wellheads, coiled tubing units, wireline units, artificial lift systems and subsea production technologies. This is the company’s lowest margin segment, with operating margins typically less than 14%.

October 14, 2014

391

Noble Corp

Company Description Noble Corp is a leading offshore drilling company with a fleet that primarily operates

in international markets, including Brazil, West Africa, Mexico, India and the Middle East. The company has a high quality fleet of 35 offshore drilling units that largely focus on ultra-deepwater and high-specification drilling projects. In August 2014, the company completed a spin-off of its standard specification drilling business to Paragon Offshore. The company’s resultant 35-vessel fleet has an average age of 13 years and consists of 20 floaters and 15 jackups, including 2 currently under construction. Modernizing and high-grading the fleet has been prioritized in recent years, and nine units have been acquired or rebuilt since 2013, with an additional two jackups expected by year-end.

Floaters

Noble Corp’s floating fleet includes eleven semisubmersibles and nine drillships. Eight of the drillships are rated to work in the ultra-deepwater (>7,500’), while the ninth, the Noble Discover, has a maximum water depth of 1,000 ft. Around half the semisubmersible fleet is rated to work in the ultra-deepwater (>7,500).

October 14, 2014

392


Company Description North Atlantic Drilling Limited, a majority owned subsidiary of Seadrill Limited, is an

offshore drilling company that specializes in harsh environment drilling. The company is the leading driller in the North Atlantic basin, with a mixed fleet of eight harsh environment units in operation and one newbuild under construction. In August 2014, North Atlantic entered into agreement with Russia’s largest oil producer, Rosneft to sell a 30% ownership stake in exchange for approximately 150 land drilling rigs and accompanying five-year contracts with Rosneft for these units. The transaction is expected to close in 4Q14. Prior to the deal, NADL had a very concentrated customer base, deriving over half its revenues from Statoil and the balance from just five additional customers. Seadrill will continue to own more than 50% of NADL and will continue to provide its support and managerial services.

Fleet

Prior to the Rosneft agreement, the company’s fleet consisted of five dynamically positioned, harsh environment semi-submersibles (including one under construction), five harsh environment jackups (including two under construction), and one harsh environment deepwater drillship. Three of the semisubs are rated to work in the ultra-deepwater (>7,500’) and two are rated to work in midwater and deepwater (1,500’ to 7,500’). As part of the Rosneft deal, NADL will acquire approximately 150 rigs, a significant portion of Rosneft’s land drilling operation.

October 14, 2014

393

NOW Inc.

Company Description NOW is a leading distributor of oilfield equipment and supply chain management

services to the upstream, midstream, downstream and industrial markets. The company offers a diverse range of products including MRO supplies, pipes, valves, fittings, mill and industrial supplies, tools, safety products, and artificial lift systems. DNOW also provides supply chain services including inventory and warehouse management, logistics, business processing and business process and performance metrics reporting. DNOW previously existed as National Oilwell Varco’s distribution business, and became an independent company following the completion of a spin-off earlier this year. DNOW leverages the scale of its customers’ collective demand for supplies through a network of more than 300 branches worldwide, serving customers in over 90 countries around the world and in turn providing a highly diversified revenue stream.

Products

DNOW operates through a comprehensive network that consists of more than 270 Energy Branch locations and 60 supply chain locations, servicing most of the major oil and gas producing regions around the world. Energy branches primarily serve the upstream and midstream sectors and account for the lion’s share of revenues. Supply chains offer more customer specific solutions, serving the downstream, industrial and manufacturing end-markets. The company has three reportable segments: U.S., Canada and International. The U.S. segment consists of more than 200 locations, approximately 75% energy branches. Roughly two thirds of revenue is generated within the U.S. The segment’s geographic reach was significantly expanded by the acquisition of Wilson Distribution in 2012. DNOW has one the largest oilfield distribution networks in Canada, with over 70 locations that are predominately located in the Canadian Oil Sands region. International operations are conducted through a network of more than 30 branches that serve over 20 countries around the world. The company has a key presence in many markets that are traditionally underserved by competitors. International locations include Australia, Azerbaijan, Brazil, China, Colombia, Egypt, England, India, Indonesia, Kazakhstan, Mexico, Netherlands, Norway, Russia, Saudi Arabia, Scotland, Singapore and United Arab Emirates.

October 14, 2014

394

Ocean Rig

Company Description Ocean Rig is an offshore drilling company specializing in ultra-deepwater and harsh

environment drilling. ORIG has a diverse customer base and a strong international presence, with units currently located in West Africa, Angola, Brazil and the North Sea. The company maintains one of the highest specification ultra-deepwater fleets in the industry, consisting of eleven ultra-deepwater drillships and two ultra-deepwater semisubmersibles, including four that are currently under construction. Of the 7 units currently in the fleet, two are harsh environment semisubmersibles and five are dual-derrick drillships equipped with blow-out preventers (BOPs). The four drillships under construction (one to be delivered by the end of 2014 and the rest expected in 2015 and beyond) will further enhance what is already one of the highest specification ultra-deepwater fleets in the industry.

Fleet

The company has a relatively young fleet, with an average age of four compared to an average fleet age of 14 for established offshore drillers, a boon to Ocean Rig as new, high-spec rigs typically command higher day rates. The entire fleet is rated to work in the ultra-deepwater (>7,500’), and all but two were built after 2010. The two semisubmersibles, the Eirik Raude and the Leif Eiriksson, are harsh, environment, ultra-deepwater fifth generation units that have winterized steel allowing for performance in extreme weather conditions.

October 14, 2014

395

Oil States

Company Description Oil States International is a diversified oilfield services company that provides

offshore products and well site services to the upstream oil and gas industry. OIS has two primary operating segments: Offshore Products and Well Site Services. Offshore products accounts for more than half of total revenue but garners lower margins than well site services, which contributes approximately 55% of total EBITDA. The company previously had a significant accommodations unit that was spun off in 2013, transforming OIS into a pure-play oil services company. OIS has a robust presence in North America with operations in most of the region’s major shale plays. On the international front, OIS operates in over 25 countries worldwide, with planned capacity additions in Brazil and the U.K. in 2015.

Segments

The offshore products segment manufactures and develops advanced products used for offshore drilling and production. The products and services primarily used in deepwater producing regions and include flex-element technology, connector systems, high-pressure risers, compact valves, deepwater mooring systems, cranes, subsea pipeline products, blow-out preventer stack integration, specialty welding services and offshore installation services. Well Site Services provides drilling services in addition to a comprehensive array of completion products and services. Offerings include wireline and coiled tubing support, pressure pumping support, isolation tools, completion fluids, flowback and well testing. Completion services are offered in more than 50 locations in North America. Drilling efforts are carried out by a fleet of 34 owned and operated land drilling rigs located in the Permian Basin and Rockies.

October 14, 2014

396

Pacific Drilling

Company Description Pacific Drilling S.A. is a growing offshore drilling company with one of the youngest

and most technologically advanced fleets in the world. The company contracts its high-spec units, equipment and work crews on a dayrate basis to drill oil and natural gas wells, primarily in deepwater and ultra-deepwater plays. Including two currently in construction, Pacific operates a fleet of eight high-spec, ultra-deepwater drillships, four that are equipped with dual gradient drilling packages; technology with the potential to access previously unreachable reservoirs. The fleet is contracted to only three customers, Chevron, Total and Petrobas, and sustaining these relationships is essential to ongoing operations.

Fleet

In 2010, the company took delivery of its first rig, the Pacific Bora, and subsequently took delivery of three rigs in 2011, two in 2013, and one in 2014. The company has an additional two additional rigs under construction that are not yet under contract, the Pacific Meltem and the Pacific Zonda, expected for delivery in late 2014 and early 2015, respectively. With an average age of two years, Pacific boasts one of the youngest and most technologically advanced fleets in the industry. The drillships are deployed in Nigeria (3), the Gulf of Mexico (2) and Brazil (1).

October 14, 2014

397

Paragon Offshore

Company Description Paragon Offshore is global provider of standard specification drilling rigs, related

equipment, and work crews to the oil and gas industry on a dayrate basis. Formerly a unit of Noble Drilling, the company became independent in August of 2014 upon the completion of a spinoff of Noble’s standard-spec business. Paragon’s fleet consists of 33 jackups, 6 floaters and one floating production, storage and offtake (FPSO) vessel. The company operates in 12 countries across five continents, with a strong presence in the North Sea, Brazil, Mexico, and the Middle East. The North Sea accounts for roughly one third of total EBITDA. Important relationships exist with Pemex and Petrobas, the latter of which accounts for approximately 42% of Paragon’s contract backlog.

Fleet

Paragon’s fleet of standard spec drilling units has an average fleet age close to 35 years and includes 33 jackups, four drillships and two semisubmersibles. Standard specification units are classified by a number of factors, but are generally over 15 years old, with mechanically operated drilling equipment (rather than electronic) and have a hook load of less than two million pounds. Ten of the drilling units are without contracts, with three units listed as cold stacked and seven ready stacked. The floating fleet of drillships and semisubs are primarily rated to work in midwater and deepwater (1,500’ to 7,500’)

October 14, 2014

398

Parker Drilling

Company Description Parker Drilling is a global provider of contract drilling and drilling-related services to

the energy industry. The company also provides rental equipment to onshore and offshore drillers, and project management services for the design, construction and operation of customer-owned rigs. Parker offers a wide range of services to a diverse customer base across more than 20 countries, generating roughly 50% of revenues outside of the U.S. The company maintains an important relationship with Exxon Neftegas Limited (ENL), who accounted for approximately 15% of revenues in 2013.

Fleet

The company’s business is separated into five operating segments: Rental Tools, U.S. Barge Drilling, U.S. Drilling, International Drilling and Technical Services. The rental tools segment is operated by subsidiaries Quail Tools and ITS, the latter acquired in 2013. The ITS acquisition expanded Parker’s international reach and service lines; Quail Tools primarily serves domestic customers. The business provides a range of equipment to drillers, including drill pipe, tubing, high-torque connections, blowout preventers and drill collars. Parker’s international land rig fleet is comprised of 24 units designed to drill in rugged environments. The rigs are located in Latin America, Europe, the Middle East, and Asia. Four of the units are not currently contracted. The U.S. drilling business primarily consists of two Artic Alaska Drilling Unit (AADU) land rigs designed to withstand the harsh drilling environments of the Alaskan North. The U.S. barge fleet consists of 13 barge drilling rigs that drill for oil and natural gas in the shallow waters off the coast of the U.S. Gulf of Mexico. Also included in the fleet is the 3,000 horsepower Parker Barge 257, designed to drill year-round in extreme temperatures and reservoir conditions.

October 14, 2014

399


Company Description Patterson-UTI provides onshore contract drilling and pressure pumping services

throughout the United States and Canada. Patterson, founded in 1978, merged with UTI in 2001 establishing one of the largest land drillers in the country. The company currently operates one of the largest land-based drilling fleets with over 275 marketable rigs. PTEN has been expanding the scale and quality of its business lines through a series of acquisitions and a sizeable newbuild program which has delivered roughly five new APEX rigs per year over the past five years.


Patterson-UTI contracts the majority of its drilling services to major and independent oil and natural gas companies in Texas and surrounding states. More than 90% of the fleet has a depth capacity between the range of 12,500 and 25,000 feet. Approximately two thirds of the rigs are high-spec APEX rigs or other electronically operated AC rigs, with the balance operated mechanically. The company plans to complete 25 additional APEX rigs by 2Q 2015. The contract drilling segment also includes nearly 300 trucks used to transport drilling rigs and related equipment.

Pressure pumping services

Patterson-UTI provides pressure pumping services through two subsidiaries, Universal Pressure Pumping and Universal Well Services. The pressure pumping fleet has consists of 800,000 active hydraulic horsepower, but will likely approach 1.25MM HHP following a recent acquisition of pressure pumping assets in Texas and the deployment of additional units. Universal Pressure Pumping is located throughout Texas, and Universal Well Services operates mainly in the Permian, Barnett, and Eagle Ford basins. Services offered include well stimulation and cementing for the completion of new wells, maintenance of existing wells, hydraulic and nitrogen fracturing, cementing, and acid pumping services. The company also has a small E&P segment operating in Texas and New Mexico, which accounts for less than 3% of revenues.

October 14, 2014

400

Precision Drilling

Company Description Precision Drilling is the largest oilfield services company in Canada. The provides

drilling, completion and production services to E&P companies in North America and the Middle East. Precision is the second largest land drilling company in North America, servicing nearly a quarter of the active onshore wells in Canada and approximately 5% of the wells located in the U.S. Less than 10% of revenues are generated outside of North America. The company recently entered into a service and marketing agreement with Schlumberger which should expand the scope of Precision’s directional drilling business. The company has been taking measures to update its fleet in recent years, constructing new rigs while decommissioning older models, in light of the industry shift towards more complex and unconventional drilling programs. !8 newbuilds were announced in 18 with an additional 16 set for 2015. Precision operates in two segments: Contract Drilling Services and Completion & Production Services.


Precision has one of the largest land drilling fleets in the industry, with approximately 325 marketable rigs. About 200 of the fleet are high performance Super Series rigs, high specification units that are highly mobile and well suited for horizontal or directional drilling. The fleet is primarily deployed in North America, with approximately 185 rigs in Canada and 125 in the U.S., with the balance located in Mexico, Saudi Arabia and Iraq. The contract drilling segment drives the company’s bottom line, providing over 90% of EBITDA in 2013.

Completion & Production Services

Precision provides completion and workover services, equipment rentals, coiled tubing services, camps, water treatment units, and several other ancillary services. Precision’s completion and production services segment operates primarily in Canada, maintaining a smaller presence in the U.S. The well servicing fleet consists of approximately 190 well completion and workover service rigs, 20 snubbing units and 12 coil tubing units. The company also has around 300 wellsite accommodation units, 50 drilling camps, 24 pump houses, 10 wastewater treatment units, seven potable water production units and an extensive collection of oilfield rental equipment.

October 14, 2014

401

Rowan Companies

Company Description Rowan is a global provider of offshore drilling services to the oil and gas industry.

Historically focused on high-specification jackups, the company has been diverting resources to ultra-deepwater units and divesting noncore assets in recent years, aiming to achieve a more balanced revenue mix. Rowan leads the industry with 19 high-spec jackups, roughly twice as much as the nearest competitor. The company’s operations are focused in the North Sea, the Gulf of Mexico, and the Persian Gulf. Their presence in the Middle East is supported by a strong relationship with Saudi Aramco, who operates nearly a third of Rowan’s jackup fleet.

Fleet

Rowan owns a fleet of 30 jack-up rigs and four high-spec, ultra-deepwater drillships, two of which are currently under construction. All of the company’s jackups are independent leg cantilever rigs that can operate in at least 300 feet of water. The majority of the jackups are high-spec units (indicating a hook-load capacity of at least two million pounds), that are well suited to service high-pressure/high-temperature wells. Diversifying the fleet has been a priority for the company, taking delivery of three heavy-duty, harsh environment (HDHE) ultra-deepwater drillships (12,000’ water depth) in 2014, with an additional unit, the Rowan Relentless, expected by early 2015. These rigs are already contracted until at least 2017 and will be deployed in Southeast Asia and West Africa, enhancing the company’s international presence. In November, the Rowan Resolute will be deployed in the Gulf of Mexico on a three year contract with Anadarko through 2017.

October 14, 2014

402

Schlumberger

Company Description Schlumberger is the world’s largest diversified provider of services and products to

the oilfield. Industry trends have long been driven by Schlumberger innovations, starting with the invention of wireline logging and sustained by the largest R&D budget in the industry which funds a network of over 125 research and engineering facilities worldwide. Schlumberger’s value proposition lies in its ability to integrate and leverage the breadth of its products and services. SLB has a leading market share in a number of product lines and services, including wireline logging, production testing, drill bits, directional drilling services, drill & completion services, surface data logging, solids control and coiled tubing services. Schlumberger operates in over 85 countries worldwide. Global operations are reported through four geographic segments: North America, Latin America, Europe/CIS/Africa and Middle East & Asia. Each segment contributes significantly to both the top and bottom lines, and no region typically accounts for more than 40% of revenues or operating income.

Segments

Schlumberger’s portfolio of products and services, covering virtually every aspect of the exploration, drilling and production cycle, is delivered through three primary operating units: Reservoir Characterization Group; Drilling Group; and Production Group. Reservoir Characterization is the smallest business by revenues but the largest in terms of operating income (39% in 2013). The business seeks to optimize the drilling workflow, a process that begins with locating and defining hydrocarbons. Principal services include WesternGeco, Wireline, Testing Services, SLB Information Solutions and PetroChemical Services. The Drilling Group, the largest in terms of revenues with 38%, integrates precise well placement and formation data to maximize production and drilling efficiency, while providing wellbore assurance throughout the life of the reservoir. This mission is carried out via integrated drilling systems comprised of drill bits, drilling fluids, directional drilling systems, MLWD tools and surface data logging. The Production Group (35% of revenues in 2013) provides products and services that are used throughout the entire lifecycle of the well, including well services, completions, artificial lift, well intervention, water services, carbon services and SLB Production Management field production services. Additionally, Schlumberger owns a 40% interest in OneSubsea, a joint venture with Cameron International that serves the subsea oil and gas market.

October 14, 2014

403

SEACOR Holdings

Company Description SEACOR Holdings primarily operates as a provider of marine services and equipment

to the international energy and agricultural industries. SEACOR’s diverse suite of operations includes offshore and inland river services, storage and shipping of petroleum, and the manufacturing of alcohol. Era Group, a helicopter leasing company, was spun out of SEACOR in 2013. SEACOR’s subsequent aviation operations were reduced to an approximate $36M commitment to several joint ventures in Asia.

Fleet

The diversified holdings company has four reporting segments; 1) Offshore Marine Services, 2) Inland River Services, 3) Shipping Services, and 4) Illinois Corn Processing. Offshore Marine Services Offshore Marine Services is the SEACOR’s main earnings driver, accounting for approximately 45% of revenues in 2013. The segment offers various marine services to the offshore oil and gas industry, including the transportation of personnel, intervention maintenance and repair support, construction support, wind farm support, and lift boat services. The company employs a diverse fleet of vessels to accommodate the wide range of services offered. The fleet includes AHTS, FSVs, PSVs, and crew boats. Inland Services Group The Inland Rivers Services group owns and operates a fleet of barges, towboats and smaller harbor boats, mainly along the Mississippi river. Core operations include chemical transportation, ethanol and petroleum storage, and barge repair. Shipping Services The Shipping Services is primarily involved with the transportation of crude oil and petroleum products from offshore facilities to the U.S. coast. Illinois Corn Processing Located in the U.S. Corn Belt in Pekin Illinois, Illinois Corn Processing manufactures and distributes a variety of alcohol used in food, industrial, and petrochemical end markets, as well as fuel grade ethanol.

October 14, 2014

404

Seadrill Limited

Company Description Seadrill, together with its subsidiaries, is an offshore drilling contractor that operates

a fleet of 69 rigs including 24 under construction, comprising drillships, jackups, semi-submersibles and tender rigs. The company also provides platform drilling, well intervention and engineering services through its listed subsidiary Seawell Limited. Seadrill has been pursuing an aggressive newbuild program in recent years, in addition to upgrading its fleet via strategic M&A. The company’s fleet has an average age of seven years, one of the youngest fleets in the industry. Seadrill has 10 contracts expiring in both 2015 and 2016, making the ability to renew these contracts or obtain new ones critical to the company’s sustained success. The company aims to consistently high-grade its fleet through newbuild orders and acquisitions of modern assets, while divesting older, non-core assets, including the sale of ten tender rigs to SapuraKencana in 2013. Petrobas, Statoil, Total and Exxon Mobile combine to account for roughly 60% of total revenues. Seadrill also owns 70.4% of the outstanding shares of NADL, 63% of Seadrill Partners, 66.2% of AOD, 50.1% of Sevan and 50% of SeaMex.

Floaters

Including 10 units under construction, Seadrill's floater fleet totals 31 units, comprised of 14 semisubmersibles and 17 drillships. The average age of the floating fleet is four years, with 32 of the ultra-deepwater units built in 2000 or after. Nearly the entire fleet is rated to work in the ultra-deepwater (>7,000’ depth), with the exception of two mid-water semisubs graded to work in harsh environments. Eight of the units under construction are slated for use in South Korea, and six of those units are not yet under contract.

Jackups

Seadrill has a fleet of 29 high specification jackups, including eight jackups under construction, with an average age of ten years. All units were built after 2005, including three harsh environments jackups. The eight jackups under construction will be deployed in China, with five expected in 2015 and the balance in 2016. Contracts have not yet been secured for these units.

Tenders

Seadrill disposed of its tender rig business in 2013, selling its stake in certain entities that owned and operated 18 tender rigs to SapuraKencana for a mix of cash and new shares of SapuraKencana, an approximate 12% ownership stake. As part of the agreement, Seadrill will continue to provide operational support to three tender rigs, the West Jaya, West Setia and West Esperanza, and retain ownership of two tender rigs, the T-15 and T-16.

October 14, 2014

405


Company Description Seventy Seven Energy provides oilfield services to E&P companies targeting

unconventional resource plays in the United States. The company offers a wide range of upstream services including drilling, hydraulic fracturing, oilfield rentals, rig relocation, and fluid handling and disposal. Operations are spread throughout most of the major shale plays within the U.S., with the highest concentration in the Anadarko Basin and the Eagle Ford Shale. Chesapeake Energy spun off SSE in 2014, and SSE subsequently derives roughly 90% of drilling revenues from contracts with Chesapeake. SSE plans to diversify their revenue stream however, with the long-term goal of deriving only half of their revenues from Chesapeake.

Fleet

SSE operates in four primary business units: 1) Drilling 2) Hydraulic Fracturing; 3) Oilfield Rentals; and 4) Oilfield Trucking. Drilling and hydraulic fractures combine for roughly three quarters of total revenue. Drilling SSE operates a modern fleet of approximately 100 land-drilling rigs, including 16 PeakeRig newbuilds expected by YE 2015. The majority of the rigs are multi-well pad capable and equipped with AC electric drives. Hydraulic Fracturing Provides high-pressure hydraulic fracturing services and other well stimulation services. Owns and operates nine fracturing units, including eight that are currently under contract with Chesapeake. Oilfield Rentals Offers premium rental tools and services for land-based drilling, completion and workover activities. Rental tools include drill-pipes, drill collars and tubing, blowout preventers, frac tanks, mud tanks, and environmental containment equipment. Oilfield Trucking Provides drilling rig relocation and logistics services, and fluid transport and disposal services. SSE has approximately 200 transportation trucks, 150 water hauling trucks, 65 crane & forklifts, and 65 rig ups.

October 14, 2014

406


Company Description Superior is a diversified oilfield services company that serves the drilling, completion

and production-related needs of oil and gas companies worldwide. Superior offers a diverse collection of specialized products and services that are used throughout the economic lifecycle of a well. Superior derives more than 80% of revenues from the U.S. (20% from the U.S. GoM), and the balance internationally. Superior has four reportable segments: Drilling Products and Services; Onshore Completion and Workover Services; Production Services; and Subsea and Technical Solutions. Completion and Workover Services contributed 35% of revenues in 2013, more than any other segment, while Subsea and Technical Solutions contributed the least with 16%. The Drilling Products segment overwhelmingly the most profitable, contributing more than half of total operating income.

Segments

The Drilling Products and Services segment is comprised of downhole drilling tools, which includes tubular rentals and manufacturing and rentals of bottom hole tools; and surface rentals, which includes temporary onshore and offshore accommodation modules and accessories. In the Onshore Completion and Workover Services segment, Superior provides pressure pumping services, well service rigs and fluids management. Complete Energy Services, acquired by Superior in 2011, provides the company’s fluid management services. Production Services businesses include a variety of intervention services and specialized pressure-control tools used for pressure control and intervention operations. Subsea and Technical Solutions include products and services that are generally customer-specific and require specialized engineering and manufacturing. Services rendered include pressure control, completion tools, subsea construction, end-of-life services, marine technical services, and the production and sale of oil and gas.

October 14, 2014

407

Tenaris

Company Description Tenaris is a leading manufacturer and supplier of steel pipe products and related

services for the energy industry and other industrial applications. Primary customers include major oil and gas companies and engineering companies involved in gas gathering, transportation, processing and power generation facilities. Core products include casing, tubing, line pipe, and mechanical and structural pipes. The company operates in virtually every major oil and gas basin worldwide and maintains service facilities with industrial operations in the Americas, Europe, Asia and Africa. Tenaris achieved this scope both primarily through a series of strategic acquisitions - entering new markets by acquiring interests in foreign competitors. North America is the highest grossing region, though the Middle East & Africa has been the fastest growing segment over the last several years.

Segments

Tenaris has two reportable segments: Tubes and Others. Tubes accounts for more than 90% of annual revenues. The Tubes segment involves the production and sale of both seamless and welded steel tubular products, with seamless tubes accounting for the majority of revenues. Seamless tubulars are often used for more complex operations, including high pressure and high temperature applications. Drilling applications are the primary end-use for these products. Corporate G &A expenses are allocated to the tubes segment, lowering the reported segment margins. The Others segment includes all other businesses, namely the production and selling of sucker rods; welded steel pipes for electrical conduits; industrial equipment; coiled tubing; and raw materials.

October 14, 2014

408

TETRA Technologies

Company Description Tetra is a pure play oil and gas services company that provides several distinct

products and services including fluid services, production testing, full service compression and offshore services. Tetra is the market leader in a variety of niche markets that span the entire well life cycle, from drilling and completion through to the abandonment stage. The company has a strong global presence and derives roughly 30% of revenues from international operations. Approximately 65% of revenues are derived from onshore applications, with the balance earned offshore. TETRA is divided into three operating divisions: Fluids, Production Enhancement and Offshore. TETRA’s compression services offerings were significantly improved with the recent acquisition of Compressor Systems, Inc.

Segments The fluids division manufactures and markets clear brine fluids, additives, and

associated products for the use in well drilling, completion and workover operations. Operations are primarily located in the U.S., with additional business in Latin America, Europe, Asia, the Middle East and Africa. The fluids business the biggest source of revenue, contributing 40% in 2013. Production Enhancement consist of two sub-segments: Production testing and Compressco. The production testing segment provides after-frac flow back, well testing, offshore rig cooling and other associated services. Compressco provides compression-based services used in both conventional and unconventional applications. Compressco services were significantly enhanced with the acquisition of CSI in August. The Offshore division provides downhole and subsea services such as well plugging and abandonment; decommissioning and construction services utilizing heavy barge lifts; and conventional and saturated diving services. Tetra is the largest provider of heavy lift platform removals with two full derrick barges. The company is currently phasing out the Maritech segment, an oil and gas production operation which is decommissioning its remaining offshore wells and production platforms.

October 14, 2014

409

Thermon Group

Company Description Thermon is a global provider of highly engineered infrastructure equipment for

various end markets, including downstream and upstream oil and gas applications, chemical processing, and power generation. Thermon provides a comprehensive array of heat tracing solutions, including electric and steam heat tracing, tubing bundles, control systems, design optimization, engineering services and installation services. Heat tracing involve the application of external heat onto pipes and other instruments to prevent freezing, protect vessels, and maintain temperature and flow operations. Thermon is the second largest thermal solutions provider with approximately 20% market share. The oil and gas industry is the company’s largest end-market, representing nearly 45% of revenues. The company expects to have to make a significant investment in upstream infrastructure to keep pace with industry dynamics, particularly to service reservoirs that are deeper, more complex and located in harsh environments. Thermon has a strong international presence, with network of distributors in more than 30 countries. Roughly two thirds of all revenue is generated outside of the U.S. Thermon has a diverse customer base consisting of many include multi-national corporations, with no customer accounting for more than 10% of revenue.

Fleet

Thermon’s business involves the engineering and installation of highly-specific thermal solutions, and providing repair and maintenance services throughout the useful life of the project. Services relating to reoccurring maintenance and repair account for approximately 60% of annual revenues, and provide a relatively stable revenue source due to the necessity of upkeep and high switching costs.

October 14, 2014

410

Tidewater

Company Description Tidewater is the largest owner and operator of OSVs with an active fleet of roughly

275 vessels. The fleet supports virtually every phase of the offshore E&P cycle, including transporting equipment and personnel to offshore locations; towing and anchor handling for offshore drilling units; workover and production activities; and a variety of specialized services, including seismic and subsea support. Tidewater’s geographic footprint spans over 50 countries, with over 90% of revenues derived outside the U.S. from a variety of customers, including IOCs, NOCs and independent E&P companies. Chevron is the single largest customer, accounting for approximately 18% of revenues, followed by Petrobas at roughly 9%. The company has continued to high-grade its fleet by constructing new vessels and via acquisitions, notably the acquisition of Troms Offshore Supply in 2013, which expanded Tidewater’s presence in the North Sea and the harsh environment capabilities of the fleet.

Fleet

The deepwater class of vessels contributed 55% of the company’s revenues from vessel operations in FY2014, up from 49% in FY2013, and 44% in FY2012. The deepwater class includes about 75 large PSVs; 12 large, high-horsepower Anchor Handling Towing Supply (AHTS) vessels; and one large MPSV. Tidewater continues to invest heavily in deepwater, with plans to deliver nearly 25 new deepwater PSVs within the next three years. Tidewater has a fleet of roughly 110 towing supply vessels contributes around 44% of revenues. The class includes non-deepwater towing-supply vessels (with less than 10,000 BHP) and on-deepwater PSVs that are less than 230 feet long, primarily used to transport cargo and supplies to offshore drilling locations. Additional vessels include crew boats and utility vessels used to transport personnel, and offshore tugs that are used tow floating drilling rigs and barges; dock tankers, and assist pipe laying, cable laying and construction barges.

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Transocean

Company Description Transocean is one of the largest offshore drilling companies in the world with a total

fleet of over 90 offshore drilling units. The company specializes in technically demanding drilling, with a focus on deepwater and harsh environment markets. With operations in every major market, the company has one of the most diverse customer bases in the industry. This stands to change, however, as Transocean moves to exit various non-core markets as it continues to position itself as a specialist in ultra-deepwater and harsh environment markets.

High-Spec Floaters

Transocean has a fleet of 55 high-spec floaters, including seven ultra-deepwater drillships under construction. The average age of the fleet is 17 years and four of the vessels are cold stacked. 36 are rated to work in the ultra-deepwater (>7,500’), including seven that are rated for harsh-environments, primarily deployed in the North Sea. The company also has 12 deepwater drillships, three of which are not currently under contract (4,500’ to 7,500’). Transocean has a fleet of 21 midwater semisubmersibles (1,000’ to 4,499’) with average age of approximately 30 years. The fleet is primarily deployed in the U.K. North Sea, and four are rated to work in harsh environments. Transocean plans to divest midwater operations in the future. Including five under construction, the company has a fleet of 15 high specification jackups with an average age of 11 years. The jackups under construction, all high-specification KFELS jackups, all expected for delivery in 2016 or later and are not yet under contract.

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Trican Well Services

Company Description

Trican Well Service is an international full service pressure pumping company. The company provides a suite of specialized products, equipment and services for use in the drilling, completion, stimulation, and reworking of oil and gas wells. Trican has substantial operations in Canada and the U.S., and a mounting international presence. Trican invested heavily in fracturing from 2009-2012, nearly tripling their fracturing capacity (in terms of HHP). Recent spending has been mostly for maintenance purposes, focusing instead on increasing current utilization and improving existing cost structures. Approximately three fourths of revenue is generated from fracturing, with the balance coming from cementing; coiled tubing; nitrogen; acidizing and specialty chemicals; and industrial and pipeline services.

Fleet

As one of the largest pressure pumpers in Canada, Trican is quite levered towards Canadian LNG export activity. The Canadian market makes up roughly 55% of consolidated revenues, with fracturing accounting for approximately 60% of Canadian revenues. On the whole, fracturing comprises 67% of revenues. Trican’s biggest exposure is in the Permian and Marcellus regions, but has a presence in most other major formations. U.S. operations contribute roughly a third of revenues. Internationally, TCW has a large geographic footprint that spans the Russia, Kazakhstan, Algeria, Australia, Norway, Saudi Arabia and Columba. Russia represents their greatest international exposure, and operations have been growing rapidly since their entrance to the market in 2000.

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Vantage Drilling

Company Description

Vantage Drilling Company, together with its subsidiaries, is an international offshore drilling company that contracts its drilling units, equipment, and work crews on a dayrate basis for the drilling of oil and natural gas wells. The company also provides construction supervision services and operational and managerial support services for the construction of two ultra-deepwater drilling units at DSME shipyard in Korea. Vantage manages and operates a modern, high specification fleet of eight units, including one currently under construction. Modern, high-spec rigs often command premium day rates as operators preferences have increasingly shifted towards more high-spec, modern units for their perceived safety and efficiency gains relative to their older counterparts. The fleet primarily operates in West Africa and South East Asia, with additional operations in India and the Gulf of Mexico. Given their modest fleet size, Vantage depends on a small number of customers for the majority of their revenues. OGNC and Petrobas accounted for more than 50% in 2013.

Fleet

The company’s fleet consists of four BMC ultra-premium 375 jackups, three DSME ultra-deepwater drillships and one DSME ultra-deepwater dual derrick drillship (the Cobalt Explorer) which is currently under construction. With an average age of just four years, Vantage has one of the youngest fleets in the industry. The Cobalt Explorer is expected to be available in June, 2015 and is not yet under contract. The drillships are all rated to work in the ultra-deepwater up to 12,000 feet.

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Weatherford

Company Description Weatherford International is the fourth largest diversified oilfield services company in

the world. Weatherford is a relatively young company that has grown rapidly since its inception in 1987. Its rapid ascent can be attributed to both innovation and a prolific series of acquisitions – more than 250 over the past 13 years alone. Weatherford’s core businesses include well construction, completion, artificial lift, formation evaluation and stimulation. The company is market leader in artificial lift, production optimization, casing and tubing services, cementation products, drilling with casing, line hangers, solid expendables, and managed pressure drilling. Weatherford is in the process of divesting a number of non-core businesses and recommitting focus to core competencies; aging reservoirs, unconventional resources, and well integrity. Testing &Production services and drilling fluids businesses are in the process of being divested, and the company has plans to do the same with the wellheads business and their remaining land rigs, starting with the fleets in Russia and Kurdistan. With operations in more than 100 countries, Weatherford has a global presence that few others can rival within the industry. Weatherford breaks down its operations geographically into four segments: North America; Latin America; Europe/SSA/Russia; and MENA/Asia Pacific. North America contributed roughly 42% of revenues in 2013. While the other three segments have historically been on even footing, MENA/Asia Pacific outpaced the other segments on the heels of strong demand in China, and accounted for roughly 20% of revenues in 2013.

Segments Weatherford divides its business into two primary operating segments: Formation

Evaluation and Well Construction; and Completion and Production. Formation Evaluation and Well Construction historically generates roughly 60-65% of the company’s total revenue stream. Formation Evaluation and Well Construction assist clients determine the most efficient drilling methods with an emphasis on well integrity throughout the entire well life-cycle. Key service lines include tubular running services, controlled-pressure drilling and testing, drilling services, drilling tools, integrating drilling, wireline services, re-entry and fishing, cementing, liner systems, integrated laboratory services and surface logging. Operating margins for well construction tend to around 25%; companywide margins have been closer to 10% over the past five years. Formation Evaluation service margins have hovered around or below the companywide levels in recent years, but the segment remains ripe for margin expansion. Completion and Production businesses are designed to unlock reserves in deepwater, aging and unconventional reservoirs, and boost overall field productivity and profitability. Principal service lines include artificial lift systems; stimulation and chemicals including a full fleet of pressure pumping services; completion systems; and pipeline and specialty services. Artificial lift is the company’s bread and butter, generating approximately 20% of total revenues while occupying a fortified position as the market leader.

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ANALYST CERTIFICATION: The views expressed in this Report accurately reflect the personal views of those preparing the Report about any and all of the subjects or issuers referenced in this Report. No part of the compensation of any person involved in the preparation of this Report was, is, or will be directly or indirectly related to the specific recommendations or views expressed by research analysts in this Report.

DISCLOSURE: Neither ISI nor its affiliates beneficially own 1% or more of any class of common equity securities of the subject companies referenced in the Report. Neither the persons preparing this research report or members of their households have a financial interest in the securities of the subject companies of this research report. At various times, the employees and owners of ISI, other than those responsible for preparing this research report, may own, buy, or sell the securities discussed in this research report for the purposes of investing or trading. None of the persons preparing this research report or members of their households serves as director, officer, or advisory board member of the subject company. ISI does not usually make a market in the subject securities, nor is ISI currently making a market in the subject securities. No person(s) preparing this research Report has received non-investment banking compensation from the subject company in the past 12 months. ISI does and seeks to do business with companies covered in this research Report and may have or has received non-investment banking compensation in the past 12 months (payment for research).

DISCLAIMER: This material is based upon information that we consider to be reliable, but neither ISI nor its affiliates guarantee its completeness or accuracy. Assumptions, opinions and recommendations contained herein are subject to change without notice, and ISI is not obligated to update the information contained herein. Past performance is not necessarily indicative of future performance. This material is not intended as an offer or solicitation for the purchase or sale of any security.

ISI RATING SYSTEM: Based on stock’s 12-month risk adjusted total return.

BUY Forecasted Return > 10% HOLD Forecasted Return from 0% to 10% SELL Forecasted Return < 0%

ISI has assigned a rating of BUY to 51% of the securities rated as of 9/30/14.* ISI has assigned a rating of HOLD to 47% of the securities rated as of 9/30/14.* ISI has assigned a rating of SELL to 3% of the securities rated as of 9/30/14.*

(Due to rounding, the above number may add up to more/less than 100%). *Please note as of October 2014 ISI Group LLC has changed our ratings system to the categories described above.

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For the distribution of ratings for the quarter ending 9/30/14, what was previously rated as a Strong Buy/Buy is now reflected in the BUY category, what was previously rated as a Neutral is now reflected in the HOLD category, and what was previously rated as a Cautious/Sell is now reflected in the SELL category. PRICE CHART: Disclosure Charts for all research reports containing a rating or a price target for a subject company whose securities have been assigned a rating or price target for at least one year, must include a line graph of the daily closing prices of the security for the period that a rating or price target has been assigned, up to three years.

VALUATION METHOD/RISK: North America Oil Services & Drilling Aspen Aerogels (ASPN) Valuation Methodology: Our 12-month price target of $17 is based on 50.0x our 2015 EV/EBITDA estimate (EV of $0.2 billion and 2015E EBITDA of $7 million). Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, gas storage levels, OPEC behavior, increasing non-OPEC oil production, and international political and economic risks. Atwood Oceanics Inc. (ATW) Valuation Methodology: Our 12-month price target of $48 is based on 6.0x our 2015 EV/EBITDA estimate (EV of $3.9 billion and 2015E EBITDA of $740 million). Risks to our Price Target: A significant decline in commodity prices would likely lead to a slowdown in drilling activity, and consequently demand for offshore drilling rigs. A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, gas storage levels, OPEC behavior, increasing non-OPEC oil production, and international political and economic risks. Dayrates are historically volatile and A material shift in dayrates to lower levels would alter our earnings outlook for offshore drillers. A decrease in offshore rig demand due to a change in commodity prices or a shift in exploration and development activity towards onshore basins could cause dayrates to fall. Also, an oversupply of new rigs driven by increased newbuild orders from rig contractors could alter the market fundamentals in the offshore market and could adversley impact dayrates as well. Baker Hughes (BHI) Valuation Methodology: Our 12-month price target of $95 is based on 17.3x our 2015 earnings estimate of $5.5. Risks to our Price Target: A significant change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, gas storage levels, OPEC behavior, increasing non-OPEC oil production and international political and economic risks. Basic Energy Services (BAS) Valuation Methodology: Our price target of $25 is based on 4.5x our 2015 EV/EBITDA estimate (Enterprise Value of $1.4 billion and 2015 EBITDA of $405 million). Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, OPEC behavior, increasing non-OPEC oil production, and international political and economic risks.

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Bristow Group Inc. (BRS) Valuation Methodology: Our price target of $80 is based on 7.2x our 2015 EV/EBITDAR estimate (Enterprise Value of $3.2 billion and 2015 EBITDAR of $398 million). Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, natural gas storage levels, OPEC behavior, increasing non-OPEC oil production, and geopolitcal and economic factors. C&J Energy Services (CJES) Valuation Methodology: Our price target of $34 is based on 6.9x our 2015E EV/EBITDA estimate (EV of $1.4 billion and 2015E EBITDA of $851 million). Risks to our Price Target: Sustained overcapacity of stimulation equipment in the U.S. oilfields could weigh on C&J’s earnigs and possibly modify our view on the company's earnings potential. Additionally, an unexpected drop in commodity prices or the decreasing E&P spending could also impact the company’s earnings outlook. Calfrac Well Services (CFW CN / CFW.TO) Valuation Methodology: Our price target of $22 is based on 6.9x 2015 EV/EBITDA multiple (Enterprise value of $2.0 billion and $405 million EBITDA). Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, gas storage levels, OPEC behavior, increasing non-OPEC oil production, and international political and economic risks. Cameron International (CAM) Valuation Methodology: Our 12-month price target of $87 is based on 16.5x our 2015 earnings estimate of $5.30. Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, gas storage levels, OPEC behavior, increasing non-OPEC oil production, and international political and economic risks. CARBO Ceramics (CRR) Valuation Methodology: Our price target of $62 is based on 16.5x our 2015 EPS estimate of $3.75 Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, natural gas storage levels, OPEC behavior, increasing non-OPEC oil production, and geopolitcal and economic factors. Chart Industries Inc. (GTLS) Valuation Methodology: Our price target of $72 is based on 19.0x our 2015 EPS estimate of $3.80. Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, natural gas storage levels, OPEC behavior, increasing non-OPEC oil production, and international political and economic risks. CHC Helicopter (HELI) Valuation Methodology: Our price target of $5.8 is based 5.1x our 2015 EV/EBITDA multiple (Enterprise value of $1.8 billion and $340 million EBITDA). Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, natural gas storage levels, OPEC behavior, increasing non-OPEC oil production, and geopolitcal and economic factors.

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Core Laboratories (CLB) Valuation Methodology: Our price target of $151 is based on 21.5x our 2015 EPS estimate of 7.03. Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, gas storage levels, OPEC behavior, increasing non-OPEC oil production and international political and economic risks. Core Laboratories (CLB) Valuation Methodology: Our price target of $151 is based on 21.5x our 2015 EPS estimate of 7.03. Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, gas storage levels, OPEC behavior, increasing non-OPEC oil production and international political and economic risks. Diamond Offshore Drilling (DO) Valuation Methodology: Our 12-month price target of $32 is based on 4.8x our 2015 EBITDA estimate (Enterprise Value of $6.2 billion and 2015 EBITDA of $1.23 billion). Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, natural gas storage levels, OPEC behavior, increasing non-OPEC oil production, and geopolitcal and economic factors. Dresser-Rand Group Inc. (DRC) Valuation Methodology: Our price target of $83 is based on 13.4x our 2015 EBITDA estimate (Enterprise Value of $7.3 billion and 2015 EBITDA of $554 billion). Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, natural gas storage levels, OPEC behavior, increasing non-OPEC oil production, and international politcal and economy related risks. Dril-Quip Inc. (DRQ) Valuation Methodology: Our price target of $81 is based on 19.8x our 2015 EPS estimate of $6.10 plus $5 per share in excess cash. Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, OPEC behavior, increasing non-OPEC oil production, and other international political and economic risks. Ensco plc (ESV) Valuation Methodology: Our price target of $45 is based on 6.6x our 2015 EBITDA estimate (Enterprise Value of $13.3 billion and 2015 EBITDA of $2.27 billion). Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, gas storage levels, OPEC behavior, increasing non-OPEC oil production, and international political and economic risks. Ensign Energy Services (ESI CN / ESI.TO) Valuation Methodology: Our price target of $17 is based on 5.1x our EV/EBITDA multiple (Enterprise value of $2.7 billion and $618 million EBITDA). Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, gas storage levels, OPEC behavior, increasing non-OPEC oil production, and international political and economic risks.

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Era Group Valuation Methodology: Our price target of $19 is based on 6.6x our EV/EBITDA multiple (Enterprise value of $0.7 billion and $108 million EBITDA). Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, natural gas storage levels, OPEC behavior, increasing non-OPEC oil production, and geopolitcal and economic factors. Exterran Holdings Inc. (EXH) Valuation Methodology: Our price target of $40 is based on 6.0x our EV/EBITDA multiple (Enterprise value of $4.4 billion and $742 million EBITDA). Risks to our Price Target: Drilling declines in North America and excess capacity in the market have led to reduced demand for compression equipment. Prolonged weakness in the domestic natural gas market, sustained production declines and storage builds could result in reductions in contracted horsepower. FMC Technologies (FTI) Valuation Methodology: Our 12-month price target of $67 is based on 19.0x our 2015 earnings estimate of $3.50. Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, gas storage levels, OPEC behavior, increasing non-OPEC oil production, and international political and economic risks. A protracted downturn in the airline industry could have a adverse impact on the company's earnings. Forum Technologies (FET) Valuation Methodology: Our 12-month price target of $40 is based on 16.5x our 2015 earnings estimate of $2.40. Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, gas storage levels, OPEC behavior, increasing non-OPEC oil production, and international political and economic risks. Frank's International (FI) Valuation Methodology: Our 12-month price target of $26 is based on 19.8x our 2015 earnings estimate of $1.30. Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, natural gas storage levels, OPEC behavior, increasing non-OPEC oil production, and geopolitcal and economic factors. NOW Inc. (DNOW) Valuation Methodology: Our 12-month price target of $29 is based on 16.5x our 2015 earnings estimate of $1.76. Risks to our Price Target: A material change in commodity prices would our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, gas storage levels, OPEC behavior, increasing non-OPEC oil production, and international political and economic risks. GulfMark Offshore, Inc. (GLF) Valuation Methodology: Our price target of $35 is based on 6.0x our 2015 EV/EBITDA estimate (Enterprise Value of $1.3 billion and 2015 EBITDA of $242 million). Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, natural gas storage levels, OPEC behavior, increasing non-OPEC oil production, and geopolitcal and economic factors.

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Halliburton Co. (HAL) Valuation Methodology: Our 12-month price target of $97 is based on 18.2x our 2015 earnings estimate of $5.31. Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, gas storage levels, OPEC behavior, increasing non-OPEC oil production, and international political and economic risks. Helmerich & Payne (HP) Valuation Methodology: Our 12-month price target of $114 is based on 6.3x our 2015 EV/EBITDA estimate (Enterprise Value of $8.3 billion and 2015 EBITDA of $1.9 billion). Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, natural gas storage levels, OPEC behavior, increasing non-OPEC oil production, and geopolitcal and economic factors. Hercules Offshore (HERO) Valuation Methodology: Our price target of $2 is based on 3.6x our 2015 EV/EBITDA estimate (EV of $1.3 billion and 2015 EBITDA of $357 million). Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, gas storage levels, OPEC behavior, increasing non-OPEC oil production, and international political and economic risks. Hornbeck Offshore Services (HOS) Valuation Methodology: Our price target of $50 is based on 6.3x our 2015 EV/EBITDA estimate (Enterprise Value of $1.7 billion and 2015 EBITDA of $420 million). Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, gas storage levels, OPEC behavior, increasing non-OPEC oil production, and international political and economic events. A repeal of the Jones Act would be a materially negative event for Hornbeck as it would allow increased vessel migration to the GOM, the company's primary market. Independence Contract Drilling (IOC) Valuation Methodology: Our price target of $18 price target is based on 7.8x our 2015 EV/EBITDA estimate (Enterprise Value of $0.3 billion and 2015 EBITDA of $37 million). Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, gas storage levels, OPEC behavior, increasing non-OPEC production, and international and economic events. ION Geophysical Corp. (IO) Valuation Methodology: Our price target of $2.7 price target is based on blended multiple of 4.8x EV/EBITDA (Enterprise Value of $0.4 billion and 2015 EBITDA of $420 million), which takes into account both ION’s legacy business and INOVA joint venture with BGP Inc. Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, natural gas storage levels, OPEC behavior, increasing non-OPEC oil production, and geopolitcal and economic factors.

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Key Energy Services (KEG) Valuation Methodology: Our price target of $5 price target is based on 5.1x our 2015 EV/EBITDA estimate (Enterprise Value of $1.3 billion and 2015 EBITDA of $297 million). Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, natural gas storage levels, OPEC behavior, increasing non-OPEC oil production, and geopolitcal and economic factors. MRC Global (MRC) Valuation Methodology: Our 12-month price target of $29 is based on 16.5x our 2015 earnings estimate of $2.20. Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, natural gas storage levels, OPEC behavior, increasing non-OPEC oil production, and geopolitcal and economic factors. Nabors Industries (NBR) Valuation Methodology: Our 12-month price target of $29 is based on 6.0x our 2015 EV/EBITDA estimate (Enterprise Value of $8.7 billion and 2015 EBITDA of $1.78 billion). Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, OPEC behavior, increasing non-OPEC oil production, and international political and economic risks. National Oilwell Varco (NOV) Valuation Methodology: Our 12-month price target of $95 is based on 14.0x our 2015 earnings estimate of $6.80. Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, natural gas storage levels, OPEC behavior, increasing non-OPEC oil production, and geopolitcal and economic factors. Noble Corp. Valuation Methodology: Our 12-month price target of $25 is based on 7.2x of our 2015 EV/EBITDA estimate (EV of $11.5bn and 2015E EBITDA of $1.72 billion). Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, natural gas storage levels, OPEC behavior, increasing non-OPEC oil production, and geopolitcal and economic factors. Ocean Rig UDW Inc. (ORIG) Valuation Methodology: Our 12-month price target of $34 is based on 7.2x of our 2015 EV/EBITDA estimate (EV of $5.6bn and 2015E EBITDA of $1.18 billion). Risks to our Price Target: A significant decline in commodity prices would likely lead to a slowdown in drilling activity, and consequently demand for offshore drilling rigs. A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, gas storage levels, OPEC behavior, increasing non-OPEC oil production, and international political and economic risks. Dayrates are historically volatile and A material shift in dayrates to lower levels would alter our earnings outlook for offshore drillers. A decrease in offshore rig demand due to a change in commodity prices or a shift in exploration and development activity towards onshore basins could cause dayrates to fall. Also, an oversupply of new rigs driven by increased newbuild orders from rig contractors could alter the market fundamentals in the offshore market and could adversley impact dayrates as well. The interests of inside owners may not always align with the interests of public equity shareholders including the timing and means of selling additional shares in the secondary market.

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North Atlantic Drilling (NADL) Valuation Methodology: Our 12-month price target of $5.8 is based on 7.2x our 2015 EV/EBITDA estimate (EV of $4.2bn and 2015E EBITDA of $671MM). Risks to our Price Target: A significant decline in commodity prices would likely lead to a slowdown in drilling activity, and consequently demand for offshore drilling rigs. A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, gas storage levels, OPEC behavior, increasing non-OPEC oil production, and international political and economic risks. Dayrates are historically volatile and A material shift in dayrates to lower levels would alter our earnings outlook for offshore drillers. A decrease in offshore rig demand due to a change in commodity prices or a shift in exploration and development activity towards onshore basins could cause dayrates to fall. Also, an oversupply of new rigs driven by increased newbuild orders from rig contractors could alter the market fundamentals in the offshore market and could adversely impact dayrates as well. The interests of inside owners may not always align with the interests of public equity shareholders including the timing and means of selling additional shares in the secondary market. Oceaneering International (OII) Valuation Methodology: Our 12-month price target of $93 is based on 19.8x our 2015 earnings estimate of $4.70. Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, gas storage levels, OPEC behavior, increasing non-OPEC oil production, and international political and economic risks. Pacific Drilling SA (PACD) Valuation Methodology: Our 12-month price target of $12 is based on 7.2x our 2015 EV/EBITDA estimate (EV of $4.2bn and 2015E EBITDA of $716MM). Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, gas storage levels, OPEC behavior, increasing non-OPEC oil production, and international political and economic risks. Dayrates are historically volatile and A material shift in dayrates to lower levels would alter our earnings outlook for offshore drillers. A decrease in offshore rig demand due to a change in commodity prices or a shift in exploration and development activity towards onshore basins could cause dayrates to fall. Also, an oversupply of new rigs driven by increased newbuild orders from rig contractors could alter the market fundamentals in the offshore market and could adversely impact dayrates as well. The interests of inside owners may not always align with the interests of public equity shareholders including the timing and means of selling additional shares in the secondary market. Oil States International (OIS) Valuation Methodology: Our 12-month price target of $71 is based on 16.5x our 2015 earnings estimate of $4.31. Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, natural gas storage levels, OPEC behavior, increasing non-OPEC oil production, and geopolitcal and economic factors. Pacific Drilling (PACD) Valuation Methodology: Our 12-month price target of $12 is based on 7.2x our 2015 EV/EBITDA estimate (Enterprise Value of $4.2 billion and 2015 EBITDA of $716 million). Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, gas storage levels, OPEC behavior, increasing non-OPEC oil production, and international political and economic risks.

October 14, 2014

423

Paragon Offshore (PGN) Valuation Methodology: Our 12-month price target of $10 is based on 3.6x our 2015 EV/EBITDA estimate (Enterprise Value of $2.7 billion and 2015 EBITDA of $705 million). Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be influenced by a change in the economic climate, oil and natural gas storage levels, OPEC behavior, increasing non-OPEC oil production, and geopolitical and economic risks. The company also has international exposure to potentially politically and economically unstable environments which could impact earnings. Parker Drilling (PKD) Valuation Methodology: Our 12-month price target of $8 is based on 4.2x our 2015 EV/EBITDA estimate (Enterprise Value of $1.0 billion and 2015 EBITDA of $355 million). Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be influenced by a change in the economic climate, oil and natural gas storage levels, OPEC behavior, increasing non-OPEC oil production, and geopolitical and economic risks. The company also has international exposure to potentially politically and economically unstable environments which could impact earnings. Patterson-UTI Energy Valuation Methodology: Our 12-month price target of $43 is based on 5.4x our 2015 EV/EBITDA estimate (Enterprise Value of $3.9 billion and 2015 EBITDA of $1.258 billion). Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be influenced by a change in the economic climate, oil and natural gas storage levels, OPEC behavior, increasing non-OPEC oil production, and geopolitical and economic risks. Precision Drilling (PD CN / PD.TO) Valuation Methodology: Our price target of $14 is based on 5.4x our EV/EBITDA multiple (Enterprise value of $3.9 billion and $957 million EBITDA). Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be influenced by a change in the economic climate, oil and natural gas storage levels, OPEC behavior, increasing non-OPEC oil production, and geopolitical and economic risks Rowan Companies (RDC) Valuation Methodology: Our price target of $41 is based on 6.0x our 2015 EBITDA estimate (Enterprise Value of $4.3 billion and 2015 EBITDA of $1.1 billion). Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be influenced by a change in the economic climate, oil and natural gas storage levels, OPEC behavior, increasing non-OPEC oil production, and geopolitical and economic risks Schlumberger Ltd. (SLB) Valuation Methodology: Our 12-month price target of $129 is based on 19.8x our 2015 earnings estimate of $6.50. Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be influenced by a change in the economic climate, oil and natural gas storage levels, OPEC behavior, increasing non-OPEC oil production, and geopolitical and economic risks

October 14, 2014

424

SEACOR (CKH) Valuation Methodology: Our 12-month price target of $85 is based on 1.25x target forward book value multiple. Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be influenced by a change in the economic climate, oil and natural gas storage levels, OPEC behavior, increasing non-OPEC oil production, and geopolitical and economic risks SeaDrill (SDRL) Valuation Methodology: Our 12-month price target of $40 is based on a 10% target dividend yield on an estimated $4.00 dividend in 2015. Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be affected by a change in the economic climate, gas storage levels, OPEC behavior, increasing non-OPEC oil production and international political and economic risks. Seventy-Seven Energy (SSE) Valuation Methodology: Our 12-month price target of $26 is based on 5.0x our estimated 2015 EV/EBITDA (EV of $2.3 billion and 2015 EBITDA of $432 million). Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be influenced by a change in the economic climate, oil and natural gas storage levels, OPEC behavior, increasing non-OPEC oil production, and geopolitical and economic risks Superior Energy Services Inc. (SPN) Valuation Methodology: Our 12-month price target of $39 is based on 14.9x our 2015E EPS estimate of $2.65. Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be influenced by a change in the economic climate, oil and natural gas storage levels, OPEC behavior, increasing non-OPEC oil production, and geopolitical and economic risks.. Tenaris S.A. (TS) Valuation Methodology: Our price target of $41 is based on 14.0x our 2015 EPS estimate of $2.90. Risks to our Price Target: A material decline in drilling activity could result in reduced demand for casing and tubing services which are highly correlated to the oil and gas rig count, particularly in North America. Thermon Group Holdings (THR) Valuation Methodology: Our price target of $25 is based on 18.2x our 2015 EPS estimate of $1.40. Risks to our Price Target: Include the possibility of project delays given the uncertain timing of contracts awarded, as well as the timing and scale of new orders. Significant interuptions in the company’s fabrication and production facilities could also adversely impact the companys earnings outlook. Tidewater Inc. (TDW) Valuation Methodology: Our 12-month price target of $37 is based on 6.0x our estimated 2015 EV/EBITDA (EV of $3.3 billion and 2015 EBITDA of $548 million). Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be influenced by a change in the economic climate, oil and natural gas storage levels, OPEC behavior, increasing non-OPEC oil production, and geopolitical and economic risks. Transocean Ltd. (RIG) Valuation Methodology: Our price target of $27 is based on 6.0x our 2015 EBITDA estimate (Enterprise Value of $10.8 billion and 2015 EBITDA of $2.99 billion).

October 14, 2014

425

Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be influenced by a change in the economic climate, oil and natural gas storage levels, OPEC behavior, increasing non-OPEC oil production, and geopolitical and economic risks. Trican Well Service (TCW CN / TCW.TO) Valuation Methodology: Our price target of $16 is based on 6.9x EV/EBITDA multiple (Enterprise value of $2.3 billion and $443 million EBITDA). Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be influenced by a change in the economic climate, oil and natural gas storage levels, OPEC behavior, increasing non-OPEC oil production, and geopolitical and economic risks. Vantage Drilling (VTG) Valuation Methodology: Our price target of $1 is based on 6.6x EV/EBITDA multiple (Enterprise value of $3.1 billion and $446 million EBITDA). Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be influenced by a change in the economic climate, oil and natural gas storage levels, OPEC behavior, increasing non-OPEC oil production, and geopolitical and economic risks. Weatherford International (WFT) Valuation Methodology: Our price target of $29 is based on 16.5x our 2015 earnings estimate of $1.75. Risks to our Price Target: A material change in commodity prices would alter our earnings outlook and potentially our stance on the entire oil service and drilling sector. Commodity price changes could be influenced by a change in the economic climate, oil and natural gas storage levels, OPEC behavior, increasing non-OPEC oil production, and geopolitical and economic risks.

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